Energy Minute: Appetite for Hydrogen is Booming, But How Do We Ensure It’s Green?

In this Energy Minute, Dana Dohse and Steven Goldman explore the complex world of hydrogen and the efforts to ensure its production is sustainable and decarbonized. They discuss the challenges of transitioning from grey to green hydrogen, the debate over how incentives should be structured to avoid decarbonizing the grid, and some of the ways hydrogen fits into the overarching goal of decarbonizing heavy industries.

Or listen on:

Hydrogen is used as a heat source, a fuel or a feedstock in a range of industries… but depending on how it’s produced, it can be a boon or hazard to our climate. Shifting to zero-carbon “green hydrogen” – produced using renewable energy sources like solar and wind – is critical for using hydrogen as a decarbonization resource, so much so that both the United States and European Union have passed legislation and targets aimed at quickly growing hydrogen adoption. 

But making sure hydrogen production is indeed green is complicated, and the choices we make today will have big impacts on how quickly hydrogen use grows, and how much it helps or hurts the climate challenge in the process.

In this Energy Minute, Dana Dohse and Steven Goldman explore the complex world of hydrogen and the efforts to ensure its production is sustainable and decarbonized. They discuss the challenges of transitioning from grey to green hydrogen, the debate over how incentives should be structured to avoid decarbonizing the grid, and some of the ways hydrogen fits into the overarching goal of decarbonizing heavy industries.

Key Takeaways

  1. The most common type of hydrogen produced today is “grey hydrogen,” made by heating and reacting methane to break its carbon and hydrogen bonds, creating carbon emissions in the process. “Blue hydrogen” is made by capturing and storing the resulting carbon emissions in geologic formations like caverns, or built storage facilities under high pressure. If captured and stored properly, that process can abate about 90% of emissions associated with making grey hydrogen.
  2. The key accelerator of green hydrogen projects in the United States is the Section 45V Production Tax Credit passed as part of the Inflation Reduction Act legislation. The 45V tax credit is a scaling tax credit tied to lifecycle hydrogen emissions through the point of production, based on how much lower the emissions from hydrogen production are relative to grey hydrogen. The highest tax credit level is set at $3 per kilogram of hydrogen, but how production qualifies is yet to be finalized by the U.S. Treasury..
  3. The hydrogen “color wheel” refers to the different colors used to represent different methods and energy inputs for producing hydrogen. Grey hydrogen is produced by breaking natural gas; black and brown hydrogen respectively by converting different types of coal into syngas, then breaking that like natural gas; turquoise hydrogen by breaking natural gas and producing hydrogen and solid carbon through pyrolysis; green hydrogen by powering an electrolyzer with renewable energy to split water; and pink hydrogen by powering an electrolyzer with nuclear energy to split water.
  4. The framework that a coalition of renewables and electrolyzer developers, midstream companies, think tanks, academics and nonprofits have advocated for calls for three principles: 1) additionality, requiring electrolyzers to draw power from new sources of clean electricity brought online as a direct result of that electrolyzer’s construction; 2) deliverability, requiring that electrolyzers use local sources of clean electricity that are physically deliverable to the electrolyzer site; and 3) time-matching, requiring that electrolyzers run at the same time as clean electricity generation.



Dana Dohse: Welcome to this week’s Energy Minute, brought to you by Cleartrace. I’m Dana Dohse.

Steven Goldman: And I’m Steve Goldman.

Dana Dohse: This week we’re going to be talking about green hydrogen. Hydrogen production is responsible for CO2 emissions and around 830 million tons of carbon dioxide per year, which is equivalent to the CO2 emissions of the UK and Indonesia combined.

Steven Goldman: But hydrogen’s also being held up as the Swiss Army knife of decarbonization right now, with the potential to do deep decarbonization on a wide range of sectors. So today we’re going to look at both what are some of the challenges in using hydrogen as an alternative for some of these different industries, but also look at what are the challenges laying ahead in making this work.

Dana Dohse: On a recent report put out by Deloitte, the World Wildlife Fund, and the Renewable Thermal Collaborative, which is a global coalition of companies, institutions, and governments committed to scaling up renewable heating and cooling in facilities, just dropped last week. We’re going to use this kind of a jumping point for our discussion. In fact, we had Blaine Collison, who’s the Executive Director of the Renewable Thermal Collaborative, on earlier this season.

Steven Goldman: Our listeners may be familiar with the Renewable Thermal Collaborative. If you remember, earlier in the season Lincoln Payton sat down with Blaine Collison from the Renewable Thermal Collaborative to talk about a range of renewable thermal technologies, including green hydrogen.

Dana Dohse: So let’s pull back. Let’s talk about what does it mean to have green hydrogen? And how is that different? There’s a whole rainbow of colors and definitions out there. I think that might be a reasonable place to start.

Steven Goldman: I think so too. Hydrogen is essentially being used either as a fuel or as a feedstock in a range of different applications. Today it’s specifically being used in chemical manufacturing. It’s being used, to a limited degree, in mobility. It’s seen some uptick in adoption for heavy-haul trucks in moving freight. It’s used in iron reduction for steel making, and it’s used in oil refining. But it’s primarily looked at as either a chemical feedstock or a source of process heat.

Dana Dohse: Primarily, hydrogen is made by heating and reacting methane in natural gas to break its carbon-hydrogen bonds. When you use natural gas, that obviously has a higher carbon footprint than using a more renewable form. One of the types of hydrogen we can look at is blue hydrogen. That’s basically, you abate that by utilizing carbon capture utilization and storage, make it blue. So storage would either be a geologic storage in a natural reservoir or a cavern. And when you do that, you can actually abate about 90% of emissions rather than gray hydrogen.

Steven Goldman: But the challenge with blue hydrogen is having carbon capture and storage capability on site. As you said, geologic formations don’t exactly grow on trees. You can build facilities to do that, but you have to be able to keep it at a sufficient pressure. And hydrogen storage on its own comes with its own challenges around maintaining pressure, of keeping it at an even lower temperature than liquified natural gas.

Dana Dohse: The other form of hydrogen is turquoise hydrogen, which is using methane as a feedstock. This is using a process called pyrolysis to heat the methane in an oxygen-free atmosphere using electricity. This spits off the hydrogen and produces solid carbon as a byproduct rather than gaseous carbon. The drawback here is that the energy required needs to come from external sources rather than the reaction itself.

Steven Goldman: And it also produces a carbon residue, which can be reused as a commodity. Technically it’s carbon black or graphite, which you could put into other chemical processes.

Dana Dohse: When you’re looking at turquoise carbon, we could see anywhere from 54 to 90% lower emissions, depending on where that external heat is coming from.

Steven Goldman: And what’s interesting is what we’re now seeing is it’s starting to be described as the hydrogen color wheel, because as we find new and different ways to power hydrogen production using electrolysers instead of breaking natural gas, we’re having to come up with a color scheme that helps people trace back what energy was used in order to create the hydrogen. We started with gray, which is breaking natural gas. There’s black and brown, which are using different types of coal to create what they call sin gas and then break that to produce hydrogen.

Turquoise is also using natural gas, but then there’s also green, which we’ll talk a lot about today, which is using an electrolyser to split water and using clean energy as, essentially, the fuel, for lack of a better term, to break water into hydrogen and oxygen. And then there’s pink, which is using nuclear energy instead of renewable energy. And there’s even yellow, which is using primarily solar and possibly some degree of grid power in order to generate the hydrogen.

Dana Dohse: With both pink and green, that’s the electrolytic hydrogen. This is what we’re talking about in terms of how are we sourcing the renewable energy needed to break that chemical bond? And that’s the big topic here at hand today.

Steven Goldman: Fundamentally, hydrogen is being used, as we said, as either a fuel or a feedstock. It’s an input into other processes that we do, whether it’s creating process heat or as a reactant. In reducing iron for steel making, it’s used as a reactant. If it’s being used in chemical manufacturing, it’s likely being used as both directly as processed for process heat as well as a feedstock. For cement, potentially, it can be used as a heating source.

The report we’re referring to, from the Renewable Thermal Collaborative, covers the technologies and the landscape for producing hydrogen. And they cover it in particularly around five sub-sectors that account for more than 70% of industrial heat demand, industrial heat being anywhere from low to high temperature that hydrogen can serve as a source of process heat. Those include oil refining, chemical manufacturing, paper and pulp manufacturing, making of iron and steel, and making of cement.

Dana Dohse: All of this together, we’re seeing a lot of momentum around green hydrogen right now. According to the Science Based Targets Initiative, we have over 1500 companies that have committed to net-zero targets, with 202 of those in the United States.

Green hydrogen, it was named a priority in 2023 at COP 27 last year. And there’s also a range of funding and legislation that’s been coming around. In the US in particular, the passing of the IRA, the Inflation Reduction Act, there’s policy and billions of dollars of funding behind the push for green hydrogen. This includes investment in research, development, demonstration, tax credits, really to incentivize investment as well as production. And in addition, the Department of Energy announced its Hydrogen Strategy and Roadmap. This is acting as a plan to build industry alignment for the clean hydrogen economy.

Steven Goldman: And fundamentally, the challenge that everyone is facing is how do we create a low-carbon source of industrial heat, which is what the Renewable Thermal Collaborative’s report focused in on. There’s other applications for hydrogen. It can be used for transport, it can be used as a feedstock, it can be used in a range of other ways. But I think where it’s first coming into play is as either a feedstock or a process heat source for different industrial processes.

Dana Dohse: And these are the processes that are historically hardest to abate. This is of particular importance as we think about the decarbonized economy overall.

Steven Goldman: Part of the reason why this is proving to be contentious is because A, there’s quite a bit of question as to what should qualify as green hydrogen. There’s a lot of question as to its applicability because hydrogen is less energy dense, for example, than natural gas. So it carries with it certain challenges. Its physical and chemical properties can make storing and transporting it difficult. It has a lower energy density by volume. It can leak from or damage storage media. And it’s a liquid only at much lower temperatures than natural gas. They can be stored in certain geological formations as a compressed gas or liquid in tanks. It can be chemically bonded to a host material to make it easier to transport. Or it could be converted to a chemical hydrogen carrier, like ammonia, and then could be transported in that form. Or it could be moved through specialized pipelines as gaseous form. But all of these require differences in the processes, in the way that we would use alternative feedstocks or alternative fuels, like natural gas.

Dana Dohse: The infrastructure and cost barriers are some of the big challenges here that the report dives into, looking at transportation, storage, retrofitting, investments that are all required on the end user side. Those are still posing challenges to scaling the demand for green hydrogen. I think overcoming those challenges will require a lot of additional policy support and a lot of work across the industry, a lot of collaboration.

Steven Goldman: So let’s talk about first, what is driving everyone rushing to produce green hydrogen? In several words, it’s the production tax credit that was passed as part of the Inflation Reduction Act last year. The 45V production tax credit is giving a credit based on production of hydrogen, expressed as dollars per kilogram of hydrogen produced relative to the carbon intensity of that hydrogen, which is the equivalent of kilograms of carbon dioxide per kilogram of hydrogen.

The baseline that they’re judging that against is what they’re calling gray hydrogen, which is created by breaking natural gas. It’s the way that most industrial hydrogen has been produced lately. It’s being compared against most hydrogen production today, which is around 47% natural gas, 27% coal, 22% oil, and only 4% today coming from electrolysis, meaning you have a relatively fossil-heavy color of hydrogen that’s most in use today.

What the goal of the 45V tax credit is is for every step, beyond a certain point of decarbonization, you have a ratcheting-up tax credit, headed towards a $3 per kilogram credit being given for producing green hydrogen, depending on how much greater of a decarbonization benefit that you have.

Now, the debate today is how that tax credit needs to be structured in order to deliver the most decarbonization benefit.

Dana Dohse: The reason this is important is from a lot of the topics we’ve covered on this show before, when we talk about the mechanics of carbon accounting and the mechanics of measuring emissions, there’s a lot of different standards out there, and there are a lot of different mechanisms for purchasing renewable electricity. The big risk here is that hydrogen production actually increases emissions, which would go against the goal of this entire industry.

Steven Goldman: Because gray hydrogen is being produced with a certain amount of CO2 emissions, because you’re breaking natural gas, and you’re releasing CO2 in part of the process. If you’re moving to any type of electrolyser, you’re going to be powering that with electricity, but it depends on how carbon intense that electricity is. In most places, grid power is going to be more carbon intensive than even the emissions from breaking natural gas to create hydrogen.

What everyone in the industry is trying to work towards is with green hydrogen, the idea is to use carbon-free energy or renewable energy. But there’s still a certain amount of disagreement as to how that happens because if they don’t set the requirements right, then we could be in a position where we are using clean energy that we’ve been putting onto the grid to try to decarbonize electric grids around the country or around the world, and then cannibalizing that and using that more for hydrogen production. Fundamentally, hydrogen production is electricity intensive. More than 25% of the electricity is used in the production.

Dana Dohse: If we couple this with the bigger trends that are happening, everything from EVs to other electrification, the demand on the grid is already going up. Our infrastructure is already being challenged. This is literally just more a demand on the grid, more need of renewables, and that’s really the crux of this challenge that we need to solve.

Steven Goldman: So what advocates for green hydrogen are pushing for at the moment is to have strong requirements for the use of clean energy in creating green hydrogen. If the requirements are loose, then hydrogen producers are going to be leaning towards what will get them the most benefit, meaning producing the most hydrogen, getting the most tax credit for that production of that hydrogen. That would mean they would choose what they call inflexible electrolyzers, which are intended to run around the clock, regardless of the energy available, and produce as much hydrogen as possible. That will maximize the tax credits and doesn’t require any storage because you’re going to be running hydrogen through pipelines at a relatively steady rate. But that’s also the way we’ve talked about with annual matching, you can be pulling power whenever it’s generated. But then when you fall short, you can be pulling grid power of uncertain carbon emissions along the way.

Dana Dohse: Intermittency is a key part of renewable energy. You don’t have that steady state of renewables on the grid 24×7 today. So if we look at a process like this, there’s obviously going to be times when we have a higher percent of carbon reduction associated with the hydrogen, just because of what’s happening with the intermittency of renewable energy.

Steven Goldman: Advocates for strong requirements for the use of clean energy in making green hydrogen have laid out three pillars for how that should work. What advocates are pushing for on strong requirements for using clean energy to create green hydrogen is that it should be hourly matched, that it should be deliverable, and that it should have to rely on new or additional renewable energy, rather than cannibalizing existing resources on the grid. That way you’re making sure that the energy that you’re using in order to make green hydrogen is not cannibalizing from other parts of the grid, that it’s not basically re-carbonizing the grid by siphoning off that power in order to make hydrogen.

The drawbacks of having strong restrictions are that the electrolyzer needs to be flexible and needs to be able to ramp up or down production to follow renewable energy generation as it comes and goes, as solar output rises and falls across the day. Same with wind. That can mean you would have lower production. It could mean you have potentially more expensive generation costs. And it means you’ll potentially get less of a government subsidy. However, it also means you’re not inadvertently causing, essentially, re-carbonization of the grid by pulling renewable energy away from its use as a grid power source.

Dana Dohse: If there are a number of downsides to requiring hydrogen to be green, why hamper the market by restricting production?

Steven Goldman: If the whole point of shifting to hydrogen use is to reduce emissions and reduce use of natural gas or other fossil-based fuel or power, that replacement use needs to be, on net, less carbon intensive than what you were using before. You need to be sure that you’re not making the grid dirtier by soaking up the clean energy that was meant to decarbonize it. You need to be sure you’re not reducing efficiency in the system overall, if hydrogen is a less efficient fuel, meaning if you have to transport it from place to place. And then from a transmission infrastructure perspective, you want it to be developed where there’s excess wind and solar, but you’ll also have to understand where the impacts of transmission, meaning is there available pipeline capacity?

Dana Dohse: This all ties back to this concept of additionality that we’ve talked to on the show before, which is that math behind putting additional renewables onto the grid. That’s really the case here, why people are arguing for additionality. So that’s ensuring that the existing renewables aren’t being shifted to support hydrogen, which would reduce the overall decarbonization of the grid. On the flip side, this means that existing assets, like nuclear, which can run 24×7, can’t be used to provide a low-carbon hydrogen. If you restrict the use of existing assets, we’re basically hampering the development of green hydrogen based on how fast we can build renewables, which are also being used to decarbonize the overall grid.

Steven Goldman: The other element that’s being brought up, and we’ve talked about hourly matching before, is the push for having hourly matching of clean energy for making green hydrogen. The argument for it is that you’re ensuring that new electrolyser capacity is going to be brought online in step with new renewables, meaning you’re not creating a push and pull on the grid, where you’re introducing too much load before you have energy supply to meet it, and that you’re not pulling on existing supply and putting yourself in a position where you’re going to have more reliance on traditional grid power, which may be dirtier as a backstop. As we said before, the carbon impacts of hydrogen made with grid power, whether that is average mix or even late night, where it’s particularly powered by coal, are significantly worse than producing gray hydrogen.

The arguments against it is that hourly matching, because it’s more precise, because it’s more matched, it reduces companies’ abilities to maximize the subsidy and shareholder value by running an electrolyser roughly 24×7. The issue with that is then you may not have as much electrolyser capacity being brought online because the business model may not support it. You may be in a region where you’re trying to do hourly matching in an exclusively solar region, so you don’t have enough renewable capacity to balance it out.

Dana Dohse: The big takeaway from that is that we could be hampering innovation and development in the sector. So we’re trying to get more of it less expensive, and by making it more restrictive, with tracking and tracing requirements, it could actually end up putting hurdles in the way, at least short term, from really getting this to the scale we need it to.

Steven Goldman: And that’s part of the criticism, honestly, that’s happening in the EU. They’ve issued their own rules, in parallel with what’s soon to be issued by the US Treasury. They’re requiring, at the outset, only monthly matching as these rules take effect. They’ve said that nuclear-powered hydrogen can’t be classified as green, but they have no additionality requirement. So that means that you can power it with existing wind or solar, for example.

An upside of the EU’s regulation and something that, hopefully, the US Treasury is to can consider is that hydrogen electrolyzers could be sited on areas of the grid, and hydrogen could be produced without renewable energy contracts in areas where grid power is already supplied 90% or more by renewable sources. So if you have, say, a very solar- and hydro-rich area like parts of California, then you could potentially put electrolyzers on the ground there, and they would be powered by a relatively clean mix, without having to go back out to market and source fresh renewable energy supply.

Dana Dohse: For me, looking at the EU standard and thinking about the pros and cons, I’m hopeful for a happy medium. We know that it takes a long time for big companies to put in place tracking and all of their requirements for hourly matching. So I could see some sort of ramp that takes place. Let’s ramp into some requirements, maybe even showing a few years out. It would be a great scenario in my mind that would help us move the innovation forward, while making sure that we’re actually decarbonizing the grid and driving this industry where it needs to go.

Steven Goldman: And the other challenge is going to be we need a ramp that allows us to get a lot of capacity on the ground, because what we’re seeing is that it does take time to get these systems in place. It does take time to identify which points in the grid that a hydrogen hub should be located and then to get the buyers in place.

Every deal is different. You’re seeing proponents that are working to source from a range of different energy sources. It could be a solar PPA here, a wind PPA here. You have to get the right mix of power contracts in place and, at the same time, we’re still running into interconnection issues on getting new renewable projects online.

I think the short answer to why is hydrogen a slow-moving resource is because it’s complicated. It’s because it’s a lot of different factors coming into play in producing it in the first place. It’s not simply plugging an appliance into grid power and letting it go, or a single source, like natural gas. Creating green hydrogen is much like the energy transition itself. It requires a range of different resources to come online in order to make it happen.

Dana Dohse: Overall, green hydrogen, it’s going to be a key component of decarbonization strategy for chemicals, cement, iron, steel. And for energy buyers in these sub-sectors, in particular, they should begin to take advantage of the current policies, such as the IRA and regional hubs, as they’ve looked to broaden their plans for decarbonization. Outside of these sectors, buyers can still participate. They can leverage geographic proximity to these green hydrogen hubs, and they can start to establish early relationships with these hub developers.

Overall, I think taking these proactive early actions, other sectors can work by teaming agreements with larger buyers to explore innovative procurement methods. So these early efforts, they’re going to be really important in accelerating the growth of the broader hydrogen economy.

Steven Goldman: It’s simply about bringing together buying power, bringing together interested parties, who can potentially be creating the initial supply of hydrogen, and doing so in a way that’s going to be as sustainable as possible.

One group that I’ll shout out that’s made some early commitments on supply is the Green Hydrogen Catapult Initiative, which is an offshoot of the Rocky Mountain Institute. It’s bringing together a group of potential hydrogen suppliers, including big power producers like Aqua Power; ArcelorMittal, which is the steel maker that we referenced on the green steel segment; CWP Renewables; Fortescue Future Industries, which is a mining interest that’s gone very bullish in that green hydrogen direction; H2 Green Steel, Hy Stor Energy, two startups in the green steel space; ReNew Power, which is one of the biggest renewable energy developers in India; and Yara, which is a big producer of ammonia. What they’re all working to do is they’ve committed to scaling up green hydrogen production capacity 50 times what it is now. They’ve committed to deploying 80 gigawatts of new renewables-powered electrolysers, of which these members have already committed 45 gigawatts. And the goal is to also achieve a 50% cost production over where they’re already aiming for now, which is $3 per kilogram. They’re trying to get green hydrogen below $2 per kilogram to make it even more competitive in a range of markets.

Overall, pursuing hydrogen for deep decarbonization is both important and incredibly complicated to get moving as a sector. We know there’s a lot of market appetite to deliver more hydrogen for fuel, for feedstocks, but we also know the challenges of keeping it from becoming a carbon sink in its own are still very real and require a lot of coordination and a lot of policy to make this transition work.

Dana Dohse: I am encouraged by the amount of collaboration that’s happening in this area from people who might be normally viewed as competitors and, honestly, might be as the market starts to develop. But right now, there’s this attitude that we’re all in this together. And for me, that is a really positive sign that we could figure this out.

Steven Goldman: Absolutely. And the policy instruments that are already getting into place, where the fact that the EU and the US have already moved to put in place supports for driving a hydrogen economy are encouraging. So we’ll keep a close eye on this, and I’m sure we’ll be touching on this in future segments.

Dana Dohse: Thanks for joining us for this week’s Energy Minute. For more of the latest news in sustainability and decarbonization, visit