California — one of America's greenest and most progressive states — has called on the US Treasury to allow green hydrogen produced using power from existing renewables projects to qualify for the federal clean H2 tax credits, even though doing so could increase overall power-sector emissions.
The Treasury department is currently consulting on whether it will implement similar rules on green hydrogen production to the EU’s Delegated Acts, which require H2 to be produced from newly built renewables projects within the same geographical area as the electrolysers, with production to be matched to power generation as closely as possible.
But the response to the consultation from California's Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) — a public-private partnership seeking up to $1bn in funding from the federal Regional Clean Hydrogen Hubs programme — argues against all these measures.
While electrolysers powered by renewable energy theoretically produce H2 with no carbon emissions, environmental groups and analysts have warned that green power drawn from existing assets on the grid might well need to be replaced with more gas- or coal-fired electricity, thus driving up overall greenhouse gas emissions.
Similarly, if green hydrogen producers are required to prove that they have consumed as much renewable energy as they have produced over, say, a year (annual power matching), there could be instances throughout that period where the contracted clean-power supply is not available due to low winds or lack of sunshine, so fossil-based electricity is used for “green” H2 production.
Hourly matching, which the EU's Delegated Acts insist on from 2030, would effectively require electrolysers to only be switched on when renewable electricity is available.
But the state-backed ARCHES says that requirements for additionality, geographical correlation, and strict power matching will put hydrogen at a disadvantage compared to other energy technologies by adding to the cost of production.
Its consultation reply — also signed by representatives from the state governor’s office, the University of California and the State Building and Construction Trades Council of California — calls for annual rather than hourly matching, and no obligation for projects to draw power from newly built assets or even those in the vicinity.
ARCHES argues that since other clean energy technologies promoted by the state’s renewables portfolio standard (RPS), such as electric vehicles and battery energy storage, do not have similar requirements to prove their use does not increase overall power-sector emissions, “hydrogen should not have to follow a different approach”.
And the state’s rollout of renewables — which now represent about half of its power on the grid — could be slowed by congestion of transmission lines if more assets need to be built and connected in order to qualify H2 projects as “clean”.
“For context, in California, to provide 100% clean electricity, our state will need to build 148,000 MW of clean energy resources by 2045 — increasing our already robust clean electricity capacity by 400% over the next two decades,” the response notes.
“We believe these targets are achievable, but if hydrogen projects require additionality above and beyond our 100% RPS requirements, it will be impossible to interconnect them in a timely and cost-effect manner without disrupting our carefully calibrated energy system.”
However, while California’s grid already has a substantial proportion of solar and wind power, 42% of its energy is supplied by natural gas, with only 8% from nuclear.
So while the state may have grand ambitions to have a fully zero-carbon electricity mix by 2045, with a 90% interim target by 2035, in the short term it is extremely likely that green power used for H2 production will be offset with more gas-fired power.
California also imports between a fifth and a third of its electricity from out of state, of which around 58% is renewable, large-scale hydroelectric, or nuclear — which could explain why ARCHES is arguing against geographical matching, one of the less controversial measures among those proposed.
However, there is a growing body of data to back up ARCHES’ stance on temporal correlation.
New analysis by German and US researchers indicates that hourly correlation increases the cost of green hydrogen by 27.5% compared to annual matching, with little evidence that it would actually prevent power sector emissions — but these figures related to the power sector in Germany, which is arguably more ambitious on renewables than the US.
Consultancy Wood Mackenzie meanwhile calculated earlier this year that hourly matching would increase the levelized cost of H2 production by 68-175% due to lower electrolyser capacity factors compared to annual, which would allow the equipment to be run round-the-clock.
However, the firm also noted that running an electrolyser at maximum capacity would require some grid electricity in both its modelled states (Arizona and Texas), driving up the carbon intensity beyond even the lowest threshold for the US clean hydrogen production tax credit, never mind the 0.45kg CO2-equivalent per kg of H2 for the top rate — necessitating the use of renewable energy certificates to offset these emissions to claim “net zero” hydrogen.
Yet one study published earlier this year by the San Francisco-based research firm Energy Innovation found that allowing US green hydrogen projects to use existing renewable energy sources would result in 1.5 to five times higher greenhouse gas emissions than from grey hydrogen production (from unabated fossil fuels).
The US Treasury has already missed a deadline of 16 August to publish its guidance for calculating lifecycle emissions for producers seeking to access the clean hydrogen production tax credit, although government officials have hinted that a compromise position will be taken, wherein regulations are phased in over time.
California is not alone in calling for no additionality clauses in the Treasury rules. In May, a total of 54 hydrogen-related companies and organisations, including electrolyser makers, project developers and users — as well as the influential US Chamber of Commerce — signed a letter to the US government objecting to such rules.
Incidentally, California governor Gavin Newsom announced last month that the state would develop its own market development strategy to accelerate the rollout of renewable H2.
