With the Right Policies, the U.S. Could Easily Dominate the Global Green Hydrogen Economy

As renewable energy begins to nudge their product out of the power generation sector, natural gas stakeholders are beginning to lean on the vast global market for hydrogen to sustain their growth. However, a new report from the International Energy Agency indicates that new technology could soon swamp gas-sourced hydrogen in a sea of low-cost, abundant green hydrogen.

Green hydrogen: The devil is in the policy details

Green hydrogen is a significant new development in the renewable energy field. Green hydrogen generally refers to electrolysis systems, in which hydrogen is jolted from water using electricity provided by renewable energy. In terms of mitigating climate change, that is a next-level improvement over the existing hydrogen supply chain that relies mainly on natural gas.

Renewable hydrogen is also being produced from waste, such as biogas, municipal solid waste and industrial waste. However, so far electrolysis has captured much of the investor attention in the sustainable hydrogen field.

That is all well and good, but other investors are also seeking opportunities that sustain the use of natural gas in hydrogen production. Their decarbonization solution is to make carbon capture systems a part of the process, and they are leaning on favorable government policies to offset the additional cost.

Here in the U.S., for example, federal policy supports the gas-to-hydrogen supply chain with the 45Q federal tax credit for carbon sequestration, along with funding for research and development.

That partly explains why President Joe Biden’s infrastructure bill has garnered bipartisan support, including allies of fossil energy stakeholders. The conservative-leaning Business Roundtable, for example, has stamped its seal of approval on the infrastructure bill, contingent on the inclusion of carbon capture measures that support the market for natural gas.

U.S. policymakers can move hydrogen markets

That emphasis on carbon capture is unfortunate because, as the new IEA report points out, U.S. policy can have a significant impact on the global hydrogen market.

“Owing to its large refining and chemical sectors, the United States is already one of the largest producers and consumers of hydrogen,” the IEA notes. “The United States accounts for 13 percent of global demand: two-thirds is used in refining with most of the rest going into ammonia production.”

“Around 80 percent of U.S. hydrogen production is based on natural gas reforming; practically all the remainder is met with by-product hydrogen in refineries and the petrochemical industry,” the IEA adds.

The report, titled Global Hydrogen Review 2021, is a planning document intended to inform governments on the actual state of the global hydrogen supply chain, in comparison with their climate action goals.

In that context, the report notes that the Q45 tax credit has significantly accelerated carbon capture activity in the U.S. According to the IEA, the U.S. currently accounts for 33 percent of global carbon capture activity, a figure that mainly includes carbon capture at ammonia plants. The agency also notes that a “small number” of carbon capture projects involving hydrogen sourced from natural gas are also in the U.S. pipeline, thanks in part to an assist from the Q45 tax credit.

The U.S. could be left holding the carbon capture bag

That relatively strong carbon capture position in the U.S., though, may leave fossil energy investors in the lurch as green hydrogen activity ramps up.

The IEA report emphasizes that the global green hydrogen market has to grow much faster, and cut costs much lower, in order to compete with hydrogen sourced from natural gas. However, the agency also predicts that green-friendly policies would make all the difference.

In that regard, the U.S. is already staking out a strong position in the green hydrogen field, even without the benefit of new federal legislation.

The IEA cites the Advanced Clean Energy Storage (ACES) project in Utah as an example. ACES is spearheaded by Mitsubishi Power Americas, deploying unique natural storage caverns owned by the company Magnum Development. It involves the conversion of an existing 840-megawatt coal power plant to 100 percent green hydrogen in stages, beginning with a blend of natural gas and green hydrogen.

In addition, the IEA also notes that the sprawling network of existing pipelines in the U.S. provides ample opportunities for transporting green hydrogen.

Some of those pipelines are already dedicated for hydrogen transportation, and that brings Texas to mind. The state has begun to explore the feasibility of harnessing its vast wind and solar resources to establish itself as a leading green hydrogen producer, and its 1,600 miles of dedicated hydrogen pipelines could provide an assist.

Conveying hydrogen in other pipelines poses technology challenges. Retrofitting is one option, and the IEA report names Dominion Energy and Kinder Morgan among the leading firms exploring that area.

A bipartisan push could boost green hydrogen over the top

One factor not addressed in the IEA report is the increased sophistication of corporate sustainability programs. Carbon capture does not address methane emissions and other supply-side impacts of fossil energy extraction, and corporate sustainability planners know it.

This week’s devastating oil spill in California is just the latest in a long string of fossil energy catastrophes to strike the U.S. and elsewhere. Together, these incidents are helping to convince corporate policymakers that they, and their supply chains, need to dissociate from fossil energy extraction as quickly as possible.

In that context, green hydrogen has a powerful edge over natural gas with carbon capture. Corporate pressure could help move the needle toward bipartisan support for green hydrogen, and the red state of Utah could be at the epicenter of that trend.

Mitsubishi’s green hydrogen project garnered the approval of Utah’s former Republican governor, Gary Herbert, when it was first announced in 2019. Since then, the idea of centering a western green hydrogen hub in Utah has caught on, with the potential to leverage a longstanding regional collaboration on energy supply with Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Washington and Wyoming.

In one especially interesting development, last summer a Republican congressman, Rep. John Curtis of Utah, helped Democratic Rep. Mark Takano of California re-launch the bipartisan Energy Storage Caucus.

When Takano first launched the Energy Storage Caucus in 2019, the focus was exclusively on battery-type technology. Now, with Curtis on board, the caucus is taking a much broader approach. Its pet project is a proposal to provide up-front tax credits to energy storage projects of all sorts, which apparently includes green hydrogen.

Perhaps not coincidentally, Curtis represents Congressional District 3 in Utah, which includes the city of Delta, home to the coal power plant that is the centerpiece of the ACES project.

Bipartisanship or not, it all comes down to two Democratic U.S. senators

In advance of the U.N.’s Glasgow Climate Change Conference in November, several new developments in the green hydrogen field may help allay the IEA’s concerns over the slow pace of green hydrogen development.

For example, work on the first utility-scale, wind-powered green hydrogen plant in the U.S. got under way in Texas last summer. That project alone is highly significant. As IEA points out, green hydrogen cannot live up to its decarbonization potential unless it grows beyond the chemistry and refining markets. The new plant in Texas is a big step in the right direction because it aims at the transportation market. As a project of the fuel cell company Plug Power, hydrogen from the facility will go to power a fleet of heavy-duty fuel cell trucks.

A growing number of leading fossil energy stakeholders are also applying their knowledge base, supply chains, and R&D resources to green hydrogen. Chevron, for example, is a notorious foot-dragger on climate action, but a branch of the company is on track to partner with Mitsubishi and Magnum Development on the ACES hydrogen project in Utah.

On the other hand, Chevron and other energy stakeholders have been lobbying vigorously against President Joe Biden’s ambitious, climate-centric legislative agenda through their membership in the Business Roundtable.

Somewhat ironically, two Democratic senators, Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.)  have allied themselves with the Business Roundtable position, along with all 50 Republicans in the Senate. The two Democratic holdouts have the ability to evaporate the slim majority of their caucus and water down, if not outright kill, the legislation their own president supports.

Corporate leaders who profess to care about climate action might want to stop supporting the Business Roundtable and start lobbying Sens. Manchin and Sinema to support their president and their 48 fellow senators in the Democratic caucus. Vice President Kamala Harris has the power to cast the tie-breaking vote, if only Manchin and Sinema choose to allow her to do so.

Image credits: Pixabay and IEA