Hitting the Mark: How Targeted Deployment of Hydrogen Can Maximize Climate Benefits

Hydrogen has a unique, but not universal, role to play in a clean energy future and is best targeted in high-value end uses. According to our recent report on climate impacts, the most benefit from using hydrogen comes when it is produced via electrolysis that’s powered by fully clean electricity (often referred to as green hydrogen if renewable electricity) and in sectors where it is needed as a material input rather than an energy source. This means using hydrogen as an input to make products like fertilizer, steel, and low-emissions marine shipping fuels rather than combusting it for energy in end uses like residential heating or power plants. When we compared greenhouse gas emissions savings of using clean electricity to make electrolytic hydrogen versus using it for direct electric alternatives in sectors where those are feasible and available, we found that direct electrification has superior efficiency and would lead to more emissions savings for each unit of clean electricity (see the figure below). 

However, despite the potential for emissions savings in certain sectors, green hydrogen is still only a tiny fraction of hydrogen production in the United States today and needs sustained policy support, especially from states, to break through in strategic sectors.

Energy and climate policy in the United States has shifted dramatically in 2025. A sober assessment will show that rollbacks of the Inflation Reduction Act, the U.S. withdrawal from the Paris Agreement, legally questionable executive actions, and the false claims about climate change coming from the White House are not moving us forward on strengthening energy dominance, creating U.S. jobs, supporting domestic industry, increasing energy security, improving public health, or leading on climate action. 

One of the latest blows to clean hydrogen came on October 2, 2025, when the Trump administration announced the shortsighted and seemingly politically motivated elimination of $2 billion in federal funding for two green hydrogen hubs, the Alliance for Renewable Clean Hydrogen Energy Systems hydrogen hub located in California and the Pacific Northwest Hydrogen Hub located in Washington, Oregon, and Montana. These two hubs were part of the U.S. Department of Energy’s Regional Clean Hydrogen Hubs (H2Hubs) program, which includes seven hubs total across the country and was conceived in the Bipartisan Infrastructure Law to kick-start a network of clean hydrogen projects linking up the production, transportation, storage, and use of clean hydrogen.  

This recent cut comes on the heels of Congress passing a reconciliation package that significantly shortened the lifetime of the 45V Clean Hydrogen Production Tax Credit, which was offered to producers of clean hydrogen; producers must now commence construction by the end of 2027 rather than 2032. One market outlook suggests only 25 percent of announced projects would be likely to meet the new deadline, with much of the remaining 75 percent in need of more policy support. During this critical time period, demand-side policy at the state level could help more of these projects make it across the finish line before the end of 2027. 

With federal support severely cut back, states can step up and pave the way for clean technology investments in the long run. The 45V tax credit was momentum-changing for clean hydrogen but is only a supply-side policy and would be more effective when paired with demand-side policy. Therefore, demand-side policy is a key near-term opportunity for states to direct investments more strategically to maximize climate benefits.

The DGA study considers 13 demand-side policies and assesses each policy’s cost to government, cost to consumers, political feasibility, ease to administer, relevant sectors where the policy would be a good fit, and relevant jurisdictions where a policy exists or where it might be best used. Below is a high-level rating of each demand-side policy using these factors. For more details on each of these, please refer to the full study.

The policy menu in the DGA study provides options for policymakers to choose from, but each policy comes with its own trade-offs (e.g., cost to government, political feasibility), may be better suited for one jurisdiction compared to another, or may only apply to certain sectors. On-the-ground circumstances in each state or country will impact which policy is best to pursue.

For example, a clean portfolio mandate is a requirement or voluntary target for energy producers to supply a certain amount of energy from low- or zero-emission resources. This policy mechanism has been implemented in the European Union (EU) as a revised Renewable Energy Directive (RED), which established a target that requires at least 42 percent of energy used by industry to be renewable, either as electricity or as fuels of non-biological origin (e.g., hydrogen) by 2030 and increasing to 60 percent by 2035. This policy mechanism was politically feasible in the EU and relatively low-cost to government, and it will likely help reduce greenhouse gas emissions by creating demand for clean hydrogen and reducing demand for conventional fossil-based hydrogen. However, the efficiency of this policy may be lower than others as it does not target specific high-value end uses, as identified in the Hitting the Mark report, and it may not be as politically feasible in other U.S. states or with the U.S. federal government. 

For a policy that targets specific end uses and may be more politically feasible in U.S. states, such as those that have already been adopted in Colorado and Pennsylvania, a policymaker may want to consider pursuing a clean hydrogen use tax credit, that can be tailored to encourage hydrogen demand in key sectors. However, this does come at a higher cost to government than a policy like a clean portfolio mandate; something that many states may not be able to shoulder in the current budgetary environment. Each has its own pros and cons that must be weighed in each jurisdiction, and in fact, some may be well suited to complement each other when implemented together, such as pairing a regulatory policy with financial incentives to help industry meet those regulations.  

Given the current policy context in the United States and the recent withdrawal of federal support for hydrogen via the 45V tax credit and the H2Hubs program, it’s critical that states step up to ensure that hydrogen can still be a potential climate solution.  

Pragmatic optimism combined with the information provided by these two reports should provide a path forward for clean hydrogen. Understanding the need for clean hydrogen and the policy options that are available can help policymakers scale up this critical climate solution in the right way. Moving forward, pursuing policy support for hydrogen at different levels of government (state, local, federal, or international), even if it’s only incremental, will provide resiliency to climate policies by protecting them from the whims of a big shift at one level of government, as we have seen at the federal level in 2025.