Low-carbon hydrogen market: policy measures to be taken

The National Petroleum Council (NPC) recently released a Low Carbon Hydrogen Benchmark Report It's over 1,200 pages long.

But Mike Kerby can sum it up in just 12 words: “Hydrogen could have a huge impact on emissions, with the right support.”

Mike should know: he was one of the lead authors of the report.

A chemist by training with over 30 years of experience, Mike is currently a Senior Advisor in our Corporate Strategic Planning Group (the team of experts who assess trends in global energy markets to help guide our investments).

For the past two years, he has also served on the NPC committee studying the potential for expanding the nascent U.S. market for low-carbon hydrogen. (That’s a term for hydrogen produced in a way that emits fewer greenhouse gases than current methods, such as our planned project in Baytown, Texas, which would produce hydrogen from natural gas, along with the associated CO.)₂ captured and stored emissions).

The committee's findings show how “powerful” hydrogen could be:

• Low carbon hydrogen can be a key solution for “hard to reduce” applications in heavy industry, commercial transportation and power generation.
• In fact, in a hypothetical scenario in which the United States reaches its stated goal of net-zero emissions by 2050, the report's models estimate that by 2050, hydrogen could eliminate 8% of total US emissions – a significant contribution.
• Low-carbon hydrogen could reduce emissions at a rapid pace. lower cost to society than other options, while supporting U.S. economic growth and jobs and strengthening energy security.

So why did Energy Secretary Jennifer Granholm – at whose request the report was prepared – call its findings “disappointing”?

Because it describes how much additional work would be needed to grow the U.S. hydrogen market from its current level (11 million metric tons per year) to the level envisioned by the U.S. net-zero emissions scenario by 2050 (about seven times higher).

“We’re talking about nearly $2 trillion in capital investment for hydrogen production, building an interstate hydrogen pipeline network and other major new infrastructure, as well as cooperation across multiple industries, government institutions and universities,” Mike said.

“It's a big challenge.”

Key recommendations for low-carbon hydrogen

Fortunately, the NPC report provided a roadmap, listing 23 recommendations for U.S. government and industry. For Mike, the two most important are:

• Policies that encourage demand. While the Inflation Reduction Act (IRA) has incentivized hydrogen production, it has not met demand. “The IRA is a good start, but it needs to be coupled with market-driven incentives on the demand side,” Mike said.
• Expanding existing policy incentives for hydrogen production. This includes extending the IRA's 45V tax credit from 10 to 20 years and expanding 45V language to encourage the use of low-carbon natural gas as a feedstock for hydrogen.

“Low-carbon hydrogen is more expensive than current fuels,” Mike said. “This cost gap is expected to narrow as technologies improve. But in the meantime, to support sustained demand, we have recommended well-designed, market-driven, technology-neutral policies.”

The report also highlights the need to engage with communities that may be impacted by the growth of hydrogen and related infrastructure. Mike noted that this is the first time an NPC report has addressed socio-economic considerations at the community level, including environmental justice issues.

For more details on the committee's recommendations, see the blue boxes below or consult the report summary.

The National Petroleum Council is an advisory group to the U.S. Secretary of Energy on energy issues. Its hydrogen report reflects input from more than 100 groups—not just energy and industrial companies, but also universities and environmental NGOs.

Mike said he already sees signs that the report's recommendations are gaining traction, which is a good thing because he believes there is no time to waste if the U.S. is to fully harness the potential of hydrogen to reduce emissions, particularly in the sectors that are difficult to decarbonizeby 2050.

“Twenty-five years may seem like a long time, but in terms of building a new hydrogen industry, it is imminent,” he said.