The UK is well positioned to realise the potential of low carbon hydrogen. We have a headstart on policy support and we have an innovative industrial base that would welcome access to clean fuel and feedstock. But clear, timely, and substantive signals are needed from the Government concerning low carbon hydrogen’s role in the UK’s energy transition. Implementing our recommendations would unlock private investment in clean fuels and circular chemicals, helping to preserve and enhance our energy and material security.
Low carbon hydrogen could play a vital role in our future energy mix, helping to deliver the UK’s dual goals of energy security and net zero. Hydrogen can be used to store excess renewable generation over long periods and at scale. As an energy carrier it is readily transported to where it is needed, and can be burnt or reacted to produce clean heat and power.
Hydrogen can also be used as a feedstock to make circular fuels, like sustainable aviation fuel (SAF), or value-chain building blocks, like ammonia and methanol, that are needed across all modern economies. These are high-value products with growing global demand and are central to the decarbonisation of sectors as diverse as agriculture, aviation, shipping and manufacturing.
Where are we now?
The UK is well positioned to realise the full potential of low carbon hydrogen. We have a headstart on a robust and credible support mechanism, and we have a strong industrial base that would welcome access to clean fuel and feedstock. Our chemical industry - concentrated in industrial clusters in the North West, South Wales, the Solent, the North East and Grangemouth – provides an immediate and scalable demand for hydrogen, for high-temperature heat (where electrification is not currently viable) and for chemical feedstock.
But UK industry competes globally on price and low carbon hydrogen comes with a green premium, so the Government has devised a Hydrogen Production Business Model (HPBM) to overcome the additional cost of its production and use. HPBM support is awarded to hydrogen suppliers through Hydrogen Allocation Rounds (HARs). The first of these, HAR1 in 2022, focussed on green hydrogen, awarding support to 11 projects. HAR2, in 2024, opened the process to gasification, pyrolysis, and gas splitting, alongside electrolysis, shortlisting 27 projects.
Notwithstanding progress to-date, policy delays are now creating risks for project delivery. Progress through the HAR process has been much slower than expected. Despite its launch in 2022, only a limited number of HAR1 projects have progressed to final investment decision (FID). Whilst HAR2 has entirely stalled following project shortlisting in April 2025, with the Government making no further announcements regarding what the next steps might be.
The combination of delays and a lack of transparency from the Government have created material uncertainty for developers, investors, and off-takers, weakening the UK’s appeal as a destination for hydrogen investment. HAR2 developers, in particular, are placing significant capital at risk on staff, land, planning, engineering, grid connection and supply chain engagement, pending clarity from Government. If prolongued, this uncertainty will not just hold back HAR1 and HAR2 projects, it will likely also result in fewer applications to HAR3 and HAR4.
Moreover, the delays affect projects across the whole hydrogen value chain - production, transport, storage and use - and are undermining the ability to coordinate investment decisions. On the demand-side, a lack of certainty increases the perceived risk of adoption for off-takers like the chemical sector. While supply-side support is offered through the HPBM and HAR, industrial users face substantial upfront switching costs, alongside additional costs linked to hydrogen delivery and infrastructure. In the absence of clear, long-term policy signals and targeted support, off-takers remain cautious about committing to hydrogen.
Recommendations
Low carbon hydrogen production presents an opportunity to support the UK’s industrial competitiveness, whilst providing energy intensive sectors with a viable pathway to decarbonise. Without it, there is a real risk that energy intensive industries like the chemical sector will continue to face declining competitiveness and carbon leakage. In addition to safeguarding existing industrial capacity and jobs, the growth of a domestic low carbon hydrogen economy has the potential to create up to 12,000 jobs across the value chain.
But the UK’s hydrogen sector is at a crossroads. The Government must act to capitalise on the momentum that has been built over the past five years, to ensure that HAR1 and HAR2 projects, in development across the UK, can fulfil their potential as engines of clean growth. Continued inaction risks the loss of confidence across developers, investors, and off-takers, jeopardising progress to-date. The CIA calls on the Government to urgently deliver on its commitments to:
1. Release the Hydrogen Strategy: Originally expected in autumn 2025, the refreshed Hydrogen Strategy is now significantly delayed. Its timely release will provide the market with clarity on Government priorities, target sectors and policy development, halting investment leakage and unlocking private sector funding.
2. Enable HAR1 projects: Supporting the remaining HAR1 projects to reach FID will build confidence and reduce the cost of capital for future rounds. Successful delivery of these first projects will provide a critical proof of concept for the sector, demonstrating that the UK hydrogen sector is investable.
3. Advance HAR2 projects: Clarity on the next steps and timelines will reduce cost to business, preserve project partnerships and enhance the speed of project delivery. Progressing HAR2 is critical in unlocking the next phase of project investments, maintaining jobs and development capability, and delivering up to 700MW of new hydrogen capacity.
4. Engage on HAR3+ projects: Beginning clear and structured engagement on HAR3 and future HAR rounds, as soon as possible, will provide visibility on timelines, eligibility, and process, helping to maintain project pipeline development.
5. Address demand-side barriers: Consulting on targeted support for industrial off-takers, including support for onsite infrastructure and equipment upgrades, would be a step towards reducing perceived risks for industrial off-takers. Early deployment of first-of-a-kind hydrogen projects in the chemicals sector would in turn generate valuable learning and exportable skills, reducing technology and delivery risk, and driving critical cost reductions.
6. Improve delivery of future business models: Apply lessons from HAR1 and HAR2 to the Hydrogen Transport Business Model (HTBM) and Hydrogen Storage Business Model (HSBM), ensuring the effective and timely development of a coordinated UK hydrogen network.
The UK is well positioned to realise the great potential of low carbon hydrogen. We have a headstart on a robust and credible support mechanism, and we have a strong industrial base that would welcome access to clean fuel and feedstock. But clear, timely, and substantive signals are needed from the Government on the role of low carbon hydrogen in the UK’s energy transition. Implementing our recommendations would help to crowd-in private investment in clean fuels and circular chemicals, helping to future-proof UK chemical production, create new jobs, and enhance our energy and material security.
