But existing policies in the U.S. focus not on the end uses of clean hydrogen, but rather on making the fuel cheaper. This is a problem because these policies don’t account for all the other costs associated with using hydrogen, he said.
“You’ve got to move it to somewhere useful. You’ve probably got to store it, buffer it, compress it,” he said. “All of these things are expensive, and they’re expensive in a way which doesn’t yield the sorts of cost reductions that we’ve seen in solar and, to a certain extent, in wind and batteries.”
Another challenge is that the industries best suited to use clean hydrogen to decarbonize will require the biggest investments to be able to use it, Jenkins said. He cited steelmaking, which “is the top of the list in terms of emissions[-reduction] potential, but it’s one of the most expensive to convert.”
“That’s not going to work unless we bridge that gap with demand-side policy or incentives for steel producers to make the capital expenditures and switch over the design of their plants,” he added.
Without those demand-side policies in place, clean-hydrogen production subsidies run the risk of creating perverse outcomes, Liebreich said. Jenkins agreed, noting that the key goal of the 45V tax credit, which is available for 10 years from the start of production to any project that commences construction before the end of 2032, is to “get a lot of experience building and operating these projects, and that will drive down the cost for electrolyzers and hydrogen production.”
But if the costs do plummet, the full $3-per-kilogram tax credit for clean hydrogen will end up being less of a necessity for making clean hydrogen cost-competitive and more of an incentive to make as much of it as possible, whether or not there are cost- and climate-effective ways to use it, he said.
“I spent a lot of time talking to Senate Finance Committee staff about this before the IRA passed,” he said. “You should not use the same set dollar value to get that industry started as you’re going to pay them a decade from now when they’ve scaled up because the cost is going to fall.” That advice did not make it into law, he said — “and so I do worry that by the end of that period, it will make sense simply to produce hydrogen and flare it or make a subsidy farm.”
Why hydrogen hubs are central — and where current plans are lacking
So if clean hydrogen shouldn’t be widely distributed and used for broad decarbonization, how should it be used? The answer, Liebreich said, is to concentrate clean hydrogen production and the industries that need it to decarbonize in close proximity — a concept known as “hydrogen hubs.”
Liebreich pointed again to his “hydrogen ladder” chart: “You look at fertilizer, you look at the petrochemicals industry, hydrocracking, and you look at the next row down…[at] long-duration [energy] storage or aviation fuels or shipping fuels,” he said. “They’re all things that happen in industrial clusters.”
That concept has informed the core U.S. demand-side clean hydrogen policy — the $8 billion in grants for clean hydrogen hubs created by 2021’s Bipartisan Infrastructure Law. But the way that program has played out so far gives Liebreich and Jenkins little confidence that it will succeed.
The goal is laudable, Jenkins said — to “try to connect all the dots” of clean hydrogen production, transport, storage and use. “If you can build up economies of scale in one place, that could really help kick-start a hydrogen economy in that location.”
But the U.S. Department of Energy’s October decision to designate seven different consortiums across the U.S. as eligible for receiving a share of a collective $7 billion of grant funding to develop hydrogen hubs runs the risk of diluting that potential, he said.
“It’s basically created an expectation in every region in the country that they should be producing hydrogen in the near term,” he said. “There are parts of this country that are better to produce hydrogen in than others right now. And if you’re going to try to use that limited pool of money to kind of kick-start these use cases, I wish that they would have been a bit more targeted.”
Another problem with DOE’s decision, he said, was that it proposes funding “blue hydrogen” — hydrogen made from fossil gas combined with carbon capture — at up to five of the seven hubs it selected. Many energy and environmental analysts believe that blue-hydrogen projects won’t be able to capture a high enough proportion of the greenhouse gases they emit to produce genuinely low-carbon hydrogen.
Jenkins suggested that the DOE could still refocus its hydrogen hub funding on regions that combine “really good-quality, low-carbon resources” — that is, ample access to low-cost wind and solar power — with industries that can use clean hydrogen to the greatest effect. Other sources of funding, such as $6 billion in industrial decarbonization grants from the Bipartisan Infrastructure Law that DOE is expected to award in the coming weeks, could also be directed toward steelmakers, fertilizer producers and other facilities to start using the hydrogen coming from hubs.
“We probably should have at least one large-scale DRI — direct reduction of iron — with hydrogen project, which is a pathway to decarbonize steel in the U.S.,” he said. It helps that major steel buyers have said they’ll pay extra for low- to zero-carbon steel, Jenkins pointed out. Similar investments could help overcome cost barriers to converting fertilizer production — one of the biggest global users of dirty hydrogen to make ammonia — to using clean hydrogen or ammonia, he said.
“If we were doing those things, I’d be pretty happy with the direction we’re going,” he said.
