Clean Hydrogen

^{Cover image by Vanit Janthra/iStock}

On the pathway to decarbonization, energy efficiency, renewable power and direct electrification can reduce economywide emissions by about 85%. These solutions cut greenhouse gas pollution from electricity production, light and low-temperature industrial processes and certain applications within transportation. Decarbonizing the last 15% or so of the economy’s emissions — comprising commercial transport (aviation, shipping and long-distance trucking) and heavy industry (including concrete, steel, petrochemicals and refining) — will be difficult, because these are energy-intensive sectors with a variety of emission sources. Clean hydrogen could meet some of these needs.

Hydrogen fuel has been a hot topic for decades, but only recently has it moved from pipedream to potential reality. Limited by costs, safety concerns and the availability of alternative energy sources, views of hydrogen as a practical solution have waxed and waned.

As the urgent need to decarbonize has come to the fore, however, there is increasing interest in clean hydrogen to address industrial carbon dioxide emissions and to provide low-carbon fuel for heavy-duty transportation. With costs of renewables falling, the promise of clean hydrogen made by electrolysis has grown because of its potential contribution to a net-zero emissions world. Fossil fuel companies now see hydrogen as a low-carbon production pathway that offers an alternative business strategy in a decarbonizing economy.

U.S. and Global Investment in Clean Hydrogen to Date

Nearly all hydrogen consumed in the United States today is produced with fossil fuels and is used by industry for refining petroleum, producing fertilizer, treating metals and processing foods. To play a role in decarbonization, the hydrogen production process would have to shift away from unabated fossil fuels; a new supply chain must be created to make negative-, zero- and low-carbon hydrogen (“clean hydrogen”) available at scale.

Major investments in clean hydrogen can enable the scale-up and market adoption of emerging climate solutions that will need to be widely deployed to achieve net-zero emissions by mid-century. In the U.S., the Bipartisan Infrastructure Law allocated funding to clean hydrogen production and infrastructure. The Inflation Reduction Act established a clean hydrogen production tax credit (PTC) of up to $3 per kg for hydrogen meeting the most stringent lifecycle emissions standard. And the U.S. Department of Energy (DOE) launched an Energy Earthshot project with a goal to reduce the cost of clean hydrogen by 80%, to $1 per 1 kilogram in 1 decade ("1 1 1").

Globally, climate goals are driving national-scale hydrogen initiatives and funding. The European Union is investing $430 billion in green hydrogen by 2030 to help achieve the goals of the European Green Deal. India recently launched its National Hydrogen Mission to “help the nation make a ’quantum leap’ to energy independence by 2047.” Australia, Chile, China, Germany, India, Japan and Saudi Arabia are all making major investments in clean hydrogen production and demonstration projects.

This global growth will accelerate innovation, develop supply chains and reduce costs. However, governance agreements will be critical to the expanding hydrogen market: The U.S. and other nations must cooperatively establish monitoring, reporting and verification systems to ensure traded hydrogen and products made from hydrogen are clean.

Clean Hydrogen Initiatives Under New Climate Legislation

Over the next decade, DOE will administer clean energy programs established in the 2021 Bipartisan Infrastructure Law and the 2022 Inflation Reduction Act. These programs will drive emission reductions, support emerging technologies, and provide economic benefits to the nation as well as to states and regions where projects are built. The degree to which DOE decisions drive decarbonization and prioritize social equity, versus simply ramping up hydrogen production and other clean energy technologies, must be integral to the proposal review process. 

Clean hydrogen investments in the Bipartisan Infrastructure Law

The Bipartisan Infrastructure Law allocates $8 billion to develop regional clean hydrogen “hubs.” The idea of these hubs is to locate a network of clean hydrogen producers near potential clean hydrogen consumers, connected by the necessary infrastructure. Hubs are appealing from a sustainability perspective, as they could potentially reduce hydrogen transport emissions and leakage, which undermine its value as a low-, zero- or negative-carbon fuel. DOE plans to use Bipartisan Infrastructure Law resources to fund 6-10 hubs for hydrogen — sourced from fossil fuels as well as renewables and nuclear — to be used as a fuel source for electricity, transportation and industry.

Clean hydrogen investments in the Inflation Reduction Act

Hydrogen projects became less expensive and more lucrative to developers with the passage of the Inflation Reduction Act. The act includes a powerful hydrogen production tax credit that provides the largest credits ($3 per kg) to projects with the lowest carbon intensity. This formula incentivizes producers and consumers to transition to cost-effective lower-carbon fuels. It could also reduce the price of hydrogen made from renewable electricity to near zero if electrolyzer and clean electricity costs decline as much as expected, and if companies adopt fair labor practices that qualify them to receive the full credit.

Next Steps for Advancing Clean Hydrogen

State governments can work with DOE to create projects that will stimulate clean hydrogen development and reduce greenhouse gas emissions. DOE has created a voluntary tool called H2 Matchmaker to help hydrogen users and suppliers explore the potential for creating regional hydrogen hubs. States began announcing their intention to create multi-state partnerships not long after the law was passed, signaling significant interest from those hoping to lead the nation in hydrogen development.

For the first time ever, the federal government is requiring that states and project developers incorporate diversity, equity and inclusion objectives and robust community engagement in the development of these projects. Applicants are required to submit a Diversity, Equity and Inclusion Plan that describes the actions they will take to foster a welcoming and inclusive environment; support people from underrepresented groups in STEM; advance equity; and encourage the inclusion of individuals from these groups in the project. Applicants are also responsible for documenting how their project will benefit disadvantaged communities and filing specific community engagement and job creation plans. 

WRI is providing analysis to DOE to help guide its selection of hydrogen hubs that maximize the highest possible emissions reductions, economic benefits, ease of connecting infrastructure and equity outcomes. DOE’s hub decisions will have a significant impact on the trajectory of hydrogen production in the U.S.

Overcoming Implementation Challenges

While hydrogen is gaining interest and investment around the globe and is viewed as a promising solution, there are concerns around the efficacy of producing clean hydrogen. Methane and hydrogen leakage can potentially offset greenhouse gas reductions, and fossil-based production can entrench fossil fuel interests and lock-in. DOE and state hydrogen programs can take steps to mitigate these risks:

• DOE can address issues associated with fossil-based hydrogen by prioritizing electricity-based hydrogen over fossil hydrogen with carbon capture. While there is likely some role for fossil-based hydrogen, most efforts should work to scale up fossil-free hydrogen produced with zero-carbon energy or biomass to reduce methane leakage. The higher credits for near- and zero-carbon hydrogen established in the Inflation Reduction Act’s Hydrogen Production Tax Credit should shift the economics to favor the cleanest hydrogen over a few years.
• Clustering hydrogen producers, consumers and infrastructure within well-designed hubs can reduce pipeline mileage and the likelihood of hydrogen leakage. Minimizing hydrogen transport and use in dispersed networks, like municipal gas grids, is also important to limit hydrogen and methane leakage.
• DOE and state hydrogen programs should implement research, testing, pilots and incentivized best practices informed by lifecycle assessments to target and eliminate possible emissions. 

Given these challenges and others, clean hydrogen should be prioritized for uses with the fewest other viable alternatives, which are most likely industrial decarbonization and commercial transportation. Government-led policies and investments can direct or limit clean hydrogen to its best uses to clean our air and secure a safer climate.

Return to view all sectors