U.S. Administration Sees A Future For Blue Hydrogen 

• The $7 billion support scheme for a blue hydrogen hub may be coupled with a generous production tax credit.
• It's not presently clear if natural gas projects to produce hydrogen would manage to lower emissions to the point that gas-derived hydrogen is considered 'clean'.
• Environmentalists criticized the grants to hubs planning blue hydrogen production as another taxpayer subsidy to Big Oil.

The U.S. Administration's decision to support hydrogen hubs with $7 billion in funding from the Bipartisan Infrastructure Law has stirred a lot of controversy due to the selection of sites planned to produce hydrogen from natural gas with carbon capture and storage (CCS). 

The funding, which will be awarded incrementally to each of the seven selected hubs as it completes different phases of development in the next up to 12 years, could be coupled with a very generous production tax credit introduced by last year's Inflation Reduction Act (IRA).  

However, it's not presently clear if natural gas projects to produce hydrogen would manage to lower emissions to the point that gas-derived hydrogen is considered 'clean' and receives a tax credit. The industry is awaiting for guidance from the Treasury Department on who is actually entitled to the so-called 45V Hydrogen Production Tax Credit, which could award up to $3 per kilogram of hydrogen produced to projects with a lifecycle greenhouse gas emissions intensity of less than 0.45 kilograms per kilogram of hydrogen (kg CO2e/kg H2).  

It is unclear whether blue hydrogen projects, the ones to produce the fuel from natural gas via CCS, would be able to lower the emissions as much as to get production tax credits that would make the projects financially viable. 

That's not even considering the backlash the funding announcement generated by earmarking funds for hydrogen hubs that will rely on natural gas plus CCS. The grants could also benefit large oil and gas producers – including ExxonMobil, Chevron, and EQT Corporation – which are partners in the hydrogen hubs in the Appalachia region and in the Gulf Coast in Texas.  Related: Oil Unchanged After Minor Inventory Build

Environmentalists criticized the grants to hubs planning blue hydrogen production as another taxpayer subsidy to Big Oil. They are also calling for more transparent, detailed, and real-world data on whether blue hydrogen will actually benefit the fight against climate change or raise emissions even more. 

"Hydrogen can be a clean energy solution, or it can drive us deeper into the climate crisis and hurt communities. Hydrogen produced from fossil fuels is not a solution — whatever the color," said Jill Tauber, Vice President of Litigation for Climate & Energy at Earthjustice. 

According to the Natural Resources Defense Council (NRDC), if hydrogen production in the H2Hubs is dirty and carbon-intensive, the H2Hubs could end up increasing U.S. carbon emissions.  

While funding going to green electrolytic production and hydrogen deployment in hard-to-electrify end-uses like steel and aviation is good news in the seven announced projects, "the over-reliance on fossil fuel-derived hydrogen, and hydrogen produced by diverting existing clean energy away from homes and businesses, as well as the possibility of wasting valuable hydrogen in low-value applications, give us pause," say NRDC hydrogen policy lead Rachel Fakhry and Pete Budden, who leads NRDC's state and regional-level hydrogen policy work. 

"These are hubs that are under direct Department of Energy oversight. So the Department of Energy has a huge, huge role and imperative to require these projects to capture carbon at very high rates, to minimize verifiably methane leakage, to protect against health harms and, yes, you also have some rules around how the carbon capture equipment is powered," Fakhry told CNBC.   

Joseph Webster and William Tobin at the Atlantic Council Global Energy Center wrote last month that with the selection of the hubs "the DOE sees a future for blue hydrogen", but warned that "the decision comes with risks that will require structured oversight to avoid subsidizing emissions."

"Producing clean hydrogen from fossil feedstock will require the coordination of the upstream sector to deliver cleanly produced natural gas and technology to capture the carbon from gas-based hydrogen production at a sufficient rate," they noted. 

According to Webster and Tobin, emissions reduction of the hydrogen produced with U.S. natural gas will be challenging. Capturing 100% of the carbon dioxide that the process generates remains technically challenging.

Making hydrogen from natural gas, which in the United States has an average methane intensity of 1.5%, will yield 2.5 kilograms of CO2e. 

To meet DOE's definition of clean hydrogen, blue hydrogen needs less than 2 kilograms of carbon dioxide equivalent (CO2e), they say. 

"To meet this standard, hydrogen will have to come from natural gas with near-zero methane emissions, and utilize carbon capture process with greater than 90 percent capture."     

By Tsvetana Paraskova for Oilprice.com

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