Clean hydrogen will play in key role in net-zero transitions
In a previous article we examined the clean – blue and green – hydrogen opportunity [1]. Our key assertions were as follows.
First, clean hydrogen may play a role in decarbonizing many of the sectors that have historically been hard to decarbonize, such as long-distance and heavy duty transportation, shipping, district heating, seasonal energy storage, and heavy industry [2]. In addition, clean hydrogen can play a key role accelerating renewable energy integration; distributing energy across sectors; and acting as resilience buffer [3]. The Hydrogen Council [4], IRENA [5] and IEA [6] estimate that clean hydrogen could cut annual CO2 emissions by 6 billion tons by 2050, equivalent to 18 per cent of the necessary abatement to limit global warming to two degrees Celsius.
Second, the adoption of hydrogen and the associated potential for carbon abatement in each potential application is hard to predict and will depend on policy decisions, technology development, societal acceptance and choices, and cost. Currently, hydrogen accounts for 1.5 per cent of the global energy supply. Estimates of global hydrogen use in 2050 range from 1.5 per cent [7] (IPCC, 2018) to a theoretical maximum of 30 per cent [8]. In 2050, the IEA predicts hydrogen use will meet 7 per cent of final energy demand in 2050, comprised of transport (44 per cent), industry (28 per cent), power (19 per cent) and buildings (9 per cent) [9].
In this article, given the key role of policy, we provide policy prescriptions for the development (i.e., the supply side) and deployment (i.e., the demand side) of clean hydrogen, using best practices worldwide, including in the US – at the federal level as well as in California (CA).
To support development, use the US-DOE H2@Scale program as a template
On supply side, in US (and elsewhere), the trick would be to enable development of the required technologies, such as CCS (for blue hydrogen) and electrolyzers (for green hydrogen), via support for R&D and pre-commercialization, in phases [10], by essentially following and scaling the US Department of Energy (USDOE) strategy for the H2@Scale program, summarized as follows, and explained further shortly afterwards: [11]
1. Identify focus areas – e.g., production, delivery, storage, conversion, applications, etc.
2. Set targets – e.g., $2/kg by 2030, $1/kg by 2050 – across each of the focus areas.
3. Ensure enabling infrastructure is in place – e.g., workshops, technology-transfer, etc.
4. Provide financial support – e.g., grants for R&D, loans for pilots, etc.
5. Enable risk-mitigation – e.g., loan-guarantee for pilots.
We focus on the federal H2@Scale program at the Department of Energy (DOE) given that it is one of the most comprehensive development strategies around the world, focusing on the following key elements for development: product, delivery, storage, conversion, and application. A notable aspect is the coordination across various federal offices – Office of Energy Efficiency and Renewable Energy (EERE), Office of Fossil Energy (FE), Office of Nuclear Energy (NE), Office of Electricity (OE), Office of Science (SC), Advanced Research Program Agency (ARPA-E).
First, the H2@Scale program has started on the development agenda by focusing on the needs and challenges. Among the needs, it has focused on the following key areas: production, delivery, storage, conversion, integration, manufacturing and supply chains, safety and codes and standards, and education and workforce. It has then set clear program targets on each, such as the $2/kg production target on green hydrogen as well as the $2/kg target for transportation and storage.
Second, the H2@Scale program plans to get to these targets by defining program thrusts and activities and executing on them via regular workshops as well as requests for information and funding, where the funding is provided not only for research but also for technology transfers. The funding is provided via funding opportunity announcements (FOA) 12 – for universities, labs, private sector; cooperative R&D agreements (CRADA) 13 for public private partnerships; and strategic partnership projects (SPP) 14 for private sector to hire public resources.
Third, in this process, H2@Scale remains focused on effectiveness via continuously developing targets and milestones, running competitive selection processes, performing external reviews, and ensuring down selection. It also ensures coordination and collaboration internally, between center and states, between public and private sectors, and with international counterparts. Overall, it is a well thought through program, and its effectiveness is likely to be limited by available funding.
To support demand, use a two-phase strategy, each with four focused measures
On demand side, in US (and elsewhere), using CA’s early thinking as a market leader in clean hydrogen deployment [15], the trick would be to use a two-phase strategy as follows [16] –
In the first phase, during 2020-2030, the focus should be on enabling deployment in industries that already use hydrogen, for green (and blue) hydrogen, such as the following: petroleum refining [17], biofuels [18], ammonia; by using the following measures.
First, fix long-term decarbonization targets, along with corresponding pathways to create demand. This would essentially require that green (or blue) hydrogen be a certain percentage of hydrogen used. These standards will be similar to the renewable portfolio standards used in the electricity sector [19], or the biofuel blending standards used in the automotive sector [20].
Second, enable regulation to remove barriers to deployment. This would essentially require thinking about how existing regulation could prevent hydrogen from getting deployed. An example of this could be the limits imposed on hydrogen blending in gas networks [21]. These limits would need to be increased over time, via careful analysis, and even allowing for gas pipeline upgrades.
Third, provide subsidies to ensure cost-competitiveness. Given that green (or blue) hydrogen is more expensive compared to the brown hydrogen, it would require subsidies to become cost competitive. The subsidies could be in any combination of capital, tax, or operational ones. For example, in CA, the low carbon fuel standard (LCFS) is enabling operational subsidies; whereas, in US, 45Q is enabling tax subsidies; and both are making blue hydrogen projects viable in CA [22].
Fourth, use risk-mitigation instruments to ensure private investment at scale. This essentially entails development of financial instruments to reduce risks to hydrogen development. An example is the long-term power purchase agreements to renewable power projects which, by reducing both price and quantity uncertainties, reduce investor risk perception, eventually resulting in a lower cost of capital and a lower delivered cost of electricity. Similar techniques can be used for reducing the delivered cost of green (or blue) hydrogen.
In the second phase, during 2030-2040, as green hydrogen becomes competitive with outside options (including grey hydrogen), enable deployment in hard to (deep) decarbonize industries, such as the following: 23 HDV (and other DV), shipping, aviation, steel, cement; by using similar four measures above.
To summarize, clean hydrogen provides a significant opportunity for deep decarbonization, in tandem with renewable power and battery storage. However, to get clean hydrogen to scale and get to its potential, policymakers need to act now, using the prescription discussed above as a template.
[This article was written exclusively for ETEnergyworld. Shrimali is the head of Transition Finance Research at the Oxford Sustainable Finance Group and the Technical Lead in the Secretariat for the UK Transition Plan Taskforce]