E.U.’s ‘Green’ Hydrogen Rules May Shape American Industry

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July 14, 2023

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by David Iaconangelo (E&E News Energywire) The European Union’s definition of “green” hydrogen is emerging as a potential model for the U.S., with global repercussions for emissions, trade and production of the fuel.

Europe’s plan also is shaking up a debate over how to ensure that hydrogen actually is a low-carbon fuel ahead of key tax guidance from the U.S. Treasury Department.

Green hydrogen production is generally defined as a process in which hydrogen is extracted from water using renewable electricity. But some developers want to use electricity from the grid, which has raised questions about whether hydrogen production would produce too many greenhouse gas emissions to be considered clean.

The European Commission adopted final rules on June 20 detailing how green hydrogen producers who sell their fuel in the E.U. must counter grid emissions from the production process. The rules were laxer than what many environmentalists favor, even as domestic producers denounced restrictions that they said could hinder the industry’s growth in the United States.

Regardless, Adithya Bhashyam, a hydrogen analyst at BloombergNEF, said the European Union’s definition of green hydrogen could become a global model partly because the continent wants to import huge volumes of the fuel.

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In a March report, the Department of Energy found that exports could “exacerbate U.S. workforce and supply chain challenges, resulting in slowed domestic adoption” of the fuel, for example.

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Those problems included a lack of U.S.-based capacity to make tube trailers — the specialized trucks that can carry hydrogen in long steel tubes and that are considered a main option for hydrogen delivery in coming years — and the lack of a skilled domestic workforce for making hydrogen equipment, installing pipelines and production facilities or driving hydrogen by truck, among others.

At the same time, demand from Europe or other countries could encourage American green hydrogen producers to build out more facilities and pipelines in the U.S., which could lower the cost of the fuel for American buyers, wrote DOE.

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Ahead of the Treasury Department guidance for companies wanting to claim clean hydrogen tax credits under the Inflation Reduction Act, some influential groups are citing Europe’s plan in comments to the Biden administration.

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U.S. hydrogen advocates say they think American green hydrogen producers could quickly build out facilities and ship their fuel to Europe while snapping up the Inflation Reduction Act’s subsidies.

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But environmentalists and grid researchers say the possible climate impacts of making green hydrogen should be the foremost concern for the industry, not trade.

If green hydrogen producers are tapping grid electricity, the creation of the fuel could prove dirtier than conventional gray hydrogen made with natural gas, according to a study from Princeton University researchers. The study asserted that green hydrogen producers would likely tap power during hours when the grid is especially dependent on fossil fuel plants.

Environmental groups have called for the Treasury Department to enact strict restrictions on the use of grid power for green hydrogen developers looking to claim tax credits.

Under Europe’s plan, new green hydrogen production facilities will have to reach power purchase deals with renewable projects that come online within three years of the facility’s first production of hydrogen. The requirement would kick in in 2028.

It is known as an “additionality” requirement because it is intended to ensure that hydrogen is bringing additional renewable capacity onto the grid. The renewables would have to be sited in the same “bidding zone” — which is an electricity-trading area where the hydrogen is made — or in an interconnected zone.

Hydrogen producers will also have to match their monthly consumption of grid electricity to the monthly generation from the new renewable sites. That requirement will get tougher for hydrogen facilities built in 2030, when the producers will have to do the same thing but on an hour-by-hour basis, which in policy circles is known as “hourly matching.”

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Unlike the U.S., the European Union’s regulators have established caps on emissions that will slash pollution from a broad range of sectors, including the power grid, noted Rachel Fakhry, a senior advocate for the NRDC.

The lack of a similar U.S. emissions cap makes it more important for Treasury to lay out tough conditions on green hydrogen developers, she said. “We should do far better than the E.U.,” she said.

Hydrogen industry advocates, along with investor-owned utilities and some renewable groups, have argued that European-style rules could delay the rise of green hydrogen in the United States.

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Labor costs are higher in the U.S. than in much of the world, however, and siting and permitting may be harder domestically for hydrogen developers, it said.

Other obstacles to hydrogen exports relate to the physical properties of the fuel, say analysts.

Liquefied hydrogen has a much lower energy density than liquefied natural gas, for instance, meaning it requires much more space when it is being transported — a factor that would increase costs. Few ships have been built that are capable of transporting liquefied hydrogen.

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Many hydrogen advocates say their fuel could be easily converted into ammonia and sold abroad, however. DOE lent some credence to that in its report, noting that “the largest announced offtakers” for hydrogen-derived products are interested in buying ammonia, including to meet demand in Europe.

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Kevin Book, an analyst at ClearView, wrote in an email that he “would not expect very much hydrogen to move thus far, either in purity form or as ammonia.”

Most conventional, emissions-intensive hydrogen is currently made for in-house use by refiners and other industries, he noted. Europe’s goals for green hydrogen imports and the Biden administration’s target for low-carbon hydrogen production “both seem ambitious,” Book wrote. READ MORE

DOE maps plan to supercharge hydrogen, nuclear, storage -- Three reports from the Department of Energy outlined barriers for emerging technologies along with potential solutions and timelines.(Politico Energywire)

Renewable group shifts position, shakes up hydrogen debate -- The American Clean Power Association is an influential voice on hydrogen policy, considering its size and number of members with a potential stake in the industry's future. (Politico Energwire)