Seminar: "Border Frictions and the Clean Hydrogen Transition" - Gal Hochman

Join us for a presentation by Gal Hochman, is a Professor and C-FARE Board Chair in the Department of Agricultural and Consumer Economics at the College of Agricultural, Consumer and Environmental Sciences, University of Illinois Urbana-Champaign.

Seminar title: Border Frictions and the Clean Hydrogen Transition

Abstract: Governments and firms have announced more than 120 million tonnes per year of clean hydrogen production capacity for commissioning after 2023. However, approximately two-thirds of this capacity exceeds the measured domestic demand of the announcing countries, and only a small portion has been built to date. This study investigates whether the trade costs associated with hydrogen allow excess capacity to be exported by employing a structural gravity model that incorporates both intranational and international trade flows. Using estimates from the gravity model, we recover the border wedge separating international from domestic transactions and simulate the general equilibrium effects of constructing the announced capacity. The results indicate that supplying a foreign market costs nearly three times as much as supplying a domestic market. Consequently, exporters would require a production cost advantage of roughly two-thirds to compete with domestic suppliers at the destination market. In contrast, cost data show that the lowest-cost exporting region is only about 30 percent less expensive than Europe. Simulation results suggest that the announced capacity primarily expands trade along existing pipeline corridors, while much of the additional output in export-dependent countries remains within domestic markets at prices approximately one-third of baseline levels. Project-level evidence supports these findings. Only 11 percent of projects have reached a final investment decision in countries whose announced capacity is almost entirely export-dependent, compared with 35 percent in countries that do not face a surplus of planned production. Overall, the findings suggest that clean hydrogen capacity is most likely to be developed where domestic demand already exists and that the viability of announced export trade depends on the growth of domestic demand in exporting countries as well as the carrier through which hydrogen is transported across borders.

Short bio: Gal Hochman is a Professor of Environmental and Resource Economics and an applied economist in the Department of Agricultural and Consumer Economics at the University of Illinois Urbana-Champaign. He chairs the Council on Food, Agriculture, & Natural Resources (C-FARE) board. Dr. Hochman received his Ph.D. in Economics from Columbia University in 2004. His research focuses on agriculture, development, energy, the environment, technology, and trade, with a strong emphasis on how policy can drive the transition to sustainable, resilient bioenergy supply chains. Hochman analyzes the implications these supply chains have for the future of food supply chains and underscores the need for circular production systems.