Thanks to David Burns, Makini Byron and Rita Rodriguez of Linde for their contributions.
The energy transition continues to be building momentum worldwide with more than 2/3 of the Fortune Global 500 having made significant climate commitments, and over 3/4 now reporting annual emissions performance. One of the solutions being explored to meet global decarbonization goals, especially in the hard-to-abate sectors, is the large scale and rapid scaling up of renewable (green) hydrogen. However, due to its current economics, other more economical solutions (in the short/medium term) are being explored such as low-carbon (blue) hydrogen. The International Energy Agency (IEA) sees low carbon hydrogen as having a major role in the transition to carbon neutrality and an ongoing role in the energy mix. Its economics are pretty close to how traditional (grey) hydrogen is being produced today (due to its scale and technology readiness), and can contribute 50-95% of the emissions reduction achievable with renewable hydrogen. As a result, there are several projects that are under construction with onstream dates in the next 1-3 years. So, let us take a closer look at the rise of low-carbon hydrogen, its past, present trends and future outlook.
The Past
Although hydrogen was discovered back in the late 1700s, large scale production of hydrogen was required in the early 1900s with the invention of the Haber process. It enabled large scale production of ammonia (which is the key intermediate for fertilizer production) from the combination of nitrogen and hydrogen under the right conditions. Large volumes of hydrogen were needed for this process and were produced from steam reforming of methane, where the methane was heated with steam in the presence of a nickel catalyst. These core processes became the technology of choice in the chemical, oil, and gas sectors for the industrial production of hydrogen, methanol, and ammonia.
Shortly thereafter, additional hydrogen applications were explored with the largest quickly becoming its use as a fuel or propellant for aircraft and ultimately space flight. The National Aeronautics and Space Administration (NASA) began using Liquid Hydrogen (LHY) in the late 1950s, and was one of the first to use hydrogen fuel cells to power the electrical systems onboard spacecraft. In the 1970s, countries began to seriously look at fuel conservation (as a result of oil supply constraints) and reducing its environmental impact, which resulted in the first vehicle emissions standards (or clean fuel regulations) which impacted the fuel specifications used in those vehicles. This global tightening of emission regulations resulted in increased demand for hydrogen in hydroprocessing of crude oil to remove sulfur and nitrogen contaminants (which caused vehicle emissions), and this process continues to be practiced to this day.
Around the same timeframe, the oil and gas industry started using carbon capture, when it was first commercialized as part of Enhanced Oil Recovery (EOR) processing. EOR involved injecting carbon dioxide (CO2) captured from oil and gas production or from naturally occurring CO2 wells, into depleted reservoirs to increase pressure and extract more hydrocarbons. In 1972, the Sharon Ridge oilfield in Texas launched the first large-scale project to inject CO2 into the ground. As the climate change movement gained momentum, the oil and gas industry rebranded EOR as carbon capture utilization and storage (CCUS).
International focus on the environment continued to rise led by the United Nations (UN). In 1997, the first UN conference was held, which attempted to secure legally binding emissions reductions from countries around the world. It then took 18 years and multiple UN “COP” meetings to establish the Paris Climate Accord (PCA), which brought things together in 2015. The signing of the PCA was a watershed event because it was the impetus that moved several countries forward to establish formal strategies supporting their PCA commitments. One of the key components of these strategies was an established “hydrogen strategy” containing spending, infrastructure, and end-markets targets.
As hydrogen strategies were being developed, it became clear that there were many ways of producing hydrogen, and some were more environmentally friendly than others. As a result, various solutions to lessen its environmental impact have been developed – and scientists assigned “colors” to the different solutions to distinguish between them. The term “Green” hydrogen was given to the only hydrogen type produced in a climate-neutral manner, using renewable electricity (solar, wind, hydroelectric, etc.) to power the electrolytic production of hydrogen. The term “Blue” hydrogen, which is the focus of this article, was given to hydrogen primarily produced from steam reforming of methane and the CO2 emissions were captured and stored underground, or repurposed for other uses, such as in the food and beverage industry. Obviously, there are other “colors” assigned to other hydrogen production methods each with its “pros and cons.” However, it was expected that most, if not all, hydrogen production solutions would be required to accomplish the targets set forth in the PCA.
Around the same time, a few “foundational” technologies for blue hydrogen production were developed and demonstrated at commercial scale, partially funded by the US Department of Energy (DOE). The Archer Daniels Midland (ADM) plant in Decatur, Illinois, was the first large-scale industrial facility in the U.S. to demonstrate permanent storage of CO2 underground. Since 2011, the plant has captured CO2 from its ethanol production plant, which turns corn into a fuel additive for vehicles, and injects the CO2 into a sandstone formation saturated with saltwater hundreds of feet below ground. In 2017, the company received its class VI permit and began commercial operations. Another project demonstrated the capture of CO2 from steam methane reformers at an Air Products facility in Port Arthur, Texas, transporting the CO2 via pipeline, and conducting monitoring, verification, and accounting related to enhanced oil recovery (EOR) at the West Hastings Field. Both these projects (along with other DOE-funded projects) demonstrated the large-scale feasibility of the major elements of the technology. At the same time, the original regulations to incentivize companies to invest in CO2 capture were birthed, and have since undergone several enhancements. In recent years, the term “blue hydrogen” has gradually been encompassed by the terms “low-carbon” or “low emissions” hydrogen, better reflecting the group of technologies that produce hydrogen with little to no greenhouse gas emissions. Along the same timeframe, several large low-carbon projects have been announced and per the Global CCS Institute, carbon capture and storage capacity has grown at a compound rate of more than 35% per annum since 2017.
Linde has been a leader in the hydrogen industry throughout its history; we have a dense production, processing, and distribution network around the world. We see hydrogen as a key enabler of the transition to a low and zero-carbon energy economy to meet climate needs.
Makini Byron, Director Clean Energy, Linde
The Present
As with any transformative technology, there is always some level of controversy, and that has been the case in recent years. Fortunately, however, policy-makers and large industry in many regions of the world are aligning around the fact that low-carbon hydrogen has a role to play in the energy mix for the foreseeable future. Challenges facing the renewable hydrogen space such as higher costs, lack of off-takers, and incomplete policy through-out the value chain, have aided low-carbon hydrogen’s progress and uptake. Clearly the significant expansion of the US government’s 45Q tax incentives in 2022 have assisted low-carbon investment by many companies in the Gulf Coast including Linde, Air Liquide, Air Products, Exxon-Mobil and several others with large scale production coming onstream in the next 1-3 years.
Our project for OCI, one of the largest ammonia producers in the world, is a great example of a plant which is being built today to deliver low-carbon hydrogen at scale. Our project will enable OCI to further build and strengthen their blue ammonia and clean fuels platform, supplying both the U.S. and export markets.
David Burns, Vice President Clean Energy, Linde
Canada’s most recent summary of progress on their Hydrogen Strategy, stated interest in low-carbon hydrogen is booming with approximately 80 low-carbon hydrogen production projects announced representing over $100 billion in potential investment (i.e., Air Products (Alberta), World Energy (Newfoundland/Labrador), etc.). Japan announced earlier this year they plan to subsidize production of both renewable and low-carbon hydrogen to the tune of 3 trillion yen ($20.3 billion) over the next 15 years, aiming to boost cooperation with the private sector in developing a domestic hydrogen supply chain to supplement imported product. Even in the UK, their initial Hydrogen Strategy outlined measures in which the UK would rapidly and significantly scale up production and lay the foundations for a low carbon hydrogen economy by 2030. However, it appears that the strategy is starting to experience some “pushback.”
Other countries/regions are taking a more measured or completely different approach. For example, the EU has to date focused its policy on supporting and mandating the use of renewable hydrogen, with a goal to secure 20 million tons (Mt) of hydrogen per year in 2030. Middle Eastern countries like Saudi Arabia and Oman also are rushing to produce hydrogen from renewable energy. However, they are not enacting subsidy policies like the US, Japan or the EU, but with a focus on exporting the product. Australia, one of the early hydrogen strategy adopters, is in the process of a formal Hydrogen Strategy review, since very few of their announced hydrogen projects have reached Final Investment Decision (FID) in comparison to the US, EU and Japan. More than 90% of their project pipeline has focused on renewable hydrogen production leveraging their vast wind and solar resources, however, utilizing limited to no financial incentives to accelerate investment and industry development until recently. In June, the Australian government announced a new Hydrogen Production Tax Incentive (HTPI) that will pay developers A$2 (US$1.32) per kilogram of green hydrogen over a ten-year period, starting from 2027.
Although there remain several strategic differences on how to accelerate development of the hydrogen market, one of the most significant policy trends in this space is the increasing focus on classifying hydrogen projects by emissions intensity rather than by color or any other mechanism. At the end of the day, it comes down to how many Greenhouse Gas Emissions (GHG) emissions will a particular project remove from the environment. Fortunately, some organizations such as The International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) has developed a standard methodology for calculating the GHG emissions intensity of different hydrogen production routes, which could improve transparency, facilitate global market development, and remove another the barrier to investment and scale-up. Also, many countries have already established carbon-intensity thresholds for low-carbon hydrogen. But most, including future importers such as Japan and South Korea, only count production emissions and not the full value chain emissions thus far…so there is still room for improvement.
From a demand perspective, end-markets for low-carbon hydrogen are starting to have greater clarity, with much of the focus in the short/medium term being directed towards steel and ammonia. H2 Green Steel’s $1.6 billion investment in Sweden is an example and is on track to open in 2025, in what would be a first for the steel industry. The company will replace fossil fuels with clean hydrogen in the steelmaking process, and the forthcoming facility will be the first at-scale test of its capabilities. The plant will use hydrogen with a set of electric arc furnaces capable of producing up to 5 million metric tons of green steel by 2030. While other routes to cutting the carbon emissions of steelmaking are being developed, they are much further from the sort of full-scale commercialization the company says is within reach with this new investment.
Ammonia’s appeal lies in its high energy density, its ability to be produced as low-carbon ammonia (thanks to low-carbon hydrogen production), and the presence of a well-established global infrastructure network that facilitates its transport. In addition to use of low-carbon hydrogen with CO2 capture rates beyond 90% to help decarbonize the fertilizer and food industries, it is being considered as an alternative fuel for the shipping industry to help achieve the International Maritime Organization’s (IMO’s) 2030 emission reduction goals, offers the promise of being a low-emission fuel for the power industry (especially in Asia), and use as a hydrogen transport vector due to its very high volumetric energy density compared to other modes of hydrogen transportation. Some current examples include Yara International, one of the world’s largest fertilizer manufacturers, who will capture 800,000 tons of CO2 every year from their ammonia production process at their Sluiskil location in The Netherlands. The captured carbon will be liquified and transported to Norway for permanent storage under the North Sea starting in 2025. Announced in late 2023, the world’s first ammonia powered container ship is set to operate between Norway and Germany starting in 2026, and in June of this year, UAE’s national oil company (Adnoc) shipped blue ammonia to Mitsui in Japan for use in power generation, and the product was certified by a third party organization. And finally, Lotte Fine Chemical, a South Korean ammonia distributor and user, signed a Memorandum-of-Understanding (MOU) with OCI to purchase low-carbon ammonia to produce bio-certified plastics for the European market. These products are eligible for tax benefits in Europe. So, we are gradually demonstrating progress…
The Future
Despite some of the constraints facing the utilization of low-carbon hydrogen in certain geographies, the number of announced projects globally is rapidly expanding. The Hydrogen Council in late 2023, stated that over 3 Mtpa (million tons per annum) of clean hydrogen capacity has passed FID (driven by North America and China) and would be onstream by 2030. In addition to 0.9 Mtpa of existing low-carbon hydrogen capacity, about 2.2 Mtpa of clean hydrogen has passed FID, of which 1.8 Mtpa is low-carbon hydrogen, or over 80%. About two-thirds of this low-carbon hydrogen capacity is in the United States, and one-third in Canada driven by their early deployment of carbon capture and storage (CCS) technology. Other geographies are expected to contribute growth as the role of low-carbon hydrogen in their respective energy mixes becomes more clearly defined.
Low-carbon hydrogen is typically viewed today as a steppingstone, being used until the economics and scale of green hydrogen improve,” states David Burns, Linde. “However, we also see it as a long-term solution for a portion of the energy mix, especially in countries/regions where the economics of renewable hydrogen are not affordable. As such, we urge policymakers to continue supporting investments in low-carbon hydrogen, alongside renewable hydrogen.”
David Burns, Vice President Clean Energy, Linde
Research house BloombergNEF published their forecast earlier this year and arrived at similar results, stating clean hydrogen production will increase by a factor of 30 from current supply levels by the end of 2030. Only around 2.7 Mtpa of clean hydrogen production has reached a “committed” phase (i.e., reached FID, started construction, or began operations), and more than 60% of this category will be low-carbon hydrogen produced from natural gas with CCS. Wood Mackenzie’s forecast stated that the demand for low-carbon hydrogen will grow from <1 Mtpa to nearly 16 Mtpa by 2030, with 60% blue and 40% green, with blue having a significant cost advantage this decade.
Although we have made significant progress in our energy transition journey thus far, there are several regulatory items that still need to be resolved on a country-by-country and cross border basis. One of the larger challenges is enabling global trade (where possible) of clean hydrogen solutions, without negatively impacting domestically produced solutions. By somehow putting a fair price on the carbon emitted during the production of carbon intensive goods that are entering a country, and to encourage cleaner industrial production in countries desiring to do business with you. The EU’s Carbon Border Adjustment Mechanism (CBAM) is a good model which is the pilot phase through 2026, and should provide good baseline data to test if this solution can be a possibility.
The EU Emissions Trading System and Carbon Contracts for Difference schemes being explored in Japan and other countries are good examples of incentivizing optimal emission reduction. Putting a price tag on every ton of carbon emitted encourages different low-carbon technologies to compete. Another item discussed earlier, is aligning on a global methodology and standard for how to measure the emissions reduction of each technology option, enabling subsidies to potentially be based on the depth of the emissions cut.
On the surface, it seems as if we have plenty of time to reach Net-Zero (over 25 years) and achieve all these regulatory and technological challenges. However, as many of us know, most of these solutions require years before they truly deliver the desired results. So, the time to engage is now, and there are plenty of opportunities across the value chain where insights and practical solutions are needed to remove some of these barriers to faster deployment of low-carbon and renewable hydrogen solutions.
