A lengthy campaign to pass a significant climate bill through Congress was unsuccessful last year with the approval of the Inflation Reduction Act. Yet, there is still work to be done to make sure that this record amount of financing for clean energy results in lower emissions.
The Treasury Department must decide how to effectively construct a tax credit intended to stimulate the production of clean hydrogen, which will have significant ramifications for that purpose.
Without strict rules governing who is eligible for the subsidy, scientists and climate activists fear, the government might spend billions supporting hydrogen production facilities with significant carbon footprints, undoing many of the other climate advantages sparked by the legislation.
According to Rachel Fakhry, a senior climate and renewable energy advocate with the Natural Resources Defense Council, “we might raise emissions by half a gigaton throughout the lifetime of the credit” if there are no strict regulations in place. “1.5 gigatons of emissions are currently produced by the power sector. So, this is wholly incompatible with American climate ambitions. High stakes are involved.” Throughout the course of a public comment session that ended in December, these issues were raised numerous times.
However, the hydrogen sector, a few renewable energy organizations, and even a few oil giants like Chevron and BP that are investing in the technology contended otherwise. They inundated the Treasury with comments saying that onerous regulations will undercut American climate goals by thwarting the development of this emerging clean technology.
According to David Reuter, chief communications officer for the energy business NextEra, onerous regulations would “devastate the economics” of green hydrogen. The industry would stop receiving investments, “essentially making it dead on arrival.”
The Biden administration’s climate strategy includes establishing a domestic clean hydrogen economy as a crucial component. The fuel has the potential to replace oil, gas, and coal in a variety of industrial operations, including steelmaking and chemical production, as well as in the aviation industry. Most significantly, when employed, it does not release carbon.
The odd business of manufacturing hydrogen is at the heart of the tax credit controversy. Natural gas is reformated to create the current supplies, which produces greenhouse gases.
The tax credit is intended to lower the price of a carbon-free process that just needs water, energy, and a device known as an electrolyzer. In this method, producers can make up to $3 for every kilogram of hydrogen they create. The tax credit has no upper limit and might distribute over $100 billion over the following ten years.
How to calculate the emissions from the consumed electricity is a matter for the Treasury. In the United States, fossil fuels still account for about 60% of electricity. Today, if you connect your hydrogen plant to the grid almost anywhere in the nation, the emissions might be higher than with the traditional natural gas production method.
Regulating clean hydrogen
Late in the previous year, a well-known energy modeling group at Princeton University published fresh data demonstrating that hydrogen generators could virtually eliminate this impact on emissions by adhering to three rules. The Natural Resources Defense Council and other environmental organizations urge the Treasury to enact these strict regulations.
To ensure that enough fresh, clean electricity enters the grid to meet the need of the hydrogen plant, producers must first get into contracts with new renewable energy sources like wind and solar farms or geothermal power plants.
Second, there must be no transmission bottlenecks between these resources and the regional grid that the hydrogen plant uses.
Third, hourly synchronization between the operations of hydrogen producers and various renewable energy sources is required. That implies that they must stop operating when the sun sets if they purchase energy from, say, a solar farm.
The hydrogen producers are having the most trouble with that hourly matching idea. According to Reuter, grid-tied electrolyzers are most cost-effective when operating at close to 100%. “If renewable energy is not available within these precise time frames, a clean hydrogen project may need to reduce the amount of electrolyzer it uses. Long idle times and increased expenses are the results of curtailment.”
Instead, NextEra and others in the sector are pleading with the government to agree to a scenario in which they purchase enough renewable energy to meet their annual electricity needs. That implies that a hydrogen plant might operate continuously for a year, add up its energy consumption, and then purchase an equivalent amount of solar or wind energy.
Reuter quoted research from the consultancy firm Wood Mackenzie, which concluded that such a plan could add enough clean energy to the grid to offset the production of dirty energy and produce hydrogen with net zero emissions.
Wilson Ricks, the study’s principal investigator from Princeton, pointed out that Wood Mackenzie relied on a number of distinct premises to reach that result. One example is that the Inflation Reduction Act’s clean electricity subsidies were left out by the authors, “which results in significantly higher overall prices for both annual and hourly matching,” he claimed. The Treasury will be responsible for separating these discrepancies.
The risks of rejecting any one of the three principles extend beyond project costs and emissions. According to Fakhry, if hydrogen manufacturers drive increasing demand for electricity at a time when renewable resources aren’t accessible, natural gas and coal-fired power plants will surely ramp up. It might aggravate air pollution and raise electricity prices. Additionally, it puts the emerging industry’s reputation in jeopardy because it will be much harder to convince people to use green hydrogen if its actual level of cleanliness is unknown.
Self-described “green hydrogen producers” are currently moving to places like upstate New York, where hydropower is already affordable, and Florida, where solar energy is plentiful. Yet, such projects wouldn’t simply lose the opportunity to claim the credit; they would also lose credibility if the Treasury decided that hydrogen production had to always be fuelled by fresh, clean sources in order to qualify for the tax credit.
Business opposition to regulations
The strategy NextEra and others suggest has been criticized in the past, and it is not only about hydrogen. Many businesses who advertise that they are “powered by 100% renewable energy” probably engage in some sort of annual matching.
Yet, there is growing agreement that this claim is false. Google, a global leader in technology, realized in 2020 that in order to completely reduce its carbon footprint, it would need to match its energy consumption with renewable sources around-the-clock. There weren’t really any procedures or goods in place at the time to make this easier.
Yet, the environment has drastically changed since then, according to Maud Texier, Google’s director of clean energy and carbon development. Companies have emerged to assist enterprises in tracking their use on a detailed level, and the market for renewable energy has produced hourly products.
We anticipate a complete ecosystem and value chain growing around this 24/7 solution, she added. “There are far more tools available today for new entrants to use to get going.”
To reach its objective, Google still has a ways to go. Yet, a large number of other businesses, NGOs, and even governments have endorsed the idea. There are more than 100 signatories to an effort supported by the United Nations. By 2030, the Biden administration aimed to have at least 50% of the energy used by government structures be emission-free on a continuous basis.
According to Fakhry, the market is moving in that way. “The available tools can scale quickly in places where they are not. Anything less, according to the Treasury, would disrupt the market’s momentum.”
The claim that hourly matching would make green hydrogen uneconomical also doesn’t totally hold up under inspection. The strategy is technically and financially possible, according to comments submitted jointly to the Treasury by seven hydrogen and renewable energy companies.
One of them, Electric Hydrogen, is creating electrolyzers that can switch on and off in accordance with the availability of renewable energy sources. The CEO of the company, Raffi Garabedian, stated that because modern electrolyzers are so expensive, their sporadic operation does make it more difficult to balance a project’s finances. But, he claimed that some hydrogen producers are fusing contracts for solar and wind power, enabling them to run much more nearly round-the-clock.
You’re still turning off every day, but the economic benefits from it, he said. “But running hydrogen production around the clock is neither feasible nor morally right. I’ll put it out there very plainly.”
A hydrogen facility being built in Texas by the energy company AES and the chemical company Air Products was mentioned by Garabedian and others. The businesses intend to construct wind and solar farms to supply the plant directly, as opposed to connecting to the grid. The plant “will ramp up and down with the availability of renewable energy output,” an AES official stated.
Similar to the Mississippi project, another one being developed by the business Hy Stor will use both wind and solar energy to run its facility. As the plant’s activities slow down or stop, it will use underground caverns to store hydrogen so that it can continue to provide consumers.
It is true that strict regulations would greatly skew the distribution of clean hydrogen. Senior policy expert at the think tank Energy Innovation, Daniel Esposito, predicted that more investors will go to areas in the wind belt, such as Texas and New Mexico. He believed that this would be a good result since businesses in those regions, such as those that produce ammonia and use significant trucking routes, are excellent candidates to employ clean hydrogen. There are many excellent uses there, but there aren’t many excellent alternatives, he claimed.
Whatever decisions are made by Treasury Secretary Janet Yellen and her team will have a long-term influence on the nation’s clean hydrogen industry and, by extension, the Inflation Reduction Act. Esposito’s choice is based solely on one query.
“Are our goals to expand the sector at any cost to emissions? or establishing the sector gradually while keeping emissions under control from the beginning? Simply said, we want to make sure that everyone who writes the rules is aware of the consequences.”