Sustainably generated hydrogen has great promise as a fuel where electricity alone won’t suffice, but the road to its broad adoption remains complicated for investors to navigate. ----- Transcript -----Jessica Alsford Welcome to Thoughts on the Market. I'm Jessica Alsford, Global Head of Sustainability Research at Morgan Stanley. Ed Stanley And I'm Ed Stanley, Head of Thematic Research at Morgan Stanley. Jessica Alsford And today on the podcast, we're going to be talking about the investment implications of hydrogen. It's Thursday, October the 21st at 3:00 p.m. in London. Jessica Alsford So Ed, hydrogen has been something we've been looking at for some time, given its potential role in a low carbon economy. So why is it that the debates around green hydrogen seem to have intensified over the last 6 to 12 months? Ed Stanley Great question. Massive, centralized support and road mapping in the form of the European Hydrogen Strategy and the US Infrastructure Bill simultaneously thrust hydrogen to center stage around the world. Ed Stanley But the froth has come and gone to some extent from most of these hydrogen names. And so now it's a really interesting time to be relooking at the space from a stock picking perspective. The number of dedicated hydrogen thematic funds is really beginning to accelerate as well. We've reached 10 hydrogen funds in Europe from only 1 two years ago, and many of the pure play equities that these funds are or will be buying are pretty illiquid, which we expect will lead to further volatility in due course for single name equities. The electrolyzer stocks are up to two thirds of their highs, so the reason why now is that as the market froth subsides, we're beginning to see these thematic alpha opportunities all the way along the supply chain in hydrogen. Jessica Alsford Now, projections by the Hydrogen Council suggest that green hydrogen could enable a global emissions reduction of around 6 gigatons by 2050 - so almost 10% of current global emissions. It also has the potential for unlocking something like 30 million jobs and $2.5T of associated revenues. And yet, despite this huge potential, it does feel that we're still at a very early stage. So why is that? What are some of the challenges around the wider adoption of green hydrogen? Ed Stanley That's right, and I don't think you can fault the ambition. The Hydrogen Council, as you mentioned, is over 200 member companies and they have a clearly defined goal and they're pulling in the same direction. And increasingly, governments are also walking the talk. I guess, though, when you ask our analysts what the greatest hindrances are, if I had to boil them down to two factors, it would be these: first, the lack of standards, and that really means we have dual investment and thus potentially wasted investment going on as each stakeholder has their own vested interests on whether to use PEM or alkaline electrolysis, for example; or whether to retrofit existing pipe networks or to rebuild from scratch. So, a lack of agreement on these dichotomies is a risk of diluting the early stage growth and investment. Ed Stanley And the second is much simpler, actually, it’s economics. Costs for renewable energy, predominantly wind and solar, that feed these very power hungry upstream electrolyzers have fallen substantially in cost - over 90% decline in 10 years. But it still requires cost per unit breakthroughs across the rest of the supply chain; from ammonia, for example, or redesigning jet engines to make it viable, particularly for publicly listed companies to make the necessary investments. Ultimately, we should probably expect very generous subsidies for some time if we are to hit that 6 gigatons value, you mentioned. Jessica Alsford So there are challenges, but also clearly opportunities as well. Where do you think the most value can be created and how should investors participate in this market? Ed Stanley Again, our analysts obviously have their own single stock