Legislation and subsidies
Blue hydrogen rising, carbon intensity falling
With the energy transition already in full swing, hydrogen is going to be essential to supplement and complement renewable energy. It can help decarbonize sectors that otherwise could not be, and it can do it at large scale. It’s thought hydrogen will account for 22% of global energy use by 2050.
Several, nations, regions, and companies have already come forward with their hydrogen strategies. And at the heart of these strategies lies a concept called Carbon Intensity (CI).
Carbon Intensity is essentially the amount of Greenhouse Gas (GHG) emissions needed to produce hydrogen. The lower the better. Governments and states, therefore, are introducing legislation and subsidies to encourage lower GHG emissions and therefore a lower carbon intensity hydrogen.
Transportation standards
It’s tough to take out the carbon from transportation but there is a way; hydrogen — used either as a fuel or a feedstock for lower GHG fuels — is going to be a vital to the way we move goods and people around the world.
And legislation from the world’s biggest economies will only make low-carbon intensity hydrogen even more important.
On a state level in the US, we are seeing trends toward strong reductions in CI. Low Carbon Fuel Standards have been introduced in California, Oregon, and Washington. These give the opportunity to obtain LCFS credits for fuels with lower CI than a baseline level. And we anticipate more states will take this approach soon.
In Canada, they have the Clean Fuel Standard with a CI reduction target of 10 gCO2eq/MJ in 2030 on a federal level. In British Columbia, there is an even bigger target of 20 gCO2eq/MJ reduction in 2030, as well as a similar LCFS credit to those found in some US states.
In the EU, the Red II/III regulations have a 13% GHG emissions target, with some individual nation-states going much further: Sweden, for example, is targeting a massive 70% reduction. These reductions will be incentivized by a higher value of fuel for those who produce it at a lower carbon intensity.
Carbon pricing
Another common approach is to apply prices to carbon. In the EU, this takes place via the Emissions Trading System (ETS). Under this system, industrial installations and aviation are covered by a carbon allowance, and the cap is decreasing by 2.2% every year. Under the proposed Fit for 55 legislation, this cap would be reduced at double the rate: 4.2% per year.
China is also introducing its own ETS which currently covers power generation. While less stringent than the EU equivalent, it will nevertheless incentivize more efficiency in the energy sector. Companies that can reduce the carbon intensity of their production can sell allowances on the market.
Across the world, there is a wide variety of carbon pricing, with some countries putting their own additional taxes on CO2. Across the board, it is becoming more and more important for businesses to decarbonize their assets.
Subsidies
Some countries encourage decarbonization with subsidies for low-carbon hydrogen production or carbon capture and storage (CCS).
The US Inflation Reduction Act, announced July 27 2022, includes support for hydrogen production through a new ambitious tax credit that will award up to $3/kg for ultra-low carbon hydrogen. The exact credit amount will depend on the hydrogen's well-to-gate carbon intensity (CI) and will be subject to a multiplier effect which in turn depends on speed of implementation as well as certain wage and labor requirements for the project. Projects that meet those requirements can receive tax credits ranging from 60 cents/kg to $3/kg.
Similarly, other nations such as The Netherlands are introducing CCS subsidies. With an ambition for 10GW of low carbon hydrogen production capacity by 2030 — 50% of which will be blue — the UK may also soon offer subsidies in this area.
CI is key
There are already a significant number of governmental regulations and subsidies which impact hydrogen producers. The uniting factor among all of them is that a lower carbon intensity is better. Every CO2 saving counts in the energy transition.
This presents a challenge for current hydrogen producers but also an enormous business case for blue hydrogen. With the right technology and the right expertise, businesses can meet legislation and decarbonize profitably.
Discover how our ultra-low carbon intensity blue hydrogen technology can help your business.
