Key regulatory instruments
The European Union (EU) has developed a policy and legal framework, with initiatives such as the Hydrogen Strategy for a Climate-Neutral Europe and the Renewable Energy Directive III (RED III), which emphasise the role of hydrogen in achieving the EU’s climate and energy goals. This framework aims to shape the hydrogen market and incentivises both investors and governments to act.
Two instruments are often referred to as key driver for the hydrogen market: RED III and the International Maritime Organization (IMO) Net-Zero Framework. A third potential key driver is anticipated in the short term: the Delegated Act on low-carbon hydrogen.
RED III and its targets
RED III sets binding targets for renewable fuels, including hydrogen (or more precisely, renewable fuels of non-biological origin (RFNBOs)), across the EU. The directive increases the EU-wide renewable energy target to a minimum of 42.5 percent by 2030. Additionally, it sets sectoral targets, such as a 42 percent share of hydrogen in industry use by 2030 (and 60 percent by 2035). These ambitious targets aim to send a clear signal to the market, encouraging investments in renewable hydrogen production technologies. Governments and industry players were encouraged to respond, and financial support mechanisms are aligned to meet the EU’s renewable hydrogen targets. RED III’s targets help facilitate the emergence of demand for renewable hydrogen and the infrastructure needed to support it. At the same time, RED III’s focus is squarely on renewable hydrogen: producing such hydrogen is subjected to very stringent conditions (laid out in the RFNBO Delegated Act(s)) and has remained rather expensive. It is said that, in light thereof, the European Commission may be re-evaluating the attainability of some targets, but for now, they still aim to drive the market for renewable hydrogen. At the EU level, this is probably the next big regulatory thing the market is waiting for.
Low-carbon hydrogen
The market is further looking forward to a new Delegated Act regulating low-carbon hydrogen, which may also enjoy certain advantages and could further help kickstart market developments. Low-carbon hydrogen may be made from non-renewable sources, but it will qualify as low-carbon insofar as it produces 70% less greenhouse gas emissions than traditional hydrogen made from fossil fuels. Recently, a draft delegated act was consulted upon that aimed to clarify details on how the greenhouse gas intensity would be calculated, but the initial draft was not welcomed unequivocally by market and political actors alike, as it imposed too stringent sourcing requirements. On the final day of the World Hydrogen Summit, two prominent members of the European People’s Party called for a flexible revision of the Draft Delegated Act on low-carbon hydrogen, to further drive an uptake in hydrogen market developments.
IMO Net-Zero Framework and its impact
Many businesses are eagerly awaiting further news from the European Commission, but it seems that the market’s hopes have furthermore become vested in the development of another policy framework, i.e. the Net-Zero Framework to reduce emissions from international shipping. This framework, which was approved by the Marine Environment Protection Committee during its 83rd session in April 2025, is going through the final formal approval process which is projected to result in a decision by the IMO in October 2025. Such a decision may have an enormous impact, as it may render important measures mandatory for large ocean-going ships over 5,000 gross tonnages (which emit 85% of the total CO2-emissions from shipping). Conversely, the measures may have an enormous impact on the development of demand. After all, with a target of net-zero emissions by 2050 and interim targets of a 40 percent reduction by 2030 and a 70 percent reduction by 2040, the IMO may be sending a strong signal to the maritime sector to invest in green fuels, including hydrogen. Expected to enter into force in 2027, the new IMO rules will increase the cost of fossil fuels in the sector, making green hydrogen a more attractive alternative. Moreover, as the envisaged rules would affect an enormous amount of fuels (in total), given the size of the sector, they could act as a true boost for demand, which in turn could accelerate green or low carbon hydrogen market developments.
Uncertainty and unclarity
While clear targets can certainly bolster market developments, embedding the targets in complex regulatory frameworks may bring about uncertainty and a lack of clarity, which is crucial for business and investors alike.
For RED III, uncertainty lingers due to potential differences in transposition of the directive into national legislation. The directive provides some flexibility for each member state on how to attain targets and in some cases, even derogations from the targets may apply. With each member state having its own timeline and approach for implementing the directive, inconsistencies could arise in the regulatory landscape, but also first mover advantages, as some implementation frameworks will be clarified sooner or, more generally, be welcomed more positively by investors and businesses.
Geopolitical factors affecting the IMO framework
Although the IMO Net-Zero Framework is expected to be formally adopted in October 2025, in the current, rather challenging geopolitical times, it is not certain whether the provisionally adopted framework will make it to a final decision unscathed. Even if it does – an assumption that was seemingly shared by many at the World Hydrogen Summit – the question remains how the framework will interact with existing regulatory structures, and what the framework will exactly mean for the pace and location of market growth.
Notwithstanding these uncertainties, the message remains intact: green fuels must and will play a large role in shipping and European industry alike, and hydrogen will need to play a crucial role.
How to navigate through this uncertainty
Though some uncertainty lingers, RED III has already made it clear that hydrogen will play an important role in Europe and now recently, the IMO Net-Zero Framework doubles down on green fuel ambitions, showing once again how regulatory frameworks can be crucial in driving growth of the hydrogen market, by setting unambiguous targets, encouraging investment, and creating or maintaining the necessary momentum for the sector’s continued development, positioning hydrogen as a key player in the energy transition.
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