Carbon-free or green hydrogen has seen considerable investment and an even larger project pipeline in recent years. It remains a core part of the energy transition given its expected role in decarbonizing many sectors that have traditionally been viewed as “hard-to-abate,” including steel, fertilizers, and marine transportation, and its potential use as an energy storage solution for the power sector.

But in the past two years, the decarbonization agenda has slowed, the energy transition has decelerated, and the number of low-carbon hydrogen, ammonia, and methanol projects that have achieved final investment decision (FID) status have also slowed. This has been most notable in the United States, but it has also been happening globally. The current global geopolitical and trade environment has market participants wondering about the impact on green hydrogen, ammonia, and methanol projects.

Green hydrogen is still expensive, raising questions about how quickly it will be deployed and if it even has a chance of a widespread future. Notably, projects envisioning green hydrogen have increased, but for now, more tangible, higher carbon intensity products such as blue hydrogen—hydrogen produced from natural gas with carbon capture—or natural gas are being used. This is bringing up concerns about whether plans to ultimately move to green hydrogen are genuine or if they are a way to greenwash gas or blue hydrogen fueled projects.

Ammonia and methanol’s role in the low-carbon hydrogen market

Given hydrogen’s increasing prominence, there is growing momentum to couple clean hydrogen with the ammonia and methanol markets. Although both require hydrogen for their production, this has conventionally been through natural gas in most instances. Consequently, hydrogen is increasingly seen as a way to decarbonize ammonia and methanol and, by extension, their associated industrial sectors, primarily fertilizer and chemical production. Additionally, new uses are emerging for ammonia and methanol as fuel, such as for power generation and transportation, and as hydrogen carriers.

Ammonia and methanol are being newly labeled as “green,” from hydrogen produced with renewable electricity; “blue,” from hydrogen produced with natural gas and carbon capture; and “bio,” from biomass feedstock.

Legislation is becoming more supportive of low-carbon ammonia and methanol

Like hydrogen, various legislation throughout the world has been supportive of low-carbon ammonia and methanol production and demand. In the European Union/European Economic Area (EEA), these include the EU Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM), which together add an increasing cost burden to conventional, carbon-intensive ammonia and methanol, whether it is produced within or exported to the EU/EEA. In contrast, the United States has focused on financial incentives to encourage private sector hydrogen development investments. The 2022 Inflation Reduction Act (IRA) provides tax credits for clean fuels, carbon capture, and hydrogen, providing financial boosts to clean ammonia and methanol producers. For hydrogen, this is primarily through the Section 45V Clean Hydrogen Tax Credit and the Section 45Q Carbon Sequestration Tax Credit.

Transportation has garnered significant interest in the past few years, specifically ammonia/methanol use as a maritime transport fuel. To this end, the EU ETS 2024 maritime extension is supportive of alternative low-carbon fuels, as is FuelEU Maritime, which came into force this year. Though independent of each other, both pieces of legislation add a cost burden to conventional CO₂-emitting fuels.

Giving further momentum for maritime/shipping decarbonization, in December 2024 the International Maritime Organization (IMO) approved interim guidelines, which set international safety procedures for ammonia use as a marine fuel. The IMO has specified three methanol grades for marine fuel: marine methanol grades A, B, and C (MMA, MMB, and MMC). It used the International Methanol Producers and Consumers Association (IMPCA) specifications as a starting point, with some properties that are less critical for marine and other fuel-related aspects not covered. MMC allows for wider tolerance of certain characteristics compared to MMB, while MMA includes additional requirements for lubricity and cleanliness.

In April 2025, the IMO created its Net-zero Framework, a mandatory global fuel standard to phase out carbon intensive fuels and a global pricing mechanism for vessel greenhouse gas emissions. It is expected to come into force in 2027, subject to formal IMO adoption and approval.

Methanol development as a marine fuel is significantly ahead of ammonia, with around 100 methanol-powered ships already on the water and off-the-shelf methanol marine engines available in both 2-stroke and 4-stroke models, manufactured by companies such as MAN, Wartsila, and Rolls-Royce. More than 160 ammonia dual-fuel orders and almost 500 methanol-ready vessels are currently being tracked in the extensive Chemical Market Analytics databases for delivery by 2030.

Challenges facing renewable-based ammonia and methanol

The challenges facing ammonia or methanol production based on renewable energy (green or e-ammonia and methanol) are similar to those for green hydrogen. They include cost competitiveness with fossil fuel incumbents and difficulty establishing the infrastructure, value chains, and markets to support adoption at scale.

Low-carbon ammonia and methanol markets are yet to be firmly established

One critical challenge facing ammonia and methanol is that sizeable markets do not seem willing to pay a premium for low-carbon ammonia and methanol yet, despite steadily increasing momentum. Japan and South Korea are expected to be early low-carbon ammonia adopters, predominantly for power generation. There are various government policies supporting ammonia in power generation, including a contract for a difference funding scheme in Japan and a clean hydrogen power bidding market in South Korea. The first South Korean auction concluded in late Q4 2024, with the Korea Power Exchange’s set price cap considered unrealistic, as it resulted in just one successful bid, representing only 11.5% of the total target. In addition, lower cost blue ammonia, rather than green, will be co-fired under this bid.

The shortfall in this first auction highlights the challenges of pricing alternative power fuels and the lack of demand at scale for low-carbon ammonia/clean hydrogen, which many suppliers had expected by now in East Asia given that the first low-carbon ammonia shipment to the region was from the Middle East five years ago. This was echoed in March by Amin Nasser, Saudi Aramco’s CEO, when the firm’s blue ammonia production target was revised down from 11 million metric tons to 2.5 million metric tons by 2030. Aramco also stated that even this new lower target is dependent on reaching an offtake agreement at commercially attractive levels.

Although many chemical companies have sustainability targets and are interested in purchasing biomethanol or e-methanol, the most logical home for low-carbon methanol is fuel applications, particularly the shipping industry, driven partly by company sustainability aims but primarily by legislation. For this reason, many hypothetical low-carbon plants in the Chemical Market Analytics medium- and long-term supply-demand balances are located near major bunkering hubs.

The higher cost is the main challenge to low-carbon methanol consumption, including by shipping companies: It currently costs around five times more than conventional grey methanol. A.P. Moller Holding and A.P. Moller-Maersk have attempted to solve this problem by setting up a subsidiary, C2X, to participate in low-carbon methanol projects in various parts of the world as an offtaker as well as an equity stakeholder. As the cost of carbon and the penalties for conventional fossil fuels increase, the price gap between grey and low-carbon methanol will close, but low-carbon methanol prices will ultimately need to come down also so it can survive without regulatory support. This will inevitably happen through an increase in scale and technological improvements as part of the evolution of new chemical production.

Potential hurdles to IRA tax incentives under the new US administration

When the IRA tax incentives were announced just a few years ago, the US quickly emerged as a clear winner in the new low-carbon hydrogen and derivatives economy. Several projects were announced in the country at the time. Today, under the new “Drill, baby, drill” attitude of the US administration, doubts are emerging about the US’ competitive edge in this space.
A significant legislative development is unfolding in the United States, casting a shadow over the future of low-carbon hydrogen production. US President Donald Trump’s One Big Beautiful Bill successfully passed the US House of Representatives and Senate and was signed into law on Independence Day, 4 July 2025. As enacted, this bill most notably impacts the 45V Clean Hydrogen Production Tax Credit, with the 45Q Carbon Sequestration Tax Credit escaping relatively unscathed.

Regarding the 45V credit, it is now only available for projects that begin construction by the end of 2027. Thus, projects now effectively have a year and a half to advance from pre-FID/FID to construction, a tight timeline for the nascent clean hydrogen industry. However, given that the first draft of the bill proposed stopping the 45V by the end of 2025, the final law may be considered a best-case outcome. Nonetheless, this termination is still significantly earlier than the 2022 IRA, which that had a 2033 deadline.

This comes at a critical juncture, just months after the US Department of the Treasury and the Internal Revenue Service (IRS) released crucial guidance in January 2025. These rules clarified how hydrogen producers could qualify for the 45V credit, which was established by the Inflation Reduction Act and offers up to $3 per kilogram (kg) of hydrogen produced for a decade.

Eligibility for the 45V credit is contingent on stringent life-cycle greenhouse gas (GHG) emission thresholds. To qualify, hydrogen production must result in no more than 4 kg of carbon dioxide equivalents (CO₂e) per kilogram of hydrogen. A tiered system, assessed via the 45VH2-GREET model, rewards the cleanest projects with higher credit values:

Although the potential impact of the One Big Beautiful Bill is significant, key industry participants’ responses have been restrained. That said, new limitations on this credit could dramatically alter the financial viability of both current and planned clean hydrogen and ammonia projects across the US. Despite the potential hurdles and uncertainty, the most advanced projects are still proceeding, even if many of these projects may now look to the 45Q tax credit. For instance, ExxonMobil has recently stated its intention to make an FID for construction of its Baytown blue hydrogen/ammonia project before the end of 2025, especially after agreeing to a long-term offtake agreement for 250,000 mt with Japan’s Marubeni.

Trade tensions’ impact on ammonia and methanol markets

The United States is both an importer (around 2 million metric tons per year) of ammonia as well as an exporter (around 1 million metric tons per year). On imports, despite the current 10% duty, supply from Trinidad and Tobago is expected to continue flowing into the US because of intercompany relationships across US and Trinidadian industries. However, a proportion of the volumes traditionally earmarked for the US may be redirected to other markets, such as Europe and parts of Latin America. Canadian product remains duty free into the US under the USMCA.
On exports, some US ammonia does move to the EU and UK, so any reciprocal, additional tariffs may deter this and see more come to these countries from duty-free origins such as North Africa as well as Trinidad and Tobago.

The US became a net exporter of methanol in 2021. For this reason, tariffs are more likely to impact downstream products rather than methanol itself. We are likely to see a restructuring of trade flows, with lower US imports from Trinidad as volumes from this production center are diverted to other markets such as Europe and Northeast Asia (e.g. South Korea, Japan, and Taiwan, China) and more methanol remains in the US. With the Jones Act making it very expensive to move product from the US Gulf Coast to US East Coast ports, the lower import volumes into the US seem most likely to threaten supply and potentially increases prices for consumers in the Northeastern US. In addition, economic uncertainty caused by tariffs could result in reduced global demand and falling crude oil prices, which in turn is likely to move freight rates down.

Outlook for blue and green ammonia development

The landscape is evolving to reflect the role of blue ammonia as the first step towards wider decarbonization, and the ammonia project landscape has changed to reflect this.

Status of low-carbon ammonia and methanol projects

In our analysis of the ammonia project pipeline—from project announcements to FIDs—a greater percentage of blue ammonia/hydrogen projects are progressing to FID than green. Lower capital costs and financial risks, shorter development timescales, and availability of enabling technologies at scale are some of the reasons for the different rates of progress between blue and green projects. That said, the number of projects progressing to the FID remains low overall.

Although more than 200 low-carbon methanol projects have been announced, very few have reached the FID stage. Reasons for this include a significantly higher production cost than for world-scale grey methanol projects, uncertainty around future carbon/fuel legislation, and consumers’ unwillingness to commit to firm offtake agreements.

In addition to the slowdown in low-carbon ammonia projects moving through the development pipeline, there has also been an overall slowdown in project announcements during the past year, with several green projects recently shelved or stalled. These include Australian power generator Origin Energy pulling out of its Hunter Valley Hydrogen Hub project in New South Wales due to financial risks and market uncertainty. The project targeted 4,700 metric tons per year of green ammonia.

Concurrently, other companies have refocused low-carbon production efforts away from green to blue ammonia. Norwegian fertilizer major and leading ammonia trader Yara abandoned some green ammonia investment projects, including HEGRA in Porsgrunn, Norway, and Haddock in Sluiskil, the Netherlands. Instead, Yara is increasing blue ammonia production in more cost-effective regions such as the United States. Part of this is likely to be transported to the EU and other markets. Its blue projects include the 1.4 million metric ton per year YaREN facility in Texas with Canadian energy firm Enbridge (a 50/50 partnership) and another 1.4 million metric ton per year unit in the US Gulf Coast with BASF. Both are targeting FIDs in 2026.

Other challenges include recent cancellations, such as the 50,000 metric ton per year Flagship One e-methanol unit in Sweden and the 8 kiloton per year power-to-methanol e-methanol unit in Belgium. Development of the partially constructed 100 kiloton per year Varennes Carbon Recycling renewable and bio-methanol plant in Quebec, Canada, was halted in February 2025. This illustrates the challenge of commercializing a low-carbon methanol unit as part of a larger facility incorporating hydrogen production, which carries a significant and uncertain capital expenditure burden.

Scaling up low-carbon ammonia and methanol markets

Today’s juncture highlights a more considered approach to the low-carbon ammonia and methanol sectors. Geopolitical uncertainty and the refocus on fossil fuel production is resulting in fewer low-carbon projects announcements overall. Ammonia projects that are progressing are more likely to be blue than green. That is not to say green ammonia supply and demand will not emerge.
Green ammonia will become the product of choice for many later, as carbon penalties steadily build, costs for renewable energy and related renewable infrastructure fall, and supply becomes more prevalent. Several green projects have already reached FID, including AM Green’s 1 million metric ton per year (first phase) Kakinada project in India and the 1.2 million metric ton per year Neom green ammonia project under construction in Saudi Arabia.

There have also been some recent challenges around blue ammonia, with LSB Industries pausing its 1.1 million metric ton per year joint venture Houston Ship Channel project because of geopolitical uncertainty, US tariff–related price rises, and slower-than-expected low-carbon ammonia demand uptake.

There is a chicken or egg situation in the methanol market. On the demand side, a growing number of methanol-ready ships will be delivered by 2030, but on the supply side, very few low-carbon methanol projects are reaching FID. The market needs some of these low-carbon projects to be delivered for proof of concept to be achieved and to give confidence that sufficient low-carbon methanol volumes can ultimately be made available for chemical consumers, as well as for fuel purchasers.

Not competitors, but enablers: Blue hydrogen and natural gas facilitate long-term green hydrogen market development

Some projects will initially use gas or blue hydrogen, raising the question of whether they will ever progress to green hydrogen. But we see these projects as a positive for green hydrogen development: They allow projects to be built and either create hydrogen supply that can later be replaced with green hydrogen or demand that can later be replaced with green hydrogen demand. Most important, the current certainty around natural gas and hydrogen supply has allowed these projects to move forward today in an environment that would be much more challenging for many purely green hydrogen projects given the high green hydrogen costs.

Tune in for our upcoming World Methanol Conference, 14-16 October 2025 in Lisbon, Portugal and gather strategic views from key stakeholders regarding the methanol industry’s direction moving forward.

The Energy Transition will also be covered extensively, across multiple sessions, in our upcoming World Chemical Forum, 25-26 March 2026 in The Woodlands, Texas, US. We hope to see you there.