DOE hydrogen hubs: 4 issues to watch

By David Iaconangelo | 04/07/2023 07:04 AM EDT

The Biden administration is starting a review of hub applicants that could play a major role in determining hydrogen’s climate footprint and financial viability.

a city seen from above with H2 bubbles floating above

POLITICO illustration/Photos by iStock

The Department of Energy is set to begin reviewing dozens of proposals to build the nation’s first “hubs” of low-carbon hydrogen, a critical step that could help determine how much the fuel cuts emissions and which companies benefit from its deployment.

Funded with $8 billion in the 2021 infrastructure law, the hubs are meant to demonstrate the production, storage, transport and consumption of “clean” hydrogen made with less than half the carbon emissions associated with natural gas-derived production of the fuel.

On Friday, DOE will stop accepting full proposals from hydrogen hub applicants, kicking off a review that will culminate in the first $6 billion to $7 billion of award announcements this fall. Many of the proposals are backed by state governments and industry coalitions that include oil and gas companies and renewable developers.


Under the infrastructure law, DOE is required to select a mix of hubs that use a variety of fuels in the production process, including renewables and fossil fuels. Six to 10 projects are expected to be selected this year.

Hydrogen advocates ultimately hope the competition will plant the seed of a broader clean industry, in tandem with the Inflation Reduction Act’s new tax credits for the fuel’s production.

Yet DOE’s hydrogen hub process is facing tough questions, particularly on whether the fuel will really prove to be as cheap, clean and abundant as its backers say.

Nichole Saunders, a senior attorney at the Environmental Defense Fund, said the hydrogen hubs “will represent the U.S.’s first attempt at demonstrating what quote, unquote clean hydrogen might look like.”

“So all eyes are watching. Both in the U.S. and globally,” she added.

Hydrogen is a focus for the Biden administration, which sees clean production of it as a must for achieving climate goals — especially for the decarbonization of manufacturing and other hard-to-electrify processes.

Federal subsidies are also an olive branch to the oil and gas industry. Administration officials like Energy Secretary Jennifer Granholm often describe clean hydrogen as a new business opportunity for oil and gas companies that would align with U.S. net zero goals. Natural gas companies are eager to blend hydrogen into existing pipelines.

The hubs’ designs are likely to draw intense scrutiny from environmentalists, emissions researchers and pipeline safety advocates, however. Many of those groups are wary that publicly funded hubs could still emit significant amounts of greenhouse gases, endanger residents when hydrogen is stored or transported, suck up scarce water resources, prolong the burning of natural gas, or release pollutants that exacerbate respiratory illness.

Federal watchdogs and House Republicans also are watching public spending on the hubs and developers’ ability to meet targets. DOE’s Office of Inspector General has questioned whether the department is ready to efficiently disburse billions of dollars for clean energy demonstrations while controlling for fraud and waste (Energywire, Aug. 22, 2022).

Some of the nation’s largest energy companies have sponsored research finding that the hydrogen hubs program may not blossom into a nationwide industry for the fuel — at least not without new forms of help from the federal government (Energywire, Feb. 9).

Here are four things to watch as DOE selects the hubs:

Who’s chasing the money?

Governors, state energy officials and even federal lawmakers have expressed eagerness to lure a share of hydrogen hub funds to their districts.

State officials in every region of the country have backed industry coalitions that participated in an earlier phase of the hub competition, DOE said late last year (Energywire, Jan. 3).

They include Democratic governors in New York and California, who want to promote “green” hydrogen made from renewable electricity and water, and Alaska’s Republican Gov. Mike Dunleavy, who has backed using natural gas and carbon capture to make “blue” hydrogen.

They also include federal lawmakers like Sen. Joe Manchin (D-W.Va.), the chair of the Senate Energy and Natural Resources Committee.

On Tuesday, Manchin’s office announced plans for what it described as a multibillion-dollar “anchor project” for a West Virginia hydrogen hub — an ammonia production facility that would use carbon capture. The hub, which is also supported by the state’s Republican governor, Jim Justice, and a coalition of natural gas, chemical and ammonia producers, is expected to apply for DOE funds.

But so far, the identities of many applicants to the DOE program — and the details of what they want to do — remain a mystery.

After receiving a flood of 79 “concept papers” outlining ideas for a hydrogen hub, DOE whittled down the field in December by encouraging the authors of 33 concept papers to submit a full application.

But DOE has declined to reveal which companies and states were behind those concept papers. And many of the industry coalitions that have advertised their participation in the competition have not offered key details on their plans, such as the production methods for their proposed hub and their expected rate of CO2 emissions.

In March, environmental justice and climate advocates in California issued a news release that accused state officials of shutting out community groups from hydrogen hub planning.

Bahram Fazeli, policy director with Communities for a Better Environment, said a state-backed hub coalition “has not met even the most basic standards of transparency and meaningful community engagement.”

Fazeli’s group was joined by others like the Center on Race, Poverty & the Environment and state chapters of the Sierra Club and the Natural Resources Defense Council.

Heather Purcell, a spokesperson from the California Governor’s Office of Business and Economic Development, said that her office had invited community and environmental justice leaders to participate in several workshops in addition to holding “over two dozen in-person and virtual meetings.”

DOE has faced similar criticisms.

In a March 29 letter to Granholm, the Environmental Defense Fund wrote that “DOE’s early actions … suggest a tendency toward project secrecy.” The group urged DOE to undertake several actions — including disclosing details from last year’s concept papers — to make sure that local communities are allowed to take part in hubs’ planning.

“The lack of transparency, we think, is a real problem,” said Alan Krupnick, a senior fellow at the nonprofit Resources for the Future, which has tracked early developments in the hub competition. “The public demands that these activities be scrutinized. And DOE is erring on the side of secrecy.”

During a press event hosted by the National Association of Hispanic Journalists on Wednesday, Granholm said that details on the hydrogen hub proposals would be made public after the department makes its selections this summer.

“Obviously we’re still in the process of selections,” she said.

“The question is, after that, at what point does it become fully available? And we will make the information available that we can, exempting confidential information. We want to be transparent, but it will likely be after the selections, obviously,” she added.

Jeremy Ortiz, a DOE spokesman, defended the department’s practices, pointing out that applicants were required to include a plan describing their engagements with community and labor groups, as well as their work to bring benefits to disadvantaged groups.

“DOE will support successful applicants and host communities in ongoing community engagement as reflected in the Community Benefits Plans throughout the full project scope,” he added in an email.

Some lawmakers in the Republican-controlled House, meanwhile, are turning new attention on oversight of clean energy demonstrations. One bipartisan bill introduced in February by leaders of the House Science, Space and Technology Committee would require DOE’s Office of Clean Energy Demonstrations, which oversees the hydrogen hubs, to deliver a report to Congress that includes contracts struck by DOE with award recipients, a list of project milestones and “any material modifications” to the project.

What comes after the deadline?

Department officials will judge the hub proposals on five basic criteria, comprising technical merit, financial viability, the envisioned speed and strength of construction, the qualifications of the applicants, and plans to bring benefits to local communities and disadvantaged areas.

According to the infrastructure law, at least one of the hydrogen hubs should use fossil fuels as a feedstock. Another must produce its hydrogen from renewable energy. A third must use nuclear power. Two of the hubs must be sited in natural gas-producing regions.

DOE is also required to pick at least one hub that demonstrates hydrogen’s consumption within the power sector, heavy industry, residential and commercial heating, and transportation, respectively.

Once DOE selects the winners, the money will flow out slowly and in phases, meaning the department’s support isn’t guaranteed over the long term.

Over the first year to 18 months, for instance, DOE and the hub coalitions will undertake planning and analysis aimed at making sure the concepts are “technologically and financially viable,” with input from local groups, according to DOE’s funding announcement last year. No more than $20 million will be available for each hydrogen hub during that first phase.

In subsequent phases, hydrogen developers will finalize engineering designs and agreements with offtakers and local communities, followed by construction and installation. The final phase will include the collection and analysis of data on the hubs’ operation and performance, according to DOE.

In other words, the hard work has scarcely begun for hydrogen hub coalitions.

“We’re on the first major step of a very long journey,” said Krupnick of Resources for the Future.

How clean will the hubs be?

Perhaps the most contentious question surrounding DOE’s process is what level of greenhouse gas emissions the department will enforce in exchange for federal funds.

Last summer, DOE issued a draft of a clean hydrogen production standard, with what it described as nonbinding “guidance” on the hubs’ emissions (Energywire, Aug. 23, 2022).

The hubs’ production facilities should aim to emit no more than 2 kilograms of CO2 for every kilogram of hydrogen, DOE recommended. That was in line with the emission limits laid out in the bipartisan infrastructure law.

On a life-cycle basis, when factors outside the production facilities are considered, the hubs should try to limit CO2 emissions to 4 kilograms, DOE’s guidance added. That expanded accounting could include emissions derived from extracting natural gas that would later be used as a feedstock for hydrogen production, for instance.

The 4-kilogram limit is less than half of the 9-kilogram benchmark level typically associated with “gray” hydrogen production, where the fuel is extracted from natural gas.

Four kilograms is also the maximum amount of life-cycle carbon emissions allowed for companies wanting to claim production tax credits for clean hydrogen under the Inflation Reduction Act.

The climate law’s limits are likely to become a benchmark for the DOE hubs’ participants, if they want to be financially viable over the long term, according to observers.

“I think a lot of these hubs would want to take advantage of that tax credit,” said Aaron Bergman, a fellow at Resources for the Future.

But there is still no single methodology that “clean” hydrogen companies must use when they measure and report their emissions.

The closest thing to such a methodology is being developed by the Treasury Department. Officials there are due to release guidance in coming months for the Inflation Reduction Act’s hydrogen tax credits.

For hydrogen hub coalitions, access to those tax credits could hinge on the Treasury Department’s guidance.

The Treasury process has also generated controversy. For instance, many developers want to use emissions-intensive grid electricity to derive hydrogen from water molecules. Environmentalists and emissions researchers say that practice could be bad for the climate and disagree with developers about when Treasury should allow it (Energywire, Dec. 23, 2022).

Others have said “blue” hydrogen tied to natural gas use and carbon capture should not be supported, considering it involves continued use of fossil fuels. The process is favored by the oil and gas industry but opposed by some green groups.

Then there are questions about how hydrogen produced by the hubs could be used. Emissions researchers point out that burning hydrogen in power plants, for example, could generate nitrogen oxide emissions in large enough volumes to inflame respiratory illness in residents. Some environmentalists also say that using the fuel for building heat would be unreliable, expensive and possibly unsafe.

“It’s really hard to predict right now” how clean the hydrogen hubs will prove to be, said Saunders of the Environmental Defense Fund.

“It’s a genuinely difficult question. I think it’s too early to say,” she added.

Where will all the hydrogen go?

Currently, nearly all of the hydrogen made in the U.S. is derived from fossil fuels using emissions-intensive processes.

But some hub coalitions say that shrinking hydrogen’s carbon emissions isn’t their biggest challenge — rather, it’s figuring out what to do with the fuel after they’ve made it.

“Production isn’t the hard part,” said Anja Richmond, program director at the Wyoming Energy Authority, which is part of a four-state alliance seeking to win hydrogen hub funds. “Building up that supply [of clean hydrogen] is important, but we need to make sure that supply has a place to go.”

Outside of the Gulf Coast, few regions of the U.S. have pipelines that are ready to transport hydrogen or facilities where the fuel could be stored, for instance.

A lack of connective infrastructure could make it harder to slash the cost of decarbonized hydrogen to levels that would interest buyers.

The hydrogen hubs will only have to resolve that problem on a medium scale, since the fuel’s production, storage, transport and consumption must all be demonstrated within a single region under DOE’s program.

Richmond said some participants in her coalition, known as the Western Interstate Hydrogen Hub, would consume some of the hydrogen in their own facilities. Xcel Energy, for instance, is planning to blend the fuel into its natural gas networks, she said. Other participants include Avangrid, Dominion Energy Utah and the National Renewable Energy Laboratory.

Others have highlighted the challenge of building up demand for clean hydrogen — particularly to a degree that would turn the regional hubs into a national industry.

One February report published by the Energy Futures Initiative, a group led by former Energy Secretary Ernest Moniz, concluded that the federal government should step in as a guaranteed buyer of low-carbon hydrogen, among other steps (Energywire, Feb. 9).

But the DOE competition is also driving planning activities that may lead to hydrogen projects even if the applicants fail to win a share of federal funds, said Brett Perlman, CEO of the Center for Houston’s Future. Perlman’s group is a convener of the HyVelocity Hub, a Texas-based coalition that comprises oil majors Chevron and Exxon Mobil, hydrogen producer Air Liquide, and renewable developer Ørsted, among others.

Members of the coalition would “absolutely” move forward with smaller pieces of the larger hydrogen hub vision “irrespective of the DOE money,” he said. “The transition is already happening.”

Friday’s deadline for full applications marks only the “end of the beginning” for the hydrogen hubs program, added Perlman. “This is a long process. We’re just getting started.”

Reporter Carlos Anchondo contributed.