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A new policy in China could ramp up the nation’s production of green hydrogen for use in airplanes, ships, and other heavy industries, potentially eclipsing output of the fuel in the United States and Europe.
Earlier this month, the National Development and Reform Commission — the high-ranking executive department in charge of economic planning — released what analyst Jian Wu called China’s single ​“most important low-carbon policy for 2025.”
Until now, China has encouraged provincial governments and state-owned companies to develop hydrogen technology by providing lower electricity prices and loans and by setting production quotas. But unlike the United States and the European Union, the national government in Beijing had no overarching policy to directly subsidize low-carbon hydrogen projects.
While the document published on Oct. 15 does not specify hydrogen by name, the policy change makes Chinese industries that depend on the clean fuel eligible for direct grants.
For the first time ever, the rules outlining which types of industrial projects qualify for national grants list green methanol, carbon capture, sustainable aviation fuel, and zero-carbon industry parks — ​“paving the way for rapid development of these applications in China,” Wu wrote in his China Hydrogen Bulletin newsletter. Of the hundreds of clean-energy directives China issues at its various levels of government each year, Wu emphasized, the latest policy is ​“absolutely” the most significant, particularly for heavy industry.
By designating those sectors for direct grants under Beijing’s central budget, ​“the government is effectively establishing its first national funding mechanism for some of these hydrogen-adjacent technologies,” said Amy Ouyang, a hydrogen associate at the Clean Air Task Force, a Boston-based environmental group.
“China’s hydrogen sector has relied heavily on private capital, so this guidance marks a potential shift toward a more coordinated, state-backed effort to turn policy ambition into on-the-ground deployment,” she said, adding that ​“the inclusion of these adjacent technologies could reinforce its growing role in China’s broader industrial decarbonization strategy.”
The move comes as the United States turns away from its nascent efforts to develop a clean-hydrogen industry. The landmark 45V federal tax credits meant to spur production and use of clean hydrogen, once slated to last until 2033, are now set to phase out in two years as a result of President Donald Trump’s One Big Beautiful Bill Act. The Trump administration, meanwhile, is poised to use funding meant for hydrogen-based steel projects to bolster production of steel made with fossil fuels instead.
China is already the world’s largest hydrogen market, by far. At about 33 million metric tons of demand per year, the industry is roughly three times the size of the American market. In the United States, 95% of hydrogen is produced with natural gas, primarily through a process that involves using steam heated to temperatures as high as 1,832 degrees Fahrenheit to separate the molecule out of methane. America’s reliance on natural gas is no surprise, given that it has vast reserves and the world’s largest drilling industry.
By contrast, China imports much of its natural gas, so the fuel is used to generate 25% of the country’s hydrogen. A significant share of China’s hydrogen is a byproduct of other industrial processes, such as heating coal to make purified ​“coke” for steel mills.
Since a portion of that byproduct hydrogen is vented into the atmosphere as waste, the new national grants could include projects that capture and repurpose more of that gas. But China’s world-leading deployments of solar, wind, hydro, and nuclear power plants also generate an ample supply of clean electricity to produce green hydrogen — the version of the fuel made by blasting distilled water with enough electricity to separate hydrogen molecules from the oxygen ones. Already, in July, China agreed to sell a historic debut shipment of green steel made with hydrogen to buyers in Italy.
Despite China’s clean-energy advantage, the U.S. and European Union had, until now, boasted stronger national policies for developing domestic green hydrogen.
While China’s government-owned businesses invested in green hydrogen, ​“there was nothing at the national level,” like the 45V tax credits in America’s Inflation Reduction Act or the European hydrogen bank, said Anne-Sophie Corbeau, a hydrogen researcher at Columbia University’s Center on Global Energy Policy.
For example, Beijing backed fuel-cell vehicles, but the support came primarily as a reward for reaching manufacturing targets, not as direct subsidies, she said. The central government might give an annual reward of 1.6 billion yuan ($225 million) per city based on progress toward certain deployments of fuel-cell infrastructure, but ​“if you are underperforming, you may get nothing,” Corbeau said.
“Broadly, that means no state support for industrial applications like what we may have seen in other countries,” she said.
This month’s policy shift will direct Beijing’s funding hose at heavy industries that transition from coal and gas to hydrogen, including ​“power, steel, nonferrous metals, building materials, petrochemicals, chemicals, and machinery,” said Xinyi Shen, the China team lead at the Centre for Research on Energy and Clean Air, a Finnish research nonprofit.
“This policy sends a strong signal of China’s commitment to accelerating its green transition,” she said. ​“Given China’s current clean-energy momentum and industrial policy direction, the country may ultimately achieve deeper [emissions] cuts than it has formally committed to.”
Still, Shen warned, ​“green hydrogen remains costly.” But China’s capacity to swiftly scale industries that the government makes a priority has a history of sending prices plunging, as happened with solar panels and batteries. And China’s hydrogen sector ​“is expanding rapidly,” Ouyang said.
Between 2021 and 2023, she said, roughly 100 to 200 new hydrogen-related companies launched each year in the country. Today, China dominates manufacturing of the most popular type of electrolyzer, the machine used to make green hydrogen, representing roughly 60% of the global market. Thanks to that scale, a Western company buying a Chinese-made electrolyzer would pay one-third the price of a locally made counterpart.
If central government funding accelerates in the next year or two as expected, ​“China could solidify its leadership in the industry and achieve some of the world’s lowest-cost green hydrogen,” Ouyang said.
That could put the U.S. and Europe at risk of lagging behind China, just as they have with other steps in the clean-energy supply chain, experts say.
Corbeau said the conditions are already there for China to dominate the industry. Once the federal tax credits expire, she said, ​“nothing much will happen” beyond ​“a few projects” in America.
She noted that in Europe earlier this year, the regional hydrogen bank’s second offering of a public subsidy for hydrogen tried to limit funding for projects that had too many Chinese components. But ​“the scheme does not give much money, and some projects told me they are better off with Chinese technology because of the cost advantage,” Corbeau said.
“It’s almost too late already,” she added.
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