Green Hydrogen Alone Won’t Save Germany’s Heavy Industry

Jakob Grein

Georgetown University

Jakob Grein formerly worked at the European Commission’s Climate, Infrastructure and Environment Executive Agency (CINEA) and was a Halle Foundation intern the American-German Institute. He is currently a Graduate Student in Security Studies at Georgetown University where he focuses on European security and energy security.

Berlin Needs a Green Industrial Revolution

Germany finds itself at a crossroads. Its current economic structure, reliant on heavy industry, makes Germany’s climate goals unattainable. Heavy industry, such as steel, fertilizer, or cement, produces a quarter of the country’s emissions. But these emission-intensive industries also generate one quarter of Germany’s gross domestic product—and support millions of jobs. How can Germany become carbon-neutral by 2045, which requires massive emission reductions, without forcing deindustrialization and incurring mass unemployment?

German policymakers view green hydrogen, generated using renewables, as the answer. Replacing fossil fuels powering Germany’s industry with carbon-neutral hydrogen would drastically reduce emissions and maintain heavy industries—and their jobs. Indeed, Robert Habeck, German Minster of Economic Affairs, proclaimed that “investments in hydrogen are investments for the future, for climate protection, for high-skilled jobs, and for energy security.” Many other leading German politicians have echoed this optimistic sentiment.

But this unbounded optimism is misplaced. Substantial obstacles imperil Germany’s foray into green hydrogen, ranging from lacking production capacity to import constraints. Green hydrogen is not a silver (or green) bullet. German policymakers must realize that green hydrogen can only go so far. It is a band aid which can fix some issues, such as potentially curbing emissions in sectors hard to electrify. But this foray into green hydrogen must go hand in hand with more structural reforms.

Germany must do more to build an economy of the future, producing the things the twenty-first century needs. To this end, Germany must take bold steps to transform its economy, moving toward a more innovative, sustainable, and secure future.

Green Hydrogen Is Not A Gamechanger

Striving for industrial decarbonization, Germany’s government inaugurated its “National Hydrogen Strategy” in 2023. This plan includes green hydrogen production capacity increases, incentives for private enterprises to adopt green hydrogen technology, and transit infrastructure for green hydrogen, such as 9,700 kilometers of pipelines. Germany also expects to draw green hydrogen from abroad. Therefore, the strategy also includes bilateral import agreements, covering 70 percent of future supply. The German government hopes that these initiatives can enable a successful industrial transition, achieving decarbonization and maintaining employment.

Major obstacles threaten these plans. First, expanding production capacity in Germany is exceedingly difficult. Green hydrogen production requires abundant renewable energy. However, stringent regulations protract the construction of more renewables. And the renewables that do get built must cope with rising demand induced by electrification in other sectors and thus cannot fuel green hydrogen production.

Second, green hydrogen is economically uncompetitive. The technology behind green hydrogen production, electrolysis, is expensive and inefficient. Expanding production capacity requires building many such electrolyser units at considerable costs. This in turn necessitates high selling prices for green hydrogen to break even, which disincentivizes end users from switching to green hydrogen. As long as fossil fuels remain cheaper, companies have little incentive to switch to alternative fuels. Capillary electrolysers hold transformative potential, but are far from technological maturity. Cost-competitive production will likely remain elusive for years to come.

Third, importing green hydrogen is unrealistic. Shipping hydrogen is dangerous and inefficient due to its chemical properties, making imports from partner states impractical. Transporting hydrogen requires liquefying and supercooling it to about -423 degrees Fahrenheit. There are currently no market-ready shipping vessels that can accommodate these constraints. Research efforts investigating maritime hydrogen transportation have thus far not gained much steam and remain localized. Germany therefore faces a glaring supply gap, as foreign producers cannot export to the German market.

Transportation alternatives exist, such as processing green hydrogen into transportable ammonia. However, shipping capacities for ammonia are limited and a massive—and costly—effort will be required to construct transportation vessels.

Germany needs a structural transformation toward future-proof industries that emit little emissions and provide the jobs of tomorrow.

To complicate matters even more Germany also faces issues with its import infrastructure. In the wake of the Russian invasion of Ukraine, Germany rapidly constructed Liquified Natural Gas (LNG) terminals to cover the supply gaps left by sanctions against Russian energy. The idea was that these terminals would eventually be converted to handle green ammonia imports. There are, however, serious questions whether this is technically feasible and financially viable.

These issues imperil Germany’s foray into green hydrogen. The enormity of these constraints suggests that green hydrogen is unlikely to deliver game-changing effects anytime soon. It may take decades for green hydrogen to become a viable, widely available alternative to fossil fuels. And this is time that Germany does not have.

Germany Needs a Green Industrial Revolution

German industry is in a precarious position. The COVID-19 pandemic and the 2022 energy crisis battered manufacturers. Green hydrogen will likely not deliver much relief for these immediate—and more structural—pressures the German economy is facing.

The solution to Germany’s dilemma is not green hydrogen. Germany needs a structural transformation toward future-proof industries that emit little emissions and provide the jobs of tomorrow. Digital industries that draw directly on renewables, advanced manufacturing, and high-tech will omit the need for energy-intensive green hydrogen.

This does not mean that heavy industry has no place in the German economy. However, the unhealthy overreliance on manufacturing must be mitigated. A truly transformative industrial strategy encompasses green hydrogen—and a structural change of Germany’s economy. The industries where green hydrogen makes sense (such as steel, cement, or glass) can be made more sustainable with green hydrogen. Those where it does not should not be put on costly life support using green hydrogen.

There should be no illusion, however, that this is enough. The 80 billion dollars earmarked for the hydrogen strategy are a good start. But further, and bolder, steps should follow.

Berlin must prioritize the upskilling of manufacturing workers, subsidize start-ups, and foster digital innovation. This would create a more dynamic, future-proof, and ultimately also more secure economy. And the time to transform Germany’s industry is now. The longer Germany waits, the greater the risks. Germany is still the fourth-largest economy in the world. To maintain this wealth, Germany must use its current economic prowess to create a future-proof economy.

Germany’s Path Forward

The upcoming elections provide a window of opportunity. The new government can chart a course forward that better reflects the reality of green hydrogen. This means realizing the transformative potential of green hydrogen as a decarbonization tool—but also not going “all in” on green hydrogen. A truly sustainable economic strategy must also come to terms with the fact that some of Germany’s manufacturing may not be salvageable. This is not the end of the world however, so long as alternative jobs can be created in future-proof industries.

Whoever becomes Germany’s next Minister of Economic Affairs should inaugurate such a balanced economic strategy. This is critical for ensuring employment in Germany. But it goes deeper. It also matters for German and European stability. Deindustrialization drives populism. To revert these trends, a solid economic strategy that gives people viable opportunities is necessary. Germany is also the economic motor of Europe, and if this engine sputters, the continent may be dragged down with it.

Germany simply cannot afford mistakes. It must spend the money that it has on a balanced, forward-looking, and pragmatic industrial strategy, which recognizes the limitations of green hydrogen and compliments this technology with a truly transformative industrial policy.