The Political Economy of the Green Hydrogen Transition

Abstract

In this IPC Policy Brief, we propose a game-theoretic framework for the analysis of green hydrogen transitions. We model the strategic relationship between an energy-rich, technology-dependent dictatorship and an energy-poor, technology-producing democracy. When an exogenous shock precipitates the emergence of conflict initiated by the energy-rich dictatorship, the energy-poor democracy must choose to either fight a costly conflict or finance a slow- or fast-moving energy transition. A green hydrogen transition is an efficient policy choice for an energy-poor, technology-producing democracy that wants to break its dependency from an energy-rich, technology-importing dictatorship. Furthermore, green hydrogen has the potential to play a key role in reaching countries’ net-zero emissions targets by decarbonizing various sectors and storing and transporting wind and solar energy. Russia’s war in Ukraine has placed European democracies under severe economic pressure given their decade-long energy dependence from Russia. This is why we suggest that the European Union may opt for a green hydrogen transition in cooperation with Turkey. We argue that due to its geographic diversity and green technology, the Turkish economy can be a major partner in the green hydrogen transformation in Germany and the European Union.

Introduction 

Russia’s war in Ukraine and the dependence of the European Union and Turkey on Russian oil and natural gas has brought the green hydrogen transition to the forefront of energy policy debates. Hydrogen’s abundance and ability to eliminate approximately 68 percent of global emissions make it attractive both for business leaders and policy makers. The intermediate process of electrolysis allows the storage of wind and solar energy into liquid green hydrogen, which then can be transported through existing pipeline networks to global markets. Furthermore, clean hydrogen can diversify oil- and gas-rich economies by increasing their revenues through increased energy trade with energy-poor but overall advanced economies.

Concluding Remarks 

In this policy brief, we discuss the potential role of green hydrogen for the EU and Turkish economies in light of the Russia-Ukraine war. Modeling a strategic game between a resource-poor, technologically advanced democracy and a resource-rich, technologically backward dictatorship indicates that a green hydrogen transition may compensate for the welfare losses incurred by the German and EU economies due to Russia’s aggression in Ukraine and Eastern Europe. At the same time, Turkey appears to have the consolidated strategic potential to competitively supply green hydrogen to the EU and in that way strengthen its regional as well as global strategic leverage. The EU/German and Turkish commitments to a zero-emissions target create new political-economic conditions for the advancement of EU-Turkish relations and the strengthening of Turkey’s position in the global security architecture.