When Hydrogen Gets Cheap
Downstream Possibilities and Geopolitical Implications of an Evolving Energy Paradigm
Context: this essay is part of an ongoing exploration of the dynamics of energy against the backdrop of wider geopolitical dynamics, framed by a theoretical approach that aims to integrate thermodynamics with political economy, and information. I’ve dubbed this framework Systemic Exchange Value (SEV). This essay focuses on the development of ‘green hydrogen’, and seeks to understand this in the context of energetic systems and also via a geopolitical lens. China’s leadership in this space is now second to none, having began its ‘green hydrogen’ journey only recently.
About 4 years ago, I was approached by a number of people in Australia advocating for the opportunity of ‘green hydrogen’. One of the reasons, at the time, was the claim that China remained behind in this space. If it was behind at the time (and I am remain a little sceptical of the claim), it didn’t take long for China to catch up. In any case, there was much excitement, in Australia and elsewhere, with plenty of buzz about global standards and the like, to a point where my team developed a prototype of a ‘green hydrogen’ supply chain app (the introduction video can be viewed here.) Arguably, we were a little ahead of the curve back then; the situation today is quite a lot different.
Hydrogen has long been the “fuel of the future” that never quite arrived. Today, its primary use is industrial - a chemical feedstock for refining, fertilisers and plastics. As an energy carrier, it has remained niche, held back by high production costs, inefficiencies, and infrastructure gaps. That picture is changing fast. The driving force is the plummeting cost of renewable electricity.
As wind and solar have achieved high energy return on energy invested (EROEI) and reached cost levels unimaginable a decade ago, they have unlocked a transformative pathway: hydrogen synthesis and fixation at near-zero marginal cost when powered by abundant renewables. Once the economics of hydrogen change, its role in the energy and industrial ecosystem changes with it. The result will not just be a reordering of markets but a reconfiguration of global economic geography.
The EROEI Revolution: Cheap Energy Begets Cheap Molecules
To understand why hydrogen is on the cusp of disruption, we need to start with the upstream energy story. Wind and solar are not just low-cost; they are high-EROEI systems when deployed at scale. Their energy return ratio vastly exceeds that of most fossil fuels, which have been on a century-long decline in EROEI as the easiest reserves deplete. The result is a widening divergence between renewable-powered energy systems that generate large net energy surpluses and fossil systems struggling with diminishing returns.
Hydrogen becomes economically transformative only when its production is coupled with this high-EROEI energy surplus. Electrolysis - splitting water into hydrogen and oxygen - is electricity-intensive. The cheaper and cleaner the electricity, the cheaper the hydrogen. And when that electricity is derived from zero-fuel-cost renewables, hydrogen’s marginal cost collapses. That is the inflection point we are now approaching.
From Feedstock to Fuel: Hydrogen as a Systemic Enabler
Today, hydrogen is primarily a chemical intermediate, consumed in refineries, ammonia plants and petrochemical facilities. But as its cost structure changes, hydrogen moves from being a supporting actor in industrial chemistry to a platform fuel for the entire energy system. This shift enables downstream transformations in three major areas:
Heavy transport and shipping;
Industrial heat and materials; and
Grid balancing and seasonal storage.
Heavy Transport and Shipping
Battery electrification works well for light vehicles, but for long-haul trucking, shipping, and aviation, energy density matters. Hydrogen, especially when converted into ammonia or synthetic fuels, offers a high-density solution for these hard-to-electrify sectors. Today, these applications are constrained by cost. A world of sub-$2/kg green hydrogen changes that calculus dramatically, enabling zero-carbon logistics chains that support global trade without the carbon overhead. There’s still some way to go to get costs down to this threshold, but the trajectory is clear. According to China’s National Energy Agency, as of December 2024, domestic production cost of hydrogen fell to Yuan 28/kg ($3.85/kg), down 15.6% year over year. Meanwhile, the buy-side price fell to Yuan 48.6/kg ($6.69/kg), 13.7% lower.
Industrial Heat and Materials
Steelmaking, cement production and other heavy industries rely on high-temperature heat and reducing agents, traditionally supplied by coal or natural gas. Hydrogen can substitute for both. Cheap hydrogen makes green steel economically viable, allowing for the decarbonisation of one of the most carbon-intensive sectors of the economy. Downstream, this shifts the competitiveness of entire manufacturing ecosystems toward regions that adopt hydrogen-based industrial platforms early. Again, China is playing a globally leading hand in this arena, and some expect it to become the world’s largest producer of green steel by as early as 2030.
Grid Balancing and Seasonal Storage
The intermittency of renewables - their variability over hours, days, and seasons - has always been a challenge. Batteries can smooth out short-term fluctuations, but for long-duration storage, they are expensive and resource-intensive. Hydrogen provides a chemical storage solution, turning surplus solar and wind power into storable energy that can be reconverted to electricity when needed. Cheap hydrogen thus becomes the backbone of resilient, high-renewable grids, unlocking deeper penetration of renewables without stability concerns.
The Domino Effect: Systemic Cost Compression
Cheaper hydrogen doesn’t just make existing applications cheaper. More significantly, it creates new markets and changes investment logics. It enables the economic development and use of synthetic fuels. For instance, aviation and shipping fuel costs fall as power-to-liquid technologies scale, reducing global transport costs. It also changes the economics of fertilisers. Ammonia-based fertilisers become cheaper and cleaner, lowering food production costs and boosting agricultural resilience. Hydrogen and its derivatives become commodities in their own right, creating new trade patterns centred around regions with abundant renewable potential. Critically, from an geopolitical economy point of view, it enables localised production. Countries with good solar and wind resources gain the ability to produce industrial molecules domestically, reducing reliance on fossil imports and reshaping energy geopolitics.
This downstream shockwave will have winners and losers - not just companies, but entire nations. Countries with strong renewable endowments, infrastructure capacity and capital access are well positioned to benefit. Think Australia, Chile, Morocco and parts of the Middle East pivoting to green hydrogen exports. Add China, which leads the world in electrolyser manufacturing and renewable deployment, positioning itself as both a producer and a technology supplier. On the flipside, hydrocarbon-dependent economies that fail to diversify, and late-adopting industrialised nations whose energy systems remain tethered to low-EROEI fossil sources will be relatively disadvantaged.
Japan and South Korea face a strategic crossroads. Historically dependent on imported fossil fuels, both could leverage cheap Chinese-made renewables and hydrogen technologies to build high-EROEI energy platforms domestically. Doing so would transform their economic models, reduce vulnerability to fuel price shocks, and strengthen competitiveness in hydrogen-intensive industries like steel, shipping, and chemicals. The alternative is continued dependency on expensive LNG and coal, with all the strategic and cost disadvantages that entails.
Hydrogen as Geopolitical Instrument
Cheap hydrogen is not just an energy story, of course. In this present era, it is a geopolitical issue as much as anything. Energy systems have always shaped global power structures, and sometimes more explicitly than others. Major changes are most evident in periods of transition or discovery as opportunities to shift to higher EROEI regimes become possible. In the 20th century, oil and gas routes defined strategic alignments and conflict zones. In the 21st, the ability to export cheap molecules derived from cheap electrons will define new spheres of influence.
China understands this. It is scaling not just for domestic use but for export - shipping solar panels, batteries, electrolysers, and soon green hydrogen derivatives to markets across Asia, Africa and Latin America. Domestically, China is on track to achieve its target of 100,000 to 200,000 tons of green hydrogen production by the end of 2025. Today, China accounts for 50% of global green hydrogen production capacity. The China Hydrogen Alliance projects China’s hydrogen demand to reach 35 million tons by 2030, representing at least 5% of the country’s energy supply, before increasing to 60 million tons and 10% by 2050, and 100 million tons and 20% by 2060. According to Japanese research company Astamuse, China has now overtaken Japan in terms of green hydrogen patent filings. A commitment to sustained R&D has contributed to the dramatic reduction in hydrogen production equipment costs, to about a quarter of that from Europe.
In China, green hydrogen is seen to be central to decarbonising sectors such as chemicals, steel and heavy transportation. China’s hydrogen transportation projects include developing a major pipeline network connecting Inner Mongolia to Beijing and Hebei, with approved plans for a 400km inter-provincial green hydrogen pipeline from Ulanqab to the Sinopec Yanshan refinery. The country is also advancing with the first hydrogen-powered freight locomotive in Guizhou and “Track 1000,” a liquid hydrogen system for heavy-duty trucks, aiming to enable 1,000km-plus journeys without refuelling. Cities like Lvliang are integrating hydrogen trucks and refuelling stations into their fleets. China has also developed hydrogen-powered ships, and commercial drones. These initiatives are supported by the national 2021-2035 Hydrogen Energy Industry Development Plan, which seeks to establish a comprehensive hydrogen value chain from production to consumption.
China’s solar cell exports have grown 71% so far in 2025. Today, China manufactures over 75% of batteries sold globally. Its exports of electrolysers is also expanding. China currently accommodates about 60% of the world’s electrolyser manufacturing capacity. China currently operates more than 600 MW of renewable-powered electrolysers. As the country with almost 50% of global operational electrolytic project capacity to date, China’s owners, operators and OEMs are gaining significant amounts of valuable data and operational experience. China is expected to retain this position by constructing most of the new-build capacity over the next few years. High manufacturing production capacity means Chinese electrolyser equipment can significantly cut project costs. The International Energy Agency estimates that by 2035, China could contribute some 95% of global electrolyser exports. As an example, Longi Hydrogen, a Chinese manufacturer, has recently shipped two of its 5MW alkaline electrolysers from its factory in Wuxi, China, to southeastern Australia for installation at Australian Gas Infrastructure Group’s (AGIG) 10MW Hydrogen Park Murray Valley. This under-construction project, with a capex value of an estimated US$41.4m, is set to be the largest commissioned green hydrogen facility in Australia upon completion.
Through commerce, China is also enabling energy sovereignty and strengthening its diplomatic networks globally. By enabling others to achieve energy sovereignty, China is embedding itself in the development trajectories of the Global South.
The West, by contrast, frames this as “overcapacity” and warns of dumping. But the real anxiety is strategic. If cheap hydrogen becomes the backbone of global industry and logistics - and if China controls the supply chain for making it cheap - then the terms of economic power shift decisively.
The arrival of cheap hydrogen marks the start of an abundance shock in energy markets. It accelerates decarbonisation, distributes industrial capability, and redraws trade maps. It also upends the logic of energy scarcity that underpinned the last century’s geopolitics. The losers will be those who cling to a low-EROEI past; the winners will be those who embrace the high-EROEI future where electrons and molecules flow freely from the sun and wind. Hydrogen, for decades the elusive energy carrier, is about to become a central pillar of that future, as a result of the economics finally aligning with physics.
When hydrogen gets cheap, a lot of things will change with it.