What Regional Clean Hydrogen Hubs Reveal About U.S. Climate Action

Hydrogen is a key input for fertilizer, food processing, pharmaceuticals, toiletries and many heavy industries. It can also generate zero emission electricity in a fuel cell and be deployed as a combustible fuel without producing carbon emissions.

In terms of climate action, though, hydrogen has a problem. The primary source of hydrogen is natural gas, with coal also playing a role in some countries. That is changing as low-cost renewable energy and other new technologies create pathways for more sustainable sourcing. Wind and solar power, for example, can push hydrogen gas from water in electrolysis systems. Hydrogen can also be extracted from biogas, wastewater, agricultural waste and other sustainable resources.

But natural gas has a cost advantage. Pushing down the expense of alternative sources to compete with natural gas is what the Regional Clean Hydrogen Hubs program aims to address. Administered by the United States Department of Energy and funded through the 2021 Bipartisan Infrastructure Law, the program has provided a total of $7 billion to help developers and local stakeholders establish seven regional hubs that take advantage of nearby resources for hydrogen production, transportation, storage and use.

It's crunch time for natural gas

Although renewable and sustainable resources are the main focus of the Hydrogen Hubs program, the Bipartisan Infrastructure Law specifically earmarked part of the funding for natural gas project. That gesture is attributed to the support of outgoing Democratic U.S. Senator Joe Manchin, whose home state of West Virginia is a leading gas producer.

As a result of the gas carveout, the Department of Energy selected the Appalachian Regional Clean Hydrogen Hub for inclusion in the program. A joint effort among West Virginia, Ohio, and western Pennsylvania, it is the only hydrogen hub to focus exclusively on natural gas.

There is a catch, though. As proposed by the U.S. Department of the Treasury, the federal tax credits attached to the Hydrogen Hub program apply only to clean hydrogen, meaning it is created with alternative sources or natural gas and carbon capture. The carbon capture element all but eliminates the cost advantage of gas-sourced hydrogen, an issue that has already begun to undermine the Appalachian hub.

Three projects attached to the hub were canceled as companies withdraw at least in part due to concerns over the cost of carbon capture in November, Mountain State Spotlight reports. 

“As of November, one-third of the original 15 projects making up the regional hydrogen hub has been removed,” reporter Sarah Elbeshbishi wrote for the news outlet.

Next steps for the Appalachian Regional Clean Hydrogen Hub

The Appalachian hub is “unraveling due to high costs, uncertain demand, undercapitalized and inexperienced project developers, and uneconomic applications,” Sean O’Leary, a researcher at the Ohio River Valley Institute, wrote in a report on the hub in October. 

Part of the problem is that hydrogen from the project will be marketed for electricity generation and home heating, O'Leary said. Neither of these areas lead to a competitive scenario in the context of low-cost renewable energy alongside inexpensive natural gas.

It remains to be seen if the hub recovers after a new Secretary of the Treasury takes office next year. That depends partly on whether or not the carbon capture stipulation remains in place. While many gas industry stakeholders protested the carbon-reducing restrictions on the federal tax credit, others came out in support.

In March of this year, for example, a group of leading firms in the water-to-hydrogen electrolysis field advised the Department of the Treasury that they collectively plan to produce more than 6 million metric tons of “truly clean” hydrogen each year. At that pace, they argue, economies of scale kick in, reducing costs and incentivizing further investment. 

The examples of California and Texas

As a contrast to the troubled Appalachian hub, California is moving full speed ahead with its Alliance for Renewable Clean Hydrogen Energy Systems hub, which focuses exclusively on renewable energy and other non-fossil resources. In addition, instead of relying on uncertain markets in electricity generation and home heating, the California hub aims to produce hydrogen for fuel cell electric vehicles, as part of a broader decarbonization project focusing on the important West Coast transportation sector.

Stakeholders in the project have already leveraged their $1.2 billion Department of Energy grant to gather an additional $11.2 billion in other public and private funds.

Texas provides another good example. Though firmly in step with the fossil energy industry, Texas has also attracted a considerable amount of attention from green hydrogen investors, partly due to its abundance of wind and solar energy. Analysts have pointed out that the state’s sprawling fossil energy infrastructure — including seaports, pipelines and storage facilities — can be repurposed to support a new clean hydrogen industry.

With that in mind, the new HyVelocity Hydrogen Hub officially launched in Texas in November with $1.2 billion in federal funding. Like the California hub, the Texas hub is focusing on known hydrogen markets including fuel for fuel cell vehicles and cargo vessels, as well as refining and other industrial processes.

The Texas hub is diverse. Natural gas and carbon capture are part of the plan, as indicated by the inclusion of ExxonMobil among the leading developers. But the project is also supported by global clean hydrogen stakeholders, including Mitsubishi Heavy Industries, AES Corporation and Air Liquide, among others.

As the Texas hub begins to take shape, keep an eye on those seaports. U.S. energy policy may change next year, but if hydrogen exporters in Texas expect to gain an edge in the global marketplace, there will be less room for natural gas, and more room for alternative, sustainable supply chains.