Regional spotlight: Hydrogen & e-fuels in China — what's different and why it matters

China produced roughly 35 million tonnes of hydrogen in 2025, more than any other country and approximately one-third of global output, yet over 80% of that volume still came from unabated coal gasification, according to the China Hydrogen Alliance's annual market assessment. This paradox, the world's largest hydrogen producer operating overwhelmingly on the dirtiest feedstock, defines everything that is different about the Chinese hydrogen and e-fuels landscape. For sustainability leads evaluating supply chain partnerships, technology licensing, or joint ventures involving Chinese counterparts, the gap between headline investment figures and on-the-ground decarbonization reality requires careful navigation.

Why It Matters

China's hydrogen strategy is not simply a climate initiative. It is an industrial policy instrument designed to secure technological leadership, reduce dependence on imported oil and gas, and create export-competitive manufacturing capacity in electrolyzers, fuel cell vehicles, and green ammonia production. The Medium- and Long-Term Plan for the Development of the Hydrogen Energy Industry (2021 to 2035), released by the National Development and Reform Commission (NDRC) in March 2022, set a target of 50,000 tonnes per year of green hydrogen production capacity by 2025 and positioned hydrogen as a "frontier area of strategic emerging industries."

By early 2026, China had exceeded that 2025 target, reaching an estimated 65,000 tonnes per year of operational green hydrogen capacity according to Bloomberg NEF analysis. However, context matters: 65,000 tonnes represents less than 0.2% of China's total hydrogen production. The gap between green hydrogen ambition and fossil-based hydrogen reality is wider in China than in any other major hydrogen market.

This matters for international sustainability leads for three reasons. First, Chinese electrolyzer manufacturers now supply over 60% of global alkaline electrolyzer capacity and are rapidly scaling proton exchange membrane (PEM) technology, meaning that green hydrogen project economics globally are increasingly linked to Chinese manufacturing costs. Second, China's fuel cell vehicle deployment, concentrated in commercial trucks and buses through city cluster demonstration programs, is generating operational data and cost reduction trajectories that will shape global fuel cell economics. Third, China's green ammonia and green methanol production ambitions directly affect decarbonization pathways for international shipping, fertilizer production, and chemical feedstocks.

Key Concepts

The City Cluster Demonstration Model

Unlike the EU's continent-wide hydrogen strategy or the US Inflation Reduction Act's technology-neutral production tax credit approach, China deploys hydrogen through a geographically concentrated city cluster model. In 2021, five city cluster groups were designated by the Ministry of Finance and four additional clusters were approved subsequently. Each cluster, typically comprising 3 to 12 cities in a region, receives central government subsidies for fuel cell vehicle deployment, hydrogen refueling station construction, and core component technology development.

The Beijing-Tianjin-Hebei cluster, the Yangtze River Delta cluster (led by Shanghai), the Guangdong cluster (led by Foshan), the Henan cluster, and the Hebei cluster represent the primary deployment zones. Each cluster must meet technology localization requirements, driving domestic supply chain development. By the end of 2025, these clusters had collectively deployed over 20,000 fuel cell vehicles, the vast majority being heavy-duty trucks and transit buses, and constructed approximately 450 hydrogen refueling stations (China Society of Automotive Engineers, 2025).

Coal-to-Hydrogen Baseline

China's hydrogen production structure reflects its broader energy system. Approximately 62% of production comes from coal gasification, 19% from natural gas steam methane reforming, and 15% from industrial byproduct hydrogen (primarily from chlor-alkali and coking operations). Green hydrogen from electrolysis accounts for roughly 3 to 4% of production, with the remainder from other sources. This coal-heavy baseline means that replacing even a fraction of grey hydrogen with green hydrogen delivers substantial emissions reductions: each tonne of grey hydrogen from coal gasification generates 18 to 22 tonnes of CO2, compared to 9 to 12 tonnes from natural gas reforming and effectively zero from renewables-powered electrolysis.

The Sinopec Kuqa Green Hydrogen Pilot in Xinjiang, commissioned in mid-2023, illustrates both the potential and the scale challenge. The project uses 300 MW of solar PV to power alkaline electrolyzers producing 20,000 tonnes per year of green hydrogen for Sinopec's Tahe Refinery. At full capacity, it displaces roughly 48,000 tonnes of CO2 per year. However, the Tahe Refinery alone consumes over 140,000 tonnes of hydrogen annually, meaning the green hydrogen pilot covers less than 15% of a single refinery's demand.

E-Fuels and Green Methanol

China's e-fuels strategy centers on green methanol production, driven primarily by demand from the international shipping sector. The International Maritime Organization's revised greenhouse gas strategy and the EU's FuelEU Maritime regulation have created pull demand for low-carbon marine fuels. Chinese producers, leveraging low-cost renewable electricity in Inner Mongolia, Xinjiang, and Ningxia, are positioning to become major green methanol exporters.

Goldwind, Inner Mongolia Energy Group, and several other developers have announced green methanol projects totaling over 4 million tonnes per year of planned capacity, primarily in northern China. These projects co-locate wind farms with electrolyzers and CO2 capture from industrial point sources (cement plants and chemical facilities) to synthesize methanol via CO2 hydrogenation. Maersk has signed multiple green methanol offtake agreements with Chinese producers, including a 2025 deal with Goldwind for 500,000 tonnes per year from a facility in Inner Mongolia (Maersk, 2025).

What's Working

Electrolyzer cost reductions: Chinese alkaline electrolyzer manufacturers including LONGi Hydrogen, Peric Hydrogen, Sungrow, and TianJin Mainland Hydrogen Equipment have driven system costs below $300 per kW, roughly 60 to 70% below European and North American equivalents. This cost advantage stems from manufacturing scale (LONGi's Xi'an facility alone can produce 2.5 GW of electrolyzer capacity per year), standardized designs, and integrated supply chains for nickel electrodes and diaphragm materials. PEM electrolyzer costs have also fallen rapidly, with Chinese manufacturers reaching approximately $600 per kW versus $1,200 to $1,800 per kW from Western manufacturers (Bloomberg NEF, 2026).

Heavy-duty transport deployment: The city cluster programs have generated meaningful operational data. Foshan, the leading fuel cell vehicle city, has over 3,500 fuel cell trucks and buses in daily commercial operation. These vehicles have accumulated over 250 million kilometers of road data, demonstrating fuel cell durability improvements from 5,000 hours in 2020 to over 15,000 hours in 2025 for leading stacks from SinoHytec and Refire Technology. Total cost of ownership for fuel cell trucks in specific use cases, particularly port drayage, cold chain logistics, and fixed-route intercity freight, is approaching parity with diesel in regions where hydrogen is priced below RMB 35 per kilogram ($4.80/kg).

Renewable hydrogen corridor projects: The "West-to-East Hydrogen Transmission" concept is moving from planning to pilot implementation. The Ordos-Beijing hydrogen pipeline project, a 400-kilometer pipeline designed to carry green hydrogen produced from wind and solar resources in Inner Mongolia to industrial consumers in the Beijing-Tianjin-Hebei region, began construction in late 2025. China National Petroleum Corporation (CNPC) is leading the project, leveraging existing pipeline rights-of-way and repurposing sections of natural gas pipeline infrastructure. The project aims to transport 100,000 tonnes per year of hydrogen by 2028 (CNPC, 2025).

What's Not Working

Green hydrogen cost gap: Despite electrolyzer cost advantages, green hydrogen production costs in China remain RMB 25 to 40 per kilogram ($3.40 to $5.50/kg), significantly above grey hydrogen from coal gasification at RMB 8 to 12 per kilogram ($1.10 to $1.65/kg). Without a carbon pricing mechanism that internalizes the 18 to 22 tonnes of CO2 per tonne of coal-based hydrogen, the economic incentive to switch to green hydrogen is weak. China's national emissions trading scheme covers the power sector but does not yet include hydrogen production, chemical manufacturing, or refining, the sectors where hydrogen demand is concentrated.

Certification and standards gaps: China lacks a comprehensive green hydrogen certification system comparable to the EU's Delegated Acts under the Renewable Energy Directive or the US 45V production tax credit's additionality and temporal matching requirements. The China Hydrogen Alliance published a low-carbon hydrogen standard in 2022, but compliance is voluntary and verification infrastructure is limited. This creates challenges for international offtakers who need certified green credentials to satisfy EU or IMO regulatory requirements. Several green methanol projects have stalled at the contracting stage because buyers cannot obtain independently verified lifecycle emissions data that meets European regulatory standards.

Refueling infrastructure bottlenecks: Although China has built over 450 hydrogen refueling stations, utilization rates average only 15 to 25%, well below the 40 to 50% needed for commercial viability. Many stations were built to satisfy cluster subsidy requirements rather than optimized for fleet logistics. Station capacity is typically 500 to 1,000 kg per day, but daily throughput averages only 100 to 200 kg. High-pressure tube trailer delivery (at 200 to 500 bar) adds $1.50 to $3.00 per kg to delivered hydrogen cost compared to pipeline delivery, further undermining station economics.

Water constraints in key production regions: The renewable-rich regions best suited for green hydrogen production (Xinjiang, Inner Mongolia, Gansu, Ningxia) are also among China's most water-stressed areas. Alkaline electrolysis requires approximately 9 liters of ultrapure water per kg of hydrogen produced. A 100,000 tonne per year green hydrogen facility would consume roughly 900,000 cubic meters of water annually. Several proposed projects in Xinjiang have faced delays due to water allocation conflicts with agricultural users, and the Ministry of Water Resources issued guidance in 2025 requiring water impact assessments for hydrogen projects exceeding 10,000 tonnes per year of production capacity.

Key Players

Established Companies

• Sinopec: China's largest hydrogen producer (over 4 million tonnes/year), operating the Kuqa green hydrogen pilot and planning 10+ additional green hydrogen projects across refinery sites
• CNPC: Leading the Ordos-Beijing hydrogen pipeline and developing green hydrogen production at multiple upstream sites in western China
• State Power Investment Corporation (SPIC): Major investor in PEM fuel cell technology through subsidiary United Fuel Cell System R&D, with over 5,000 fuel cell vehicles powered by SPIC stacks
• LONGi Hydrogen: Spin-off from LONGi Green Energy, the world's largest solar manufacturer, producing alkaline electrolyzers at 2.5 GW annual capacity
• Goldwind: Wind turbine manufacturer expanding into integrated green hydrogen and green methanol production in Inner Mongolia

Startups and Growth Companies

• SinoHytec: Beijing-based fuel cell system integrator with over 8,000 systems deployed in commercial vehicles, achieving 15,000+ hour durability
• Refire Technology: Shanghai-based fuel cell developer supplying systems for heavy trucks and buses, with international expansion into Europe and Southeast Asia
• Peric Hydrogen: Alkaline electrolyzer manufacturer with over 1.5 GW of installed capacity and growing export business to Middle East and African markets
• Hy-Power: Developer of solid oxide electrolyzer cells (SOEC) for high-temperature electrolysis applications in industrial settings

Investors and Institutions

• China Green Development Fund: Government-backed fund with RMB 88.5 billion ($12 billion) in committed capital, actively investing in hydrogen infrastructure
• CICC Capital: Investment arm of China International Capital Corporation, managing dedicated hydrogen and clean energy funds exceeding $2 billion
• IDG Capital: Venture capital firm with significant investments in Chinese fuel cell and electrolyzer startups

Action Checklist

• Assess supply chain exposure to Chinese electrolyzer and fuel cell component manufacturers, evaluating both cost benefits and geopolitical supply risks
• For green methanol or green ammonia procurement from Chinese producers, verify lifecycle emissions certification meets destination-market regulatory standards (EU RED III, FuelEU Maritime, IMO CII)
• Monitor NDRC policy updates on hydrogen classification standards and carbon pricing scope expansion, as inclusion of hydrogen production in the national ETS would fundamentally alter cost dynamics
• Evaluate partnership opportunities in city cluster programs for fuel cell vehicle technology validation and operational data access
• Conduct water risk assessments for any green hydrogen supply agreements sourced from northwestern China production sites
• Track Chinese electrolyzer export pricing trends as a leading indicator of global green hydrogen project economics

FAQ

Q: How does China's green hydrogen cost compare to other major producing regions? A: China's green hydrogen production cost of $3.40 to $5.50 per kg is competitive with European costs ($4.50 to $7.00/kg) but higher than optimal sites in the Middle East, Chile, and Australia ($2.50 to $4.00/kg). China's advantage lies in electrolyzer capital costs that are 60 to 70% below Western equivalents, but this is partially offset by lower average capacity factors for renewables in some regions and higher water treatment costs in arid production zones. By 2028, Chinese producers targeting costs below $2.50/kg through scale, improved electrolyzer efficiency, and dedicated renewable power purchase agreements.

Q: Can international buyers rely on Chinese green methanol meeting EU regulatory standards? A: Not yet with confidence. The gap between China's voluntary low-carbon hydrogen standard and the EU's Delegated Acts requirements (additionality, temporal correlation, geographic correlation) remains significant. International buyers should require third-party verification from accredited bodies (TUV, DNV, Bureau Veritas) and contractually specify compliance with destination-market standards. Several verification pilot programs are underway, including a DNV-led initiative with three Chinese green methanol producers, expected to deliver certified volumes by late 2026.

Q: What are the risks of sourcing electrolyzers from Chinese manufacturers? A: Price advantages are substantial, but risks include potential trade restrictions (the EU's Carbon Border Adjustment Mechanism and US tariff policies may affect electrolyzer imports), warranty enforcement across jurisdictions, technology transfer and IP concerns for PEM systems, and supply chain concentration risk. Mitigation strategies include diversifying electrolyzer procurement across at least two suppliers and two geographies, negotiating performance guarantees with third-party escrow mechanisms, and conducting independent factory acceptance testing.

Q: How will China's national ETS expansion affect hydrogen economics? A: The Ministry of Ecology and Environment has signaled that refining, chemicals, and steel sectors will enter the national ETS by 2027 to 2028. At current ETS prices of RMB 80 to 100 per tonne of CO2 ($11 to $14/tonne), the carbon cost penalty on coal-based hydrogen would be $200 to $300 per tonne of hydrogen, narrowing but not closing the gap with green hydrogen. Analysts estimate that carbon prices above RMB 200 per tonne ($28/tonne) would be needed to achieve green-grey hydrogen cost parity at current electrolyzer and renewable energy costs.

Sources

• China Hydrogen Alliance. (2025). China Hydrogen Energy and Fuel Cell Industry Annual Report 2025. Beijing: CHA.
• National Development and Reform Commission. (2022). Medium- and Long-Term Plan for the Development of Hydrogen Energy Industry (2021-2035). Beijing: NDRC.
• Bloomberg NEF. (2026). Hydrogen Electrolyzer Market Outlook: Global Cost and Capacity Trends. London: BNEF.
• China Society of Automotive Engineers. (2025). China Fuel Cell Vehicle City Cluster Demonstration Program: Progress Report 2025. Beijing: SAE-China.
• Maersk. (2025). Green Methanol Supply Agreements: China Sourcing Portfolio Update. Copenhagen: A.P. Moller-Maersk.
• CNPC. (2025). Ordos-Beijing Hydrogen Pipeline Project: Engineering Design and Construction Update. Beijing: China National Petroleum Corporation.
• International Energy Agency. (2025). Global Hydrogen Review 2025. Paris: IEA.
• Ministry of Ecology and Environment. (2025). National Carbon Emissions Trading Scheme: Sector Expansion Roadmap. Beijing: MEE.