Canary Media thanks Verdagy for its support of the Clean Hydrogen series.
Should our clean energy future rely more on electrons or on molecules?
That’s the question at the core of the battle over clean hydrogen, a potential fossil-fuel substitute that burns without emitting carbon dioxide.
Right now, the vast majority of the world’s energy comes from molecules — dirty ones. They’re the product of billions upon billions of gallons of fossil fuels, pumped, refined and transported each year via the trillions of dollars of infrastructure that forms the circulation system for the modern industrial economy. Today, that system is owned and operated for the profit of private and government-owned fossil fuel companies.
But there’s an alternative circulation system — the electric grid — that is inherently more efficient at delivering energy. It’s also the carrier of the clean electrons, generated from sun, wind, water and the earth’s heat, that are the heart of the energy transition.
Much of the debate over clean hydrogen boils down to which of these two systems the world should prioritize in the fight to stop burning planet-warming fossil fuels.
On the one side are the climate advocates, researchers, clean-energy analysts and a subset of hydrogen industry players arguing that the only way for clean hydrogen to help with the energy transition is if it’s made from carbon-free electricity and used for the tasks that clean electrons can’t currently handle, like long-haul aviation and fertilizer production.
On the other are fossil fuel interests, as well as some energy experts skeptical of the potential for renewables to meet the world’s decarbonization needs. They argue that fossil gas is a perfectly fine feedstock for hydrogen, so long as carbon capture is involved. In their view, hydrogen molecules can and should compete with electrons in applications ranging from home heating to power generation, even when electrification is proven to be far more efficient.
From oil majors like Chevron to gas pipeline operators like TC Energy, fossil fuel companies play leading roles in the groups pushing governments to support a clean-hydrogen economy that prefers molecules over electrons, including for the clean hydrogen hubs seeking $7 billion in federal grants. So, too, do their cousins in a U.S. utility industry still highly reliant on gas, coal and oil.
Their vision includes repurposing and expanding existing fossil-fuel infrastructure to create and distribute clean hydrogen, adding carbon-capture equipment to dirty hydrogen production facilities to make “blue hydrogen,” and building pipeline and distribution networks to deliver that hydrogen far and wide. It also includes making as much clean hydrogen as possible, and encouraging its use in as many industries as possible, to drive down its costs.
And they’re spending tens of millions of dollars in an escalating lobbying effort to try and make this reality come true — a reality in which combustion and fossil fuel extraction remain much more central to society than is compatible with the needs of our warming planet.
But critics say this group’s arguments ignore hydrogen’s only real merit for the energy transition: to decarbonize the industries that can’t practically and cost-effectively do so with clean electricity alone.
“Hydrogen is only a tool for decarbonization if it’s displacing fossil fuels,” said Julie McNamara, deputy policy director with the Union of Concerned Scientists. “For every unit of renewable electricity we have, we have to make that unit go as far as it can — and that’s almost always direct electrification.”
This core conflict — molecules versus electrons, combustion versus circuitry — underlies almost every conflict now playing out in the federal agencies responsible for shaping U.S. hydrogen policy. And right now, clean-hydrogen skeptics fear existing policies are not structured to avoid directing hundreds of billions of dollars into a hydrogen infrastructure that saddles the country with more climate debt.
The incentive to make hydrogen with molecules, not electrons
There’s no doubt that fossil fuel companies want to retain the central role they hold in the U.S. energy economy today, said Pavel Molchanov, director and equity research analyst at Raymond James & Associates. The question is whether that desire can align with actually achieving the clean energy transition.
“Oil and gas companies are obviously making lots of money from their traditional fossil-fuel operations, but they are not opposed to renewable energy substitutes in and of themselves,” he said. “What oil and gas companies emphatically do not want is competition from energy sources, renewable or otherwise, that the companies are unable to manage themselves.”
Some oil companies and utilities want to build and own large-scale solar and wind farms, for example, but they fight against rooftop and community solar policies that allow independent developers and utility customers to compete with them. The same desire for control characterizes their approach to clean hydrogen.
Some analysts argue that fossil fuel companies’ interest in producing clean hydrogen isn’t a bad thing: These firms have access to trillions of dollars in capital, and the energy transition needs “billion-dollar kinds of projects — which is exactly what the big oil companies are good at doing,” Molchanov said.
But it’s unclear if policies that support those investments will encourage these companies to shift away from today’s planet-warming business practices — or provide them with a greenwashed permission slip to continue extracting fossil fuels.
“Oil majors need to transition as quickly as possible,” added Jaron Goddard, an attorney in the energy and climate solutions practice of law firm Wilson Sonsini Goodrich & Rosati. “I ask myself what role hydrogen can play in reducing oil majors’ emissions, both practically and from a cultural-shift perspective.”
For the most part, oil and gas companies have focused their clean-hydrogen ambitions on blue hydrogen — an approach environmental activists and climate and energy analysts are highly skeptical of.
Today, five of the seven hydrogen hubs set to receive a total of $7 billion in federal grants from 2021’s Bipartisan Infrastructure Law include some plans to make blue hydrogen and also burn hydrogen in power plants. Karen Harbert, CEO of the American Gas Association trade group, has claimed a central role for her industry in these projects, saying, “No matter the source for the hydrogen, one thing is certain: Natural gas utilities will be critical players in driving this exciting opportunity for further decarbonization.”
There’s good reason for industries that exist to produce, transport and sell fossil gas to emphasize this potential, said Robin Gaster, president of data and analysis consultancy Incumetrics. These companies are “interested in blue hydrogen as sort of an insurance policy,” he said. “It would give them a business to slip into if people got serious about climate change and decided to regulate fossil fuels seriously.”
“If that happened, blue hydrogen would be an alternative,” said Gaster, who, as a senior fellow at Washington, D.C. think tank Information Technology and Innovation Foundation, wrote a recent report critical of the current clean-hydrogen policy. “And it helps them to develop new technologies that their existing assets can use.”
Right now, it appears that the Biden administration’s guidance on the Inflation Reduction Act’s 45V hydrogen production tax credit — the world’s most lucrative incentive for making clean hydrogen — will not be viable for blue-hydrogen producers. The emissions associated with the fossil gas delivery network, and the challenges of capturing enough carbon, will likely put the most valuable subsidies out of reach, experts say.
But another tax credit for carbon-capture projects, called 45Q, could offer significant federal support for blue-hydrogen facilities that, on net, put more planet-warming emissions into the atmosphere than they help offset, according to analysis from environmental watchdogs.
In a worst-case scenario, the 45Q credit could create a perverse incentive for companies to build new coal-based hydrogen production facilities that are dirtier than today’s gas-based methods in order to increase the amount of carbon they can earn tax credits for capturing, warned Anika Juhn, data visualization analyst with the Institute for Energy Economics and Financial Analysis.
These tax credits “represent a huge reservoir of funding for blue hydrogen that will cost taxpayers tens of billions of dollars, while still contributing to global warming,” Juhn said.
“Green hydrogen” made from carbon-free electricity, electrolyzers and water is the method that environmental groups, energy analysts and a significant number of companies planning to invest in the hydrogen economy consider the best, and perhaps the only reliable, way to make truly clean hydrogen today.
But, as it stands, that approach faces a very real threat: “Incumbents with lots of capital [and] the ability to claim a tax credit under 45Q [could]…get into the market reasonably early and claim a decarbonized product,” said Patrick Molloy, a manager with the Climate-Aligned Industries Program at RMI. (Canary Media is an independent affiliate of RMI.)
Molecules versus electrons — and pipelines versus power lines
Hydrogen might be crucial to removing fossil fuels from a number of essential processes. But the list is limited, and key activities performed by utilities today — heating and power generation — don’t make the cut.
