China's hydrogen industry has reached a crossroads: the world's largest producer makes 36.5 million tonnes annually, yet nearly four-fifths of it still comes from fossil fuels, and green hydrogen—the kind derived from renewables—represents barely a sliver of the total, just 320,000 tonnes in 2024.
The stakes are enormous. China has declared hydrogen a key "future industry," central both to decarbonizing its economy and reshaping industrial policy for the clean-energy age. For good reason: the International Energy Agency calculates that low-carbon hydrogen could help China avoid close to 16 billion tonnes of CO₂ cumulatively by 2060, with the biggest cuts coming from heavy industry—chemicals and steel—along with maritime shipping. These are sectors that electrification alone cannot easily reach, the stubborn, energy-intensive corners of the economy that resist simple solutions.
Yet today's reality looks quite different. About 78 percent of China's hydrogen comes from coal and gas, releasing staggering amounts of carbon: 38.6 kilograms of CO₂ for every kilogram of hydrogen produced via coal-fired power, and 28.5 kilograms for coal gasification. Renewables-based hydrogen, by contrast, generates only 0.5 kilograms of CO₂ per kilogram produced—but scaling this green alternative faces formidable barriers.
The challenges are familiar to anyone tracking clean energy: hydrogen remains expensive and inefficient to produce, especially the green variety. The infrastructure to support it barely exists. And crucially, there is little incentive yet for industry or consumers to choose hydrogen over entrenched alternatives. Currently, half of China's hydrogen goes into synthetic ammonia and methanol production—for fertilizer manufacturing and transport fuel—while another quarter serves oil refining and coal-to-chemical operations. These are established uses with established supply chains. Breaking through requires not just technology but policy muscle.
This is where the parallel to electric vehicles becomes instructive. A decade ago, EVs faced similar headwinds in China: skepticism about cost and infrastructure, uncertain demand. What changed was policy consistency. The Chinese government deployed sustained support signals, financial incentives, and coordinated infrastructure development. Bloomberg NEF and the IEA now point to the same playbook as essential for hydrogen: China must create demand through industrial quotas and government mandates, while simultaneously improving production efficiency and building out the networks hydrogen needs to be usable at scale.
The efficiency problem cuts deep. Only around 22 percent of the energy fed into hydrogen fuel-cell electric vehicles converts into actual motion, compared to 73 percent for battery electric vehicles—a gap that cannot be ignored when every percentage point affects real-world viability. And Agora Energiewende, the energy-focused thinktank, underscores a harder truth: hydrogen suffers from significant energy losses during conversion processes, meaning the path from production to end-use is far more wasteful than alternatives.
Yet China has already shown it can move mountains when industrial policy aligns with investment. With hydrogen designated as a strategic priority, with maximum production capacity standing at 50 million tonnes and concentrated in provinces with heavy industry—Shandong, Inner Mongolia, Shaanxi, Ningxia, Shanxi—the infrastructure skeleton is in place. What remains is the harder challenge: making green hydrogen cheap enough, efficient enough, and desirable enough that it displaces fossil-fueled alternatives at scale. If China manages it, the payoff in avoided emissions could reshape the global energy landscape.