After three decades of negotiations to establish the fund for climate loss and damage, its inaugural board meeting just concluded in Abu Dhabi. The establishment of this fund is a monumental milestone. We are still some way off, but equally historic are seismic shifts underway in how we may finance it.
The first meeting was a modest success. The fourteen members chosen by developing country constituencies and twelve from developed countries demonstrated unity of purpose. Two impressive and committed co-chairs – Jean Christophe Donnellier of France and South African Richard Sherman – were elected. The new board agreed on processes to select an executive director and a host country.
Mistrust eased between some members of the board and the World Bank, which negotiators had previously chosen, with conditions, to be the secretariat of the fund. This unity and commitment are seeds of hope for the fund’s future.
Loss and damage board speeds up work to allow countries direct access to funds
These seeds will need money to grow. The only long-run solution to the escalating climate crisis is accelerating the energy transition from fossil fuels. However, due to the lack of progress, we now face losses and damages that require financing of over $150bn per year – according to the IHLEG Report for COP26 and 27.
These losses disproportionately affect the most vulnerable, exacerbating poverty and inequality. Adding injustice to a bleak situation is that the wealthiest countries are most responsible for the stock of greenhouse gases that cause global warming.
The OECD estimates that total development assistance is $200bn per year, and even though this is half of the commitments made five decades ago, the politics of the day suggest aid money is more likely to be re-channelled for domestic purposes than increased substantially. So where could $100bn plus come from?
Some developed countries promoted the idea that they would initially pay the insurance premiums for a small number of small countries. Twinning insurance to disaster seems natural – especially if you want to minimise using tax-payers money. But with insurers pulling out of California, Louisiana and Florida because of climate risks, those living in other climate-vulnerable countries – 40% of the world’s population – felt this was at best not scalable and at worse disingenuous.
Climate, like a preexisting medical condition, has become uninsurable. It is now a risk of substantial loss that is growing – and increasingly certain, frequent, and correlated – and so insurance’s spreading and pooling qualities don’t work. If the annual known climate loss is $150bn and rising, yearly premiums cannot be much less without direct or cross-subsidies that no one is budgeting. It’s insurance, not magic.
Time to test new taxes
For the climate-vulnerable today, the only real insurance against future loss and damage is investing massively in resilience which would generate future savings several times their cost.
One idea mooted by the Inter-American Development Bank is that the multilateral banks lend for a resilience project in a climate-vulnerable country at little more than the banks’ preferential borrowing rates, and donors separately contribute to a substantial reduction in the interest rate once an independent assessment has certified that the investment has achieved the intended resilience.
Countries can borrow for resilience if the repayment period is sufficiently long to capture the savings, but not for current loss and damage. Without grants to fund that, vulnerable countries will drown in debt long before sea levels rise.
The global financial crisis and COVID showed the promise of long-dismissed ideas. Over the past twenty-four months, 140 countries have agreed an internationally minimum corporate income tax, and the EU has put on an extraterritorial carbon border adjustment tax. The International Maritime Organisation is debating an international levy to fund the shipping industry’s decarbonisation.
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The fund’s board will want to hear proposals from the new taskforce established by Barbados, France, and Kenya to consider international taxes to pay for global public goods.
They will also be interested in the just-published proposal for a Climate Damages Tax on the production of fossil fuels by an amount related to the damage they will cause. One dollar per barrel of oil produced, and its equivalent for coal and gas – an amount easily lost in the monthly volatility of prices – could finance both the loss and damage fund and rebates for the poorest consumers. There are enforcement mechanisms. Oil producers could be required to show they have paid the tax before their shipping insurance is legally enforceable.
Knowledge that scalable solutions exist is vital because some use their absence to stall progress. However, what we do is not about the how, but how much it matters to us. G7 central bankers purchased $24 trillion of government bonds to stave off recession during COVID and the global financial crisis. It was unprecedented and heroic.
With hindsight, if they had bought bonds that financed climate mitigation, the recovery would have been stronger and quicker, and inflation – heavily driven by fossil fuels – would have been weaker. They would have saved the economy and progressed halfway to ending climate change and limiting loss and damage. Viable financing solutions exist. We have to decide to use them.
Avinash Persaud is Special Advisor to the President of the Inter-American Development Bank on Climate Change. Previously he was a member of the negotiation committee to establish the Loss and Damage Fund and an architect of the original ‘Bridgetown Initiative’ on reform of the international financial architecture.
The post Seismic shifts are underway to find finance for loss and damage appeared first on Climate Home News.
Seismic shifts are underway to find finance for loss and damage
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China has said that hydrogen is a key “future industry”, important to both its energy transition and its industrial policy.
Hydrogen frequently goes through hype cycles, most recently driven by rising oil and gas prices due to the conflict in the Middle East.
Yet, even in China, the world’s largest producer and consumer of the fuel, hydrogen remains expensive and inefficient to produce.
This is especially the case for “green” hydrogen derived from renewables.
Moreover, there is limited supporting infrastructure and there is little incentive to use hydrogen over other energy sources.
As a result, uptake in China of hydrogen as an alternative fuel remains low.
Nevertheless, these challenges echo the early circumstances of another key clean-energy technology – electric vehicles (EVs).
In China, EVs benefited from a policy environment that included consistent signals of support, financial aid and the development of supporting infrastructure.
Many similar policies are now being deployed – and in some cases improved upon – to support the development of China’s hydrogen industry.
This article examines China’s approach to developing hydrogen and how its evolving industrial policy could make the fuel viable.
How is China using hydrogen and where does it come from?
Electrification and rising installations of solar and wind power have been the biggest drivers of China’s decarbonisation story so far. However, how China will address the more energy-intensive, hard-to-electrify segments of its economy remains an open question.
Hydrogen is seen by some in China as a potential solution for reducing emissions in a range of “hard-to-abate” industries, from steel and chemicals to aviation and shipping.
The country is the world’s foremost producer and consumer of hydrogen. It produced 36.5m tonnes of the gas in 2024, with maximum production capacity standing at 50m tonnes that year.
It also consumed nearly a third of the world’s hydrogen in 2024, as shown below.
Most of China’s production capacity is in regions with potential for high demand, such as Shandong, Inner Mongolia, Shaanxi, Ningxia, Shanxi and other provinces with significant heavy industry.
In 2024, the vast majority of China’s hydrogen – around 78% – was produced using fossil fuels, predominantly coal and gas, as shown in the figure below.
Another 21% was produced as an industrial by-product, while only 1% – just 320,000 tonnes – was derived from renewable-powered electrolysis of water.
One study found that, for every kilogram of hydrogen produced, 38.6kg of carbon dioxide (CO2) is emitted if the hydrogen is produced using coal-fired power. Hydrogen made through coal gasification results in 28.5kg of CO2 for every kilogram of hydrogen, while gas-based hydrogen creates 13kg of emissions.
By contrast, one kilogram of renewables-based hydrogen results in 0.5kg of CO2.
The International Energy Agency (IEA) calculates that hydrogen and hydrogen-based fuels could help China avoid close to 16bn tonnes of CO2 cumulatively by 2060 – but only if it comes from low-carbon sources.
The biggest reductions, it adds, would come from heavy industry, particularly chemicals and steel, with the maritime and shipping sectors also seeing some benefit.
Currently, around half of the hydrogen produced in China is used in synthetic ammonia and methanol production.
Ammonia is primarily used to manufacture fertiliser and is seen as a possible fuel technology for shipping. Methanol is used as a fuel for the transport industry, as well as for heating.
Another quarter of China’s current hydrogen usage is consumed by the oil refining and coal-to-chemical sectors. The remaining amount is used in other industries, including transport, heating and metallurgy.
What are the barriers to scaling up hydrogen?
Although China is the largest producer and consumer of hydrogen globally, the industry faces several barriers to becoming a viable clean-energy technology.
Agora Energiewende, a thinktank focused on the energy sector, says that, in order to make hydrogen a practical clean-energy solution, China would need to expand the scale and range of its application, as well as improving the conversion efficiency of production and use.
Both BloombergNEF and the IEA highlight the importance of China creating demand for hydrogen, such as through quotas for industrial usage.
Hydrogen “suffers from a relatively large efficiency loss during various conversion processes”, adds Agora. For example, it notes that only around 22% of the energy put into hydrogen fuel-cell electric vehicles (FCEVs) is converted into motion, compared to 73% for battery electric vehicles. Producing hydrogen with renewable energy is also less efficient than coal-to-hydrogen processes.
Cui Chuansheng, technical director at East China Engineering Science and Technology, tells state news agency Xinhua that the variability of wind and solar power often leads to low utilisation of electrolysers, resulting in “efficiency losses”.
Meanwhile, the cost of producing hydrogen – particularly green hydrogen – remains high.
One study placed the cost of hydrogen produced through alkaline water electrolysis (AWE), the most common method for producing green hydrogen in China, at $4-6 per kilogram, compared with $1.20-2.50/kg for steam methane reforming and $1.30-2 for coal gasification.
In some specific cases, such as blending hydrogen with gas, researchers find that hydrogen prices would need to fall to one-third of gas prices to incentivise uptake.
These constraints are all “interdependent”, Kevin Tu, managing director of Agora Energy China, tells Carbon Brief, with the need to ensure “bankable demand” while also reducing costs and developing infrastructure. He adds:
“Without credible offtake in the right sectors, costs will not fall; without lower costs and better logistics, downstream users will not commit.”
The IEA says that green hydrogen “could become cost-competitive by the end of this decade due to low technology costs and cost of capital”.
For now, however, the China Hydrogen Bulletin Substack reports that China’s four listed hydrogen equipment manufacturers all reported significant losses in 2025.
Meanwhile, a senior executive at a Chinese hydrogen company told economic news outlet Jiemian that he expected 40% of companies in the sector to have closed down by the end of 2026, with surviving companies only turning a profit in 2029 at the earliest.
The industry also lacks refueling and pipeline infrastructure. China’s development of a pipeline network for hydrogen remains in its early stages, with around 400km of pipelines currently in operation. By contrast, its long-distance gas network stands at 128,000km. Similarly, storage remains expensive and inefficient, creating a further obstacle to wider uptake.
How is China supporting hydrogen development?
China began considering the use of hydrogen as an energy source in earnest in the early 2000s, to address concerns around pollution and dependence on imported oil for the transport sector.
A clearer signal of its importance came in 2015, when the State Council included the technology in a 10-year national industrial strategy known as the “Made in China” initiative. This pitched hydrogen as a way to contribute to electrification of China’s road-transport system through the development of FCEVs.
Yuki Yu, founder of research firm Energy Iceberg, tells Carbon Brief that, from 2018-2021, hydrogen was treated as a “FCEV and manufacturing technology challenge”.
This has since evolved, she says, given that battery electric vehicles have emerged as the more popular technology.
Shen Xinyi, senior advisor at the Centre for Research on Energy and Clean Air (CREA), agrees, telling Carbon Brief that recent policy documents suggest the aim is now for hydrogen to be targeted at areas where direct electrification is harder, such as hydrogen-based chemicals, hydrogen metallurgy and some heavy-duty transport applications.
This is in line with the “hydrogen ladder”, an analysis of how likely different possibilities for applying hydrogen as a clean alternative are to become significant. The ladder sees significant future use of hydrogen in these hard-to-electrify areas as much more likely than for light vehicles.
Notable policy moves are being made in “three layers”, says Agora’s Tu, which are combining to improve the technology’s chances of scaling up. These are: the “legal and institutional” layer; “application-oriented” policies; and targeted measures to address “practical bottlenecks” at the local level.
One of the documents underpinning this pivot was the “medium- and long-term plan for the development of the hydrogen energy industry (2021-2035)”, issued in March 2022.
According to a report by the National Energy Administration (NEA), the plan is an attempt to develop an “industrial ecosystem” for hydrogen that features “diverse stakeholders, coordinated innovation and clustered development”.
The plan was the first government document to “lay out a long-term vision for China’s hydrogen economy”, unifying a previously disparate policy push into one document, according to the Oxford Institute for Energy Studies, a UK-based thinktank.
Following on from the 2022 plan, the importance of hydrogen as a broad clean-energy solution has been emphasised in a number of policies. These include its classification being changed from a hazardous chemical to an energy carrier in China’s Energy Law, a 2024 action plan to “accelerate” the use of low-carbon hydrogen in industry and a new pilot scheme offering subsidies for projects that achieve specific targets.
The table below sets out the timeline and content of China’s hydrogen-related policies over the past 25 years.
| Policy | Year published | Key features |
|---|---|---|
| 10th five-year plan (2001–2005) | 2001 | Calls for “actively developing” low-emission vehicles, understood to include hydrogen vehicles |
| Made in China 2025 | 2015 | Pledges to “continue to support” development of fuel cell vehicles and “master core technologies” for low-carbon vehicles |
| Notice on implementation of demonstration projects for fuel cell vehicles | 2020 | Creates a dedicated subsidy programme for finding breakthroughs in FCEV core technologies and industrial applications |
| 14th five-year plan (2021-2025) | 2021 | Hydrogen listed as a future industry |
| Medium- and long-term plan for the development of the hydrogen energy industry (2021–2035) | 2022 | Aims to reach 100,000-200,000 tonnes of green hydrogen production [this target has been met]. Also aims to get 50,000 FCEVs on the road by 2025, leading to a “diversified” hydrogen industry by 2035 |
| Opinions on accelerating the comprehensive green transformation of economic and social development | 2024 | Promotes further development of hydrogen production, transport, storage and applications |
| Implementation plan for accelerating the application of clean and low-carbon hydrogen in the industrial sector | 2025 | Outlines tasks to promote use of low-carbon hydrogen to reduce emissions in heavy industries, such as steel and chemicals |
| Energy law | 2025 | Sees hydrogen included in national legislation for the first time, re-classifies it from a hazardous chemical to an energy carrier |
| 15th five-year plan (2026-2030) | 2026 | Again lists as a future industry, and calls for the development of green fuels derived from green hydrogen |
| Notice on the implementation of pilot projects for the comprehensive application of hydrogen energy | 2026 | Provides subsidies to projects to reduce hydrogen costs to 15-25 yuan/kilogram ($2.20-3.67/kg) and help develop a fleet of 100,000 FCEVs |
Key policies in the development of China’s hydrogen sector.
In addition, the NEA said in 2025 that local governments across China had issued more than 560 hydrogen-related energy policies by the end of 2024.
Tu notes that these local policies cover everything from permitting reforms and pipeline planning to exempting FCEVs from paying road toll.
Different provinces across China adopt distinct strategies for developing hydrogen industries, based on local conditions, says the US-based Center on Global Energy Policy, such as energy mix, availability of coal and industrial needs.
However, these local policies and targets are frequently more ambitious than the “conservative” national-level targets, it adds.
Could a new pilot programme boost hydrogen’s prospects?
A new pilot programme, announced in March 2026, aims to commercialise the country’s hydrogen industry by funding projects to reduce the cost of the fuel to 15-25 yuan/kilogram ($2.20-3.67/kg) by 2030, as well as other targets.
Unlike the 2020 subsidies, which focused on FCEVs, the new programme reaffirms China’s interest in a broader series of sectoral applications for hydrogen, including in clean heating, production of low-carbon iron and steel, and production of “green fuels” and other chemicals.
This new pilot is the “strongest financial instrument ever released for China’s green hydrogen application” in terms of creating a comprehensive hydrogen policy that covers a broad swathe of the economy, supporting it with financial backing and targeting application scenarios, Yu says.
However, she argues that strict grant caps – 240m yuan ($35m) per project and 1.6bn yuan ($235m) per selected region across only five regions – limited the overall funding scale available to the industry.
Energy Iceberg has calculated that only around 60-70 projects nationally could receive funding under the current rules, out of more than 670 active green hydrogen proposals in China.
Shen agrees that the pilot programme is significant and that it will expand the use of hydrogen in China’s climate strategy, particularly green hydrogen.
She notes a provision that “explicitly states that coal-based ammonia and methanol projects cannot be labelled as ‘green’ ammonia or methanol”, suggesting that policymakers are increasingly paying attention to the “integrity” of definitions for hydrogen and hydrogen-derived fuel.
The “real value” of the pilot scheme, says Tu, is that it focuses on developing “integrated city-cluster ecosystems linking supply, transport, infrastructure and end-use demand”, rather than only supporting individual projects.
This “should help identify viable business models, accelerate cost discovery and concentrate support on applications with stronger scale potential”, as well as boost investor confidence, adds Tu.
However, he continues that the broader effect it will have on boosting production of hydrogen will “depend on how quickly the selected clusters can translate the programme into real offtake and lower delivered hydrogen prices”.
How does this compare to China’s EV policy push?
The debate around the viability of hydrogen is reminiscent of critiques of EVs.
Until recently, EVs were seen as too expensive for consumers, inefficient and challenging to use without supporting infrastructure. As a result, many western automakers chose to temper their focus on EVs, while continuing to develop internal combustion engines.
However, China has managed to develop a competitive EV industry with products that top global sales.
Part of the playbook that spurred China’s success on EVs included consistent policy signalling in favour of the technology, including mentions in high-level documents and committing resources to building charging infrastructure.
“The defining features of China’s industrial-policy success are its persistence and adaptability,” says Kyle Chan, fellow at the Brookings Institution, adding that “long before the technology and economics of EVs and batteries were proven, China was making long-term investments and policy bets [in the sectors]”.
More tangible measures included direct and indirect subsidies and policy support in the shape of favourable loan rates and low-cost land. One estimate by US-based thinktank the Center for Strategic and International Studies (CSIS) pegs the amount of support allocated to the EV industry between 2009-2023 at $230.9bn.
This coupled with the success of private Chinese manufacturers in creating innovative, nimble companies that “forc[ed] policymakers to adapt”, as well as growing links between the automotive and information technology industries, according to a separate CSIS report.
But this progress on EVs also reportedly came with significant fraud. In 2016, one investigation found that 33 companies were involved in subsidy fraud totalling 9.2bn yuan ($1.3bn).
(It should also be noted that profitability in the industry lags far behind the average for downstream industrial sectors, according to the Hong Kong-based South China Morning Post, which says that “only a handful” of nearly 50 EV makers have reported profits.)
Being the subject of an industrial policy push alone does not guarantee success, states CSIS. It says the strength of the EV industry “was neither inevitable nor the result of a single master plan” and that China’s aims to develop globally-competitive industries in areas such as commercial aviation remain unaccomplished.
China’s approach to hydrogen has been markedly different.
Instead of offering blanket subsidies, the fuel cell demonstration programme it established in 2020 focused on performance-based rewards.
To avoid the subsidy issues seen in the solar and EV industries, the ministry of finance deliberately chose this indirect funding model, says Yu.
However, Yu argues, the programme did not work as well as hoped, due to the funding ceiling and the siloed attempts made by different regional governments to develop hydrogen ecosystems .
But Chinese policy thinking is becoming more selective and pragmatic for hydrogen compared with EVs, says Shen. She says:
“Electrification remains the primary decarbonisation pathway [for road transport], while hydrogen is increasingly positioned for applications where direct electrification is more difficult.”
Tu echoes this, adding that China is “clearly moving toward a more supportive policy environment for hydrogen”.
But its approach is “unlikely to replicate the EV story one-for-one”, he adds.
China’s concerted hydrogen push is also unlikely to echo the EV story at a global level, according to the IEA.
In terms of green hydrogen, around 60% of global electrolyser manufacturing capacity is currently in China, prompting concerns from the EU about a repeat of China’s global dominance in the solar and EV sectors.
However, the IEA says, electrolysers made in China “might not supply other markets at scale in the short term”, due to difficulties transporting the bulky technology globally, expectations that costs will only fall gradually, uncertainty around global demand and questions over how well Chinese electrolysers perform against global alternatives.
China’s industrial focus on hydrogen is centred more on domestic use, Shen argues. “It is less about near-term export competitiveness and more about building domestic industrial ecosystems,” she says.
The post Q&A: Can China turn hydrogen into its next clean-energy industry? appeared first on Carbon Brief.
Q&A: Can China turn hydrogen into its next clean-energy industry?
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