Opinion: Explaining why ‘green hydrogen’ is our best (maybe only) option for getting to net-zero carbon by 2050 and halting climate change - MarketWatch

Opinion: Explaining why ‘green hydrogen’ is our best (maybe only) option for getting to net-zero carbon by 2050 and halting climate change – MarketWatch

Fortunately, “green” hydrogen—H2 produced through electrolysis using renewable energy—holds enormous promise for these sectors. Through various applications, this tiny molecule can provide the heat, reduction properties, fuel, and other services needed to replace fossil fuels.

In fact, given the technical challenge of getting these “hard-to-abate” sectors to a state of carbon neutrality, hitting 2050 net-zero targets without it would be virtually impossible.

Advantages of hydrogen

H2 uptake can serve other objectives beyond decarbonization. For example, hydrogen’s ability to substitute for natural gas in many applications allows for a degree of energy independence and reduced reliance on liquefied natural gas or pipeline imports from Russia.

And while renewables like solar and wind are limited by the extent of electrical grids, hydrogen can be transported by pipeline or potentially by ship. That means it could become an exportable renewable-energy source, eventually replacing petroleum as the main global energy commodity.

H2 uptake is starting from vastly differing points, depending on the market. In Europe and Southeast Asia, political and market incentives are already fully aligned for the deployment of H2 infrastructure. But in large oil- and gas-exporting economies, the incentives are often conflicting. Notably, there is significant misalignment in the United States, where natural gas fulfills all the political priorities that hydrogen can provide for other markets.

As a crucial element in achieving 2050 net-zero targets, hydrogen production, storage, and transport represents a multi-trillion-dollar opportunity, not only for energy incumbents but also for investors. While hydrogen is currently more expensive (per unit of energy delivered) than competing options such as fossil fuels, the scaling up of electrolyzer production is driving down costs. Within the next decade, we can expect H2 to reach break-even points with fossil fuels across different applications, after which hydrogen uptake will bring cost savings.

Benefits for wealthy and developing economies alike

Green hydrogen is particularly attractive for developing economies. There is a strong geographical overlap between countries and regions with the lowest production cost for renewable energy and those with lower per capita GDP. These countries thus could secure a global competitive advantage by becoming hydrogen producers and exporters. Doing so would also help them attract zero-carbon heavy industry, such as fertilizer manufacturing or hydrogen-based direct reduction steelmaking. And, of course, the development of these sectors would lead to significant job creation.

H2 is also attractive for wealthy industrialized countries, which currently lead the world in the manufacture of hydrogen electrolyzers. However, if the recent history of the photovoltaic (solar panel) industry is any guide, wealthy countries may need stronger industrial policies to ensure that production does not migrate to China and other regions.

There is more work to do before hydrogen can realize its full decarbonization potential. As matters stand, green hydrogen represents a very small portion of existing hydrogen production. Instead, most hydrogen is “gray,” because it is made using fossil fuels through a steam methane reforming (SMR) process. Though there is potential to capture and store some of the associated carbon dioxide emissions to make a slightly cleaner fossil-based “blue” hydrogen, this option would not be emissions-free. H2 therefore has a complex CO2 footprint, for now.

Furthermore, for hydrogen to deliver on its promise, the decarbonization of electric grids must happen in parallel. But as with electric vehicles (EVs), we cannot wait for a 100% clean grid to begin deploying electrolyzers; we must start now.

Awesome amount of electricity

This is not as financially risky as it sounds. There will undeniably be a threshold where green hydrogen becomes the lowest-cost source of hydrogen generally. Notably, the Energy Department’s recently announced goal of reducing the cost of “clean hydrogen” to $1 per kilogram is nearly impossible to achieve with hydrogen produced through the SMR process at sustainable price levels for natural gas. That means U.S. policy is already aligned behind green hydrogen.

Nonetheless, using green hydrogen to decarbonize heavy industry will demand a truly awesome amount of electricity. Producing the necessary volume of hydrogen would almost double total current global electricity generation. The only way to meet this demand is to build renewable energy even faster.

That, in turn, will lead to critical infrastructure-design questions, such as whether to prioritize H2 pipelines or power lines. And the growth of this sector will have many regulatory implications. To ensure a rapid build-out of hydrogen infrastructure, it will be important to enable monetization, create rate structures to encourage capital-expenditure deferral, and provide systemwide planning across infrastructure types.

Equally, a move to H2 will accelerate the obsolescence of many fossil fuel-based assets. For these large volumes of stranded assets not to produce negative side effects, they will need to be repurposed or helped into early retirement with various financial incentives.

Stranded fossil-fuel assets

One high-potential area for repurposing infrastructure is in natural-gas pipeline networks, which, in some cases, can be retrofitted to allow for hydrogen transport. Some thermal power plants can also potentially be repurposed; but, here, the end-to-end efficiency of power-to-hydrogen-to-power is low, so the profitable use cases are limited. For the steel industry, the picture is grimmer, as existing blast furnace capacity may need to be replaced with direct reduction. Similarly, gasoline and diesel fueling infrastructure will need to be replaced. But the future of such infrastructure is already in doubt, owing to the growing market for battery EVs.

Hydrogen brings enormous opportunities but also a daunting scaling challenge. Globally, the industry currently has the capacity to produce only around one gigawatt of hydrogen electrolyzers each year, whereas, according to the International Energy Agency’s analysis on what a 1.5°C pathway requires, green hydrogen production will need to grow 1,000-fold from today to 2030.

There are actions that can and must be taken to meet this challenge.

First, we need policies to ensure stable demand at scale, so that electrolysis makers can leapfrog into industrialized manufacturing. Second, governments must provide subsidies to cover the initial “green premium” until learning-curve effects take over. And, finally, we must address the tension between current asset locations and the places with the lowest-cost clean-sheet footprint for decarbonized industries.

Backed by direct and indirect political priorities, hydrogen markets have already gained momentum and crossed the point of no return. As such, they are quickly bringing cleaner industry and a decarbonized economy within striking distance.

Thomas Koch Blank is senior principal of breakthrough technologies at RMI.

This commentary was published with permission of Project Syndicate — The Promise of Green Hydrogen

This content was originally published here.

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