With Europe’s most ambitious hydrogen strategy, Germany still plans an economy-wide role for the fuel. Yet government outlooks fail to fully consider how electrification and cheaper alternatives will limit hydrogen use across heating, power generation, industry and transport.
IEEFA expects Germany’s 2045 hydrogen demand to be at or below the lower end of official scenario ranges.
“This matters because Germany is financing its hydrogen network on the assumption that demand will grow quickly enough for users to repay the costs over time” said Alasdair Docherty, an IEEFA sustainable finance analyst and co-author of the report. “If that demand fails to materialise, taxpayers will be on the hook.”
IEEFA estimates that a limited-demand scenario could leave German taxpayers liable for at least 34.7 billion euros in pipeline costs by 2055. While pipeline costs make up most of the fiscal exposure, weak hydrogen demand would also increase spending on hydrogen-ready power plants and prolong reliance on liquefied natural gas terminals.
The difference between a rapid and limited hydrogen rollout amounts to 45 billion euros in additional public funding, or 1,000 euros per German taxpayer.
With public finances tied to pipeline use, German policy has focused on sustaining hydrogen demand rather than treating weak uptake as a signal to scale back the network.
Germany’s Hydrogen Acceleration Act, passed by parliament in February 2026, designates blue hydrogen — produced from natural gas with carbon capture and storage — as being in the “overriding public interest”. This marks a significant shift from Germany's original strategy, which focused exclusively on green hydrogen produced from renewable energy.
“A pivot to blue hydrogen would add a network of costly carbon dioxide pipelines and re-entrench Germany’s dependence on volatile global gas markets, threatening long-term energy security and industrial competitiveness” added Mr Docherty. “Blue hydrogen is an expensive way to sacrifice energy independence.”
IEEFA recommends that Germany align hydrogen infrastructure development with confirmed demand and supply commitments. Importing hydrogen derivatives for targeted industrial applications could greatly reduce the need for a large-scale domestic pipeline buildout, lowering system costs and limiting public spending.
Coordinating hydrogen investment with the phaseout of support for liquefied natural gas terminals would reduce the risk of underwriting two overlapping systems against the same demand uncertainty.
“It is better to recognise infrastructure risk early than to justify an oversized network by artificially propping up demand at indefinite taxpayer expense” said Docherty.
For additional information:
Institute for Energy Economics and Financial Analysis (IEEFA)
