Energy Department Clarifies its View of “Clean Hydrogen”

“Clean hydrogen” is a general term that can apply to a range of technical processes to create hydrogen, each of which vary in carbon intensity. To create a baseline for comparing the carbon intensity of different projects for creating hydrogen, the Department of Energy (“DOE”) has just released a guidance document establishing the Clean Hydrogen Production Standard (“CHPS”).[1] DOE will use this standard to determine how to prioritize projects eligible for funding allocated in the Infrastructure Investment and Jobs Act of 2021.[2]

The U.S. government and clean energy investors are increasingly turning to “clean hydrogen” as an alternative fuel source to help decarbonize the economy. Whenever the power used to create hydrogen is carbon neutral, the hydrogen itself is also considered a carbon neutral power source. Because hydrogen is already used as a power source by fuel cell buses and rockets, many of the advantages and challenges of using hydrogen fuel are already known to experts. It is an appealing option for heavy industries looking to decarbonize, especially among industries seeking to repurpose existing fossil fuel pipelines for alternative uses.

Types of Hydrogen

Hydrogen can be created through a variety of techniques. To distinguish between the different processes, the industry has developed an informal color-based categorization system:

Green hydrogen is created through electrolysis, the process of using electricity to split water (H₂O) into hydrogen and oxygen, with renewable energy providing the power for the chemical reaction. No carbon is emitted during the creation of the green hydrogen.

Blue hydrogen is made using natural gas. Through a process called steam reforming, the natural gas and steam combine to create hydrogen and carbon dioxide as a by-product. Carbon capture and storage (CCS) then traps and stores the carbon, creating hydrogen through a carbon-neutral process.

Grey hydrogen is currently the most common mode of hydrogen production. Grey hydrogen is created using steam methane reformation but without capturing the greenhouse gases produced during the process.

Pink hydrogen is generated through electrolysis powered by nuclear energy. Because this process is less common, the industry has not coalesced around a name; nuclear-power hydrogen is also referred to as purple or red hydrogen.

Turquoise hydrogen is produced from methane pyrolysis, in which methane (CH₄) is split into hydrogen and solid carbon using heat in reactors or blast furnaces. Turquoise hydrogen is in the early stages of commercialization, and can be more or less carbon intensive depending on the source of energy powering the pyrolysis.

It is important to note that these terms reflect processes that are not as rigidly defined in the real world. For example, a “green” hydrogen producer may get most of its power from on-site renewable energy sources, but 10-20% may originate from a regional electricity grid primarily powered by fossil fuel resources. Or a “blue” hydrogen producer may capture the majority of its carbon emissions but be unable to capture the final 5-10%. As the U.S. looks to incentivize cleaner hydrogen sources, the government must determine which hydrogen production processes to invest in and support.

Infrastructure Investment and Jobs Act of 2021

To help guide such investments, Congress directed DOE to develop a “standard for the carbon intensity of clean hydrogen production” for activities authorized in the Infrastructure Investment and Jobs Act of 2021 (“IIJA”):

"Not later than 180 days after November 15, 2021, the Secretary, in consultation with the Administrator of the Environmental Protection Agency and after taking into account input from industry and other stakeholders, as determined by the Secretary, shall develop an initial standard for the carbon intensity of clean hydrogen production that shall apply to activities carried out under this subchapter."[3]

The statute directs that the standard will “support clean hydrogen production from each source described in section 16154(e)(2)”, which includes fossil fuel sources with carbon capture, hydrogen-carrier fuels, renewable energy resources, nuclear energy, and other methods deemed appropriate by DOE.[4] The statute also defines “clean hydrogen” as hydrogen produced “with a carbon intensity equal to or less than 2 kilograms of carbon dioxide-equivalent produced at the site of production per kilogram of hydrogen produced”.[5] Congress also required DOE to consider technological and economic feasibility while setting the standard.[6]

Within five years of developing the CHPS, DOE, in consultation with EPA, must determine whether the definition should be adjusted lower and, if it so determines, make that adjustment.[7]

Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (“IRA”) also provides benefits for producers of clean hydrogen and provides its own definition of the term. The Act creates a tax credit for producing “qualified clean hydrogen," which the statute defines as “hydrogen which is produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.”[8] The credit is for $0.60/kg of qualified clean hydrogen produced multiplied by the applicable percentage, which ranges from 20% to 100% depending on the project’s carbon emission levels.[9] The credit can also be multiplied by five where a project meets prevailing wage and apprenticeship requirements.[10]

Note that by creating a definition reliant on the lifecycle greenhouse emissions rate of the hydrogen, the IRA creates a broader scope for analyzing associated emissions than the IIJA. The IIJA defines the carbon intensity of clean hydrogen based on the quantity of carbon dioxide-equivalent produced at the “site of production”; in other words, the quantity of carbon released at the time and place when the hydrogen is produced. Grey hydrogen produces carbon at the site of production, because the process creates uncaptured carbon dioxide as a byproduct. In contrast, blue hydrogen production releases no or minimal carbon; most carbon created in a blue hydrogen production process is captured and stored. However, because blue hydrogen uses methane as an input, the process releases carbon as part of its lifecycle greenhouse gas emissions. Methane is notoriously difficult to transport without leaks; leaks during the production process for blue hydrogen must be included in the calculation of its lifecycle greenhouse gas emissions.

In addition to “fugitive emissions” like leaks, a lifecycle emissions analysis also considers the carbon intensity of power used in the production process. For example, a green hydrogen production process never releases carbon on-site – electricity is used to split water into hydrogen and oxygen. But the carbon intensity of the power used to generate that electricity must be considered in a lifecycle analysis.

Finally, a lifecycle emissions analysis considers whether captured carbon dioxide is indeed sequestered safely and durably. If carbon dioxide leaks during transport to sequestration or from the site of sequestration itself, those emissions must be integrated into the lifecycle analysis of a clean hydrogen production process.

Clean Hydrogen Production Standard

DOE proposes to align the provisions from both statutes by establishing an initial CHPS target for lifecycle greenhouse gas emissions of ≤4.0 kgCO₂e/kgH₂, in addition to the statutorily required ≤2 kgCO₂e/kgH₂ “clean hydrogen” target for emissions at the site of production.[11] However, because the CHPS is not a regulatory standard, DOE will not necessarily require future funded activities to achieve that standard.[12] Instead, Congress directs DOE to consider whether projects will aid the achievement of the CHPS when conducting statutorily authorized activities to promote investments in sustainable hydrogen production, including evaluating regional clean hydrogen hub proposals or funding research and development activities.[13] Because the standards under the IIJA and IRA are aligned, projects eligible for the production tax credit under the IRA will therefore be competitive candidates for funding under the IIJA.

In setting the standard, DOE evaluated the technological and commercial viability of the CHPS. For example, DOE determined the CHPS lifecycle emission standard and the IIJA’s site of production standard could be met by hydrogen produced through a steam methane reformer process that captured ~95% of its carbon emissions for sequestration, used electricity with carbon intensity equal to the average U.S. grid mix, and minimized upstream methane emissions to less than 1%. Alternatively, the standards could be met by hydrogen produced through electrolysis in which 15% of the electricity was provided by the grid, and the remainder derived from clean energy sources.[14]

Qualified Clean Hydrogen

However, the Department of Treasury still must define “qualified clean hydrogen” to establish how projects can prove eligibility for the production tax credit under the IRA. In November 2022, the Treasury Department and the Internal Revenue Service released a request for comments to inform guidance on the production tax credit.[15] Most controversial is the debate around how qualified green hydrogen production should be required to verify the energy inputs used to meet the estimate lifecycle greenhouse gas emissions rate requirements.

Advocates seeking a strict definition focus on three proposed requirements: additionality – requiring hydrogen be produced using renewable energy generation capacity constructed as a direct result of the new hydrogen production capacity coming online; deliverability – requiring a local renewable energy generator to deliver energy directly to the production site; and time-matching – requiring hydrogen production to occur at the same time, e.g. up to within the same hour, that the relevant renewable energy is produced.[16] Critics of these approaches argue that strict mandates will stifle clean hydrogen production.[17] Whether and how the guidance incorporates such requirements will dramatically impact the cost and carbon impact of an expanding hydrogen industry.[18]

Even after the “qualified clean hydrogen” definition is released, these standards will continue to evolve as the industry matures and as the U.S. takes steps towards meeting the goals laid out in the U.S. National Clean Hydrogen Strategy and Roadmap.[19] DOE expects to lower the standard for lifecycle emissions set by the CHPS over time. Several European regulatory standards have already set lifecycle emission targets for clean hydrogen ranging from 2.4-3.4 kgCO₂e/kgH₂.[20] Additionally, questions remain regarding how use of renewable energy credits will be integrated into the CHPS. But for industry members actively evaluating whether their clean hydrogen processes are eligible for tax incentives or strong candidates for DOE support, the CHPS and the upcoming “qualified clean hydrogen” guidance will provide helpful clarity.