Delays in implementing RED III legislation and opposition to the Carbon Border Adjustment Mechanism are compounding challenges with expanding Europe’s green hydrogen and broader power-to-X market. Measures to support offtake deals might be the answer.
Slow progress in expanding Europe’s green hydrogen and broader power-to-X market is putting the continent is at risk of losing out to China, India and Saudi Arabia.
This was the major warning from senior executives at the 14th meeting of Tamarindo’s Power-to-X Leadership Council in Hamburg on 10th March. Attendees discussed how the European Union must act decisively in 2026 to regain lost momentum, support firms, and address failures in the first two rounds of the European Hydrogen Bank (EHB) regime. This is a risk when green hydrogen can be made cheaper elsewhere, including in parts of Asia and the Middle East.
The onus is not solely on policymakers. Developers and investors can each play a role in unlocking green hydrogen and power-to-X projects, but it is difficult for them to do so when they are awaiting progress on crucial legislation including the Renewable Energy Directive III (RED III) and Carbon Border Adjustment Mechanism (CBAM).
For example, RED III came into force in November 2023 introducing a target that 42% of industrial hydrogen must come from ‘green’ sources by 2030 and 60% by 2035, and this was due to be introduced in national laws in EU countries by 21st May 2025.
However, only 11 of the 27 EU member states have so far fully adopted RED III goals, most recently Italy last month. Big-hitting energy players including France, Germany and Spain have not yet done so, and this lack of clarity in national policy is undermining confidence of investors and developers. This is stifling investment decisions in power-to-X projects.
Some participants at this month’s Power-to-X Leadership Council meeting argued RED III rules should go further by mandating a certain amount of green hydrogen be blended with hydrogen derived from fossil fuels. They said this would create a market for green hydrogen and support commercialisation of power-to-X that would bring down production costs.
CBAM criticism fears
Attendees also highlighted the challenge of political opposition to the implementation of CBAM, which became fully operational on 1st January and imposes a levy on carbon emissions on certain goods imported into the EU.
Twelve countries have called on the European Commission to exempt fertilisers from the scheme because they are already getting more expensive due to rising production costs, and added that the extra CBAM levy would increase uncertainty among farmers and lead to higher food prices. Other nations said changing CBAM rules would threaten the integrity of the carbon tariff regime.
Executives at the Leadership Council warned the politicisation of CBAM would make it harder to attach a price to carbon emissions and grow production in the EU of ‘green’ products, including green ammonia.
They said this would undermine demand for green hydrogen and other sustainable fuels at a time when the EU wants to use regulations to create demand. Europe’s power-to-X market cannot grow without willing buyers and, without production, the customers that do exist will buy from Asian markets such as China and India, or other production hubs such as Saudi Arabia. Countries in parts of Asia and the Middle East already have low-cost renewable power, which makes the green hydrogen they produce cheaper too.
As a result, potential offtakers in Europe are hesitant to sign ten-year offtake deals now for green fuels made in the their own continent at prices in the range of €1,000-€1,500 per tonne, as they could buy green ammonia or other products from China or India on five-year deals at closer to €600 per tonne. Leadership Council attendees said offtakers are unwilling to pay a premium to buy sustainable fuels over fossil-based alternatives too.
This comes back to one of the long-term challenges for the power-to-X market: giving offtakers the confidence to sign deals that will give developers the financial security to take production projects to final investment decision.
Offtake difficulties undermine EHB
A lack of offtake deals has delayed projects that secured support in the first two rounds of the EU’s EHB funding mechanism. Just six of the 18 projects shortlisted in the EHB regime second round in early 2025 signed up to for the 10-year production subsidies because the EHB needed to see they had an offtake deal in place. This situation was partly created by the fact that many winning EHB bidders priced their bids too low and could not find an offtaker willing to buy the green fuel at a price that made the project make financial sense.
The onus so far has been on policymakers to create the framework for offtake deals to happen and for the power-to-X developers to go out to secure them. But attendees at the X Leadership Council said policymakers could explore other structures, even if they come under pressure from firms in the oil, gas and transport sectors.
One suggestion was that, in leading European power-to-X markets such as the UK, government could act as an ‘offtaker of last resort’ to guarantee that new power-to-X projects have a fallback route to market. This could support the demand side.
Another suggestion was that governments should impose blending mandates so that a certain proportion of green fuels must be blended into fossil fuels, which would increase pressure on offtakers to add sustainable fuels into the mix.
Attendees admitted they had not expected such a difficulty with convincing offtakers to buy sustainable products like green ammonia, and said making this case is one of the most pressing challenges for the industry and policymakers. The EU market will only grow if offtakers can be encouraged to sign bankable 10- to 15-year contracts for green hydrogen and other sustainable fuels. One participant said that now Chinese green hydrogen producers are competing for offtakers in Europe because they already have enough production for their home market.
If policymakers in Europe don’t do this then the slow progress in expanding European power-to-X in the last two years could decline further.
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