The Rising Hype Around Blue Hydrogen is Not Driven by Market Fundamentals, but by Regional Politics

As 2024 ended, interest in blue Hydrogen (H2)—which had been steadily declining throughout the year—surged. The largest driver was the November U.S. elections: with the incoming Trump administration expected to scale back the previous presidency’s green H2 commitments, many analysts see a window for a resurgence in petrochemically-derived power-to-X fuels.

Since November, political turmoil in Europe has also contributed to blue H2’s renewed prospects. The German green H2 industry, which has led investment within the European Union (EU), could be undermined by the collapse of Olaf Sholz’s Social Democratic Party (SPD)-led coalition, as the Christian Democratic Union (CDU)—the government’s likely successor—has outlined plans to scale back green H2 commitments in favor of blue alternatives. Meanwhile, in the United Kingdom, Keir Starmer’s Labour Party government has indicated that blue H2 will contribute significantly to Britain’s revamped energy strategy.

Before the U.S. elections, stagnating investment in blue H2 was primarily driven by increasing awareness of a market fundamental: blue H2 is not currently—and will not become—the cheapest or most sustainable form of H2.

Blue and grey H2 production processes are mostly identical. What makes H2 “blue” is the implementation of Carbon Capture Units (CCUs) that mitigate—with varying efficacy—emissions throughout the process. Accordingly, in terms of cost of production, grey H2 will always remain cheaper than blue alternatives, which require the added cost of CCU installation and operation. In the future, blue H2 will also struggle to compete with electrolysis-derived H2. ABI Research forecasts that, by the mid-2030s, green H2 will be cheaper to produce than blue alternatives in core regions, driven by falling capital costs, improved economies of scale, and cheaper renewable electricity. Subsequently, blue H2 will likely be relegated to a lesser role as the market develops, as an option that is neither the most cost-effective, nor the least polluting, for industries that prioritize both.

For much of 2024, market announcements reflected widespread recognition of blue H2’s shortcomings. In September, Equinor, the Norwegian major player, scrapped a landmark project to supply German markets with blue H2, citing prohibitive supply costs, and that economic headwinds strongly favored green H2 production. Blue H2 has also been deprioritized in other key regions. In China, for example, investment has stagnated—only four blue projects remain in feasibility or concept stages. In contrast, the Chinese market represented over half of total investment in electrolysis projects in 2024, with 39 major green H2 facilities under Final Investment Decision (FID) and construction stages by October. However, as 2025 begins, blue H2’s decline has seemingly reversed.

The main driver of renewed interest in blue H2 is not economic, but political.

National H2 strategies are becoming closely aligned with national climate policies. At one extreme, governments that favor reliance on petrochemicals are inclined to champion the continuation of carbon-intensive grey H2 production—the incumbent technology. At the other end, nations actively working to achieve net-zero targets have directed considerable investment into green H2, which is touted as the most promising carbon-free solution for comprehensive power-to-X decarbonization and has the potential to completely disrupt and restructure the existing market.

Within this framework, blue H2 appears to be a neutral option. Unlike green H2, it is an established alternative to grey H2; unlike grey H2, it can claim to be relatively “clean.” Committing to blue H2 is low-risk for those, like the United States, with vested petrochemical interests. It can be sold to consumers demanding clean fuels, while minimally impacting existing operations, provided that CCUs can be installed without disruption. Ramping up blue H2 production is also politically expedient, boosting short-term revenue from abundant natural gas stocks, while assuaging—to some extent—lobbyists for decarbonization. Moreover, for many governments that are reevaluating their power-to-X strategies, blue H2 appears cheaper, more available, and less politically complex than potentially riskier green alternatives. These considerations have complicated the wider market.

Subsequently, while 2024 began with a relatively coherent push for green H2 investment, key regions are following different pathways heading into 2025:

• North America: In the United States, national support is likely to move from green H2 to blue—and grey—alternatives with the incoming administration, continuing American dominance of the blue H2 market.
• Europe: EU members will continue to deliberate over the bloc’s H2 strategy, as competing national interests split regional resources among legacy and low-carbon alternatives. Northern European states are likely to increase the share of blue H2 in their portfolios, while scaling back green H2 investment—at least in the short run. Green H2 will retain its momentum in Southern Europe, where major projects are underway.
• Asia-Pacific: China can be expected to maintain its momentum as the dominant green H2 producer and manufacturer of electrolyzers—the key technology for green H2 production—in 2025. Additionally, Indian green H2 production is expected to increase. Blue H2 will play a minimal role in the region.
• Middle East & Africa: Despite some investment by oil majors, such as Saudi Aramco, in blue H2, green H2 will remain an excellent opportunity to capitalize on the region’s abundant solar potential.

The growing hype around blue H2 clearly indicates how opaque—and confused—the wider power-to-X market remains heading into 2025. More than ever, it will be essential for vendors and would-be adoptees to keep an eye on political—and market—trends to understand the regional opportunities available to them.