A fight over a vital federal tax credit intended to kickstart a market for clean hydrogen and worries over high production costs are cooling near-term expectations for the climate-friendly fuel.
0:00 Introduction
0:30 Green v Grey Hydrogen
6:01 What Are The Biden Administration Carbon Goals?
9:59 Is Green Hydrogen Realistic?
14:47 Blue Hydrogen And Carbon Capture
16:50 How Will Costs Come Down?
21:00 What’s Next For Green Hydrogen?
Read the full story on Forbes: https://www.forbes.com/sites/alanohnsman/2024/04/16/green-hydrogens-hype-hits-some-very-expensive-hurdles/?sh=71cc54e16e57
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0:00 Introduction
0:30 Green v Grey Hydrogen
6:01 What Are The Biden Administration Carbon Goals?
9:59 Is Green Hydrogen Realistic?
14:47 Blue Hydrogen And Carbon Capture
16:50 How Will Costs Come Down?
21:00 What’s Next For Green Hydrogen?
Read the full story on Forbes: https://www.forbes.com/sites/alanohnsman/2024/04/16/green-hydrogens-hype-hits-some-very-expensive-hurdles/?sh=71cc54e16e57
Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript
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Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.
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TechTranscript
00:00A fight over a vital federal tax credit intended to kickstart a market for low and no carbon
00:05hydrogen and worries over high production costs are cooling near term expectations for
00:10the green hydrogen fuel.
00:14Hi everybody, I'm Brittany Lewis with Forbes Breaking News. Joining me now is Alan Onsman,
00:19my Forbes colleague and co-author of the Current Climate Newsletter. Alan, thank you so much
00:23for joining me.
00:24Hi, happy to be with you.
00:27You recently reported that green hydrogen's hype hit some very expensive hurdles. So before
00:33we dive into what those hurdles actually are, I would like it if you could define some terms
00:40for our audience. For those who aren't aware, what's the difference between clean hydrogen,
00:45green hydrogen, and dirty hydrogen?
00:48Well, pull out your Crayola box because you're going to need to know about colors in this
00:55Hydrogen, if you remember your junior high or freshman year chemistry class, hydrogen's
01:00the number one element on that periodic table, you know, with the atomic number one. It's
01:05the most abundant element in the universe. The sun runs on it. It's great. The problem
01:10is it doesn't normally exist freely in nature. So to use it, you have to make it from something.
01:18Hydrogen likes to cling to things. And we use about 92 million tons of hydrogen globally
01:24every year for industrial processes, refining oil, making chemicals, fertilizers in the
01:31food industry, all sorts of things. And so we already use lots and lots of it. And nearly
01:36all of it is made from using steam to pull it out of natural gas because natural gas
01:43is CH4. You know, it's got carbon and four hydrogen molecules. When you do that, you
01:52release carbon dioxide. So traditional industrial hydrogen, it's kind of dirty. Hydrogen itself,
01:58perfectly clean, no carbon, no nothing on its own. But again, when you have to pull
02:03it out of something like methane, natural gas, you're releasing CO2. So there has been
02:09an effort to really find cleaner sources. If we could get hydrogen without using a fossil
02:16fuel source, that would be great. So for several years, there has been a push to find other
02:22ways to get cleaner, less polluting hydrogen. One of the most popular and promising, it's
02:28called green hydrogen. And the name is what it sounds like, green in the sense of being
02:33very clean. In that case, you just need water, H2O, and some electricity to split it. So
02:40rather than steaming it from natural gas, you're pulling it from water, releasing no
02:44carbon whatsoever. And what you want to do also is get your electricity from a renewable
02:49power source, wind, solar. And in some cases, nuclear is also fine because there's no carbon
02:56pollution from nuclear power. So that would be acceptable. And that creates something
03:00called green hydrogen. Currently, there's very little green hydrogen available, though.
03:05This is something that's been moving out of the lab, and it's not yet scaled to industrial
03:11level. So most of the hydrogen is still very dirty. And I'll just toss in one more since
03:18we're talking colors. The dirty form is often called gray. Then you have green, which is
03:22the good one. There's one called blue. To make blue hydrogen, you start with traditional
03:28industrial hydrogen, pull it out of natural gas. But in this case, you do not allow the
03:34carbon dioxide to escape. You capture it, and you store it, preferably underground.
03:40And a lot of oil companies are saying, we can do this. That would qualify, by some counts,
03:47as a clean form of hydrogen. However, there is some controversy as to whether that's truly
03:52the best environmental option.
03:55So we've got green is good, gray is bad, blue is somewhere in the middle?
04:01That's right. You got it.
04:03Good. So what are the main factors, then, that make hydrogen fuel so much more expensive
04:07than natural gas?
04:09Well, yeah. So currently, if you're using it for, say, trucks or buses, the supply of
04:17hydrogen is very different than natural gas. Natural gas is extremely abundant. We have
04:22it all over the place. You can make it from waste. You can drill it from the ground. It's
04:27everywhere. It's very cheap, especially in the United States. To get that hydrogen, you
04:32now have to add in another layer, an industrial process, to split it from the natural gas.
04:38That requires energy and extra equipment. So then that's adding cost.
04:43For the story that I reported, I talked to a transit operator here in suburban Los Angeles,
04:52Foothill Transit, and they currently have about three dozen hydrogen-powered buses in
04:57their fleet. Zero tailpipe pollution, which is a big thing in California. The buses run
05:02great, not a problem, but the operator pointed out, our issue is the fuel for these things
05:07is two and a half times our cost for natural gas.
05:11The other reason for that is hydrogen is not a commodity product, traded like a commodity.
05:18There's no daily, there's no barrel of hydrogen price today, like there is for oil or gas.
05:23These things are fixed markets with massive supply base. Hydrogen is very specific. If
05:31you're a big oil company, you probably make your own. If you're a big chemical company,
05:35you make your own or you buy it from a large supplier, like a company like Air Products,
05:40for example. But there's no open market for hydrogen. So if you want to run your buses
05:45on hydrogen or your truck fleet on hydrogen, first you have to find a supplier and then
05:50negotiate a price. So for that reason, you know, it creates the opportunity for it to
05:54become more expensive. And arguably today it is more expensive than just using natural
06:00gas or oil.
06:02As we know, Democrats and the Biden administration in particular ran on climate change, ran on
06:07preserving the environment. So I am curious, what are the Biden administration's goals
06:11for carbon production and usage in the United States?
06:15Well, the Biden administration is extremely aggressive in promoting hydrogen. And I will
06:23say this. This is something that I've covered for maybe 20 years. There is no precedent
06:30for the level of federal support under the Biden administration that we're seeing now.
06:36Some years ago, the Obama administration was a little, you know, not interested. They thought
06:42for transportation and for clean energy, were more interested in wind, solar and maybe batteries
06:48for electric cars. The Biden administration has been more comprehensive, I guess, where
06:53they're looking at more options. And to be fair, the technology has moved over the last
07:00decade. So things that weren't really possible a decade ago now are. And primarily, that
07:07is a technology called electrolyzers. Electrolyzers are what make the green hydrogen. They do
07:13the work to split water to make oxygen and hydrogen. That technology was not quite as
07:21far along a decade ago. And there are many companies that are saying that they're very
07:25close to having a low cost, effective electrolyzer system to make all of this green hydrogen.
07:32So the Biden administration has been very generous. Both the Inflation Reduction Act
07:37and the Bipartisan Infrastructure Bill have programs related to the use of hydrogen, the
07:43production of hydrogen. The seven billion dollars were handed out last year for these
07:49hydrogen hubs, these big projects involving both public dollars, private dollars to really
07:56try to be a moonshot, to gin up this industry, to make cleaner hydrogen more widely available,
08:01to make it cheaper. And so the administration's been very, very active in trying to do this.
08:07Right now, there's one more piece to that strategy. And this is where things are getting
08:12complicated. There is a federal tax credit for the production of clean hydrogen. It goes by
08:19the name 45V. It's IRS designation. But what that would do is provide three dollars for every
08:26kilogram of clean hydrogen produced. So if you are a company that wants to make green hydrogen,
08:33which might cost, let's say, you know, four dollars a kilogram, if you have that three dollar a
08:39kilogram incentive, suddenly you're now cost competitive with other forms of energy at that
08:45price. And so that is the purpose of the federal incentive program. It's to really get this market
08:52off the ground. It would be around for a decade. And the estimate is within a decade, the credit
08:57wouldn't be needed anymore, that this industry will really have matured and can stand on its own.
09:02But there's a big fight over who will get this credit because not all hydrogen is considered
09:09clean enough. And at the moment, to be green is good. But to be green, you have to get all of your
09:17power from renewable energy. You can't just plug into the grid. You have to get it from new
09:22installations of wind or solar or nuclear. That is making some companies a little angry because
09:31they feel that's going to be too difficult for them in the early days to find all this new,
09:36you know, widely available wind and solar. And companies that want to do blue, like Exxon Mobil,
09:43for example, they don't like it at all because at the moment it doesn't look like their blue
09:48hydrogen would qualify for the tax credit. And they're threatening to actually halt construction
09:54on a multibillion dollar blue hydrogen project in Texas as a result. So only as of now, green
10:02would get the tax credit, green hydrogen. But would you consider green hydrogen, as we said
10:07here right now, kind of a pipe dream? Because earlier you said it hasn't been made to scale yet.
10:13Is it too expensive? Is it too impossible to mass produce with the current technology today?
10:20Well, that's a difficult question to answer. I'm not a scientist, but based on the number
10:27of companies that I'm speaking with, there are a great many that have aggressive programs and
10:32they certainly believe it will be. They will tell you it's not going to be price competitive today.
10:37It's going to take some time to scale up. So that federal tax credit will be very helpful.
10:43The same thing happened 20 years ago with solar panels. Solar panels were far more expensive
10:49years ago. They also received a very generous tax credit. That tax credit did its job. Solar
10:55panels now cost much less than they used to to manufacture. So new technologies, they do take
11:01time. So that's sort of where we are right now. Think of where we are with green hydrogen,
11:05sort of solar power 20 or 25 years ago, where it was not cost competitive at that time with
11:11natural gas or coal or other things. And now it is. And so there are companies that are very
11:17optimistic that they can bring down that cost curve. But I think realistically, they're saying,
11:22you know, it's the end of this decade. It's the 2030s where maybe we can hit
11:26cost parity. So to say it's a pipe dream probably wouldn't be accurate, but it's not going to be
11:32simple. It is going to be very difficult to get that cost out, to make it cost competitive.
11:37And, you know, it's hard to predict how these things are going to turn out. A lot of money
11:41has been poured into this and some companies have made some big bets, but we don't know for sure.
11:46Can they really pull it off? We'll see. Let's talk about those tax credits, 45 V.
11:53Can you talk about who the critics are and what their criticisms are of the current system?
11:59Right. Well, so last December, the IRS and the Treasury Department,
12:05which will determine who gets the credit working with the EPA, they said, OK, to qualify for the
12:14full credit, only hydrogen that is made entirely with non-carbon power sources will qualify for
12:23this credit. And also, we want you to get your energy, your electricity from new power sources.
12:33So you're not taxing the grid because the grid's already, you know, there are a lot of demands for
12:37power. A green hydrogen plant would need 100 megawatts or more of power. That's a lot of
12:45additional electricity. So the government said, look, to get the credit, get your power not only
12:51from renewable sources, but also new ones and additional ones. Now, some companies that already
12:57are making green hydrogen, like Plug Power, they just opened a plant in Georgia. They don't like
13:03that requirement at the moment because they hadn't baked that into their business model.
13:08They really wanted to just tap into the grid. Their new green hydrogen plant in Georgia that
13:14just opened will qualify because the power comes from a brand new nuclear power plant that just
13:20opened in Georgia. So that one's fine. But they have other facilities where they had not baked in
13:26new renewable power as their power source. A competitor of theirs, a company called
13:32Electric Hydrogen, their business model is entirely what the government would like to see,
13:37where every project they're planning would be powered by brand new renewable energy.
13:42So a new wind farm, a new solar array. They don't want to be connected to the grid at all. And
13:48that's kind of the model for what the government wants to see with these projects. So that's really
13:54where it stands right now, where we just had a public comment period from all the companies
14:00that concluded at the end of March, where they were able to say what they liked or did not like
14:06about the tax credit proposal. So the two camps are sort of split right now. And we're waiting
14:11to see later this year what the final version of the rules are to get this credit, because
14:17the credit's a big deal. It will help a lot of these companies suddenly get into the market
14:24and sort of artificially be competitive in the early years. But we don't know the final
14:29version of the regulations yet. So that remains to be seen. But that is a challenge for some of
14:35the companies, for sure. Alan, to put it in the simplest terms that you did earlier,
14:40gray hydrogen is bad. Green hydrogen is good. Blue hydrogen is somewhere in the middle.
14:46So why is the Biden administration not rewarding at least somewhat the companies using blue hydrogen?
14:52Because it does sound like that's a step in the right direction, at least.
14:56Well, and that is exactly what the argument is for the companies that are pushing blue hydrogen.
15:02And actually, some of the other green hydrogen companies say, look, the rules initially should
15:07be a little looser because this is an industry in its infancy. And we want to let it like
15:13walk first before we put too many restrictions on it. Well, the argument against it,
15:20there are some scientific studies that have been done, a famous one out of Cornell
15:25that said actually blue hydrogen is worse for the environment than traditional gray hydrogen because
15:33the problem is to capture that carbon and store it underground. It's very energy intensive,
15:40which means let's say you're making your hydrogen from natural gas. You make your hydrogen. Now you
15:45capture the CO2 using more natural gas as your power source to capture it. And natural gas
15:53pipelines, for example, leak. Methane is a greenhouse gas. So the calculations are if
16:00you're capturing the CO2, which can be done, you're also releasing more greenhouse gases
16:08from the natural gas that you're using. And at the end of the day, you'd be better off not trying
16:13to capture that CO2 at all because you're not accomplishing anything that's good for the
16:17environment. Now, that's what one particularly well-known study found. I believe ExxonMobil
16:23would disagree with that. I don't think they share that view. But that's sort of where we stand.
16:28There is certainly an argument from some sectors that let's incentivize everyone to do better.
16:35Not everyone can get an A plus on the first day. Let's gradually increase the standards.
16:42And perhaps that's what will happen in the final version of the tax credit.
16:46I don't have a crystal ball, so I'm not clear yet which way it's going to go.
16:49As you noted, this industry is in its infancy stages. It's also very expensive as of right now.
16:55So what are some solutions that industry insiders are proposing
17:00that help lower costs and get production off the ground?
17:04Well, I think probably the one that perhaps Plug Power would promote. And Plug has probably
17:12been at this about the longest of many of the companies that are in the green hydrogen space.
17:16They would say, let's at least back off a little bit on the requirement for all of this new
17:23renewable power as really our only power source that we're allowed to use. Let us tap into the
17:29grid. That will allow us to begin producing the stuff. We'll get better week by week,
17:37month by month. We'll improve our efficiencies. Let us do that. Over time, we'll find additional
17:45power sources. But let's not phase in from day one some of these additional requirements on
17:52the renewable power component. So that would be an argument I think you would hear from some
17:57sides. And then, of course, the ExxonMobil's of the world would say, look, blue hydrogen
18:03is cleaner hydrogen. Let's do that. I don't know if the rules will go that far. I suspect
18:09there might be more of a grandfathering in on the energy requirement piece here saying,
18:15OK, you can use a mix of renewable and some regular grid power for the first couple of years,
18:22two or three years, to let them start to scale up. That would certainly help because if you've
18:27made your business plan without factoring in this need for additional new sources of renewable
18:33power, if you have to add them, that's cost right there. So you're going to take an expensive
18:37process and make it even costlier. So perhaps what we'll see is something more like that,
18:44a phased in system in terms of where your clean power comes from. What markets do people within
18:53the industry believe could be good for the early adoption of clean hydrogen? Well, a lot. There's
19:00great interest for things like steel and sustainable aviation fuel. Europe in particular, because the
19:07United States is not alone in pushing for this. Europe is also very aggressively trying to scale
19:12up its own clean hydrogen industry. This was really actually triggered by Russia's invasion
19:18of Ukraine and the limits on getting natural gas from Russia and the risk to the EU. So they wanted
19:27to prioritize more domestic clean energy for them. So green hydrogen has been heavily pushed in the
19:34EU. And they also are going to be requiring steel manufacturing that you use hydrogen,
19:41clean hydrogen in steel manufacturing, because steelmaking is very, very dirty.
19:47There's a lot of pollution, a lot of greenhouse gases that come from that. Ammonia production,
19:53ammonia is used in fertilizers. So for modern agriculture, we use a lot of ammonia that's made
19:59with hydrogen. And so green hydrogen is seen as a source of, as an ingredient for the ammonia
20:09market globally. And then there is interest in transportation, mostly for heavy trucks.
20:15There are some companies now that are already beginning to deliver hydrogen-powered
20:19semi-trucks. More are coming. And for long-haul trucking in particular, hydrogen seems to work a
20:28little bit better than batteries. And so it's a little more practical. So that's another area.
20:33And then again, sustainable aviation fuel, cleaner jet fuel, where you're blending it in with
20:39blending in green hydrogen to make cleaner types of aviation fuel. That's a new market that already
20:46Europe is again requiring, and the US is moving to also require airlines to use ever greater amounts
20:54of sustainable aviation fuel or SAF. And green hydrogen would be a component of that as well.
21:01Alan, you're a resident climate and climate technology expert here. So I am curious,
21:07what are you looking out for next when it comes to the hype surrounding green hydrogen?
21:13Well, I think a company to watch will be Electric Hydrogen. I think their approach is very
21:19interesting. It's created by two guys that came out of the solar power industry. So they're very
21:23familiar with both renewable power and working with utilities and with industrial customers.
21:29And I think their approach will be one to watch. If they can succeed, they already have built in
21:36some early clients for their product. And they basically have a green hydrogen plant in a box
21:42that they'll set up for you and then plug it into a wind farm, for example. If they can continue to
21:51land projects and have some success over the next two to three years, I think that will be very
21:56promising. So I think that's one company to watch for sure. I will be very interested also to see
22:02in the transportation space the adoption of hydrogen for trucking. Because one of the things
22:07I look at a lot is battery-powered vehicles as well as hydrogen. Batteries work great for electric
22:13cars and for, say, medium-duty delivery vehicles. But if you're hauling 60,000 pounds of goods,
22:20500, 600, 700 miles, batteries get a little difficult to work with. That's a lot of battery.
22:26And so that's an area also where hydrogen looks really interesting. Certainly many companies like
22:32Daimler and Volvo and Toyota and Hyundai, as well as startups like Nikola, all think that's going
22:39to be a business. So I think that's definitely an area I'm looking at as well. Alan, thank you so
22:44much for your insights and your reporting. I enjoyed the conversation. Thank you for having me.
22:56Thank you.