Green hydrogen could slash emissions and curb fossil fuel dependence in China’s chemical sector
Agora analysis shows how renewable hydrogen could help China significantly reduce chemical sector emissions while boosting energy security at competitive costs.
A new report by Agora Energy China and Agora Industry finds that replacing fossil-based hydrogen and coal-derived feedstocks with renewable hydrogen across key chemical and refining processes could reduce emissions by 90 percent – or well over 610 million tonnes of carbon dioxide annually compared with 2022 levels. The largest mitigation potential lies in oil refining and China’s extensive coal-to-chemicals industry, particularly the coal-based production of ammonia and methanol. These are areas where China has already attracted significant long-term capital investments and where import dependence on fossil fuels remains a key concern.
The analysis is based on sectoral production data, cost modelling and project-level deployment assessments for renewable hydrogen, ammonia and methanol value chains in China. It compares the costs of producing hydrogen, ammonia and methanol using conventional fossil-based pathways versus renewable hydrogen-based alternatives.
These findings highlight renewable hydrogen as a central lever for decarbonising China’s chemical industry and strengthening China’s energy security through reduced dependence on imported fossil fuels and coal-based feedstocks. The analysis also shows that deep emission reductions depend on structural changes in production systems beyond incremental fuel substitution. In sectors such as methanol, this includes integrating renewable hydrogen with sustainable carbon sources such as captured carbon or biogenic inputs.
The findings come amid growing political momentum and policy support for green hydrogen in China, which has been elevated to a strategic pillar of its 15th Five-Year Plan (2026-2030), alongside the establishment of a dedicated national hydrogen fund. This signals a shift towards scaling renewable hydrogen as a core industrial feedstock, positioning it as a key element of China’s energy security strategy, industrial restructuring and emission reductions in one of the world’s most carbon-intensive sectors.
Enabling cost competitiveness for scale-up
The report finds that cost trajectories vary across products, with renewable ammonia already approaching competitiveness under certain market conditions, particularly when coal prices are elevated. The current cost gap – or green premium – ranges from zero to around USD 360 per tonne, depending on conditions. Renewable methanol remains further from cost parity due to the dual requirement of replacing both hydrogen and carbon inputs. Green premiums range from approximately USD 230 to more than USD 600 per tonne, reflecting differences in production pathways and carbon sourcing.
These dynamics point to a clear role for targeted, feedstock-specific policy intervention to accelerate scale-up. Renewable ammonia is likely to be among the first products to reach sustained commercial deployment, while methanol pathways can be enabled through the development of competitive low-carbon carbon supply chains, including biomass-based and, where economically viable, carbon capture-based inputs.
Strengthening policy signals for investment certainty
China’s growing pipeline of renewable hydrogen and green chemical projects demonstrates early market momentum. Ensuring continued expansion beyond 2027 will depend on clear and predictable demand signals. This will require policy instruments such as mandatory renewable content requirements for chemicals, strengthened carbon intensity standards and well-defined product certification frameworks to provide revenue visibility and support long-term investment decisions. Targeted policy measures across specific feedstocks alongside robust carbon pricing will be essential to close cost gaps at scale in the near term.
Greater alignment of carbon accounting standards and green product definitions can further strengthen market transparency and support the development of early lead markets for renewable chemicals.
Regional deployment and system integration
Renewable hydrogen deployment is currently concentrated in regions such as Inner Mongolia and parts of northeastern China, where strong renewable resources support early project development. This concentration provides a foundation for scaling production and building integrated industrial clusters.
As deployment expands, coordinated infrastructure planning will be key to linking renewable-rich regions with major chemical production hubs, enabling more efficient allocation of resources and supporting balanced regional development across China’s industrial base. Greater coordination of policy support across provincial and national levels could further reduce fragmentation arising from isolated local initiatives, helping to create more consistent market signals and provide the long-term investment certainty needed to scale projects beyond the current demonstration phase. This would also help steer chemical production in established industrial provinces towards lower-carbon pathways, improving long-term system efficiency and reducing future transition costs.
The 54-page report Renewable hydrogen for chemical sector decarbonisation in China was written by Agora Energy China in collaboration with Agora Industry and is available to download for free.
