Hydrogen: Its many colors are becoming a shell game to hide the carbon to get federal subsidies

"The two most common elements in the universe are hydrogen and stupidity"(Harlan Ellison)

Hydrogen is the holy grail of “green energy.” It is the simplest element: each atom of hydrogen has only one proton. It is also the most abundant element in the universe. Hydrogen combined with oxygen is water (H2O). The name hydrogen is derived from Greek words meaning “maker of water.”

The sun and stars are mostly made of hydrogen. The sun is a giant ball of hydrogen and helium gases. But on Earth, hydrogen is only in compound form with other elements in liquids, gases, or solids. Hydrogen also combines with carbon to form different compounds, or hydrocarbons, found in natural gas, coal, and crude oil.

Since the technology to “mine” hydrogen on the sun and transport it back to Earth does not exist, we must extract it from fresh water, seawater, natural gas, coal, coal-bed methane, or one of many other technologies that are being researched.

The processes to extract the hydrogen are many, and some create carbon dioxide along with the hydrogen. The extent to which carbon is generated and released into the air has become a key issue in the extraction process. A means of classifying hydrogen by the method of extraction uses colors: Green, blue, grey, black and brown, pink, turquoise, yellow, and white:

Green hydrogen is made by using clean electricity from surplus renewable energy sources, such as solar or wind power, to electrolyze water. Electrolyzers use an electrochemical reaction to split water into its components of hydrogen and oxygen, emitting zero-carbon dioxide in the process.

Blue hydrogen is produced mainly from natural gas, using a process called steam reforming, which brings together natural gas and heated water in the form of steam. The output is hydrogen, but carbon dioxide is also produced as a by-product. So, the definition of blue hydrogen includes the use of carbon capture and storage (CCS) to trap and store this carbon.

Grey hydrogen is the most common form of hydrogen production. Grey hydrogen is created from natural gas, or methane, using steam methane reformation but without capturing the greenhouse gases made in the process. Grey hydrogen is essentially the same as blue hydrogen without the use of carbon capture and storage.

Black and brown hydrogen describes the process of gasification to produce hydrogen is referred to as black or brown hydrogen.

Pink hydrogen is generated through electrolysis powered by nuclear energy. Nuclear-produced hydrogen can also be referred to as purple hydrogen or red hydrogen.

Turquoise hydrogen, the newest color, is made using a process called methane pyrolysis to produce hydrogen and solid carbon.

Yellow hydrogen is a relatively new description of hydrogen made through electrolysis using solar power.

White hydrogen is a naturally occurring, geological hydrogen found in underground deposits and created through hydraulic fracturing or fracking. There are no strategies to exploit this hydrogen at present.

All these technologies are improving, and some are better than others in terms of their ability to scale up to commercial levels. For now, grey hydrogen will remains the most cost-effective and most scalable of all processes to produce hydrogen.

Green hydrogen is the holiest of the holy grail, but its importance was vaulted to a new level when the tragically misnamed Inflation Reduction Act, IRA, offered federal subsidies for green hydrogen that are five times greater than those for other hydrogen generation processes:

The Clean Hydrogen Production Tax Credit creates a new 10-year incentive for clean hydrogen production tax credit with up to $3.00/kilogram. Projects can also elect to claim up to a 30% investment tax credit under Section 48. The level of the credit provided is based on carbon intensity, up to a maximum of four kilograms of CO₂ to a kilogram of H₂ equivalent. The credit provides a varying, four-tier incentive depending on the carbon intensity of the hydrogen production pathway. The credit measures emissions up to the point of production using the Argonne National Laboratory Greenhouse gases, Regulated Emissions, and Energy use in Technologies Model.

Other requirements to qualify for the tax credits are:

• Projects must begin construction by 2033

• Eligibility includes retrofit facilities

• It cannot stack with the Carbon Capture and Sequestration Tax Credit (45Q)

• It can stack with renewable energy production tax credit and zero-emission nuclear credit

• Projects are required to promote good-paying jobs by following prevailing wage standards and apprenticeship requirements to receive the full credit

• The four-tier incentive breakdown is detailed in the following table:

The problem is that making green hydrogen is very expensive and has not yet been scaled up to commercial levels.

A recent article in the Wall Street Journal titled “The Most Valuable U.S. Company Is Making a Huge Bet on Hydrogen” describes the challenge of making green hydrogen: it requires “green” electricity to manufacture in order to qualify for some of the billions of tax credits in the tragically misnamed Inflation Reduction Act. The article highlighted companies that are making big bets on hydrogen, specifically NextEra:

NextEra now says it sees the potential to invest more than $20 billion in so-called green hydrogen after the passage of the Inflation Reduction Act, which provides significant tax credits for such projects. There is a limited market for green hydrogen currently, and NextEra is hoping the new law, coupled with an increasing push to cut carbon emissions, will simultaneously create supply and demand.

But only a fraction of hydrogen produced in the U.S. is considered green as a result of cost and technology hurdles that some energy experts say might continue to stymie the fuel’s adoption even with federal support. Green hydrogen production doesn’t yet exist at scale, and its high costs will fall only after the build-out of large projects, creating a chicken-and-egg challenge for developers.

The tax credits contained in the Inflation Reduction Act, passed late last year, are meant to help make green hydrogen cost competitive with hydrogen made from natural gas, which can be several times cheaper but emits carbon in the production process. The Internal Revenue Service and the Treasury Department are writing rules for how green hydrogen should be defined.

NextEra, as well as a number of other power companies and industrial hydrogen consumers, are pushing for a looser standard that would allow for the production of green hydrogen using power drawn from the electricity grid—some of which is generated using fossil fuels—and buying renewable-energy certificates, or RECs, to offset associated emissions annually. 

The fact that NextEra and other power companies are trying to redefine blue hydrogen but still qualify for the IRA subsidies is telling. It says their focus is getting subsidies, not reducing emissions while creating hydrogen. What is equally disturbing is that the REC industry has been exposed as being rife with fraud. A recent expose of the carbon offset industry found that much of the carbon offset business is fraudulent:

“More than 90% of rainforest carbon offsets are worthless, according to an expose on the carbon offsets industry:

Verra, which is based in Washington DC, operates a number of leading environmental standards for climate action and sustainable development, including its verified carbon standard (VCS) that has issued more than 1bn carbon credits. It approves three-quarters of all voluntary offsets. Its rainforest protection programme makes up 40% of the credits it approves and was launched before the Paris agreement with the aim of generating revenue for protecting ecosystems.

Where is all this headed?

Redefining green hydrogen as NextEra and others seek to do would mean that the green hydrogen is no longer “green,” so it would need a new color. But if the hydrogen is another color and not green, it would not qualify for the substantial subsidies in the IRA unless the requirements are changed.

If NextEra wants to use carbon offsets so they can use electricity from the grid, why go to all the expense and waste of resources to make hydrogen at all? Just use carbon offsets and keep generating electricity with natural gas and coal. Obviously, the game being played here is to get the subsidies with little or no concern about CO2 emissions. What we will get is fraud, waste, and abuse.

That is what the EPA inspector general said in his testimony before the House Energy and Commerce Committee on April 1 of this year. Sean O’Donnell said that the $41 billion of subsidies in the IRA did not come with sufficient oversight funding, which leaves his team of investigators “unable to do any meaningful IRA oversight,” as he laid out in his report on the subject titled “Follow the Money: Oversight of President Biden’s Massive Spending Spree.” He summarized the problems ahead with this statement:

Given the massive and often quick-turnaround spending efforts ahead, combined with the pass-through of funds to nontraditional recipients unfamiliar with government contracting rules and regulations, risks of financial waste, fraud, and abuse, as well as of programmatic shortfalls, are very real.

We will soon be witnessing the greatest waste of taxpayer money due to fraud and abuse in the history of the world while U.S. grids continue to be destabilized and deteriorate. A much better use of the federal funds would be to upgrade the existing power grids and wait for hydrogen to be the next big thing on its own.