Carbon emissions need to reduce dramatically over the next 30 years to achieve the Paris Agreement goal of keeping global average temperature increases to less than 2°C above pre-industrial levels. Global demand for hydrogen is forecast to increase by 3.5% annually by 2050. Even so, that will not be enough to meet the target of net-zero emissions (NZE) under the International Energy Agency’s NZE scenario by 2030.
Hydrogen is an attractive alternative to fossil fuels, as it does not emit carbon dioxide and can be produced using renewable energy. However, hydrogen also has unique features making it complex to de-risk.
Better understanding is needed to make a fully-fledged hydrogen economy insurable. Current investment plans focus on production facilities, and less on hydrogen transmission, storage and distribution. Notably, hydrogen has not yet been used as a fuel at scale. The use of re-purposed existing infrastructure to transmit, store and distribute hydrogen is still being tested, giving rise to potential unknowns.
More attention on the risk factors that may hinder large-scale use of hydrogen is needed. Specifically, hydrogen has unique properties that cause permeation and embrittlement, resulting in leakages that can trigger fires and explosions. The severity of damage caused by accidents largely depends on the type of materials used to store and transport hydrogen.
In the short-term, standard engineering insurance policies should cover the exposures inherent in the construction phase of hydrogen production facilities. In the medium to long-term, business interruption covers could gain importance as hydrogen becomes more embedded in the global economy, and the need to guarantee uninterrupted supply of renewable energy to fuel hydrogen production becomes ever-more pressing.
With respect to potential unknowns, the expansion of the hydrogen economy could also give rise to new exposures in general third-party and product liability, employer’s liability, professional liability and environmental liability. Turning these risk pools into opportunities requires deeper understanding of all parts of the hydrogen value chain.
Source: Swiss Re