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Clean hydrogen industry got an enormous boost from Inflation Reduction Act

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An indication for a hydrogen fuel pump at a train refueling station in Germany. Hydrogen has a various range of applications and will be utilized in a variety of industries.

Krisztian Bocsi | Bloomberg | Getty Images

A tax credit tucked into Inflation Reduction Act could turbocharge the nascent clean hydrogen industry and switch it right into a multitrillion-dollar business in the approaching many years.

The tax credit will spur hydrogen producers to develop cleaner ways to synthesize hydrogen, which is used to make fertilizer and in other industrial processes. But it surely could also catalyze an entire recent category of corporations trying to use clean hydrogen as a alternative for fossil fuels in areas reminiscent of shipping, aviation, heavy industry, and as a technique to store and transport energy.

Currently, 98 percent of hydrogen is made in a way that uses fossil fuels, in accordance with the Center on Global Energy Policy at Columbia University. But “all the present hydrogen producers need to produce clean hydrogen,” explained Elina Teplinsky, a lawyer who serves because the spokesperson for the Nuclear Hydrogen Initiative, a bunch working to advance the event of the nuclear hydrogen industry.

The law will make it more economically feasible to make use of carbon capture and storage technology to scale back the carbon emissions from hydrogen creation. It would also open the door to an entire range of corporations searching for cleaner ways to make hydrogen, and to make use of hydrogen as a alternative for fossil fuels in certain areas.

By 2050, between 60 and 80 percent of hydrogen production can be powered by renewables, in accordance with a November report on the industry published by the Hydrogen Council, an industry group, in collaboration with McKinsey & Co. (This prediction was published before the tax credit was passed.)

This sort of industry transition would require lots of investment — as much as $7 trillion to $8 trillion through 2050. But on the plus side, by that date the hydrogen economy could generate about $3 trillion in annual revenue, in accordance with the Hydrogen Council and McKinsey report.

What’s hydrogen used for today, and the way could it fight climate change?

Currently, roughly half of the hydrogen produced is used to make fertilizer and ammonia, with the balance utilized in petrochemical refineries or production, in accordance with the Center on Global Energy Policy. The push for clean hydrogen is motivated each by a must decarbonize current processes and since the use cases for hydrogen are expanding.

Industrial applications, which make up nearly all of the demand for hydrogen today, will represent only 15% of total hydrogen demand by 2050, in accordance with the Hydrogen Council/McKinsey report.

Hydrogen has the best energy per mass of any fuel and doesn’t release any carbon emissions when it’s burned or turned to electricity in a fuel cell. Entrepreneurs and advocates imagine hydrogen may very well be useful to decarbonize some very large sectors of the economy like long-haul trucking and industrial processes including making iron and steel, maritime cargo shipping, and aviation.

“If it weren’t for climate change, we probably would not be expanding into all of those recent use cases” for hydrogen, Emily Kent, the U.S. director of zero-carbon fuels at Clean Air Task Force, a world climate nonprofit, told CNBC.

The most important end use for hydrogen by 2050 is predicted to be mobility, including heavy trucking, long-range flights and container ships, in accordance with the Hydrogen Council/McKinsey report. In these cases, hydrogen would produce electricity through a fuel cell, during which hydrogen atoms and oxygen atoms are combined in an electrochemical response to generate electricity, heat and water.

Current electric battery-powered vehicles cannot meet this need because batteries that would store enough energy for long-haul journeys could be too heavy and would take too long to recharge, Kent explained. A hydrogen tank and fuel cell would weigh less, take up less space and have the refueling time much like gas or diesel.

“It’s possible that there will be huge breakthroughs and batteries or something else that may change things. But because it stands today, there aren’t great solutions,” Kent told CNBC.

Digital generated image of wind turbines, solar panels and Hydrogen containers standing on landscape against blue sky.

Andriy Onufriyenko | Moment | Getty Images

Hydrogen will also be burned to provide electricity in a turbine, much like natural gas. Currently, as much as 20% hydrogen will be blended with natural gas burned in conventional natural gas turbines with no need to do any infrastructure changes, in accordance with Kent.

“For higher blends of hydrogen or pure hydrogen, we’ll likely need adjustments to the turbines and infrastructure,” Kent told CNBC. “There are corporations working on 100% hydrogen-ready infrastructure where pure hydrogen will be burned in a turbine to provide electricity.”

Hydrogen is usually a technique to store energy, which goes to be critical as renewable energy like wind and solar are ramped up and deployed across the country. Wind and solar energy don’t work when the wind doesn’t blow or the sun doesn’t shine, and so energy needs to be stored someway to have the opportunity to offer continuous, reliable energy. Meanwhile, battery technology is being ramped up, but batteries should not yet at the purpose of their development where they will store enough energy for long enough to make them sufficient backup for a totally renewable grid.

“Should you produce a ton of solar in the summertime, and you should store a bunch of it away for the winter, hydrogen will be stored for form of that many monthslong seasonal periods, and supply electricity back to the system when it’s needed,” Kent said.

Cleanly produced hydrogen can also be being regarded as a alternative for coking coal in a key a part of the method in producing steel, a heavy-emissions industry which is taken into account an actual challenge to decarbonize. And clean hydrogen can be needed for industrial processes that require especially high-grade heat, temperatures above 752 degrees Fahrenheit, like cement plants, glassmaking, and aluminum remelting, in accordance with the Hydrogen Council/McKinsey report.

What’s clean hydrogen?

Hydrogen is essentially the most abundant element within the universe, but here on Earth, it only exists in compound forms with other elements — particularly with oxygen as a part of water. Separating the hydrogen from the opposite atoms requires industrial processes and energy.

Currently, China is the most important producer of hydrogen, in accordance with the Center for Strategic and International Studies (CSIS), a bipartisan, nonprofit policy research organization. Of the hydrogen that China makes, 60 percent is made using coal and about 25 percent comes from using natural gas, in accordance with CSIS. Outside of China, the most important hydrogen producers are industrial gas corporations like Linde and AirProducts, in accordance with Teplinksy.

Seventy-six percent of hydrogen produced globally and 95% within the U.S. is produced with a process called steam methane reforming, during which a source of methane, like natural gas, reacts with steam at very high temperatures, in accordance with the Center on Global Energy Policy. Natural gas releases greenhouse gas emissions when burned, and likewise from so-called fugitive methane leaks because it’s extracted and transported.

Globally, 22% (and 4% within the U.S.) is made with a process called coal gasification, where coal reacts with oxygen and steam in high temperature and high pressure.

19 August 2021, Schleswig-Holstein, Geesthacht: Notes on the splitting of water into hydrogen and oxygen will be seen in a laboratory on the Helmholtz Centre hereon in Geesthacht. The Cluster Agency Renewable Energies Hamburg (EEHH) provided information on current developments in the subject as a part of a media trip. Photo: Christian Charisius/dpa

Picture Alliance | Picture Alliance | Getty Images

Some corporations are working to capture the carbon dioxide emissions from these processes and store it in tanks underground. Hydrogen made this fashion is typically called “blue hydrogen.”

More promisingly from an emissions perspective, an electrolyzer will be used to separate a water molecule into hydrogen and oxygen, and it may well be powered with almost any energy source — including zero-emissions sources like solar or wind, creating what’s generally known as “green hydrogen.”

Today, two percent of the hydrogen made globally and 1 percent within the U.S. is made with an electrolyzer.

Nuclear energy will also be used to power hydrogen synthesis with almost no additional CO2 emissions (this is typically called “pink hydrogen,” however the nomenclature varies). As a bonus, the steam and warmth produced as byproducts of nuclear energy will be utilized in a hot temperature electrolysis process, which is far more efficient. And with the advanced nuclear reactors in development that run at even hotter temperatures than conventional nuclear reactors, hydrogen will be produced in a thermo-chemical water-splitting process that does not use an electrolyzer in any respect.

Because nearly all of the fee of manufacturing hydrogen with electrolysis is the fee of the electricity that goes into it, making hydrogen with nuclear energy and steam “really could have an amazing contribution or lowering the prices of fresh hydrogen production,” Teplinsky told CNBC.

The price of manufacturing hydrogen with these different methods varies tremendously and swings based on input costs, like natural gas and the source of power. Due to Russian war in Ukraine and climate change, these input costs have themselves been swinging. A report published by nonpartisan nonprofit Resources for the Future in December 2020 said a kilogram of hydrogen made with steam methane reforming cost between $1 and $2 (including the prices of some carbon capture). Hydrogen made with electrolysis powered by wind and solar ranged from between $3 and $7 per kilogram.

That is where the tax credit is available in.

How does the brand new bill help?

The tax credit within the IRA is out there for 10 years and scales depending on how clean the hydrogen production is. If hydrogen is produced without releasing any carbon emissions, the tax credit is maxed out at $3 per kilogram of hydrogen produced. It then scales down proportionally based on the quantity of emissions released, so long as it’s lower than current production techniques.

If hydrogen is produced with some carbon emissions, but fewer than are emitted in current production techniques, the tax credit is incrementally smaller, proportional to the emissions reductions.

The tax credit is “an absolute game-changer,” Akshay Honnatti, the leader of EY’s sustainability tax division for america, told CNBC. “There was no incentive to have hydrogen be cleaner. It costs to get hydrogen to be cleaner,” Honnatti added. “Now there is a credit available for somebody to make that additional level of investment and have the opportunity to justify that level of investment to their stakeholders and shareholders.”

The $3 per kilogram credit makes nuclear hydrogen highly competitive with fossil fuel produced hydrogen, Teplinsky said. The U.S. Department of Energy has as a goal, considered one of its Energy Earthshots Initiatives, to scale back the fee of fresh hydrogen to $1 per kilogram in a decade.

For lots of these burgeoning use cases for clean hydrogen, the tax credit included within the climate bill goes to present corporations the prospect to enter the marketplace for making clean hydrogen without losing money. “They might return to their shareholders, they usually can say, ‘Look, we will we will do that economically — today. We do not have to project a loss for the following five years to enter this market. We are able to actually enter this and have it’s economic, or no less than a breakeven project within the near future,'” Teplinksy said.

The Bipartisan Infrastructure Law passed in November also included $8 billion to develop regional clean hydrogen hubs within the U.S. Between the 2 laws, the U.S. should have the opportunity to develop a clean hydrogen economy in seven to eight years, Teplinksy said.

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