Clean hydrogen industry gets a big boost from the Inflation Reduction Act

A hidden tax credit Inflation Reduction Act could boost the nascent clean hydrogen industry and turn it into a multi-billion dollar business in the coming decades.

The tax credit will spur hydrogen producers to develop cleaner ways to synthesize hydrogen, which is used to make fertilizers and in other industrial processes. But it could also spur a whole new set of companies looking to use clean hydrogen as an alternative to fossil fuels in sectors such as shipping, aviation, heavy industry, and as a way to energy storage and transport.

The current, 98 percent hydrogen produced using fossil fuels, according to Center for Global Energy Policy at Columbia University. But “all current hydrogen producers are looking for ways to produce clean hydrogen”, explains Elina Teplinskyan attorney who acts as a spokesperson for Nuclear Hydrogen Initiativea group working to promote the development of the nuclear hydrogen industry.

This law will make it more economically feasible to use carbon capture and storage technology to reduce carbon emissions from hydrogen generation. It will also open the door to a whole range of companies looking for cleaner ways to generate hydrogen and use hydrogen as an alternative to fossil fuels in certain areas.

By 2050, between 60 and 80 percent of hydrogen production will be provided by renewable energy, according to one November report on the industry published by the Hydrogen Council, an industry group, in collaboration with McKinsey & Co. (This prediction was published before the tax credit was passed.)

This kind of industry transformation will require a lot of investment – ​​from $7 trillion to $8 trillion by 2050. But on the positive side, by that time the hydrogen economy could generate around 3 trillion in annual revenue, according to the Hydro Council and McKinsey Report.

Hydrogen has the highest energy per mass of any fuel and does not release any carbon emissions when it is burned or converted into electricity in a fuel cell. Entrepreneurs and advocates believe that hydrogen could be useful for decarbonizing in some very large sectors of the economy such as long-distance transportation and industrial processes including iron and steel production, freight transport and the like. marine and aviation cargo.

“If it weren’t for climate change, we probably wouldn’t have expanded to all of these new use cases” for hydrogen, Emily KentUS director for zero-carbon fuels at Clean Air Task Force, a global climate non-profit organizationtold CNBC.

According to a report by the Hydrogen/McKinsey Council, the biggest end use for hydrogen by 2050 is mobility, including heavy trucking, long-range flights, and container ships. In these cases, hydrogen will produce electricity through a fuel cellsin which hydrogen atoms and oxygen atoms are combined in an electrochemical reaction to produce electricity, heat, and water.

Current battery-powered vehicles cannot meet this demand because batteries that can store enough energy for long-distance trips would be too heavy and take too long to recharge, Kent explained. A hydrogen tank and fuel cell will be lighter, take up less space, and have the same refueling time as gas or diesel.

“There could be big breakthroughs and batteries or something else that could change everything,” Kent told CNBC. But as of today, there’s no such thing as a great solution.

Hydrogen can also be burned to produce electricity in turbines, similar to natural gas. Currently, it is possible to mix up to 20% hydrogen with natural gas in conventional natural gas turbines without making any infrastructure changes, according to Kent.

“For a higher mix of hydrogen or pure hydrogen, we will probably need to make adjustments to the turbines and the infrastructure,” Kent told CNBC. “There are companies that are working on 100% hydrogen-ready infrastructure where pure hydrogen can be burned in turbines to produce electricity.”

Hydrogen could be a way to store energy, which will become important as renewables like wind and solar are ramped up and deployed across the country. Wind and solar power don’t work when the wind isn’t blowing or the sun isn’t shining, and so the energy must be somehow stored so that it can provide continuous and reliable power. Meanwhile, battery technology is being developed vigorously, but batteries are not yet at the point where they can store enough energy long enough to back up a fully renewable electricity grid.

“If you produce a ton of solar energy in the summer and you want to store a large amount for the winter, hydrogen can be stored for such a multi-month seasonal period and power back up. system as needed,” says Kent.

Clean produced hydrogen is also being considered a substitute for coke In an important part of the steelmaking process, a heavy emission industry is seen as a real challenge to decarbonize. As reported by the Hydrogen/McKinsey Council, clean hydrogen is needed for industrial processes that require particularly high temperatures, temperatures above 752 degrees Fahrenheit, such as cement plants, glass manufacturing, and smelting. aluminum.

Hydrogen is the most abundant element in the universe, but here on Earth, it exists only in compound form with other elements – especially with oxygen as part of water. Separating hydrogen from other atoms requires industrial and energetic processes.

The current, China is the largest hydrogen producerAccording to the Center for Strategic and International Studies (CSIS), a bipartisan, nonprofit policy research organization. According to CSIS, of the hydrogen that China produces, 60% is produced from coal and about 25% comes from the use of natural gas. Outside of China, the largest hydrogen producers are industrial gas companies such as Linde and AirProductsaccording to Teplinksy.

According to the Center for Global Energy, 70% of hydrogen produced globally and 95% in the US is produced by a process called methane reform, in which a source of methane, like natural gas, which reacts with water vapor at very high temperatures. Policy. Natural gas releases greenhouse gas emissions when burned, and also from the so-called methane leak run away when it is extracted and shipped.

Globally, 22% (and 4% in the US) is made by a process called coal gasification, in which coal reacts with oxygen and water vapor at high temperatures and pressures.

Several companies are working to capture carbon dioxide emissions from these processes and store it in underground storage tanks. Hydrogen produced in this way is sometimes referred to as “blue hydrogen.”

More promising from an emissions perspective, an electrolyzer could be used to split a water molecule into hydrogen and oxygen, and it could be powered by almost any energy source – including non-hydrogen sources. emissions such as solar or wind, creating what is known as “green hydrogen.”

Today, 2% of hydrogen produced globally and 1% in the US is produced by electrolysis.

Nuclear energy can also be used to power hydrogen synthesis with virtually no additional CO2 emissions (this is sometimes referred to as “pink hydrogen”, but the nomenclature is different. ). As a bonus, the steam and heat generated as by-products of nuclear energy can be used in much more efficient, high-temperature electrolysis. And with advanced nuclear reactors being developed that run at even hotter temperatures than conventional nuclear reactors, hydrogen can be produced in a thermo-chemical water splitting process that completely Do not use an electrolyzer.

Since most of the cost of producing hydrogen by electrolysis is the cost of electricity that goes into it, producing hydrogen using nuclear power and steam “can really make a huge contribution to or reduce the cost of producing clean hydrogen.” “, Teplinsky told CNBC.

The cost of producing hydrogen using these different methods varies widely and fluctuates based on input costs, such as natural gas and electricity. Due to Russia’s war in Ukraine and climate change, these input costs themselves have increased accordingly. One report Published by non-partisan nonprofit organization Resources for the future in December 2020 said that a kilogram of hydrogen generated from steam methane conversion costs $1 to $2 (including the cost of capturing some of the carbon). Hydrogen generated by electrolysis powered by wind and solar energy ranges from $3 to $7 a kilogram.

That’s where the tax credit comes in.

The tax credits in IRAs available for 10 years and scale depending on how clean the hydrogen production process is. If hydrogen is produced without releasing any carbon emissions, the maximum tax credit is $3 per kilogram of hydrogen produced. Then scale down proportionally based on emissions, as long as it’s less than current production techniques.

If hydrogen is produced with some amount of carbon emissions, but less than is emitted in current production techniques, the tax credit gets progressively smaller, proportional to the reduction in emissions.

The tax credit is “an absolute game changer,” Akshay Honnatti, EY’s head of sustainability tax for the US, told CNBC. “There is no incentive to make hydrogen cleaner,” adds Honnatti. “There’s a credit now for someone to make that additional level of investment and be able to demonstrate that level of investment to their stakeholders and shareholders.”

Teplinsky said the $3/kg credit makes nuclear hydrogen highly competitive with hydrogen produced from fossil fuels. The goal of the US Department of Energy is one of the goals Earthshots . Energy Influence Initiativesto reduce the cost of clean hydrogen by $1 a kilogram over a decade.

For many of these growing clean hydrogen use cases, the tax credit included in the climate bill would give companies the opportunity to enter the clean hydrogen production market without losing money. “They can go back to their shareholders and they can say, ‘Look, we can do this economically – today.’ Teplinksy said.

The bipartisan Infrastructure Law was also passed in November including $8 billion to develop regional clean hydrogen hubs in the US. According to Teplinksy, between these two acts, the US should be able to develop a clean hydrogen economy within seven to eight years.