INTRODUCTION

The United States is in its defining decade to reduce greenhouse gas emissions. Low-carbon production of hydrogen can play a major role in industries and end uses where electrification is not possible— helping us reach climate goals by 2030.

As the world’s largest oil and gas producer, and also as a nation endowed with vast amounts of renewable energy, the United States has both the workforce and natural resources required to rapidly scale its hydrogen economy. Low-carbon hydrogen has major potential to accelerate the transition to clean energy— creating new jobs and improving public health along the way.

Given the substantial level of support for the clean hydrogen industry already, this brief provides an overview of the opportunity for clean hydrogen to decarbonize the American economy—focusing on its potential from today until the end of the decade.

Based on an assessment of hydrogen end use potential and expectations of hydrogen production scale-up, we estimate that the use of zero-carbon hydrogen in the United States, spurred by the current legislative proposals, could abate from 50 million to 103 million metric tons (MMT) of carbon dioxide equivalent (CO_2e) per year by 2030. At the upper end, this is greater than the annual energy emissions in the state of Washington.

Strong industrial policies (e.g. grants for commercial scale low-carbon production, clean procurement standards and funding to jumpstart markets, use of environmental product declarations, and expedited clean energy siting approval) would unlock much greater emissions reductions by spurring investment in next-generation low-carbon production and driving demand for lower-carbon products and materials.

CLEAN HYDROGEN MOMENTUM

Fortunately, the United States is already making significant investment in clean hydrogen. Congress just passed the Infrastructure Investment and Jobs Act (IIJA), which includes $8 billion to support the development of regional clean hydrogen hubs. These hubs will provide shared infrastructure to drive clean hydrogen to end uses ranging from transportation to heavy industry. In addition, the legislation will also support the development of a national hydrogen strategy.

A clean hydrogen production tax credit (PTC) is included as part of the substantial investments in climate solutions proposed in the Build Back Better Act (BBBA)— which would help us close the cost gap between current high-emitting hydrogen production and low-carbon production methods.

CLEAN HYDROGEN PRODUCTION

Today, the vast majority (>90%) of hydrogen in the US is produced via steam methane reforming (SMR), a process that converts methane into hydrogen and emits carbon dioxide (referred to as “gray” hydrogen).

METHOD #1: Electrolysis (Green Hydrogen)

An alternative way to produce hydrogen is by splitting water (electrolysis) with electricity from renewable energy sources. This produces no CO₂ emissions and is referred to as “green” hydrogen. While this method is more expensive in the near term (at approximately $3–$6/kg for green hydrogen today compared to $1–$2/kg for gray hydrogen), the main capital and operating costs are expected to decline rapidly— mirroring the cost reductions achieved in solar and wind production in the last two decades.

Economies of scale and deployment-led innovations can further reduce the costs of electrolyzers, fuel cells, and hydrogen storage. In fact, projections from BloombergNEF and RMI show green hydrogen becoming more competitive than blue and gray by 2030. Even more, the US Department of Energy’s “Hydrogen Shot” has recently set a goal to reduce the cost of clean hydrogen by 80%, to $1/kg hydrogen in just one decade. Coupled with these ambitious cost decline goals are aggressive deployment plans, with many countries and corporate coalitions having set electrolyzer deployment targets for tens of gigawatts of installed capacity, compared to the less than 1 GW installed today.

METHOD #2: Carbon Capture (Blue Hydrogen)

Adding carbon capture, utilization, and storage (CCUS) to the SMR process reduces the carbon intensity of hydrogen production. CCUS captures the produced carbon dioxide and stores or reuses it in other industrial processes. SMR paired with carbon capture is commonly referred to as “blue” hydrogen.

However, blue hydrogen production has its limitations. Current CCUS systems cannot capture the entirety of carbon dioxide emissions. In addition, blue hydrogen still requires methane, a powerful greenhouse gas that can leak into the atmosphere before arriving at the production facility.

There are other hydrogen production pathways that are being explored (such as methane pyrolysis) but SMR with CCS and electrolysis are the two primary methods being considered for near-term low-carbon hydrogen production.

Clean Hydrogen Use for Decarbonization

Clean hydrogen can directly decarbonize the economy in two major ways:

1. Replacing current, carbon-intensive hydrogen production
2. Replacing fossil fuels in heavy industry and transportation

Both require significant capital investments in new feedstocks, energy sources, and hydrogen-ready equipment. Appropriately designed policies are critical to drive investment and unlock emissions reductions.

In the first part of our analysis, we assume that sufficient quantities of clean hydrogen are available to meet the given demand in each sector. Our intent is to estimate the potential demand and carbon abatement opportunities of deploying hydrogen considering end use sector targets and technology deployment expectations.

Replace Carbon-Intensive Hydrogen Production

The United States produces around 10 MMT of hydrogen per year, emitting over 100 MMT of carbon dioxide in the process. Right now, hydrogen is primarily used as a chemical feedstock in refineries and for the production of ammonia for fertilizer. For these sectors, emissions reductions can be achieved by substituting gray hydrogen with lower-carbon green or blue hydrogen.

Based on current and projected demand in these two sectors (ammonia and refining) we estimate that, in 2030, low-carbon hydrogen demand would be 2.5 MMT and 4.7 MMT for ammonia and refining, respectively. Considering a direct replacement of existing gray hydrogen use in these sectors with an average emission intensity of 10 kg CO₂/kg H₂, just replacing current hydrogen consumption with a zero-carbon hydrogen feedstock has the potential to abate almost 72 MMT of CO_2e.

Replace Fossil Fuels in Heavy Industry and Transportation

The second way clean hydrogen can reduce emissions is via incorporation in industries where other decarbonization options are limited. For example, in steelmaking and chemical production, clean hydrogen can act as both a thermal energy carrier and as a chemical feedstock—replacing coal and other fossil fuels in both roles. In the transportation sector, hydrogen-based fuels can provide the energy needed to propel ships, airplanes, and heavy-duty trucks over long distances.

Steel

To estimate the potential for hydrogen to decarbonize US steel production, we considered the current steel fleet, including blast furnace facilities that are of the age to have major financial investment decisions within the next five years and, given an appropriate incentive environment, could elect to transition to decarbonized hydrogen-based production. Using a US average blast furnace – basic oxygen furnace (BF-BOF) emission value of 2.2 t CO2/t steel and production turn-over to direct reduced iron – electric arc furnace (DRI-EAF) with zero-carbon hydrogen, 2030 carbon abatement potential in the steel sector is 43 MMT CO2. The hydrogen consumed to meet the demand in steel is 1.9 MMT.

Aviation

Recently, the Biden Administration has set a target of 3 billion gal/year of sustainable aviation fuels used by 2030. Of this target, we assume that approximately half (1.5 bil gal/yr or 8% of 2030 aviation fuel consumption) will be met by fuels that use clean hydrogen feedstocks (e.g. for power-to-liquid production of synthetic fuels), recognizing that other forms of sustainable aviation fuel will also be deployed. At this deployment level, the aviation sector could consume 2.2 MMT H₂ in 2030 and abate 14.5 MMT CO₂.

Trucking

In the US transportation sector, hydrogen is assumed to play the biggest role in medium and heavy-duty vehicles (MHDV) where battery electric vehicles are not as suited to replace existing use cases. Based on expected deployment rates of fuel cell electric vehicles (FCEV) in this space and total MHDV energy demands in 2030, hydrogen consumption could be 0.6 MMT with emission abatement potential of 7.2 MMT CO₂.

Shipping

In the shipping sector, the Getting to Zero Coalition 2030 zero emissions shipping fuels target of 5% was used as a baseline to estimate US zero emission shipping fuel needs. Clean hydrogen was assumed to be used as a feedstock for ammonia which would replace existing emitting shipping fuels. To meet 5% of 2030 estimated shipping demand in the US would require 0.3 MMT H₂ and would abate 3.4 MMT CO₂.

End Use Sector Emission Reduction Potential

Based on these select number of promising industries, we calculate that hydrogen has the technical potential to reduce US emissions by 140 MMT of CO_2e over the next decade (see Appendix). Fully realizing these emission reductions would require the production of over 11 MMT/yr of zero-carbon hydrogen.

Note: Emission abatement potential estimated using zero-carbon hydrogen in all end use sectors. Residual emissions from blue hydrogen production would decrease the total emission reduction impacts.

Clean Hydrogen Production

With the vast majority of current US hydrogen production emitting greenhouse gases, in order for these emission reductions to be achieved in the end use sectors, rapid scale up of clean hydrogen production must occur.

Policies in both the IIJA and the BBBA support deployment of clean hydrogen production. A key component of the hydrogen hub policy in IIJA is the build-out of clean hydrogen production at the selected hub locations. The proposed hydrogen PTC in BBBA would reduce cost sufficiently so that hydrogen could be deployed competitively in each of these sectors – which is reasonable based on current green hydrogen costs, the proposed PTC credit levels, and an expected need for hydrogen costs of $2/kg or less to make green hydrogen competitive in various end uses.

Other work has estimated that hydrogen hubs are likely to have at least 1 MMT of production capacity per year by 2030. Given IIJA’s requirement of at least four regional hubs, the hydrogen hub framework could lead to 4 MMT of clean hydrogen production by 2030. The passage of additional hydrogen production support through the clean hydrogen production tax credit would spur additional development. Assuming similar growth rates as those experienced in the wind and solar energy industries after passage of similar tax credits, the PTC could incentivize an additional 4.5 MMT of clean hydrogen production by 2030. However, even with both of these policies, more clean hydrogen will be needed to meet the full potential demand from end use sectors to achieve maximum emission abatement. If we assume constrained hydrogen production levels of 8.5 MMT, the potential emission abatement levels range from 50 – 103 MMT CO₂/yr in 2030.

Based on these assumptions, there is a 3.5 MMT gap between the potential clean hydrogen demand based on potential end use cases and the upper bound of clean hydrogen production supported by enacted and proposed policies. To match supply and demand and fully realize hydrogen’s CO₂ emission abatement potential, comprehensive and complementary policies are needed that simultaneously support deployment of clean hydrogen production and decarbonized end use sector technologies, and support demand for decarbonized products through product standards and incentives, coupled with robust emission accounting. There is also a risk of deploying more gray hydrogen or missing emission abatement opportunities if hydrogen demand growth is not paired with clean hydrogen production growth.

Policy Recommendation 1: Establish Robust Clean Hydrogen Production Standards

For hydrogen utilization in end use sectors to materially reduce emissions, the production of hydrogen needs to itself be low- or zero-carbon. As the qualifying standards for the regional clean hydrogen hubs and other hydrogen initiatives are put in place, it is crucial for robust emission accounting and verification processes that fully account for the lifecycle emissions of the hydrogen production to be put in place.

Any hydrogen production that depends on the use of a methane feedstock must account for greenhouse gas impacts from upstream methane leakage. Electricity used to split water in electrolyzers must be zero-carbon to be recognized as ‘green’ hydrogen. Analytically sound and enforced thresholds for qualification of ‘clean hydrogen’ are critical to achieving meaningful emission reductions from hydrogen use.

Policy Recommendation 2: Address Near-Term Green Hydrogen Cost Premium

The primary obstacle to replacement of gray hydrogen with clean hydrogen is the significant cost premium for clean hydrogen. This cost premium also limits deployment of decarbonization technologies based on hydrogen use in new end use sectors. The clean hydrogen tax credit included in the Build Back Better Act would directly address and reduce this barrier – driving the deployment and scale-up of low-carbon hydrogen production facilities to meet demand in these sectors.

Policy Recommendation 3: Enact Comprehensive Industrial Decarbonization Policies

In order for the full emission abatement potential of economy-wide hydrogen use to be realized, policies that incentivize capital-intensive hydrogen infrastructure across end uses will be necessary. The clean hydrogen hub program, already passed in the IIJA, is a meaningful first-step at targeted hydrogen deployment with intentional pairing of hydrogen production with end uses in a variety of sectors and applications. However, more policies are needed to expand hydrogen use beyond the hubs. Additional policies include:

• Support for deployment of long-distance transportation and storage infrastructure, including pipelines, shipping, refueling and rail
• Support for commercial-scale retrofits of existing facilities
• Incentives for public and private customers to buy lower-carbon products
• Support for data infrastructure to differentiate clean products.

Grants, technical assistance, state-level carbon pricing, and industrial leadership are required to address sector specific challenges and follow through with these reductions.

Setting Ourselves Up for Success

Today, clean hydrogen remains more expensive than its fossil-based counterpart. While the initial investments required to drive down electrolysis costs are higher than business as usual, these investments will move the United States toward more efficient, cleaner technologies. This will ultimately power more productive and less-polluting industries.

There is significant opportunity for the United States in the future global hydrogen economy. The US is well-poised to be a leader in not only deployment of hydrogen end uses to reach decarbonization goals, but also in upstream development and production of hydrogen technologies, specifically electrolyzers for green hydrogen. With tens of gigawatts of electrolyzer targets and proposed green hydrogen projects in the next decade, the US could capture a significant share of this trillion-dollar opportunity or could repeat the trajectory of the solar PV manufacturing industry and lose this market opportunity to nations with more aggressive industrial strategies.

Across the supply chain, hydrogen will create well-paying jobs and revitalize regional communities. For example, the US steel industry is currently well positioned to decarbonize and there is an opportunity to build out low-carbon and low-cost primary steel production, a commodity with high demand worldwide. Such intentional project development could re-energize historically industrial communities at risk in the energy transition, such as in the industrial Midwest and Appalachia. International partnerships and cooperative efforts, such as the recent EU/US steel agreement, are served and strengthened by these national decarbonization efforts.

Investment now will pay dividends for decades to come—setting the United States up for success in the race to decarbonize heavy industry and global transportation. Not only will clean hydrogen production and use in the US help meet our own climate targets, these hydrogen policies will also help the US establish a low-carbon industry and stay competitive in the global marketplace. Other countries are moving forward rapidly with deployment of low-carbon products and technologies and if the US wants to remain an industrial leader, we must follow suit by building out a low-carbon industrial footprint.

The robust and complementary package of proposals recently passed and currently being considered by Congress to support clean hydrogen deployment removes major barriers to scaling up production and deployment in a variety of end use sectors. This will have significant benefits for our economy, environment, and future stability.

Note: Our analysis did not include hydrogen use for building heat, electricity generation, or light-duty vehicles.