EU Refining Sector Seen as Launchpad for Green Hydrogen Scale-Up Amid Cost Challenges and Policy Gaps

High costs have long stalled green hydrogen adoption, but new European Union (EU) regulations in the refining sector could provide the breakthrough needed to scale the technology, according to a new Wood Mackenzie Horizons report.

The report, “Isn’t it ironic? How Europe’s oil refiners could offer a route to scale up green hydrogen,” projects that European refiners will require ~0.5 million tonnes of green hydrogen annually by 2030 to comply with the Renewable Energy Directive (RED III), replacing nearly 30% of today’s CO₂-intensive hydrogen use. Refining, together with ammonia and methanol production, accounts for 98% of global hydrogen demand, making it a critical entry point for decarbonisation.

“European refiners are set to become significant producers or buyers of green hydrogen, initially to decarbonise the refining sector and its derivatives as fuel for marine and aviation,” said Alan Gelder, VP, Refining, Chemicals and Oil Markets at Wood Mackenzie.

Refiners Lead Market Momentum

Of the 6 Mtpa of low-carbon hydrogen capacity that has reached final investment decision, European refineries alone have committed more than US$5 billion in capital. Recent EU Hydrogen Bank auction results reinforce refiners’ strong appetite: the sector demonstrated the highest willingness to pay premium prices, averaging US$9.23/kg, compared with Wood Mackenzie’s asset-level project estimates of US$7.04–8.30/kg.

Encouragingly, green hydrogen costs fell 18% in the latest auction, with German bids down more than 55%, signalling cost-competitiveness is improving. Yet adoption remains uneven across the bloc, with several member states slow to implement RED III into national law, creating regulatory delays.

Transport Fuels: Long-Term Growth Engine

While refinery decarbonisation offers the strongest short-term case, long-term growth hinges on transport fuels:

Aviation: The ReFuelEU Aviation framework mandates 6% of jet fuel from sustainable sources by 2030, including 1.2% from hydrogen-based e-fuels. By 2050, this could require 8 Mtpa of green hydrogen, a CAGR above 15%.

Shipping: The FuelEU Maritime Regulation and the IMO Net Zero Framework are driving interest in hydrogen-derived marine fuels, where electrification is not feasible.

“The traditional sectors of refining, ammonia and methanol are showing the most progress, ahead of newer demand sectors. Parts of refining can be decarbonised quickly – but it requires policy intervention to bring costs down and secure refinery offtake,” noted Murray Douglas, VP of Hydrogen Research at Wood Mackenzie.

Policy Gaps Cloud Outlook

Despite momentum, policy gaps remain a critical barrier. RED III currently requires renewable fuels of non-biological origin (RFNBOs) to account for only 1% of transport sector energy by 2030. Slow transposition of EU legislation into national frameworks has also created uncertainty, stalling projects.

Insight

European refiners are positioned to play a pivotal role in kick-starting the green hydrogen economy. With regulatory mandates creating immediate demand and refineries willing to absorb higher costs, the sector could provide the scale and market certainty needed for early adoption. However, without faster policy alignment and continued cost reductions, broader hydrogen demand across aviation and maritime risks lagging behind ambitions.