The inclusion of hydrogen in the Carbon Border Adjustment Mechanism (CBAM) marks a decisive step in regulating one of the fastest-growing low-carbon energy carriers.
Hydrogen’s carbon footprint varies dramatically: while “green” hydrogen from electrolysis using renewables is near-zero, conventional “grey” hydrogen emits around 9–12 kg CO₂ per kg produced.
Globally, hydrogen production accounts for ~900 Mt CO₂ annually, roughly 2.5 % of energy-related emissions.
Including hydrogen under CBAM will incentivise investment in green hydrogen, but could raise costs for refineries, fertiliser producers and heavy industries reliant on imports.
For UK and EU operators, where hydrogen imports are expected to grow sharply by 2030, balancing affordable supply with emissions compliance will be critical.
At CFP Energy, we've been helping businesses comply with CBAM since its inception. We provide insights and expert advice on preparing for full implementation, as well as instant access to CBAM certificates.
To see how we can help, contact our carbon team today.
The inclusion of hydrogen within CBAM aims to ensure the production of cleaner energy, while discouraging the outsourcing of hydrogen production to parts of Europe with less stringent climate policies.
However, CBAM also recognises that the emission profile of hydrogen can vary considerably, depending on the production method used, as the type of feedstock.
To reflect this, CBAM places a higher carbon levy on hydrogen with greater embedded emissions, such as those made from natural gas via steam methane reforming, while offering more favourable treatment to low-carbon hydrogen sources, such as green hydrogen and blue hydrogen.
The first issue importer will face is emissions data collection. In practice, accurately calculating and reporting the embedded carbon can be a challenge. This is because hydrogen is a complex process in which both the conversion process as well as the energy source powering that process, e.g., fossil-based electricity, are accounted for.
In addition, because hydrogen spans a wide variety of production methods, with some methods creating large amounts of CO2, and others offering near zero emissions, the carbon intensity of hydrogen must be calculated on a case-by-case basis.
For instance, hydrogen produced through electrolysis and powered by renewable energy like wind and solar will have a vastly different carbon footprint compared to hydrogen generated via steam methane in a country operating on a coal-dependent grid. To submit emissions data that reflects the complexities of hydrogen production, each stage of the product’s life cycle must be tracked and documented throughout.
From 2026, CBAM will address this problem through a certificate system that reflects these variations. Certificates issued will account for the production method used, such as whether electrolysis or steam methane reforming has been used, and the energy source powering it (i.e., renewables or fossil fuels). This means the carbon price applied to hydrogen corresponds to its actual emissions rather than using a blanket rate.
However, importers will still face the burden of regulatory complexity – under CBAM, importers will be required to record not just production methods employed in hydrogen production, such as electrolysis or steam methane, but the kind of electricity, whether fossil-fuel-based or renewable, used as well. This means tracking guarantees of origin, understanding temporal and geographical correlation requirements, and maintaining documentation – all of which will demand technical expertise and critical oversight.
The most common form of hydrogen, grey hydrogen, is produced through steam methane reforming. This process uses natural gas and is the most carbon-intensive of all the forms of hydrogen currently in production. Under the Carbon Border Adjustment Mechanism (CBAM), imports of grey hydrogen into the EU will be subject to high certificate purchase obligations once the full scheme is implemented.
Blue hydrogen, sometimes referred to as CCS-enabled hydrogen, is a hydrogen produced from natural gas. Unlike grey hydrogen, this process employs carbon capture systems (CCSs) to capture the CO2 produced by the conversion process. Any CO2 produced is compressed and then transported for permanent storage underground in geological formations that direct it away from the atmosphere. Under CBAM rules, the use of carbon capture must be closely monitored to ensure that the amount of carbon sequestered is properly verified against the amount of carbon produced.
Green hydrogen is produced using a process called electrolysis. This is where an electric current is passed through water, separating the oxygen molecules from the hydrogen content, the latter of which is collected and used as fuel. The “green” in green hydrogen refers to the renewable energy sources employed to carry out this process. Powered by sources such as wind, solar, and hydroelectric, green hydrogen is based on 100 percent renewables and, as such, boasts near zero carbon emissions.
Turquoise hydrogen is made from a methane pyrolysis conversion that splits natural gas into hydrogen and solid carbon rather than CO₂. This makes it more sustainable than grey or blue hydrogen, which emits CO₂ unless carbon capture is used. However, turquoise hydrogen still relies on natural gas as a feedstock, which makes rating its carbon intensity complex. CBAM regulators are still developing the framework to score this type of hydrogen fairly, taking into account lifecycle assessments and upstream methane emissions.
The UK government plans to introduce its own carbon border adjustment mechanism starting in 2027. Hydrogen will be among the products covered under this scheme. The framework mirrors the EU's approach in many respects but will operate independently.
UK importers should expect similar reporting requirements to those outlined in the EU system. This includes tracking embedded emissions, documenting production methods, and verifying energy sources. The mechanism will apply to all hydrogen imports entering UK markets, regardless of their point of origin, to encourage the production and use of cleaner hydrogen where possible.
This is consistent with the UK government’s wider commitment to cleaner hydrogen. The past few years have already seen numerous funding and policy frameworks introduced, including the Hydrogen Strategy (August 2021), the British Energy Security Strategy (2022), and the Hydrogen Investor Roadmap (February 2024), indicating a sustained effort to encourage clean hydrogen use throughout the UK’s supply chain.
In addition, by 2030, the government aims to increase the production capacity of low-carbon hydrogen to 10GW, split between blue hydrogen (4GW) and green hydrogen (6GW), setting the groundwork for greater uptake in low carbon hydrogen.
While green hydrogen represents the most sustainable of the two fuels, in practice, the production costs of green hydrogen make implementation a challenge. In the near term, the production of blue hydrogen is expected to grow at a much faster rate, with the caveat that more investment in CCS technology will be required to support it.
The introduction of hydrogen into CBAM addresses a persistent concern about hydrogen's sustainability in industries like chemical manufacturing. Although hydrogen, on paper, is cleaner than natural gas, scepticism has grown around hydrogen precisely because the market rewarded the dirtiest production methods. CBAM reverses this dynamic by ensuring that only genuinely low-carbon hydrogen maintains strong commercial prospects in EU markets.
For instance, at €100/tonne CO₂, grey hydrogen (produced from natural gas without carbon capture) would face substantial CBAM charges compared to green hydrogen, creating a clear cost advantage for low-carbon alternatives. Countries with access to cheap renewable energy, such as Norway's access to hydroelectric power, or the Middle East's solar potential, should see an advantage under CBAM as emerging centres of hydrogen production. By contrast, traditional fossil fuel exporters must either invest in carbon capture or risk losing EU market access.
The EU's growing appetite for hydrogen, in turn, should force producers worldwide to either invest in production or clean up existing operations. Under REPowerEU targets, the bloc intends to produce 10 million tonnes of renewable hydrogen domestically by 2030 while importing another 10 million tonnes. Signals like these, together with the hydrogen inclusion within the EU CBAM, should help propel hydrogen even further as a viable, clean alternative to fossil fuels like coal and natural gas.
At CFP Energy, we specialise in helping hydrogen producers, importers, and users in manufacturing and transport who need practical support with CBAM requirements. Our expertise spans the full spectrum of CBAM – from low carbon hydrogen and beyond. Ensuring compliance for importers and exports alike, we help businesses meet their obligations through our technical expertise and our access to CBAM certificates at competitive prices.
To see how we can help you meet your EU CBAM obligations, contact our carbon team today.