The Exchanges

Q Created this new tax credit for clean hydrogen, and the bill did create some language around how to calculate emissions and what classifies clean hydrogen, but that calculation raised concerns as well, and it quickly spawned this debate between industry and environmentalists and, and, and people within the industry. So as officials start to craft and finalize the language for these tax credits, how did the debate start picking up?

A The debate really picked up, uh, first in Europe, uh, about a year ago. It's because the realization is that just producing hydrogen using an electrolyzer doesn't guarantee it's clean or, or low carbon, right? Because if in the US, for example, you plug an electrolyzer into the electricity grid and don't, don't do anything to that to, and don't set any standards, that hydrogen has double the emissions intensity of just producing hydrogen from natural gas directly. So you need some more requirements than just Procuring hydrogen from, uh, electricity from, from the grid, right? So the U.S. said that clean hydrogen needs to be produced, uh, at a low carbon way, and that those emissions need to be measured over the life cycle of that car, of that production of that plant. And while that's already a good standard, what it doesn't account for is the sort of the consequential emissions that hydrogen produces by taking renewable electrons away from other uses on the grid. And that's really what this new hydrogen guidance that should be issued by mid-August is trying to regulate. And that's where most of the debate is on.

AI assessment note: “The debate really picked up, uh, first in Europe, uh, about a year ago.”

Q And there are definitely clear lines between environmental groups and the hydrogen industry, but it's not as simple as that. There is debate within the hydrogen industry itself. So how do we see those lines separating the different sides of the debate?

A Yeah, you're absolutely right. In general, environmental groups are more in favor of stricter regulation on these criteria, while most of industry is not But there's many exceptions to that rule. Companies were really interested in producing large volumes of clean hydrogen, like air products, and manufacturers of electrolyzers like electric hydrogen have come out in favor of very stringent standards on, on hydrogen production. Whereas others, like Plug Power, which is also an electrolyzer manufacturer, doesn't really favor very strict standards on hydrogen production. And then there's a bunch of companies in the middle of this debate which want some rules on clean hydrogen production from the grid, like NextEra Energy in the US, but are arguing for a phase in of these requirements over time. So giving some sort of transition period to most companies to be able to adopt these rules later.

AI assessment note: “Companies were really interested in producing large volumes of clean hydrogen, like air products”

Q Why do we need clean hydrogen? I mean, when you look at the European economy, the US economy, why is hydrogen so important for cleaning up the industrial economies in those regions?

A Yeah, we would argue that hydrogen is essential to reaching a net zero emissions. You can get very far in terms of emissions abatement just with clean power and electrification of end uses alone. That gets you, like, 80, 90% of the way. Then adding carbon capture and storage also gets you much closer. But the final five, six percent or so of emissions abatement that you need to reaching net zero by 20 50 really relies on hydrogen being used widely in the sectors that is already being used today. Hydrogen is already a chemical feedstock that is being used for things like ammonia production, which is used for fertilizers. And in sectors that have no other alternative to using hydrogen, for example, as a fuel and heavy transport like ships and planes, uh, for steel production, hydrogen is one of the few options to produce primary steel. So it's absolutely essential that hydrogen gets scaled up if you want to reach net zero.

AI assessment note: “hydrogen is essential to reaching a net zero emissions. You can get very far”

Q So how do you think this is going to play out in the US as we get closer to the final, uh, language around the tax credit for hydrogen? I mean, what, what are indications are you getting about where the Biden administration will land on this?

A Yeah, if I had to guess, I mean, the US is not the first market to set these rules. The European Union already has set rules, which are now legislated, and if I guess that the, I would say the US will closely align with those rules for a number of reasons, and those rules are basically, have strict requirements for all these criteria, but allow for some phase-in period over time until most of these criteria come into effect. So I'd The U.S. guidance is likely to follow these three pillars that are outlined on additionality, temporal matching, and deliverability or geographic correlation, um, with some sort of phase in, particularly on the requirement for additionality, so for new renewable energy resources, and on hourly matching, um, so maybe starting with something more looser on the temporal correlation side, something like annual or monthly. Monthly has been implemented in Europe, for example, and then moving to hourly matching over time. Uh, and in the Europe, for example, uh, deliverability or geographic correlation is already a requirement from the get go. So this could be implemented in the US as well.

AI assessment note: “The U.S. guidance is likely to follow these three pillars that are outlined”

Q And so you have these, ah, cost reductions when it comes to electrolyzers, but there's this big question about renewable energy supply. So why is that a problem for the green hydrogen industry?

A Yeah, electrolyzers are extremely power hungry, right? Each kilogram of hydrogen production today requires about 50 kilowatt hours of electricity to be supplied to that electrolyzer to produce that electricity. Electrolyzers are also not that efficient, only converting about 70% or so of the electricity that you supply into energy in the form of hydrogen. And if you're expecting to rely on green hydrogen going forward and really deploy a lot of electrolyzers to power that hydrogen production, Then a lot of electricity demand will flow towards hydrogen production. If you look at our scenarios, uh, by the end of the decade, electrolyzers alone take up a couple percentage of all electricity demand globally. By twenty-fifty, under a net zero scenario, electrolyzers producing hydrogen take up a third of all electricity demand almost, just to power, uh, power themselves to produce hydrogen. So all of global, a third of all global electricity demand. And that's a problem, because all of that additional demand needs to be supplied by additional renewable electricity capacity as well. And even in the near term, that can become a problem. Last year, we compared how much of the share of the forecast of renewables, so solar and wind, that we expected to be deployed by 2030, is taken up by electrolysis. If about a 20 millimetric tons or so of clean hydrogen are produced globally by the end …

AI assessment note: “all of that additional demand needs to be supplied by additional renewable electricity capacity”

Q So let's talk about what happens if rules are too loose. What does that mean for emissions? And then if the rules are too stringent, Do you see any potential curbing of these projects beyond what's already been announced?

A The worst case is really that there's really no requirements for hydrogen production from grid electricity, which means, in the end, you end up creating more emissions than what fossil hydrogen production is already creating today. So let's say the U.S. actually reaches its goal of 10 millimetric tons of clean hydrogen production, and that is produced using grid electricity-powered electrolyzers. You're adding another two hundred million metric tons of CO₂ to the atmosphere. So that's really the worst case that loose rules will enable. Stringent requirements, on the other hand, mean that your, that hydrogen production using electrolyzers is actually emissions reducing, potentially 95% lower than the fossil alternative that you have, and potentially even more if you consider all the positive effects electrolyzers can have on the electricity grid Providing some sort of system balancing services to the, to the grid.

AI assessment note: “Stringent requirements, on the other hand, mean that your, that hydrogen production using electrolyzers is actually emissions reducing”