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New law provides hydrogen’s biggest boost yet » Yale Climate Connections

Since the late 20th century, the canon of climate-change solutions has overflowed with variations on “hydrogen is just around the corner.” Indeed, “hydrogen holds a vice-like grip over the imaginations of techno-optimists,” observed analyst Michael Liebreich.

Even if we won’t see hydrogen refueling stations down the block tomorrow or the next day, the recently enacted Inflation Reduction Act, or IRA, is set to give hydrogen the multibillion-dollar boost that proponents have for decades been awaiting.

The law’s hydrogen provisions “may prove to be the single most important event in the history of green hydrogen to date – and a turning point for the nascent industry beyond American borders,” wrote Managing Editor Leigh Collins at the industry news site Recharge.

Unlike electric cars or solar panels, the new hydrogen boom (assuming it happens) will largely unfold out of view of the general public. The most obvious sweet spot for hydrogen is to supply green power to large industries that can’t easily make direct use of renewables. Key users could range from heavy manufacturers to long-haul truckers, international shippers, and perhaps even those in aviation.

The 10 years of tax breaks for hydrogen development in the IRA will extend to 2032. It may take even longer for those investments to bear major fruit. One analysis from the Princeton-based policy group REPEAT found that the bipartisan infrastructure bill from 2021, along with the IRA, will boost annual U.S. investment in hydrogen production from around $1 billion under pre-IRA policy to $3 billion by 2030. That will grow to more than $50 billion by 2035.

Capital investment in hydrogen-related energy infrastructure is predicted to boom in the 2030s (shown in red above) as a result of the Inflation Reduction Act. (Image credit: REPEAT/Princeton University)

Pushing from gray and blue toward green

Familiar to most as the H in H2O (water), hydrogen makes up about 75% of all matter and perhaps 90% of all atoms on Earth. It isn’t retrieved from the ground and burned like fossil fuels. Instead, it’s separated out from compound molecules through various chemical and electrical processes.

The resulting pure hydrogen then can be stored, transported, and eventually used without producing any climate-warming emissions.

Hydrogen – particularly how it’s produced – is often characterized using a “color wheel.” It isn’t a flawless approach (there are variations in carbon intensity within each hue, for example), but the color wheel can still be a useful starting point.

Gray hydrogen is intimately linked to fossil fuels. It’s most often made at a conventional natural-gas power plant through a multistep process called steam methane reforming, using the steam to split methane molecules and extract hydrogen. The process itself requires energy, and carbon dioxide is produced as a byproduct. In fact, emissions related to gray hydrogen production now make up more than 2% of all CO2 emissions globally, or almost a billion metric tons.

Much like natural gas for gray hydrogen, coal is the source of black hydrogen, which makes up almost a quarter of China’s hydrogen production.

If at least some of the carbon from fossil-fuel-based hydrogen can be sequestered (using carbon capture and storage, or CCS) rather than emitted, then the result is blue hydrogen. Sequestered CO2 is often used to squeeze out extra oil and gas from depleted sources, so even blue hydrogen is strongly connected to fossil fuel production. Authors of a 2021 study in Energy Science and Engineering found that the greenhouse footprint for some types of blue hydrogen may be even higher than for heating with natural gas or coal.

Green hydrogen, in contrast, is “green” from the get-go. This hydrogen is produced by renewable energy via electrolysis, splitting water molecules with an electric current from a device called an electrolyzer. The only thing emitted in this process is oxygen (the O in H2O). Sequestration becomes irrelevant, as there’s no carbon-based byproduct that needs to be kept out of the air.

A more hydrogen-friendly tax code

Nearly all of the 90 megatons of hydrogen used globally in 2020 came from fossil fuels, according to the International Energy Agency’s Global Hydrogen Review 2021. The great bulk of that hydrogen was used in industry and refining.

What makes the IRA provisions so powerful is that they are in stark contrast to the economics that have long tilted the hydrogen playing field dramatically toward fossil fuels. As of 2021, it cost anywhere from 50 cents to $1.70 to produce a kilogram of gray hydrogen, according to the International Energy Agency, compared to $1-2 for blue hydrogen and $3-8 for green hydrogen.

As a result of the IRA’s tax provisions, the costs of both blue and green hydrogen in the United States are projected to plummet. Green hydrogen (aka “clean hydrogen”) will be eligible for up to $3 per kilogram of tax credits. That change alone may give green an immediate edge over gray hydrogen. The cheapest gray hydrogen in the United States in August, according to Recharge News, was about $2 less per kilogram than the cheapest green hydrogen.

Environmentalists haven’t been thrilled with the IRA’s tax breaks for carbon capture and storage, which many view as a way to keep fossil fuels on life support. Those CCS breaks do extend to blue-hydrogen production. However, the IRA as a whole is more generous to green than to blue hydrogen, likely giving the “clean hydrogen” green variety a leg up over time.

For example, a blue-hydrogen producer cannot claim tax credits for both CCS use and for hydrogen production, but those producers that rely on wind, solar, or nuclear power to produce hydrogen can claim clean-energy along with clean-hydrogen tax credits.

Moreover, clean-hydrogen producers can opt for direct payments instead of tax credits – another carrot that will favor green hydrogen versus blue.

Finding right niches – storage, vehicles, shipping, aviation?

Hydrogen has ample pros and cons, especially in how it’s stored. Pound-for-pound, there’s about three times more energy in hydrogen than in fossil fuel, but it takes about four times more volume to store a unit of energy as liquid hydrogen than it does for gasoline. Hydrogen gas requires high-pressure tanks best suited for large-scale use at a single facility. And liquid hydrogen calls for numbingly cold storage (hydrogen’s boiling point is –423 degrees Fahrenheit).

One major plus is that stored hydrogen doesn’t drain like a battery would. So one potential use for hydrogen lies in saving surplus wind or solar energy over long periods. Such a storehouse can be used for load balancing during times of low generation and/or high demand, as opposed to calling on fossil fuels as a backup.

(Image credit: Carbon Brief)

Only about 0.2% of global electricity supply is hydrogen-based, according to the International Energy Agency, but several types of stationary (fixed-site) fuel cells lend themselves to high-efficiency use in keeping power systems stable and flexible.

Meanwhile, auto manufacturers are once again revving up their interest in hydrogen. Toyota, which embarked on hydrogen-powered fuel-cell electric vehicles in the early 1990s, has sold more than 15,000 of its Mirai hydrogen sedans since 2014. The total number of fuel-cell electric vehicles worldwide jumped from 7,000 in 2017 to more than 43,000 by 2021, according to the International Energy Agency.

BMW has ambitions to mass-produce a hydrogen fuel-cell vehicle by 2030, and by that date, Japan and South Korea aim to have produced more than 2 million hydrogen fuel-cell vehicles.

Removable fuel cells allow hydrogen vehicles to be refueled in as little as five minutes, and the fuel cells can propel cars for several hundred miles, on par with the highest-range electric vehicles. Moreover, fuel-cell electric vehicles don’t get hit with the cold-weather penalty that cuts mileage for battery-powered cars.

The problem in using hydrogen for consumer vehicles – and for many other smaller-scale purposes – is its inherent inefficiency. It takes a lot of energy to produce, transport, and store hydrogen. Even if that energy comes from green sources, as much as 70% of the renewable electricity needed to produce a unit of green hydrogen can get sapped along the way.

Even assuming costs come down, more energy will still be required in most cases to operate fuel cell electric vehicles than comparable electric vehicles per road mile. Thus, it could make sense to nudge hydrogen toward users that are the toughest to electrify, such as larger vehicles. Buses and trucks made up a negligible fraction of fuel-cell electric vehicles in 2017 but about 20% of all such vehicles by 2021, according to the International Energy Agency.

Hydrogen’s weight advantage relative to batteries is a particular plus for long-haul trucking.

“Long distances, unpredictable routes, high uptime requirements, strict driving-time regulations, and the importance of high payloads have made this sector particularly hard to decarbonize,” a McKinsey report noted in August. The report projects that the number of hydrogen-fueled heavy-duty trucks on European Union roads will leap from around 10,000 in 2025 to some 200,000 in 2030 and to 850,000 by 2035.

Other heavy-duty transport could benefit from hydrogen. The Korean Railroad Research Institute is now in the midst of a four-year effort to create the world’s first train that runs on liquefied hydrogen. The nation plans to eliminate all diesel passenger trains by the end of this decade.

Liquid hydrogen is also a strong candidate for eventual use in long-distance aviation and shipping, two transport modes supremely challenging to decarbonize. With its ZEROe project, Airbus is aiming to develop what it bills as “the world’s first zero-emission commercial aircraft” by 2035. It would draw on both liquid hydrogen and fuel cells.

(For much more detail on these and other potential hydrogen uses, see the comprehensive 2020 Carbon Brief post “Does the world need hydrogen to solve climate change?”)

A catalyst for international efforts

Any U.S.-based hydrogen boom fueled by the IRA could be a major signal to other countries that the technology is finally taking off. Just as government incentives stoked demand for wind and solar power before economies of scale then made those power sources competitive, the same could hold true for hydrogen.

“Governments are starting to announce a wide variety of policy instruments, including carbon prices, auctions, quotas, mandates and requirements in public procurement,” according to the International Energy Agency’s 2021 hydrogen report. However, “most of these measures have not yet entered into force. Their quick and widespread enactment could unlock more projects to scale up hydrogen demand.”

As Collins noted in Recharge News: “The dozen or so countries that have publicly stated their ambitions to become world leaders in green hydrogen – including India, China, Australia, Chile, Egypt, the UAE, Oman and Namibia – will not want to lose out on clean hydrogen investment to the US and will therefore be carefully recalibrating how to lure investors, including equipment makers, with their own green [hydrogen programs].”

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