The Emerging International Trade in Hydrogen and the Role of Environmental, Innovation, and Trade Policies

Abstract

Hydrogen produced from renewable energy and other carbon-neutral sources has the potential of becoming an important medium for storing and transporting energy, partially taking on the role that fossil fuels play to date. We develop a novel theoretical and empirical model of sequential trade based on long-term contracts with one or more fixed-capacity projects entering each period in a modified Nash-Cournot competition. We simulate the emerging international trade in hydrogen using calibrated demand, supply, transportation, and policy data, exploring a set of scenarios to determine which factors have significant influence—in particular environmental, innovation, and trade policies. Our findings suggest that hydrogen trade exhibits significant price dispersion and two way trade as vintages of contracts overlap in a market defined by endogenous innovation and policy interventions. Trade costs and the mode of transportation (pipelines or ammonia conversion) play a pivotal role and influence the relative share of hydrogen production types (green, blue, or turquoise). Trade policies emerge as a more essential determinant of hydrogen trade than carbon and innovation policies.

Keywords: international trade, hydrogen economics, long-term contracts, carbon policy, endogenous innovation, sequential markets, computational economics