Public Administration Functions in the Developing Hydrogen Market

The energy and climate crisis are two of the largest challenges in the modern world. ⁽¹⁾ No doubt sustaining economic growth cannot be achieved separately from measures directed at environmental and climate protection, ⁽²⁾ which only a few years earlier were seen as unfavourable to or even stopping economic growth. ⁽³⁾ The occurrence of crises is a natural stage related to the functioning of the state ⁽⁴⁾ and, as a liminal moment, between growth and recession, it may be the only way to heal areas least resilient to the changes which are carried by progress in its broadest sense. Paradoxically, despite the many warning signals resulting from expert analyses, which clearly indicated that the sources and directions of supply on which the energy system is based create a threat to energy safety and cause the climate crisis to deepen, ⁽⁵⁾ the measures taken before the crisis occurred were not enough. It is worth noting that until the beginning of the Russian Federation’s war in Ukraine, ⁽⁶⁾ Russia was the world’s largest exporter of fossil fuels, ⁽⁷⁾ with 90% of the European Union’s natural gas supply coming from Russia. ⁽⁸⁾ In the face of Russian aggression, it has become necessary to take urgent action to stop the conflict, ⁽⁹⁾ as well as to relatively stabilise energy supplies. In this regard, there were numerous legal actions taken. At the international level, it includes agreeing on the need to mobilise huge financial resources for the development of renewable energy, adopting a consensus on the establishment of a Loss and Damage Fund to support the countries most affected by the climate crisis and setting up a crisis group working to accelerate renewable energy production. ⁽¹⁰⁾ At the EU level, a regulation has been adopted that sets a (voluntary) obligation for countries to reduce energy consumption by 10% and a profit limit for energy generators. The European Union has also set obligatory filling levels for natural gas storage at the level of regulation. ⁽¹¹⁾ Whereas Poland enacted ⁽¹²⁾ maximum price limits for the sale of energy and obliged energy generators and energy traders to contribute to the Price Difference Payment Fund (Pl. Fundusz Wypłaty Różnicy Ceny) to protect end-users from drastic energy prices.

The challenges of the energy crisis outlined above have a current character. Obviously, it cannot be concluded that, before the crisis began, the world did not see the need to conduct changes in the energy system, as the process of energy transition towards a total reduction of greenhouse gas emissions has been going on with increasing intensity for at least a decade. ⁽¹³⁾ However, contrary to the energy crisis, whose symptoms have been visible for several years (e.g. rising energy prices, rising CO₂ emission allowance prices, and a growing number of complaints against countries based on a dominant share of conventional energy), ⁽¹⁴⁾ the climate crisis, which is determining the energy transition, is still not sharp enough in its effects ⁽¹⁵⁾ to make the actions taken to stop it less declarative and more concrete as hard law norms. ⁽¹⁶⁾

The current pace of the energy transition process does not allow for energy safety and thus a way out of the energy crisis. ⁽¹⁷⁾ This means that although RES technology is developing quickly, it cannot be fully introduced due to the lack of adoption of the relevant law. In particular, this problem relates to hydrogen, which, in the light of the needs highlighted by the energy crisis (replacing natural gas), ⁽¹⁸⁾ as well as long-term climate goals (increasing the share of RES in energy and transport by storing the surplus energy thus generated or using hydrogen in the industry), seems to be a technology of high priority for the economy. ⁽¹⁹⁾ Therefore, it is crucial that legislative activity and technological progress simultaneously take place. At present, there is uncertainty about the future law and the nature of the hydrogen market, including how broadly public administration will ultimately be involved. From the proposed legislation emerges a picture of a hydrogen market with many new actors and a significant role for public administration. The aim of this article will be to present the functions of public administration in light of the proposed EU and national regulations for hydrogen.

Undoubtedly, hydrogen technology is flourishing ⁽²⁰⁾ and although hydrogen has been known since modern times, ⁽²¹⁾ it is only now being assigned the role of a gas allowing accelerated decarbonisation of the economy. ⁽²²⁾ It is important that this includes the so-called hard-to-decarbonise sectors such as transport and industry. ⁽²³⁾ The United Nations (UN), in pursuit of economic, social and environmental sustainability, has set goals until 2030, ⁽²⁴⁾ among which, in the area of achieving clean energy, the priority is the development of RES and international cooperation in the area of renewable energy technologies, energy efficiency and advanced and cleaner fossil fuel technologies. ⁽²⁵⁾ The development of hydrogen as a supporting technology for energy generation from RES, as well as being necessary in the so-called interim period of the energy transition due to the possibility of producing low-carbon hydrogen (e.g. from natural gas, referred to as grey hydrogen), is included in this regard. ⁽²⁶⁾ Under the auspices of the UN, hydrogen cooperation is already developing, based on the broad participation of states, companies and NGOs, ⁽²⁷⁾ whose goal is to develop hydrogen technology, develop the necessary legal framework and establish a platform for international hydrogen trade. The European Union (EU) is also participating in the global hydrogen expansion and, according to its programme strategy, the European Green Deal, ⁽²⁸⁾ has set climate neutrality as a priority long-term goal. The consequence of the adopted direction of the EU economy is, first of all, the necessity to achieve zero carbon, which means replacing fossil sources with clean energy sources (RES and hydrogen). ⁽²⁹⁾ Plans for the development of hydrogen have been concretised in the hydrogen directional strategy, ⁽³⁰⁾ according to which the EU has set the goal to produce, first of all, renewable hydrogen. Moreover, the EU announces the introduction of a support mechanism for hydrogen generators and the development of hydrogen infrastructure. ⁽³¹⁾. The EU’s plans regarding hydrogen will be concretised in legal regulations within the framework of the so-called hydrogen package. ⁽³²⁾ The goals are: to define renewable gases (including hydrogen); to introduce new operators (including a hydrogen network operator); to make certification of renewable gases obligatory; and to establish tariff discounts for injecting renewable gases into the network or storage facilities. ⁽³³⁾ On the national level, it should be pointed out that Poland has also adopted a hydrogen strategy, ⁽³⁴⁾ which is based on the vision of building a low-carbon hydrogen economy. The earlier-mentioned EU hydrogen package, in its current draft, specified that Member States would be obliged to implement these regulations until 31 December 2023, which, due to the delay in the procedure, is likely to be given a later date. For this reason, it is essential that, by that time, Polish legislation for the use of hydrogen in the economy will have been adopted. A draft ⁽³⁵⁾ amending the Energy law ⁽³⁶⁾ regarding the introduction of hydrogen is already proceeding and assumes: to define the different types of hydrogen (low-carbon ‘grey’ hydrogen, electrolytic and renewable ‘green’ hydrogen); to introduce new operators (hydrogen system operator, combined hydrogen system operator and hydrogen storage system operator); to define and regulate new types of activity (hydrogen energy storage and hydrogen network transmission); to regulate the rules of hydrogen-related activity, including its licensing; and to introduce and regulate new types of contracts (transmission and storage of hydrogen services and hydrogen connection agreement). The adoption of the amendment does not mean, de facto, the introduction of solutions similar to those adopted by the EU, as, for instance, there is no unbundling of hydrogen operators, which seems understandable at the initial stage of development of the Polish hydrogen market, but at the same time is probably temporary. The lack of unbundling of hydrogen operators means that hydrogen will be transmitted through natural gas networks, managed by gas operators, during the development phase of its use in energy. There is no denying that the setting ambitious goals will not be achieved without the adoption of appropriate regulations, and, moreover, in such a situation, the current uncertainty among the actors in the developing hydrogen market will be an important factor in delaying the energy transition process.

The previous considerations concerning the directions of development of the hydrogen economy and the assumptions of the future law provided an introduction to the issue of the functions of the public administration in this regard. In the following part of the article, these functions will first be characterised and then, within the framework of the adopted systematics, they will be referred to the hydrogen market.

Undoubtedly, the functions of public administration are characterised by their dynamic nature, which implies variability depending on the current political vision and economic and social conditions of the state, reflecting global trends and, to a significant extent, the direction of EU development. ⁽³⁷⁾ Reflecting on the functions of public administration, the concept of function should be clarified at this point. In linguistic terms, it is defined as ‘the task, the significance of someone or something in some circumstances’ or ‘the position held by someone or the range of duties performed.’ ⁽³⁸⁾ In the legal literature, function takes on the meaning of: ‘the function of law’, ‘the function of particular branches of law’, ‘the function of the state’ or ‘the function of public administration.’ ⁽³⁹⁾ Some authors identify the concept of function with the concept of role. ⁽⁴⁰⁾ Like the occurring multiplicity of the function concept meanings, in law science there are various divisions of public administration functions. For instance, J. Langrod distinguished the rationing function, the service function, and the intermediary function, ⁽⁴¹⁾ while M. Jełowicki distinguished the political function, the rationing function, the social and culture-creating function, and the administrative function in the area of national economic management. ⁽⁴²⁾

In the pages of this article, the functions of public administration will be presented according to the systematics of R. Stasikowski, including the planning function, the supervisory function, the policing function, the rationing function, the function of service administration, and the regulatory function. ⁽⁴³⁾ Subsequently, within the framework of the adopted division, these functions will be positioned in the light of the proposed EU and national regulations for hydrogen.

The planning function expresses itself in the planning of activities that constitute intentional intervention by the public administration of a powerful or nonpowerful nature, such as in areas where planning is obligatory and where, in the light of the authority’s recognition, it is preferable from the perspective of the public interest. Analysing function should be given a positive meaning: for instance, in contrast to the supervisory function, it does not play the role of convalidation of an undesirable state, but a conscious creating of a given area of the public sphere. Planning activities create areas of socioeconomic life in accordance with public values and are a form of prevention of self-regulation. Planning takes on an all-encompassing, continuous, and long-term oriented character while remaining flexible to changing circumstances and, with them, new goals and directions of development. The classification of planning acts is wide, including differentiation with regard to binding force; generally, binding plans are adopted in the form of statutes, regulations and acts of local law, but there are also plans regarding a limited circle of addressees and plans without a binding attribute. ⁽⁴⁴⁾

The supervisory function is one of the oldest functions of public administration, which is a manifestation of administrative authority resulting in the creation of limitations in the private sphere to protect the public interest. The supervisory action of public administration is expressed through enforcement by the appropriate authorities of compliance with binding orders and prohibitions and through the concretisation of policing and rationing norms towards an individualised addressee. The intervention carried out under supervision joins authority and control, which means that if the supervising authority finds a state of illegality, the attribute of authority that characterises the public administration body constitutes the mandate to take action, on the basis and within the limits of the law, aimed at restoring the state of legality. The purpose of supervision is twofold, meaning that, on the one hand, supervisory activities are intended to ensure compliance with the law and, on the other hand, to protect the rights of those who are within the reach of the supervised entities. ⁽⁴⁵⁾

The policing function, also referred to as the order function, is a protective function of a negative nature, which means that its essence is to maintain or restore a state of lawfulness. The purpose of the policing function is to protect policing goods, which include, in particular: life, health, property, public safety or the natural environment (this catalogue is open and variable about reality). Policing action to protect a particular policing good is characterised by administrative authority and may be taken as a result of a breach or in a preventive character, minimising the risk of a threat. ⁽⁴⁶⁾

The rationing function consists in limiting the scope of liberty of the entity in areas of socioeconomic life, due to the primacy of goals serving the public interest. Rationing is expressed in the shaping of socioeconomic relations through state intervention in that sphere which public administration bodies consider as desirable to achieve certain public goals. Therefore, entities active in the area covered by rationing do not have liberty of action, but are subject to certain standards, thus allowing for the protection of rationing goods. It should be noted that the catalogue of rationing goods is of a variable nature, depending on socioeconomic realities, including, in particular, developments in science, technology and the impact of EU regulations. ⁽⁴⁷⁾

The function of the service administration comes down to the role of public administration as an organiser of public life, fulfilling the obligations defined by law towards citizens. This function means the performance of services by the administration, the addressees of which may be either individualised entities or society in general. The basic forms of action of the service administration are the enterprise and the administrative establishment. It is worth noting that the administration allows the performance of services with the participation of nonpublic entities as often more efficient, thus increasing the quality of its services. The evolution of public administration according to the challenges of the times means that the services it performs are variable and adapted to current public needs. ⁽⁴⁸⁾

The regulatory function is directed towards the achievement of public goals by defining, universally and uniformly, the standards governing entities undertaking activities regulated by the state. Activities falling within the scope of the regulatory function should be characterised by continuity, universality and quality of services defined by law and provided by private entities performing privatised public tasks. ⁽⁴⁹⁾ Regulatory instruments are diverse in the function they serve. The essence of the regulatory function is the correction of the market activities of entities using state institutions (regulators) set up for this purpose. ⁽⁵⁰⁾

The presented considerations allow us to make several conclusions. First, it should be noted that the current energy system is not resilient to an energy crisis, because the access to natural gas is conditioned by unstable geopolitical factors. Moreover, the energy system, based on the dominant share of fossil fuels, is moving towards a climate crisis. The recommended energy technology to be introduced, with the capacity for wide application in the economy, is hydrogen, which can be obtained from low- and zero-emission energy sources. The need for hydrogen development is a common global direction and finds expression at the EU strategy level, as reflected in the Polish hydrogen strategy. Regarding the emerging hydrogen market, the activity of the public administration has been limited so far to the planning function, being a result of EC activities. Meanwhile, the EU has already begun to realise the goals of the hydrogen strategy in the form of the adoption of the relevant law (the so-called hydrogen package), thus in Poland, a draft amendment to the Energy Law is being prepared to define the legal framework needed for hydrogen. The proposed EU and national regulations for hydrogen assume the construction of the necessary infrastructure, the participation of new actors and the introduction of new hydrogen services. In this regard, we can identify the significant role of public administrations from the perspective of their functions in the hydrogen market. The public administration, through the President of the ERO competencies, will perform a regulatory function by ensuring the operation of energy enterprises by the EL and energy policy; a regulatory function by granting licenses for activities subject to the obligation to obtain them and a policing function by protecting policing goods: energy safety and environmental protection, and by sanctioning illegal activities. The supervisory function will be performed by the minister in charge of energy responsible for the safety of the supply of gaseous fuels. Meanwhile, the service administration function will be carried out by hydrogen operators as providers of privatised public services, for the transmission and storage of hydrogen and the management of hydrogen interconnected systems.