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UK Government Proposes Gas Shipper Obligation to Fund Low-Carbon Hydrogen Production

The UK government has introduced a Gas Shipper Obligation (GSO) as a funding model for low-carbon hydrogen production, launching a stakeholder consultation to refine the proposal. The GSO aims to bridge the cost gap between low-carbon and conventional fuels, encouraging investment and ensuring a secure hydrogen supply.

Key Aspects of the Proposal

• Levy on Gas Shippers: A volumetric charge on licensed gas shippers in Great Britain, with potential expansion to Northern Ireland. This mirrors Contracts for Difference (CfD) and the Green Gas Support Scheme (GGSS).
• Supporting Hydrogen Production Business Model (HPBM): Funds from the GSO will support revenue guarantees for early low-carbon hydrogen projects and potentially finance transport & storage infrastructure.
• Volumetric Design: Charges will be based on the quantity of gas shipped, ensuring fair cost distribution compared to a flat meter point levy.
• Monthly Collection & Contingency Funds: Regular collections align with HPBM payments, while a contingency buffer mitigates financial risks due to fluctuations in gas prices and sales volumes.
• Exemptions Considered: Certain Gas-Intensive Industries (GIIs) and CCUS-enabled hydrogen producers may qualify for exemptions to prevent carbon leakage and maintain industrial competitiveness.

Opportunities & Benefits

• Investment in Green Hydrogen: Encourages private sector participation in low-carbon hydrogen.
• Energy Security & Stability: Reduces reliance on volatile fossil fuel imports, strengthening domestic supply chains.
• System-wide Benefits: Hydrogen can provide long-duration energy storage and lower network constraint costs.

Challenges & Considerations

• Cost Pass-Through Uncertainty: Market dynamics will influence how much of the levy is passed on to consumers.
• Managing Exemptions: Balancing competitiveness while avoiding loopholes is crucial.
• Operational Complexity: Administering the GSO requires data collection, invoice tracking, and compliance enforcement, necessitating efficient inter-agency coordination.

The consultation period runs until April 2025, allowing stakeholders to provide feedback on the GSO’s design, implementation, and impact on the hydrogen economy.