Billions of dollars in federal subsidies from the Inflation Reduction Act and the bipartisan infrastructure law may not turn “clean” hydrogen into a commercially viable fuel, according to a new report led by former Energy Secretary Ernest Moniz and sponsored by some of the nation’s largest energy companies and a group founded by Bill Gates.
The analysis being released today by the Energy Futures Initiative (EFI) also is on the radar of the Biden administration, as Ali Zaidi, the White House’s national climate adviser, is scheduled to appear as a keynote speaker at the report’s unveiling. While the findings are nonpartisan, they wade into high-stakes debates that will determine the fate of the fuel, including whether it has low emissions as envisioned.
The report throws cold water on the idea that low-carbon hydrogen soon will become a cheap fuel source for a range of polluting industries and argues that the federal government needs to do a lot more to make it a viable product.
“We are not done. The problem has not been solved,” said Alex Kizer, EFI’s senior vice president of research and lead author on the report.
The group’s research was sponsored by two of the nation’s largest utilities, Duke Energy Corp. and National Grid PLC; automaker Toyota Motor Corp.; oil and gas producers Exxon Mobil Corp. and Tellurian Inc.; Gates’ clean-energy innovation group Breakthrough Energy through its support of the AFL-CIO’s Work for America Foundation ; the philanthropic Hewlett Foundation; and the Arlington, Va.-based nonprofit Center for Energy and Climate Solutions (C2ES). EFI, a nonprofit think tank led by Moniz, maintains that it has editorial independence from its public and private sponsors.
The researchers calculated the cost of making hydrogen while keeping life-cycle emissions within limits laid out by the Inflation Reduction Act, which created the first production tax credits for “clean” hydrogen. The climate law defines clean hydrogen as involving no more than 4 kilograms of carbon emissions for every kilogram of hydrogen.
The tax credits would help immensely in bringing down the cost of hydrogen — but not enough in most cases to convince power plants, oil refiners and ammonia and steel producers to begin using low-carbon versions of the fuel instead of emissions-intensive ones, the report said.
“The IRA is the most significant policy for clean hydrogen ever,” said Kizer. “But it will not create a market — that’s what our analysis shows.”
The findings underscore some of the strongest disputes about hydrogen following the climate law’s creation of a production tax credit and the infrastructure law’s $8 billion allocation for the nation’s first regional hubs of hydrogen production, storage, transport and consumption.
Many environmental justice groups, for instance, have been critical of any policy that supports growth of “blue” hydrogen — which is made from natural gas and carbon capture. EFI treated blue hydrogen as being among a variety of relevant production methods.
What’s to be done?
EFI said there are several ways the federal government could intervene to ensure growth in demand for low-carbon hydrogen.
Some involve more public money. For instance, Congress should boost funding for the hydrogen hubs program, and federal agencies should commit to buying low-carbon hydrogen to meet decarbonization goals, the group said.
The Biden administration and Congress also should create a program to support specific CO2 storage projects, which could benefit hydrogen producers that make the fuel using natural gas and carbon capture, researchers said. They called for the Federal Energy Regulatory Commission to take over regulation of hydrogen blending in interstate gas pipelines.
Those and other steps might help persuade hard-to-electrify industries to begin the complex process of ditching fossil fuels or other emissions-intensive fuels, said Kizer.
Such a transition could quickly take a substantial chunk out of those industries’ greenhouse gas emissions — at least 50 million tons of CO2 equivalent per year, about double the annual emissions contributed by the country’s ammonia plants, according to EFI.
For many potential buyers, clean hydrogen would need to cost anywhere from 27 cents to 90 cents per kilogram. That is slightly lower than the $1 per kilogram that the Energy Department is targeting for 2031 and several times cheaper than what low-carbon hydrogen costs currently.
In rare but ideal cases, federal subsidies might allow hydrogen producers to make low-carbon fuel while surpassing that 90-cent cost threshold, said Kizer.
But many polluting industries will likely want to see rock-solid proof that cheap, clean hydrogen will be consistently made available. “We’re starting to get into the neighborhood. We’re close. But there’s more that we can do that helps bridge this gap,” he said.
‘That’s a problem’
Some recommendations from the report counter the views of green groups and pipeline watchdogs.
It treated power plants as one important potential offtaker of low-carbon hydrogen, for instance. Many environmentalists have criticized the idea of substituting hydrogen in place of gas to create electricity, arguing that doing so can spike emissions of nitrogen oxides, pollutants known to exacerbate asthma and other respiratory illnesses.
Pipeline watchdogs have criticized the idea of mixing hydrogen with natural gas and using gas pipelines to transport the fuels, saying that would pose dangers to public safety (Energywire, Jan. 18). EFI listed hydrogen blending and pipeline repurposing as a way to cut emissions from hard-to-decarbonize industries.
The Treasury Department is currently drafting guidance that will govern how life-cycle emissions are calculated for hydrogen projects seeking to benefit from the climate law’s tax credits. As part of that process, the department is expected to determine under what conditions developers of “green” hydrogen — typically understood as hydrogen made from water using renewables — can use electricity from the wider grid while buying renewable energy certificates or other offsets.
Energy modelers and environmental groups warn that hydrogen developers should be subject to strict conditions or risk erasing the environmental credentials of supposedly “green” hydrogen (Energywire, Dec. 23, 2022).
They say hydrogen producers should have to restrict their hourly power consumption to the amount of power produced by new wind and solar facilities.
EFI sided with hydrogen developers and clean energy trade groups who have pushed for greater flexibility, however.
The Treasury Department should consider a “phased approach” that initially allows producers to match their consumption to generation on an annual basis, before increasing the stringency over time, the group wrote.
Rachel Fakhry, a senior advocate for the Natural Resource Defense Council’s climate and clean energy program, said she disagreed with that EFI recommendation.
“That’s a problem,” she said. “That would lead to a lot of emissions. … It’s going to undermine clean hydrogen.”
But the larger thrust of the EFI report was valid, she said. “There needs to be a much stronger focus, moving forward, on demand creation [for clean hydrogen],” said Fakhry.
Steel industry representatives said the report underscores the obstacles involved in adopting hydrogen as a feedstock.
Transporting hydrogen by pipeline to steel factories is “the challenge” for the domestic steel industry, said Philip K. Bell, president of the Steel Manufacturers Association in a written statement.
Bell defended the American steel industry’s environmental footprint, arguing that most domestic factories use electric arc furnaces to turn scrap steel into a new product, making U.S.-based factories far cleaner than most international producers.
“When you already have an existing, proven and cost-effective way of making lower-carbon steel, it is easy to understand why some domestic steelmakers will take a more methodical and measured approach to adopting technologies that are complex and have major cost considerations,” he said.
The White House, Energy Department and FERC did not provide comment in response to requests from E&E News.
Correction: An earlier version of this story stated that industrial adopters of low-carbon hydrogen could slash emissions by 50 metric tons of CO2 equivalent per year, instead of 50 million tons.