Extended Data Fig. 3: Illustration of our model of the pay-as-bid market premium.

This figure shows our the exemplary competition between green hydrogen and natural gas with carbon pricing in our central estimate. For illustration, we show how to calculate required subsidies for projects built in 2024, and for projects built in 2035. In both cases, projects have to sell at their respective LCOH for the entire payback period (dashed green horizontal lines). The specific cost gap decreases due to rising natural gas prices, which increase due to carbon pricing. This cost gap defines the required subsidies for projects built in the corresponding year. For projects built in 2024, subsidies are required throughout their payback period (red shaded area and red arrows). For projects built in 2035, subsidies are required until 2047, which is when the LCOH of projects built in 2035 intersects with the price of natural gas (purple shaded area and purple arrows). Notably, this is longer than the instantaneous cost gap between green hydrogen costs and natural gas prices would suggest as natural gas becomes more expensive than green hydrogen already in 2043. However, this implies that only projects built after 2043 do not require any subsidies. In order to calculate annual subsidies for a given year, we therefore need to track all projects built in previous years, multiplied by the corresponding cost gap, which is the gap between the constant LCOH of those years and the current price of natural gas. In Fig. 5e, f and Extended Data Figure 6 we show the sum of these annual subsidies across all end use sectors. Cumulative subsidies are then calculated by adding up annual subsidies over all previous years (see Methods).