Industrial planning with input-output models: empirical evidence from low-carbon hydrogen in France

Energy industry represents roughly 2% of the GDP in energy importing countries (France, 2019). Yet any energy shock can lead to massive disruptions in the economy, since some energy vectors have features of General Purpose Technology and Source (Noce, 2015). We use input-output models to assess impacts on the French economy from substitution of imported natural gas with domestic low-carbon hydrogen. A new sector producing hydrogen is introduced to supply petroleum refining and ammonia sectors, based on domestic inputs exclusively. Two input-output models are built, a demand-driven model for the emergence of the H2 sector (investment phase), and a mixed model for H2 production (operating phase). Results show that the energy shock (350 kt of low-carbon H2 per year) generates significant growth (1 bln€ of GDP) and jobs (12,000), but needs ambitious planning for industrial development. Firstly, the investment phase triggers industries such as machinery and equipment, electrical equipment, construction and metal products manufacturing, suggesting that massive needs for labor requires more attractiveness to make the hydrogen infrastructure effective. Secondly, the hydrogen production being electricity intensive, the model shows very sensitive to this input and to the availability of power plants. At even higher shocks to remove all grey hydrogen in industry (415 kt H2) and steel production (700 kt H2), impressive domestic resources are required along with massive energy planning similar to the French nuclear program over 80s.