Hydrogen law, regulations & strategy in Sweden

Around 6 TWh of hydrogen is currently produced and consumed annually in Sweden, primarily through steam methane reforming and several players in the Swedish market are working toward transitioning to fossil-free hydrogen production, aiming for sustainable and emission-free energy solutions. 

In an analysis commissioned by the Swedish Energy Agency, assessing the current state and future prospects for hydrogen supply, conversion, and use in Sweden, it was reported that in 2023 there were approximately 60 hydrogen-related projects in Sweden, excluding refuelling stations. These are at various stages of development, with full-scale operations expected by 2050. 

One of the largest fossil-free hydrogen initiatives is based in northern Sweden, where the Hybrit project, led by the state-owned companies LKAB, SSAB, and Vattenfall, looks to produce fossil-free steel. This project plans to use hydrogen produced by electrolysis for the direct reduction of iron ore into sponge iron, which will then be processed into steel. The Hybrit project is planned to commence full operation in 2050. 

As part of a similar initiative, Stegra (previously H2 Green Steel) is also working toward fossil-free steel production, with production technology akin to Hybrit’s. Stegra anticipate being able to deliver green steel to customers by 2026 and be able produce and supply 5 million tonnes of green steel by 2030. 

Another notable project is being developed by Liquid Wind, Kanteleen Voima and Piipsan Tuulivoima. The project will produce synthetic fuels, which could be used in the shipping industry, and ammonia using fossil-free hydrogen. The project will combine biogenic carbon dioxide and green hydrogen to produce e-methanol and is to be powered by renewable energy from a new onshore wind park that will be built and operated by Piipsan Tuulivioma in parallel. Production is anticipated to begin in 2025, positioning it as the largest electro-methanol facility in Europe. The company hopes to establish ten more facilities by 2027. 

On Sweden’s west coast, several projects aim to transition refineries and chemical industries to fossil-free processes by replacing steam methane reforming of methane gas with electrolysis. These projects are still at early stages. 

In addition to these developments, Sweden is expanding its hydrogen refuelling infrastructure. As of January 2024, six hydrogen refuelling stations are in operation, with plans to install approximately 60 more in the coming years. This in accordance with EU’s requirements in the Alternative Fuels Infrastructure Regulation (“AIFR”).

On 23 March 2023, the Swedish Government assigned the task of coordinating the work on hydrogen in Sweden to Swedish Energy Agency The purpose of the assignment is to facilitate an effective energy transition and to identify and remove the obstacles necessary for hydrogen to be used, produced, distributed, and stored in a satisfactory manner, as well as to achieve the country’s energy and climate policy goals.

The assignment is divided into three parts: 1) coordination, 2) analysis, and 3) monitoring of external developments. 

On 26 March 2024, the Swedish Energy Agency presented an interim report on the work. 1  The interim report concludes that, while hydrogen will gradually take on a larger role in Sweden, in order to enable the projected expansion of hydrogen, it will be necessary to have a coherent and updated regulatory framework in place (as further discussed below). The report identified a number of regulatory roadblocks for hydrogen deployment, including in relation to the transportation of hydrogen and pipeline infrastructure as well as in relation to the regulatory treatment of hazardous materials. 

The Swedish Energy Agency is expected to submit a final report to the Ministry of Climate and Enterprise by 1 December 2024.
 

Hydrogen and Hydrogen Infrastructure in the Swedish Energy System - Interim report on the assignment to coordinate the work on hydrogen in Sweden, ER2024:07.

The March 2024 interim report of the Swedish Energy Agency highlighted a number of legal measures that must be taken for an effective hydrogen market to develop. These key measures are set out below. 

Firstly, the Swedish Energy Agency believes that a new regulatory framework for the hydrogen market is required, which should be shaped by the Gas Market Directive and the Gas Market Regulation. The Agency also points out that there are still significant uncertainties regarding how regulations for permits, permitting processes, revenue regulation, and the state’s role in the system should function. To address these issues, the Agency suggests that a public government inquiry should be initiated. 

Secondly, the Energy Agency believes that there will need to be adjustments to the following regulations and accompanying general guidelines:

• Swedish Act (2010:1011) on Flammable and Explosive Goods,
• the Act (2003:778) on Protection Against Accidents,
• the Act (2006:263) on the Transport of Dangerous Goods, and
• the Act (1999:381) on Measures to Prevent and Limit the Consequences of Serious Chemical Accidents (the “Seveso Act”).

The reason for these amendments is to review the safety procedures for handling hydrogen, given that hydrogen is expected to be used increasingly and in new ways. The Energy Agency suggests that the Swedish Civil Contingencies Agency (Sw MSB) should play a central role in implementing and reviewing these amendments. 

Thirdly, hydrogen infrastructure will need to be classified under its own distinct supervisory area within the Energy Agency’s oversight. This is because, in the long term, hydrogen infrastructure will be classified as security-sensitive under the Security Protection Regulation (2021:955). 

The Swedish Energy Agency seeks to maintain responsibility for coordinating the hydrogen market in Sweden beyond the submission of its final report on 1 December 2024. To do this will require the Energy Agency to carefully monitor and plan, in coordination with other key authorities such as the Civil Contingencies Agency (MSB), The Swedish Environmental Protection Agency, Sweden’s Authority of Electricity Contingency Planning,  further developments in hydrogen within the Swedish energy system to ensure that Sweden expands its hydrogen refuelling stations in accordance with the EU’s AFIR regulation. 

Furthermore, the Energy Agency suggests that there may be a need to strengthen incentives for the building out of hydrogen storage capacity, as the facilities currently in place do not have the dimensions necessary to contribute adequately to balancing the electricity market.

The Agency also advocates for a review of hydrogen taxation, which should be conducted within the framework of a revised Energy Taxation Directive. Today, hydrogen is taxed as fossil gas but is also tax-exempt in certain situations (e.g. consumption of hydrogen in the fuel cells of motor vehicles, ships or aircraft). The Energy Agency now wants to introduce a minimum tax rate for hydrogen, in line with the EU Directive. 

Throughout 2024, collaboration between the Energy Agency and other market players, including government agencies, private companies, and academic bodies, has and will continue to take place in accordance with the Swedish Energy Agency's mandate to establish a solid foundation for future cooperation. Part of the mandate also includes providing a proposal on how the development of fossil-free hydrogen in Sweden should be monitored and managed over time.

Prop. 2023/24:105

In order to produce hydrogen at the level Sweden is expected to by 2050, the electricity demand is expected to rise to 126 TWh. This is notable when compared to Sweden's current total electricity production of 159 TWh. The Swedish Energy Agency has therefore assessed that the country’s electricity supply will need to be reviewed. 

On 19 March  2024, the government submitted a proposal regarding the long-term direction of energy policy (Prop. 2023/24:105). The proposal highlights the fact that Sweden's electricity demand is to increase significantly and, in light of this, that a major expansion of electricity production capacity, power grids, and opportunities for storage and flexibility will be required. The government aims for the Swedish electricity system to be planned in such a way that it can supply the required electricity, in the right amount, at the right time, and where demand exists. Therefore, the obstacles to such a system must be removed to create an efficient and competitive market. 

The proposition indicates that the government considers fossil-free hydrogen to be key to the development of Sweden's future energy system and for reducing emissions from heavy and long-distance transport as well as industry.  While the current regulations governing the approval of hydrogen pipeline construction under the Act (1978:160) on Certain Pipelines were not specifically developed for hydrogen infrastructure, the government does not consider that the use of this legislation for that purpose poses an obstacle to hydrogen development. 

However, the government does believe that the regulations and policy instruments in this area must be reviewed. This will take place both within the framework of the revisions currently being negotiated at the EU level regarding the regulations governing the gas market and based on the Swedish Energy Agency's task of coordinating the hydrogen market in Sweden. The Energy Agency will outline strategic choices for Sweden and clarify roles and responsibilities. 

The Swedish Government has announced that the following principles should guide the future development of this sector: 

• The use of fossil-free hydrogen should contribute to the transition to fossil-free energy systems and industrial processes.
• Hydrogen use should focus on applications that provide societal and economic benefits, where more resource- and cost-efficient alternatives are lacking.
• Hydrogen production should be efficiently integrated with the electricity and heating systems and contribute to a secure energy supply in Sweden.
• Hydrogen infrastructure should be expanded in a way that facilitates climate transition while safeguarding Sweden’s competitive energy prices. 

The cost and environmental impact of hydrogen production depend on the type of feedstock and energy used. Sweden has a low-carbon electricity mix that meets the requirements set forth in the EU's recent delegated act (2023/1087) under the Renewable Energy Directive (2001/2018), covering renewable fuels of non-biological origin. This source of low-carbon electricity places Sweden at an advantage in hydrogen production compared to numerous other countries. Moreover, Sweden has extensive resources, including biomass, other biological materials, freshwater, and electricity supply (although each of these feedstocks is in demand by other industries as well), meaning Sweden has considerable potential for producing hydrogen and electro fuels with a low carbon footprint. However, there are also challenges, including the fact that Sweden currently has almost no natural gas pipelines that could be retrofitted for hydrogen. Furthermore, notwithstanding good conditions for power production, the electricity grid must also be further developed to meet the increased hydrogen demand. 

On 28 May 2024, the government submitted Proposition 2023/24:152 to the Parliament. The proposition presents proposals for a more modern and efficient environmental permitting process and aims to clarify and simplify the regulations governing environmental impact assessments.

The proposition suggests following amendments:

1. Simplified Rules for Amendment Permits – This would provide the possibility of applying for an amendment permit for environmentally hazardous activities rather than requiring new permits for operations. As long as the application does not pertain to a permit for the entire operation or it is not considered inappropriate for the permit to only cover changes to the operation, amending an existing permit would be the default approach as opposed to being required to apply for entirely new permit. The option to apply for an amendment permit is beneficial from both a cost and time perspective.
2. Extension of Time-Limited Permits – It is proposed that there should be an option to apply for an extension of the validity of time-limited permits for environmentally hazardous activities, water operations, or Natura 2000 permits. The purpose of this proposal is to allow continued operation for a limited time, providing the permit holder with more time to conclude operations or secure a new permit. A permit can be extended once for up to three years.
3. Streamlining – The government aims to increase the efficiency of preparing permits and reduce the time required for the permitting process. This will be achieved through more oral preparatory hearings and greater use of time plans. Streamlining will also be accomplished by allowing more cases to be decided without a main hearing, and by expanding the scope for digital processing. It is further proposed that the Legal, Financial, and Administrative Services Agency (Kammarkollegiet) be removed as a party in such cases to improve efficiency in the process.
4. County Administrative Board – To ensure a solid basis and clear outcome from consultations, the government wants to expand the County Administrative Board's role during boundary consultations. 

In summary, the proposition includes proposals aimed at simplifying the fossil-free transition, which in turn has a significant impact on the future prospects for hydrogen in Sweden.

The Swedish Government has proposed that these changes come into effect on January 1, 2025.