A fresh look at value proposition
Why companies need to rethink their business models and transition to a circular approach
Availability of resources is one of the most important factors for the long-term prosperity of companies. Growing global demand for raw materials is increasing scarcity and driving up prices and volatility. The resulting pressure on corporate supply chains can become an existential threat to companies. At the same time, today’s consumers are seeking a value proposition that goes beyond economic value to also include social or environmental benefits of a product or service.
Embracing green H2 – where it makes sense – is one way that organizations can reduce their greenhouse gas emissions, support long-term price stability and eliminate or minimize negative health impacts resulting from the pollution associated with fossil fuels.
The smart city business model framework illustrates nicely how a value proposition can go beyond traditional views on economic worth. It identifies elements of business model and puts them in the context of sustainable innovation. To go from a traditional to a circular business model, firms do not need to change all four elements of their business model (what, how, why, who), just two. This approach naturally transforms the traditional linear business model, which neglects the potential to use by-products or exchange resources, into an ecosystem where cross-sectoral exchange is viewed as central to collaborative innovation and circular business models. When multiple businesses in an ecosystem apply circular business models, you get the beginnings of a circular economy (CE).
Decoupling resources and impact
How hydrogen supports circular economy practices
The ultimate goal of a circular economy is to decouple economic growth from the degradation of natural capital. This means decoupling resources to reduce the utilization of finite resources on the one hand, and decoupling impact to reduce the generation of emissions, waste and other negative environmental impacts on the other.
A circular economy reduces the material throughput of the economic system by not only closing but also reducing gaps. In the house of circular economy practice, hydrogen finds its place in particular under:
- Regenerate – use renewable power to produce hydrogen
- Optimize – continue to develop and refine hydrogen technology
- Loop – Recycle materials and use waste products
- Exchange – switch to green instead of blue or gray hydrogen
Given the complex nature, limited production capacity and enormous energy input needed to produce green H2, different hydrogen production streams from many different organizations may be needed. Certain practices can support the transition from a linear energy-and-material flow model to a circular business model. These practices would enable companies to reuse green hydrogen or restructure their material flow – if necessary, and where it makes sense –to obtain H2 as a byproduct, for example from chemical, wood or plastic waste.
Case study – from waste acid to useful hydrogen
The galvanizing industry uses concentrated hydrochloric acid in metal surface treatment processes. At the end of the “pickling” process, waste acid solutions polluted with metal ions are typically discharged to the environment. A 2020 study by Chehade et al. reported on a novel photo-electrochemical reactor that was designed and developed to enable production of hydrogen and chlorine gas from spent hydrochloric acid. Using waste acid as the electrolyte in a photo-electrochemical reactor in this way avoids environmental pollution and allows chemical components to re-enter the ecosystem as valuable resources.
Getting the most from hydrogen’s potential
Three criteria reveal three priority application areas
While the use of hydrogen is conceivable across sectors, application areas should be individually assessed to get the most efficient value from H2. Considerations shouldn’t simply be limited to technical feasibility, rather should focus on the contribution to long-term sustainability goals based on the following three criteria:
- Potential for decarbonization
- Potential and market readiness to include hydrogen
- Circular economy potential
Applying these, three priority areas emerge: fuel for transport and power, heat for industry and buildings, and feedstock for chemicals and products.
Fuel for transport and power
Given the high degree of industry investment, good infrastructure and proven effectiveness of battery solutions, electrification should remain the fuel of choice for light vehicles such as cars. Since battery costs grow linearly with vehicle size or distance covered, there comes a point when hydrogen fuel cells become superior to traditional batteries. Moreover, the raw material requirement for hydrogen fuel cells is much lower than for batteries or combustion engines. That’s why there’s considerable interest in hydrogen as an alternative fuel in the logistics and shipping industries, whose fleets tend to fit the criteria of size and distance. Larger transportation also have the size and space needed to accommodate hydrogen fuel cells.
In Switzerland, leading retailers such as Coop, Migros and Spar have all added hydrogen-powered vehicles to their logistics fleets. According to Hydrospider AG, a Swiss company focusing on green hydrogen production, distribution and trade, there are already more than 50 trucks powered by hydrogen fuel cells on the road in Switzerland today, and the number is set to grow to more than 1,600 by the year 2026.
Some promising first steps have also been taken at the supply level, with a handful of hydrogen filling stations already operating in Switzerland. The H2 Mobility Switzerland Association – whose members operate over 2,000 filling stations in Switzerland, and use more than 4,000 heavy goods vehicles – has set itself the goal of establishing a nationwide network of hydrogen filling stations across Switzerland.
As the energy system relies more heavily on renewables, H2 will play a crucial role in the storage of renewables-generated electricity as it is able to cope with intermittency and seasonal imbalances. Hydrogen can store energy for weeks or even months. This addresses one of the critical limitations of renewable energy sources, i.e., that peaks and troughs are often driven by season or weather, and need to be carefully managed.
Heat for industry and buildings
The raw materials industry faces a major challenge: by 2030, its emissions must fall by a quarter, and by 2050 they are to drop to almost zero. It’s already an ambitious goal, and the stagnating level of the past decade is hardly encouraging. Climate-neutral production of steel, especially, will require leaps and bounds in innovation. Incremental efficiency improvements are still important, but they are no longer enough. H2 has nearly three times the energy content of gasoline and a high combustion point, making green hydrogen an attractive and viable alternative to coal and fossil fuels in industrial processes. As a potential game changer, green H2 could revolutionize – and decarbonize – the steel industry.
A wide range of sustainable solutions are available to heat building. Heat pumps, which have been broadly subsidized in Switzerland, have been embraced for new builds and renovations alike in recent years. For the latter, adequate insulation must be installed if heat pumps are to be used in a meaningful way. If this proves too expensive or complicated, as can be the case for older buildings, alternatives might still be sought. Synthetic fuels (where hydrogen is mixed with carbon monoxide) may fit the bill, be that as the sole energy source or in combination with heat pumps in hybrid systems. While good insulation and the installation of a heat pump should be preferred over green H2, hydrogen could complement the range of available solutions and close crucial gaps.
Feedstock for chemicals and products
The chemical industry has been using H2 as a basic raw material for decades. Existing applications using gray hydrogen include the production of ammonia or methanol. With infrastructure already in place, the potential to switch from gray to green is high due – and can be achieved quickly compared to other industries. To accelerate the process, however, affordable green hydrogen still needs to become available at scale.
In terms of products, steel and other metallurgy applications stand out as obvious candidates. Despite the limited quantities of hydrogen available as a feedstock for metallurgy, steel could be a leading sector for new applications of green hydrogen, especially once supply catches up with demand. This transition relies on a long-term investment approach. Funding priorities should be set now to ensure efficient investment as plant and infrastructure come up for renewal, rather than re-investment in conventional high-emission technology. Focusing on areas in which alternatives like electrification are unavailable can help generate a steady demand for hydrogen where it makes most sense.
EY has identified three barriers to green steel in the areas of cost, funding and market:
- Investment in low-CO2 key technologies is in many cases higher than conventional modernization
- Increased energy costs and demand for green energy as main drivers of operating costs
- H2 supply is not secured at competitive prices, high price with unclear degression
- Lack of a reliable policy framework around investment security for low-carbon key technologies - how will the leap from pilot project to market maturity be financed?
- High investment costs require additional/new funding instruments
- H2 has no long-term alternative for CO2 reduction in the steel industry
- Without regulatory intervention and incentives, no viable lead market for green steel will emerge
- Production costs of green steel increase by a factor of 1.5 to 2 - how can the green transformation be made economically viable for steel producers?
- Creditability for the use of green steel in user industries (Scope 3 emissions) not regulated
At present, green steel may feel like a far-off vision. To make it a reality, stakeholders in industry, government and the energy sector will need to work together to overcome these barriers.
Now it's your turn!
To tackle climate change and meet carbon reduction targets, we need a shift in mindset toward a circular economy. For some, green hydrogen could feature as the missing piece in the decarbonization puzzle. Regardless of sector, though, business leaders can apply CE principles to transform their value proposition, create long-term value and make a sustainable impact.
Governments and corporates alike are considering how green hydrogen could super-charge decarbonization efforts. While H2 is unlikely to oust other green solutions like electrification, its use in various applications could close gaps and contribute to a truly circular economy.