Clean energy experts break down hydrogen hype and hope

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If you asked Michael Liebreich about the state of clean hydrogen policies in the U.S. and European Union, he wouldn’t say it’s a complete boondoggle — just ​“an almost complete boondoggle.”

That’s the stark diagnosis that emerged during an hour-long conversation Canary Media hosted this week with Liebreich and Jesse Jenkins, two experts on clean energy.

Liebreich, the chair of Liebreich Associates, founder of BloombergNEF and a noted hydrogen skeptic, believes that only about 10 percent of the tens of millions of tons per year of clean hydrogen production goals in the U.S., Europe and Asia can possibly be met by 2030. He also believes that this might well be ​“the right amount” of volume to suit near-term needs.

Clean hydrogen is desperately needed over the coming decades to decarbonize key industries from shipping to steelmaking. But it plays only a marginal role in the world’s near-term climate imperative, he said — deploying as much renewable electricity as possible to displace fossil fuels from the power grid, from buildings and from transportation.

Still, Liebreich and Jenkins — the head of Princeton’s Zero Lab and a key contributor to energy models that have demonstrated the risks of clean-hydrogen policies causing more climate harm than good — also agreed that governments must act now to set the stage for clean hydrogen to become a useful zero-carbon fuel and chemical feedstock over the long term.

“I shouldn’t say we don’t want to do this at all. I think it’s the right time to be doing it,” Jenkins said. ​“But we need to be continually refining the trajectory from here to make sure it has the biggest impact.”

Below are the highlights and key takeaways from our conversation — you can watch the event recording below. 

Ensuring that ​“clean” hydrogen is truly clean

The first step to making clean hydrogen work is to make sure its production doesn’t cause more greenhouse gas emissions than it prevents. ​“If we want to make it a clean fuel, we have to produce it in a clean way,” Jenkins said.

He co-authored a 2022 study that provided one of the earliest warnings of the potential emissions-increasing impact of the 45V tax credit — the Inflation Reduction Act program that offers up to $3 per kilogram for hydrogen produced with minimal associated greenhouse gas emissions.

That incentive is ​“meant to kick-start this green hydrogen industry,” he said — specifically, making hydrogen with electrolyzers powered by clean electricity cost-competitive with hydrogen made with fossil fuels.

But Jenkins’ work and a number of successive studies have shown that only the lowest-carbon electricity, delivered directly on an hour-by-hour basis and provided by newly built renewable resources that aren’t being diverted from supplying clean power for the grid at large, can deliver that outcome.

This work has informed the so-called ​“three-pillars” rules that have been adopted as EU policy and proposed as U.S. clean hydrogen policy, despite the objections of many hydrogen industry groups, fossil fuel companies and utilities.

“We’ve got to make sure that the three-pillars rules are implemented soundly so that only clean electricity is used to produce hydrogen,” Jenkins said — a call that’s echoed by other climate activists and hydrogen producers as the U.S. Treasury Department solicits comments to its proposed rules for the 45V tax credit in the coming months.

Getting clean hydrogen where it’s needed

Making clean hydrogen that’s truly clean isn’t the only challenge, however, Liebreich warned. There’s also the need to ensure that clean hydrogen is directed toward the industries that need it to decarbonize — and not toward those for which it could be a costly distraction.

Liebreich pointed to his oft-cited ​“hydrogen ladder” chart to distinguish one category from the other. At the top are refineries, ammonia and fertilizer factories, methanol and other chemicals producers, and other industries that currently use roughly 100 million metric tons of fossil-fuel-based hydrogen each year, accounting for ​“about 2.5 percent of global emissions,” he said. ​“That’s real, and it’s a real challenge.”

He also highlighted clean hydrogen’s potential to displace the metallurgical coal used in primary steel production, which accounts for roughly 8 percent of global carbon emissions. Unlike the grid, buildings and ground transportation, steelmaking lacks a clear path to electrification as a near-term option — hence the potential role for hydrogen.

“I think what we’ve got to do is focus on that 100 million tonnes and a few other use cases where hydrogen is so valuable, it does something that’s so difficult to do using direct electrification,” he said.

But existing policies in the U.S. focus not on the end uses of clean hydrogen, but rather on making the fuel cheaper. This is a problem because these policies don’t account for all the other costs associated with using hydrogen, he said.

“You’ve got to move it to somewhere useful. You’ve probably got to store it, buffer it, compress it,” he said. ​“All of these things are expensive, and they’re expensive in a way which doesn’t yield the sorts of cost reductions that we’ve seen in solar and, to a certain extent, in wind and batteries.”

Another challenge is that the industries best suited to use clean hydrogen to decarbonize will require the biggest investments to be able to use it, Jenkins said. He cited steelmaking, which ​“is the top of the list in terms of emissions[-reduction] potential, but it’s one of the most expensive to convert.”

“That’s not going to work unless we bridge that gap with demand-side policy or incentives for steel producers to make the capital expenditures and switch over the design of their plants,” he added.

Without those demand-side policies in place, clean-hydrogen production subsidies run the risk of creating perverse outcomes, Liebreich said. Jenkins agreed, noting that the key goal of the 45V tax credit, which is available for 10 years from the start of production to any project that commences construction before the end of 2032, is to ​“get a lot of experience building and operating these projects, and that will drive down the cost for electrolyzers and hydrogen production.”

But if the costs do plummet, the full $3-per-kilogram tax credit for clean hydrogen will end up being less of a necessity for making clean hydrogen cost-competitive and more of an incentive to make as much of it as possible, whether or not there are cost- and climate-effective ways to use it, he said.

“I spent a lot of time talking to Senate Finance Committee staff about this before the IRA passed,” he said. ​“You should not use the same set dollar value to get that industry started as you’re going to pay them a decade from now when they’ve scaled up because the cost is going to fall.” That advice did not make it into law, he said — ​“and so I do worry that by the end of that period, it will make sense simply to produce hydrogen and flare it or make a subsidy farm.”

Why hydrogen hubs are central — and where current plans are lacking

So if clean hydrogen shouldn’t be widely distributed and used for broad decarbonization, how should it be used? The answer, Liebreich said, is to concentrate clean hydrogen production and the industries that need it to decarbonize in close proximity — a concept known as ​“hydrogen hubs.”

Liebreich pointed again to his ​“hydrogen ladder” chart: ​“You look at fertilizer, you look at the petrochemicals industry, hydrocracking, and you look at the next row down…[at] long-duration [energy] storage or aviation fuels or shipping fuels,” he said. ​“They’re all things that happen in industrial clusters.”

That concept has informed the core U.S. demand-side clean hydrogen policy — the $8 billion in grants for clean hydrogen hubs created by 2021’s Bipartisan Infrastructure Law. But the way that program has played out so far gives Liebreich and Jenkins little confidence that it will succeed.

The goal is laudable, Jenkins said — to ​“try to connect all the dots” of clean hydrogen production, transport, storage and use. ​“If you can build up economies of scale in one place, that could really help kick-start a hydrogen economy in that location.”

But the U.S. Department of Energy’s October decision to designate seven different consortiums across the U.S. as eligible for receiving a share of a collective $7 billion of grant funding to develop hydrogen hubs runs the risk of diluting that potential, he said.

“It’s basically created an expectation in every region in the country that they should be producing hydrogen in the near term,” he said. ​“There are parts of this country that are better to produce hydrogen in than others right now. And if you’re going to try to use that limited pool of money to kind of kick-start these use cases, I wish that they would have been a bit more targeted.”

Another problem with DOE’s decision, he said, was that it proposes funding ​“blue hydrogen” — hydrogen made from fossil gas combined with carbon capture — at up to five of the seven hubs it selected. Many energy and environmental analysts believe that blue-hydrogen projects won’t be able to capture a high enough proportion of the greenhouse gases they emit to produce genuinely low-carbon hydrogen.

Jenkins suggested that the DOE could still refocus its hydrogen hub funding on regions that combine ​“really good-quality, low-carbon resources” — that is, ample access to low-cost wind and solar power — with industries that can use clean hydrogen to the greatest effect. Other sources of funding, such as $6 billion in industrial decarbonization grants from the Bipartisan Infrastructure Law that DOE is expected to award in the coming weeks, could also be directed toward steelmakers, fertilizer producers and other facilities to start using the hydrogen coming from hubs.

“We probably should have at least one large-scale DRI — direct reduction of iron — with hydrogen project, which is a pathway to decarbonize steel in the U.S.,” he said. It helps that major steel buyers have said they’ll pay extra for low- to zero-carbon steel, Jenkins pointed out. Similar investments could help overcome cost barriers to converting fertilizer production — one of the biggest global users of dirty hydrogen to make ammonia — to using clean hydrogen or ammonia, he said.

“If we were doing those things, I’d be pretty happy with the direction we’re going,” he said.

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