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Chapter 2

Hy-Politics - political considerations shaping the evolution of clean hydrogen policy

The U.S. federal government has set ambitious targets to reduce greenhouse gas ("GHG") pollution from 2005 levels by 50 to 52 per cent in 2030 under the Paris Climate Agreement, achieve a carbon pollution-free power sector by 2035, reach net-zero emissions economy no later than 2050 and for 40 per cent of the benefits from federal climate investments to be delivered to disadvantaged communities.

To that end, President Joe Biden signed several executive orders aimed at combatting climate change, as well as signing into law key pieces of legislation. Most notably, the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law, and the Inflation Reduction Act were passed by Congress and signed by President Biden on 15 November 2021 and 16 August 2022, respectively.

The Bipartisan Infrastructure Law identifies harnessing clean hydrogen as an important goal and includes investment and provisions to accelerate and stimulate new markets for clean hydrogen, including US$8 billion for Regional Clean Hydrogen Hubs, establishing a Clean Hydrogen Production Standard and requiring the Department of Energy ("DOE") to develop a national roadmap to facilitate widescale production, processing, delivery, storage, and use of clean hydrogen.

On 5 June 2023, DOE released the National Clean Hydrogen Strategy and Roadmap (the "Hydrogen Roadmap") which builds on earlier clean hydrogen initiatives, including The Hydrogen Program Plan (the "Hydrogen Program") and Hydrogen Energy Earthshot (the “Hydrogen Shot”), and reflects the federal government's current approach to tapping clean hydrogen as part of its broader decarbonisation strategy.

Hydrogen Program

In November 2020, DOE released an updated Hydrogen Program, which sets out DOE’s strategic framework for hydrogen research, development and deployment activities in the U.S. The Hydrogen Program states that its mission is to "research, develop, and validate transformational hydrogen and related technologies including fuel cells and turbines, and to address institutional and market barriers, to ultimately enable adoption across multiple applications and sectors." To facilitate this, the Hydrogen Program coordinates efforts both internally across DOE offices, portfolios, programs and laboratories, and externally through an interagency working group in order to deliver on the Hydrogen Program.

Some of the key aspects of the Hydrogen Program include:

  • reducing costs and improving performance of and durability of production, delivery, storage and conversion systems;
  • addressing technological and market barriers;
  • exploring opportunities for large-scale adoption;
  • developing and validating integrated energy systems that utilise hydrogen; and
  • demonstrating the value proposition for new uses of hydrogen.
Hydrogen Shot

In June 2021, DOE launched its "Energy Earthshots Initiative," which aims to mobilise a large-scale, cross-sectional research and development effort to accelerate the development of affordable clean energy solutions over the next decade.

The Hydrogen Shot is the first of these initiatives and aims to reduce the cost of clean hydrogen to US$1 per 1 kilogram in one decade (the "1 1 1" goal), while simultaneously generating revenue gains of approximately US$140 billion and 700,000 new jobs. As part of the initiative, DOE has awarded US$52.5 million to fund 31 projects for the advancement of clean hydrogen technology. These projects target a broad range of hydrogen pathways including both renewables-generated hydrogen (i.e., hydrogen generated by solar and wind) as well as hydrogen generated from nuclear power and non-renewable feedstocks using carbon capture technology. With respect to hydrogen generated from non-renewables (e.g., natural gas), the Hydrogen Shot aims at reducing GHG emissions by 90 per cent.

Hydrogen Roadmap

The Hydrogen Roadmap released on 5 June 2023 sets forth the U.S. government's all-of-government approach to clean hydrogen, establishing "concrete targets, market-driven metrics, and tangible actions to measure success across sectors." It outlines the overarching long-term national strategy for the U.S. to achieve its climate goals, addresses the challenges to realising the benefit of hydrogen in the U.S. and describes concrete actions needed to support and develop the industry in the near-, mid- and long-term, alongside guiding principles and metrics to measure progress.

DOE aims to increase clean hydrogen production from nearly zero today to 10 million tonnes per year by 2030, 20 million tonnes per year by 2040, and 50 million tonnes per year by 2050.

The Hydrogen Roadmap notes that hydrogen is currently mostly used in refining petroleum and fertiliser production, but there are demand-based opportunities in other sectors as well, including transportation, power, etc. The Hydrogen Roadmap identifies that, on a cost-based perspective, the amount of clean hydrogen demand in each of these sectors will depend on how competitive it is compared to other incumbent technologies. Therefore, although there are various challenges facing the hydrogen industry, including the lack of hydrogen infrastructure, lack of manufacturing at scale, durability, reliability, and availability, the cost of clean hydrogen is the key challenge for achieving economic scale.

The Hydrogen Roadmap details DOE's three strategies for tackling these challenges and enabling the benefits of clean hydrogen.

  • Strategy 1: Focus the use of hydrogen strategically to provide maximum benefits, particularly in sectors that are hard to decarbonise. Industries that use fossil fuels as a feedstock or in the generation of high-temperature heat or dispatchable power will require clean fuels like hydrogen to decarbonise and will benefit most from the use of hydrogen, including industrial applications (e.g., steel, chemicals and heat processing), transportation applications (e.g., medium- and heavy-duty trucks and buses, maritime, sustainable aviation fuel and rail), and power sector applications (e.g., backup power from fuel cells and energy storage for clean energy grids). DOE is required to develop, in consultation with other agencies and stakeholders, an initial standard for the carbon intensity of clean hydrogen.
  • Strategy 2: Reduce the cost of clean hydrogen. The Hydrogen Roadmap aims to drive down the cost of clean hydrogen through a mix of hydrogen production methods, including water electrolysis, with the goal of reducing clean hydrogen costs from the 2020 baseline cost of US$5/kg to US$1/kg (as set out in the Hydrogen Shot). In addition to capital costs and operating maintenance costs, the cost of clean electricity is critical, particularly for water electrolysis, as it accounts for over half of the cost of hydrogen production for electrolysis.
  • Strategy 3: Focus on regional networks. The Hydrogen Roadmap also focuses on creating "hydrogen hubs" to promote large-scale, viable deployment of clean hydrogen by co-locating and matching the increasing production of clean hydrogen supplies with growing regional demand through multiple end-uses. DOE will continue its research and analysis as to hydrogen storage and location opportunities.

Based on these strategies, federal agencies, in partnership with state, local and tribal governments, and stakeholders, are expected to take action to develop and deploy clean hydrogen technologies, and the Hydrogen Roadmap outlines planned actions across the near term through 2025, mid-term to 2029 and longer term to 2035. It also contemplates increased clean hydrogen use in waves, starting first with existing markets and uses such as refining, moving next to a broader range of transportation uses and greater industrial use and moving finally to applications such as backup and stationary power that are anticipated to become competitive as costs decline.

Summary of use cases for hydrogen in the U.S.

The Hydrogen Roadmap outlines four main types of use cases for clean hydrogen: (i) industrial feedstocks, (ii) transportation, (iii) power generation and energy storage, and (iv) hydrogen blending. Each of these use cases have existing demands at limited scales, along with emerging demands and potential new opportunities.

  • Industrial applications. Hydrogen is currently used in the U.S. as an essential feedstock in the production of chemicals such as ammonia and methanol, but production for both chemicals can be decarbonised via hydrogen. Clean hydrogen can also be potentially used to decarbonise steelmaking by using it as a reductant in iron ore refining instead of coke or natural gas.
  • Transportation applications. Current demands in the U.S. exist for the use of hydrogen in forklifts and other material-handling equipment, buses, and other light-duty vehicles, and hydrogen and fuel cells are also expected to offer significant opportunities for applications requiring long distance transportation, fast fuelling and large or heavy payloads. There might also be emerging demand for hydrogen and hydrogen carriers in the maritime industry and the aviation sector (as aviation's share of transportation emissions continue to grow).
  • Power-sector applications. Hydrogen can be used for backup power and stationary power from fuel cells, replacing diesel generators and providing resilience to critical facilities that require 24/7 power, such as hospitals and data centres, and it is expected to be helpful for long-duration energy storage technologies that can discharge for multiple days at a time, as the grid transforms to 100 per cent clean power.
  • Blending applications. Industrial process heating makes up the biggest energy consumption within the U.S. manufacturing sector and the use of hydrogen blended with natural gas may support decarbonising these processes, but additional research and development is needed.
Examples of projects in the U.S.

There are many hydrogen projects currently underway in the U.S. The following are a few of the major examples.

ACES Delta Hydrogen Project: The Advanced Clean Energy Storage hub is a joint venture between Mitsubishi Power Americas and Magnum Development. The project aims to produce up to 100 metric tonnes per day of hydrogen from water and renewable energy sources and store them in solution-mined caverns in salt domes in Utah. The Advanced Clean Energy Storage hub will support the Intermountain Power Agency's IPP Renewed Project, an 840 MW hydrogen-capable gas turbine combined cycle power plant, which will run on a blend of 30 per cent green hydrogen and 70 per cent natural gas starting in 2025 and increasing to 100 per cent green hydrogen by 2045. DOE has granted a conditional loan guarantee of US$504.4 million to the project under the Title 17 Clean Energy Financing Program.

Air Products and AES Green Hydrogen Production Plant: Air Products and AES Corp. are co-developing a US$4 billion green hydrogen production plant in North Texas. The facility will be capable of producing over 200 metric tonnes per day of green hydrogen using about 1.4 GW of dedicated wind and solar assets. The facility is expected to begin operations in 2027.

Wind-powered Green Hydrogen Production Facility: Apex Clean Energy and Plug Power are co-developing a green hydrogen project in the U.S., which will be powered by one of Apex's wind farms under development in Texas. Plug Power entered into a 345 MW wind power purchase agreement to power the new hydrogen production facility. The facility will produce over 30 metric tonnes per day of liquid hydrogen.

Baytown Low Carbon Hydrogen facility: ExxonMobil plans on developing a blue hydrogen, ammonia and carbon capture facility at its refining and petrochemical facility in Baytown, Texas. The facility is expected to produce one billion cubic feet of hydrogen per day made from natural gas and expects over 98 per cent of the associated carbon dioxide to be captured and stored underground. The carbon capture and storage project would be capable of storing up to 7 million metric tonnes of carbon dioxide per year. The final investment decision is expected by 2024.

Angeles Link Green Hydrogen Pipeline: Southern California Gas Co. (SoCalGas) is developing a pipeline system to connect green hydrogen production facilities and offtakers in the heavy industrial, power generation and transportation sectors in the Los Angeles region. The project aims to support the Los Angeles Department of Water and Power's efforts to transition to clean hydrogen as a source of zero carbon firm power and develop a market for hydrogen in the industrial and heavy transportation sectors. The project could potentially displace up to three million gallons of diesel per day and allow up to four natural gas power plants to convert to green hydrogen.

HIF Matagorda eFuels Facility: HIF Global is developing a facility in Matagorda, Texas to produce carbon-neutral gasoline. The project is expected to produce approximately 750 million litres per annum of carbon-neutral gasoline by 2027, utilising carbon dioxide captured from the atmosphere and green hydrogen produced from renewable power.

SGH2 Lancaster Green Hydrogen Plant: SGH2 Energy and the City of Lancaster, California have partnered to develop a green renewable hydrogen facility in Lancaster, California. The facility will have the capacity to produce 12,000 kg of green hydrogen per day from recycled mixed-paper waste. The plant will process 40,000 tons of waste annually.  

Chapter 4

Hy-Achieving - creating a suitable incentive regime

Clean Hydrogen Tax Credit

The Inflation Reduction Act of 2022 ("IRA"), signed into law on 16 August 2022, creates a 10-year production tax credit ("Hydrogen PTC") and an investment tax credit ("Hydrogen ITC") for facilities that (i) produce clean hydrogen (from both green sources and, subject to the limitations associated with Section 45Q, blue sources), (ii) “begin construction” before 1 January 2033, and (iii) in the case of the Hydrogen ITC are "placed in service" after 31 December 2022.

In order to qualify for either credit, "qualified clean hydrogen" must be produced through a process resulting in a lifetime GHG emissions rate of no more than four kilograms of CO2 equivalent per kilogram of hydrogen. Guidance from the Internal Revenue Service ("IRS") and the Department of the Treasury (the “Treasury”) on qualification for the Hydrogen PTC and Hydrogen ITC is expected to be released by the end of 2023. Assuming that certain prevailing wage and apprenticeship requirements (the "Labour Requirements") are met, a taxpayer can qualify for a Hydrogen PTC of up to US$0.60 per kilogram of hydrogen (pre-inflation adjustment) or, if the taxpayer so elects, a Hydrogen ITC of up to 30 per cent of the cost basis of energy property in the facility. In both cases, the credit varies based on (i) the volume of CO2 equivalent per kilogram of hydrogen produced, ranging from 20 per cent of the credit for 4 kilograms of CO2 to 100 per cent of the credit for 0.045 kilograms of CO2, and (ii) whether the Labour Requirements are met, the failure to do so generally reducing the credit to 20 per cent of the otherwise available rate. All taxpayers may elect to receive "direct pay," i.e., cash refunds from the IRS, for the Hydrogen PTC for the first five years after the facility is placed in service. On 29 August 2023, the IRS and the Treasury released proposed regulations on prevailing wage and apprenticeship requirements for increased energy credit or deduction amounts and held a public hearing on 21 November 2023. Taxpayers are not permitted to claim both the Hydrogen PTC (or the Hydrogen ITC, if applicable) and the carbon capture credit under Section 45Q with respect to the same facility.

In addition to such tax incentives for hydrogen producers, an electricity-producing facility with a GHG emissions rate not greater than zero, that is placed in service in 2025 onwards, is eligible for either a technology-neutral 10-year production tax credit ("CEPTC") for electricity production from the facility or a technology-neutral investment tax credit ("CEITC") of 30 per cent of the cost basis of energy property in such facility, assuming that the Labour Requirements are met; each credit phases down beginning in 2032 (or later, if GHG emission reductions have not achieved a specified milestone). To the extent that an electricity-producing facility powered by hydrogen meets the necessary criteria, such facility would qualify for either the CEPTC or the CEITC. Energy storage technology (other than certain transportation-related property), including that which uses hydrogen to store energy, that has a nameplate capacity of at least five kilowatt hours can also qualify for an investment tax credit if construction begins prior to 2025, and subsequently for the CEITC. The CEPTC and the CEITC may increase for a project that is located in certain types of locations (e.g., specified fossil-fuel dependent communities) and/or satisfies certain U.S.-manufactured content requirements.

The manufacturing-related clean energy tax incentives introduced by the IRA can also indirectly support the production and use of hydrogen. The advanced manufacturing production credit (which is eligible for direct pay for five years for non-exempt taxpayers) provides for a production-based credit for the production of battery cells and battery modules (including those for hydrogen fuel cell vehicles), and taxpayers can apply for an advanced energy project credit based on investment in the establishment of an industrial or manufacturing facility for the production of fuel cells, energy storage systems, or equipment designed to refine, electrolyse, or blend any fuel, chemical or product which is low-carbon and low-emission.

H2Hubs Program

The Regional Clean Hydrogen Hubs program ("H2Hubs") is a US$8 billion federal initiative introduced under the Infrastructure Investment and Jobs Act (which was signed into law on 15 November 2021) and includes up to US$7 billion in funding to establish six to 10 regional "clean hydrogen hubs" across the U.S.

On 13 October 2023, President Biden and DOE announced seven regional hydrogen hub proposals selected for up to US$7 billion in funding. The seven hydrogen hubs are expected to collectively produce three million metric tons of hydrogen annually, achieving nearly one-third of the 2030 U.S. production target set by the Clean Hydrogen Strategy and Roadmap. Collectively, the seven hydrogen hubs are expected to spur more than US$40 billion in private investments, and each proposal detailed the proposed cost-sharing for the project. DOE required a minimum of 50 per cent non-federal cost share. The selected regional hydrogen hubs span 16 states and involve hundreds of partner companies. The projects that successfully complete the negotiation phase will move into a four-phased development structure with a phased release of DOE funding.

The seven projects selected for award negotiation with DOE are geographically diverse and cover the entire country, from the West Coast to the East Coast, through the Midwest and down to the Gulf Coast. The technologies to be used for hydrogen production include natural gas (with carbon capture and storage), electrolysis through renewable or nuclear energy and biomass gasification. The end uses are also diverse between the projects and include heavy-duty vehicles, power generation, clean fertiliser production and improving industrial processes.

As part of the evaluation and selection process, DOE put a strong emphasis on the proposals' community benefits, such as labour and workforce commitments. Each proposal was required to include a comprehensive Community Benefits Plan that was, among other things, informed by the local communities and demonstrated compliance with President Biden's Justice40 Initiative (i.e., positively impacts disadvantaged communities that are marginalized by underinvestment and overburdened by pollution).

A high-level summary of each of the selected projects is set out below.

Appalachian Hydrogen Hub

Project Name Appalachian Regional Clean Hydrogen Hub (ARCH2)

Location West Virginia, Ohio, and Pennsylvania

Federal Funding Up to US$925 million

Production Natural gas, together with carbon capture and storage

Midstream Hydrogen pipelines, multiple hydrogen fueling stations and permanent CO2 storage

End Uses Fuel cell electric mining vehicles, heavy-duty vehicles and heavy industry

California Hydrogen Hub

Project Name Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES)

Location California

Federal Funding Up to US$1.2 billion

Production Electrolysis (renewable energy) and biomass gasification

Midstream Freight network between California and the Pacific Northwest Hubs and hydrogen fueling stations

End Uses Backup power generation, heavy-duty vehicles, port operations and public transit

Gulf Coast Hydrogen Hub

Project Name HyVelocity H2Hub

Location Texas

Federal Funding Up to US$1.2 billion

Production Natural gas with carbon capture and storage, and electrolysis powered by renewable energy

Midstream Development of salt cavern storage, hydrogen pipelines and hydrogen refueling stations

End Uses Fuel cell electric trucks, industrial processes, ammonia, refineries and petrochemicals and marine fuel (e-Methanol)

Heartland Hydrogen Hub

Project Name Heartland Hub (HH2H)

Location Minnesota, North Dakota and South Dakota

Federal Funding Up to US$925 million

Production Electrolysis powered by renewable energy and biomass gasification

Midstream Development and use of open access storage and pipeline infrastructure

End Uses Production of clean fertilizer and use in power generation and heating

Mid-Atlantic Hydrogen Hub

Project Name Mid-Atlantic Clean Hydrogen Hub (MACH2)

Location Pennsylvania, Delaware and New Jersey

Federal Funding Up to US$750 million

Production Electrolysis powered by renewable energy and nuclear energy

Midstream Expansion of hydrogen distribution infrastructure, upgrade bus mechanic depots and develop hydrogen refueling stations

End Uses Heavy-duty vehicles, including refuse and sweeper trucks, manufacturing and industrial process improvements, power generation and combined heat and power Midwest

Midwest Hydrogen Hub

Project Name Midwest Alliance for Clean Hydrogen (MachH2)

Location Illinois, Indiana, and Michigan

Federal Funding Up to US$1 billion

Production Electrolysis powered by renewable energy and nuclear energy, as well as natural gas with carbon capture and storage

Midstream Develop hydrogen refueling stations

End Uses Steel and glass production, power generation, refining, heavy-duty vehicles and sustainable aviation fuel

Pacific Northwest Hydrogen Hub

Project Name PNW H2

Location Washington, Oregon and Montana

Federal Funding Up to US$1 billion

Production Electrolysis powered by renewable energy

Midstream Freight network between California and the Pacific Northwest Hubs

End Uses Heavy-duty vehicles, fertilizer production, ports, aviation, generators, peaking plants, data centers and refineries

Next Steps

The DOE Office of Clean Energy Demonstrations ("OCED") will commence negotiations with the selected projects. If a project receives an award after successful negotiations, the project will enter into a cooperative agreement with DOE OCED and move into a four-phased development structure:

  • Phase 1 - initial planning and analysis activities to ensure that each hydrogen hub is technologically and financially viable. As part of this phase, an Environmental Information Volume will be completed to support the DOE National Environmental Policy Act ("NEPA") review to be completed in Phase 2;
  • Phase 2 - finalising engineering designs and business development, site access, labour agreements, environmental reviews (including the NEPA review) and permitting, offtake agreements, construction contracts and community engagement;
  • Phase 3 - beginning installation, integration and construction of the project; and
  • Phase 4 - ramping up the hydrogen hub to full operations and sustaining such operations, which is intended to demonstrate full commercial-scale design operations over an extended period (i.e., two to four years).

While the hydrogen hub proposals were required to submit plans for all four phases, DOE will only initially authorize funding for Phase I. Additional funding for subsequent phases will require successful completion of a DOE Go/No-Go review at the end of each phase. DOE anticipates that the funding awards for the selected proposals will span eight to 12 years in length, with projects that have already performed extensive analysis, planning, design and community engagement advancing from Phase 1 to Phase 2 in under 12 months. DOE has also noted that it may issue a second round to solicit additional H2Hubs beyond those selected in the initial launch.

Demand-side Support Mechanism for H2Hubs

On 5 July 2023, DOE released a Notice of Intent and a Request for Information ("RFI") to invest up to US$1 billion in a demand-side support mechanism to support the H2Hubs program ("Support Mechanism"). The goal of the Support Mechanism is to provide revenue certainty to attract private sector investment in the early stages of the H2Hubs program and incentivise long-term offtake arrangements by mitigating market risk and increasing the revenue certainty of H2Hubs.

Under the RFI, DOE sought feedback on the most effective demand-side support measure to support H2Hubs and how to implement such Support Mechanism. Specifically, the RFI sought feedback on the following potential mechanisms: pay-for-difference contracts, fixed levels of support for projects (e.g., fixed US$/kg amount), feasibility funding to support analysis by offtakers and establishing a 'market-maker' for clean hydrogen to provide a ready purchaser/seller for clean hydrogen. The RFI also sought feedback on different competitive processes to select projects that will receive the Support Mechanism, including reverse auction (i.e., projects bidding the lowest level of support they need to make their project viable), request for proposals to be assessed on a number of factors and minimum eligibility processes. Submissions to the RFI were due on 24 July 2023.

DOE also released a Request for Proposals on 14 September 2023, seeking an independent entity to administer the demand-side initiative. Responses were due on 2 November 2023 with DOE selection notifications expected on 30 November 2023.

Loan Programs Office Title 17 Clean Energy Financing Program

DOE's Loan Programs Office, through the Title 17 Clean Energy Financing Program ("Title 17"), provides financing for qualified projects in the U.S. that "support clean energy deployment and energy infrastructure reinvestment to reduce GHG emissions and air pollution." Eligible projects include alternative vehicle fuel distribution facilities (e.g., hydrogen, LNG, CNG), offshore wind, advanced nuclear reactors, hydrogen production/infrastructure, sustainable aviation fuels, biofuels and others.

To be eligible, the project must (i) be located in the U.S., (ii) be energy-related, (iii) achieve significant GHG or air pollution reduction/avoidance, (iv) have a reasonable prospect of repayment and (v) involve commercially ready technology. Project applications must also identify economic, social, and environmental community benefits and/or potential harms. Projects that already benefit or are expected to benefit from other specific forms of federal support in the form of grants, cooperative agreements, or other loan guarantees from federal agencies are ineligible.

A Title 17 loan for an eligible project may fund up to 80 per cent of the anticipated eligible project costs, with loans typically covering 40-60 per cent of project costs. There is no limit on the size of a project or the applicable project costs. Commercial lenders may participate in the lending; however, the Federal Financing Bank (FFB) is the only lender for which DOE is permitted to guarantee 100 per cent of the principal and interest on a loan.

California Low Carbon Fuel Standard

California's Low Carbon Fuel Standard ("LCFS") was adopted in 2009 and is intended to reduce the carbon intensity of the state's transportation fuel over time by diversifying the fuel pool, reducing petroleum dependency, and reducing emissions of other air pollutants. Other states, such as Oregon, have or are also considering similar initiatives, with the possibility of an integrated regional market for low-carbon fuels in the future.

LCFS compares carbon intensity scores of each fuel to a declining carbon intensity benchmark determined by the state every year. Low carbon fuels below the benchmark generate credits, while fuels above the benchmark generate deficits. Fuel producers that generate more credits than needed can then sell their credits to those with deficits, incentivising compliance.

Hydrogen can yield credits when used as a transportation fuel or for producing an alternative fuel. For example, a refinery producing diesel fuel derived from renewable hydrogen can generate credits under the LCFS. Hydrotreating renewable diesel is another example of LCFS credit eligibility.

These incentives for hydrogen projects also align with California's Advanced Clean Cars Regulation and Advanced Clean Fleets. The former aims to make all new passenger cars sold in California be zero-emissions by 2035, while the latter has the goal of achieving a zero-emission truck and bus fleet by 2045. As zero-emission vehicles, hydrogen-powered fuel cell electric vehicles are expected to play a significant role in achieving these goals. The California Energy Commission has also proposed significant state investments in hydrogen-fuelling stations statewide.

Other grants and investments

DOE's Hydrogen and Fuel Cell Technologies Office issued a funding opportunity announcement on 15 March 2023 committing up to US$750 million over five years and spread across the following three initiatives: the Clean Hydrogen Electrolysis Program, the Clean Hydrogen Manufacturing Initiative and the Clean Hydrogen Technology Recycling Research, Development and Demonstration Program. The collective goals of these programs are to improve the efficiency of producing clean hydrogen using electrolysis, promote new fuel cell technologies and optimise novel approaches to reuse and recycle clean hydrogen and fuel cell technologies. Full applications for all three programs were due on 23 July 2023, and all projects must be performed in the U.S. to be eligible.

Chapter 5

Hy-ly Volatile? Making it safe, sustainable and transportable

Transporting hydrogen by pipeline

The regulatory status of hydrogen pipelines is currently uncertain in many respects. The question of whether hydrogen is considered "natural gas," "artificial gas," or something else entirely has not been clearly answered and, although some proposed clarifying legislation has been previously introduced, to date, no such laws have been enacted.

The Federal Energy Regulatory Commission ("FERC") has relatively comprehensive regulatory authority under the Natural Gas Act over the siting, construction and rates of interstate natural gas pipelines. If hydrogen is considered "natural gas," hydrogen pipelines would be similarly subject to this regulatory oversight.

The Natural Gas Act regulatory regime also can encompass "artificial gas" when it is blended with natural gas. If hydrogen is "artificial gas," a pipeline transporting natural gas and hydrogen would likely be subject to this regulatory oversight as well.

If, however, hydrogen is deemed to be neither "natural gas" nor "artificial gas," it would likely fall within the Surface Transportation Board's ("STB") regulatory oversight over the transportation by pipeline of commodities other than gas, which is a different and generally less comprehensive regulatory regime that, notably, does not address siting and permitting.

Siting and environmental permitting

Although FERC has broad certification approval over natural gas pipeline infrastructure, it has not asserted this authority over solely hydrogen pipeline facilities and, as noted above, without further legislative action, it is currently unclear that hydrogen facilities would appropriately fall within that regulatory regime. In addition, the STB's regulatory oversight authority over pipeline transportation of commodities other than natural and artificial gas does not extend to siting and construction of those transportation facilities.

At present, there is no dedicated federal siting authority for hydrogen pipelines which means that siting approvals are currently subject to the individual state requirements in each state where the pipeline is to be located. In addition, a pipeline must also comply with any federal environmental laws that may also apply to the facilities, which could include the National Environmental Policy Act, Clean Water Act, Clean Air Act, Endangered Species, Act and National Historic Preservation Act. Industry groups and Senators and Representatives in Congress have been pushing for legislation that streamlines environmental permitting for hydrogen projects. Thus far, no such legislation has been passed.

Rate regulation

The ambiguity over hydrogen as "natural gas" also impacts rate regulation. FERC regulates the rates of interstate natural gas pipelines, under which pipeline operators must generally publicly post tariffs setting out rates and other service terms subject to FERC approval. But if hydrogen is not "natural gas," it is not subject to these requirements and under the STB authority subject to less comprehensive rate regulation. The rates of hydrogen pipelines operating only in a single state would be subject to the regulatory requirements of that state.

Safety

Hydrogen pipelines are generally subject to the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration ("PHMSA") safety regulations applicable to energy commodity pipelines that set out applicable design, construction and operational requirements. PHMSA is currently overseeing roughly 1,500 miles of hydrogen pipelines in the U.S. However, there are no PHMSA rules that specifically address hydrogen pipelines. Instead, PHMSA has been regulating hydrogen pipelines under its general rules for gas pipelines. Safety advocates in the U.S. say that PHMSA's gas pipeline regulations do not account for important hydrogen differences. To date, the federal government is funding research projects to analyse hydrogen safety, ranging from leak detection to integrity management, but PHMSA has not taken any formal steps to codify specific hydrogen pipeline regulations.

The Department of Transportation's Transportation Security Administration also has established voluntary guidance addressing certain physical and cyber pipeline security measures that could apply to a hydrogen pipeline's operations.

Hydrogen in electricity generation

Recently proposed federal regulations of the U.S. Environmental Protection Agency ("EPA") may drive demand for more green hydrogen in electricity generation. On 23 May 2023, EPA proposed new rules that would limit GHG emissions from fossil fuel-fired power plants that, if implemented, would require increasingly stringent GHG emission reductions over time from new and existing fossil fuel-fired generating units. The proposed rules would also recognise co-firing low GHG hydrogen as a compliance pathway which, by displacing higher GHG fuels, is expected to reduce total GHG emissions.

EPA's proposed definition of low-GHG hydrogen (i.e., hydrogen produced with an overall emissions intensity of less than 0.45 kg CO2e/kg H2 measured from well-to-gate). This aligns with the standard established in the Inflation Reduction Act for the maximum hydrogen production tax credit eligibility, which EPA expects to assist in reducing low-GHG costs.

The proposal is subject to change through the rulemaking process. EPA is accepting public comments on its proposal, and there may be changes before the rule is finalised and there may be subsequent judicial challenges.

Hydrogen as transportation fuel

There have also been initial steps taken to encourage hydrogen in the transportation sector. Several U.S. federal agencies jointly identified a role for hydrogen in decarbonising the transportation sector in the 2023 U.S. National Blueprint for Transportation Decarbonization.

State-level incentives are also an important factor. In California, hydrogen used as a transportation fuel or used for producing other transportation fuel is eligible to generate credits under LCFS as described in Chapter 4 above. Other incentives are available in some states, such as Texas where grant funding can be used for alternative fuel fleets such as hydrogen.

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