China Rolls Out Subsidy for Green Fuels Production

China announced a green hydrogen policy last week, which will see the country’s state budget offer subsidies for the production of green fuels. Interestingly, the initiative came in the week that IMO member states failed to adopt a Net-Zero Framework for the global shipping industry. China’s National Development and Reform Commission (NDRC) developed the decarbonization subsidy program. The goal is to mainstream low-carbon investment into national planning.

A key incentive offered by the policy is a 20 percent subsidy on capital expenditure for five groups of decarbonization investments. These include net-zero demonstrations such as green methanol, sustainable aviation fuels (SAF), and carbon capture, utilization, and storage (CCUS). The subsidy will also cover projects advancing carbon market mechanisms. According to some experts, a 20 percent subsidy on green fuel investments could reduce the overall costs by about 5 to 8 percent.

“For years, China’s green hydrogen and e-fuels projects ran on ambition. Subsidy is limited to fuel cell manufacturing, mainly, and fuel cell electric vehicles. This has now changed with a national subsidy for green hydrogen investment,” said Kai Yu, a researcher in China’s clean energy.

As the world’s largest producer of clean energy, China sees green hydrogen production as an important offtake sector for the renewable electricity. Unfortunately, the sector is still riddled with a lot of risks, ranging from distribution infrastructure to high capex costs. Most importantly, demand for green hydrogen and its derived fuels is not yet stable, leading to project delays.

A recent report by China’s National Energy Administration (NEA) showed that as of 2024, over 600 green hydrogen projects had been planned in China, but only 90 had been completed, with 80 having started construction. The report highlighted that it is important to stimulate demand for green hydrogen, especially in the transportation sector, including shipping. A key component of this goal is to accelerate hydrogen trading across Chinese boundaries.

The subsidy policy released last week has been interpreted as an important step to unlock some of these demand barriers. Other observers see the policy as a gesture of China preparing for a net-zero future. China’s domestic shipping sector has made significant steps towards this direction.

“While some nations oppose multilateral carbon frameworks as ‘taxes,’ China is quietly building a domestic incentive system that rewards the same goal (industrial transition toward net-zero). Policy leadership comes in many forms, sometimes through action, not abstention,” commented Chris Chatterton, Managing Director & Partner at Green Marine Group.