Most of the hydrogen used in industry today is 'grey' hydrogen, made by reacting natural gas with steam in a process called steam-methane reforming. The process is cheap and well established, but it releases substantial carbon dioxide. 'Green' hydrogen, by contrast, is made by using electricity to split water into hydrogen and oxygen through electrolysis; when the electricity comes from solar or wind, the process emits virtually no carbon. The catch is cost. Even as the price of renewable electricity has fallen and electrolyzer equipment has grown cheaper, green hydrogen has generally remained more expensive to produce than grey hydrogen, because the natural gas feeding the grey process is itself inexpensive in many markets.

This cost gap, analysts note, exists only because the carbon dioxide emitted by grey hydrogen is currently free to release into the atmosphere. Were emitters required to pay a meaningful price for each ton of carbon dioxide—through a tax or a tradable permit—the calculation would shift, since grey hydrogen would bear a cost that green hydrogen does not. At a sufficiently high carbon price, green hydrogen could reach parity with or even undercut grey, not because green production had suddenly become cheaper but because grey production would no longer enjoy a free pass for its emissions. For this reason, many in the industry regard carbon pricing, rather than further technological breakthroughs alone, as the decisive lever for green hydrogen's competitiveness.