The latter skews behavior toward capital investments—supporting the purchase of electrolyzer equipment—and away from actually producing hydrogen. A hydrogen production facility being built at the Tabangao refinery in Batangas, Philippines is slated to be the first to generate blue hydrogen, in which hydrogen is produced using fossil-fueled sources but the resulting carbon emissions are captured, stored or reused. 2020; Bolinger et al. The global production of ammonia accounts for approximately 500 MtCO2/year (1.5 percent of total CO2 emissions), of which the production of hydrogen is responsible for more than 50 percent (Sandalow et al. The round-trip energy efficiencies are >90 percent for lithium ion batteries, 70 percent for longer-duration flow batteries, 80 percent for pumped hydropower, and 60 percent for compressed air storage (IRENA 2017). 2019). This chapter considers alternative ways in which this help could be delivered, settling on a 45Q-like credit program as a second-best alternative to a carbon pricing policy. Project commissioning is expected to take place in fall 2022 pending production vendor selection. Tax subsidies are far more popular than taxes with policymakers, the public, and of course the regulated entities. If contracts between buyers and sellers specify specific uses and baselines, these displaced emissions could be estimated within reasonable margins. However, the ability to store hydrogen comparatively cheaply makes hydrogen the most competitive alternative for longer-term storage. Significantly, the assumptions discussed above—the low delivered costs of hydrogen, comprehensive carbon pricing, and equivalent cost and efficiency of power plants using hydrogen versus natural gas—apply to this analysis as well. It requires that the Environmental Protection Agency (EPA) approve an MRV plan for Class VI wells designed to sequester CO2, but gives flexibility for Class II wells using and capturing CO2 for enhanced oil recovery. Currently there are 57 projects operational and a further 58 will be in development by the end of 2021. Hub, email High-temperature heat accounts for roughly half of global demand for industrial heat, and its use is concentrated in three industries. IEA (2019) estimates a midpoint price of $1.35/kgH2 for H2 DRI-EAF to be cost-effective against natural gas–based DRI-EAF with CCUS but with a wide range of breakeven hydrogen prices—$0.70/kgH2 to $2.00/kgH2. A potential concern is whether a hydrogen credit, which would provide an incentive for primary steelmaking, would reduce the demand for steel recycling. Hydrogen, at least at the low end of its range, is competitive with natural gas power. In general, the largest opportunity for hydrogen is in high-temperature applications (for which electricity and solid biomass are less suited) that involve only minor plant modifications for fuel switching (giving it an advantage over CCUS). Compared with the broad range of emissions intensities for gas- and coal-based hydrogen (Figure 2), the range of brown, gray, and blue hydrogen costs is narrow (Figure 4). Consequently, the emissions benefit of decarbonized hydrogen is substantially less in methanol than in oil refining or ammonia production (or, to a smaller extent, than in ammonia used for urea). Beyond the operational and planned projects shown in Figures 7 and 8, proposals for substantially larger green hydrogen projects include the Asian Renewable Energy Hub in Western Australia, which would devote up to 23 GW of onshore wind and solar for green hydrogen production, and the European Hydrogen Valley cluster, which would involve up to 10 GW of offshore wind in the North Sea to power electrolyzers in the Netherlands (Asian Renewable Energy Hub 2020; Parnell 2020). Blue Now, Green Later. Study says 'blue hydrogen' likely bad for climate. New Australian clean energy storage startup Endua aims to build hydrogen-powered energy storage and deliver sustainable, reliable and affordable power. Turning to industrial heat, the combustion of fossil fuels accounts for 58 percent of US industrial CO2 emissions. The production of glass accounts for about 1 percent of US industrial energy use (EIA 2013). The justification for such interventions is that procurement policies can increase demand and bolster economies of scale and learning by doing in production, lowering costs (Krupnick 2020). In fuel usage, the carbon in methanol is not stored for long; adhesives and plastics release carbon more slowly as they degrade. The project, called "Hydrogen to Humber Saltend" (H2H Saltend . The primary advantages of salt cavern storage are its efficiency (only a small fraction of the hydrogen injected is unable to be extracted), lack of contaminants, and high operating pressure—allowing rapid discharge when hydrogen is needed (IEA 2019). We next compare hydrogen with the other low-carbon heat options to determine where hydrogen is likely to be most efficient. Manufacturing accounts for about three-quarters of industrial energy use in the United States (see https://www.eia.gov/energyexplained/use-of-energy/industry-in-depth.php). Bakken Energy agreed to purchase Dakota Gas and reconfigure the Synfuels Plant to produce low-carbon blue hydrogen using methane auto-thermal reforming (ATR) technology and CCUS. | Saudi Aramco outlined plans to invest in blue hydrogen and have a large share of the market of around $1 billion on capturing carbon for every 1 million tons of blue ammonia produced. Indirect resistance heating is the most versatile method, but industrial processes and material properties may dictate finely tuned technologies for efficient electric heating. Hydrogen Council (2017) surveys four studies of European power supply, which find that at variable renewable energy shares of 60 to 100 percent of electricity demand, 4 to 20 percent of power generation should be used for hydrogen production. Since roughly 85 percent of heat for cement production is high temperature, cement offers a large decarbonization opportunity for which hydrogen is well suited. European oil majors have selected the builders of a Carbon Capture and Storage (CCS) demonstration project seen as key to meeting Norwegian-and global-emissions reduction and blue hydrogen goals. This policy would encourage firms to invest in equipment to use hydrogen that is currently more expensive than equivalent equipment using other fuels. Cost of green hydrogen from water electrolysis. Besides REC values, wholesale power prices further exclude the value from federal tax credits and deductions and the value of providing capacity to the grid. As discussed below, we think the former would be the case, which would argue for a credit to the user.  |  The use of green hydrogen as a source of almost zero-carbon industrial heat holds promise, but it could take a long time to become competitive: industry, intergovernmental, and research organizations consider 2050 a time when production costs could fall below $1.00/kgH2 (Snam 2019; IRENA 2019; BNEF 2020). Bakken Energy Chair Steve Lebow on Monday said it is the "dawning of the hydrogen economy in the United States of . New US solar and onshore wind plants in good locations have capacity factors of about 30 percent and 40 percent (EIA 2020c), respectively. Assumes a delivered natural gas cost of $3.75/MMBtu, based on an average Henry Hub price from 2020 to 2050 of $3.25/MMBtu, from EIA (2020a), a transportation cost of $0.50/MMBtu, and a hydrogen energy density of 0.134MMBtu/kg. In addition to the new blue hydrogen plant, Neptune is proposing transporting and storing emissions from the South Humber industrial area with a new CO 2 pipeline from South Humber to TGT, as well . For a hydrogen producer that faces fluctuating power costs (as grid electricity prices vary hourly and seasonally with supply and demand), the firm must weigh power prices against amortizing its capital costs to minimize the total cost of production. The choice of green hydrogen versus zero-carbon electricity depends on whether the benefits of cheap storage and combustion heating outweigh the conversion cost from electric power to hydrogen. Decarbonized hydrogen has a range of production emissions (Figure 2), and its use has a range of displaced emissions (Figure 22). Solid biomass, including specialty crops (e.g., switchgrass) and residues from agricultural or forest products, can be gasified like coal. A cluster of CCUS facilities is also planned in Rotterdam (Parnell 2019). Although upstream methane emissions are significant, they vary considerably by location, and a hydrogen producer may have little control over them. Meanwhile in South Texas, the Port of Corpus Christi Authority (PCCA) and Howard Midstream Energy Partners LLC have a memorandum of understanding (MOU) to convert Howard’s Javelina refinery services facility into the Gulf Coast region’s first carbon-neutral hydrogen production facility. Biomass is also a heat source, particularly in the agriculture and pulp and paper sectors (see https://www.eia.gov/energyexplained/use-of-energy/industry.php). Therefore, leaks in hydrogen infrastructure would cause an external cost, albeit a much smaller one per MMBtu of hydrogen than per MMBtu of methane. The Dakota Gas acquisition is set to be completed by April 1, 2023. Cement, aluminum, glass, and certain pulp and paper manufacturing applications present the greatest potential for hydrogen use. These comparisons are intended to provide an ordering of low-carbon heat alternatives based on conversion costs, capital requirements, and heating qualities. However, the high cost of transporting hydrogen over distances greater than a few hundred miles favors the use of hydrogen relatively close to its source of production. Blue Hydrogen Projects Gaining Steam Across Lower 48 Oil, Natural Gas Patch . hydrogen would be highly competitive in steel production, with the potential for substantial demand and displaced emissions. Nevertheless, the remaining 20 percent of current ammonia demand—for other industrial applications—is expected to grow significantly, which could grow global hydrogen demand for ammonia to 44 MtH2/year by 2050 (IEA 2019). Indeed, carbon is part of methanol—the period for which that carbon remains stored depends on the end use of methanol. With nearly all existing hydrogen production from natural gas or coal and only a minute proportion integrated with CCUS, there is a vast opportunity for reducing emissions from current hydrogen feedstocks, particularly in replacing merchant-supplied gray hydrogen with decarbonized hydrogen. This is not to imply that green hydrogen could not compete with CCUS or blue hydrogen with zero-carbon power. This feature also allows CCUS to be well-matched to plant retrofits, which would be significant for reducing emissions in the near term, given the long lifetimes of industrial facilities. Although hydrogen has a lower GWP and higher energy density by mass than methane, hydrogen leakage would reduce the benefit of hydrogen blending. CO2 emissions from the industrial sector have risen faster than total CO2 emissions over the past 20 years, increasing at a rate of 2.8 percent per year versus total CO2 emissions growing 2.0 percent per year from 1997 to 2017. Alternatively, one could imagine a set of credits being denominated in physical units corresponding to the particular use being affected—say, in tons of cement—of kWhs of fossil-based electricity. 2019). Second, the methods described are those used in the dedicated production of hydrogen. >> Listen now! Additionally, biomass fuels generally have a greater carbon footprint than decarbonized hydrogen, and there may be more valuable end uses for sustainable biomass (e.g., in heavy transportation). Sufficient reductions in electrolyzer and power prices would create a pathway to green hydrogen production costs below $1.00/kgH2. Given the expense and limited current extent of hydrogen infrastructure, either merchant blue hydrogen in an existing cluster (e.g., in the Gulf Coast region) or on-site blue hydrogen production (e.g., at a refinery or ammonia plant) would be the most feasible near-term options. Blue hydrogen is further split between capturing only the process CO2 (50 to 60 percent capture) and capturing both process and combustion CO2 (about 90 percent capture). Sources: Rhodes et al. UK nuclear expansion a 'dangerous distraction'. A paper released Thursday said hydrogen production was difficult to justify on environmental grounds, even at sites like this Shell project in . Whether the full 1GW project will be realized, and at what timescale, is uncertain—as is the case for all planned capacity additions. If the market price is beneath the fixed price, the green hydrogen producer receives the difference; if the market price exceeds the fixed price, the producer pays the difference. However, in the DRI process, carbon monoxide is a valuable reducing agent, so the second step taken in blue hydrogen production would be unnecessary and could be detrimental (if CO is a more effective reducing agent than H2). Notes: Capacity is for zero-carbon hydrogen, which IEA calculates as the actual plant capacity multiplied by the plant’s CO2 capture rate. Green hydrogen projects in development highlight the importance of scale—of both hydrogen production plants and electrolyzer manufacturing—as well as power costs and utilization. The cost of electrolyzer stacks would decline with increasing scale of electrolyzer manufacturing, using more automated and streamlined processes (Hydrogen Council 2020), and the development of less expensive cell materials. Since 2013, blue hydrogen projects have come online at greater frequency, including at US ammonia and refinery operations, with the CO2 used in enhanced oil recovery (EOR). Additionally, for new technologies, tax credits can enable cost reductions through economies of scale and learning by doing. The credits earned can be traded, providing generators an incentive to reduce emissions intensity by using low- or zero-carbon fuels. A producer tax credit could easily be denominated in units of decarbonized hydrogen produced. However, although CO2 from calcination is almost pure (allowing for low-cost carbon capture), the concentration of CO2 in combustion gases is low (increasing the cost of carbon capture), thereby reducing the efficiency of applying CCUS to the combined stream of process and flue gases. Transporting a large quantity of hydrogen, a gas, at low cost requires pipelines, conversion to an alternative energy carrier, or liquefaction. For example, the heating prices of biofuels (biodiesel and ethanol) are almost twice the heating price of wood pellets, which are less useful in high-temperature industrial processes (Friedmann et al. Blue hydrogen sounds good in theory but there is a problem. This happens directly in a competitive market, but if the resulting demand is large enough, it could also stimulate innovation and economies of scale to further drop prices. Assuming the 2018 mix of 88 percent BF-BOF and 12 percent NG DRI-EAF for US primary steel production. 2019). Alkaline electrolyzers have long lifetimes (up to 90,000 hours) and comparatively low capital costs because of their use of inexpensive materials (IEA 2015). Other than CO2 transportation and storage, the cost of CCUS will depend, inversely, on the concentration of CO2 in the industrial exhaust gases. PCCA, which moves oil and liquefied natural gas to overseas markets, noted that natural gas “is in abundance at the Port of Corpus Christi due to direct connections to the Permian Basin and Eagle Ford Shale production fields.”. Of these three components, the incremental capital expenditures and operating expenses account for a large majority of the increased production costs for blue hydrogen (IEA 2019). We envision that the DH2 tax credit will coexist with the 45Q credit. Natural gas cost of $3.75/MMBtu is based on an average Henry Hub price from 2020 to 2050 of $3.25/MMBtu, from EIA (2020a), and a transportation cost of $0.50/MMBtu. 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