By cutting funding for “clean” hydrogen hubs, the Department of Energy could crimp a major tool for both red and blue states to cut industrial emissions, analysts say.
DOE announced this month that it is nixing $2.2 billion in funding for two hubs on the West Coast that aimed to make hydrogen using clean energy. The remaining five hubs could also lose funding, according to a list circulating among lobbyists, though DOE has said it hasn’t made any final decisions.
The funding cuts, some of DOE’s biggest to date, would add uncertainty to the development of clean hydrogen. The hubs — located in both Republican- and Democratic-led districts — were a priority of the Biden administration and envisioned making “green” hydrogen with renewables or “blue” hydrogen with fossil fuels tied to carbon capture.
The hubs were “going to be a really big part of driving the domestic hydrogen industry and getting a lot of these demonstrations off the ground,” said Rachel Starr, senior U.S. policy manager for the Clean Air Task Force’s hydrogen and decarbonization transportation programs.
The 2021 bipartisan infrastructure law allocated $7 billion to develop hubs around the country to produce and transport clean hydrogen — funding that is now in question. The aim was to lower emissions, including by using clean hydrogen for transportation fuel and to replace existing “gray” hydrogen (made from methane) in sectors such as oil refining and ammonia production.
Frank Wolak, head of the Fuel Cell and Hydrogen Energy Association, said the hubs are “fundamental to building long-term hydrogen investments in the U.S.” The Clean Air Task Force estimates that cutting funding for the hubs would eliminate more than 330,000 expected jobs.
Two hubs planned for Appalachia and the Gulf Coast are particularly important for the future of the U.S. industry, according to a report last week from research firm BloombergNEF. Those hubs would focus on creating blue hydrogen from natural gas with carbon capture.
“Those projects would host most of the [U.S.] clean hydrogen production capacity forecast… to come online by 2030,” the report said.
Whether DOE cuts the funding for the Appalachia and Gulf Coast hubs remains unclear. They are among the five on the list circulating Washington; all together, those hubs were awarded more than $4 billion under the Biden administration. According to federal data, roughly $170 million has been distributed to the seven hubs as part of a first phase of development.
Some Republicans, such as Sen. Shelley Moore Capito (R-W.Va.), have been pushing to keep federal support for blue hydrogen hubs like the Appalachian initiative, known as ARCH2.
DOE spokesperson Ben Dietderich said in a statement last week that “no determinations have been made other than what has been previously announced,” referring to the more than $7.5 billion in funding that DOE canceled earlier this month.
Democrats say DOE’s move to cut that funding — including awards for the West Coast hydrogen hubs — is illegal. On Friday, 35 Democratic and independent senators sent a letter to Energy Secretary Chris Wright and budget director Russ Vought, emphasizing that the funds were appropriated by Congress and signed into law.
“The Department must expend these funds and faithfully execute the law, including many programs that have strict requirements for the timing of fund expenditure, purposes, and contractual expectations,” the letter said.
State officials and legal experts also say the move may run afoul of the law. But Wright has argued that the funding cuts are legal, telling CNN this month that projects have cancellation clauses “if they’re not in the interest of the taxpayers, if they’re not a good expenditure of the money.”
Green hydrogen falters
DOE’s moves may pose the most risk to blue hydrogen, as green hydrogen is already facing significant headwinds.
“We don’t see much green hydrogen being built in the U.S.,” said Martin Tengler, a hydrogen analyst at BloombergNEF.
It’s a sharp turn from 2024, when forecasts showed U.S. green hydrogen growing from a base of near zero to more than one million metric tons of annual production by 2030.
The Republican megalaw gave a lifeline to the hydrogen industry overall by allowing projects that begin construction by 2028 to qualify for a key tax credit known as 45V. But the same law’s roll back of clean energy incentives — plus high costs — have hindered green hydrogen. Such fuel is produced with machines called electrolyzers, which are powered by renewables.
DOE’s cancellation of funding for the California and Pacific Northwest hubs “makes little difference to a sector that was already struggling in the region,” BloombergNEF said in its note this week. The two hubs had “virtually no projects” expected to come online anytime soon, Tengler said.
Even prior to the hub cancellations, 90 percent of U.S. hydrogen production by 2030 was expected to be of the blue variety, not green, according to projections.
Blue hydrogen uses existing natural gas infrastructure, can access federal tax credits for carbon capture and benefits from rising demand in Asia and Europe.
Tengler said he expects the U.S. “to be a large supplier of blue ammonia made from blue hydrogen globally.”
That is likely to anger some environmentalists who have questioned whether blue hydrogen is actually clean, considering its reliance on fossil fuels.
The shift in the U.S. toward blue hydrogen comes as China is on track to dominate global production of green hydrogen.
A report from the International Energy Agency in September found that China accounts for 65 percent of global capacity of green hydrogen that has been installed or reached financial closing.
“Renewable hydrogen in China could become cost-competitive by the end of this decade due to low technology costs and cost of capital,” the report said.
Road ahead
Some U.S. green hydrogen companies, including leader Plug Power, say they are looking to overseas markets, considering policy drivers like greenhouse gas reduction targets in Europe.
“Our focus remains on the future and on advancing both our electrolyzer and fuel cell businesses, which continue to grow across Europe, Australia, and the U.S.,” outgoing CEO Andy Marsh said in an emailed statement. “While government support has been helpful along the way, our long-term success is driven by the strong global demand for our solutions.”
Marsh noted in his email that the company raised $370 million in capital last week.
DOE’s official list of terminated funding included four projects from Plug Power totaling more than $75 million. The company shuffled its senior leadership last week.
Plug Power President and Chief Revenue Officer Jose Luis Crespo told Yahoo! Finance on Friday that the company has been discussing a finalized $1.6 billion loan with DOE and hopes “things will move along.”
One of the hubs with axed funding, ARCHES in California, said it plans to continue on despite DOE’s plans. The hub released an annual report last week saying it is considering an appeal of DOE’s cancellation, noting it has secured $10 billion in private and public sector commitments.
“The ARCHES Ecosystem and Marketplace will continue to advance in collaboration with state leaders and private sector innovators,” CEO Angelina Galiteva said in a statement after DOE’s announcement. The Pacific Northwest hub similarly released a statement saying its commitment to developing projects is “unwavering.”
“Hydrogen’s future will not be decided by one grant program or one administration. If federal hub dollars are canceled, the states will carry the torch. By bringing together industry, labor, and policymakers, we can build durable, bipartisan frameworks that keep projects moving, jobs growing, and America competitive,” said Roxana Bekemohammadi, executive director of the U.S. Hydrogen Alliance.
Reporter Brian Dabbs contributed.
