Economic Perspectives on the Decarbonization of Hard-to-Abate Sectors

The climate crisis is increasingly threatening ecosystems and livelihoods across the globe. To combat global warming, the substitution of fossil fuels is inevitable. While renewable energy sources (RES) are a prerequisite of the energy transition, their decarbonization potential is limited in certain industries, such as steelmaking and aviation. For these so-called “hard-to-abate” sectors, accounting for around 40% of global greenhouse gas (GHG) emissions, green hydrogen offers a promising alternative. Beyond the environmental benefits, green hydrogen has several economic implications. The existing literature has mainly focused on the techno-economics of green hydrogen to address the persistent lack of cost competitiveness compared to fossil fuels. With anticipated learning curves and scaling effects, the cost gap is expected to be reduced in upcoming years, making green hydrogen use more attractive. This raises questions about the broader economic implications of green hydrogen, such as intersectoral linkages, employment opportunities, and demand-side effects. These aspects are not only valuable for policymakers, but also for promoting the public acceptance of green hydrogen. While the relevance is acknowledged by many studies, the topic remains underexplored. Against this background, this thesis provides a macroeconomic perspective on green hydrogen supply chains. An extensive body of economic literature has examined other decarbonization options, such as renewable electricity or biofuels, but there is limited evidence on the economy-wide effects of green hydrogen. In addition, the few existing studies mostly use datasets with little socio-economic detail. Therefore, this thesis seeks to extend the analysis by using comprehensive macroeconomic frameworks which cover the socio-economic dimensions appropriately. Moreover, the thesis considers the spatial dimension of green hydrogen supply chains, exploring economic effects at the regional, national, and international level. Four overarching aims are addressed: (1) Developing and applying approaches that enable the integration of green hydrogen supply chains into macroeconomic frameworks with socio-economic details. (2) Quantifying the economic and environmental impacts of green hydrogen infrastructure at the regional, national, and international level. (3) Analyzing how economic conditions shape the magnitude and distribution of effects arising from green hydrogen production and utilization. (4) Unveiling the role of regulations, price policies, and partnerships in fostering the green hydrogen economy. These overarching aims are covered as specific objectives within multiple research papers that are incorporated as individual chapters in this thesis. A particular focus is set on green hydrogen supply chains and application technologies for aviation, which is essential for economic and cultural exchange worldwide. At the same time, the aviation sector accounts for 2-3% of global carbon emissions and is one of the most difficult sectors to be decarbonized given the specific technical requirements. Chapter 1 provides the motivation of the topic and introduces the conceptual framework, the overarching aims of the thesis and the methods used. In addition, Chapter 1 contains a brief summary of each chapter, including research objectives, main findings and conclusions. Finally, an outline of the research papers included in the thesis with the author’s respective contributions and additional publications is presented. Chapter 2 and 3 focus on regional analyses. Using the case of Lower Saxony, Chapter 2 addresses the challenge of limited availability of regional economic data. The study adopts and compares two common non-survey approaches for regionalization: the Cross Hauling Adjusted Regionalization Method (CHARM) and the Location Quotient (LQ) approach. Two regional input-output tables (RIOTs) are constructed and subsequently analyzed, using established methods from input-output (IO) modeling. Methodological differences translate into distinct findings: CHARM focuses on supply-based trade flows and incorporates consumption-induced effects, whereas LQ reveals more details about regional production structures. The differences are generally more pronounced in sectors with a high import share. Moreover, the study provides insights into Lower Saxony’s economy: Transportation, financial services, and energy supply are identified as key sectors under both approaches. In addition, the relevance of food production and motor vehicle manufacturing is emphasized, with their hypothetical extraction reducing total output significantly. The findings demonstrate that both regionalization methods provide complementary perspectives. Policymakers should enhance the availability of regional economic data in order to identify and effectively strengthen key sectors. Chapter 3 builds on the regional data framework developed in Chapter 2 and investigates the economic impacts of wind power in Lower Saxony. The RIOT is complemented with techno-economic and industry-specific data, followed by a rebalancing approach to integrate wind power industries into the macroeconomic framework. The analysis quantifies the current economic footprint of both onshore and offshore in Lower Saxony. While onshore wind is found to have larger effects per EUR output, offshore wind yields larger impact per unit of electricity generated. Indirect and induced effects contribute up to more than half of the total impacts. The scenario analysis shows that economic benefits from wind power expansion massively depend on regional component manufacturing. Substituting fossil electricity by wind power generates positive gross value added (GVA) and environmental benefits but leads to net negative employment. The findings underline the crucial impact of combining detailed regionalized with industry-specific data. The study also emphasizes that wind power can act as a massive driver of regional economic development, but policies need to ensure regional value chain participation and manage structural changes in the labor market. The Chapters 4, 5 and 6 extend the perspective to the national level. Focusing on hydrogen-powered aviation in Germany, Chapter 4 combines a techno-economic and macroeconomic perspective and proposes an approach to integrate novel fuel supply chains into an economy-wide framework. The study develops a social accounting matrix (SAM) and analyzes the macroeconomic role of aviation. Subsequently, three potential pathways for liquid hydrogen (LH2) supply are examined and integrated into the macroeconomic framework. Several macroeconomic sectors benefit from LH2 supply chains, such as motor vehicle and machinery production. The results show that importing gaseous hydrogen with domestic liquefaction would be the most cost-efficient supply route, but a full inland supply route has the largest impact on the domestic economy. Moreover, a literature-based discussion highlights the substantial job potential of a green hydrogen economy. The study provides insights into the macroeconomic interdependencies of hydrogen-powered aviation and offers a methodological foundation for further economic analyses on hydrogen-based supply chains. Chapter 5 focuses on Power-to-Liquid (PtL) fuels, which are classified as sustainable aviation fuels (SAF) and represent another hydrogen-based application for the aviation sector. Based on a SAM, the study applies multiplier models of different endogeneities to estimate economic and environmental impacts of PtL fuel production infrastructure in Germany, differentiating construction and operation phase. Higher employment effects are found for the construction phase, while operation yields stronger production effects. The findings also demonstrate strong inter-industrial linkages of PtL fuel infrastructure within the German economy. The incorporation of income- and investment-induced effects reveals further spillovers to other sectors beyond the fuel supply chain. Environmental trade-offs are identified in upstream sectors, while the sensitivity analysis proves that the type of RES massively influences the economic and environmental effects. Policymakers should strengthen domestic industry clusters to unlock the economic potential of SAF. At the same time, decarbonization efforts must be extended to all sectors, and the fostering of regulatory frameworks for Renewable Fuels of Non-Biological Origin (RFNBOs) is recommended. Chapter 6 extends the analysis of PtL fuels by incorporating demand-side effects. Based on a computable general equilibrium (CGE) model, the introduction of blending quotas, as implemented by the European Union (EU), is examined, using the exemplary case of Germany. In addition, different price policies are tested, and a detailed sensitivity analysis is simulated. While low quota levels lead to a moderate demand decrease, the results for high quota levels demonstrate a substantial reduction in aviation output. In addition, high blending mandates affect further industries and lead to modestly negative macroeconomic impacts. Fuel subsidies and imports from low-cost regions can mitigate the decline in aviation demand but intensify macroeconomic losses. In addition, price elasticities and PtL fuel production costs are identified as main determinants for the magnitude of effects. The study emphasizes that blending quotas are likely to generate macroeconomic losses, as long as fuel production costs are not cost competitive. However, supporting instruments should be balanced carefully and potential trade-offs between sectoral interests and fiscal burdens need to be considered. Chapter 7 shifts the analysis of SAF to the international context and examines the interplay of multiple climate policies on the EU’s aviation sector. The study presents a partial equilibrium model covering several SAF supply pathways and different market segments of intra-European air travel. Based on a mixed complementarity approach, the model investigates the joint impacts of carbon pricing, blending quotas and a dedicated SAF support mechanism on jet fuel composition, emission levels, and air transport demand. While the EU Emissions Trading System (ETS) alone does not cause any SAF deployment, only biofuel is used under blending mandates before 2030. The results further demonstrate that the allowance-based support mechanism can foster PtL fuel uptake, but the number of allowances is insufficient to ensure a durable use until sub-quotas are introduced. Policymakers should thus evaluate an expansion of the allowance budget. Moreover, the sensitivity analysis shows that techno-economic assumptions mainly affect the substitution among SAF, while the allowance price is the main driver for emission levels and demand-side effects. The study provides insights into the economic dynamics of regulatory and price-based policies for the European aviation market. Chapter 8 investigates bilateral green hydrogen partnerships. Taking the case of Morocco and Germany, the study combines techno-economic and macroeconomic analysis, with a particular focus on the role of country-and technology-specific investment risks. Based on Germany’s estimated hydrogen demand for 2035 and 2050, three potential supply routes and different cooperation scenarios are evaluated. The findings show that, under country-specific weighted average cost of capital (WACC), domestic hydrogen production is more cost-effective than importing hydrogen from Morocco. The macroeconomic analysis indicates that Germany has favorable industrial conditions to benefit from component manufacturing, while Morocco can yield substantial spillovers in other sectors through income-induced effects. Although both countries could technically meet Germany’s hydrogen demand, scenarios with mixed supply reduce the area requirements while simultaneously generating economic benefits in both countries. However, Germany’s benefits from exporting components to Morocco are relatively modest. The study highlights the need to examine green hydrogen partnerships not only from a techno-economic perspective, but to incorporate investment risks, macroeconomic potentials and area use implications. Policymakers should focus on reducing investment risks of high-potential regions and consider domestic conditions when designing industrial policies. Chapter 9 investigates the macroeconomic impact of international LH2 supply networks, with a focus on Europe and the Middle East and North Africa (MENA) region. The analysis comprises the construction of SAMs for five selected countries and the EU. A multi-stage procedure is employed to integrate novel LH2 industries into the SAM-based multiplier model, using detailed supply chain analysis and synthetic sector construction. The results identify key enabler industries for LH2 supply networks and demonstrate that the EU has favorable structural conditions for value creation. The expansion of RES and electrolysis capacity are main economic drivers during a transition phase, which is characterized by temporary employment peaks. MENA countries can mostly benefit from supporting activities in the installation and operation of the network. In addition, different scenarios are examined, emphasizing that import dependencies and foreign capital supply influence the economic benefits. The study demonstrates that structural economic conditions largely affect a country’s economic potential in international LH2 supply networks. Policymakers should secure key industries for critical technologies for resilient supply chains and technological sovereignty. In addition, international cooperations have to be established on equal terms. Chapter 10 takes a global perspective on the “chicken-and-egg” dilemma of the green hydrogen economy (cost disadvantage prevents demand, while lacking demand discourages investments) and reviews financing mechanisms, drivers and barriers. A mixed-methods approach is employed, using different review techniques and a framework for clustering impact factors. The findings demonstrate that green hydrogen is currently dependent on public financing and supporting policies. While market-based public instruments are emerging, private capital is still lacking. In addition, a multitude of drivers and barriers are found in the literature, with several interdependencies between influencing factors. While some insights can be transferred from the RES literature, green hydrogen faces unique challenges that require targeted policies. Policymakers are advised to establish international standards, foster research and development (R&D), expand demand-side instruments, and enhance public knowledge and transparency about the environmental and economic potentials of green hydrogen.