Natural gas and oil industry demand equal incentives for blue and green hydrogen
The natural gas and oil industry is calling on policymakers to treat all forms of low-carbon hydrogen equally when handing out incentives to maximize greenhouse gas emission reductions ( GHG) that contribute to global warming.
Namely, so-called “blue” hydrogen, separated from natural gas in combination with carbon capture and sequestration (CCS), should not be at a disadvantage compared to “green” hydrogen, according to the American Petroleum Institute. (APIs). The green label applies to hydrogen separated from water by electrolysis powered by carbon-free electricity.
A new study commissioned by the energy industry lobby group has found that blue hydrogen could eliminate an additional 180 million metric tons/year (mmty) of GHG emissions on average through 2050 if incentives were applied evenly on a per tonne basis of emissions reduced.
“Our industry is committed to advancing innovative technologies such as low-carbon hydrogen, which are critical to reducing economy-wide GHG emissions,” said Aaron Padilla, vice-president Chairman of API Corporate Policy. “By working with policymakers to encourage all forms of low-carbon hydrogen and accelerate hydrogen production through programs under the bipartisan Infrastructure Act, we can reduce emissions while ensuring American consumers with access to the reliable energy they need.”
The law, which took effect in late 2021, allocated $8 billion for a program to develop regional clean hydrogen centers across the United States; $1 billion for a clean hydrogen electrolysis program to reduce the cost of producing green hydrogen; and $500 million for clean hydrogen manufacturing and recycling initiatives to support equipment manufacturing and supply chains.
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The Inflation Reduction Act 2022 (IRA) meanwhile created a Production Tax Credit (PTC) of up to $3/kg for low carbon hydrogen. For a hydrogen producer to claim the full credit, the emissions intensity of the production must be less than 0.45 kilograms (kg) of carbon dioxide equivalent/kg of hydrogen. However, if the emission intensity is between 0.45 and 1.5 kg, the percentage of the credit that can be claimed drops by two-thirds to 33.4%.
This creates “a disincentive to really research and push for natural gas and hydrogen produced by CCS, because you know just by the chemical and physical properties, getting to that 0.45 is going to be extremely difficult,” said one. industry lobbyist at NGI. For green hydrogen, “this one is quite simple…it’s a lot easier to hit that 0.45 threshold.”
The IRA expands and extends the Internal Revenue Service Section 45Q tax credit for CCS. However, a producer of blue hydrogen cannot “stack” the 45Q credit on the clean hydrogen PTC, which creates an additional challenge.
Companies can, however, stack IRA renewables and clean hydrogen PTCs, giving green hydrogen another head start.
IRA charges on fugitive methane emissions could also increase costs for blue hydrogen producers, the lobbyist noted.
How big will the hydrogen market be?
The Department of Energy (DOE) has set a goal for the United States to produce 50 mmty of clean hydrogen by 2050.
The API-backed study by consultancy ICF found that “when every ton of emissions reductions are incentivized in the same way, the US hydrogen market could be three times larger by by 2050 than when emission reductions are treated unequally (i.e., [the] hydrogen market could represent 15% of total final energy consumption in 2050 compared to 4% of total final energy consumption in 2050).
Further, “the greater hydrogen economy resulting from uniform incentives could avoid an additional 83 million metric tons of US GHG emissions on average per year through 2050 than if incentives were implemented unevenly.” “said the API. “Activating incentives for all hydrogen production is equivalent to eliminating emissions from more than 38 million cars per year, according to API analysis.”
The group added that uniform incentives could reduce the cost of mitigating a metric ton of carbon by an average of 12% per year, saving more than $450 billion through 2050.
Massive infrastructure construction is needed for hydrogen to contribute significantly to decarbonization, the researchers noted.
“Capital investment in hydrogen infrastructure projects could exceed $400 billion by 2050 and include construction of 67,000 miles of hydrogen transport pipeline, 500,000 miles of customer laterals and pipelines/services from local distribution companies, and 560 trillion Btu of underground hydrogen storage capacity” according to API.