Hydrogen in Latin America

Latin America1 is one of the world’s leading regions for renewable energy use today and one that can play a major role in the international push for low-carbon hydrogen, a crucial element of a global net-zero emissions future. In this context, low-carbon hydrogen has been gaining attention from policy makers in the region, mainly due to Latin America’s long-term potential to produce large volumes of competitive low-carbon hydrogen and export it to other global markets. At the time of writing, 11 countries2 in the region have either published or are currently preparing national hydrogen strategies and roadmaps, and a pipeline of more than 25 low-carbon hydrogen projects are at the early stages of development.

Low-carbon hydrogen can also play a crucial role in Latin America’s own clean energy transitions, which have been gaining momentum in recent years, with many countries announcing ambitious new climate and energy goals and taking steps to translate these objectives into action. In the coming decade, variable renewables, energy efficiency and direct electrification will continue to drive emissions reductions in the region based on existing technologies. Beyond 2030, decarbonisation efforts will increasingly rely on technologies that are not commercially available today. These include low-carbon hydrogen applications that could substitute fossil fuels where direct electrification may present implementation challenges, and to further support the integration of renewables by providing long-term energy storage, among other applications. The next decade will be crucial for the development, demonstration and initial deployment of these emerging technologies, before they can be scaled up in a cost-competitive way.

Although hydrogen does not emit carbon dioxide (CO₂) at the end-use stage, current production processes are already responsible for large volumes of emissions in the region. Latin America’s industrial and oil refining sectors required more than 4 Mt of hydrogen in 2019 (around 5% of global demand), mainly to produce ammonia, methanol, steel and refined oil products. In 2019 hydrogen production in the region required more natural gas than Chile’s total gas supply, and released more CO₂ into the atmosphere than all of Colombia’s road vehicles. Almost 90% of the region’s hydrogen demand in 2019 was concentrated in the region’s five largest economies3 and in Trinidad and Tobago, which alone accounted for more than 40% of total hydrogen demand.

In 2019 low-carbon hydrogen production was limited to three pilot projects in Argentina, Chile and Costa Rica. To meet the region’s energy and climate goals, low-carbon hydrogen will have to replace existing carbon-intensive hydrogen production in the region and meet additional demand for new uses in the coming decades. Low-carbon hydrogen production could increase substantially based on the current project pipeline, which includes at least five large, gigawatt-scale projects to produce low-carbon hydrogen from renewable electricity, targeting export markets rather than domestic demand. To have an impact on Latin America’s own clean energy transitions, local end-use sectors should also benefit from the region’s competitive advantages in low-carbon hydrogen production, helping them reduce emissions, find new opportunities and create jobs in a net-zero emissions world. Hydrogen’s versatility as an energy carrier allows each country to tailor its deployment strategy to its own context and long-term priorities, providing opportunities to leverage its own strategic advantages, industrial value chains, technological capabilities and infrastructure. 

Low-carbon hydrogen could be one the drivers of the next phase of Latin America’s clean energy transitions, by replacing fossil fuels in end uses that are not suitable for direct electrification. This includes low-carbon hydrogen applications in industry and transport with few decarbonisation pathways (e.g. steelmaking and long-distance shipping), as well as some applications where it will complement and compete with other sustainable technologies (e.g. road transport).

Certain low-carbon hydrogen uses may not be relevant in all countries, but could be crucial to reduce emissions for some of them. Practically all of the region’s countries will need to decarbonise transport to meet their energy and climate ambitions and could find opportunities to deploy hydrogen technologies in this sector. In contrast, opportunities in heavy industry are concentrated in a few countries, where current activity is responsible for large shares of emissions. Brazil and Mexico produced more than 80% of the region’s steel in 2019. Around half of Trinidad and Tobago’s emissions come from its chemical industry, which produces and consumes large volumes of hydrogen from unabated fossil fuels. In Chile and Peru, low-carbon hydrogen uses in mining could displace large volumes of diesel and enable significant emissions reductions in the long term. Latin American countries could also find opportunities to leverage existing industrial and technological capabilities, value chains and infrastructure and as a part of their long-term low-carbon deployment strategy.

Some countries in Latin America have the potential to produce more low-carbon hydrogen than they can consume, thanks to their abundant and competitive renewable energy resources. Chile has the ambition to produce and export the world’s most competitive hydrogen from renewable electricity by 2030, and many countries in Latin America share the conditions that could make the region a global leader in low-carbon hydrogen production. Fossil fuel producing countries could also find opportunities to build on their existing production and infrastructure to produce low-carbon hydrogen, for example by capturing and storing carbon emissions from existing hydrogen production facilities. In certain countries, such as Brazil, the availability of biogenic carbon from existing biofuels and bioelectricity production facilities could also help produce and export synthetic fuels, which require both carbon and hydrogen.

For some countries, this could unlock opportunities to export low-carbon products that are manufactured using low-carbon hydrogen, such as ammonia or steel, which are already traded internationally and may benefit from carbon adjustment mechanisms in some markets in the coming years. Increased trade can also benefit countries that may not have the conditions to export low-carbon hydrogen, such as Panama, which lies at the intersection of major maritime trade routes and is projecting itself as a hydrogen distribution hub for the region.

Encouraging the installation of value chains to manufacture equipment (e.g. electrolysers and fuel cells) could not only help reduce production costs, but also create highly qualified jobs and economic opportunities for the region, and could be pursued as an industrial policy objective.

Finally, low-carbon hydrogen can also play a role in increasing energy security and further integrating renewables in power systems. Hydrogen produced from renewable electricity can replace natural gas imports in certain countries. It can also provide seasonal and inter-annual electricity storage using surpluses of renewable energy in a region with large shares of hydropower and can provide stable renewable power supply in isolated systems and islands. 

The long-term deployment of low-carbon hydrogen production and applications is a complex challenge for Latin America, which will require working on multiple fronts simultaneously and in a co‑ordinated way. This can only be achieved with the long-term engagement of all relevant stakeholders, including governments, industry, research and innovation agencies, financial services, trade unions and civil society.

In contrast with the recent deployment of variable renewables in the region, low-carbon hydrogen production and uses depend on many technologies that are not currently mature. Policy makers will therefore need to design adapted measures to support these sustainable technologies as they reach the market, as well as wider policies such as carbon pricing to provide long-term economic signals. Latin America can draw from its own experiences in developing and deploying clean energy technologies, such as biofuels for transport in Brazil. The recent deployment of variable renewables in the region was able to rely on existing electricity markets and supporting infrastructure for its product to reach consumers. In contrast, demand for low-carbon hydrogen will depend on the simultaneous and co‑ordinated uptake of emerging end-use technologies and enabling infrastructure, making it more similar to the introduction of natural gas as a fuel in the region.

Scaling up low-carbon hydrogen and use will require timely investments in enabling infrastructure, including new transmission lines (for low-carbon electricity to reach the electrolysers for on-grid projects), hydrogen transport and storage infrastructure and port terminals. New value chains will be needed to support this scaling up, such as the installation of electrolyser manufacturing plants in the region, creating jobs and economic opportunities. This will require an early focus on education to develop the skills and capabilities that will be needed in this sector. 

There is a lot the region can do today to secure its place in tomorrow’s low-carbon hydrogen landscape. During the coming decade, initial efforts should focus on supporting R&D, pilots and the initial deployment of low-carbon hydrogen production and consumption technologies, and on preparing the ground for their large-scale adoption in the longer term. For countries that project themselves as future exporters, establishing internationally compatible certification and guarantees of origin schemes, as well as co‑ordination mechanisms with future trade partners, would allow countries to capture emerging trade opportunities for low-carbon hydrogen and derived products.

Existing uses of hydrogen will, however, continue to dominate demand to 2030 in Latin America, with new uses in industry and transport representing less than 20% of total potential hydrogen demand. These existing uses could absorb growing shares of low-carbon hydrogen, replacing emissions-intensive alternatives and supporting the production of low-carbon hydrogen in the near term, without additional investment in end-use infrastructure.

Developing safety and technology standards is a prerequisite for hydrogen use in new applications, especially when these take place close to the consumer, such as in fuel cell vehicles or hydrogen use in buildings. Certain low-carbon hydrogen technologies, such as fuel cell vehicles, will also face a “chicken and egg” dilemma from an early stage, in the sense that their adoption will depend on the supporting infrastructure coming online in a timely way. Low-carbon certification and guarantees of origin schemes should also be an early priority, as they take years to fully develop and implement. These schemes can encourage local demand for low-carbon hydrogen and, in the longer term, unlock international trade opportunities for the region (provided these schemes are recognised by trading partners).

In the coming decade, retrofitting existing hydrogen production facilities with carbon capture and storage could be the most competitive low-carbon production route in many locations, especially for those that require large hydrogen volumes and stable supply, such as ammonia plants and large oil refineries. But, crucially, this depends on the availability of permanent CO₂ storage sites and infrastructure. Many countries may also find opportunities to start producing hydrogen from water and low-carbon electricity, a technological route that is expected to become the most competitive low-carbon option in the region in the medium to long term as renewable generation and electrolysers become increasingly affordable. 

Public resources will be needed for R&D and demonstration projects, and to support the early adoption of emerging hydrogen technologies, as these low-carbon technologies will (almost always) be more expensive than high-carbon alternatives. As technologies develop and reach cost-competitiveness, economic support measures can gradually be removed and replaced by regulatory measures.

In view of the complex challenges involved, policy makers will need to develop a tailored and carefully timed mix of policy and regulatory measures guided by strategic priorities to reap the benefits of low-carbon hydrogen. Each country has a different set of opportunities and challenges in relation to existing hydrogen demand and supply, potential low-carbon production routes and demand sectors, existing industrial value chains, infrastructure and ecosystems of market players, technological capabilities and financial services, to name a few crucial aspects. Strategic planning should therefore be informed by a careful analysis of the baseline, and a clear vision for the role of hydrogen in the national clean energy transition, as well as the country’s position in the future global hydrogen landscape. Based on such studies, the publication of roadmaps helps create momentum for the public sector, private investors and academia to join forces towards the goal of turning the promises of hydrogen into reality.

In parallel with national planning efforts, the regional level presents additional opportunities that should be considered when determining focus areas for national action. During the initial R&D, piloting and early deployment phases, regional collaboration can accelerate learning and exploit synergies, reducing the time to market and ensuring adaptation of technologies to regional requirements. Large-scale hydrogen deployment has the potential to create a new industrial sector to produce high-tech equipment. Regional supply chains to manufacture equipment (such as electrolysers and fuel cells) could create opportunities and jobs beyond the largest economies. This highlights the importance of harmonised standards and certification schemes to facilitate international co‑operation and trade. International dialogue and co‑ordination will be important to foster the necessary connections among different stakeholders and market players, and position the region in the future low-carbon hydrogen landscape. Given its global ambitions, the region should actively participate in the initiatives that could shape future low-carbon hydrogen markets, such as the Clean Energy Ministerial Hydrogen Initiative, the International Partnership for Hydrogen and Fuel Cells in the Economy, Mission Innovation Clean Hydrogen Mission and the IEA Hydrogen Technology Collaboration Programme.

Low-carbon hydrogen could represent a major opportunity for Latin America in a net-zero emissions world. This report makes six recommendations for policy makers in Latin America, who can take action today to secure these long-term opportunities:

• Define a long-term vision for hydrogen in the energy system.
• Identify near-term opportunities and support initial deployment of key technologies.
• Support early financing schemes and reduce investment risk.
• Focus on R&D and skills to reap benefits beyond emission reductions.
• Use certification schemes to incentivise the production of low-carbon hydrogen and create market opportunities.
• Co‑operate regionally and internationally to position Latin America in the global hydrogen landscape.