With the right design and a lot of innovation, a new H2Hubs program from the US Department of Energy could help develop a viable and cost-competitive clean hydrogen fuel for use in nearly the entire US economy.
The Infrastructure Investment and Jobs Act (IIJA) aims to “accelerate research, development, demonstration, and deployment of hydrogen from clean energy sources,” primarily by allocating $8 billion for the development of clean hydrogen hubs (H2Hubs) around the United States. The hubs themselves have the following three goals: to achieve the clean hydrogen production standard; to demonstrate the viability of clean hydrogen in terms of production, processing, delivery, storage, and end use; and to become a national clean hydrogen network that helps facilitate a clean hydrogen economy.
The IIJA gives the administrative responsibility for H2Hubs to the US Department of Energy (DOE), which issued a public request for information about how to design the program. After more than 300 responses came in, DOE issued a notice of intent on June 6 to start defining its plans for the program. We’ve published an issue brief that details and offers our take on the H2Hubs program timeline, requirements, assessment metrics, life-cycle impacts, sustainability requirements, and environmental justice issues. This blog post offers a summary of the new issue brief and our impartial perspective on the degree to which DOE’s program design ideas, as outlined in their notice of intent, can help ensure a successful H2Hubs program.
The H2Hubs program faces daunting challenges. To really get it off the ground, we’ll need dramatic reductions in the cost of producing low-emissions hydrogen, alongside enough demand to use that production. The demand will need to be large for the production to take advantage of economies of scale. New technologies on the supply and demand sides will be needed to aid achievement of the clean hydrogen standard. And all these outcomes must be met while navigating various requirements (e.g., production inputs, targeted end uses, multiple locations, environmental justice, job growth), all within the specified timeline and budget constraints. Furthermore, the risk of creating each individual hub must be low enough to attract at least half of the financing from private sources.
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$8 billion
Amount of funds set aside in the Infrastructure Investment and Jobs Act to develop clean hydrogen hubs around the United States
As specified among the goals of H2Hubs, the program must “aid the achievement of the clean hydrogen production standard” of less than two kilograms of carbon dioxide equivalent emitted per kilogram of hydrogen at the site of production. Demonstrating the viability of clean hydrogen likely requires the development of a full value chain for clean hydrogen within the H2Hubs. And one more important challenge bears noting: The current goal of creating a clean hydrogen network is not well specified, as neither the notice of intent from DOE nor the IIJA seems to define a “national clean hydrogen network.” One possible definition is physical, as in a physical network that links the various hubs. Another definition could be intellectual, in terms of the hubs learning from one another about technologies and best practices. Yet another definition could relate to optimizing the economic, environmental, and social impacts of clean hydrogen at a national scale, instead of optimizing these criteria at the individual hub level. And yet another definition is a mature national clean hydrogen market with sufficient producers and end users, with prices that can compete with carbon-intensive hydrogen and fossil fuels as substitutes. Clear definitions of these terms from DOE would be useful and could be included in the funding opportunity announcement that’s anticipated to come in the fall, or in the expected strategy and road map for a national clean hydrogen network.
Multi-phase Approach
According to the notice of intent, the formal funding opportunity announcement should be released in September or October 2022. As with other large DOE programs, potential applicants are expected to submit a concept paper describing their project, the overall operation of the hub, and their financing plan. After a review period, DOE will encourage or discourage potential applicants to submit a full application in April or May 2023. This pre-selection process is a good one, as it limits the private and public resources for hub proposals that don’t get over the bar.
The multi-phase approach—which includes project selection, planning, development, construction, and hydrogen production—decreases the risk of failure of the program and perhaps helps de-risk the projects for outside financing. Given that funding will be released conditionally, contingent on the applications and hubs meeting established criteria, DOE can hold teams accountable for each budget period. These decision metrics will be crucial to set beforehand.
Metrics and Requirements
With the H2Hubs program, Congress wants to demonstrate the production and use of hydrogen in multiple settings. Under the IIJA, hubs selected by DOE must present feedstock diversity, end-use diversity, geographic diversity, and employment opportunities. Not all hubs must meet all the criteria, but each hub should contribute to the overall criteria considered by DOE. Beyond the legal requirements included in the IIJA, DOE will give preference to applications that reduce greenhouse gas emissions across the full project life cycle and to H2Hubs that will produce larger quantities of clean hydrogen. In addition, the funding opportunity announcement will incorporate “a range of equity considerations including energy and environmental justice, labor and community engagement, consent-based siting, quality jobs, and inclusive workforce development.” Given that one hub is unlikely to be the best in all four categories of legal requirements, while simultaneously meeting the clean hydrogen standard and properly engaging with all the stakeholders, trade-offs among the objectives are inherent. Consequently, DOE should better specify where they can be more flexible and where they will give more weight.
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The metrics above (i.e., emissions across the life cycle and producing larger quantities of clean hydrogen), while useful, seem to miss the mark a bit. After all, clean hydrogen is not desirable for its own sake, but as a method of reducing greenhouse gas emissions. An improvement would be to count the actual life-cycle reductions and give preference to hubs that promise the most reductions, including Scope 1 (direct), Scope 2 (indirect via energy use), and Scope 3 (all other indirect) greenhouse gas emissions. And given that these emissions reductions must be measured to gauge success of the program, DOE can leverage the expertise of the US Environmental Protection Agency to implement a harmonized measurement methodology. Importantly, life-cycle emissions will change over time as upstream activities become less carbon intensive. Both the present level of life-cycle emissions and prospective future levels (e.g., with a low- or zero-carbon electric grid) should be taken into consideration when evaluating proposals.
Cost-effectiveness does not appear among IIJA nor DOE materials as a selection criterion. If these projects are going to create economy-wide success as an emissions reduction strategy, the costs per reduction must be targeted—not just the costs of the hydrogen production.
Life-Cycle Impacts
According to the notice of intent, a life-cycle analysis of social and environmental impacts of H2Hubs likely will figure among the deliverables required for initial applications. We agree that measuring the social and environmental impacts of proposed projects will be useful for the review and selection process, and for reporting and monitoring the subsequent performance of the hubs. However, life-cycle assessment is a complex and data-intensive exercise.
For life-cycle assessment to facilitate meaningful comparisons among hub project proposals, we suggest that DOE be very clear about the scope of their assessment, and that the agency standardize the data set and assessment models they use in the selection process. This way, the assessment criteria can be compared effectively among different proposals, and the interpretation of results can be transparent and meaningful.
In addition to considering upstream leakage from methane, DOE also should take into account the fact that hydrogen is a powerful indirect greenhouse gas. Particularly when natural gas infrastructure is repurposed for use with hydrogen, leakage may increase, as hydrogen is a smaller molecule.
Sustainability and Clean Hydrogen Economy
DOE should consider systems integration of these individual hydrogen hubs, to optimize the goals of a national clean hydrogen economy and meet the metrics discussed above.
For clean hydrogen to be a successful economy-wide decarbonization approach, the “effective” price of substituting clean hydrogen for gray hydrogen, fossil-derived electricity, and fossil fuels needs to be competitive. We use the term “effective” to recognize that regulations may narrow the gap between the price of clean hydrogen and its alternatives, even if the regulations are not price based. Particular regulatory efforts could take the form of either carrots (e.g., a hydrogen tax credit and 45Q to subsidize blue hydrogen production) or sticks (e.g., a carbon tax) (although the stick would be only on carbon-based fuels).
A sustainable national hydrogen economy may benefit from demand-side policies to balance supply and demand of clean hydrogen, which could include government green procurement programs that require low-carbon materials or products. More public and private investments in technology, research and development, and project demonstrations can help speed technology adoptions such as fuel cells, green steel and cement, and other demand-side technologies.
Environmental Justice
The Biden administration is committed to tackling the climate crisis and related environmental justice issues. This H2Hubs program includes equity and environmental justice considerations in the selection process, including partnerships with local communities in the decisionmaking process.
Although community benefits agreements (CBAs) have been successful tools that improve the development process, related critiques have emerged. Perhaps the most significant critique is that CBAs offer no mechanism to ensure that they are truly representative of community needs and desires. Stakeholders involved should consider how CBAs can help protect and serve community interests around planning and development; they should understand and implement the elements that make CBAs successful.
Conclusions
Overall, this notice of intent for the H2Hubs program is a great start with plenty of potential. The strategy of multiple funding phases, which break down this long-term program into manageable pieces, enables better monitoring by DOE along with achievable goals for the applicants. Giving preference to proposals that achieve emissions reductions across the full life cycle and that produce larger amounts of hydrogen seems sound, considering the overarching goal of facilitating a clean hydrogen economy to support the Biden administration’s decarbonization goals.
However, DOE should keep in mind that, given the many requirements and objectives, trade-offs need to be considered carefully. The definition and weight given to each metric (e.g., greenhouse gas emissions, cost-effectiveness) will be crucial. In the end, the government should consider additional support policies on the supply side and demand side of hydrogen to help ensure the program’s success.
