The world should take up the challenge to boost the use of hydrogen as a potentially emissions-free source of energy, the International Energy Agency (IEA) said on Friday in its first major report on the fuel.

The cost of producing hydrogen from renewable energy could fall by 30 percent by 2030 and the fuel could reduce emissions in industries such as transport, chemicals and steel, the agency said, although it warned there were still major challenges.

The IEA report was released as Group of 20 (G20) energy and environment ministers gather in Karuizawa, northwest of Tokyo, in the run up to the group's summit in Osaka later this month.

Japan is heavily promoting hydrogen and has set a goal to cut the cost of producing carbon dioxide-free hydrogen to less than a tenth of current levels by 2050.

However, many experts say hydrogen is difficult handle, expensive and involves too much energy or heat loss. The technology for hydrogen fuel cells has been described by Tesla chief Elon Musk as "incredibly dumb."

Hydrogen is enjoying its latest wave of interest since the 1970s, driven by governments, the renewable energy industry, utilities, automakers, oil and gas companies, and big cities, Fatih Birol, IEA Executive Director said in the report.

However, most hydrogen now comes from fossil fuels and its production is responsible for annual carbon emissions equivalent to the United Kingdom and Indonesia combined, the report said.

Producing hydrogen from low-carbon energy is still costly and its adoption is also being held back by the slow development of infrastructure and some regulatory hurdles.

Birol said the time was right to scale up technologies and bring down costs to allow hydrogen, now used mostly in oil refining and for fertilizer production, to be taken up more widely.

"The world should not miss this unique chance to make hydrogen an important part of our clean and secure energy future."

Hydrogen had the potential to tackle critical energy challenges, such as storing the output from wind and solar, and decarbonising sectors such as long-haul transport, chemicals and steel, "where it is proving difficult to meaningfully reduce emissions," the IEA said.

The agency outlined several recommendations to produce hydrogen from renewable energy sources and spread its use across economies.

It called for coordinated policies amongst governments to make industrial ports the nerve centers for wider use of hydrogen, build on existing gas infrastructure and support the use of hydrogen to power cars, trucks and buses.