Renewable hydrogen remains costly and its availability is constrained. Only 10% of planned global clean hydrogen capacity for 2030 has identified buyers. This raises the question of which end-use sectors should be prioritised as deployment progresses.
Standard marginal abatement cost (MAC) curves, the dominant policy tool for ranking decarbonisation options, are insufficient for this task: they ignore the opportunity cost of directing hydrogen away from high-emission sectors, fail to account for the existence of competing low-carbon alternatives such as direct electrification or biofuels, and take no account of the long-term cost-reduction benefits generated by early deployment through learning-by-doing.
This paper develops a merit-order framework that incorporates these considerations. By combining the carbon costs, sector-specific deployment costs, energy efficiency ratios, production-to-usage cost disparities, and technology learning curves, it identifies which sectors deserve hydrogen first, and shows how that ranking evolves as the social cost of carbon increases and technology costs fall. In the Marseille-Fos application, chemicals and steel receive priority in the scenarios examined, while road freight is excluded from the optimal allocation because battery-electric alternatives are more competitive.
Regarding policy implications, demand-side subsidies targeted at the most meritorious sectors are approximately 40% more cost-efficient at reducing emissions than undifferentiated production subsidies, yet over 94% of current public hydrogen support is directed at production. The emphasis on road mobility in some early demonstration programmes raises questions about the prioritisation of public support. The paper examines how learning subsidies, targeted demand-side support and production incentives linked to end-use commitments can improve hydrogen allocation.
