Implementation of the World’s First “Hydrogen Law” Expected to Accelerate the Hydrogen Economy

The Hydrogen Economy Promotion and Hydrogen Safety Management Act (“Hydrogen Act”), the world’s first hydrogen law, took effect on February 5, 2021. With the implementation of the Hydrogen Act, the transition from a “carbon economy” based on hydrocarbons as an energy source to a “hydrogen economy” based on hydrogen energy is expected to accelerate. This briefing highlights the key aspects of the Hydrogen Act which will push forward the hydrogen agenda in South Korea.

1. New Systems Introduced under the Hydrogen Act

(a) Designation of Hydrogen-Specialized Companies (Article 11 of the Hydrogen Act)

A hydrogen-specialized company refers to a company whose proportion of hydrogen business related sales or hydrogen business related R&D investments among total sales falls within a certain criteria. Hydrogen-specialized companies can receive various benefits and support from the government and the Hydrogen Convergence Alliance (which is an agency dedicated to promoting the hydrogen industry) in accordance with Article 9 of the Hydrogen Act.

(b) Installation of Hydrogen Filling Stations and Fuel Cells (Articles 19 and 21 of the Hydrogen Act)

The Hydrogen Act authorizes the Ministry of Trade, Industry and Energy (“MOTIE”) to require that hydrogen filling stations be installed by facility operators such as industrial complexes, distribution complexes, highway service facilities and LPG gas stations. In addition, the MOTIE may also require the foregoing facility operators, local government-owned companies, hospitals and schools to install fuel cells. Such requirements of the MOTIE should be complied with unless there is a special circumstances (while non-compliance does not result in penalties or fines).

(c) Reporting of the Selling Price of Hydrogen at Hydrogen Filling Stations (Article 50 of the Hydrogen Act)

Under the Hydrogen Act, hydrogen businesses that sell hydrogen through facilities that supply hydrogen to vehicles equipped with fuel cells must report the selling price to the MOTIE.

2. Considerations for Companies

(a) Need to Consider Applying for Designation as a Hydrogen-Specialized Company

While companies designated as hydrogen-specialized companies can enjoy various benefits via R&D subsidies, commercialization processes, loans and tax exemptions, the criteria required for such designation are relatively low. Thus, companies that are conducting or planning a project related to the hydrogen industry would need to actively consider applying to be designated as hydrogen-specialized companies if they meet the criteria as indicated in the below. In particular, the hydrogen business related R&D investment criteria are lower than the hydrogen business related sales criteria.

- Total sales of KRW 100 billion or more
Proportion of Hydrogen Business Related Sales: 10% or more
Proportion of Hydrogen Business Related R&D Investment: 3% or more

- Total sales of KRW 30-100 billion
Proportion of Hydrogen Business Related Sales: 20% or more
Proportion of Hydrogen Business Related R&D Investment: 5% or more

- Total sales of KRW 10-30 billion
Proportion of Hydrogen Business Related Sales: 30% or more
Proportion of Hydrogen Business Related R&D Investment: 7% or more

- Total sales of KRW 5-10 billion
Proportion of Hydrogen Business Related Sales: 40% or more
Proportion of Hydrogen Business Related R&D Investment: 10% or more

- Total sales of KRW 2-5 billion
Proportion of Hydrogen Business Related Sales: 50% or more
Proportion of Hydrogen Business Related R&D Investment: 15 or more

(b) RE100 and ESG Considerations

With the implementation of the Hydrogen Act, it is expected that a power generation system that combines hydrogen produced using renewable energy and water electrolysis facilities (so-called “green hydrogen”) and fuel cells using the same will be commercialized. The energy generated through such a system can be of great help in terms of RE100 and ESG considerations.

(c) Need to Check the Permission or Registration of Hydrogen Products

Prior to the implementation of the Hydrogen Act, hydrogen products or facilities using hydrogen (such as water electrolysis facilities, extractors, fuel cells, and low pressure tanks) in areas not covered by the High Pressure Gas Safety Management Act (10 atmospheres or less) were not subject to particular restrictions. However, with the implementation of the Hydrogen Act, they will be under the regulations and management of the Korea Gas Safety Corporation in accordance with the Liquefied Petroleum Gas Act. Therefore, companies which intend to use hydrogen products must check without exception whether such products obtained the required permission or registration.

Yoon & Yang’s Hydrogen Industry TF will continue to monitor the regulatory landscape concerning the hydrogen industry and provide timely updates and guidance. Please contact us if you have any questions.