[Hydrogen: The Broken Ladder] 1. An Ecosystem Caught in a Vicious Cycle Soon After Getting Off the Ground

South Korea's Hydrogen Industry Investment Fell 32% in Three Years
Pressure to Transition to Clean Hydrogen Before the Existing Market Took Hold
Insufficient Demand → Delayed Investment → High Costs: An Endless Vicious Cycle

Editor's NoteSouth Korea's hydrogen industry, once seen as a future growth engine, is faltering. The government went so far as to enact the world's first hydrogen law and worked hard to build an ecosystem, but it has failed to close the gap between its blueprint and reality, leaving the industry's foundations rapidly weakened. Small and medium-sized hydrogen technology companies that moved early into research and development (R&D) and facility investment in line with the government's stated direction are struggling to find a way forward at a make-or-break moment. Drawing on voices from the field, The Asia Business Daily examines this reality and explores solutions for moving beyond the hydrogen era toward an era of clean hydrogen.

① An Ecosystem Caught in a Vicious Cycle Just as It Was Getting Started

② "We Invested Because We Trusted the Government"...The Endless "Valley of Death"

③ South Korea's Clean Hydrogen Transition Policy Trapped in a Dilemma

④ There Are Stages to the Clean Hydrogen Transition...Strategies of the U.S., China and Japan

⑤ "South Korea Is Trapped in Idealism...We Need to Redesign a Realistic Path"

"Building an industrial ecosystem takes decades, but it takes only a few years to bring one down. I'm concerned that South Korea's hydrogen industry may be entering a path toward collapse."

A hydrogen industry official I recently met shared these concerns with this reporter. The official stressed that companies in the hydrogen industry, which requires long-term investment and the accumulation of technology, need policy continuity and predictability to invest with a view to the future, but signs that these foundations are becoming unstable can be seen across the industry.

The slowdown in corporate investment starkly illustrates this sense of crisis. According to the government and related industries on October 12, total investment in South Korea's hydrogen industry fell about 32%, from KRW 6.3604 trillion in 2021 to KRW 4.3373 trillion in 2024. The 2025 figure has yet to be finalized, but the industry generally believes the downward trend has not clearly reversed. Concerns are particularly mounting among small and medium-sized companies that entered the sector trusting the government's blueprint.

Just a few years ago, the mood was different. South Korea entered the effort to foster a hydrogen economy relatively early and stood out in the global market. In 2019, the government announced its "Roadmap for Revitalizing the Hydrogen Economy" and set out to develop the industry around two pillars: hydrogen cars and fuel cells for power generation. The following year, it enacted the world's first standalone hydrogen law, the "Act on the Promotion of Hydrogen Economy and Hydrogen Safety Management" (Hydrogen Act), and formally announced its "2050 Carbon Neutrality" goal.

In October 2021, the government held an event in Incheon titled "Hydrogen Economy Achievements and Vision for a Leading Hydrogen Nation." It touted that South Korea had ranked first in the world for two consecutive years on three key indicators related to the hydrogen economy: the number of hydrogen passenger cars in operation, cumulative deployment of fuel cells for power generation, and the pace of hydrogen refueling station deployment. The government said this was an achievement that put South Korea ahead of major countries such as the United States and Japan.

As the government's early policies and investments focused on hydrogen cars and fuel cells for power generation, calls emerged to expand the range of customers and achieve economies of scale across the broader industrial ecosystem. The government's response was the "Hydrogen Specialized Company" program. The program supports commercialization and market development based on criteria such as revenue and the share of investment in research and development (R&D). The plan was to increase the number of hydrogen specialized companies to 100 by 2025, 500 by 2030 and 1,000 by 2040. However, the number of newly designated companies, which had grown by around 25 each year since the program's launch, was just nine last year. As of the end of September this year, the number of hydrogen specialized companies stood at 126.

One analysis attributes these difficulties to the government's aggressive push for a transition away from carbon under the policy and environmental imperative of achieving "carbon neutrality by 2050," before the early-stage market had developed sufficient self-sustaining strength. In other words, the policy drive to accelerate the transition has, paradoxically, begun to increase the burden on the industry.

The government made clear its strong commitment to treating hydrogen not simply as a driver of industrial growth but as a key tool for responding to the climate crisis, and to putting greater policy emphasis on expanding renewable energy and transitioning away from carbon. Twenty days after the Incheon event, the government significantly raised its interim target for 2050 carbon neutrality, the "2030 Nationally Determined Contribution (NDC)," from a 26.3% reduction in greenhouse gas emissions from 2018 levels to a 40% reduction.

Concerns were raised in various quarters that this race to move quickly could weaken corporate competitiveness and contract related industries, but the government gradually shifted the focus of its policies, driven by its strong commitment. In the transportation sector, for example, policy moved away from its focus on passenger cars toward a greater share of commercial vehicles such as buses and trucks. In hydrogen supply, policy also shifted from a focus on fossil-fuel-based gray hydrogen, such as byproduct and reformed hydrogen, toward increasing the share of clean hydrogen, including renewable-energy-based green hydrogen. Companies thus found themselves taking on the challenge of transitioning to clean hydrogen, which requires more advanced technology and heavier investment, in line with government policy, even before they had secured profitability in the existing hydrogen market. Producing or importing clean hydrogen in the near term was also problematic because of its high production costs.

In a study published late last year, the Korea Energy Economics Institute identified the "cost premium" of clean hydrogen as a key factor preventing the market from transitioning on its own. The production cost of clean hydrogen is several times higher than that of gray hydrogen, and additional costs arise from converting processes, making it highly likely to exceed what existing hydrogen consumers are willing to pay. As of July this year, the production cost at the 3.3 MW Haengwon Green Hydrogen Production Facility in Jeju was about KRW 40,000 when profit and other costs were included. By contrast, according to the industry, gray hydrogen costs around KRW 3,000.

The institute noted that if this price gap is not closed, it will be difficult to generate sufficient demand to replace existing hydrogen with clean hydrogen, and this could also hinder the formation of the early-stage market, including the rollout of hydrogen cars. Reflecting this reality, byproduct hydrogen (about 52%) and reformed hydrogen (about 48%) currently make up most of South Korea's hydrogen supply. Clean hydrogen accounts for a very small share, and its production remains at an early stage.

Meanwhile, a series of policy changes surrounding the hydrogen power generation bidding market has further fueled industry anxiety. In line with its policy to phase out coal power generation by 2040, the government excluded coal-ammonia co-firing from the Clean Hydrogen Power Generation Market (CHPS) starting this year. Co-firing had been used as a transitional measure to reduce greenhouse gas emissions while making use of existing coal-fired power generation facilities. The volume offered this year in the General Hydrogen Power Generation Market, which allows participation by producers of byproduct and reformed hydrogen, was also limited to 930 GWh, down 28.5% from last year. Moreover, in November 2025, the government finalized its 2035 NDC at a reduction of 53% to 61% from 2018 levels. This makes it inevitable that the need for and pace of the transition to clean hydrogen will continue to grow.

As policy shifted from growing the entire hydrogen industry to support carbon neutrality to fostering only hydrogen that meets carbon neutrality standards, the industry has taken this as a sign that the government's commitment to developing the hydrogen industry has effectively weakened. Industry representatives say the existing hydrogen market should first be expanded to build sufficient demand, infrastructure and capacity for companies to invest, and that this foundation should then be used to advance into the clean hydrogen era. They complain that this intermediate stage has disappeared. This is why some say the "ladder" to the clean hydrogen era has been broken midway.

The problem is that this structure could deepen stagnation in both the existing hydrogen market and the clean hydrogen market. When demand is insufficient, companies delay investment in facilities and infrastructure. Delayed investment means production and infrastructure do not grow, making it difficult to lower prices. High prices and inadequate infrastructure then further hinder demand growth. It is a vicious cycle. This is clearly evident in the hydrogen mobility industry, which the government once declared would become the world's largest.

This content was produced with the assistance of AI translation services.