Green Hydrogen For Sustainable Development - The Role of Multilateral Development Banks - May2024

REPORT
GREEN HYDROGEN
FOR SUSTAINABLE
DEVELOPMENT
The Role of Multilateral Development Banks
MAY 2024
Green Hydrogen for Sustainable Development
GREEN HYDROGEN FOR

SUSTAINABLE DEVELOPMENT
Authors
Chetna Hareesh Kumar NewClimate Institute

Imogen Outlaw NewClimate Institute
Hanna Fekete NewClimate Institute
Design
Polina Korneeva NewClimate Institute

Yogee Chandrasekaran NewClimate Institute
Editing
Hyunju (Laeticia) Ock NewClimate Institute
Communications
Victoria Fischdick NewClimate Institute
Disclaimer
This report is part of a joint research project by NewClimate Institute,

Germanwatch, E3G and WRI funded by the German Federal Ministry of Economic
Cooperation and Development. The views and assumptions expressed in this
report represent the views of the authors and not necessarily those of the funder
or project partners.
Citation
Hareesh Kumar, C., Outlaw, I., and Fekete, H. (2024) Green hydrogen for sustainable
development: The role of multilateral development banks. NewClimate Institute.
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© NewClimate Institute 2024
Acknowledgements
We would like to acknowledge and thank our internal and external peer reviewers
at the following organisations for their valuable insights: European Investment
Bank (EIB), Energy Sector Management Assistance Program World Bank
(ESMAP), German Federal Ministry of Economic Cooperation and Development
(BMZ), Germanwatch, Industrial Development Corporation (IDC), International
Renewable Energy Agency (IRENA), Organisation for Economic Co-operation
and Development (OECD), International PtX Hub, and United National Industrial
Development Organisation (UNIDO). We would also like to thank those who
participated in interviews which helped shape the direction of the report. The
authors are solely responsible for the content of the publication.
NewClimate Institute | May 2024

SUMMARY
This report examines the potential role of multilateral development banks (MDBs)
in ensuring that Global South producer countries secure sustainable development
benefits of green hydrogen development.
The analysis is founded on a dual rationale. First, it recognises that green hydrogen
presents both opportunities and risks for the sustainable development of Global
South countries investing in its production. On the one hand, green hydrogen can
lead to desirable outcomes like industrial development, job creation, and domestic
decarbonisation. On the other hand, it could create or exacerbate extractive trade
relations, debt burdens, and land and water stress.
Second, it asserts that MDBs have the mandate to shape their activities in Global
South countries in a way that delivers positive sustainable development outcomes
for producer countries. As development banks, it is their role to champion
sustainable development for producer countries in the emerging market and
policy landscape for green hydrogen. It is also their role to set the right example
for lending practices at an early stage, moving beyond the “do no harm” principle
and prioritising value addition.
Based on this rationale, we conducted a three-step analysis. First, we examined

the theoretical conditions under which green hydrogen would have desirable or
undesirable impacts on nine aspects of sustainable development. This was based
on a literature review and building on the analysis in our first report in this series,
The Role of Green Hydrogen in A Just, Paris-Compatible Transition. The
conditions for positive or negative impacts are summarised in the Sustainable
Development Impact Matrix Fig. ES 1.
Second, we selected instruments from the MDB climate finance and strategy
toolkit that have the potential to influence sustainable development and
formulated recommendations on how they can be used to secure the desirable
impacts presented in Fig. ES 1. The recommendations are summarised in
Tab. ES 1. These reflect several key high-level principles for MDB engagement,
including setting high eligibility standards for projects receiving MDB support,
supporting comprehensive national hydrogen strategies and regulatory
frameworks in borrower countries reflecting domestic development priorities,
using financial and technical support tools complementarily to leverage their
synergistic effects, and fostering cooperation among MDBs to maximise impact
and avoid duplication of efforts.
Finally, using the analytical framework so developed, we assessed four cases of

development financing support for green hydrogen – the African Development
Bank in Namibia, the World Bank in India, the European Investment Bank’s Green
Hydrogen Fund, and Team Europe’s H2Global Instrument. We analysed the impact
conditions in each case to identify the opportunities and risks.
Market forces alone are insufficient to guarantee that green hydrogen production
yields sustainable development outcomes for local communities and producing
countries. As calls to increase green hydrogen production grow, MDBs must
consider, in parallel, their role in enabling sustainable development. This report
seeks to contribute to the narrative on green hydrogen production by highlighting
the enabling conditions required to foster positive sustainable development
impacts for producer countries in the Global South.

Fig. ES 1
Sustainable Development Impact Matrix Legend:
Sustainable Development Impact Matrix defining the conditions SDG 3 - Good health and well-being SDG 9 - Industry, innovation and infrastructure
for potential positive ( ) or negative ( ) impacts of green hydrogen SDG 6 - Clean water and sanitation SDG 13 - Climate Action
on sustainable development in Global South producer countries. SDG 7 - Affordable and clean energy SDG 14 - Life below water
SDG 8 - Decent work and economic growth SDG 15 - Life on land
Electricity access Land and water access Local value capture

Desired impact: Green hydrogen development improves local access to reliable, Desired impact: Green hydrogen development improves or does not restrict local access to Desired impact: Green hydrogen development spurs domestic upstream and/or
affordable, and clean electricity. land and water resources without free, prior, informed consent (FPIC) and fair compensation. downstream industrial growth and creates long-term, high-quality jobs and skills.
Green hydrogen is produced with Green hydrogen is produced with Project infrastructures are additional, Projects compete for existing There is upstream and/or downstream There is potential to develop upstream
additional and grid-connected renewable additional and grid-connected renewable oversized, and share planned surpluses infrastructure or resources needed industrial potential and policy support for industries but equipment is to be
power capacity and grid-connected power capacity and grid-connected with local networks. for critical alternative uses. their development. primarily sourced from abroad.
electrolysers, with surplus electricity electrolysers, with surplus electricity Projects establish arrangements Projects restrict access of local There are policies to ensure local skills and There is potential to develop downstream
supplied to the power grid. being curtailed. for sharing access to land and ocean communities to local resources, capacity development. industries but green hydrogen is
Green hydrogen is produced with existing Green hydrogen is produced with resources (or the revenues generated potentially leading to forced resettlement. intended for commodity export only.
renewable power capacity and grid- existing renewable power capacity from restricting use) with local Projects diminish or degrade land and Workforce is to be primarily sourced from
connected electrolysers, with production and grid-connected electrolysers, with communities. water resources (particularly in regions abroad, with no policies for local capacity
occurring only during surplus renewable production occurring in all hours of with high scarcity) without offering building.
generation hours. renewable generation. benefits or fair compensation to local
Green hydrogen is produced with communities.
off-grid renewable power and off-grid
electrolysers, where surplus electricity
cannot be shared.
Trade balance Fiscal balance Public infrastructure

Desired impact: Green hydrogen development creates more exports than imports. Desired impact: Green hydrogen development creates substantial public revenues Desired impact: Green hydrogen development leads to the development of publicly
and does not lead to unsustainable debt. owned common user infrastructures.
There is potential for the country to reduce There is risk of relying heavily on exports There is potential for industry and Fiscal incentives are provided mainly for It involves upgradation of common user It competes for use of existing
import dependence with domestic green due to the potential being overestimated. jobs growth, as well as corresponding export-oriented production and do not infrastructure (e.g., grids, ports, roads). infrastructure needed for other
hydrogen or upstream industrial products. There is risk of relying heavily on imported expansion of the tax base. generate corresponding fiscal revenues. development priorities.
There is potential for the country to equipment and workforce. There are resource rents generated from There is high sovereign risk exposure
export green hydrogen or its upstream/ leasing public land and ocean access. built into project finance terms .
downstream products.
Sectoral decarbonisation Public health and safety Nature and biodiversity

Desired impact: Green hydrogen development contributes to the decarbonisation Desired impact: Green hydrogen development does not endanger worker Desired impact: Green hydrogen development does not lead to degradation of natural
of economic sectors. or community safety. ecosystems.
Green hydrogen is used in domestic Green hydrogen is used in domestic Project locations are carefully chosen Project locations are not chosen carefully Projects are located where impact on Projects are located in areas of high
applications that cannot be electrified applications that can be electrified. to minimise safety risks to local enough to minimise safety risks to local natural habitats, ecosystems and species environmental or biodiversity value.
(hard-to-abate sectors). Green hydrogen is used in domestic communities. communities. can be minimised. Water pollutants generated along the
Green hydrogen is used for long-term applications that support or prolong There are robust standards and There are inadequate safeguards to Water pollutants generated along the value chain are not adequately treated
or seasonal energy storage to provide fossil fuel use. safeguards to ensure worker and ensure worker and community safety value chain are adequately treated before before discharge.
flexibility to the power grid. community safety at all stages of at all stages of the value chain. discharge.
the value chain.
Note: The matrix considers direct impacts arising from green hydrogen value chain development, including production,
storage, transport, distribution, and end-use. It does not fully consider impacts of derivatives and downstream products.
The impact areas listed here are not exhaustive, mutually exclusive, or presented in hierarchical order.
Tab. ES 1
Summary of recommendations across the MDB climate finance
and strategy toolkit
Opportunity for
Tool Type of tool Description Recommendations for MDBs Link to impacts
cooperation
Sectoral lending Standard setting tools Bank-level documents providing guidance on Define the following principles, which in turn can be applied to set project-level eligibility standards: To ensure consistency
strategy principles and procedures for MDB lending in - Additionality - Green hydrogen project infrastructure, such as renewable power plants and water
different sectors. treatment facilities, should be additional.
- Surplus sharing - Green hydrogen project infrastructure, such as renewable power plants and water
treatment facilities, must be oversized and commit to surplus sharing.
- Resource efficiency - Output from green hydrogen projects should be prioritised for no-regret sectors
within the national context, both for domestic use and exports.
Environmental and Standard setting tools Bank-level documents detailing the approach - Ensure consistent and high-quality interpretation and application of ESSs across directly supported To ensure consistency
social framework for assessing, managing, and mitigating projects by enhancing transparency and building staff capacity.
environmental and social risks. Typically consist - Ensure consistent and high-quality interpretation and application of ESSs across projects involving
of two parts - environmental and social policies financial intermediaries by improving oversight and accountability mechanisms.
(ESP) for the bank's own due diligence and
monitoring responsibilities, and environmental
- Strengthen ESP guidelines to establish an acceptable risk classification as an eligibility standard for
projects to receive MDB support.
and social standards (ESS) for the borrowers'
project design and implementation. - Build capacity of public institutions, financial intermediaries, and private developers involved in
approved projects to manage residual risks.
Knowledge creation Country support tools Use of financial and technical resources to - Produce feasibility studies that assess potential demand for green hydrogen, its derivates, and its To combine resources and
and sharing produce and share knowledge on critical issues upstream and downstream products, with a breakdown by offtake sector and market (domestic vs. foster knowledge exchange
within a sector or investment area, either on a international).
global level or for a specific country context. - Develop estimates of existing capacity and growth potential of domestic upstream and downstream
industrial sectors.
- Produce or support studies to identify appropriate policy options within the national context to capture
value locally.
- Facilitate platforms for knowledge exchange to share best practices and lessons learned on national
strategies, enabling policies, and industrial best practices.
Strategy support Country support tools Use of financial and technical resources to - Support long-term decarbonisation strategies (including NDCs and LTSs) and sector roadmaps To combine resources and
provide substantive inputs to national- or sub- defining the role of green hydrogen in domestic decarbonisation efforts aligned with domestic foster knowledge exchange
national level strategic documents concerning priorities.
a particular sector or development area. - Support national green hydrogen strategies outlining principles or intentions for near- and long-term
domestic use, a realistic outlook on exports, and policies for local value capture.
- Support industrial development plans for key upstream (e.g., electrolysers) and downstream sectors
(e.g., fertilisers, green steel) where significant potential exists.
Policy and regulatory Country support tools Use of financial and technical resources to - Support green hydrogen policy development, such as mandates for additionality and oversizing To combine resources and
support support policy and regulatory design at the of project infrastructure (renewable power plants, water treatment facilities, etc.) and for surplus foster knowledge exchange
national- or sub-national levels. electricity and water sharing.
- Support industrial policies and demand creation measures including phased local content measures,
green public procurement, and consumption or production mandates, to spur domestic upstream or
downstream industrial growth and local employment generation where there is significant potential.
- Support grid regulatory reform to enable electrolyser integration and to encourage private investments
in grid infrastructure.
- Support tax reforms to ensure commodity exports of green hydrogen generate proportionate fiscal
revenues in the form of export duties.
- Support adoption or strengthening of environmental and social safeguards on wastewater treatment,
project siting, labour and community safety, and stakeholder engagement and grievance redressal.

Opportunity for
Tool Type of tool Description Recommendations for MDBs Link to impacts
cooperation
Capacity building Country support tools Use of financial and technical resources to - Build institutional and project developer capacity to ensure compliance with policy and regulatory To combine resources and
support the building of skills and capacity frameworks related to green hydrogen (e.g., local content measures, environmental and social foster knowledge exchange
locally, either on the project level or at the safeguards.).
institutional level. - Build institutional and project developer capacity to adapt and implement international green
certification schemes for hydrogen produced with grid-connected electrolysers and for downstream
products.
- Provide legal support in negotiating surplus sharing or benefits sharing arrangements to ensure that
projects are established under equitable terms.
- Assist governments in building technical skills and vocational training for the workforce across value
chain segments.
- Offer safety training for workers handling hydrogen across value chain segments.
- Support the re-skilling of workers in transition-affected industries, such as grey hydrogen.
Policy-based lending Country support tools Provision of financial support (loans, grants, - Support regulatory reforms to encourage private sector investments in common user infrastructure To combine resources and
guarantees) in exchange for pre-determined relevant to the green hydrogen value chain (e.g.,transmission and distribution grids, ports, roads.). foster knowledge exchange
policy or institutional reforms in the borrower - Support the development and implementation of a national green hydrogen strategy or policy
country or financial intermediary. Usually programme that mandates additionality and oversizing of project infrastructure and sharing of
provided in the form of untied budgetary electricity and water surpluses, prioritises offtake in domestic no-regret sectors within the national
support but can also be linked to specific context, and includes exports to a reasonable and realistic extent.
investment projects or sectors.
- Support industrial policies and demand creation measures including phased local content measures,
green public procurement, and consumption or production mandates, to spur domestic upstream or
downstream industrial growth and local employment generation where there is significant potential.
- Support adoption, strengthening, and implementation of environmental and social safeguards
governing green hydrogen projects on wastewater treatment, project siting, labour and community
safety, and stakeholder engagement and grievance redressal.
Preferential finance Project financing tools Provision of finance on favourable terms - Support common user infrastructure projects relevant to the green hydrogen value chain, notably To combine resources
to projects meeting minimum eligibility expanding and upgrading transmission and distribution grids (at the national, regional, or local levels), and expand the volume of
benchmarks in strategic investment categories ports, and road transport networks. available finance
where private sector participation is low. - Support project development for strategic early-stage green hydrogen projects with high potential to
Includes finance provided at below-market yield sustainable development benefits.
interest rates, longer repayment periods, in
local currency, or blended with private finance.
- Support project development for strategic early-stage projects in upstream and downstream industries
with significant potential to contribute to economic growth and decarbonisation.
De-risking Project financing tools The use of MDB donor funds to address a - Provide guarantees to address specific project-level risks and raise private capital for common user To combine resources,
mechanisms variety of risks associated with investment infrastructure investments, strategic green hydrogen projects, or strategic upstream and downstream cover larger proportion of
projects that impact their bankability, such industrial projects. risks, and foster knowledge
as political, technology, currency, credit, or - Support existing double auction mechanisms (e.g., the H2Global instrument) to provide offtake sharing on innovative
revenue risk. guarantees to projects meeting high standards for local sustainable development impact. mechanisms
- Set up a joint MDB double auction mechanism to provide regional or domestic offtake certainty to
no-regret end-use sectors.
- Support national governments in designing and funding a domestic double auction mechanism to
support domestic offtake in no-regret end-use sectors.

TABLE OF CONTENTS
01 INTRODUCTION 1
1.1 The role of green hydrogen in a just, Paris-aligned transition 2
1.2 The role of Multilateral Development Banks

in supporting green hydrogen 3
1.3 Rationale, scope and structure 5
Terminology7
02 SUSTAINABLE DEVELOPMENT IMPACTS OF GREEN

HYDROGEN 9
2.1 Electricity access 12
2.2 Land and water access 16
2.3 Local value capture 18
2.4 Trade balance 21
2.5 Fiscal balance 22
2.6 Public infrastructure 24
2.7 Sectoral decarbonisation 25
2.8 Public health and safety 27
2.9 Nature and biodiversity 28

03 ADAPTING THE MDB CLIMATE FINANCE AND STRATEGY

TOOLKIT 29
3.1 Standard setting tools 33
3.2 Country support tools 37
3.3. Project financing tools 43
3.4 Principles for MDB engagement 47
04 CASE STUDIES: SELECTED MULTILATERAL AND

BILATERAL INITIATIVES ON GREEN HYDROGEN 48
4.1 AfDB: African Legal Support Facility in Namibia 49
4.2 World Bank: Development policy loans to India 50
4.3 EIB: Green Hydrogen Fund 52
4.4 Team Europe: The H2Global Instrument 53
05 CONCLUSION 55
References57
Annex61

LIST OF FIGURES
Fig. ES 1 Sustainable Development Impact Matrix
Fig. 1 Financial commitments to hydrogen by multilateral development

banks by source and year of announcement 4
Fig. 1 Financial commitments to hydrogen by multilateral development

banks by source and year of announcement 4
Fig. 2 Selected green hydrogen impact areas across sustainability

dimensions11
Fig. 3 Pathways of green hydrogen impacts on electricity access 14
Fig. 4 Selected tools from the MDB climate finance and strategy toolkit 30
LIST OF TABLES
Tab. ES 1 Summary of recommendations across the MDB climate finance
and strategy toolkit
Tab. 1 Desired environmental and social features of green hydrogen

projects and associated MDB environmental and social standards 36
Tab. 2 Non-exhaustive list of MDBs activities related to Green Hydrogen 61

ABBREVIATIONS
AfDB African Development Bank
ALSF African Legal Support Facility
CCUS Carbon capture, utilisation, and storage
ESF Environmental and social framework
ESP Environmental and social policy
ESS Environmental and social standards
EUR Euro
FIA Feasibility and Implementation Agreement
FPIC Free, Prior, Informed Consent
GIS Geographic Information System
GW Gigawatt
HIPC Heavily Indebted Poor Countries
LTS Long-Term Strategy
MDB Multilateral Development Banks
Mt Megaton
NDC Nationally Determined Contributions
OECD Organisation for Economic Cooperation and Development
PBL Policy-based lending
PV Photovoltaics
SDG Sustainable Development Goal
USD United States Dollar

01 INTRODUCTION
1.1 The role of green hydrogen in a just, Paris-aligned
transition2
1.2 The role of Multilateral Development Banks

in supporting green hydrogen 3
1.3 Rationale, scope and structure 5
Terminology7
1
1.1 THE ROLE OF GREEN HYDROGEN IN A JUST, PARIS-ALIGNED

TRANSITION
Green hydrogen will play an important but limited role in a Paris-aligned transition
across sectors. Green hydrogen is the only type of hydrogen produced and
combusted without emissions and the only one we consider unambiguously Paris-
aligned. It currently makes up a small share of global hydrogen production, but
demand for the green energy carrier is expected to increase substantially (IEA,
While there is no
international standard
2023b).
for green hydrogen, it
is generally defined as
hydrogen produced by
Resource-rich producer countries in the Global South can capitalise on
water electrolysis powered the emerging green hydrogen market and secure a portion of its potential
with 100% renewable
electricity. sustainable development benefits. Since 2017, more than 40 countries have
announced national hydrogen strategies detailing their green (and sometimes
blue) hydrogen production ambitions (IEA, 2023b). The Global South is anticipated
to produce 25-50% of the world’s hydrogen by 2050 (ESMAP et al., 2023). Green
hydrogen production presents a range of development opportunities, including
Blue hydrogen refers to
hydrogen produced with economic diversification, industrial development, infrastructure development,
fossil gas through steam
methane reforming
job creation, and skill upgrading. It can also support domestic decarbonisation,
coupled with carbon
capture, utilisation, and
improve energy security, and address energy and water poverty (see Section 2).
storage (CCUS). While
some actors refer to blue However, the production of green hydrogen is energy-intensive and involves
hydrogen as “low-emission”
hydrogen, it continues efficiency losses along the supply chain, particularly as a result of conversion to
dependence on fossil
gas, involves significant ammonia, liquid hydrogen, or liquid organic hydrogen carriers for long-range
methane emissions from
pipeline leakages, and transport. This means that while green hydrogen can be used for many end-
relies on unproven CCUS
technology that is yet to uses, it is not the most energy- or cost-effective solution in many instances
be available at commercial
scale (NewClimate Institute, (NewClimate Institute, 2023d). The magnitude of projected future demand and
2023d).
the potential size of an international market should thus be understood with a
degree of caution. While some countries in the Global North have announced
import targets, emerging research suggests that imported green hydrogen may
be more expensive than locally produced hydrogen which could impact the size
of future trade flows (Adams et al., 2023; Galimova et al., 2023). It is more efficient
to produce green hydrogen, where possible, near demand centres.
The production of green hydrogen alone will not lead to positive, sustainable
development outcomes for local economies; a tailored policy framework
and safeguards are needed to capture benefits and avoid negative impacts.
Production could substantially burden scarce local resources and infrastructure
without providing proportionate local benefits like increased local access to
clean water and renewable energy. Local value capture could be limited if project
infrastructure and requisite equipment, such as wind turbines, solar photovoltaics
NewClimate Institute | May 2024 2

(PV), and electrolysers, are predominantly built and manufactured by foreign firms
and foreign workforces, with minimal incorporation of local content. In the absence
of sustainability safeguards and supportive policy frameworks, green hydrogen
production could undermine the sustainable development goals of producer
countries and worsen existing disparities.
If produced solely for the purpose of export to energy-hungry countries in the

Global North seeking to decarbonise their economies, green hydrogen production
in the Global South would further worsen global disparities and injustices. There
are several reasons why extensive exports are not desirable from the perspective
of the Global South. Firstly, prioritising exports may delay the decarbonisation
of domestic energy-intensive sectors and hinder the potential for Global South
countries to develop downstream green industries that capture value locally.
Local decarbonisation and the export of green goods can contribute positively
Green colonialism is defined
as the appropriation of to both local benefits and climate ambitions. Secondly, the focus on exporting
resources in the name of
climate mitigation and
green hydrogen as a commodity risks reproducing extractive trade relations
environmentalism (Fairhead
et al., 2012).
that have plagued other resource exports (Hickel et al., 2022). Critics from civil
society have labelled the export model as an “outsourcing” of risk, arguing that
extracting resources for green hydrogen destined for foreign use amounts to green
colonialism (Al Jazeera, 2023). If export demand is overestimated, countries could
be left with stranded assets and heightened debt distress.
1.2 THE ROLE OF MULTILATERAL DEVELOPMENT BANKS

IN SUPPORTING GREEN HYDROGEN
Multilateral development banks (MDBs) are increasingly engaging in

green hydrogen development. In 2023, commitments reached over
USD 4 billion ( Fig. 1), mostly in the form of loans. Less than 1% of the total
has been pledged as technical assistance grants or project equity (IEA, 2023b).
MDBs' engagement in the green hydrogen sector is still in its early stages, focusing
Note that we use the term
green hydrogen, but not all mainly on de-risking, policy support, and knowledge creation. Although there has
banks use this terminology.
AfDB and EIB use the term
been a rise in pledged direct investments from both private and public sources,
green hydrogen, while the
World Bank uses the term
only a limited number of projects have progressed to financial closure (Hydrogen
clean hydrogen, which Council and McKinsey & Company, 2023). (See Section 4 for case studies on
encompasses hydrogen
produced from renewables recent initiatives by MDBs on green hydrogen and Annex for a non-exhaustive
(green hydrogen) and
hydrogen produced from list of MDB activities on green hydrogen).
fossil fuels with carbon
capture and storage (blue
hydrogen). Based on current projections on the size of the future hydrogen market, it is
estimated that emerging markets and developing countries require an average
annual investment of USD 250-500 billion through 2050 to scale up green
hydrogen production (ESMAP et al., 2023). However, countries in the Global South
3
Fig. 1 European Bank for Reconstruction and Development

Financial Inter-American Development Bank
commitments European Investment Bank
to hydrogen World Bank
by multilateral
development banks
by source and year bln USD
of announcement 4
0
2021 2022 2023
Source: Reproduced based on (IEA, 2023b).
compete for investments against countries in the Global North, which have
increasingly offered subsidies, production tax credits, and business-favourable
special economic zones to attract investors and capture the market (Erraia et al.,
2023; IEA, 2023a). Countries in the Global South often face high perceived risk,
which leads to a higher cost of capital and limits access to financing (Ameli et
al., 2021). This steep competition for investments in green hydrogen may create
conditions for a race to the bottom in which countries compete by lowering
standards and regulations to attract investors and gain a competitive advantage.
MDBs are uniquely positioned to level the playing field and support green
hydrogen production in the Global South that facilitates sustainable development
gains. However, publications on the role of MDBs in green hydrogen production
often highlight their role in mitigating risk and fostering market development
(Gilles and Brzezicka, 2022; Green Hydrogen Organisation, 2022; ESMAP et al.,
2023). MDBs’ role in ensuring the Paris-alignment of hydrogen production and
sustainable development impacts for producers has been less pronounced.
MDBs have a spectrum of instruments at their disposal to support sustainable

green hydrogen development, discussed in detail in Section 3, which extends
beyond direct investment support and risk mitigation mechanisms. These include
internal standards, technical assistance for national strategies and regulatory
frameworks, knowledge creation, and capacity-building initiatives. Supporting
sustainable green hydrogen production in the coming decade will require a
combination of enabling policy frameworks, strong sponsors, offtake certainty,
and financial and technical support.

The mandate of MDBs
MDBs have committed to aligning their financial flows with the 1.5°C temperature
goal of the Paris Agreement (MDBs, 2023b). Operating under a mandate to
promote inclusive and resilient development pathways that address poverty and
inequality, MDBs can play a key role in supporting green industrialisation in the
Global South, through engaging in sustainable green hydrogen initiatives.
MDBs cannot solely rely on market forces to create just and sustainable
outcomes in green hydrogen development. They can play a key role in levelling
the playing field between Global North and South producers while safeguarding
the sustainable development interests of Global South countries. Rather than
waiting for the market to mature, MDBs should take proactive action to ensure
local impact. MDBs’ role in creating a market should be secondary and limited to
specific cases where the sustainable development benefits of green hydrogen
production are clearly established.
With their clear mandate for sustainable development in the Global South, it
is crucial for MDBs to proactively examine how green hydrogen production
can promote sustainable development in the region. This demands that MDBs
prioritise the perspectives and priorities of Global South producer countries in their
approach to green hydrogen development. Unlike bilateral funding arrangements,
which might prioritise donors’ trade and economic interests, MDBs have the
mandate to focus on tangible value addition, moving beyond only market- or
project-level considerations and the “do no harm” principle (Morgen et al., 2022).
1.3 RATIONALE, SCOPE AND STRUCTURE
This report analyses the potential role of MDBs in securing the sustainable
development benefits of green hydrogen for Global South producer countries.
We diverge from the prevailing narrative that MDBs must primarily support the
early development and scaling of the green hydrogen industry for the benefit
of the global energy transition. Instead, we explore how they can use their role
in highlighting and securing sustainable development impacts for producer
countries.
The report’s scope is limited to green hydrogen because we assert that sustainable
green hydrogen is the only type of hydrogen that is Paris-aligned and should be
directly or indirectly supported by MDBs. Blue hydrogen, which relies on fossil gas
and commercial availability of carbon capture and storage technology, presents
lock-in risks and is not considered Paris-aligned (NewClimate Institute, 2023d).
The Paris Agreement highlights the intrinsic relationship between climate action
5
and sustainable development. Therefore, green hydrogen development that may

negatively impact a country’s economy, environment, or society or perpetuate
historical cross-border injustices, cannot be considered Paris-aligned.
The report offers guidance on how MDBs (and development finance institutions
more broadly) can centre sustainable development impacts in their support
for green hydrogen initiatives in the Global South. It can also serve as a guiding
document for governments, policymakers, and civil society in Global South
countries to assess and inform green hydrogen strategies and policy frameworks
that ensure sustainable development impacts.
Note that our analysis is limited to green hydrogen development in Global South
countries and does not examine the appropriate conditions for development in
Global North producer countries. Further clarification on the terminology used in
this report is provided in Terminology.
The report is structured as follows.
о Section 2 examines the conditions under which green hydrogen

would have desirable or undesirable impacts on sustainable
development in Global South producer countries.
о Section 3 provides recommendations on how selected instruments

from the MDB climate finance and strategy toolkit can be
employed to secure the desirable sustainable development impacts
highlighted in Section 2. It also considers some of the potential
challenges MDBs might face in implementing the recommendations
and identifies key high-level principles along which MDBs could
shape their engagement on green hydrogen.
о Section 4 presents selected case studies of how such tools are being
used or supported by development finance and analyses how these
activities can be better aligned with the recommendations
in Section 3.

TERMINOLOGY
The following is a compiled reference list of frequently used terminology in this
report in alphabetical order. Frequently used terms are also defined in the margins
wherever they first appear in the text.
Blue Hydrogen generated from fossil gas through steam methane

hydrogen reforming where emissions are captured through carbon
capture (utilisation) and storage.
Common user Physical infrastructure shared among multiple users including

infrastructure roads, ports, grids etc.
Derivative Liquid or gas molecules produced from hydrogen and another

reactant such as nitrogen or carbon dioxide. Examples include
ammonia, methanol, and kerosene (Bauer et al., 2023).
Downstream Industries associated with the use of green hydrogen, including

industries for production of derivatives (e.g., methanol, ammonia) and
green products (e.g., steel, fertilisers).
Electrolysis A process that uses an electrical current to divide water (H2O)

into oxygen (O) and hydrogen (H2). Electricity for this process
can come from either renewable or non-renewable sources.
When renewable electricity is employed, the process is
emission-free, yielding only hydrogen and water.
Fiscal balance The difference between a government's total revenues and

its total expenditures over a specific period, typically a fiscal
year. When revenues exceed expenditures, the fiscal balance
is positive and the government has a fiscal surplus, and when
expenditures exceed revenues, the fiscal balance is negative
and the government has a fiscal deficit.
Global North Geographical and socio-economic classifications that highlight

& South different income and development levels of countries. Global
North countries are those with higher levels of income,
industrialisation, and human development indicators,
whereas Global South countries have lower levels of income,
industrialisation, and human development indicators.
Green Hydrogen generated through water electrolysis using entirely

hydrogen renewable electricity. Its production is facilitated by an
electrolyser and demands substantial inputs of renewable
energy and water.
7
Green The overall development of the green hydrogen value chain,

hydrogen including production, storage, transport, distribution, and end-
development use.
Grey Hydrogen produced from fossil gas through steam methane

hydrogen reforming. Greenhouse gas emissions are not captured.
Hard Globally traded currencies that serve as reliable and stable

currencies stores of monetary value, including the United States Dollar
(USD) and Euro (EUR).
MDB climate The full of range of MDB instruments used to guide or channel
finance and their climate finance, spanning strategy and policy documents,
strategy knowledge products, advisory services, technical assistance,
toolkit grants, loans, equity, and de-risking instruments.
No-regret End-use sectors where the use of green hydrogen is the only
applications viable decarbonisation solution. For example, hard-to-abate
sectors such as fertilisers or heavy industry.
Sustainable Sustainable development fosters environmental and social

development priorities over the long term. In line with the UN Sustainable
Development Goals and the Paris Agreement, we recognise
that sustainable development and climate action are
inherently linked. The term sustainable development used in
the report means both traditional sustainable development
priorities and climate action.
Sustainable Hydrogen produced with 100% renewable electricity

green without causing harm to the planet which contributes to
hydrogen environmental, social, and economic priorities.
Trade balance The difference between the value of a country’s imports

and exports. It is positive when exports exceed imports and
negative when imports exceed exports.
Upstream Industries associated with the production of green hydrogen,

industries including manufacturing of renewable energy equipment
(e.g., solar photovoltaics, wind turbines, inverters, batteries) and
electrolysers.

02 SUSTAINABLE
DEVELOPMENT
IMPACTS OF GREEN
HYDROGEN
2.1 Electricity access 12
2.2 Land and water access 16
2.3 Local value capture 18
2.4 Trade balance 21
2.5 Fiscal balance 22
2.6 Public infrastructure 24
2.7 Sectoral decarbonisation 25
2.8 Public health and safety 27
2.9 Nature and biodiversity 28
9
This section analyses the potential impacts of green hydrogen value chain
development across nine impact areas reflecting social, economic, and
environmental dimensions of the Sustainable Development Goals (SDGs) (United
Nations, 2015) ( Fig. 2). These are electricity access, land and water access,
local value capture, trade balance, fiscal balance, public infrastructure, sectoral
decarbonisation, public health and safety, and nature and biodiversity.
These were identified as the areas where green hydrogen development is likely
to have direct and significant impacts based on a review of the literature (Falcone
et al., 2021; PtX Hub, 2022; Fokeer et al., 2023; Green Hydrogen Organisation, 2023;
IRENA, 2023; Samadi et al., 2023) and building on our past publication in this
research series, The Role of Green Hydrogen in A Just, Paris-Compatible
Transition.
In the following sections, we present “impact matrices,” which define the specific
conditions under which green hydrogen value chain development could have
desirable or undesirable impacts on each of the nine development impact areas.
This approach stresses that green hydrogen development can lead to both
positive and negative outcomes depending on the country's context. National
governments can build on the ideas and considerations presented in the matrices
to incorporate sustainable development and climate justice elements into their
green hydrogen strategies. The impact matrices also provide the starting point for
MDBs and other development finance institutions to adapt their climate finance
and strategy toolkit to help secure the developmental benefits of hydrogen and
avoid its potential negative impacts (see Section 3).
It is important to note that the selected development impact areas are not
mutually exclusive. Most are interrelated, but the conditions for their interactive
or cumulative effects (i.e., trade-offs and synergies) are not defined here. For
instance, green hydrogen exports could contribute positively to the trade
balance but can have a negative impact on indicators like local value capture or
sectoral decarbonisation. Such interactive and cumulative impacts can only be
meaningfully determined within national contexts on a case-by-case basis.
The selected development impact areas are not presented in hierarchical order.
We do not attach weights to the individual impact areas, as this would be context-
specific and cannot be standardised. This selection should thus be understood as
an illustrative overview of relevant impacts rather than a prioritisation.
The impact areas do not have a temporal dimension. Some impacts may
manifest in the near term while others could take decades to materialise,
depending on the national context.

En
ic
vi
om
ro
nm
on
Ec
en
ta
l
Fiscal balance Sectoral
decarbonisation
Trade balance Electricity access Nature and

biodiversity
Local value
capture
Land and water

access
Public
infrastructure
Fig. 2 Public health

and safety
Selected green
hydrogen impact areas
across sustainability
dimensions
Source: Produced by authors. Social
11
Further, the conditions presented in the impact matrices describe direct impacts
only and do not consider indirect or net impacts of green hydrogen. Indirect
Grey hydrogen refers to the
type of hydrogen produced impacts are created as green hydrogen development interacts with the broader
by the steam reformation
of fossil gas, where social, political, and economic context of a country, on indicators like income
greenhouse gas emissions
are not captured. It is the distribution, peace and social harmony, and governance. Net impacts of green
most common form of
hydrogen currently in use.
hydrogen on development priorities (such as job creation) could be positive or
negative depending on the broader context (e.g., job creation from a new green
hydrogen industry relative to job losses due to the displacement of an existing
grey hydrogen industry). Both indirect and net impacts can only be meaningfully
determined within national or local contexts.
Finally, this analysis considers the impacts of green hydrogen value chain
development (“green hydrogen development” for short), including production,
storage, transport, distribution, and end-use segments. We do not separate
impacts across value chain segments but consider them overall. Impacts arising
during the conversion of green hydrogen into derivatives, (such as green ammonia
and methanol) and downstream products (such as green steel) or at their point of
consumption, are not fully captured in this analysis.
The following sections describe the individual impact areas in turn. An overview
of the analysis across the nine impact areas is presented in the Summary ( Tab.
ES 1).
2.1 ELECTRICITY ACCESS
SDG 7 - Affordable Positive impact conditions Negative impact conditions

and clean energy
Green hydrogen is produced Green hydrogen is produced
Desired impact: Green with additional and grid- with additional and grid-
hydrogen development connected renewable power connected renewable power
improves local access to reliable, capacity and grid-connected capacity and grid-connected
affordable, and clean electricity. electrolysers, with surplus electrolysers, with surplus
electricity supplied to the electricity being curtailed.
power grid. Green hydrogen is produced
Green hydrogen is produced with existing renewable
with existing renewable power capacity and grid-
power capacity and grid- connected electrolysers,
connected electrolysers, with with production occurring
production. in all hours of renewable
generation.
Green hydrogen is produced
with off-grid renewable
power and off-grid
electrolysers, where surplus
electricity cannot be shared.

Green hydrogen production is an energy-intensive process. Producing 1 million

tonnes of green hydrogen per year is estimated to require approximately 20
gigawatts (GW) of renewable power capacity and 10 GW of electrolyser capacity
(Rocha et al., 2023). Depending on how this energy requirement is fulfilled and
what the electricity consumption profile of the electrolyser is, green hydrogen
could contribute to either improving or deteriorating the level of electricity access
in the producer country ( Fig. 3).
Note that the conditions defined below only apply to producer countries with less
than 100% access to reliable, clean, and affordable electricity, which is the case
for most Global South countries. In the case of countries with universal access,
impacts in most scenarios are neutral and not described here.
Green hydrogen production can positively impact local electricity access only if
the renewable power capacity and electrolyser are grid-connected. For example,
if the project developer builds the requisite renewable power capacity and shares
surplus generation with a grid, this increases the supply of renewable power
Grid-connected here
implies a connection to
available in the grid for use by local households, businesses, and industries
either the national, regional,
or local mini- or micro-grid.
(Path A in Fig. 3).
In case the project does not build its own renewable capacity but draws down
on existing renewable supply in the grid, the impact is positive only if the
electrolyser runs exclusively during surplus renewable generation hours (Path C in
Fig. 3). This means green hydrogen is produced only in the hours when the
amount of renewable power generation is more than sufficient to meet the power
demand, using the surplus generation that would otherwise be curtailed (Chang
and Phoumin, 2021; Collins, 2023).
In either case, the grid-connected electrolyser offers the possibility of energy

storage, thus providing crucial flexibility services to the grid and facilitating further
grid integration of variable renewables (Cozzolino and Bella, 2024).
All other scenarios lead to negative impacts on electricity access. If the renewable
power capacity is not additional and the grid-connected electrolyser runs full-time
(Path D in Fig. 3), green hydrogen production would diminish the renewable
power supply available to meet demand. This may lead to increases in wholesale
electricity prices unless countries add more supply capacity to meet the shortfall.
If the renewable power capacity is additional and grid-connected, and the

electrolyser is grid-connected, but surplus renewable power generation must
be curtailed due to oversupply in the grid, this results in wastage of resources
(Path B in Fig. 3). The surplus could instead be stored and used to provide
short-term (battery storage) or seasonal (hydrogen storage) flexibility services to
the grid, which in turn would facilitate further renewable integration and improve
electricity access.
13
Fig. 3
Pathways of green hydrogen impacts on electricity access
This figure depicts the pathways through which green hydrogen can potentially have a positive or negative
impact on electricity access in a Global South producer country without universal energy access to reliable,
clean, and affordable electricity. In the case of countries with universal access, impacts in most scenarios
are neutral and not depicted here.
Grid-connected1
Renewable
Off-grid2
power capacity
Additional3 Existing
Electrolyser Grid-connected1 Off-grid2
Surplus hours All hours of

Green hydrogen
of renewable renewable
production generation generation
Surplus
renewable power Shared Curtailed
generation
A B C D E
Impact on
Positive Negative Positive Negative Negative
electricity access
1. Grid-connected implies a connection to either the national, regional, or local mini- or micro-grid.
2. Off-grid implies a lack of connection to either the national, regional, or local mini- or micro-grid.
3. Additional implies that infrastructure is built by the project developer in addition to existing
infrastructure.
Source: Produced by authors.

Off-grid projects could generate negative impacts in countries without universal

access to reliable, affordable, and clean electricity; countries with universal
access would not be affected (Path E in Fig. 3). In a situation of limited supply,
regardless of whether the renewable power capacity is additional, the project
diverts local resources (land, water, renewable energy potential) without being
able to share surplus renewable generation with local households, businesses,
Off-grid here implies a lack
of connection to either the and industries ( Section 2.2). A good example is Namibia, where the renewable
national, regional, or local
mini- or micro-grid. power capacity required to meet the country’s green hydrogen production targets
(mainly for exports) far exceeds its total power mix, raising ethical questions about
resource use (NewClimate Institute, 2023c).
Role of MDBs
Additionality, grid connection, and surplus electricity sharing are the three
important conditions to secure the positive impact of green hydrogen on
electricity access in the producer country, particularly where access is currently
low. MDBs can play a role in ensuring these conditions are met by:
- Establishing additionality and oversizing (of renewable power

capacity), grid connection (of renewable power capacity and
electrolysers), and surplus electricity sharing as mandatory
requirements for projects receiving MDB financial support.
( Sectoral lending strategy)
- Supporting policy development in the country to mandate the
abovementioned criteria for green hydrogen projects.
( Policy and regulatory support; Policy-based lending)
- Supporting investments in national, regional, or local micro-
and mini-grid infrastructure development to enable project
developers to comply with grid-connection and surplus electricity
sharing requirements. ( Preferential finance; De-risking
mechanisms)
- Supporting grid regulatory reforms to enable grid-integration of
electrolysers. ( Policy and regulatory support; Policy-based
lending)
- Building institutional capacity to adapt and project developer
capacity to implement international schemes certifying the green
content of hydrogen produced with grid-connected electrolysers, to
enable offtake both domestically and in export markets.
( Capacity building)
- Providing legal support to governments in contract negotiations to
establish surplus sharing arrangements with project developers.
15
2.2 LAND AND WATER ACCESS
SDG 6 - Clean water Positive impact conditions Negative impact conditions

and sanitation
Project infrastructures are Projects compete for existing
Desired impact: Green additional, oversized, and infrastructure or resources
hydrogen development share planned surpluses with needed for critical alternative
improves or does not restrict local networks. uses.
local access to land and water Projects establish Projects restrict access of
resources without free, prior, arrangements for sharing local communities to local
informed consent (FPIC) and access to land and ocean resources, potentially leading
fair compensation. resources (or the revenues to forced resettlement.
Tonelli et al. (2023) provide a generated from restricting Projects diminish or degrade
range of global land needs use) with local communities. land and water resources
estimates for a range of
2050 hydrogen demand
(particularly in regions
scenarios. We derive the with high scarcity) without
annual land needs per Mt of offering benefits or fair
green hydrogen by dividing compensation to local
the range of land needs
estimates provided (0.09-
communities.
13.5 million km2 per year) by
the range of 2050 demand
projections assumed (92-
646 Mt/year).
Green hydrogen entails significant natural resource requirements beyond
renewable energy. Producing 1 megaton (Mt) of green hydrogen per year
requires 1–20 thousand square kilometres (km2) of land and 24 billion litres
of water (Fairley, 2023; Tonelli et al., 2023). Unlike the sun and the wind, these
are exhaustible resources, which means allocating them for green hydrogen
production reduces their availability for crucial alternative uses, such as water
for drinking or land for agriculture. Further, ethical questions arise if the green
hydrogen produced is mainly destined for exports, depleting local resources
without contributing to meeting basic local needs or creating proportionate local
Including electrolysis and
purification. Converted benefits.
from estimated water
needs per kilogram (kg) of
green hydrogen provided For instance, if groundwater is used for the electrolytic production process in areas
in Fairley (2023) (9 litres
for electrolysis, 15 litres for with high water scarcity (such as arid regions or regions affected by changing
purification) to the per Mt
estimate with a conversion
rainfall patterns), it would further deplete the water table and compound the water
factor of 1 Mt = 10^9 kg.
crisis (IRENA, 2023). Green hydrogen production should thus be avoided in regions
with high water stress. Desalination of seawater or treatment of wastewater are
potential solutions in such cases, provided such processes are energy-efficient and
the required infrastructure is additional, oversized, and shares surplus freshwater
output for other local needs. Additionally, any by-products, such as saltwater brine,
should be well-treated before discharge to avoid degradation of water resources
and marine ecosystems.
Similarly, it is also problematic to dedicate limited land and water resources to

building large-scale off-grid renewable farms (such as solar PV farms or offshore
wind farms) solely for green hydrogen production. This is particularly true in areas

with high food insecurity or low modern energy access, as these resources could
otherwise be used to increase food production or provide electricity to the grid
(see Section 2.1).
Green hydrogen could also affect marginalised local populations who depend
on land and water resources for their livelihoods, such as pastoral or fishing
communities, by restricting their access to these resources. The large-scale
land acquisition by the state for leasing to private companies is particularly a
concern for traditionally disadvantaged communities with limited legal rights
over historical land and has already been an issue with renewable energy projects
(Scheidel et al., 2023). The same holds true for ocean access, as the construction
of large-scale physical infrastructure along coastlines (such as green hydrogen
hubs and desalination plants) could displace fishermen from their traditional
economic zones or degrade marine ecosystems. In these cases, green hydrogen
development could directly result in the displacement of local populations due to
the loss of livelihoods and, in extreme cases, may even lead to social conflict and
violence (Grobler et al., 2023).
On the other hand, the development of infrastructure as part of green hydrogen

projects could also have positive spillover effects on resource access if access-
or benefits-sharing arrangements are established. For example, if desalination
plants or wastewater treatment infrastructure are built as part of a green hydrogen
project, are oversized to ensure surplus output is generated, and share such
surplus with the local water distribution network, this could create a positive
impact on local water access for households, businesses, and industries alike.
Such arrangements could also be formed to share access to land or ocean

resources with local populations that depend on them for their livelihoods,
wherever it is possible to coexist. For example, pastoralists could be allowed to
continue passing through wind farms that come up on their traditional routes,
provided no damage is done to private property (as in Mongolia) (Waters-Bayer
and Tadicha Wario, 2022). When such coexistence may not be feasible (e.g., the
presence of offshore wind farms could impact the availability of fish for local
fishing communities), a just outcome could be achieved by establishing revenue-
sharing agreements (as in Kenya and Mexico) (Waters-Bayer and Tadicha Wario,
2022).
Role of MDBs
Stakeholder participation, benefits-sharing arrangements, and the additionality

and oversizing of water treatment infrastructure are necessary to secure a positive
impact of green hydrogen on land and water access in the producer country.
MDBs can play a role in ensuring these conditions are met by:
17
- Ensuring comprehensiveness and high quality of local stakeholder

consultations before project approval to identify concerns and jointly
design access- or benefits-sharing arrangements under free, prior,
informed consent (FPIC) conditions. ( Environmental and social
framework)
- Establishing well-functioning grievance redressal mechanisms to
enhance the accountability of project developers during project
implementation. ( Environmental and social framework)
- Establishing additionality, oversizing, and surplus sharing for water
treatment infrastructure as a requirement to avail MDB support.
( Sector lending strategy)
- Supporting policy development in the country to mandate
additionality, oversizing, and surplus sharing for water treatment
infrastructure. ( Policy and regulatory support; Policy-based
lending)
- Providing legal support to negotiate fair benefits-sharing
arrangements between project developers and local communities.
2.3 LOCAL VALUE CAPTURE
SDG 8 - Decent work Positive impact conditions Negative impact conditions

and economic growth
SDG 9 - Industry, innovation There is upstream and/ There is potential to develop
Upstream industries and infrastructure or downstream industrial upstream industries but
are those associated
with the production
potential and policy support equipment is to be primarily
of green hydrogen, Desired impact: Green for their development. sourced from abroad.
including manufacturing hydrogen development spurs There are policies to ensure There is potential to develop
of renewable energy domestic upstream and/or local skills and capacity downstream industries but
equipment (e.g., solar
downstream industrial growth development. green hydrogen is intended
photovoltaics, wind
turbines, inverters, and creates long-term, high- for commodity export only.
batteries) and electrolysers. quality jobs and skills.
Workforce is to be primarily
Downstream industries
are those associated with sourced from abroad, with
the use of green hydrogen, no policies for local capacity
including for production of building.
derivatives (e.g., methanol,
ammonia) and green
products (e.g., steel,
fertilisers).
Green hydrogen development presents opportunities for local value capture along
its value chain, in terms of industrial growth, jobs, and skills creation. Countries can
maximise local value capture by leveraging upstream and downstream industrial
opportunities where strong potential exists, in addition to renewable electricity
generation and green hydrogen production activities. Ensuring workforce
requirements during construction and operation are met with predominantly
domestic workers also contributes to local value capture.

Green hydrogen could contribute to the creation or expansion of local industries,

such as the manufacturing of renewable energy equipment (e.g., solar panels,
wind turbines, inverters, and batteries) and electrolysers, production of hydrogen
derivatives like methanol and ammonia, and manufacturing of green products like
steel and fertilisers (Samadi et al., 2023). Upstream and downstream segments of
the value chain also have stronger employment generation potential, far exceeding
the quantity and quality of jobs available in the renewable energy generation and
electrolysis phases alone (Fokeer et al., 2023).
Derivatives are liquid or However, the feasibility and desirability of developing domestic upstream and
gas molecules produced
from hydrogen and another downstream industries vary across countries. Not all countries can or should
reactant such as nitrogen
or carbon dioxide. Examples build up a full supply chain, as trade might be more cost-effective in many cases.
include ammonia,
methanol, and kerosene Countries can make the decision to develop and co-locate these activities within
(Bauer et al., 2023).
their borders based on a thorough analysis of industrial potential, trade and
competition, and long-run costs and benefits.
In cases where there is a strong rationale for domestic industrial development, it

can be challenging for new players to emerge locally and compete with powerful
incumbents, given the capital-intensiveness and high market concentration in
these industries (Fokeer et al., 2023). The nature of the policy environment will
thus be crucial in determining the exact impact of green hydrogen development
on local value capture.
For instance, a lack of industrial support policies (such as local content or demand
creation measures) or heavy import reliance for sourcing equipment could
be a missed opportunity in countries with significant potential for domestic
manufacturing industries to emerge. Similarly, if most of the workforce is sourced
from abroad due to a lack of requisite skills domestically, there would be limited
creation of high-quality local jobs and skills. In the same vein, if there is high
potential for downstream industries but most of the green hydrogen production
is earmarked for commodity exports, this leaves little room for domestic industries
to develop. Careful policy choice and strategic planning are thus necessary to
leverage the opportunities for local value capture offered by green hydrogen.
Role of MDBs
MDBs can help secure positive impacts of green hydrogen on local value creation
by supporting robust analysis of upstream and downstream industrial potential
and promoting industrial development wherever there is significant potential for
it. This can be done by:
- Providing technical support to assess the exact nature and level of

upstream and downstream industrial potential in the country and
identifying appropriate policy options to capitalise on it.
( Knowledge creation and sharing)
19
- Supporting the integration of such estimates and policy options

into both national green hydrogen strategies and specific upstream
and downstream sectoral development strategies (e.g., for fertilisers,
green steel, and electrolysers) to provide timely market signals.
( Strategy support)
- Supporting the gradual adoption of appropriate policies to spur
upstream and downstream industrial growth and local employment
generation where the potential is high, including local content
measures, fiscal incentives, and demand creation measures (e.g.,
quotas, mandates, public procurement). Gradually phasing in
such policies and signalling their use in advance can enable local
industries to develop without slowing down the progress of green
hydrogen projects. ( Policy and regulatory support; Policy-
based lending)
- Supporting local employment generation by offering vocational
training for the workforce across value chain segments and
re-skilling programmes for workers in transition-affected industries
like grey hydrogen. ( Capacity building)
- Providing financial or de-risking support for early, strategic
investments in upstream and downstream sectors. ( Preferential
finance; De-risking mechanisms)
capacity to implement international schemes certifying the green
content of hydrogen produced with grid-connected electrolysers and
its downstream products, to enable offtake both domestically and in
export markets. ( Capacity building)

2.4 TRADE BALANCE
SDG 8 - Decent work Positive impact conditions Negative impact conditions

and economic growth
There is potential for the There is risk of relying
Desired impact: Green country to reduce import heavily on exports due
hydrogen development creates dependence with domestic to the potential being
more exports than imports. green hydrogen or upstream overestimated.
industrial products. There is risk of relying heavily
There is potential for the on imported equipment
country to export green and workforce.
hydrogen or its upstream/
downstream products.
Green hydrogen development can involve import and export of goods and
services, and corresponding outflow and inflow of foreign exchange, thus
influencing countries’ trade balances and foreign exchange reserves. Producer
countries may need to import renewable energy equipment or electrolysers if
they lack domestic manufacturing capacity. They may also need to hire workers
from abroad if there is a shortage of skilled labour domestically. On the other
The trade balance is defined
as the difference between hand, countries may also decide to export the green hydrogen they produce, or
the value of a country’s
imports and exports. It the associated upstream and downstream products, depending on their existing
is positive balance when
exports exceed imports and capacity, cost-competitiveness, and the level of market demand. The exact impact
a negative when imports
exceed exports. of green hydrogen development on the country’s trade balance would depend on
how the volume of exports related to green hydrogen compares to the volume of
imports.
Green hydrogen has the potential to improve a country’s trade balance if the
volume of exports and foreign exchange inflow exceeds the volume of imports and
foreign exchange outflows. This could be the case if that country is projected to be
cost-competitive for exporting green hydrogen or its associated products, such as
electrolysers, green ammonia, green methanol, and green steel. A positive impact
could also be expected if the country has other comparative advantages – for
example, a strategic geographic location with strong port infrastructure could lead
to high potential for the country to become a green refuelling hub for international
shipping, thus increasing its exports and foreign exchange earnings (IRENA, 2022).
Green hydrogen production and associated industries could also displace

certain imports, such as fossil fuels for feedstock in fertiliser production or
upstream equipment like electrolysers, thus improving the overall trade balance
(NewClimate Institute, 2023b).
On the other hand, if a country’s export potential turns out to be vastly

overestimated compared to initial expectations, investment decisions made
regarding green hydrogen projects, such as heavy reliance on imports for
equipment or workforce, could contribute to the worsening of trade balance.
21
Role of MDBs
Reasonable estimations of the potential for green hydrogen and associated

industries to export or to displace imports, and supporting industries where such
potential is significant, are key to securing a positive impact on trade balance.
MDBs can play a role by:
- Providing technical support to produce realistic export potential

estimates, for instance through demand feasibility studies, for green
hydrogen as well as its upstream and downstream products.
( Knowledge creation and sharing)
- Supporting the integration of such estimates into national industrial
development plans for green hydrogen as well as upstream and
downstream industries to send accurate market signals. ( Strategy
support)
- Supporting the adoption of appropriate policies, as well as offering
financial and de-risking support, to spur upstream and downstream
industrial growth and job creation where potential is significant (as
described in Section 2.3). ( Policy and regulatory support;
Policy-based lending; Preferential finance; De-risking
mechanisms; Capacity building)
The fiscal balance is
2.5 FISCAL BALANCE

the difference between
a government's total
revenues and its total
expenditures over a specific
period, typically a fiscal
year. When revenues
exceed expenditures, the
fiscal balance is positive SDG 8 - Decent work Positive impact conditions Negative impact conditions
and the government has and economic growth
a fiscal surplus, and when
expenditures exceed
SDG 9 - Industry, innovation There is potential for industry Fiscal incentives are provided
revenues, the fiscal and infrastructure and jobs growth, as well as mainly for export-oriented
balance is negative and the corresponding expansion of production and do not
government has a fiscal Desired impact: Green the tax base. generate corresponding
deficit.
hydrogen development creates There are resource rents fiscal revenues
substantial public revenues and generated from leasing There is high sovereign risk
does not lead to unsustainable public land and ocean access. exposure built into project
debt. finance terms.
Development of the green hydrogen industry requires public sector involvement

and impacts fiscal balances. Given the early stage and capital-intensiveness of the
industry, early mover producers in the Global South will need fiscal incentives (tax
rebates, direct subsidies) or sovereign guarantees to facilitate investment decisions
and compete with often highly subsidised producers in Global North markets.
Consumers may also need demand-side incentives to shift away from grey
hydrogen to make them willing to pay a premium for green hydrogen in the initial
stages. At the same time, the industry has the potential to generate substantial

public revenues through long-term rents, corporate and income taxes, or capital
gains on public equity (GHO, 2022). The overall impact on the government’s
fiscal balance would depend on the balance between public spending on green
hydrogen and the public revenues it generates.
A high export orientation can have a potentially negative impact on fiscal balance.
For instance, if substantial fiscal incentives are provided for green hydrogen
production mainly aimed at exports in commodity form, it may not generate
proportionate fiscal revenues domestically in the form of taxes. This effect is
exacerbated as initial projects in Global South countries may face incentives to
export. Initial projects will likely rely on equipment imports and international
project finance in hard currencies due to a lack of local equipment supply
and high local currency risks. This may create an “export bias” among project
developers, inducing them to favour foreign currency earnings through exports
over local currency earnings through domestic sales as the former can better cover
Hard currencies are globally
traded currencies that equipment import bills or loan repayments in hard currency.
serve as reliable and stable
stores of monetary value.
Common examples include Further, the high risk perceptions of green hydrogen, combined with the high
the United States Dollar
(USD) and Euro (EUR). country risk perceptions of many Global South countries, can increase the cost of
finance. This may require the state to offer de-risking support through sovereign-
backed guarantees or equity to boost investor confidence (OECD, 2023a). However,
if returns do not materialise as expected (for instance, due to inaccurate export
estimations), this could strain public finances, thus worsening the debt burden
and the state’s ability to invest in other development priorities, such as health,
education, and infrastructure.
Role of MDBs
Reasonable estimation of export potential and reducing sovereign risk exposure

are key to securing a positive impact on fiscal balance. MDBs can play a role by:
- Supporting realistic export potential estimates and the adoption

of appropriate policies, as well as offering financial and de-risking
support to spur upstream and downstream industrial growth and
job creation where the potential is significant (as described in
Section 2.3 and Section 2.4). ( Knowledge creation and
sharing; Strategy support; Policy and regulatory support;
Policy-based lending; Preferential finance; De-risking
mechanisms; Capacity building)
- Offering de-risking support (such as partial risk guarantees) to
reduce the sovereign risk exposure in cases with high export
potential but unfavourable project finance terms. ( De-risking
mechanisms)
- Support or establish domestic offtake mechanisms to counteract
potential export bias among project developers. ( De-risking
mechanisms)
23
- Supporting export tax reforms in the producer country to ensure the

commodity exports of green hydrogen generate proportionate fiscal
revenues. ( Policy and regulatory support)
2.6 PUBLIC INFRASTRUCTURE
SDG 9 - Industry, innovation Positive impact conditions Negative impact conditions

and infrastructure
It involves upgradation of It competes for use of existing
Desired impact: Green common user infrastructure infrastructure needed for
hydrogen development (e.g., grids, ports, roads). other development priorities.
leads to the development of
publicly owned common user
infrastructures.
Green hydrogen production, storage, and distribution activities presume the

availability and high quality of publicly owned common user infrastructure. This
includes electricity transmission and distribution grids providing renewable energy
access for grid-connected projects, ports and shipyards to enable the import of
equipment or export of finished products, and roads for transporting equipment,
derivatives, or downstream products to storage facilities or to domestic consumers.
In cases where such infrastructure is lacking, green hydrogen could either spur
investments in their development and create positive spillover effects for the wider
Pipelines for transporting population or add to the burden on existing infrastructure without contributing to
green hydrogen from
the point of production its expansion. Such infrastructure is typically capital-intensive and non-excludable,
to end-use are excluded
here. While gas pipeline which means privately owned green hydrogen project developers lack incentives
infrastructure (newly built
or refurbished) can be to invest. Even if they decided to do so, they may encounter legal and regulatory
used by multiple hydrogen
developers and users, this
difficulties, for instance, in obtaining a reasonable burden-sharing arrangement
cannot directly benefit
the wider population like
with the government or establishing a means to recoup investments (OECD,
the other common user 2023b).
infrastructures (grids, roads,
ports) described in Section
2.6. Moreover, as we assume Role of MDBs
that sustainable green
hydrogen would have a
limited role in the energy Mobilising investments in common user infrastructure is necessary to enable
transition and that limited
production and end-use positive impacts of green hydrogen on infrastructure development. MDBs can
would be closely located,
it follows that the pipeline play a role by:
infrastructure requirements
will also be limited and do
not necessitate large-scale - Supporting regulatory reforms, for example, of the Grid Code to
public involvement.
integrate fair compensation rules and burden-sharing arrangements
for private investments in the transmission grid. ( Policy and
regulatory support; Policy-based lending)
- Providing financial or de-risking support for infrastructure
investments with high upfront capital requirements. ( Preferential
finance; De-risking mechanisms)

2.7 SECTORAL DECARBONISATION
SDG 13 - Climate Action Positive impact conditions Negative impact conditions
Desired impact: Green Green hydrogen is used in Green hydrogen is used in

hydrogen development domestic applications that domestic applications that
contributes to the cannot be electrified (hard- can be electrified.
decarbonisation of economic to-abate sectors). Green hydrogen is used in
sectors. Green hydrogen is used for domestic applications that
long-term or seasonal energy support or prolong fossil fuel
storage to provide flexibility use.
to the power grid.
Green hydrogen has the potential to contribute to the decarbonisation of

economic sectors in the producer country, provided its application is reserved for
“no-regret” domestic end-uses (Liebreich Associates, 2021; NewClimate Institute,
2023d). These are optimal end-uses where no other viable decarbonisation options
(such as direct electrification) exist and that do not directly or indirectly hinder
overall national decarbonisation. Examples include the use of green hydrogen as
a feedstock in steel, chemicals, and fertiliser production or as e-fuels in shipping
and aviation, as these end-uses are difficult to electrify. Additionally, the use of
green hydrogen for long-term or seasonal storage can provide flexibility services
to the grid, which facilitates the integration of variable renewable energy sources
and the decarbonisation of the power sector.
Conversely, the application of green hydrogen in end-uses that are possible to

electrify (such as road transport, low- or medium-temperature industrial heat) has
a negative impact on decarbonisation. The process of using renewable electricity
to make green hydrogen and converting it back to renewable electricity for
application in end-uses involves high conversion losses. Using renewable electricity
directly wherever possible is thus more efficient and prevents the wastage of
energy resources that could be used for further decarbonisation. Additionally,
the impact is negative if green hydrogen is used in applications that support
or prolong the use of fossil fuels and hinder overall decarbonisation, such as
petroleum refining, fossil fuel mining, blending in fossil gas pipelines, co-firing
with coal, or transporting fossil fuels (NewClimate Institute, 2023d).
In several cases, however, it may not be as straightforward to determine the

impact of green hydrogen use on sectoral decarbonisation. For instance, many
pilot projects for green hydrogen are planned in petroleum refineries where
grey hydrogen is currently used. These projects are intended to serve as proof
of concept for other clearly positive sectoral applications and as a near-term
offtake market for early projects. However, this may promote continued reliance
25
on petroleum beyond Paris-compatible timelines (NewClimate Institute, 2023a).

It is important to consider the overall impact of green hydrogen on sectoral
decarbonisation on a case-by-case basis, keeping in mind the specific national
context.
Role of MDBs
Identifying no-regret end-use applications within the domestic context and

supporting offtake in those sectors will be key in ensuring a positive impact of
green hydrogen on sectoral decarbonisation. MDBs can play a role by:
- Establishing efficient use of green hydrogen in no-regret sectors as a

requirement to avail MDB support. ( Sectoral lending strategy)
- Supporting identification of key no-regret sectors for domestic
offtake by producing national sector-wise demand estimates for
green hydrogen. ( Knowledge creation and sharing)
- Supporting countries to mandate offtake in domestic no-regret
sectors by including sector-wise offtake preferences in their green
hydrogen strategies and policies. ( Strategy support; Policy
and regulatory support; Policy-based lending)
- Supporting offtake in domestic no-regret sectors with local
currency lending and innovative de-risking instruments like double
auction mechanisms. ( Preferential finance; De-risking
mechanisms)
capacity to implement international schemes to certify the green
content of hydrogen produced with grid-connected electrolysers to
enable offtake in and decarbonisation of domestic no-regret sectors.

2.8 PUBLIC HEALTH AND SAFETY
SDG 3 - Good health Positive impact conditions Negative impact conditions

and well-being
Project locations are carefully Project locations are not
Desired impact: Green chosen to minimise safety chosen carefully enough to
hydrogen development does risks to local communities. minimise safety risks to local
not endanger worker or There are robust standards communities.
community safety. and safeguards to ensure There are inadequate
worker and community safety safeguards to ensure worker
at all stages of the value chain. and community safety at all
stages of the value chain.
Green hydrogen can pose risks to public health and safety. Although it is produced
and combusted without any emissions, it is highly flammable and needs to be
handled carefully. There are high risks of accidents across all stages of the value
chain – production, storage, transport, and distribution. This endangers both
workers involved at these stages as well as communities located near green
hydrogen hubs, storage facilities, and distribution networks (Signoria and
Barlettani, 2023). Locating hydrogen hubs away from residential communities with
ample buffer zones, preventing pipeline leakages, and establishing robust worker
safety measures along the value chain are key to mitigating these risks.
Role of MDBs
Hydrogen pipeline leakage
can itself indirectly Ensuring high environmental and social standards and safeguards, both for project
contribute to global
warming, as hydrogen siting and for worker and community safety, will be crucial in avoiding negative
influences the tropospheric
and stratospheric chemistry impacts. MDBs can play a role by:
by increasing the lifetime
and concentration of
methane and decreasing - Establishing high environmental and social standards and
the concentration of ozone
respectively (Maple, 2023). safeguards for green hydrogen project infrastructure and operations
This impact is not explicitly
considered or further
as a requirement to avail MDB support. ( Environmental and
analysed in this report, as
our scope is limited to direct
social framework)
impacts of green hydrogen
development. - Supporting producer countries to adopt robust environmental
and social standards and safeguards for green hydrogen project
infrastructure and operations. ( Policy and regulatory support;
Policy-based lending)
- Building local capacity at the institutional and/or project levels to
better implement and ensure compliance with environmental and
social standards and safeguards. ( Capacity building)
27
2.9 NATURE AND BIODIVERSITY
SDG 14 - Life below water Positive impact conditions Negative impact conditions
SDG 15 - Life on land
Projects are located where Projects are located in areas
impact on natural habitats, of high environmental or
Desired impact: Green
ecosystems and species can biodiversity value.
hydrogen development does
be minimised. Water pollutants generated
not lead to degradation of
natural ecosystems. Water pollutants generated along the value chain are not
along the value chain are adequately treated before
adequately treated before discharge.
discharge.
As is the case with all large infrastructure projects, green hydrogen facilities can
directly or indirectly impact nature and biodiversity in the areas where they are
located. This could occur due to the disruption of natural habitats (e.g., due to
deforestation) or migratory paths by renewable power capacity installations, such
as solar farms or onshore and offshore wind farms. Careful siting of projects in
areas of low nature and biodiversity value is required to ensure these impacts are
minimised.
Negative impacts could also arise due to the discharge of untreated or

inadequately treated pollutants from associated processes, such as desalination
of seawater for electrolysis or the production of hydrogen derivatives like ammonia
and methanol. High standards for wastewater management can mitigate this
impact (Signoria and Barlettani, 2023).
Role of MDBs
Ensuring high environmental standards and safeguards both for siting of green
hydrogen megaprojects and for wastewater treatment will be crucial in avoiding
negative impacts. MDBs can play a role by:
- Establishing high environmental standards and safeguards for green

hydrogen project infrastructure and operations as a requirement to
avail MDB support. ( Environmental and social framework)
- Supporting producer countries to adopt robust environmental
standards and safeguards for green hydrogen project infrastructure
and operations. ( Policy and regulatory support; Policy-based
lending)
- Building local capacity at the institutional and/or project levels to
better implement and ensure compliance with environmental and
social standards and safeguards. ( Capacity building)

03 ADAPTING THE MDB

CLIMATE FINANCE AND
STRATEGY TOOLKIT
3.1 Standard setting tools 33
3.2 Country support tools 37
3.3. Project financing tools 43
3.4 Principles for MDB engagement 47
29
MDBs use a range of instruments to channel their climate finance, spanning

advisory services, technical assistance, grants, loans, equity, and de-risking
instruments (MDBs, 2023a). In addition, they use their own strategy and policy
documents to guide their climate finance and dedicate a portion of resources to
produce knowledge products serving as public goods for global climate action
(Germanwatch & NewClimate Institute, 2018). We refer to the full range of MDB
functions impacting their climate finance as the MDB climate finance and strategy
toolkit.
The existing MDB climate finance and strategy toolkit can be adapted to
encourage positive impacts and avoid negative impacts of green hydrogen for
the producer country described in Section 2. In this section, we present nine
tools ( Fig. 4) commonly found in the MDB climate finance and strategy toolkit,
albeit sometimes under different names, and make recommendations on how
to adapt their use to achieve desired outcomes in the sustainable development
impact areas described in the previous section. We also identify opportunities for
cooperation among MDBs and attempt to anticipate potential challenges with
the recommended use of the tools.
Fig. 4
Selected tools from Sectoral lending strategy
the MDB climate Standard setting tools
finance and strategy Environmental and social framework
toolkit
Knowledge sharing and creation
Strategy support
Country support tools Policy and regulatory support
Capacity building
Policy-based lending
Preferential finance
Project financing tools
De-risking mechanisms
Source: Produced by authors.

The selected tools can be classified into three types based on their mode or level
of impact:
a Standard-setting tools are strategic instruments at the bank level that guide
the way MDBs operate and make financial or technical support decisions.
In some cases, these tools may be used to set eligibility conditions or
benchmarks at the project level – for example, many MDBs have “exclusion
lists” and “eligibility lists” to clarify the investment categories eligible for MDB
support (Germanwatch & NewClimate Institute, 2018). Such tools can be
powerful in setting the global standards for good practice in an emerging
industry like green hydrogen and are particularly important to put in place
early on to secure desirable sustainable development outcomes for producer
countries. Selected MDB tools within this category that can be used to secure
positive developmental impacts of green hydrogen include Sectoral lending
strategies and Environmental and social frameworks.
b Country support tools are technical or financial support instruments used
at the borrowing country level to cultivate an enabling environment for
investments. Activities vary but in essence aim to strengthen or develop
national strategies, regulatory frameworks, enabling policies, and local
capacity (Germanwatch & NewClimate Institute, 2018). This category of tools
can serve as a cornerstone for green hydrogen production in the Global
South, helping producers map out long-term strategies that prioritise local
benefits and establish conducive policy frameworks to reduce risks and
support development priorities. Selected MDB tools within this category that
can be used to secure positive developmental impacts of green hydrogen
include Knowledge creation and sharing, Strategy support, Policy and
regulatory support, Capacity building, and Policy-based lending.
c Project financing tools are financial instruments used at the project level by
MDBs to spread risks across entities, lower the cost of finance, and mobilise
additional private financing. MDBs typically offer these tools for projects
that are not bankable in the commercial market due to high perceived risks,
such as poor sovereign credit risk or technology risk, but have the potential
to deliver good results (Choi and Laxton, 2023). For green hydrogen, such
tools should be applied strategically to projects where they can maximise
the developmental impact per dollar spent. Selected MDB tools within this
category that can be used to secure positive developmental impacts of green
hydrogen include Preferential finance and De-risking mechanisms.
31
Many of these tools are already being used by MDBs in their green hydrogen
activities. A non-exhaustive list is included in the Annex. Section 4
presents selected case studies where such tools are being used and supported
by development finance and assesses them against the framework developed in
this report.
It is important to note that these tools are not mutually exclusive and are better
used in combination to achieve desired outcomes. It is important to systematically
integrate sustainable development considerations for green hydrogen across the
MDB climate finance and strategy toolkit rather than taking a siloed approach.

Standard setting tools Country support tools Project financing tools
3.1 STANDARD SETTING TOOLS
3.1.1 SECTORAL LENDING STRATEGY

Link to impacts:
Definition: Sectoral lending strategies are bank-level documents providing guidance on the principles
and procedures for MDB investments in different sectors (such as energy, transport, health), often based
on Paris Alignment methods (EIB, 2023; IDB, 2024; World Bank, 2024b). The content of such documents
sets a clear direction for the bank’s operational policies within that sector.
Theory of change: MDBs’ sectoral lending policies can be important tools to publicly communicate the
principles guiding their lending practices, which can serve to provide market signals and contribute
to setting global standards for lending. This is particularly important for green hydrogen as global best
practices in this sector are yet to be defined.
Recommendations: To ensure that their energy sector strategies comprehensively integrate relevant green
hydrogen considerations, which in turn can be applied to set project-level eligibility standards, MDBs could
define the following principles:
- Additionality – Green hydrogen project infrastructure, such as renewable power plants and
water treatment facilities, must be built in addition to electrolyser installations.
- Surplus sharing – Green hydrogen project infrastructure, such as renewable power
plants and water treatment facilities, must be oversized and commit to surplus sharing.
Electrolysers must be grid-connected and share surplus electricity with the grid in times of
supply shortages, particularly in regions with low electricity access. Water treatment facilities
or desalination plants should supply surpluses to local water distribution networks in regions
facing high water stress levels.
- Resource efficiency – Output from green hydrogen projects should be prioritised for
no-regret sectors within the national context, both for domestic use and exports where
possible.
Opportunity for cooperation: MDBs could cooperate in this area to ensure consistency in their green
hydrogen lending strategies and to avoid projects being concentrated with the bank operating under the
least ambitious standards. This would contribute to setting global standards for just, Paris-aligned green
hydrogen production and use.
Potential implementation challenges:
- The principles and lines of action currently defined in MDBs’ energy sector lending strategies
are typically broad in scope (for example, ensuring universal energy access, building
institutional capacity, etc.). To ensure they translate into stringent project-level eligibility
requirements, they must be interpreted consistently across cases.
33
- Projects may face challenges adhering to the recommended MDB eligibility standards
if the enabling policy environment and infrastructure are not in place in the borrower
country. MDBs should use this tool in combination with country support tools like strategy
support ( Section 3.2.2) and policy and regulatory support ( Section 3.2.3) to shape
a complementary environment in the borrower country. Additionally, project financing
support ( Section 3.3) for grid infrastructure is essential to enable surplus sharing.

3.1.2 ENVIRONMENTAL AND SOCIAL FRAMEWORK

Link to impacts:
Definition: MDBs’ environmental and social frameworks (ESFs) are documents detailing the approach
to assessing, managing, and mitigating environmental and social risks associated with the projects
they finance. ESFs typically consist of two parts – environmental and social standards (ESSs), which set
requirements for the borrowers on the design and implementation of their projects, and environmental
and social policies (ESPs), which set requirements for the bank on its own due diligence and monitoring
responsibilities (IDB, 2020; EIB, 2022; World Bank, 2024a). ESFs are broadly formulated to be applicable
to the full spectrum of MDB activities, and specific investment categories or sectors can have their own
environmental and social risk guidelines specified in sectoral lending policies.
Theory of change: ESFs set minimum requirements for environmental and social risk management that
banks and borrowers must comply with. Introducing or enhancing elements that reflect the risks relevant
to green hydrogen projects and setting high thresholds for their eligibility to avail MDB support can shape
this emerging industry and enhance its compatibility with sustainable development objectives.
Recommendations: MDBs have already formulated broad and comprehensive ESSs from which the
key considerations relevant to green hydrogen projects can be derived. Tab. 1 matches the desired
environmental and social features of green hydrogen projects (based on the analysis in Section 2) to
the broad ESSs that most MDBs already have in place (IDB, 2020; EIB, 2022; World Bank, 2024a).
To ensure these ESSs translate into positive social and environmental outcomes of green hydrogen projects,
MDBs could:
- Ensure consistent and high-quality interpretation and application of ESSs across directly
supported projects by enhancing process transparency and building MDB staff capacity.
- Ensure consistent and high-quality interpretation and application of ESSs across projects
involving financial intermediaries by improving oversight and accountability mechanisms.
- Strengthen ESP guidelines to establish an acceptable risk classification as an eligibility
standard for projects to receive MDB support.
- Build capacity of public institutions, financial intermediaries, and private developers involved
in approved projects to manage residual risks.
Opportunity for cooperation: MDBs could cooperate on their ESFs to ensure consistency in the way
green hydrogen considerations are incorporated and to avoid projects being concentrated with the bank
operating under the least ambitious standards. Cooperation on ESFs would send clear signals to project
developers and set a global standard with which green hydrogen project proposals can be assessed.
- While MDBs typically assess and disclose environmental and social risk classifications of
projects, these are not used to set eligibility standards for projects receiving financial or
technical support from MDBs. In fact, current World Bank green hydrogen projects in Chile
35
and India were both classified as having substantial environmental and social risks (Seeger,
2023; World Bank, 2023a, 2023b). The recommended use of this tool thus deviates from
standard practice and would require significant political will from MDB shareholders to lead
by example.
- MDB ESSs are likely to be more stringent than environmental and social regulations in the
borrower country. It is thus important that MDBs combine this tool with Strategy Support
and Policy and Regulatory Support tools (see Section 3.2.2 and Section 3.2.3) to
support the strengthening of domestic environmental and social regulations and green
hydrogen strategies, and the Capacity Building tool ( Section 3.2.4) to build institutional
capacity to manage and monitor standards beyond MDB-supported projects.
Tab. 1 Relevant MDB Environmental and Social

Desired project-level feature
Desired environmental Standards
and social features
of green hydrogen
Siting of large-scale green hydrogen projects and - Land Acquisition and Involuntary
associated value chain activities is strictly limited Resettlement
projects and
to areas: - Community Health, Safety, and Security
associated MDB
environmental and
- with low land and water
conflict levels
- Indigenous Peoples and Vulnerable Groups
social standards
- with low biodiversity value
- Biodiversity Conservation and Sustainable
Management of Living Natural Resources
- away from residential
communities
Water pollutants, such as brine from desalination - Resource Efficiency and Pollution
or wastewater from ammonia or methanol Prevention
production, are minimised and adequately - Community Health, Safety, and Security
treated before being discharged into water
bodies.
- Biodiversity Conservation and Sustainable
Management of Living Natural Resources
Workers along the value chain involved in - Community Health, Safety, and Security
handling hydrogen are protected by adequate - Labour and Working Conditions
safety measures, such as provisioning of
protective gear and safety training.
Resource access- or benefits-sharing - Stakeholder Engagement and Information

arrangements are designed with local Disclosure
communities based on comprehensive and high-
quality stakeholder consultations with free, prior,
informed consent (FPIC).
Well-functioning grievance redressal - Stakeholder Engagement and Information

mechanisms are established and maintained to Disclosure
enhance the accountability of project developers
and financial intermediaries during project
implementation.

3.2 COUNTRY SUPPORT TOOLS
3.2.1 KNOWLEDGE CREATION AND SHARING

Link to impacts:
Definition: This tool refers to the use of MDB financial and technical resources to produce and share
knowledge on critical issues within a sector, either on a global level or for a specific country context.
Examples include supporting pre-feasibility and feasibility studies, publishing technical reports, case studies,
and good practice guides, and setting up digital libraries and platforms for knowledge exchange (ALSF,
2024b).
Theory of change: Knowledge creation and sharing is crucial in nascent sectors, such as green hydrogen,
where best practices are yet to be established. With this tool, MDBs can support countries in the Global
South facing capacity constraints related to collecting, managing, and analysing data, which often results
in data gaps or inadequate data quality. As green hydrogen projects become operational, sharing learnings
– both in terms of technological advancements and supportive policy frameworks – can mitigate risks and
help lower the cost of finance.
Recommendations: To use their knowledge creation and sharing function to secure the positive
sustainable development outcomes of green hydrogen, MDBs could:
- Produce feasibility studies that assess potential demand for green hydrogen, its derivatives,
and its upstream and downstream products, with a breakdown by offtake sector and market
(domestic vs. international).
- Develop estimates of existing capacity and growth potential of domestic upstream and
downstream industrial sectors.
- Produce or support studies to identify appropriate policy options within the national context
to capture value locally.
- Facilitate platforms for knowledge exchange to share best practices and lessons learned on
national strategies, enabling policies, and industrial best practices.
Opportunity for cooperation: MDB cooperation in this area is necessary to combine resources, to make
knowledge products a global public good, and to support sharing of lessons learned between producer
countries.
Potential implementation challenges: MDBs have limited resources and capacity. As there are no direct
financial returns on knowledge creation, there could be limited incentive to channel resources into such
activities.
37
3.2.2 STRATEGY SUPPORT

Link to impacts:
Definition: MDBs provide financial and technical resources to help shape strategic roadmap documents
at the national or sub-national levels for specific sectors or development areas. This includes aiding in the
strengthening of climate-related strategies, such as Nationally Determined Contributions (NDCs), Long-
term Strategies (LTSs), or sectoral decarbonisation plans, as well as strategies focused on other development
priorities, such as poverty reduction, public health, or industrialisation. MDB strategy support typically
focuses on mapping opportunities, risks, stakeholders, and investment needs.
Theory of change: MDBs can help ensure sustainable development outcomes by supporting a range of
country strategies relevant to green hydrogen which provide important market signals and guide private
and public investments in the sector.
Recommendations: To ensure that national and sub-national strategies in a producer country sufficiently
integrate and reflect the desired sustainable development outcomes of green hydrogen, MDBs could:
- Support long-term decarbonisation strategies (including NDCs and LTSs) and sector
roadmaps defining the role of green hydrogen in domestic decarbonisation efforts aligned
with domestic priorities.
- Support national green hydrogen strategies outlining principles or intentions for near- and
long-term domestic use, a realistic outlook on exports, and policies for local value capture.
- Support industrial development plans for key upstream (e.g., electrolysers) and downstream
sectors (e.g., fertilisers, green steel) where significant potential exists.
Opportunity for cooperation: MDBs can collaborate and share analysis on strategy support to overcome
resource constraints and build on each other’s knowledge bases.
- MDB support for strategy development may be perceived as prescribing direction or

action to sovereign countries. MDBs should establish open dialogue with borrower country
governments to understand their needs and dedicate their technical expertise and resources
to addressing these needs with this tool.
- MDBs must navigate complex political and institutional landscapes in borrower countries
and work within the constraints of national ambition. For instance, countries might wish to
prioritise the short-term capital gains offered by export-oriented green hydrogen production
over long-term value capture.

3.2.3 POLICY AND REGULATORY SUPPORT

Link to impacts:
Definition: This tool refers to the use of MDB financial and technical resources to support policy and
regulatory design or reforms at the national- or sub-national levels. Examples include support for
enhancing investment policy, competition policy, transmission regulation, environmental and social
regulations, etc.
Theory of change: MDBs' support can help build or strengthen an enabling policy and regulatory
framework for green hydrogen production that supports the implementation of national long-term
strategies and secures positive sustainable development impacts.
Recommendations: To ensure that the policy and regulatory environment in a producer country is
conducive for securing the desired sustainable development outcomes of green hydrogen, MDBs could:
- Support green hydrogen policy development, such as mandates for additionality and
oversizing of project infrastructure (renewable power plants, water treatment facilities, etc.)
and for surplus electricity and water sharing.
- Support industrial policies and demand creation measures including phased local content
measures, green public procurement, and consumption or production mandates, to spur
domestic upstream or downstream industrial growth and local employment generation
where there is significant potential.
- Support grid regulatory reform to enable electrolyser integration and to encourage private
investments in grid infrastructure.
- Support tax reforms to ensure commodity exports of green hydrogen generate
proportionate fiscal revenues in the form of export duties.
- Support adoption or strengthening of environmental and social safeguards on wastewater
treatment, project siting, labour and community safety, and stakeholder engagement and
grievance redressal.
Opportunity for cooperation: MDBs can collaborate on policy and regulatory support to overcome
resource constraints and build on each other’s knowledge bases.
- MDB support for policy development may be perceived as prescriptive or attempting to

influence sovereign countries. MDBs should establish open dialogue with borrower country
governments to understand their needs and dedicate their technical expertise and resources
to addressing these needs with this tool.
- MDBs must navigate complex political and institutional landscapes in borrower countries
and work within the constraints of national ambition. For instance, countries might wish to
prioritise the short-term capital gains offered by export-oriented green hydrogen production
over long-term value capture.
39
3.2.4 CAPACITY BUILDING

Link to impacts:
Definition: This tool refers to the use of MDB financial and technical resources to support the building of
skills and capacity locally, either on the project or institutional level. Examples include vocational training,
reskilling or upskilling programmes, professional or institutional capacity-building workshops, project
preparation or legal support facilities, etc.
Theory of change: Capacity building facilitates country ownership, which is crucial for achieving
sustainable development impacts. It aids governments in developing the capability to enact robust
regulatory and policy frameworks related to green hydrogen. Capacity support is also important to build
technical expertise along the value chain to enable greater local value creation.
Recommendations: To use their capacity building function to secure the positive sustainable development
outcomes of green hydrogen, MDBs could:
- Build institutional and project developer capacity to ensure compliance with policy
and regulatory frameworks related to green hydrogen (e.g., local content measures,
environmental and social safeguards, etc.).
- Build institutional and project developer capacity to adapt and implement international
green certification schemes for hydrogen produced with grid-connected electrolysers and
for downstream products.
- Provide legal support in negotiating surplus sharing or benefits sharing arrangements to
ensure that projects are established under equitable terms.
- Assist governments in building technical skills and vocational training for the workforce
across value chain segments.
- Offer safety training for workers handling hydrogen across value chain segments.
- Support the re-skilling of workers in transition-affected industries, such as grey hydrogen.
Opportunity for cooperation: MDBs can collaborate by pooling their resources to enhance their capacity-
building efforts, reduce transaction costs, and amplify their overall impact.
Potential implementation challenges: MDBs have limited resources and capacity. As there are no direct
financial returns on capacity building, there could be limited incentive to channel resources into such
activities.

3.2.5 POLICY-BASED LENDING

Link to impacts:
Definition: Policy-based lending (PBL) is an MDB lending category wherein financial support (loans, grants,
or guarantees) is provided in exchange for pre-determined policy or institutional reforms in the borrower
country or financial intermediary. It is disbursed upon achievement of the specified actions. PBL can be
either non-earmarked budgetary support, specifically for crisis-response or countercyclical measures, or
linked to specific investment projects in strategically important sectors (ADB, 2021). It can be standalone
(supporting a particular policy area for 1-2 years) or programmatic (supporting multiyear government action
plans through broader structural reforms).
Theory of change: PBL can catalyse structural changes in the policy and institutional environments
of borrowing countries and create an enabling environment for green hydrogen investments. Given
the nascency of green hydrogen, the implementation of additional policy frameworks and safeguards,
or reforms to existing ones, is crucial to mobilise investments while safeguarding positive sustainable
development outcomes.
Recommendations: To link PBL with policy actions that could secure the positive sustainable development
outcomes of green hydrogen, MDBs could:
- Support regulatory reforms to encourage private sector investments in common user

infrastructure relevant to the green hydrogen value chain, such as transmission and
distribution grids, ports, roads, etc.
- Support the development and implementation of a national green hydrogen strategy or
policy programme that mandates additionality and oversizing of project infrastructure and
sharing of electricity and water surpluses, prioritises offtake in domestic no-regret sectors
within the national context, and includes exports to a reasonable and realistic extent.
- Support industrial policies and demand creation measures including phased local content
measures, green public procurement, and consumption or production mandates, to spur
domestic upstream or downstream industrial growth and local employment generation
where there is significant potential.
- Support adoption, strengthening, or implementation of environmental and social safeguards
on wastewater treatment, project siting, labour and community safety, and stakeholder
engagement and grievance redressal.
Opportunity for cooperation: MDBs can cooperate to share knowledge, experiences, and best practices
on policy-based approaches for green hydrogen.
41
- Many small countries with green hydrogen potential, where MDB support is most needed to
secure positive development outcomes, may not be able to benefit from the recommended
use of PBL. Borrower countries must have strong macro-fiscal fundamentals to be eligible to
receive PBL, which is typically determined by an IMF assessment (Neunuebel et al., 2022).
- Tying finance to policy reforms can create an additional hurdle for borrower countries to
access finance. To avoid this, MDBs should use this tool in combination with tools like policy
and regulatory support ( Section 3.2.3) and capacity building
( Section 3.2.4) to achieve optimal results.
- MDBs have internal ceilings on the amount of finance they can provide under the PBL
category, and thus use this instrument sparingly.
- PBL may be perceived as overly intrusive in some cases (Koeberle, 2003). MDBs should
establish open dialogue with borrower country governments to understand their needs and
dedicate their technical expertise and resources to addressing these needs with this tool.
- MDBs may run into legal, administrative, or political impediments in borrowing countries to
use PBL. They should work with borrower country governments to address these challenges
wherever possible.

3.3. PROJECT FINANCING TOOLS
3.3.1 PREFERENTIAL FINANCE

Link to impacts:
Definition: This is a category of MDB lending provided on favourable terms to projects meeting minimum
eligibility benchmarks in strategic investment categories where private sector participation is low. It
includes:
- Concessional finance: Financing offered at below-market interest rates or with longer

repayment periods.
- Blended finance: Concessional funds combined with private capital (e.g., through public-
private partnerships) to facilitate risk sharing and mobilise larger amounts of finance.
- Local currency finance: Long-term debt issued in the currency of borrowers rather than in
hard currencies (i.e., USD or EUR).
Theory of change: Preferential finance can greatly improve access to finance for debt-burdened
borrowing countries with low credit ratings and mitigate some of the risks associated with investing in
new technology or large-scale public infrastructure, where private investment appetite is low. This type of
finance can be utilised strategically to mitigate risks, reduce the cost of finance, and attract private capital
to high-impact investment areas that enable broader development impacts. For example, local currency
finance provided to strategic green hydrogen projects can help mitigate currency risk and potential export
bias among developers arising from dependence on imports and project finance in hard currencies.
Recommendations: To effectively allocate limited preferential funds to projects with high sustainable
development impact, MDBs could:
- Support common user infrastructure projects relevant to the green hydrogen value chain,
notably expanding and upgrading transmission and distribution grids (at the national,
regional, or local levels), constructing ports, and improving road transport networks.
- Support project development for strategic early-stage green hydrogen projects with high
potential to yield sustainable development benefits.
- Support project development for strategic early-stage projects in upstream and downstream
industries with significant potential to contribute to economic growth and decarbonisation.
Opportunity for cooperation: MDBs can consider cooperation opportunities to pool their preferential
resources and mobilise private investments for high-impact and high-priority project investments. The
World Bank’s proposed hydrogen lighthouse initiative is an example of pooling expertise and preferential
finance together to boost the hydrogen industry in emerging markets (ESMAP, 2024).
43
- MDBs have limited donor funds available to provide in the form of concessional finance and
many development projects compete for the same funds.
- High currency risks in many borrowing countries translate into higher risk premiums added
to the concessional interest rates, often making MDB finance terms comparable to local
commercial finance.
- MDBs often require sovereign guarantees against concessional loans due to their low risk
appetite, which can potentially exacerbate sovereign risk exposure and fiscal burden in debt-
vulnerable borrowing countries. Proposals to reform the international financial architecture
have called on MDBs to increase their risk appetite (G20 Expert Panel, 2022).
- Providing local currency loans requires MDBs to raise funds in local capital markets, absorb
currency risk, or seek hedging products. However, local capital markets in borrowing
countries are often underdeveloped and currency risk hedging tends to be unavailable at the
scale required for infrastructure projects (Fink et al., 2023).

3.3.2 DE-RISKING MECHANISMS

Link to impacts:
Definition: This refers to the use of MDB donor funds to address a variety of risks associated with
investment projects that impact their bankability, such as political, technology, currency, credit, or revenue
risks. De-risking support could be made available in various forms, such as credit guarantees (partial risk,
partial credit, or first loss), liquidity reserve facilities, equity co-investments, or other innovative mechanisms.
An example of an innovative de-risking mechanism to address offtake risk would be a double auction
mechanism, wherein purchase and sales volumes of green hydrogen are auctioned separately, and the
gap between production cost and market price is covered with donor funds.
Theory of change: De-risking mechanisms transfer or absorb major risks facing green hydrogen projects,
which otherwise hinder their access to commercial finance without requiring sovereign guarantees. MDBs’
de-risking capacity can be instrumental in attracting investments and enabling producers in the Global
South to compete with often heavily subsided Global North producers.
Recommendations: To de-risk and enhance the bankability of green hydrogen projects with high
sustainable development impact, MDBs could:
- Provide guarantees to address specific project-level risks and raise private capital for
common user infrastructure investments, strategic green hydrogen projects, or strategic
upstream and downstream industrial projects.
- Support existing double auction mechanisms (e.g., the H2Global instrument) to provide
offtake guarantees to projects meeting high standards for local sustainable development
impacts (H2Global Stiftung, no date c; European Commission, 2023). For instance, the bid
selection process under tailored funding windows could weigh criteria on local content,
workforce, or benefits sharing to encourage bidders to consider sustainable development
impacts. (See Section 4.4)
- Establish a joint MDB double auction mechanism to provide regional or domestic offtake
certainty to no-regret end-use sectors.
- Support national governments in designing and funding a domestic double auction
mechanism to support domestic offtake in no-regret end-use sectors.
Opportunity for cooperation: MDBs can consider cooperating on de-risking mechanisms to pool
resources and make it possible to cover a larger proportion of risks. Such collaboration, particularly on
innovative instruments, would facilitate knowledge sharing and the evolution of best practices, preventing
unnecessary duplication of efforts.
45
- MDBs have limited risk-taking capacity and must retain their credit rating to continue to
offer low-cost capital. Modest increases to MDBs’ risk appetite can unlock significant lending
capacity (McHugh, 2024). MDBs could, for instance, reform how they account for guarantees
which are currently accounted for similarly to loans regardless of their probability of being
called, which reduces fiscal space for lenders and decreases demand from sovereign
borrowers (G20 Argentina, 2018).
- As MDBs’ risk-taking capacity is limited, they must apply de-risking mechanisms sparingly to
high-impact investments. Determining which high-impact projects should receive limited
financing can be a challenge as there are competing priorities.

3.4 PRINCIPLES FOR MDB ENGAGEMENT
Based on the specific recommendations for each climate finance tool or strategy
(summarised in Tab. ES 1), we identify the following key high-level principles
to shape MDB engagement on green hydrogen in line with their sustainable
development mandate and the Paris-alignment commitment:
a Champion sustainable development – MDBs should go beyond “do no

harm” and aim to support projects that add value for producer countries.
This is crucial for integrating sustainability considerations into decision-
making processes regarding hydrogen from the outset.
b Set high eligibility standards – MDBs can enhance their lending
strategies and environmental and social frameworks, using them to set
high minimum social, economic, and environmental eligibility standards
for green hydrogen projects seeking financial or technical support.
c Support comprehensive national strategies – MDBs can assist producer
countries in formulating near- and long-term national green hydrogen
strategies, sectoral decarbonisation plans, and roadmaps in line with
the Paris Agreement, national priorities, and sustainable development
objectives.
d Use tools complementarily – MDBs can use a combination of tools to
capitalise on their cumulative and complementary impacts. High eligibility
standards and policy-based lending should be accompanied by country
support instruments as well as financial and de-risking instruments
to create optimal conditions for green hydrogen to deliver sustainable
development outcomes.
e Enhance implementation capacity – MDBs should ensure their own
strategies and policies are interpreted and implemented consistently
across projects, to ensure the principles are translated into action. MDBs
can also support countries in scaling up their capacity to develop and
implement regulations and action plans.
f Ensure cooperation – MDBs can cooperate to combine financial resources
and technical expertise, build on each other’s country networks, and
scale up their impact on green hydrogen lending and support initiatives.
Cooperation, including with bilateral development agencies, would
promote consistency, facilitate knowledge sharing and the refinement of
best practices, and prevent duplication of efforts.
47
04 CASE STUDIES:
SELECTED
MULTILATERAL
AND BILATERAL
INITIATIVES ON GREEN
HYDROGEN
4.1 AfDB: African Legal Support Facility in Namibia 49
4.2 World Bank: Development policy loans to India 50
4.3 EIB: Green Hydrogen Fund 52
4.4 Team Europe: The H2Global Instrument 53

4.1 AFDB: AFRICAN LEGAL SUPPORT FACILITY IN NAMIBIA
Tools used: Capacity building; Knowledge creation and sharing
Funding committed: N/A
Potential impacts:
Description: The African Legal Support Facility (ALSF) is an international

organisation established by the African Development Bank (AfDB) in 2008. It
has a mandate to provide legal and technical advisory services to African states,
particularly the Heavily Indebted Poor Countries (HIPCs), in negotiating fair
and equitable terms on contractual arrangements between governments and
investors (ALSF, 2024). It also provides institutional and professional capacity
building support, for example, through a repertoire of online courses and legal
and technical resources for stakeholders housed in its digital ALSF Academy (ALSF,
2024).
In 2023, ALSF was appointed by the Namibian Government to support negotiations

related to the USD 10 billion vertically integrated green hydrogen megaproject
being developed by Hyphen Hydrogen Energy, a private joint enterprise of
firms based in the UK (Nicholas Holdings Ltd.) and Germany (Enertrag). ALSF
is involved in ensuring a robust legal foundation for the new green hydrogen
industry, notably through the processes around land allocation, environmental
implications, ensuring local employment generation and industrial participation,
and maximising fiscal revenues for the government (NPC, 2023).
These negotiations culminated in the signing of two contractual agreements

between the government and Hyphen, the project developer. The first was
a Feasibility and Implementation Agreement (FIA) delineating the roles and
responsibilities of both parties, intended to serve as a benchmark for the
sustainable and equitable development of other such projects. The second
was a shareholders agreement establishing Nam-H2 Fund Managers, the
partnership governing the SDG Namibia One blended finance fund created by the
Environmental Investment Fund (owned by the Namibian government), Climate
Fund Managers and Invest International (both owned by the Dutch government)
(ALSF, 2023).
Assessment: ALSF involvement in the Namibian case is a good example of

how MDBs can use their capacity building tool to provide legal support to the
government in securing national interests in contract negotiations. Their support
on the shareholders agreement helped ensure that the government has a
significant role in the governance and management of the funds committed in
the SDG Namibia One fund and empowered the government to take a 24% equity
in the Hyphen project (EIF, 2023).
49
ALSF also helped secure strong commitments from the project developer outlined
in the FIA, including environmental and social targets, fiscal revenues, and the
potential development of common user infrastructure. Local value creation is also
an important objective for the government, notably that 90% of the jobs created
are filled by Namibians and 30% of the procurement is from local businesses, and
the developer agreed to ensure these targets are met during construction and
operation phases. Various financial obligations of the developer are also made
explicit in the FIA, including the annual land rental and environmental levies for
each phase, royalties as a percentage of gross revenues, and payment of corporate
income and other taxes to the government. The agreement stipulated that the
developer is responsible for funding feasibility activities (Republic of Namibia and
Hyphen, 2023).
While it is challenging to delineate the exact role of ALSF in securing these

outcomes, it is important to acknowledge the value of having legal support
available to improve negotiating power and capacity for producer countries. The
availability of such legal support also empowers the state to litigate if contractual
commitments are not met, thus reducing vulnerability.
4.2 WORLD BANK: DEVELOPMENT POLICY LOANS TO INDIA
Tools used: Policy-based lending
Funding committed: USD 1.5 billion provided, additional USD 1.5 billion committed
Potential impacts:
Description: The World Bank Group is providing policy-based loans to accelerate

low-carbon energy development in India, of which green hydrogen is one out of
three pillars. The finance will be provided in a two-part programmatic series of USD
1.5 billion each, the first part of which was approved and awarded in 2023 and the
second part is at the negotiation stage as of early 2024 (World Bank, 2023a, 2023b).
The key objective of the green hydrogen pillar of the PBL is to strengthen enabling
policies and regulations, reduce costs, increase market demand, mobilise private
investments, and facilitate the decarbonisation of hard-to-abate industrial
sectors in India. Among the expected results of this PBL by 2026 are increased
green hydrogen production capacity (3 million tonnes), domestic electrolyser (3
GW) and upstream manufacturing capacity (48 GW) for high efficiency solar PV
components, and the establishment of 10 safety standards governing the green
hydrogen industry.

The pre-determined policy actions of the Indian government related to green

hydrogen that would trigger the disbursement of the PBL include implementing
fiscal incentive schemes for green hydrogen production and electrolyser
manufacturing, promoting the use of green hydrogen and its derivatives in
selected offtake sectors to substitute grey hydrogen or fossil fuel imports (notably
refineries and fertilisers), developing an efficient public procurement model to
lower offtake risk, and defining a standard for what is considered green hydrogen.
Several of these policy actions have already been implemented (NewClimate
Institute, 2023b).
Assessment: The World Bank PBL to India is mostly consistent with the
recommended use of the tool as described in Section 3.2.5. The policy
actions prioritise local value capture by promoting the expansion of domestic
manufacturing industries, given significant potential in India. The PBL also
promotes sectoral decarbonisation by prioritising domestic offtake in hard-
to-abate industries, which has a substantial import substitution effect and
corresponding impact on trade balances. Further, the emphasis on high safety
standards as an expected outcome of the PBL has a potential positive impact on
public health and safety.
However, there are some concerning aspects of PBL. For instance, one of the hard-
to-abate industries that will use green hydrogen is petroleum refining, which is
currently reliant on grey hydrogen (produced with fossil gas). While this certainly
contributes to decarbonising refinery operations and provides an early offtake
opportunity for green hydrogen producers, the long-term use of green hydrogen in
this sector should be approached with caution. It is essential to target clear political
commitments and timeline for fossil fuel phase-out under the PBL.
Further, the project is marked as having substantial environmental and social

risks, which is explained in the project information documents as pertaining to
involuntary resettlement, loss of livelihoods, occupational and community health
and safety concerns, and reduction of freshwater availability. Approving a project
flagged with substantial environmental and social risks is inconsistent with
the recommendation in this report to set stringent eligibility criteria for green
hydrogen projects. Similar issues are observed in the World Bank hydrogen project
in Chile (Seeger, 2023).
The World Bank is providing several technical assistance packages to mitigate

anticipated environmental and social risks. These include Geographic
Information System (GIS) mapping to identify green hydrogen hubs that will
exclude environmentally and socially sensitive areas, conducting assessments
on desalination of water for green hydrogen production, enhancing institutional
capacity building at the federal and state levels, implementing reskilling
programmes for fossil fuel workers facing job displacement, and sharing global
best practices on environmental and social risk mitigation. Committing additional
51
grant resources to ensuring sound environmental and social performance is a

welcome move, but its efficacy will hinge on the robustness of implementation
and monitoring and evaluation procedures.
4.3 EIB: GREEN HYDROGEN FUND
Tool used: Knowledge creation and sharing; Policy and regulatory

support; Capacity building; Preferential finance
Funding committed: €459 million committed by Germany; no additional donors

so far
Potential impacts:
Description: The Green Hydrogen Fund is a trust fund hosted by EIB that aims
to support green hydrogen-related infrastructure projects outside the European
Union in developing countries and emerging economies included on the OECD
Development Assistance Committee’s list of recipients of official development
assistance (OECD, 2021). Germany is the first and only donor, committing
€459 million. The fund provides technical assistance and investment grants to
get projects off the ground. Technical assistance aims to address bankability
concerns by supporting project preparation, capacity building, feasibility studies,
proof of concept pilots, and policy advisory services. Investment grants aim to
address financial viability concerns by reducing the overall cost of the projects
and, therefore, the green premium of producing green hydrogen compared with
alternatives on the market. The grants can be utilised to purchase equipment,
services, facilities, and securities, and are often blended with other types of finance
(EIB, no date).
The Fund supports renewable hydrogen produced with additional renewable

power capacity, in line with European directives on additionality. Projects across
the entire green hydrogen value chain – from production to use – are eligible
for funding. This includes renewable electricity generation, desalination plants,
electrolysers, storage solutions, and transportation infrastructure.
Assessment: The operational framework of the Green Hydrogen Fund holds the
potential to establish positive incentives that align with the suggested utilisation
of tools, especially through its eligibility criteria for green hydrogen production.
Green hydrogen projects must produce hydrogen in accordance with European
standards to be eligible for funding. Given the absence of international standards
for green hydrogen, high European eligibility standards could incentivise
producers to adhere to stricter sustainability criteria (in terms of emission intensity
and additionality) compared to what they might otherwise follow.

However, some incentives set by the Fund are concerning. Eligibility for the Green
Hydrogen Fund rests on the project involving European companies in the value
chain and exporting partially or completely to the European Union (EIB, no date).
Such criteria could incentivise export over domestic use and sideline local value
creation.
While the Fund aims to develop green hydrogen projects and align national
decarbonisation strategies with the Paris Agreement, export-oriented production
could undermine producer countries' domestic decarbonisation. Projects applying
for funding that anticipate most or all export of their green hydrogen output
to Europe should undergo thorough scrutiny. In such cases, benefits sharing
for the producer country should be ensured, for example, in the form of access
to common user infrastructure or surplus sharing of renewable electricity or
desalinated water. Technical assistance provided under the project could serve
to improve the policy environment, promote domestic uptake, and strengthen
capacity to ensure the inclusion of domestic companies in the value chain.
Funds like the EIB’s Green Hydrogen Fund are highly suitable for MDB cooperation.
By pooling their resources, banks could expand the available funding and establish
stringent eligibility criteria for projects to promote sustainable development
impacts for producer countries.
4.4 TEAM EUROPE: THE H2GLOBAL INSTRUMENT
Tool used: De-risking mechanism
Funding committed: €900 million for the first round of auctions provided by
Germany; additional €300 committed by Germany and the Netherlands each
Potential impacts:
Description: H2Global is an auction-based instrument to facilitate the ramp-up

of green hydrogen production in Europe and globally by de-risking offtake and
addressing the “green premium” – i.e., the difference between supply and demand
prices. This is done by the Hydrogen Intermediary Company GmbH (Hintco),
which simultaneously enters into long-term purchase contracts with producers
and short-term sales contracts with buyers. The difference between the supply
price and demand price is compensated by grants (H2Global Stiftung, no date c).
The mechanism provides long-term offtake certainty needed to make projects
bankable.
The funding instrument facilitates different funding windows, each with different
criteria. For instance, under each funding window, donors can stipulate the
product they want to support (e.g., hydrogen, ammonia, methanol, etc.), the
53
geographic scope of eligibility (e.g., global, regional, or country-specific), and

sustainability criteria for production, transportation, and off-take (H2Global
Stiftung, no date c). Bids with the lowest supply price and highest demand price
are awarded.
The German Federal Ministry for Economic Affairs and Climate Action (BMWK) has
provided €900 million in funding for the first round of auctions in 2022 (H2Global
Stiftung, no date a). An additional €300 million each is expected from Germany
and the Netherlands in a joint funding window in 2023 (H2Global Stiftung, no
date b). The European Hydrogen Bank has designated H2Global to implement
its international activities (H2Global Stiftung, 2023a). Ultimately, the tool aims to
operate at the European level to pool resources and conduct joint auctions for
imports (H2Global Stiftung, 2023b).
Assessment: While the H2Global Instrument offers the potential to establish

stringent eligibility standards for funding, its current configuration fails to
effectively set incentives in line with our recommendations. The H2Global
instrument is inherently an import-focused tool intended to address the energy
and decarbonisation demands of European industry. The focus on incentivising
export-oriented production for Europe could undercut producers' domestic
decarbonisation and hinder local value capture.
The instrument’s use of distinct funding windows provides an opportunity to

support specific hydrogen derivatives or production in predefined geographies.
H2Global notes that through the instrument, donors can pursue specific objectives
related to energy, industry, technology, innovation, or foreign policy (Bollerhey et
al., 2023). In theory, H2Global can indirectly support the scaling of infrastructure,
clean technology, and supply chains for green products in producer countries,
but this depends on the objectives set by donors in eligibility guidelines. The
sustainability criteria set for eligibility are thus far unclear. Additional criteria
related to producers' development objectives could also be considered, such as
local content and workforce requirements. Consistent with the recommended use
of double auction mechanisms described in Section 3.3.2, similar demand-side
contracts for domestic offtakers should be concluded to support domestic uptake
and decarbonisation.
MDBs could collaborate and jointly support innovative initiatives like the H2Global
instrument. A distinct funding window could be supported that sets high eligibility
criteria related to the sustainable development goals of producer countries.

05 CONCLUSION
55
As stakeholders consider how to accelerate green hydrogen production, it is crucial

for MDBs to consider, in parallel, their role in enabling sustainable development.
Relying solely on market forces is insufficient to ensure that green hydrogen
production creates sustainable development outcomes for local communities and
producing countries. With the support MDBs can provide, ranging from advisory
services and technical assistance to different forms of financing and de-risking,
they are uniquely positioned to support sustainable green hydrogen production
in Global South countries. This report seeks to contribute to the narrative on green
hydrogen production by highlighting the enabling conditions required to foster
positive sustainable development impacts for producer countries in the Global
South.

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ANNEX
Tab. 2
Non-exhaustive list of MDBs activities related to Green Hydrogen
MDB Project/Activity Country/Region Date Amount Status Tool(s) being used Source
ADB Energy Storage and Green Hydrogen Sector Georgia 2022 $103mn Proposed Loan with PBL component (standalone) https://www.adb.org/projects/54448-001/main
Development Program
Preparing Energy Storage and Green Hydrogen Sector Georgia 2022 $1.75mn Active Technical assistance https://www.adb.org/projects/55173-001/main
Development Program
Supporting Green Hydrogen Through High Technology India 2021 Proposed - Capacity building (project
preparation)
- Country strategy support
- Knowledge creation and sharing
Power Sector Reform Program India 2023 $250mn Approved Policy based lending (programmatic) https://www.adb.org/projects/55080-001/main
South Asia Subregional Economic Cooperation Green Regional 2022 $2.00 mn Active Technical assistance https://www.adb.org/projects/56096-001/main
Fuel
AfDB African Legal Support Facility (ALSF) Namibia 2023 Signed Capacity building https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility
https://gh2.org/sites/default/files/2022-11/Development%20finance%20-%20green%20hydrogen%20priority%20actions%20
-%20Nov%202022.pdf
AIIB Catalyst MENA Climate Fund II Egypt, Jordan , Tunisia 2023 $20mn Approved Non sovereign finance; financial https://www.aiib.org/en/projects/details/2023/_download/multicountry/AIIB-PSI-P000621-Multicountry-Catalyst-MENA-
intermediation; Climate-Fund-II-CMCF2-Feb.-16-2023.pdf
https://www.aiib.org/en/projects/details/2023/approved/Multicountry-Catalyst-MENA-Climate-Fund-2-CMCF2.html
EBRG Egypt Green Hydrogen S.A.E Egypt 2022 $80mn Signed Equity bridge loan https://www.ebrd.com/news/2022/ebrd-supports-first-green-hydrogen-facility-in-egypt-.html
https://www.ebrd.com/work-with-us/projects/psd/53558.html
Technical cooperation Egypt Ongoing - Country strategy support https://www.ebrd.com/work-with-us/projects/psd/53558.html
- Knowledge creation and sharing
Green Hydrogen Common Infrastructure Development Jordan 2024 Approved Technical assistance https://www.ebrd.com/work-with-us/projects/tcpsd/19048.html
in Jordan
Pilot Uzbek Green Hydrogen Project Uzbekistan 2024 US$ 58.2 mn Exploratory Project finance https://www.ebrd.com/work-with-us/projects/psd/54561.html
Study on production and use of hydrogen Azerbaijan 2023 Complete Knowledge creation and sharing https://caspianoilgas.az/en/news/study-on-production-use-of-hydrogen-to-be-presented-in-azerbaijan
India Hydrogen Alliance (IH2A) India 2023 € 1bn MoU Unclear https://www.eib.org/en/press/all/2023-045-eib-backs-green-hydrogen-deployment-in-india-and-joins-india-hydrogen-
alliance
EIB Green Hydrogen (Trust) Fund DAC countries 2021 € 459 mn (Germany) + €25 mn EIB funds committed - Regulatory support https://www.eib.org/en/products/mandates-partnerships/donor-partnerships/trust-funds/green-hydrogen-fund.htm
- Technical assistance https://www.eib.org/attachments/publications/20230044_green_hydrogen_fund_en.pdf
Team Europe Initiative to develop green hydrogen in Mauritania 2022 Joint declaration Regulatory support https://www.eib.org/en/press/all/2022-290-mauritania-and-the-eib-strengthen-renewable-energy-and-green-hydrogen-
Mauritania Capacity building cooperation
https://ec.europa.eu/commission/presscorner/detail/en/ip_23_5268
Joint Declaration with Kenya Kenya 2023 Planned € 1.8 mn Joint declaration Grants/preferential finance https://www.eib.org/en/press/all/2023-083-european-investment-bank-and-kenya-strengthen-green-hydrogen-
cooperation
TEAM EUROPE GREEN HYDROGEN PLATFORM Chile 2023 $100mn Statement of intent Blended finance https://www.eib.org/en/projects/pipelines/all/20220628#:~:text=The%20operation%20consists%20in%20a,green%20
hydrogen%20exports%20to%20Europe
https://www.eib.org/en/press/all/2023-223-eu-eib-and-kfw-to-finance-renewable-hydrogen-projects-in-chile-with-up-to-
eur216-5-million
Green Energy in Namibia Namibia 2022 $500mn Joint declaration Loan/Blended finance https://www.eib.org/en/press/speeches/cop27-namibia-mou-hoyer
IDB Technical cooperation projects and support for Colombia 2021 Technical assistance https://blogs.iadb.org/energia/en/colombia-takes-position-in-the-green-hydrogen-industry-in-latin-america/
Colombia’s Hydrogen Road Map
Support for the Green Hydrogen industry in Chile Chile 2022 $200,000 Implementation Technical assistance https://www.iadb.org/en/whats-our-impact/CH-T1286
Program to Support the Development of the Green Chile 2023 $400mn Implementation Loan based on results https://www.iadb.org/en/news/idb-approves-400-million-loan-boost-chiles-green-hydrogen-industry; https://www.iadb.
Hydrogen Industry in Chile org/en/whats-our-impact/CH-L1168
Technical Assistance LAC Region Ongoing - Technical assistance (prefeasibility https://publications.iadb.org/en/unlocking-green-and-just-hydrogen-latin-america-and-caribbean
studies, national hydrogen strategy
development, certification etc.)
- Preferential finance
IDB, GCF E-mobility Program for Sustainable Cities in Latin LAC 2022 Endorsed - Preferential finance and grants https://www.iadb.org/en/news/idb-green-climate-fund-endorse-program-promote-e-mobility-latin-america-caribbean
America and the Caribbean - Regulatory support
World Bank Hydrogen 4 Development Partnership Emerging markets and developing 2021 Ongoing - Knowledge sharing and creation https://www.esmap.org/Hydrogen_for_Development_Partnership_H4D#:~:text=The%20Power%20of%20
(ESMAP) countries - Technical assistance Partnership,both%20public%20and%20private%20sources
- Capacity building
- Country strategy support
- Concessional finance
World Bank Expanding Clean Hydrogen in Brazil - Ceará Hydrogen Brazil 2023 $90mn MoU Investment project financing https://documents1.worldbank.org/curated/en/099122123142018715/P18151117d6de30f1a5f8195fd134a22eb.docx
(IBRD) Hub
World Bank Chile Green Hydrogen Facility to Support a Green, Chile 2023 $350mn ($150mn initial loan, Active - De-risking instuments https://www.worldbank.org/en/country/chile/publication/green-hydrogen-to-support-a-green-resilient-and-inclusive-
(IBRD-IDA) Resilient and Inclusive Economic Development $200mn later) - Concessional finance economic-development-in-chile
- Knowledge creation and sharing https://projects.worldbank.org/en/projects-operations/project-detail/P177533
- Technical assistance
- Capacity building
World Bank Low-Carbon Energy Programmatic Development India 2023 $1.5bn now and potentially $1.5bn Approved Policy based lending (programmatic, in a https://documents1.worldbank.org/curated/en/099062723011526290/pdf/P181032062f0960a0ab9b08dad2b10fa5f.pdf
Policy Loan later series of two) https://documents1.worldbank.org/curated/en/099060623092565311/pdf/BOSIB0342f50d505508c7803e3b35fb5c59.pdf

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REPORT

GREEN HYDROGEN FOR

Chetna Hareesh Kumar NewClimate Institute

Polina Korneeva NewClimate Institute

Hyunju (Laeticia) Ock NewClimate Institute

Victoria Fischdick NewClimate Institute

This report is part of a joint research project by NewClimate Institute,

This work is licensed under

NewClimate Institute | May 2024

Based on this rationale, we conducted a three-step analysis. First, we examined

Finally, using the analytical framework so developed, we assessed four cases of

NewClimate Institute | May 2024

Electricity access Land and water access Local value capture

Trade balance Fiscal balance Public infrastructure

Sectoral decarbonisation Public health and safety Nature and biodiversity

NewClimate Institute | May 2024

NewClimate Institute | May 2024

1.1 The role of green hydrogen in a just, Paris-aligned transition 2

1.2 The role of Multilateral Development Banks

1.3 Rationale, scope and structure  5

02 SUSTAINABLE DEVELOPMENT IMPACTS OF GREEN

2.1 Electricity access 12

2.2 Land and water access  16

2.3 Local value capture 18

2.4 Trade balance 21

2.5 Fiscal balance 22

2.6 Public infrastructure 24

2.7 Sectoral decarbonisation 25

2.8 Public health and safety 27

2.9 Nature and biodiversity 28

03 ADAPTING THE MDB CLIMATE FINANCE AND STRATEGY

3.1 Standard setting tools 33

3.2 Country support tools 37

3.3. Project financing tools 43

3.4 Principles for MDB engagement 47

04 CASE STUDIES: SELECTED MULTILATERAL AND

4.1 AfDB: African Legal Support Facility in Namibia 49

4.2 World Bank: Development policy loans to India 50

4.3 EIB: Green Hydrogen Fund 52

4.4 Team Europe: The H2Global Instrument 53

NewClimate Institute | May 2024

Fig. 1 Financial commitments to hydrogen by multilateral development

Fig. 1 Financial commitments to hydrogen by multilateral development

Fig. 2 Selected green hydrogen impact areas across sustainability

Fig. 3 Pathways of green hydrogen impacts on electricity access 14

Tab. 1 Desired environmental and social features of green hydrogen

Tab. 2 Non-exhaustive list of MDBs activities related to Green Hydrogen 61

NewClimate Institute | May 2024

1.2 The role of Multilateral Development Banks

1.3 Rationale, scope and structure  5

1.1 THE ROLE OF GREEN HYDROGEN IN A JUST, PARIS-ALIGNED

NewClimate Institute | May 2024 2

If produced solely for the purpose of export to energy-hungry countries in the

1.2 THE ROLE OF MULTILATERAL DEVELOPMENT BANKS

Multilateral development banks (MDBs) are increasingly engaging in

Fig. 1 European Bank for Reconstruction and Development

Source: Reproduced based on (IEA, 2023b).

MDBs have a spectrum of instruments at their disposal to support sustainable

NewClimate Institute | May 2024 4

1.1 The role of green hydrogen in a just, Paris-aligned transition 2

1.3 Rationale, scope and structure 5

2.1 Electricity access 12

2.2 Land and water access 16

2.3 Local value capture 18

2.4 Trade balance 21

2.5 Fiscal balance 22

2.6 Public infrastructure 24

2.7 Sectoral decarbonisation 25

2.8 Public health and safety 27

2.9 Nature and biodiversity 28

3.1 Standard setting tools 33

3.2 Country support tools 37

3.3. Project financing tools 43

3.4 Principles for MDB engagement 47

4.1 AfDB: African Legal Support Facility in Namibia 49

4.2 World Bank: Development policy loans to India 50

4.3 EIB: Green Hydrogen Fund 52

4.4 Team Europe: The H2Global Instrument 53

Fig. 3 Pathways of green hydrogen impacts on electricity access 14

Tab. 2 Non-exhaustive list of MDBs activities related to Green Hydrogen 61

1.3 Rationale, scope and structure 5

2.2 Land and water access 16

2.3 Local value capture 18

2.4 Trade balance 21

2.5 Fiscal balance 22

2.6 Public infrastructure 24

2.7 Sectoral decarbonisation 25

2.8 Public health and safety 27

2.9 Nature and biodiversity 28