Clean Hydrogen

^{Cover image by Vanit Janthra/iStock}

This page was updated in December 2023 to reflect the latest developments in U.S. clean hydrogen policy.

On the pathway to decarbonization, energy efficiency, renewable power and direct electrification can reduce emissions from electricity production, light and low-temperature industrial processes and certain applications within transportation by about 85%. 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 and chemicals, 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 and affordable 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 increase the availability and competitiveness of clean hydrogen as an emissions-reduction option for heavy industry and freight transportation. However, new regulatory frameworks 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 (BIL) and the 2022 Inflation Reduction Act (IRA). These programs will drive emissions 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. After the passage of the IRA and BIL, DOE its review criteria to give more weight than it has in the past to community engagement and workforce development plans. But time will tell whether those actions produce the desired results.

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.

Between fall 2022 and fall 2023, DOE solicited and reviewed applications for hydrogen hub funding. It considered applicants that would produce hydrogen from fossil fuels as well as renewables and nuclear, as mandated by Congress. These projects would produce clean hydrogen for use as a feedstock or fuel for industry, power and heat and transportation. WRI provided recommendations to DOE that aimed to guide funding towards applicants that could most cost-effectively reduce hydrogen emissions and scale up its low-carbon uses.

DOE announced seven hubs in October 2023. Negotiations will determine and finalize the funding awards to begin construction and operation. All locations except for the Appalachian Hydrogen Hub (ARCH2) intend to use renewables as at least one method of hydrogen production . Additionally, three out of seven hubs — ARCH2, HyVelocity (located in Texas) and MachH2 (the Midwest Hydrogen Hub) — intend to use natural gas production. Finally, every potential type of consumer encompassing industry, power and heating and transport has been included as end uses across the various hubs.

• Appalachian Hydrogen Hub: Appalachian Regional Clean Hydrogen Hub (ARCH2); Ohio, Pennsylvania and West Virginia.
• California Hydrogen Hub: Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES); California.
• Gulf Coast Hydrogen Hub: HyVelocity H2Hub; Texas.
• Heartland Hydrogen Hub: Minnesota, North Dakota and South Dakota.
• Mid-Atlantic Hydrogen Hub: Mid-Atlantic Clean Hydrogen Hub (MACH2); Delaware, New Jersey and Pennsylvania.
• Midwest Hydrogen Hub: Midwest Alliance for Clean Hydrogen (MachH2); Illinois, Indiana and Michigan.
• Pacific Northwest Hydrogen Hub: PNW H2; Montana, Oregon and Washington.

While these hub announcements represent a major milestone, many steps remain before a funding contract can be finalized. The selected hubs must still demonstrate the financial and technical viability of their proposals, complete a National Environmental Policy Act review and finalize community benefits plans.

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. Because the tax credit is technology-neutral, hydrogen made from natural gas can also receive funding if its emissions are verifiably low enough after the facility captures its CO2 emissions and avoids upstream methane leaks.

Before hydrogen producers can claim the tax credit, the Internal Revenue Service (IRS) must provide guidance on how electrolysis plants will account for the energy they consume. At the heart of the issue is whether electrolysis plants connected to the grid can verify that the power they use is produced by clean sources and does not lead to extra demand for fossil energy. This forthcoming guidance will address “three pillars” for renewable electrolysis:

• Additionality: Is the additional energy demand on the grid from electrolysis met by additional clean energy? If no additional clean energy is added, the extra demand would likely lead to more fossil power.
• Regionality: Is the renewable energy claimed by the electrolysis plant locally generated? Electrolysis that is not drawing from clean power nearby is likely using less clean energy and buying renewable energy credits generated elsewhere.
• Time-matching: Is clean energy being produced in the same hour it’s used by electrolysis plants or is it balanced over a longer time, such as a year (i.e. hourly versus annual matching)? Hourly matching provides real-time verification that electrolysis is occurring when clean energy is being generated. By contrast, annual matching measures electricity consumption and generation over a year, potentially leading to hydrogen production during periods of more carbon-intensive power generation.

The Treasury’s guidance will greatly influence how new hydrogen producers design, size and site their plants, and has sparked significant debate over how these guardrails are implemented.

Next Steps for Advancing Clean Hydrogen

The Hubs program is just the start of new hydrogen markets. State governments and companies 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 to connect hydrogen users and suppliers. This and other federal tools can bolster the viability of affordable, clean hydrogen. H2 Matchmaker to connect hydrogen users and suppliers. This and other federal tools can bolster the viability of affordable, clean hydrogen.

Managing the social impacts of these projects will be important. For the first time ever, the federal government is requiring states and project developers to incorporate diversity, equity and inclusion objectives, as well as robust community engagement, in the development of hydrogen 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.

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. More research on these topics is necessary, but DOE and state hydrogen programs can take some initial 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.

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