A Successful Latin America Hydrogen Story Needs to Start with Collective Action

A combination of technology innovation, bold policy aspirations, growing public curiosity and rising capital investments from governments and companies alike are accelerating hydrogen’s transition from a promise to reality. Much like in renewables, Latin America has been touted as a region of opportunity for investment and eventual export of hydrogen and hydrogen-based fuels.

This is not unfounded, as Latin America has one of the cleanest power mixes in the world – underpinned by its large solar, wind and hydropower potential. Its projected renewables production far exceeds its demand, and renewables-based (“green”) hydrogen is well placed to capitalize on this, all while helping decarbonize a regional economy that faces significant electrification challenges. Additionally, well developed oil and natural gas resources provide an immediately scalable opportunity for the use of “blue” hydrogen in countries like Argentina, Colombia and Brazil, among others.

But while Latin America is primed to produce hydrogen from its vast resources, the current lack of collective action means it is also at risk of missing this opportunity – falling behind in the global hydrogen race. Especially as the European Union (EU), several East Asian countries and even some emerging markets offer comprehensive approaches to developing hydrogen in the form of dedicated strategies including billions of dollars in funding, enabling policies and regulations – as well as actions to boost international cooperation.

To see whether Latin America can live up to its hydrogen potential, it is important to take a step back:

How Hydrogen has become successful in the EU

Many public affairs experts say that as Brussels goes, so goes the world. This has been the case since the start of the energy transition – and hydrogen is no exception. The European Union has been the instigator for renewable energy and now, both European Institutions and governments at the Member State level have put forth one of the most advanced and ambitious hydrogen policies in the world. While hydrogen cannot be a “silver bullet” for the EU’s entire climate neutrality agenda by 2050, it will certainly play a key role.

Hydrogen currently serves only a small part of the EU’s energy demand but EU policymakers are set on growing that share. They estimate that hydrogen’s share could reach 13 to 14 percent by 2050, especially as governments begin implementing the European Green Deal, alongside the dedicated EU Hydrogen Strategy and national hydrogen strategies in countries such as France, Germany, Poland and Spain.

Partnerships created by national governments, EU institutions, third parties and companies have spurred a wave of investments in projects that position hydrogen as the way forward in the industry and transport sectors. Such headway would not have been possible without collective industry action.

The growth of hydrogen in Europe has undoubtedly accelerated thanks to public investment and incentives. Should we expect something similar in Latin America? The short answer is no.

The potential for Latin America to write its chapter in the global Hydrogen Story is there, but if the region is to attract innovative projects, it must first overcome some distinctive and pressing challenges.

Latin America as a challenging environment

Today, Latin America is a resources-constrained environment. The COVID-19 crisis – where several Latin American countries became global hotspots – is generating major economic contraction, in the range of 10 percent region-wide. Prospects for recovery are gloomy, as governments across the region have limited room for fiscal maneuver and some are even on the brink of default.

This complicates a path towards rapid expansion of hydrogen in the region, as long-standing roadblocks to collective action will accentuate:

• Limited international cooperation/engagement: the lack of broad leadership and policy alignment is a key headwind facing the adoption of collective action for hydrogen. In stark contrast to Europe, Latin America is not a relatively cohesive group, but rather a patchwork of diverse markets, each with their own system of plans and incentives for the energy transition. What is more, the region’s limited diplomatic capabilities tend to work towards national interests rather than common goals – thus regional leaders like Chile stand out while other countries like Mexico are far behind.
• Lack of government commitment/incentives: public initiatives and investments are needed to advance the proliferation of hydrogen in the region, yet governments will not be willing to make the investment if costs are still seen as too high. The size and governance sophistication of public investments seen in the EU are unlikely to come in Latin America’s current environment.
• Infrastructure deficiencies: tied to the lack of government incentives is the infrastructure required to expand hydrogen across the region. Hydrogen production is tangential to access to primary energy sources and hydrogen’s successful use require considerable infrastructure investments – made even more difficult in the current resource-constrained environment.

Silver linings

While these challenges may seem insurmountable, there is some hope. Hydrogen in Latin America is coming into fruition – albeit slowly, but the momentum is there. Initiatives such as expanding the use of fuel cells in Costa Rica’s mobility sector, or creating a coalition of companies with backing from multilateral organizations, are a step in the right direction.

Across the region, countries and multilateral organizations are investing in a range of projects – from pilots driven by national oil companies aimed at decarbonizing Uruguay’s transportation sector (helping them become a first adopter in hydrogen-powered vehicles) to a wide-scale Hydrogen Strategy in Chile, similar to those seen in Europe. Looking at these projects and policy initiatives, we find commonalities with an approach that has been successful. However, the most important driver for their success will be a commitment to collaboration and consistent buy in from governments.

This early on in hydrogen development in Latin America, companies have a two-fold opportunity: begin to shape the narrative around hydrogen in the region and create favorable policies in target countries.

We are seeing some early examples of policy action across the region:

• The current regional leader in hydrogen policy is Chile. This year, Chile released their National Hydrogen Strategy, with an aim to start first green hydrogen production before the end of 2021. The country’s sound macroeconomic management (a regional outlier) amid the crisis, has allowed Chile to provide continuous funding to companies to either expand their offerings in hydrogen or invest in infrastructure.
• Argentina’s government passed legislation to promote the use of hydrogen-based energy back in 2006. While extremely fragile public finances prevent Argentina from moving forward with a more expansive project, this legislation positions them to move forward on the issue, allowing them to issue follow-up policy guidelines to promote the use of hydrogen.
• Lastly, Uruguay has not passed national legislation, but it is instead leaving it to ministries and government agencies to promote the use of hydrogen in the transport sector independently. The current administration has been vocal in supporting of public-private partnerships and are currently actively looking for private partners to execute planned projects.

The International Energy Agency sees a role for Latin America in the global hydrogen momentum. However, the industry needs to foster collective action in an innovative manner which takes into account local realities.

Lessons from FTI’s Experience

FTI’s experience in the hydrogen space – including helping build coalitions like the Hydrogen Council – shows that a collaboration-based approach is key to turning hydrogen ambitions into concrete actions.

Unlike in Europe, however, a region-wide approach in Latin America will be difficult to achieve. Companies interested in Latin America’s hydrogen landscape will have to apply a constructive approach that engages key governments in a tailored way. This means being mindful of their varying priorities, objectives and willingness to provide incentives, but also of their individual ambitions (including potential competition) in the regional and global hydrogen race.

Companies can build productive relations with governments by sharing their international experiences, issue expertise and best practice that can propel the regional hydrogen agenda forward. While the task at hand may seem daunting given the diversity of the region, thorough understanding of the situation on the ground and efficient communication are top prerequisites for success. And as in any part of the world – the advantage is likely to be with the first movers.