On green hydrogen, the perfect might be the enemy of the good

Hydrogen is poised to become the next-generation energy source for hard-to-decarbonize industries. But first it will have to come clean.

In theory, it is energy dense and free of greenhouse gas emissions when used as fuel, but the most common production methods are carbon-intensive.

And while the federal government is trying to boost cleaner hydrogen production output with billions of dollars of potential financial incentives, its decisions are under a microscope. The Treasury Department must decide by the end of the summer whether green hydrogen projects using electricity powered by fossil fuels will qualify for the credit. Hydrogen producers and environmental groups are carefully monitoring the government's approach.

Depending on that decision, the government could find itself "subsidizing huge hydrogen projects that actually result in increased emissions," said Whitney Berry, senior manager of climate policy at the Ocean Conservancy. "If the Treasury doesn't ensure strict guidance concerning that implementation," projects could "be net emitters."

The vast majority of hydrogen made in the U.S. — 95 percent — is produced using steam-methane reforming. In this process, natural gas reacts with steam under pressure to produce what is known as gray hydrogen. It is relatively cheap, with production costs hovering around $2.08 per kilogram of hydrogen depending on the price of natural gas, but the median emission for the process is high — 9 kilograms of carbon dioxide per kilogram of hydrogen produced.

Hydrogen producers that use steam-methane reforming, and other sectors, such as oil and gas, are turning to a technology called carbon capture to reduce their emissions. In carbon capture, emissions are caught and buried a mile below the ocean. Modified steam-methane reforming with carbon capture produces what is known as blue hydrogen. Blue hydrogen retains some of the cost benefits of gray hydrogen, and up to 90 percent of its emissions can be pushed underground. Production costs range from $1.43 per kilogram to $2.27 per kilogram.

The Department of Energy views burying emissions from existing plants as "one pathway to faster decarbonization of chemical and refining uses of hydrogen at large scale."

But the creme de la creme of emissions-free hydrogen production is green hydrogen, which splits water molecules using electricity. At this point, only 1 percent of hydrogen in the U.S. and 2 percent globally is produced using electrolysis. The process is free of carbon emissions — but it is expensive.

Hydrogen production through electrolysis costs $5 per kilogram to $6 per kilogram when it uses wind resources or nuclear power. Electrolysis via nuclear power, which is free of emissions but has its own baggage, is known as pink hydrogen.

Because the feedstock for electrolysis is water instead of fossil fuels, the final hydrogen product requires less refinement. And while carbon can be stored underground only in certain areas with the right geographic features, electrolysis can be done anywhere there is water and cheap power.

Green hydrogen's purity as a final product and its geographic flexibility, along with government incentives, make it "even more appealing" for use in hydrogen-powered vehicles, said Christian Appel, global chief engineer for battery and fuel cell trucks at Nikola Corp.

The government sees its incentives as the key driver to growing green hydrogen production to a massive scale. To power the shift for shipping, trucking and marine applications, the U.S. will need to produce about five times more hydrogen — 50 million metric tons — than it does now by 2050.

If hydrogen production can get to scale, the molecule is a good solution for heavy industries such as commercial trucking. Compared with battery-electric trucks, hydrogen fuel cells pack more energy into a smaller package. They are lighter than batteries, and fuel cell trucks have longer range. Batteries also take time to charge. Nikola's battery-electric truck, for example, takes 90 minutes to get to an 80 percent charge using a 350-kilowatt charger. Nikola's hydrogen fuel cell truck has an estimated fueling time of 20 minutes.

The Inflation Reduction Act offers a hydrogen production tax credit based on carbon intensity and wage conditions, up to $3 per kilogram for the cleanest projects.

But the government is still sorting out how to implement the tax credit. Industry groups are duking it out the best way they know how — with strongly worded letters to the Department of the Treasury regarding emissions from the grid that is powering electrolysis.

Environmental advocates say electrolyzers, which require a lot of electricity, should not use fossil fuel-generated power. In fact, electrolyzers that use fossil-generated electricity can create more than twice the carbon emissions of steam-methane reforming. Advocates say projects must bring their own clean electricity to the grid to power electrolysis because providing the tax credit to electrolyzer projects powered by fossil fuels could ultimately generate more emissions.

But groups such as the Fuel Cell and Hydrogen Energy Association say those proposed standards are too strict. They say Wall Street will decline to invest in hydrogen infrastructure projects until there is enough supply. Under these proposals, supply won't come online until projects can build renewable energy plants. That bottleneck will cut off development and keep costs prohibitive, preventing the growth of a green hydrogen industry that will eventually be able to power electrolysis using renewable energy.

"The Field of Dreams metaphor — that gets used a lot. 'If you build it, they will come,' " said Dan Byers, vice president of climate and technology at the U.S. Chamber of Commerce. "If you build hydrogen supply, all of the demand will materialize, so supply really begets demand when it comes to building the hydrogen economy."

Today, the U.S. produces about 10 million metric tons of hydrogen each year, much of it used for petroleum refining and ammonia production. That's about one-ninth of the hydrogen produced globally.

Until the Treasury Department releases its guidance, producers are working within geographic and other constraints to shore up hydrogen sourcing. The Gulf Coast, for example, has geological features conducive to carbon capture, which is near impossible in the Northeast. The Northeast is developing wind power that could fuel green hydrogen production.

"For us as an equipment developer, we see opportunity in all these different regions, right? If there's a huge fossil resource, well, we can make hydrogen out of that with carbon capture. If there's a huge renewable resource, we can make hydrogen out of that with electrolyzers," said Tony Leo, chief technology officer at FuelCell Energy, which produces hydrogen using both electrolysis and a method involving natural gas or biogas. "I think it's going to be very, very regional."