CCSA blog: blue hydrogen: the key to Welsh net zero potential

Consultation: Welsh Government’s Hydrogen Policy consultation

Department: Welsh Government

Consultation Period: February – May 2025

Region: Wales

Context

As we await the Welsh Government response, and ahead of the Welsh Senedd returning from summer recess, this blog looks at the CCSA responce to the Hydrogen policy consultation. The consultation followed the Welsh Government’s consultation on CCUS – a previous CCSA blog post for the CCUS consultation can be found here.

The Welsh Government outlined its commitment to support hydrogen developments that contribute meaningfully to net zero targets and a just transition. Its position emphasised that hydrogen will be supported where it delivers a demonstrable and sustainable contribution to decarbonisation, strengthens the green economy, and avoids locking in fossil fuel dependency. This approach is guided by the following key principles:

• Technology neutrality – No favoured technologies, processes, production methods or hydrogen applications.
• Focus on outcomes – Emphasis on the emissions intensity of the hydrogen and its contribution to prosperity throughout a development’s life cycle, rather than approving specific production methods.
• Compliance with standards – Hydrogen production must comply with the UK Low Carbon Hydrogen (LCH) Standard.
• Pragmatic transition – A phase of using Carbon Capture and Storage (CCS) enabled – also known as ‘blue’ – hydrogen produced by fossil fuels may be needed.
• Climate alignment – All new developments must mitigate the causes of climate change in accordance with the energy hierarchy for planning in Planning Policy Wales (PPW).

Why does it matter?

Wales is well-placed to support blue hydrogen and wider Carbon Capture, Utilisation and Storage (CCUS) deployment, with three industrial clusters fully or partially based in the region: HyNet North West, the South Wales Industrial Cluster (SWIC), and 7CO₂. Blue hydrogen projects could connect into these clusters.

South Wales – where the 7CO₂ and SWIC clusters are located – offers significant potential for new blue hydrogen production. There is also capability for blue hydrogen production in North East Wales – where the HyNet North West cluster is located. Additionally, there is scope to retrofit existing grey hydrogen facilities in South Wales for blue hydrogen production. Proactive interventions are therefore needed from the Welsh Government to realise these opportunities.

CCSA position

• The CCSA welcomes the Welsh Government’s recognition of hydrogen’s role in decarbonisation and economic growth – particularly its acknowledgement that a “phase of blue hydrogen produced by fossil fuels with CCS may be necessary”.

Deploying blue hydrogen at pace and scale would reinforce the Welsh Government’s commitment to a technology-neutral hydrogen strategy, ensuring no specific technologies are favoured. The CCSA echo the Climate Change Committee’s (CCC’s) advice in the Welsh Fourth Carbon Budget advice that low-carbon fuels, CCS, and engineered removals are required to meet Welsh 2040 and 2050 carbon budget and net zero targets.

• Despite general support, the CCSA is concerned about the consultation’s language, which discourages blue hydrogen. This concern was also raised in response to the Welsh Government’s CCUS consultation. Given the absence of large-scale green hydrogen production and the prevalence of grey hydrogen production in Wales, deterring blue hydrogen investment may skew the market towards ‘purely renewable’ technologies and inhibit decarbonisation efforts.

Blue hydrogen projects can act as early enablers of the LCH sector due to their comparatively lower costs than green hydrogen, meaning that Wales can quickly secure climate benefits from hydrogen production. Hydrogen UK research indicates that blue hydrogen production at gigawatt (GW) scale will become operational sooner than comparable electrolytic production projects, enabling the decarbonisation of hard-to-abate sectors and baseload volumes of hydrogen from an earlier date.

Additionally, the consultation places heavy evidentiary burdens on developers to prove that hydrogen projects support long-term decarbonisation and economic growth, a burden not placed on other infrastructure projects – potentially delaying sector progress.

• The way Planning Policy Wales (PPW) and the Energy Hierarchy for Planning accounts for blue hydrogen projects is concerning. Hydrogen is broadly underrepresented in PPW, and the current energy hierarchy is insufficient to guide planning officials on hydrogen development in Wales – particularly for blue hydrogen, due to the lower emphasis on “Minimise carbon impact of other energy generation” target in the energy hierarchy.

The hierarchy’s system-wide approach also poses challenges, as individual developers often lack visibility over the full value chain, making it difficult to determine how the hierarchy applies to specific projects.

• Unclear integration with existing frameworks – The CCSA’s response highlighted that elements of the Welsh Government’s policy duplicates existing planning and permitting processes. Avoiding this is key to accelerating blue hydrogen project deployment.

Once finalised, the Welsh Government’s policy should be integrated within existing policy and regulatory frameworks, providing clear requirements to developers. The CCSA calls for alignment with the UK Government, CCC, and National Energy System Operator (NESO) policies for streamlined deployment.

• Ensuring demand integration in hydrogen policy – The Welsh Government’s policy position shows limited consideration of offtake customers. Establishing a broader market framework for LCH is essential to support a fully connected hydrogen network and deliver the just transition.
• Wider considerations for the Welsh Government – To enable a functioning LCH economy, the Welsh Government should consider additional supporting measures:
• Streamlining permitting and planning processes
• Collaborating with the UK Government to develop the blue hydrogen sector in Wales
• Engaging with the NESO and other infrastructure stakeholders to develop transport and storage infrastructure and generate ecosystem synergies

Collaborative efforts are particularly crucial to mobilise the full LCH value chain simultaneously. Research has shown that in 2030, blue hydrogen production in the UK will be associated with ~4,000 jobs directly and generate £1.2 billion of direct and indirect Gross Value Added (GVA) annually. Without coordinated development across the value chain, progress in the blue hydrogen sector could slow, which could mean that Wales may not fully capture some of these economic benefits.

• Delivering projects that Support Welsh Values – Blue hydrogen production aligns with Welsh priorities, such as the Well-being of Future Generations Act (2015) and the Welsh Government’s ambition to support a just-transition for Welsh all communities and industries. Therefore, the Welsh Government should focus on delivering projects that can provide benefits for Welsh culture and language.

Moving forward and next steps

Following consultation, the Welsh Government will finalise and integrate the hydrogen policy into future updates of Planning Policy Wales, Net Zero Wales Carbon Budgets, environmental permitting, and energy licensing – providing clarity to developers, regulators, and the public on the Welsh Government’s hydrogen objectives.

With CCUS clusters and supporting infrastructure already advancing in Wales, now is a pivotal moment. Clear policy guidance from the Welsh Government is needed to create demand certainty and retain investor confidence. However, it is essential that this is complemented by UK Government actions, for instance through providing clarity on future allocation rounds.

The CCSA is committed to advancing CCUS and LCH across the UK and welcomes continued collaboration with the Welsh Government and wider stakeholders to accelerate deployment in Wales. The CCSA encourages stakeholders to share views on how to ensure the Welsh hydrogen policy supports coordinated infrastructure delivery and investment readiness.