The United States is making significant strides in its pursuit of a low-carbon hydrogen economy, with a recent report by consultancy Wood Mackenzie highlighting the importance of private investment in achieving the ambitious goals set by the Biden administration.
The report emphasizes the significance of the $7 billion allocated by the U.S. Department of Energy (DoE) to regional hydrogen hubs, which was announced recently as part of the government’s efforts to boost the hydrogen industry. The DoE’s plan involves seven proposed “hydrogen hubs” across 16 states, with Texas and California receiving the lion’s share of $1.2 billion each. These hubs aim to foster the development of low-carbon hydrogen production facilities.
However, Wood Mackenzie’s analysis underscores that the $7 billion in federal grants represents only a fraction of the total investment required to drive the low-carbon hydrogen industry’s growth. The consultancy anticipates that this initial funding will catalyze approximately $40 billion in private investment, bringing real momentum to the industry.
One significant challenge facing the sector is the absence of guidance from the Treasury regarding carbon intensity accounting for electrolytic hydrogen under the Inflation Reduction Act (IRA). This guidance is crucial for regional project developers and will help ensure that the environmental impact of these projects is accurately assessed.
The Biden administration’s target is to elevate clean hydrogen production to 10 million tonnes by 2030, with a long-term vision of reaching 50 million tonnes by 2050—a fivefold increase from current levels. However, Wood Mackenzie’s analysis suggests that the U.S. might only achieve around 4 million tonnes per year of hydrogen supply by 2030. This discrepancy is due to uncertainties surrounding low-carbon hydrogen project announcements across the country.
The report further highlights that the DoE’s goal of reducing the cost of hydrogen power to $1 per kilogram by 2031 may be unattainable for green hydrogen. Several factors contribute to this challenge, including the high cost of renewable power, a slower decline in capital expenditures for electrolytic hydrogen production, and lower assumptions for electrolyzer load factors.
Notably, many of the selected hydrogen hubs rely on natural gas to power hydrogen production. To qualify for tax credits under the IRA, these facilities will need to implement carbon capture technology, aligning with the broader goal of reducing emissions and fostering sustainability in the energy sector.
As the U.S. takes significant steps toward a low-carbon hydrogen economy, the role of private investment becomes increasingly pivotal in realizing the nation’s hydrogen production ambitions.