The U.S. built the world’s largest economy by energizing its industrial sector with oil, gas and coal. Today, these fossil fuels still account for nearly 80% of total U.S. primary energy production.

But with an increasingly urgent climate crisis looming, the U.S. has recently joined the more than 120 other nations pledging to hit net-zero carbon emissions by mid-century, with President Biden signing an Executive Order on Dec. 8, 2021 calling for a “carbon pollution-free electricity sector by 2035 and net-zero emissions economy-wide by no later than 2050.”

Emerging from this decarbonization framework is a renewed interest in low-carbon hydrogen as a potential fuel source to replace oil, gas, and coal. Currently, the U.S. produces roughly 10 million tons of hydrogen annually, but the vast majority of it comes from natural gas (referred to as “grey hydrogen”).

“Green hydrogen,” in contrast, is a zero-carbon option produced by splitting water into its component parts using electrolysis powered by a nuclear or renewable energy source (such as wind, solar or geothermal). Once derived, green hydrogen has the potential to fill gaps left by renewables in the transition toward a clean energy-based economy. 

Benefits of green hydrogen

Green hydrogen and its derivative fuels—ammonia, methanol, and aviation fuels—have the potential to replace fossil fuels used in the power, industrial, and transportation sectors.

Hydrogen is especially beneficial because it can be stored and used in fuel cells, which pack more power in a smaller space than electric batteries. This makes it ideal for the transportation sector. While electric batteries may be sufficient for driving shorter distances or in a passenger car where charging is not an issue, hydrogen (as a lighter and more energy-dense option) could emerge as an option for those in the aviation, trucking, and marine industries who have to carry energy supplies over greater distances.

Hydrogen may also be important in decarbonizing certain sectors like steel manufacturing, which require high temperature industrial processes, which renewable energy may not be able to supply. Hydrogen can be burned in a boiler or converted directly to electricity in a fuel cell. It may also act as a feedstock for conventional chemicals like ammonia or methanol, and electricity produced from hydrogen can provide grid services (supplementing intermittent power generation created by renewables like wind and solar). Green hydrogen can also use modified versions of pipelines, power plants, and other machinery formerly used to run on coal, gas, and oil; and because of this, a transition from fossil fuels to hydrogen may be less disruptive to existing industries.

Challenges of transitioning to a green hydrogen economy

Shifting the energy sector to green hydrogen comes with enormous challenges, making project implementation difficult in this area.

A major consideration is price. The process of creating green hydrogen typically costs around $6/kilogram, 2 to 4 times more than fossil fuel hydrogen (grey hydrogen), due to the input cost of renewable electricity and the cost of running electrolyzers. The availability of existing hydrogen and the ability to transport it pose additional challenges. It will be necessary to establish a physical and commercial transportation structure that allows separation between the green hydrogen’s production location and end use. Doing so will open up green hydrogen markets significantly, enabling producers to find appropriate offtakers for hydrogen projects.  

Reasons for optimism

Despite the difficulties surrounding green hydrogen implementation on a national and global scale, there are many reasons for optimism in this area. The falling costs of solar and wind power could lead to reduced costs for electrolysis. Lenders may also be more comfortable lending to green projects where an existing use for hydrogen exists (as the projects may already have long-term offtakers and high industrial demand).

New areas of research and government regulations could push the energy transition forward. The Biden Administration has advanced an $8 billion initiative to establish regional hydrogen hubs that will “advance the fuel’s production, processing, delivery, storage, and end-use.” State policies are also appearing, including the California Low Carbon Fuel Standard, which promotes substitutes for conventional gasoline (including hydrogen) to reduce lifecycle carbon intensity of transportation fuels through a system of credits and deficits.

Many private companies are also branching into the hydrogen space, including Southern California Gas, which announced plans to develop a pipeline to connect power purchasers to green hydrogen production facilities in the Los Angeles Basin of Southern California. Another company based in New York, Plug Power, is aiming to create the first viable market for hydrogen fuel cells. Between 2014 and 2020, it experienced a 40% growth rate, with customers like Walmart and Amazon purchasing fuel cells to replace conventional batteries in vehicles and equipment powered by electricity.

Sam Porter is the founder and CEO of NeuPorter, a company designed to be a transporter of new fuels out of Texas. Sam’s view is that “Public policy has traditionally aimed at driving down production costs,” but the focus of the industry “is now inevitably turning toward delivering clean energy—where it’s needed, when it’s needed and in the right amount.”

Porter believes that green fuels are going to be competitive, especially coming from places like Texas with “high-capacity factor, low-cost wind and solar coupled with a pro-pipeline business environment and favorable storage geology.”  

With government, industry, and public support generally on the rise, investment opportunities will continue to abound in the green hydrogen space. As technology improves and economies of scale work to reduce costs, it seems likely that a combination of renewable energy and green hydrogen technologies will change the energy landscape. Together, the two will move the United States, and the global energy sector, towards carbon-neutrality by mid-century. 

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