Hydrogen can be used to replace fossil fuels and produces no toxic emissions when burned - just water.
It can also be manufactured using renewable energy.
The Scottish Government has published a new policy statement, setting out aims to generate 5GW of renewable and low-carbon hydrogen by 2030 – enough to power the equivalent of 1.8 million homes.
The sector will receive public funding of £100 million over the next five years “to support a green recovery and Scotland’s just transition to net zero”.
Research suggests the industry has the potential to be worth up to £25 billion a year to the Scottish economy by 2045, the goal for net-zero carbon emissions to be reached.
Scotland is the first country in the world to publish a hydrogen policy statement.
Industry leaders believe Scottish expertise in oil and gas and renewables mean it is ideally positioned to become a world leader in eco-friendly hydrogen power.
Scottish energy minister Paul Wheelhouse said: “Scotland has, in abundance, all the raw ingredients necessary for the production of low-cost hydrogen as well as one of the largest concentrations of offshore engineering expertise in the world that can harness Scotland’s renewable energy potential in technologies like wind, wave and tidal power, to produce green hydrogen.
“Indeed, Scotland is one of the best placed nations anywhere in the world to develop competitively priced hydrogen for our own economy’s needs and to generate a surplus in supply to export to other European nations with emerging demand, but insufficient supply to meet their own needs.
“No one fuel or technology is, by itself, the solution to climate change, but hydrogen has the potential to be a very important part of a progressive, decarbonised energy system supporting our transition to net zero in transport, heating and industrial decarbonisation.
“We are committed to supporting this emerging sector to deliver a transformation in how we produce, store and utilise energy and to maximising the economic benefits that the production of hydrogen can bring.”
A number of pioneering hydrogen projects have been running across Scotland.
These include H100 Fife, which will see 300 homes in Levenmouth supplied with clean hydrogen. The system will see the fuel created from water via electrolysis, powered by an offshore wind turbine, then stored in tanks ready for use.
Meanwhile, Aberdeen has taken delivery of the world's first hydrogen-powered double decker, part of a fleet of the £500,000 vehicles being rolled out in the city following a successful trial of single-deckers.
A zero-emissions hydrogen-powered train is also being developed in an initiative backed by Scottish Enterprise and Transport Scotland.
In Orkney, the European Marine Energy Centre recently claimed a world first when advanced flow batteries were combined with tidal power to produce continuous green hydrogen from variable renewable energy generation for the first time.
The centre has also recently announced the £12.3 million HyFlyer2 project, which will develop a 19-seat hydrogen-electric aircraft to help make zero-emission flights a commercial reality.
Also in Orkney, ocean trials trials of the world's first hydrogen-powered ferry are set to get under way.