‘Green’ is the new ‘grey’: resolving disputes arising from the transition towards green hydrogen

Introduction

Nowadays, it is undeniable that human action has brought the Earth to the verge of an irreversible climate disaster. In the words of the United Nations' Secretary General, Antonio Guterres, 'in the case of climate, we are not the dinosaurs. We are the meteor. We are not only in danger, we are the danger.'[1] Nevertheless, as also highlighted by Guterres, there might be an exit from this 'highway to hell'.[2]

One of the ways in which humanity, as 'the meteor', is harming the Earth is precisely in the production of energy. The European Union ('EU') has identified renewable gases, such as hydrogen, as a cornerstone of a greener future, through which a decarbonised economy is possible.[3] Therefore, producing energy through hydrogen is considered key in achieving the objectives of the European Green Deal,[4] which in turn would allow the EU and its Member States to keep up with their current commitments, including the 2015 Paris Agreement[5] and the United Nations 2030 Agenda for Sustainable Development.[6] Similarly, the EU's REPowerEU Plan, announced on 18 May 2022, aims to reduce the EU's external energy dependence by promoting energy diversification, savings, and clean energy development, emphasising the need to build hydrogen transport infrastructure to connect production and consumption centres.[7]

'Red and yellow and green and brown and blue'[8]: the many colours of hydrogen

Hydrogen gas (H₂) can be found among the sources of energy that have traditionally been considered greenhouse gas-emitting. Why, then, is it so central to the EU's sustainability strategy?[9]

Hydrogen (H) is 'the simplest and most abundant element in the universe'.[10] Nevertheless, on Earth it is rare to find it in its gas form (H₂), which is the form used to produce energy. This has created the need to design a number of different production pathways with a view to separating hydrogen from other elements, to obtain hydrogen gas. These processes have entrenched in the collective consciousness the idea that obtaining energy through the use of hydrogen is inevitably polluting, as they are traditionally associated with a wide range of emissions. Once extracted, the use of hydrogen in energy production is considered 'a cleaner and safer alternative to oil and gas'.[11]

Typically, in order to obtain what is now referred to as 'grey' hydrogen, it is necessary to either apply steam methane reforming processes ('SMR') to natural gas, or gasification to solid masses such as coal or biomass.[12] These processes result not only in hydrogen gas (H₂), but also in carbon dioxide emissions (CO₂), which are highly polluting and contribute to the greenhouse effect.

As a result of the strive for sustainability, the energy industry has designed new ways of separating hydrogen from other elements that are less polluting than the process for obtaining 'grey' hydrogen, resulting in a 'rainbow' of hydrogen types depending on how they are obtained. There is currently a growing range of 'colours' of hydrogen,[13] in which two stand out in terms of abundance and popularity: 'blue' and, more recently, 'green' hydrogen.

'Blue' hydrogen was born out of the original concern that methods of obtaining 'grey' hydrogen were excessively polluting. This process, much like that used to obtain 'grey' hydrogen, focuses on extracting hydrogen from natural gas, coal or biomass, but also includes carbon-capture technologies that prevent the carbon dioxide released in the process (CO₂) from reaching the atmosphere.[14] Although initially it was referred to as a 'carbon-neutral' source of hydrogen, it is now considered more accurate to refer to it as 'low-carbon', given that approximately 10-20% of the carbon generated in the gasification process cannot be captured.[15]

And then, 'green' hydrogen was born. Instead of relying on gasification to obtain hydrogen gas, this method uses electrolysis —i.e. extracting hydrogen gas (H₂) from water (H₂O). With this method, the only residue left over is the oxygen released in the reaction (O₂), which is not a pollutant. The only emissions in this process come from the necessary equipment and the energy used in the electrolysis. When this energy comes from renewable sources, emissions are drastically reduced.[16]

Possible disputes arising from the transition to cleaner hydrogen

The race to lead the change towards a hydrogen economy has already begun. Even outside of the EU context, Abu Dhabi has recently announced that it will host the Green Hydrogen 2025 Summit as a part of its Sustainability Week, reaffirming Abu Dhabi's ambition to become the global hub for green hydrogen and its derivatives.[17]

The transition towards more sustainable ways of obtaining energy are expected to bring about new challenges, including legal disputes that will need to be resolved. In fact, the increased concern for the environment and the climate emergency is already causing an increase in the quantity and types of such disputes.[18]

Setting aside the emerging 'anti-woke' agenda in the United States and other States, in relation to the transition towards 'green' hydrogen in particular, there are a number of areas in which claims may arise. We highlight below three potential sources of disputes relating to these new ways of producing cleaner hydrogen: (i) the construction of 'green' hydrogen plants; (ii) the intellectual property of hydrogen production pathways, and (iii) sustainability claims and 'greenwashing' accusations.

Disputes arising from the construction of 'green' hydrogen plants

The first stage of the transition towards 'green' hydrogen, which is currently unfolding, involves the construction of 'green' hydrogen production plants with the necessary capacity to generate significant amounts of 'green' hydrogen. In this regard, it is normal for conflicts to arise in relation to infrastructure and construction of premises in energy projects, which leads us to anticipate disputes in this phase of the 'green' hydrogen transition.

The International Energy Agency ('IEA') currently records the status of different hydrogen production, transportation and generation facilities.[19] According to the data provided by the IEA, at present there are only nine operational 'green' hydrogen production facilities in the world, four of which are located in the EU.[20] In addition to the currently available facilities, the IEA indicates that ten facilities are already under construction, and that concept and feasibility studies have been carried out for fourteen additional facilities.[21]

In order for these facilities to be constructed, a number of contracts need to be put in place to ensure projects are completed in due time. As a consequence, a number of contractual disputes and, in particular, construction disputes, may ensue. In this context, dispute boards might prove useful in order to help the parties involved in large-scale, long-term projects resolve their disputes in an amicable but legally binding manner, while also allowing them to maintain their commercial relationships after resolving these conflicts. While a survey conducted in 2022 by Queen Mary University of London revealed that dispute boards were not the typically preferred option for resolving energy disputes, the lack of popularity of this method within the sector, as pointed out by the university, may come from a lack of knowledge rather than from an informed, reasoned decision to opt out.[22]This is further confirmed by the fact that dispute boards were far more popular among survey respondents who had previous experience with them[23]. A driver for change in this regard may prove to be the World Bank's initiative to start investing in 'green' hydrogen projects across emerging markets and developing countries,[24] as dispute boards are already included in the World Bank's standard bidding documents for works.[25]

Disputes arising from the intellectual property of hydrogen production pathways

Another potential source of disputes at the current stage of development of 'green' hydrogen production, or even in the near future, relates to the intellectual property involved in the production of hydrogen through cleaner sources.

As explained, not only is 'green' hydrogen on the rise, but the race towards sustainability and the call for eco-friendly energy sources amid the fight against climate change is fostering innovation, with extensive research and development efforts being invested in the search for new ways of producing hydrogen of all 'colours'.[26] This innovation will create intellectual property protected by trade secrets and patents, which may prompt new disputes. Given how highly technical, complex and multi-jurisdictional these disputes are likely to be, resorting to arbitration or expert determination may be beneficial to ensure that adjudicators called to decide on the results of such disputes are sufficiently acquainted with the technical details necessary to adequately resolve them. In addition, opting for arbitration in these types of disputes allows the parties to design the resolution process to be followed in the way that best suits the specific case. Moreover, the wish to keep these sensitive matters confidential, one of the most sought-after objectives when opting for arbitration, is an important factor that might lead companies to agree to arbitrate such disputes.

All these advantages that arbitration brings to the resolution of complex and highly technical disputes become even more obvious against the backdrop of an international stage, in which the parties, the technology, the facilities and the contracts involved will almost surely span multiple States — or even continents.

Sustainability claims and 'greenwashing' accusations

Following what has already happened with 'grey', 'brown', and even 'blue' hydrogen, the cleanliness of 'grey' and other colours of hydrogen is likely to be questioned by the general public as cleaner hydrogen enters mainstream energy production and becomes more popular, therefore receiving further scrutiny. This could, in turn, lead to complex and technical legal disputes surrounding the cleanliness of new forms of clean hydrogen in light of how they are advertised.

The heightened significance of misleading claims and the efforts by governments and supranational organisations to tackle these issues, is demonstrated by the introduction of EU Directive 2024/825, of the European Parliament and of the Council, of 28 February 2024, amending Directives 2005/29/EC and 2011/83/EU as regards empowering consumers for the green transition through better protection against unfair practices and better information (more commonly known as the 'Greenwashing Directive'). The Greenwashing Directive amends former EU regulation to, among others, ensure that consumers and other persons with a legitimate interest in doing so — including competitors — can access courts and tribunals to contest misleading environmental claims.

As shown in the recent landmark case Client Earth v Shell,[27] among those likely to challenge environmental claims are a company's own shareholders, through derivative claims. Moreover, and taking into account the recent EU Directive 2024/1760, of the European Parliament and of the Council, of 13 June 2024 on corporate sustainability due diligence (the 'CS3D'), not only competitors, but even other 'ally' companies along the supply chain may have reason to litigate disputes relating to environmental harm and the purported sustainability of products and services.

Once again, this brings arbitration and other alternative dispute resolution methods to the forefront. It is not unusual to find arbitration or multi-tiered clauses in shareholder agreements and B2B contracts, particularly in the realm of international trade relationships among enterprises. Therefore, it is foreseeable that many of these claims will end up being arbitrated, with many proceedings potentially being kept confidential.

Conclusion: what lies ahead?

In the search for new, cleaner energy sources, the promise of 'green' hydrogen is undeniable. However, the relationships involved in the production of cleaner hydrogen may lead to a wide range of complex disputes with investors, shareholders, local communities, employees, and end-use customers.

Although there is no 'one size fits all' approach to dispute resolution, in many of these circumstances, arbitration clauses — potentially combined with expert determination — may be an appropriate mechanism to address disputes. In addition, mechanisms such as dispute boards may be beneficial in order to maintain commercial relationships among parties involved in the construction of hydrogen production plants in the long run. In this regard, the Green Hydrogen Organisation[28] highlights the benefits of these dispute resolution methods in its contracting guidance,[29] with reputed arbitration institutions, such as the International Chamber of Commerce, adopting principles and guidance for resolving energy disputes in light of the increasing importance of sustainability in trade.[30]

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[1] United Nations News, 'There is an exit off “the highway to climate hell", Guterres insists' (5 June 2024) <https://news.un.org/en/story/2024/06/1150661> accessed 2 February 2025.

[2] Ibid.

[3] 'Questions and answers: A Hydrogen Strategy for a climate neutral Europe' (8 July 2020) <https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_1257> accessed 2 February 2025.

[4] 'Communication From the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions. The European Green Deal' (11 December 2019) <https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52019DC0640> accessed 2 February 2025.

[5] Conference of the Parties, Adoption of the Paris Agreement, U.N. Doc. FCCC/CP/2015/L.9/Rev.1 (12 December 2015).

[6] United Nations, 'Transforming Our World: The 2030 Agenda for Sustainable Development. Resolution Adopted by the General Assembly' (25 September 2015) 42809, 1-13.

[7] 'REPowerEU: A plan to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition' (18 May 2022) <https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3131> accessed 2 February 2025.

[8] Andrew Lloyd Webber, 'Joseph's Coat' in 'Joseph and the Amazing Technicolor Dreamcoat'.

[9] 'Questions and answers: A Hydrogen Strategy for a climate neutral Europe' (8 July 2020) <https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_1257> accessed 2 February 2025.

[10] World Economic Forum, 'Grey, blue, green – why are there so many colours of hydrogen?' (27 July 2021) <https://www.weforum.org/stories/2021/07/clean-energy-green-hydrogen/> accessed 2 February 2025.

[11] University of York, 'UK first in “clean hydrogen" production and carbon capture' (11 November 2024) <https://www.york.ac.uk/news-and-events/news/2024/research/clean-hydrogen-production-carbon-capture/> accessed 2 February 2025.

[12] World Economic Forum, 'Grey, blue, green – why are there so many colours of hydrogen?' (27 July 2021) <https://www.weforum.org/stories/2021/07/clean-energy-green-hydrogen/> accessed 2 February 2025.

[13] A. Erdogan Karaca, A. M.M.I. Qureshi and I. Dincer, 'An overview and critical assessment of thermochemical hydrogen production methods' in Journal of Cleaner production 385 (20 January 2023) <https://doi.org/10.1016/j.jclepro.2022.135706> accessed 30 January 2025.

[14] Blog Verde, 'Blue Hydrogen and Carbon Capture: A Promising Partnership' (14 November 2023) <https://blog.verde.ag/en/blue-hydrogen-and-carbon-capture/> accessed 2 February 2025.

[15] World Economic Forum, 'Grey, blue, green – why are there so many colours of hydrogen?' (27 July 2021) <https://www.weforum.org/stories/2021/07/clean-energy-green-hydrogen/> accessed 2 February 2025.

[16] According to the MIT's Climate Portal, 'grey' hydrogen produces around 12kg of CO₂ per 1kg of H2 obtained. Thanks to the carbon capture processes put in place, 'blue' hydrogen reduced these emissions to between 3-5kg of CO₂ per 1kg of H2 obtained. In the production of 'green' hydrogen, accounting for the emissions related to production it is estimated that less than 1kg of CO₂ per 1kg of H2 would be emitted. Climate Portal - Ask MIT Climate 'How clean is green hydrogen?' (27 February 2024) <https://climate.mit.edu/ask-mit/how-clean-green-hydrogen> accessed 30 January 2025.

[17] Abu Dhabi Sustainability Week, 'Green Hydrogen Summit' <https://abudhabisustainabilityweek.com/ADSW/ADSW-Events/Green-Hydrogen-Summit> accessed 25 February 2025

[18] In fact, due to the relevance of the new environmentally-related disputes, together with those relating to social and governance ('ESG' considerations), the previous issue of the International Arbitration Outlook was entirely devoted to ESG disputes. Issue 13 of the International Arbitration Outlook can be found in the following link: <https://www.uria.com/en/areas-sectores/arbitraje-internacional/iao/International-Arbitration-Outlook-Issue-13>, accessed 24 January 2025.

[19] International Energy Agency 'Clean Energy Demonstration Projects Database' (21 October 2024) <https://www.iea.org/data-and-statistics/data-tools/clean-energy-demonstration-projects-database?status=Operational&subsector=Hydrogen> accessed 2 February 2025.

[20] More specifically, the IEA database records as operational 'green' hydrogen production facilities the Steinbeis Innovation Centre in Braunschweig, Germany; the H² Évora - GreenGas I facility in Portugal; the E-Fuel VTT pilot centre in Bioruukki, Finland, and the DEMO4GRID plant in Austria. The other four facilities located outside of the EU are the BIG HIT 2n phase plant in the United Kingdom; the HAEOLUS plant in Norway; the Air Liquide facility in Becancour, Canada; the Green Hydrogen Project in the Mohammad Bin Rashid Solar Park in the United Arab Emirates, and the Fukushima Hydrogen Energy Research Field in Japan, currently the largest operating 'green' hydrogen production facility in the world. International Energy Agency 'Clean Energy Demonstration Projects Database' (21 October 2024) <https://www.iea.org/data-and-statistics/data-tools/clean-energy-demonstration-projects-database?status=Operational&subsector=Hydrogen> accessed 2 February 2025.

[21] International Energy Agency 'Clean Energy Demonstration Projects Database' (21 October 2024) <https://www.iea.org/data-and-statistics/data-tools/clean-energy-demonstration-projects-database?status=Operational&subsector=Hydrogen> accessed 2 February 2025.

[22] Queen Mary University of London 'Future of International Energy Arbitration Survey Report' (20 January 2023) <https://www.qmul.ac.uk/arbitration/media/arbitration/docs/Future-of-International-Energy-Arbitration-Survey-Report.pdf> 2 February 2025.

[23] Ibid.

[24] World Bank Group 'World Bank Proposes 10 GW Clean Hydrogen Initiative to Boost Adoption of Low-Carbon Energy' (17 November 2023) <https://www.worldbank.org/en/news/press-release/2023/11/17/world-bank-proposes-10-gw-clean-hydrogen-initiative-to-boost-adoption-of-low-carbon-energy> accessed 2 February 2025.

[25] The World Bank Group 'Standard Bidding Documents Procurement of Works & User's Guide' (April 2015) <https://thedocs.worldbank.org/en/doc/426761510083511002-0290022017/render/SBDWorksOct2017.pdf> accessed 2 February 2025.

[26] World Economic Forum, 'Grey, blue, green – why are there so many colours of hydrogen?' (27 July 2021) <https://www.weforum.org/stories/2021/07/clean-energy-green-hydrogen/> accessed 2 February 2025.

[27] High Court of Justice Business and Property Courts of England and Wales, Derivative Claim between ClientEarth (Claimant) and Shell Plc and others (Defendants), Citation Number: [2023] EWHC 1897 (Ch) (24 July 2023). This case was analysed in Issue 13 of the International Arbitration Outlook, see M. Rios Estrella, J. Gallel Moragues, A. Vilà Montoya, 'ClientEarth v Shell Plc: a landmark case on climate change risk management and directors' duties' International Arbitration Outlook 13, 3 September 2024.

[28] The Green Hydrogen Organisation, or 'GH2', describes itself as 'a Swiss non-profit foundation', which 'has flagship efforts to greatly increase the production and use of sustainable Green Hydrogen', see Green Hydrogen Organisation 'What We Do' <https://gh2.org/what-we-do> accessed 10 February 2025.

[29] Green Hydrogen Organisation 'Green Hydrogen Contracting Guidance Dispute Resolution' (December 2022) <https://gh2.org/sites/default/files/2022-12/GH2_Contracting%20Guidance_Dispute%20Resolution_2022.pdf> accessed 2 February 2025.

[30] International Chamber of Commerce 'Principles for Sustainable Trade Wave 2 overview' (December 2023) <https://iccwbo.org/wp-content/uploads/sites/3/2023/12/2023-ICC-Principles-for-Sustainable-Trade-Wave-2.pdf> accessed 2 February 2025.