Biden Administration’s $7bn hydrogen hubs bring climate risk
The U.S. grants for several blue “hydrogen hub” concepts risk promoting a dirty and expensive technology, critics say. But upcoming hydrogen subsidy rules could still build a cleaner green hydrogen industry.
The Biden administration announced $7 billion in funding for seven “hydrogen hubs” to be built around the country in an effort to build up an industry that has the potential to cut greenhouse gas emissions from a variety of difficult-to-decarbonize sectors. But several of the hubs are based on blue hydrogen concepts derived from fossil gas, which critics say could undermine the very climate objectives the programme is aiming to achieve.
Borne out of a key 2021 infrastructure law that provided the federal funding for hydrogen hubs, the U.S. Department of Energy (DOE) reviewed applications from around the country, all vying for the pot of money, to establish “hydrogen hubs” to help scale up the technology.
Out of the 79 original proposals, the DOE announced the seven winners on October 13. The seven regional hubs will be located in Appalachia, the mid-Atlantic, the Gulf Coast, California, the Midwest, the Pacific Northwest, and the Great Plains.
“I made it a goal for our country to get to net-zero emissions no later than 2050,” President Biden said during an announcement in Philadelphia on October 13. “Clean hydrogen is going to help us meet this goal.”
The grants will need to be matched by the private sector, and the Biden administration estimates that the funding will spark another $40 billion of private investment into the hydrogen hubs. The result, the administration says, will be a collective reduction in carbon dioxide emissions by 25 million metric tons by 2030, the rough equivalent of removing 5.5 million gasoline-powered cars from the road.
The hope is that green hydrogen can do the heavy lifting. Green hydrogen, or hydrogen produced from renewable energy, has a lot of promise to clean up heavy industry, such as steel, and other challenging sectors, such as the production of fertilizers.
The potential for the use of blue hydrogen — hydrogen produced from fossil gas, with the CO2 capture and stored — is much more problematic. It faces a long list of technical and economic challenges, and it hasn’t proven to be a viable technology to date, despite lots of hype from the oil and gas industry.
The climate benefits are also dubious. Carbon capture and sequestration (CCS) — the technology that underpins the claims that blue hydrogen can be made clean — has a very poor track record, with extremely high costs and disappointing results in actually capturing and storing carbon dioxide.
Moreover, scaling up blue hydrogen would necessarily mean a deepening of the gas system, which would lead to more methane leaks throughout the gas supply chain. As a highly potent greenhouse gas, even small leaks of methane would quickly undermine the purported climate benefits of using blue hydrogen.
A peer-reviewed study found that not only is blue hydrogen far from clean, it may actually produce more greenhouse gas emissions than simply burning fossil gas in the first place. And even when compared to grey hydrogen (hydrogen without carbon capture), it’s not clear that it offers much of a climate benefit. The same study found that blue hydrogen’s CO2 emissions were slightly lower than its grey counterpart, but methane emissions were higher because of the need to use more fossil gas to power the carbon capture technology.
In short, few experts outside of the oil and gas industry see blue hydrogen as a big climate solution. Indeed, many see it as a trap that will perpetuate dependence on the gas system at a time when it needs to be phased out to hit climate targets.
The 2021 infrastructure law required the DOE to select at least one blue hydrogen concept. West Virginia Democratic Senator Joe Manchin, a key author of the law, is a big backer of the gas industry and has championed blue hydrogen, and his influence is visible in the federal support for blue hydrogen.
But the DOE did more than was required by law to favour the gas-friendly options. While it only needed to choose one, in the end four of the seven winning bids are based on blue hydrogen.
“Concerningly, today’s H2Hubs announcement advances multiple projects premised on fossil fuel-based hydrogen production and risky hydrogen end uses. Billions of taxpayer dollars are at risk of perpetuating fossil fuel industry injustices and harms while subsidizing fossil fuel greenwashing,” Julie McNamara, the deputy policy director of the Climate and Energy Program at the Union of Concerned Scientists (UCS), said in a statement. “This is an untenable point of focus for funds intended to spur the buildout of our clean energy future.”
Appalachia’s blue hydrogen hub
One of the most controversial hydrogen hubs is the ARCH2 hub in Appalachia, spread across West Viriginia, Pennsylvania, and Ohio. It will be constructed in the nation’s largest gas-producing region, situated within the prolific Marcellus Shale formation.
“We’re thrilled the DOE chose the ARCH2 team to advance this vital path toward a clean energy future,” said Lou Von Thaer, president and CEO of engineering firm Battelle, which will lead the ARCH2 hub. “We intend to lead this public-private partnership with vigor and excellence meeting government and industry objectives, addressing technical, commercial, and social justice goals, including proving hydrogen’s economic viability, in a highly transparent manner.”
The ARCH2 consortium includes the French carbon capture and hydrogen company Air Liquide, chemical company Chemours, oil and gas pipeline company TC Energy, and the Pennsylvania-based fracking giant EQT. The ARCH2 consortium cited the hub’s proximity to gas drilling as one of its advantages.
But the Appalachian think tank the Ohio River Valley Institute (ORVI) has criticized the hub as a dead end, and has argued that it will put the region “on a path of economic stagnation and continued methane emissions.”
Even with the $925 million award from DOE, it’s not clear that the blue hydrogen hub will get off the ground, says Sean O’Leary, senior researcher at ORVI. He said building up the hub across three states will require tens or even hundreds of billions of dollars of investment.
“To do this on anything like the scale anticipated, it will require many, many times the amount of money that is being provided by DOE in the form of grants,” O’Leary told Gas Outlook. “And it’s not clear that that money is going to come through, because we’re talking about private investment.”
The price tag could indeed be enormous. A 2022 report from the Roosevelt Project, a research initiative sponsored by the Massachusetts Institute of Technology and Harvard University, estimated that it would require $10 billion merely to build out the CO2 pipeline network and underground storage facilities necessary to move and store CO2. And that was only for southwest Pennsylvania. That figure does not include the infrastructure needed in Ohio or West Virginia, nor does it include all the hydrogen-related pipeline infrastructure and production facilities.
The DOE grant “barely scratches the surface” of what would be needed, O’Leary said.
In fact, West Viriginia Senator Joe Manchin has previously admitted that CCS — the technology that would make blue hydrogen possible — is costly.
“I’d love to have carbon capture, but we don’t have the technology because we really haven’t gotten to that point,” Manchin said in 2021. “And it’s so darn expensive that it makes it almost impossible.”
While the production of blue hydrogen is costly, perhaps prohibitively so, the other side of the equation is demand. Hydrogen experts have noted that the use of hydrogen should be narrowly tailored to only certain applications. The best and most likely use for clean hydrogen is to replace existing uses of grey hydrogen, such as in fertilizers and refining. It may also be used in steel production, and has potential for shipping and aviation.
Where it has very little potential to be used, because the costs are huge and the energy efficiency losses too great, are in road transportation, power generation, and home heating. But these are the sectors that many of the hydrogen hubs selected by the Biden administration are targeting.
Home heating is perhaps the most outlandish. More than 40 peer-reviewed studies have found that hydrogen has no future in heating homes, and none have backed up the gas industry’s claim that homes will switch from gas to hydrogen. The UK’s National Infrastructure Commission recently said the country should rule out using hydrogen for home-heating, stating that it had “no public policy case” in the sector, and instead the country should rapidly switch residential buildings over to electric heat pumps.
O’Leary said demand for huge volumes of hydrogen does not exist in Appalachia. Much of the region’s pollution comes from power generation, which hydrogen is ill-suited to serve.
“The problem is, if you confine hydrogen to the applications where it might actually have some merit, those applications and the locations are few and far enough between that it’s really hard to find the foundation to build massive pipeline networks to connect like maybe half a dozen facilities across a four-state area,” O’Leary said.
He saw two possible outcomes for the Appalachian hydrogen hub.
“Either the private sector won’t come through, in which case, we expect that the ARCH2 will be a relatively small affair that doesn’t have much economic or environmental impact,” he said, adding that this scenario would be preferable.
“Or, the alternative is, the political will and subsidies will make it happen, and cause hydrogen and CCS to be force fed into applications where it’s not economic,” he said. “And that will result in higher prices, higher bills, higher taxes, but also still with no or little economic benefit.”
O’Leary added that this would be the latest industry-led narrative proposed for Appalachia that has been embraced by the U.S. government and regional policymakers. From the 2000s through the 2010s, several hundred billion dollars were poured into fracking, with thousands of wells drilled, producing a gusher of gas.
But even record-breaking levels of gas production did not result in economic development, as ORVI has previously documented. Subsequently, the gas industry pitched a second vision, one that began in the early 2010s and lasted up until only recently, promising that a major petrochemical buildout would bring economic salvation. That too has disappointed. Aside from Shell’s ethane cracker in western Pennsylvania, most of the proposed projects flopped. Crucially, the promised economic development — job creation, GDP growth, and tax revenue — has not panned out.
Blue hydrogen is the latest iteration of the same story of economic riches that will prove to be illusory, O’Leary said. “We’ve seen this play run before.”
Hydrogen tax credits
The grants for the hydrogen hubs are only part of the overall federal support for the hydrogen industry.
The 2022 Inflation Reduction Act included a production tax credit, known as 45V, that will subsidize the production of hydrogen at $3 per kilogram for clean hydrogen, likely making it competitive with grey hydrogen. The subsidy will be based on carbon intensity of the hydrogen produced, but many of the specifics on how that metric is calculated and what actually will qualify has not yet been released by the U.S. Treasury Department.
Experts and climate advocates are watching closely because the specifics are important. At issue is whether or not the subsidies given to “clean” hydrogen result in an increase in demand on the electricity grid, which would lead to more gas-fired power generation and gas power plants being built, for example. That would undermine the whole benefit of green hydrogen.
“Ultimately, where and how the federal government defines the hydrogen tax credit’s evaluation boundaries will make the difference between spending $100 billion to drive climate progress—and spending $100 billion to undermine it,” McNamara of UCS wrote earlier this year.
The Treasury Department is working on the rules, and they are expected to be released later this year.
On October 16, a group of Democratic Senators sent a letter to the Treasury Department, calling on the agency to set stringent 45V rules to ensure that hydrogen subsidies only support clean hydrogen.
“Fundamentally, the 45V tax credit must not be applied to any projects that directly or indirectly increase power sector GHG emissions,” the letter stated. “Without safeguards, 45V risks creating a shell game in power markets, where existing clean generation gets nominally claimed by hydrogen electrolyzers but the resulting gap in grid capacity is backfilled by fossil fuel generation.”
The Senators, echoing many hydrogen experts, have said that green hydrogen projects must be built around three principles: additionality, deliverability, and time-matching. Additionality means that green hydrogen projects must come equipped with their own additional renewable energy to power the operations. Second, the new solar or wind projects must be physically connected, not used in a credit scheme from a renewable project far away. Third, because solar and wind are variable, hydrogen production must occur at the same time as the electricity is generated, avoiding the use of grid electricity when renewables are not available, which might incentivize fossil fuels.
A different group of Senators wrote a separate letter asking the U.S. government to apply weaker rules, warning that “overly complex eligibility criteria” would slow the growth of the hydrogen industry.
But if done right, the impact of the new 45V subsidies could be significant, helping to scale up a green hydrogen industry, experts say.
“With strong 45V rules, we’d likely see truly zero-carbon electrolysis projects—within and outside the hydrogen hubs—achieve rapid growth and sustainable long-term success,” Dan Esposito, a senior policy analyst at the San Francisco think tank Energy Innovation, told Gas Outlook. He said that could “limit blue hydrogen’s traction,” even after taking into account the DOE awards to blue hydrogen hubs.
But if the 45V rules are too loose — allowing companies to produce hydrogen with grid electricity, for example, which would likely result in an uptick in fossil-based power generation — then “the problem gets much worse,” Esposito said.
“We’d still see electrolysis projects pop up everywhere, but they’d have the potential to be far more polluting than blue, and even gray, hydrogen production by causing an increase in fossil fuel power generation.”
He added: “It could risk the success of the entire clean hydrogen endeavor by spending billions on an industry that may worsen climate change and find itself incapable of ever surviving without the continued flow of public subsidies.”