An amendment to the Hydrogen Economy Promotion and Hydrogen Safety Management Act (“Hydrogen Act”) passed the National Assembly on May 29, 2022. The Hydrogen Act was originally enacted in 2020 to promote the development of the hydrogen industry and, through this amendment, it is expected to invigorate the hydrogen business by introducing (i) a clean hydrogen certification system, (ii) obligations to sell and use clean hydrogen, and (iii) obligations to purchase and supply electricity generated using hydrogen (“hydrogen-generated electricity”). The key details of the amendments are as follows:
Clean hydrogen certification system
The amendment introduces a graded clean hydrogen certification system for hydrogen and hydrogen compounds that satisfy criteria such as the volume of carbon dioxide emitted during the production / importation of hydrogen (Article 25-2), the details of which will be set forth in the Enforcement Decree. Based on the volume of carbon dioxide emitted during the production / importation process, clean hydrogen shall be classified into (i) “zero-carbon hydrogen” that does not generate any greenhouse gases during production / importation, (ii) hydrogen whose greenhouse gas emissions during production / importation are below the threshold set forth in the Enforcement Decree, and (iii) “low-carbon hydrogen compounds,” which are hydrogen compounds manufactured for hydrogen transportation whose emissions during production / importation are below the threshold set forth in the Enforcement Decree. The amendment also enables the government to provide varying administrative and financial support to those who produce or use clean hydrogen, depending on the applicable grade of the clean hydrogen.
Obligation to sell or use clean hydrogen
The amendment obliges hydrogen fuel supply facilities and businesses that use hydrogen as raw material or fuel to sell / use a certain percentage of the volume of hydrogen they sell / use as clean hydrogen. Businesses that fail to comply with this requirement may be fined (Article 25-5, 25-8). The specific types of businesses subject to this obligation are to be prescribed in the Enforcement Decree.
Obligation to purchase or supply hydrogen-generated electricity
The amendment obliges electricity business operators identified in the Enforcement Decree to purchase or supply a certain amount of hydrogen-generated electricity. Whilst the scope of hydrogen power generation was limited to fuel cells prior to the amendment, the amended Hydrogen Act expands the scope of hydrogen power generation to include electricity generated with equipment that utilizes hydrogen, such as hydrogen gas turbines.
Although details such as the specific types of businesses subject to this obligation and the required purchase / supply volume will be set forth in the Enforcement Decree at a later date, it is expected that electricity business operators such as electricity generation business operators and sales business operators may be obliged to procure a certain percentage of their total electricity purchase / supply volume from hydrogen-generated electricity. This new obligation is expected to create demand for hydrogen-fueled power generation and production of hydrogen for fuel.
Under the amendment, the Ministry of Trade, Industry, and Energy will establish a tender market for hydrogen-fueled power generation, and businesses with hydrogen-generated electricity purchase / supply obligations must execute purchase / supply agreements through this tender market. Accordingly, hydrogen-generated electricity will be exempt from the existing RPS policy, and traded in an independent tender market.
Relationship with the RPS policy
Hydrogen energy and fuel cells are defined as new energy under the New and Renewable Energy Development, Use, and Distribution Promotion Act, meaning that renewable energy certificates (“RECs”) may be issued for electricity generated using hydrogen energy and fuel cells. However, RECs will no longer be issuable for such electricity under the amendment to the Hydrogen Act; instead, they will be substituted by payment for electricity sales in the new tender market. Nevertheless, in order to protect the credibility of existing business operations, RECs will still be issued for electricity generated by (i) facilities that had been receiving RECs before the enforcement of the amended Hydrogen Act or (ii) facilities that obtained electricity business licenses before the enforcement of the amended Hydrogen Act and completes the procedures for the approval / registration of construction plans within one year of the enforcement of the amended Hydrogen Act.
The obligation to purchase / supply hydrogen-generated electricity will become effective six months from the promulgation of the amendment. However, due to the time needed until the commercial production of clean hydrogen, the clean hydrogen certification system and obligation to sell / use clean hydrogen will become effective on the date to be prescribed in the Enforcement Decree, which should be within five years of the promulgation of the amendment.
Before the effective date of the amendment, the Korean government will specify further details through an amendment to the Enforcement Decree.
Hydrogen is garnering attention as a promising source of green energy, but some have been critical of its use, as it is mostly produced using fossil fuel. By introducing a clean hydrogen certification system and requiring the sale and use of clean hydrogen, the amendment is expected to promote the development of and investment in clean hydrogen production technology. However, considering the state of current clean hydrogen-related technology and the point at which commercial production of clean hydrogen becomes possible, the provisions of the amendment relating to clean hydrogen are only likely to be implemented a considerable period of time after the amendment becomes effective.
However, the obligation on electricity business operators to purchase or supply hydrogengenerated electricity will enter info force as soon as the amendment becomes effective. The purchase / supply obligation for electricity businesses, and the creation of a tender market for executions of purchase agreements between hydrogen electricity generators and electricity business operators, are expected to vitalize the hydrogen business ecosystem, including businesses for hydrogen power generation and hydrogen production for fuel.
The specifics of the policies introduced in the amendment, such as the criteria for clean hydrogen certification, and types of businesses subject to the clean hydrogen sale / use obligation and hydrogen-generated electricity purchase / supply obligation and volume requirements, will be finalized through an amendment to the Enforcement Decree of the Hydrogen Act. As such, it will be necessary to monitor the relevant discussions on policy design between stakeholders.
Furthermore, since companies that are preparing to launch hydrogen energy and fuel cell generation businesses may not be eligible for RECs depending on the progress of their power generation project, they should keep close track of additional amendments to the Hydrogen Act and its subordinate laws in order to ensure they can operate their generation business as planned.