Arun Velusami, Partner & Africa Practice Co-Head & Andrew Shaw, Partner: Energy Transition, Hogan Lovells
Africa, having been historically reliant on fossil fuels, is going through an energy transition. The ‘Africa Green Hydrogen Alliance’, established in 2022 between Egypt, Kenya, Mauritania, Morocco, Namibia, and South Africa is aiming to supercharge the development of green hydrogen projects across the continent. Its focus is on public and regulatory policy, capacity building, financing and certification needs to mobilise green hydrogen production for domestic use and export. The launch of the ‘Africa Carbon Markets Initiative’ at COP27 has been created to fund and incentivise African carbon capture / removal projects. This promises to expand the continent’s participation in voluntary carbon markets – aiming to access global funding for new projects and establish carbon reduction as one of Africa’s top export commodities (via carbon credits). Both hydrogen and carbon capture are likely to be key to helping the world to achieve net zero carbon emissions.
Hydrogen
Many countries around the world have signalled the importance of low carbon hydrogen in reducing emissions, and there is an expectation that a global market for trade in hydrogen will develop in the long term. The EU’s latest ‘Hydrogen and gas markets decarbonisation package’ adopted in May 2024 has kickstarted the writing of relevant hydrogen network codes and development plans, as well as highlighting funding opportunities for related projects. While the EU is a first mover in the space, it is an indication of increasing global interest in the hydrogen space.
Carbon capture
The EU’s Emissions Trading System (ETS) sets a cap on the total CO₂ emissions that companies can emit each year, requiring companies to pay for increasingly expensive emissions allowances, or instead invest that money in developing carbon capture technology. The Carbon Border Adjustment Mechanism (CBAM) imposes a tax on the carbon emitted during production of goods that is imported into the EU, which further encourages decarbonisation in non-EU countries. By the second part of this decade, EU industry will need to decarbonise or pay the associated penalties.
Africa’s role in the Energy Transition
As hydrogen takes on a wider role across the energy system and production methods evolve, hydrogen storage will be essential in helping to manage swings in demand and supporting the transfer of energy across sectors and time, which Africa has huge potential to capitalise on. Africa can help to lead the way in the global production of low-carbon hydrogen thanks to its abundant renewable energy sources, with 60 percent of the world’s best solar resources but only 1 percent of installed capacity. Africa will also be crucial in supporting cleaner industrial production in non-EU countries for the purposes of avoiding CBAM penalties. Through investing in carbon capture technologies, it can play a key part in decarbonising industrial processes.