To avoid fossil-fuel consumption and greenhouse-gas emissions, hydrogen should be produced by renewable energy resources. Water electrolysis using proton exchange membrane (PEM) is considered a promising hydrogen-production method, although the cost of the hydrogen from PEM would be very high compared with that from other mature technologies, such as steam methane reforming (SMR). In this study, we focus on the effective utilization of by-product oxygen from electrolysis hydrogen production and discuss the potential demand for it, as well as evaluating its contribution to improving process efficiency. Taking as an example the utilization of by-product oxygen for medical use, we compare the relative costs of hydrogen production by means of PEM electrolysis and SMR. (c) 2004 Elsevier Ltd. All rights reserved.