The European Union’s definition of “green” hydrogen is emerging as a potential model for the U.S., with global repercussions for emissions, trade and production of the fuel.
Europe’s plan also is shaking up a debate over how to ensure that hydrogen actually is a low-carbon fuel ahead of key tax guidance from the U.S. Treasury Department.
Green hydrogen production is generally defined as a process in which hydrogen is extracted from water using renewable electricity. But some developers want to use electricity from the grid, which has raised questions about whether hydrogen production would produce too many greenhouse gas emissions to be considered clean.
The European Commission adopted final rules on June 20 detailing how green hydrogen producers who sell their fuel in the E.U. must counter grid emissions from the production process. The rules were laxer than what many environmentalists favor, even as domestic producers denounced restrictions that they said could hinder the industry’s growth in the United States.
Regardless, Adithya Bhashyam, a hydrogen analyst at BloombergNEF, said the European Union’s definition of green hydrogen could become a global model partly because the continent wants to import huge volumes of the fuel.
“The E.U. is the first market in the world to actually set these rules. No other market has set anything around this at all. Just being a first mover, it’s something to model on for your own standards,” he said.
By 2030, the E.U. has a goal of importing 10 million metric tons of green hydrogen to help decarbonize the continent’s industries. That’s equivalent to the annual amount of “gray” — or high-emissions — hydrogen made in the U.S. currently with natural gas.
“If you’re looking at the biggest potential clean hydrogen importers, the EU is by far the largest as far as the targets they’ve set,” said Bhashyam.
But it remains unclear if — or how soon — American exports of green hydrogen might emerge and how they would affect U.S. fuel supplies and decarbonization efforts.
In a March report, the Department of Energy found that exports could “exacerbate U.S. workforce and supply chain challenges, resulting in slowed domestic adoption” of the fuel, for example.
DOE spokespeople did not provide additional comment on that finding but pointed to a section of the report that listed several workforce and supply chain problems facing clean hydrogen.
Those problems included a lack of U.S.-based capacity to make tube trailers — the specialized trucks that can carry hydrogen in long steel tubes and that are considered a main option for hydrogen delivery in coming years — and the lack of a skilled domestic workforce for making hydrogen equipment, installing pipelines and production facilities or driving hydrogen by truck, among others.
At the same time, demand from Europe or other countries could encourage American green hydrogen producers to build out more facilities and pipelines in the U.S., which could lower the cost of the fuel for American buyers, wrote DOE.
Both sides of the Atlantic are harboring grand ambitions for hydrogen. By 2030, the Biden administration wants the U.S. to make as much hydrogen using low-carbon methods as Europe is seeking to import from green hydrogen developers: 10 million metric tons.
Ahead of the Treasury Department guidance for companies wanting to claim clean hydrogen tax credits under the Inflation Reduction Act, some influential groups are citing Europe’s plan in comments to the Biden administration.
The American Clean Power Association, for example, recently unveiled proposals for Treasury that it says would stick closely to what European regulators will require from international green hydrogen exporters. Doing so will help pave the way for U.S. exports of clean hydrogen to Europe, the group said.
In a note late last month, analysts at ClearView Energy Partners LLC wrote that Treasury is likely to adopt rules that “align conceptually” with Europe’s.
How clean is ‘green’?
Congress did little to limit or encourage exports when it created the first major incentives for low-carbon hydrogen production.
The 2021 bipartisan infrastructure law contains no prohibitions on exporting fuel made at the nation’s first hydrogen hubs, which will receive up to $8 billion in funds under that law, for instance.
The Department of Energy did say, in a 2022 funding opportunity announcement for the hydrogen hubs, that utilizing all of the hydrogen made at a given hub region was “strongly preferred.” But it added that applicants for the $8 billion “may propose exporting a portion.”
The Inflation Reduction Act also did not ban exports when it created the first-ever tax credits for hydrogen production.
U.S. hydrogen advocates say they think American green hydrogen producers could quickly build out facilities and ship their fuel to Europe while snapping up the Inflation Reduction Act’s subsidies.
“I definitely see that as a meaningful opportunity for U.S. producers,” said Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association.
European demand could encourage the growth of U.S. green hydrogen production, helping slash the fuel’s cost for American buyers, he said.
But environmentalists and grid researchers say the possible climate impacts of making green hydrogen should be the foremost concern for the industry, not trade.
If green hydrogen producers are tapping grid electricity, the creation of the fuel could prove dirtier than conventional gray hydrogen made with natural gas, according to a study from Princeton University researchers. The study asserted that green hydrogen producers would likely tap power during hours when the grid is especially dependent on fossil fuel plants.
Environmental groups have called for the Treasury Department to enact strict restrictions on the use of grid power for green hydrogen developers looking to claim tax credits.
Under Europe’s plan, new green hydrogen production facilities will have to reach power purchase deals with renewable projects that come online within three years of the facility’s first production of hydrogen. The requirement would kick in in 2028.
It is known as an “additionality” requirement because it is intended to ensure that hydrogen is bringing additional renewable capacity onto the grid. The renewables would have to be sited in the same “bidding zone” — which is an electricity-trading area where the hydrogen is made — or in an interconnected zone.
Hydrogen producers will also have to match their monthly consumption of grid electricity to the monthly generation from the new renewable sites. That requirement will get tougher for hydrogen facilities built in 2030, when the producers will have to do the same thing but on an hour-by-hour basis, which in policy circles is known as “hourly matching.”
The Treasury Department has not said whether it will institute similar requirements.
But some U.S. environmental groups say Treasury should issue stricter standards. The Natural Resources Defense Council, a leading group in the hydrogen debate, has said the additionality and hourly matching”requirements should go into effect several years earlier in the United States.
Unlike the U.S., the European Union’s regulators have established caps on emissions that will slash pollution from a broad range of sectors, including the power grid, noted Rachel Fakhry, a senior advocate for the NRDC.
The lack of a similar U.S. emissions cap makes it more important for Treasury to lay out tough conditions on green hydrogen developers, she said. “We should do far better than the E.U.,” she said.
Hydrogen industry advocates, along with investor-owned utilities and some renewable groups, have argued that European-style rules could delay the rise of green hydrogen in the United States.
“Europe created a benchmark but it’s not necessarily indicative of what the IRA meant to do, which is to grow the industry as quickly as possible,” said Wolak.
If the U.S. keeps its rules “flexible,” it will encourage a wave of investment in American green hydrogen, he argued. Some producers could choose to tailor their production styles to Europe’s tougher requirements to fetch higher prices for hydrogen in European markets, he said.
“But if we constrain the ability to build those resources early on in the U.S., … you put the brakes on so many activities,” said Wolak.
The Treasury Department did not comment in response to questions about Europe’s rules.
The new natural gas?
Some energy analysts have projected there will be a booming international trade for green hydrogen and other low-carbon variants of the fuel.
Last year, the International Renewable Energy Agency released a report concluding that global cross-border trade will start to take off in the 2030s. It predicted that in 2050, one-third of all green hydrogen will be traded internationally — a higher share than natural gas today.
In its March report, DOE wrote that the U.S. has “a natural advantage for clean hydrogen production” — including cheap renewables and natural gas — that could allow it to become a net exporter of hydrogen.
Labor costs are higher in the U.S. than in much of the world, however, and siting and permitting may be harder domestically for hydrogen developers, it said.
Other obstacles to hydrogen exports relate to the physical properties of the fuel, say analysts.
Liquefied hydrogen has a much lower energy density than liquefied natural gas, for instance, meaning it requires much more space when it is being transported — a factor that would increase costs. Few ships have been built that are capable of transporting liquefied hydrogen.
“You’d need new vessels to do that,” said Bhashram of BNEF.
“The economics are really tough to make that business case work — to send hydrogen from the U.S. all over Europe,” he added.
Many hydrogen advocates say their fuel could be easily converted into ammonia and sold abroad, however. DOE lent some credence to that in its report, noting that “the largest announced offtakers” for hydrogen-derived products are interested in buying ammonia, including to meet demand in Europe.
Kevin Book, an analyst at ClearView, wrote in an email that he “would not expect very much hydrogen to move thus far, either in purity form or as ammonia.”
Most conventional, emissions-intensive hydrogen is currently made for in-house use by refiners and other industries, he noted. Europe’s goals for green hydrogen imports and the Biden administration’s target for low-carbon hydrogen production “both seem ambitious,” Book wrote.
“It is still early days to consider U.S. hydrogen exports to the E.U., or anywhere else for that matter,” he added.