U. S. Government Promotes Large-Scale HYDROGEN HUBS for Regional Energy Supply?

The Outlook for U.S. Hydrogen Hubs: What Can They Achieve?

From an Article by Anna Mende & Emily Kent, Clean Air Task Force, March 29, 2023

As efforts to reduce greenhouse gas emissions and address the impacts of climate change ramp up around the world, public and private sources of capital have turned their attention to hydrogen—an energy carrier that does not produce carbon emissions when utilized in fuel cells or combusted. This zero-carbon fuel has garnered attention for its potential to play a key role in achieving full, global, economy-wide decarbonization.

In 2022 alone, private equity and venture firms spent over $5 billion on hydrogen-related companies on the tailwinds of the 2021 Infrastructure Investment and Jobs Act (IIJA). Beyond authorizing $1.2 trillion of investment in infrastructure upgrades to help the United States transition to a zero-carbon economy, the legislation allocated $8 billion for the Department of Energy (DOE) to fund four Regional Clean Hydrogen Hubs—or H2Hubs—across the U.S., and DOE has indicated that it may use the funding to support the development of as many as ten H2Hubs. The hubs will be localized centers for the production, transportation, storage, and end-use of hydrogen. This first-of-a-kind demonstration program intends to catalyze domestic clean hydrogen production in the United States and can serve as a platform and framework for operationalizing the technological and commercial advances developed through DOE’s Hydrogen Shot program, which aims to bring the cost of production down by 80% to $1 per kilogram in one decade.

Given the massive investment by the federal government and the promising benefits hydrogen hubs can provide, it is important that these hubs are developed thoughtfully and designed in a way that maximizes climate and community benefits.

The IIJA directs the DOE to fund hubs that:

1. Demonstrably aid the achievement of the clean hydrogen production standard;

2. Demonstrate the production, processing, delivery, storage, and end-use of clean hydrogen; and

3. Can be developed into a national clean hydrogen network to facilitate the production and use of low-emissions hydrogen in sectors of the economy that will be difficult or impossible to electrify.

DOE will evaluate applicants on a variety of factors, including:

Production methods and feedstock diversity: The IIJA requires at least one H2Hub to demonstrate production of clean hydrogen from fossil fuels, one from renewable energy, and one from nuclear energy.

End-use diversity: At least one H2Hub will demonstrate the end-use of hydrogen in the electric power generation sector, one in the industrial sector, one in the residential and commercial heating sector, and one in the transportation sector.

Cost share: The hubs program requires a minimum of 50% non-federal cost share. Cost share must come from non-federal sources such as private project participants, state or local governments, or other third-party financing.

Community benefits: In alignment with the federal Justice40 Initiative, DOE will require hub applicants to include community benefits plans (CBPs) as part of their full applications to DOE. These plans are crucial aspects of the application and will be weighted at 20% of the technical and merit review of the proposals. DOE will give priority to regional hydrogen hubs that are likely to create opportunities for skills training and long-term employment to the greatest number of residents in the region.
In the lead up to the full application deadline on April 7th, CATF has mapped and identified leading stakeholders and regions that have responded to the DOE funding notice and intend to submit a full application. You can further explore state and regional application efforts in our new map here.

What benefits do we expect hydrogen hubs to create?

The establishment of a hydrogen hubs program is historic. It signals significant governmental commitment to scaling the innovative technologies and industries we need to ensure deep decarbonization in the decades to come. We expect the program to deliver the following impacts:

Decarbonization of hard-to-electrify end-use sectors: The hydrogen hubs program has the potential to catalyze the decarbonization of industries such as marine shipping, heavy-duty trucking, aviation, steel making, and industrial process heating – sectors that were responsible for nearly 16% of U.S. emissions in 2018. These sectors would greatly benefit from the availability of low-carbon hydrogen. We expect some of these industries to be firmly planted within a hub—for example, industrial facilities that use hydrogen instead of natural gas to fuel their high temperature processes. Other end-users like marine shipping, heavy-duty trucking, and aviation will flow between hubs – stopping in regions across the U.S. to refuel with low-carbon hydrogen or hydrogen derivatives.

Connective infrastructure and export potential: For in-hub users like industrial facilities, hydrogen will often be supplied directly from the producer to the end-user by short pipelines. For other end-use sectors—particularly transportation—the distribution of hydrogen will be much more dispersed. CATF expects the hydrogen hubs program to foster the creation of hydrogen and ammonia-fueled transportation corridors that stretch between the hubs. This will create stronger economics for individual hubs, accelerate their development, and foster the build-out of a global hydrogen network, potentially positioning the U.S. to become a hydrogen exporter via our ports.

Lowering costs and driving investment: Coupled with the hydrogen production credit from the Inflation Reduction Act (Section 45V), which gives hydrogen projects that begin construction before 2033 a tax credit of up to $3.00 per kilogram of clean hydrogen produced based on its carbon intensity, the hydrogen hubs program should help lower the cost of hydrogen production and creates significant incentive for project developers. The required 50% non-federal cost share will also attract private and state pools of capital to enter the hydrogen market.

Job creation and community benefits: There is significant potential for the hubs program to drive localized clean technology job creation and workforce development opportunities. Additionally, when clean hydrogen is utilized in the transportation sector, it has the potential to improve local air quality, especially around ports and heavy-duty-trucking corridors. Additionally, the requirement that 40% of benefits from federal funding flow to historically disadvantaged communities means that the hubs chosen will need to have robust community benefits plans.

Stay tuned to learn more from CATF on what comes next for the hydrogen hubs program, exploring some of what we have seen from hub applicants and the timelines and expectations from DOE over the coming year.

>>> Anna Menke (amenke@catf.us), Senior Hydrogen Hubs Manager, and Emily Kent (ekent@catf.us), U.S. Director for Zero-Carbon Fuels, are important members of our CLEAN AIR TASK FORCE team.