Deriving industrial hydrogen demand curves in Germany and China: The implications of carbon pricing instruments

Hydrogen is an important option for decarbonizing hard-to-abate industries, yet its economic feasibility remains uncertain due to the lack of a hydrogen market. This paper introduces a new modeling approach, the Hydrogen Demand Curve Analysis and Simulation Model for Industry (HyDAM-I), which explicitly captures hydrogen demand elasticity and cross-industrial interactions. We apply HyDAM-I to Germany and China and analyze how energy prices, carbon prices, and carbon pricing instruments affect technology diffusion and hydrogen demand. Results for 2030 and 2050 show that high energy and carbon prices increase the willingness-to-pay for hydrogen in both countries. In Germany, the Carbon Border Adjustment Mechanism supports the long-term feasibility of low-carbon production, but additional short-term support is needed. In China, earlier inclusion of industry in the carbon market accelerates the competitiveness of low-carbon technologies. The largest hydrogen consumers are expected to be the primary steel industry in Germany and the methanol industry in China. • Germany and China risk industry relocation without affordable hydrogen. • High carbon prices drive industrial decarbonization and hydrogen adoption. • CBAM promotes Germany's long-term decarbonization, but short-term barriers persist. • Primary steel is the largest hydrogen-demanding German industry. • Methanol production likely demands the most hydrogen in China.