Hydrogen Hubs Are the Face of America’s Hydrogen Rollout

2022 ended with a hydrogen thunderclap: the U.S. Department of Energy (DOE) confidentially communicated to applicants that had submitted hydrogen hub (H2Hub) concept papers whether they are encouraged or not to proceed with submitting full applications by April 2023. Nearly 80 concept papers—basically previews of full applications-- from coast to coast were submitted to DOE and about 40% were encouraged to submit a full application. Some of the concept papers are as small as a one-state hub, some as large as a seven-state hub, and encouraged concept papers span most regions of the U.S.

The 2021 Infrastructure Investment and Jobs Act authorized DOE to spend $8 billion on the development of regional ‘hydrogen hubs’ to stimulate a nascent clean hydrogen industry. It is by far DOE’s largest demonstration program. In August, the Inflation Reduction Act of 2022 (IRA) passed, containing the largest hydrogen subsidies in the world and exceptionally high credits for “green” hydrogen—produced from water and primarily powered by renewable electricity—that put it on a pathway to competing with dirtier hydrogen years ahead of projections.

The stage is set for America to vault into the emerging global clean hydrogen market, and a good deal of spotlight is on its implementation of the H2Hubs program. But it remains to be seen whether the hydrogen course that we are charting will support an affordable transition to a clean economy and benefits to our communities, or whether it will help prop up fossil fuels and cannibalize gains from other corners of the clean energy transition.

We recognize the complexity of the moment we’re in. America is making an earnest effort to carve out a place in a global hydrogen market with an incumbent fossil fuel production model, a declining but remaining green premium, and a landscape where the best hydrogen end-uses are not yet widely commercial. Managing for that complexity, however, will make all the difference. The policies and designs that move forward through the H2Hubs will have a defining impact on whether hydrogen will deliver on its promise as a boon to climate and public health.

DOE is in the driver seat and bears major responsibility to get this right. We outline the following non-exhaustive key principles for climate aligned H2Hubs:

End-uses should be carefully selected and limited to those that may not have clean energy alternatives

Targeting hydrogen toward the hardest-to-electrify sectors of the economy with few clean energy alternatives must be the DOE’s guiding principle. Fortunately, DOE laudably espoused it in its draft National Hydrogen Roadmap and Strategy. To that end, the location and design of H2Hubs should be prioritized by the extent to which they can shape demand in the hardest-to-electrify sectors of the economy.

NRDC analyzed this issue in depth, revealing that when targeted at the hard-to-electrify end-uses like steelmaking, marine shipping and aviation, green hydrogen has the strongest potential to support America’s transition to a clean economy. On the other hand, a free-for-all hydrogen scenario, where it is widely deployed in inefficient sectors like buildings, power plants, or short-range vehicles, may increase the costs of achieving net-zero greenhouse gases by 2050 and hinder our bid to transition to a clean economy.

DOE has a major role to play in charting a sound end-use course for hydrogen. This course remains fuzzy and fraught with risk: the “best” hydrogen end-uses—i.e., the hardest-to-electrify sectors such as steel and marine shipping—are not yet widely commercial and require a few more years to get there. Meanwhile, clean hydrogen production is now heavily subsidized due to IRA tax credits. This begs the question: where will this cheap clean hydrogen be used? We have a fueled (no pun intended) and revved up plane, with no clear destination.

Fortunately, DOE can steer the plane in the right direction, by adopting this two-pronged strategy:

• Prioritize replacing today’s dirty hydrogen with green hydrogen. This is a no-regrets course to increase clean hydrogen production at a rapid and prudent scale.  
• In parallel, target new hard-to-electrify applications like steel and marine shipping, while ensuring that projects maximize benefits to impacted communities. Such a strong investment signal from DOE will accelerate the commercialization of those important hydrogen applications.

DOE requests that H2Hubs use hydrogen technologies that already are “market ready,” or will be by the last phase of the H2Hubs development—i.e,. around 2030 or so. Many of hydrogen’s highest value applications—including steel and marine shipping—are not quite there yet but with the right support, are projected to achieve widespread commercial viability by then (here and here). It is vital that DOE prioritize those hard-to-electrify applications over inefficient ones such as power plants, buildings, and cars. To catalyze commercial viability, DOE should leverage other technology advancement programs in parallel—notably, its RD&D portfolio and other technology demonstration programs.

Green hydrogen should be strongly prioritized  

While IIJA directs DOE to demonstrate the full range of hydrogen production methods in the H2Hubs—fossil-based, nuclear-based, renewable-based, etc.—the Department is given significant discretion and scope to right-size investments. DOE should strongly prioritize the deployment of “green” hydrogen with a carbon intensity of zero or as close to zero as possible As we have written before, green hydrogen- produced with water and renewable electricity- is poised to be the cheapest new clean hydrogen resource in many places in the U.S. by end of decade; and owing to generous IRA tax credits for green hydrogen, this may already be a reality in some places with strong renewable energy potential. Americans deserve the lowest-cost hydrogen in their energy system.

Hydrogen production assets are long-lived (with lifetimes of up to 40 years), which means that DOE should invest wisely in projects aligned with long-term climate and public health goals. Green hydrogen production emits virtually no GHGs and air pollution; it is therefore the hydrogen resource most strictly aligned with U.S. goals of a net-zero GHG economy by 2050 and protecting the health of communities. Fossil-based hydrogen with carbon capture (shorthand “blue hydrogen”) will still produce some share of GHGs and air pollution, even if efforts are made to minimize those. Those are therefore riskier investments.

More broadly, DOE has repeatedly noted that it will prioritize H2Hubs that commit to the lowest GHG intensity across the hydrogen supply chain. This is the right signal. But it may fail to produce the race to the top that DOE is hoping for if not coupled with an explicit limit on GHG emissions that DOE expects projects will meet. The draft Clean Hydrogen Production Standard (CHPS) that DOE published in September is meant to provide that benchmark: but with a unduly generous limit of 4 kilograms of carbon dioxide equivalent per kilogram of hydrogen produced (4 kgCO2e/kgH2) and with fuzzy language around how it will be enforced, the draft CHPS is not delivering on its intent. DOE should lower the limit and make clear that it expects H2Hubs to meet or exceed it. That will produce the intended race to the top.

Public health and equity should be front and center

Hydrogen assets—from production to end-use—may have large health and safety implications for local communities, and, if developed inequitably, could threaten to exacerbate existing inequities and environmental injustices. The success of a climate aligned H2Hub program will therefore depend upon the extent to which the H2Hubs can meaningfully engage with communities and deliver on public health, community, equity, and labor priorities in the near and long term.

Viability, opportunity, health, and jobs in the American hydrogen arena are all inextricably linked. DOE seems to recognize this dynamic by requiring H2Hubs applicants to submit a Communities Benefits Plan (CBP)—essentially a document or agreement that outlines a strategy to ensure that the H2Hub would engage potentially impacted communities, provide transparency and accountability, and address potential benefits and burdens. This is key to deliver on the Biden Administration Justice40 commitments.

But several kinks remain: notably, community engagement to date across H2Hub applications and regions has been scant—stoking skepticism around the robustness of community engagement requirements. In addition, communities may not have the necessary resources to meaningfully participate in development of the CBP.  It is key that DOE prioritize H2Hubs that have demonstrated proactive, robust, transparent, and meaningful community engagement efforts spanning all aspects of the project. Engagement should include robust evaluations of local impacts and the distribution of benefits and burdens associated with the production, use, transportation, and storage of hydrogen, conducted in close partnership with communities who may be the most impacted. DOE should also prioritize hubs that commit to including community and local environmental justice groups in decisionmaking positions within the H2Hubs governance structure and metrics and commitments to ensure the distribution of benefits and burdens advances equity (for example, any H2Hub should demonstrate that it will reduce air pollution in overburdened communities). DOE should also ensure that part of the H2Hubs funds is awarded to local community and environmental justice groups to support such engagement.  

This is too big to leave the public in the dark: DOE should significantly improve transparency

The importance of transparency in the implementation of the H2Hubs can’t be overstated. Transparency practices to date have been far from exemplary, as DOE has yet to signal its willingness to publish key portions of H2Hubs applications. In fact, DOE did not release anything related to the concept papers and has even failed to publicize which concept papers it encouraged to proceed to the full application. It was left entirely to the discretion of H2Hub applicants to publicize both. This is unacceptable and is stoking mistrust in an already charged hydrogen space. Putting aside some of its hydrogen inaccuracies, the new movie Glass Onion: a Knives Out Mystery manifests the increasingly mainstream public mistrust of hydrogen, portraying hydrogen investments as the product of an eccentric billionaire’s reckless ambitions.

The H2Hubs are by far DOE’s largest demonstration program and appropriation of taxpayers dollars. The H2Hubs will also be the first concrete touchpoint of a clean hydrogen industry in our everyday lives. The public therefore needs assurances that DOE is funding the projects that are most beneficial to the transition to a clean economy and to surrounding communities. Building this confidence is particularly vital considering widespread concerns around hydrogen’s downsides.

DOE should urgently correct course. As a starting point, DOE should commit to publishing key portions of the concept papers encouraged to proceed with a full application. This can be done without undermining confidentiality and is critical to enable stakeholders—including local communities—to meaningfully and proactively engage. DOE should then publish key portions of the full applications due by April 2023—including expected lifecycle GHG emissions and air pollution over the lifetime of the proposed H2Hubs, hydrogen end-uses and technological evaluations supporting those, and projected community benefits and impacts. DOE should also clearly communicate the reasoning behind planned H2Hub awards based on clearer selection criteria than the ones it already published, with appropriate opportunity for stakeholder input prior to awarding winners.  

DOE has a giant task: The H2Hubs will have far-reaching consequences

We urge DOE to pursue a careful, no-regrets and transparent strategy of advancing hydrogen deployment, one most expedient to the achievement of U.S. 2030 and 2050 climate goals, the protection of public health and creation of good union jobs.

We’ll be watching closely.