China and India can become leaders in clean hydrogen, but industry still has a long way to go, says CSIS

China and India have the potential to become global leaders in “clean” hydrogen, said Jane Nakano, senior fellow at the Center for Strategic and International Studies (CSIS).

“I think both China and India have the potential to become superpowers… not only as a potential supplier and exporter of clean hydrogen, but also as [as] consumers [and] clean hydrogen users,” Nakano told CNBC’s “Squawk Box Asia” on Friday.

However, Nakano noted that China, like many other countries, still produces and consumes gray hydrogen — a type of hydrogen derived from natural gas and produced from fossil fuels. It is the least renewable form of hydrogen.

Hydrogen has the potential to play an important role in tackling the climate crisis — the energy it creates doesn’t produce atmospheric-warming carbon dioxide. On the other hand, it’s a leak-prone gas that can generate its own warming effect — and in turn exacerbate the climate problem — if not managed properly. “Clean” hydrogen is also expensive to produce and the industry is still in its infancy.

China is currently the largest producer of hydrogen with about 33 million tons per year, most of which is produced from fossil fuels, according to a CSIS report.

Nakano said there isn’t much market for hydrogen right now and its commercialization will take a few years.

She said the transportation and steelmaking sectors are potential consumers, as well as industries that are difficult to electrify and decarbonise.

However, she said widespread use is not yet a reality. “Most of the hydrogen is produced and conserved in the same location… there’s virtually no trade or even no trade, it’s really done in a small, small region.”

“What we’re seeing right now are a lot more government-led initiatives,” Nakano said, adding that countries like Australia, Japan and South Korea are turning on resource-rich countries in Southeast Asia, such as Indonesia and Malaysia.

Nakano added that Australia is emerging as a major supplier and exporter of hydrogen and plans to become one of the top three hydrogen exporting countries.

At the beginning of this year, the country announced a clean hydrogen partnership with Japan aimed at developing Australia’s hydrogen export industry.

And according to a 2021 analysis by energy consultancy Wood Mackenzie, Australia and the Middle East have the greatest potential to become major exporters of green hydrogen.

While Nakano said Europe is leading the way when it comes to commercializing hydrogen, she added that it may also take time for the region to make that transition.

“There is still a long way to go, for better or for worse,” Nakano said. “Probably worse from a climate mitigation perspective.”