Some firms complain while others prepare to invest billions
So while a few corporations have taken it upon themselves to speak on behalf of “the hydrogen industry” as they attack strong hydrogen rules, they have no such right. The industry is no monolith, and plenty of businesses stand ready to invest to scale up a real clean hydrogen sector.
In fact, some of the loudest industry voices also criticized proposals in Europe to implement the three pillars, pushing “sky is falling” narratives and claiming that imposing credible emissions rules would kill the nascent industry before it could get off the ground. In reality, Europe’s pipeline of hydrogen projects has only grown since the EU adopted rules based on the three pillars.
We should thus be very skeptical of the loudest industry complaints in this country too. In fact, we already have billions of dollars of announced investments to build gigawatts of three-pillars-compliant projects in the United States.
AES and Air Products are developing a $4 billion megaproject in Texas that will flexibly operate electrolyzers to match production from dedicated new wind and solar projects. Hy Stor Energy is building a 110,000-ton-per-year hydrogen plant in Mississippi powered by new renewable energy with underground hydrogen storage, and a similar hydrogen storage hub in Utah could also easily meet the three-pillars rules. Apex Clean Energy and TotalEnergies are each building projects pairing large new renewables resources with electrolyzers.
Even NextEra, which tells anyone who will listen that hourly matching is too onerous, is planning a project with CF Industries in Oklahoma that will pair 450 megawatts of new renewable energy supply with a 100-megawatt electrolyzer, a ratio that will make hourly requirements trivial to meet while maintaining a high utilization rate at the electrolysis plant.
I’ve also spoken personally in the past six months with several other project developers planning to build truly clean hydrogen mega-projects; they’re just waiting for final rules before making public announcements.
Time for the Biden administration to stick to its guns
The biggest thing holding the industry back now isn’t the risk of strong rules. It’s the absence of any rules at all. The best thing the Biden administration can do to get investment flowing to clean hydrogen projects is to finalize sound rules ASAP.
While today’s proposed rules are built on a sound foundation, the devil will be in the details, and the proposal will need to endure through a comment period until it’s finalized next year.
We have already seen the same industry opponents of the three pillars complain loudly that the proposal is too strict and overly burdensome. They will no doubt keep working during the comment period to push back the timing of key requirements like hourly matching, exempt certain projects, or kill one or more of the pillars entirely.
The administration must continue to stand firm.
We call these requirements “pillars” because all three are structurally critical: remove any one and the whole “clean” hydrogen house comes tumbling down.
Some industry players like Constellation are pushing to permit hydrogen producers to claim on paper that they’re using existing clean electricity sources, like decades-old nuclear or hydropower plants. In reality, unless very specific criteria are met, this amounts to a hydrogen producer adding a new, city-sized electricity demand to the grid without adding any new supply of carbon-free energy. That’s functionally the same as just plugging the electrolyzer in with no rules at all.
Electricity supply must equal demand, so if you add a new demand to the grid without ensuring it is met by new clean supply, it will end up supplied by whatever the markets dictate. While that will include some wind and solar, an electrolyzer consuming 24/7 will build up demand at hours when fossil power plants are generating too, prolonging the life (and pollution) from aging coal and gas plants or even inducing new gas plants to be built.
Others, including the trade group the American Clean Power Association, have asked to be allowed to count clean electricity produced at any time, even if it doesn’t match up with when electrolyzers are actually consuming power, so long as everything adds up on an annual basis. Once again, that creates a nice fiction that hydrogen producers are powered by 100% clean electricity. In reality, this would permit electrolyzers to run 24/7, even when the sun isn’t shining and the wind isn’t blowing, meaning their operations are actually being powered by gas or coal plants.
Thanks to expanded tax credits in the IRA for wind and solar power, hydrogen suppliers can easily contract with a new wind and/or solar farm and lay claim to enough renewable energy certificates to match the annual electricity consumption of the electrolyzer, but those wind or solar projects would have been built anyway and would have just sold their power to someone else. After all, the whole idea behind the IRA is to make clean electricity so economically attractive that investors build tons of it.
Once again, lax rules that waive hourly matching requirements would let hydrogen producers shuffle things around on paper, but the actual emissions impacts would be twice as bad as just using hydrogen made from fossil gas.
Additionally, without a sufficient geographic-deliverability requirement, there could be significant emissions mismatches as well. A hydrogen producer in Louisiana could claim to be powered by cheap wind power from North Dakota, even when it is really using electricity from a gas or coal plant on the Gulf Coast. Treasury’s proposal to use the Energy Department’s current “transmission congestion regions” is generous: These regions span pretty large areas and should probably be tightened in the future to better reflect frequent deliverability constraints within the current zones.
A decision with huge stakes
Are the stakes really worth all this debate? Emphatically: yes!
Consider what would happen if the Biden administration caves to pressure from trade groups backed by Constellation, Exxon, Chevron and BP and nixes one of the pillars entirely or exempts projects that commence construction before 2029, as the American Clean Power Association has urged. If we assume electrolysis capacity grows at about the same pace as the solar PV industry from 2010 to 2016 — a reasonable proxy for a nascent hydrogen sector with strong policy support at its back — then we could see over 44 gigawatts of electrolyzers online by 2032 churning out about 7 million tons of hydrogen annually. Without all three pillars, these projects could cause about 700 million tons of additional greenhouse gas emissions while receiving over $200 billion in taxpayer subsidies over the 10 years of eligibility for the 45V tax credit.
Lavishly subsidizing hydrogen production that fails to meet all three pillars thus would not only result in life-cycle emissions that are blatantly unlawful under the Inflation Reduction Act but could also push America’s climate goals out of reach.
If hydrogen producers aren’t required to bring online new clean supply to meet their demand, they’ll also wind up driving up electricity prices for American consumers, just as cryptocurrency mines have been shown to do. Without the three pillars, the deployment of 5 gigawatts of electrolysis capacity in California would cause local wholesale electricity prices to rise by 8 percent, according to a peer-reviewed study from my research group.
In contrast, implementing the three pillars ensures hydrogen producers pay for their new sources of electricity and avoids increasing consumer electricity prices. No wonder a group of consumer advocates pressed President Biden to implement sound hydrogen rules based on the three pillars.
We need all three pillars to ensure hydrogen production brings new clean electricity onto the grid, avoids using dirty generators, and protects consumers and the climate. The Biden administration is poised to get this right. It’s time to finalize strong rules and unleash investment to build a truly clean hydrogen sector in America.
