Economics of Regulating Hydrogen Markets

This chapter provides an economic framework for determining the appropriate regulation of hydrogen markets. In this framework the micro-economic benchmark of a well-functioning market is described, after which the concept of market failures is introduced. Amongst others, attention is paid to entry barriers for producers, such as economies of scale, information asymmetry between producers and consumers, inefficiency of price formation, and barriers for international trade. Next, it is discussed how these markets failures can be addressed through regulation. As regulatory measures may also be imperfect, the concept of regulatory failures is discussed. After the introduction of these microeconomic concepts related to the analysis of markets and regulation, they are applied to hydrogen markets. Discussions cover the entire hydrogen chain from production to consumption as well as wholesale and retail markets for hydrogen. In this manner, the chapter strives to ultimately answer the question to what extent and by what type of measures these hydrogen markets need to be regulated from an economic point of view.