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May 11, 2024

Sustainable hydrogen and the complexity conundrum

You may have heard the joke as it made the rounds in the energy sector: hydrogen is just ten years away – and has been since the 1970s. Well, now the joke is on the skeptics. Hydrogen as a sustainable energy commodity is just about here. A variety of systems are in active development that can produce hydrogen without sending significant amounts of greenhouse gases (GHGs) into the atmosphere.

So . . . we can all feel good about the role hydrogen will play in the sustainable energy economy of the future, right?

Not so fast, say a variety of commentators.

The Realities and Critiques of Green Hydrogen

One frequently voiced critique is captured in a recent blog post by an environmental justice coalition that asserts that green hydrogen is often deployed by industry players in a way that produces tiny reductions in emissions but allows them to “greenwash” their public image.

My colleagues and I at Carbon-Neutral Consulting are devoted to supporting the energy transition. We provide business strategy counsel to leading companies involved in the energy transition and beyond; we belong to a variety of industry associations; and we engage regularly with parties in the public policy space. And we do not believe that the concern cited above is at all misplaced. It is the nature of profit-seeking businesses to act in ways that maintain and increase their profits.

While many businesses stick to the highest standards of business conduct, there are always some that cross ethical lines in their drive to present themselves in a favorable light – and to sell more products. The activities of such companies are certainly part of the problem, not the solution.

Complex Challenges in Green Hydrogen Production

However, we believe that hydrogen can and will be a part of the solution, and a very important part at that. If we are right, the key will lie in the measurement and certification of the hydrogen’s carbon intensity. This is a realm we work in often, and it is unavoidably complex. In fact, we believe that its complexity is a more serious challenge for hydrogen adoption than the possibility of self-serving corporate behavior. (It is certainly ironic that the complexity arises from measures that must be put in place to minimize the incidence of self-serving behavior.)

To illustrate the point, we can take the case of green hydrogen, defined as hydrogen produced using electricity generated from renewable energy sources.

On the production end of the value chain, the situation should, at first glance, be straightforward: The sun shines, the wind blows, a solar or wind farm generates green electricity, the electricity is used by an electrolysis plant to produce green hydrogen. This is all true, but many electrolysis plants will not be hooked up directly and/or exclusively to renewable generating resources. Plant owners have a strong financial incentive to run their plants 24 X 7, and this means also (or exclusively) drawing power from the electric grid.

Complexity enters this picture with the realisation that hydrogen producers’ procurement of green electricity could have unintended consequences across grid networks. For example, if a new electrolysis plant comes on-line having secured a source of green electricity, that electricity will no longer be available to other consumers. The grid operator will need to backfill that consumption, and in many cases that will involve ramping up generation from fossil-fired plants. The hydrogen may be green, but at the end of the day the amount of GHGs entering the atmosphere will not change.

Policy Measures and Chain of Custody Challenges

Governmental authorities and other stakeholders are developing approaches to head off such outcomes. The Inflation Reduction Act in the U.S. provides an example. The Act includes provision of tax credits for the production of green hydrogen. But in the process of preparing it for roll-out, the U.S. Treasury Department has determined that eligibility for tax credits should be qualified with concepts such as “additionality”, “hourly matching”, and “geographic matching” - all with the goal of ensuring that the consumption of green electricity by hydrogen producers does not result in a commensurate increase in the generation of brown electricity.

At the other end of the value chain, there is the chain of custody challenge. If a plant produces green hydrogen and sells it directly to an end user, that party can obtain proof of "greenness" with relative ease. Add a middleman (or two, or three) and the opportunities for deliberate or inadvertent misrepresentation multiply. At the heart of the challenge is the fact that hydrogen of all colors is chemically identical, regardless of the carbon emissions resulting from its production.

Hence, the only way that a given batch of hydrogen can be shown to be green is via association with a certificate of attestation. Needless to say, the system within which such certificates will be created, conveyed, stored, and retired will have an unavoidable degree of complexity.

Both of these cases show the kinds of challenges that the introduction of green hydrogen will create. And in both we see that concerned stakeholders, across government, business, and civil society, are applying themselves to the creation of workable, effective solutions. This includes proactive recognition of the pitfalls and unintended consequences that, without thoughtful system design, will become problems. Stakeholders are developing measures to eliminate those problems.

And, critically, in most cases they are doing so with transparency, such that interested parties can understand and comment on the process. The final result is complexity, to be sure. But complexity seems to be the price of a system that produces both green hydrogen and major reductions in GHG emissions.

Stephen H. Crolius is President and Co-Founder of Carbon-Neutral Consulting LLC. Carbon-Neutral Consulting was launched in 2019 to provide business strategy counsel to companies that are addressing opportunities and challenges related to the energy transition.

Image by Appolinary Kalashnikova