The U.S. Energy Dept. released its final strategy and roadmap in mid june to reach production of 50 million tons of clean hydrogen by 2050—an effort modified from last year’s draft plan by comments from industry respondents and other stakeholders—that is intended to accelerate production, processing, delivery, storage and use of the product. 

But to launch a robust hydrogen market, the U.S. Treasury Dept. has yet to decide exactly how companies qualify for uncapped project tax incentives outlined in last year’s Inflation Reduction Act that could reach more than $100 billion but will take into account methane emissions in producing blue hydrogen from natural gas. 

“President Biden understands that growing America’s clean hydrogen capability can spur good-paying union jobs, support local economic development, and help decarbonize industries long seen as hard to decarbonize,” said Ali Zaidi, a presidential assistant who serves as national climate advisor. He said the final plan will align the private and public sectors on a shared hydrogen development path and will be updated every three years.

Clean hydrogen is set to play a vital role in reducing emissions from some of the most energy-intensive sectors of the U.S. economy, including industrial and chemical processes and heavy-duty transportation, DOE said. Its use also can support expansion of variable renewable power by providing long-duration storage but with enough flexibility for application in advanced nuclear and other clean energy technologies, the agency said.

Under the new law, producers of clean hydrogen must limit emissions to 4 kilograms of carbon dioxide equivalent for every kilogram of hydrogen to qualify for credits—less than half of the 9 kg of CO2 equivalent that production today generates typiclly. Treasury must develop guidance for how prospective hydrogen developers must track and report emissions in seeking tax credits. 

Guidance is expected, possibly by August, that will determine how greenhouse gas emissions from projects should be counted toward eligibility. The credit is calculated by multiplying the amount of qualified clean hydrogen produced based on a project’s greenhouse gas emissions rate. Incentives range from 12 cents per kilogram to $3 per kg.  

S&P Global said it was told by Treasury that the guidance "is still months away."

Diverging Opinions on Credit Calculation

There is debate over how to count emissions, however. “Weak guidance could result in subsidizing hydrogen projects that have more than twice the emissions of today’s status quo hydrogen,” the Natural Resources Defense Fund said. That would tarnish the reputation of the new industry “that we need to decarbonize critical sectors like steelmaking,” the advocacy group said. “Considering the high risks, it is extremely important for Treasury,” along with the White House, DOE and U.S. Environmental Protection Agency “to get it right,” NRDC added. 

Environmentalists support “a strong approach to the emissions count that includes hourly matching of renewable power generation to the electricity consumed for hydrogen production on an annual basis. 

While a group of utilities, and other companies that include Black & Veatch and Kiewit Corp., noted in a letter to Treasury “wholehearted support” of Administration efforts to develop a domestic clean hydrogen industry, they support pegging the emissions count to an “annual” match for hydrogen producers to qualify for the section tax credit. They said that approach “can be both clean and cost effective,” noting that the hourly match “would increase the price of clean hydrogen to effectively negate the economic and decarbonization benefits of the hydrogen production tax credit.” 

UPDATE: In a revised position issued on June 16, major sector trade group American Clean Power Association, proposed a middle road approach—reversing an earlier stance on allowing green hydrogen to be produced from grid power sources, which could include fossil fuel, but also veering from environmental groups in calling for a ten-year reprieve, as late as 2039, from hourly emissions matching rules for many projects.

The plan strikes “a balance that inspires a new clean domestic industry while ensuring near- and long-term climate benefits,” group CEO Jason Grumet said.

$1/KG Green Hydrogen Production by 2031?

The DOE strategy identifies three key goals for hydrogen as an effective decarbonization tool—reducing its production cost to $1 per kg by 2031; targeting applications with the highest benefits; and focusing on regional hubs to be developed with $8 billion in funding from the federal infrastructure law that can align production and end use. 

Refineries, transit buses and long-haul truck operators, ammonia producers, and operators of forklifts and heavy machinery could switch to hydrogen in what DOE sees as the first wave of users. Power plants, medium-duty trucks, steel producers and airlines could join the transition in the second wave, followed by cement makers, container ships and methanol producers in the third, the agency said.

Clean hydrogen used instead of coke or natural gas to produce primary steel could cut emissions by 40% to 70%, said DOE, which is funding two pilot projects related to steel manufacturing. 

Process heating is the largest driver of energy consumption in U.S. manufacturing and relies primarily on fossil fuel combustion. But options to decarbonize the sector include using blends of hydrogen in natural gas or burning pure hydrogen, DOE said. Another fossil fuel industry priority—hydrogen co-firing, or mixing the fuel into natural gas at power plants—also received more pronounced support in DOE’s final strategyLast month, EPA proposed emission standards that will allow clean hydrogen to be blended with natural gas to comply. 

But some environmental groups, such as the Sierra Club, oppose co-firing, claiming it could raise nitrogen oxide emissions and prompt more natural gas-fired power delivery.

Use of hydrogen in this sector will require advancement of low-NOx hydrogen combustion technologies, as well as better understanding of the fuel’s impact on infrastructure and turbine materials. 

Energy services firm Baker Hughes is exploring what Chief Strategy Officer Allyson Anderson Book told attendees June 7 at the Reuters Global Energy Transition conference was "first of its kind" turbine development. "We are taking core technology and leveraging it for new needs," she said at the Manhattan event.

David Burns, vice president of the clean hydrogen unit of leading global industrial gas manufacturer Linde, also noted at the conference that while it is developing green hydrogen production plants in upstate New York, Germany and Singapore, “it will be a challenge to get to the $1 per kilogram cost.”

Moving Forward

Future research and development in the area will be done across federal agencies and with states to develop injection standards for blending hydrogen into natural gas pipelines for use in high heat and power applications, DOE said. 

The federal government will help reduce clean hydrogen production costs by promoting U.S. manufacturing and supporting robust, secure and resilient supply chains, and increasing exports.  Grant and other financing will be used to promote private sector partnerships, DOE said.

The agency’s Hydrogen Shot request for information last year received more than 200 responses describing diverse resources, end-uses and potential in different parts of the country. “Respondents identified very specific end-use opportunities for clean hydrogen in some regions, such as for port communities or offshore wind generation,” DOE said. In other regions, there was a strong interest to leverage abundant energy resources or infrastructure such as energy storage or geological caverns. 

“The momentum for low-carbon hydrogen has never been stronger among both governments and companies,” say experts at Houston-based law firm Vinson & Elkins in a June 6 report.

“The roadmap is a great step forward, but it’s more than just a hydrogen buildout, it will require building out an additional 200 GW of renewables or 50-70 GW of nuclear per year just to support hydrogen production," says Megan Reusser, hydrogen technology manager at Burns & McDonnell. "That doesn’t even take into account the amount of renewables and nuclear we’ll need to build to support baseload and forecasted capacity as more and more coal plants are retired and there’s still a large gap in power availability in many regions."