Hydrogen Hubs Plan Met By Fossil Fuels Skepticism, Tax Questions

The seven winners of the $7 billion hydrogen hub program announced Friday may have little time to celebrate as the hard work of building regional industries confronts concerns about locking in fossil fuels.

The much-anticipated program carries the promise of cutting emissions in the hardest-to-decarbonize sectors of the US economy, a key prong in the Biden administration’s push to achieve net-zero emissions by 2050.

Industries such as heavy-duty transportation, steel, aluminum, cement, and fertilizer require massive amounts of energy, and hydrogen can be a suitable replacement for fossil fuels.

But the massive federal program faces pushback from some communities and environmental groups over its partial reliance on sourcing hydrogen from natural gas with carbon capture. Three of the seven regions will rely on so-called blue hydrogen, instead of green hydrogen that uses renewable energy to split water and emits no carbon.

“Hydrogen can be a clean energy solution, or it can drive us deeper into the climate crisis and hurt communities,” said Jill Tauber, vice president of litigation for climate and energy at Earthjustice.

“Hydrogen produced from fossil fuels is not a solution,” Tauber said. “We will continue to fight against a fossil fuel buildout.”

Appalachian Hub Concerns

On Friday, 32 organizations from Appalachia signed a statement opposing the designation of a hydrogen hub, which is centered on West Virginia and includes western Pennsylvania and southeastern Ohio.

Public officials largely ignored environmental justice advocates who raised concerns about environmental health and public safety around a build-out of hydrogen and carbon capture pipelines in a region historically harmed by extractive industries, the groups stated.

“The designation of our region as a hydrogen hub by federal officials means that our communities will continue to suffer the economic failures and health impacts from the oil and gas industry only under a new name and paid for by the public,” said Eric Engle, board president of Mid-Ohio Valley Climate Action.

Some energy analysts also argue the administration has significantly understated the potential impact on global warming of producing hydrogen from fossil fuels.

“Pursuing this technology is wasting precious time and diverting attention from investing in more effective measures to combat global warming like wind and solar resources, battery storage and energy efficiency,” said David Schlissel, director of resource planning analysis for Institute for Energy Economics and Financial Analysis, which released a report on blue hydrogen last month.

“The reality is that blue hydrogen is not clean or low-carbon,” Schlissel said.

Weighing Community Benefits

Senior Biden administration officials, speaking with reporters Thursday ahead of the announcement, said hydrogen would bring both jobs and climate benefits to communities.

They also acknowledged the long road ahead. The announcement kicks off negotiations to finalize the awards and then launch a deliberate four-phase process, officials said.

The projects will undergo detailed design in phase one, obtain permits and financing in phase two, complete construction in phase three, and ramp-up to operation in phase four. Most of the federal funding will be obligated during the construction phase, an official said. The phased approach, department officials have said, ensures energy demonstration projects prove they are serious and have done community outreach.

Officials said each hub applicant was required to submit a community benefits plan that details the outreach to residents and quantifies how hydrogen projects will aid those areas. Those benefits totaled about $1 billion across the seven selected hubs, officials said.

In a video message, Sen. Joe Manchin (D-W.Va.) touted the Appalachian hub’s economic impact of more than 20,000 jobs, with the majority of them in West Virginia, which will become the “new epicenter of hydrogen” in the US. The $925 million in federal funding is expected to unlock up to $6 billion in additional private sector matching funding, he said.

Tax, Customer Uncertainty

Hydrogen producers in the hubs still face uncertainty when it comes to the 45V production tax credit, established by the Inflation Reduction Act last year.

The Treasury Department is expected to release guidance by the end of the year on what types of production can reap the full benefits of the tax credit.

Environmental groups have called for hydrogen production to source electricity from new renewable power and meet stringent hourly matching standards to be eligible for the credit. Industry advocates warn those requirements would slow deployment of hydrogen and the country’s ability to meet climate goals.

Even if production scales up, consumers of hydrogen face high upfront investments and risks to accommodate a new energy source. At a hydrogen conference in Washington last week, many industry leaders cited uncertainty from customers as the biggest challenge. The Energy Department plans to spend up to $1 billion on demand-side incentives.

“Engagement by state and local leaders in communities across the country, matched with significant private investment, will develop the hydrogen economy so consumers, businesses and communities can decarbonize many of the most difficult heavy-using energy sectors,” said Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, a trade association of more than 100 companies, in a statement Friday.

Wolak added it’s “now essential for the Treasury Department to get the 45V tax guidance around this sector right by employing flexibility that will encourage further development rather than blunt this massive public-private investment.”