Blog contribution: Why care about the governance structure for implementing renewable hydrogen in Germany – and elsewhere?

About the author:

Felix Schulz is a PhD Candidate in Political Science at TU Darmstadt since 2020. He has a M.Sc. in Public Administration from Leiden University and currently works as Parliamentary Assisstant at the German Bundestag.

Contact: felix_sebastian.schulz@gast.tu-darmstadt.de

Introduction

Renewable hydrogen and its market ramp-up are on everyone’s lips. Policymakers and scientists are discussing the way forward and how to accelerate the production, distribution, storage, and end-use of renewable hydrogen. This often involves the pros and cons of specific aspects such as the 10-gigawatt target for 2030 of the German National Hydrogen Strategy^[1](NHS), the different colors of hydrogen^[2], the utility of using renewable hydrogen in certain sectors, or overall regulatory challenges. However, the governance structure for implementing these ideas is rarely discussed. Even though, coordination remains critical for governments as it enables them to effectively achieve their goals – such as the deployment of renewable hydrogen. Historical examples such as the Manhattan Project and Bletchley Park during World War II highlight the importance of coordination in achieving goals. Moreover, these examples show why coordination is also called the philosopher’s stone and why political scientists and administrators have been concerned with the failure of coordination since the early days of these disciplines (Bouckaert et al., 2010, p. 13; Peters, 2018, p. 8).

The challenge for implementing renewable hydrogen 

The deployment of renewable hydrogen can be viewed as a wicked problem. On the one hand, the wickedness stems from the inability to clearly and unambiguously frame the problem and, therefore, the inability to offer consensual solutions. On the other hand, this dilemma cannot be solved by adding empirical knowledge alone (Rittel & Webber, 1973). In other words, the introduction of renewable hydrogen is not a societal challenge for which there is a technical and unambiguous solution. Rather, it is a problem that must be addressed at the social and political levels, with no definitive solutions.

Another important factor is the relationship between public and private organizations for implementing renewable hydrogen. The government and its ministries do not produce or distribute renewable hydrogen and do not build fuel cells in trucks, airplanes, ships, and elsewhere. In addition, the government must meet emissions targets that can only be met in the future if certain energy-intensive applications and hard-to-abate sectors are decarbonized through the use of low-carbon or green hydrogen (IEA, 2019, p. 23). Conversely, the private sector does not provide the regulatory framework or public financing for renewable technologies or large-scale demonstration projects. Therefore, the interplay between the two sectors is crucial to enable a market ramp-up where supply and demand are aligned and the regulatory framework allows for long-term planning and investment. This is a delicate undertaking, as the market ramp-up depends on simultaneous increases in production, distribution, and end-use of renewable hydrogen technologies such as electrolyzers, fuel infrastructure, or steel production. Without renewable hydrogen, fuel cells cannot operate; without distribution infrastructure, renewable hydrogen cannot be transported to where it is needed; and without sufficient applications, renewable hydrogen cannot find enough customers to be competitive. That is why the field is characterized by interdependent actors with different perceptions, interests, and values (Schlund et al., 2022, p. 14).

Governance modes and the importance of coordination for the market ramp-up

The governance perspective provides a lens through which we can examine and analyze the market ramp-up of renewable hydrogen. While hierarchical and market forms of governance focus on the one hand on top-down coordination and on the other hand on contracts and competition as coordination mechanisms, network forms of governance rely on negotiations and deliberation processes (Powell, 1990). Members of networks share certain goals and recognize the need for interdependence among members to achieve those goals (Kickert et al., 2012; Sørensen & Torfing, 2007). These negotiations are especially important because actors are not in a hierarchical relationship. Therefore, it matters greatly to what extent these interactions are possible and encouraged. 

Furthermore, it matters how actors coordinate their efforts. As stated earlier, the success of the market ramp-up depends on the simultaneous increase of supply and demand for renewable hydrogen. Coordination within the German National Hydrogen Strategy takes place in two distinct ways. First, ministries and their subordinate bodies have to coordinate their activities and projects. Second, the public and private sectors have to coordinate their efforts so that the regulatory framework is beneficial to the set-up of production, distribution, and end-use of renewable hydrogen (BMWi, 2020). 

Why care about governance structures? 

We know that institutions influence social behavior and patterns of interaction patterns (Klijn et al., 2010; Mahoney & Thelen, 2009). They are important because, as Fritz Scharpf defines it, institutions are “systems of rules that structure the course of actions that a set of actors may choose” (Scharpf, 1997, p. 38). In other words: Institutions provide the building blocks for social behavior and therefore determine what actions are possible or acceptable in particular situations. Applied to the market ramp-up of renewable hydrogen, the importance of institutional design was highlighted by Suurs et al. (2009), who studied the construction of a technological innovation system (TIS) around hydrogen and fuel cell technologies. They found that TIS became increasingly complex between 1999 and 2008, while institutional coordination between the growing number of actors was lacking. The reasons for such coordination problems may simply be poor institutional design or ignorance (Peters, 2013, p. 570).

However, these examples show that networks and the way actors interact within them influence the extent to which goals can be achieved. Therefore, it is plausible that changing network arrangements also means changing network outcomes. For this reason, actors consciously seek to improve network performance (Agranoff & McGuire, 2004; Klijn & Edelenbos, 2007). Applied to the market ramp-up of renewable hydrogen, this means that the governance structure is important for the introduction of renewable hydrogen as a whole and the efficiency of the process in particular.

Four benefits of a good governance structure

We should care about the governance structure for the introduction of renewable hydrogen because it is closely related to the basic requirements for the market ramp-up. In addition, there is a certain amount of uncertainty associated with market introduction because no actor knows how it unfolds. Therefore, the governance structure should reduce this uncertainty as much as possible and build trust between network participants.

First, the governance structure and the way institutions function should provide stability to network members’ relationships. Actors are usually unaware of the extent to which collaboration with other actors is beneficial and consequently focus on their own costs. However, this reduces the overall benefits of the network and ignores positive long-term developments (Klijn & Koppenjan, 2016, p. 117–118). When there is uncertainty within networks, actors are reluctant to invest in new technologies, such as those needed to bring renewable hydrogen to the market. Therefore, the governance structure is important to create stable relationships between actors and to stimulate investments in renewable hydrogen technologies.

Second, the governance structure should promote the diffusion of innovation. Since innovation processes are inherently uncertain, outcomes are unknown (Hartley & Torfing, 2022). This also applies to the introduction of hydrogen from renewable energy sources, where the business models of the various players must be integrated into the expected demand and supply of renewable hydrogen so that the market as a whole benefits and is based on mutual participation. The governance structure should then provide sufficient certainty for market participants to have the confidence to invest in these large-scale demonstration projects (such as electrolyzers) and further diffuse renewable hydrogen technologies.

Third, the governance structure should allow all actors to share knowledge and best practices (Heikkila & Gerlak, 2013, p. 495). This includes private and public actors, so that the private sector can expect certain regulations and also share best practices with other market actors. In the German NHS, this is possible within the National Hydrogen Council, which includes members from business, science, and civil society. Its purpose is to advise and assist the State Secretaries’ Committee on Hydrogen through regular meetings and publications while providing a forum for regular exchanges among its members. However, the 26 members are part of a select group and access to the network is limited. Therefore, new ideas outside the network that may be relevant to the latest developments in renewable hydrogen deployment cannot be discussed.

Fourth, the governance structure must provide some sort of conflict resolution. As I have described the introduction of renewable hydrogen as a wicked problem, there will be various opposing views and disagreements (Klijn & Koppenjan, 2016, p. 11) on how to proceed to achieve market ramp-up. Therefore, a body where these conflicting views are discussed, resolved, and decisions are made is of utmost importance. The ongoing disagreement over which sectors to deploy renewable hydrogen creates uncertainty for the stakeholders involved. Consequently, industrial players may be hesitant to invest in fuel-cell cars, demonstration projects, or related technologies. This in turn prolongs the market ramp-up because conflicts regarding one aspect, for example, the demand side, of the market ramp-up have implications for the supply side and therefore for the set-up of a hydrogen economy overall. 

Recommendations for a governance structure for implementing renewable hydrogen in Germany

The governance structure of the German NHS was implemented with the strategy as a whole. The main bodies are the State Secretaries’ Committee on Hydrogen, the National Hydrogen Council, and the Coordination Office. While the first body is responsible for strategic management, setting goals, and developing the strategy, the second body advises and supports the State Secretaries’ Committee on Hydrogen, and finally, the Coordination Office, which supports the ministries and the Council and prepares a monitoring report for the State Secretaries’ Committee on Hydrogen.

First, it is paramount to not only address conflicts but to solve them. That is what the Hydrogen State Secretaries’ Committee on Hydrogen is supposed to do. However, since the development of the NHS, there has been disagreement over the areas in which the energy carrier should be used and the extent to which green, blue, or other types of hydrogen should be used. If the market launch is to be successful, the conflicts must be resolved. This also means that the actors in the committee must not shy away from conflict and must be prepared to consult and compromise. 

Second, sharing best practices and knowledge is critical to orchestrating the simultaneous expansion of renewable hydrogen production, distribution, and end-use. To date, the Hydrogen Council has actively advised the State Secretaries’ Committee. However, knowledge sharing is not a one-way endeavor. Therefore, the public side should also respond to the Council’s publications and share their ideas on how to implement renewable hydrogen. Only the interaction between the two creates trust and certainty so that investment decisions are more likely to be made.

Third, evaluation will become more important as the NHS moves forward. For this reason, the Hydrogen Office may need to play a more active role, as oversight of the NHS is one of its primary responsibilities, along with coordinating and supporting the Hydrogen Council. Proper evaluation is based on monitoring and depends on indicators to measure NHS progress. With meaningful indicators that go beyond the mere production, distribution, and end use of renewable hydrogen in tons, progress can be seen in more detail and future adjustments can be made more accurately.

The way forward

Going forward, we need to keep guiding questions in mind when evaluating the governance structure of the NHS, as well as other renewable hydrogen deployment strategies. These questions include: Are our institutions fit for renewable hydrogen deployment? What can we do better? Are we able to respond to the latest market developments? If not, why not? How do the stakeholders involved in the NHS share their knowledge and are there other stakeholders whose knowledge is relevant to the advancement of the NHS? How are conflicts between ministries and parties resolved and does conflict resolution take place?

These are just a few guiding questions to keep track of and assess the governance structure of the NHS and other government strategies. This is critical because the actual structure of how we build the NHS matters a lot. So, we need to constantly ask ourselves whether the institutions we see are serving the purpose for which they are intended, and if not, we need to adapt them so that we can effectively achieve the market ramp-up of renewable hydrogen.

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^[1] The target for renewable hydrogen has been changed in accordance with the revision of the German National Hydrogen Strategy from 5 GW in 2030 to 10 GW (BMWK, 2023).

^[2] Depending on the primary energy source and carbon intensity to produce hydrogen, one differentiates between different colors of hydrogen. The most common ones going from the least to the most carbon intensive types are green, blue, turquoise, and gray hydrogen. For further explanations look at Incer-Valverde et al. (2023).