Hans Gutknecht/The Orange County Register via AP
California Gov. Gavin Newsom speaks during a press conference at World Energy Paramount in Paramount, California, May 1, 2023.
This article was produced by Capital & Main, an award-winning publication that reports from California on economic, political, and social issues. It is co-published here with permission.
A plan by California business groups to accelerate a hydrogen industry has gained ground after two state Senate committees approved legislation to create a renewable energy sector nearly from scratch.
Hydrogen associations, including investor-owned gas utilities, car manufacturers and oil conglomerates, are now promoting the bill and weighing what regulations to put in place.
As the bill moves through the Legislature, Gov. Gavin Newsom’s administration is lobbying the U.S. Department of the Treasury to get a break from emission restrictions on hydrogen production while state agencies, at times, have echoed the talking points of the hydrogen industry itself. California was selected by the U.S. Department of Energy for a $1.2 billion hydrogen hub investment, and companies could benefit from an additional $10 billion in tax credits, proponents of the measure said.
Critics, such as environmentalists, emissions experts and utility reformers, worry that hydrogen boosters are pushing California into a risky regulatory framework, motivated by financial incentives in President Biden’s Infrastructure Investment and Jobs Act and the climate-focused Inflation Reduction Act. If implemented incorrectly, the state’s proposed hydrogen plan could actually increase emissions, they said.
Hydrogen, an element and renewable fuel that does not emit greenhouse gasses when burned, is abundant in nature but hard to produce in pure form without releasing harmful emissions. Nearly all elemental hydrogen is produced by heating fossil methane gas in steam until the gas’s hydrogen and carbon molecules separate. There are also fossil-fuel-free alternative processes to produce hydrogen. But they too have problems.
Companies can generate hydrogen from renewable methane gas derived from landfills, dairy manure, agricultural waste, and forest overgrowth—all methods that generate pollution.
Alternatively, machines known as electrolyzers can produce clean hydrogen by separating hydrogen and oxygen atoms in water. But that method is expensive and consumes vast amounts of electricity, which has climate consequences.
Senate Bill 1420 proposes that low-carbon-sourced hydrogen made either through electrolysis or from renewable methane should be considered clean, and requires that by 2045, 60% of all hydrogen used in fuel cell vehicles be clean. It would also allow hydrogen producers to qualify for faster environmental reviews under the California Environmental Quality Act, which currently only apply to sectors such as solar, wind and thermal power plants and transmission projects.
But opponents said the bill has multiple problems. It leaves the door open for fossil-fuel-sourced hydrogen in vehicles through midcentury. It entrenches gas collection at dairy farms, which pollutes the air and water of nearby rural communities and leaks climate-warming methane when piped and refined.
Producing hydrogen cleanly is a challenge. If an electrolyzer is plugged directly into California’s grid, the hydrogen it produces would not be clean.
And most consequentially, opponents said, the provisions for electrolytic hydrogen could cause climate emissions to rise without the proposed safeguards that Newsom now opposes. The U.S. Treasury Department seeks to avoid such an outcome by offering tax credits for clean hydrogen production.
“Simply requiring that hydrogen be produced using renewable resources, without any additional criteria, will not achieve” statewide decarbonization goals, warned Matthew Freedman, renewables attorney with The Utility Reform Network, who testified about hydrogen before the California Assembly.
Even if the electricity used to make hydrogen comes from solar or wind, Freedman said, it could pull clean power that’s now being used elsewhere on the state’s power grid. Without an ample supply of clean energy, power plants burning fossil fuel gas would likely have to make up the shortfall.
Backers argue that California must move quickly to reap the benefits of federal incentives. Guidelines for the hydrogen hub money require states to build up their supply and delivery of clean hydrogen by 2030. California’s hub plan only makes financial sense if it can take advantage of those tax credits, supporters said.
“If we want to move away from fossil fuels, we have to ask, ‘What is the alternative?’” said Janice Lin, president of the Green Hydrogen Coalition, another supporter of the bill. “It all points to renewable hydrogen.”
Hydrogen has the potential to be used as a fuel for long-distance transportation by planes, ships and freight and passenger trains, according to the International Energy Agency. It is essential for chemical processes at steel plants and ammonia manufacturers, though neither have a big presence in California, Lin said.
The California Air Resources Board estimated that to reach its emissions goal, the state needs 1,700 times more hydrogen than it currently uses. Other potential uses for hydrogen, according to the state, are as a source of heat for paper manufacturing, fuel to replace diesel in trucks and to blend with natural gas in pipelines connected to homes and businesses.
But with so much federal money available, there is a risk that it “becomes economical to waste energy due to these tax credits,” said Dan Esposito, manager, electricity, at Energy Innovation Policy & Technology, a think tank. If not for hydrogen’s potential for reducing emissions and the available federal money to produce it, “nobody would be talking about it, because it is very, very expensive” to make, he said.
One example of such waste, Esposito said, is burning hydrogen with fossil gas in electricity plants as part of a lower-carbon blend. Another is having too many buses or trucks relying on hydrogen fuel cell technology instead of being powered directly by electricity. Even injecting hydrogen into gas lines, which environmentalists oppose, would replace only 7% of the energy provided by fossil gas.
Supporters said there are other benefits that make it worth using so much energy to produce hydrogen. Those include faster refueling for heavy vehicles and storing hydrogen for long-term use when wind and solar are not available.
But producing hydrogen cleanly is a challenge. If an electrolyzer is plugged directly into California’s grid, the hydrogen it produces would not be clean.
California’s current energy mix would result in 11 kilograms of carbon emissions for every kilogram of hydrogen produced—“roughly comparable to” the methods for making hydrogen from fossil methane, said Jesse Jenkins, assistant professor of mechanical and aerospace engineering at Princeton University, during a legislative hearing in Sacramento on building a zero-carbon hydrogen economy in California.
California now has six years to rev up its hydrogen industry after two decades of state subsidies failed to do so, according to an analysis of the hydrogen bill.
The Treasury Department’s solution to such problems is to offer tax credits to hydrogen producers who ensure that their electricity comes from clean sources that adds to existing clean electricity already on the grid. That would prevent producers from monopolizing the grid’s renewable power. They would also have to confirm that the clean power goes to electrolyzers as it is generated.
Such requirements could “delay the advancement of clean renewable hydrogen production in California,” said Jack Brouwer, director of the Clean Energy Institute at U.C. Irvine, at the hearing in Sacramento. He was heavily involved in preparing California’s hydrogen hub application.
Newsom’s administration has asked the Treasury Department for an “alternative compliance pathway” to comply with federal rules for clean hydrogen production. It argued that the state’s climate goals already ensure a cleaner grid over time and offer protection against emission increases.
Freedman, the Utility Reform Network attorney, said he viewed Newsom’s request as a “fiction,” in part because the state is already struggling to meet near-term climate goals.
The industry has made a similar case as Newsom, but went a step further to minimize potential effects.
“The demand that electrolytic hydrogen will place on the grid is a small fraction” of the total grid demands as California electrifies cars and buildings, said Teresa Cooke, executive director of the California Hydrogen Coalition, a lobbying firm whose partners include Air Liquide S.A., Chevron Corp. and Shell USA Inc.
In its plans to replace fossil fuels use throughout the state, California wants to triple the size of its power grid, mostly with wind and solar, by 2045. But the electricity needs of hydrogen are hardly negligible.
The state forecast that it will need 21 gigawatts of power annually for hydrogen electrolyzers alone by 2045, the equivalent of about half the current peak demand on the grid on a hot summer day. Additional hydrogen would come from renewable methane from biogenic sources—raising the same local pollution concerns residents have already flagged.
California now has six years to rev up its hydrogen industry after two decades of state subsidies failed to do so, according to an analysis of the hydrogen bill by the state Senate’s Environmental Quality Committee. “It is unclear how these policies will bolster hydrogen’s role in sectors” where it can be useful, it said.
