EDPR NA Energy Insight
Green Hydrogen: In Defense of the Three Pillars of Emission Accounting
November 15, 2023
Today, there is already a consensus that Hydrogen could play a vital role in supporting the decarbonization of “hard-to-abate sectors”, which are sectors where electricity is not a suitable alternative due to technical challenges or due to its expected cost. These sectors represent ~ 32% of global GHC1 emissions and include industries such as the production of liquid fuels, fertilizers, steel, aluminum and glass.
Hydrogen can only fulfill its potential as a decarbonization tool if it is clean, meaning that it is produced from energy sources that don’t emit CO2, for example, electrolyzers powered by renewable electricity.
Clean hydrogen has become the focus of many discussions since the Inflation Reduction Act (IRA) introduced the 45V Hydrogen Production Tax Credit, which awards up to $3 per kg of hydrogen produced to US projects with a lifecycle greenhouse gas emissions intensity of less than 0.45 kilograms per kilogram of hydrogen (kg CO2e/kg H2)2. Measuring emissions is often complex, and as of today, the industry is still waiting for Treasury Department guidance that will determine how the emissions intensity of electrolysis-based hydrogen is calculated. The definition created will ultimately determine the emission accounting system that will define the carbon intensity of electrolysis-based hydrogen. This system will ultimately determine how the nascent American hydrogen economy develops and what type of activities are taxpayers supporting.
These guidelines will be key to ensuring that there is not an increase in net greenhouse gas emissions, resulting in the subsidization of hydrogen with higher emissions.
EDPR NA has supported several initiatives aimed at proving that a robust implementation of the clean hydrogen tax credit production incentive effectively decarbonizes the industry without damaging the competitiveness of clean hydrogen production, which include:
- Group Urges Hourly Matching Implementation for Hydrogen Credit
- Joint Letter: 45V Implementation
- Hourly Matching Industries
Along with a robust coalition of NGOs, academic institutions, and industry counterparts, we propose an emissions accounting system that hinges on three pillars: additionality, deliverability, and hourly time-matching. Several studies support the implementation of the three pillars approaches, including those by Princeton3, Bloomberg NEF4, Evolved Energy Research5, and Energy Futures Initiative6.
- Additionality requires that the clean electricity sourced for hydrogen production comes from new clean generation sources. If existing clean energy supply powers an electrolyzer, directly or indirectly through the grid, then that clean energy supply is diverted away from other uses within the grid. Fossil electricity will increase to fill some of that gap, and therefore increase the carbon intensity of the entire grid.
- Deliverability requires electrolyzers to source clean electricity from within their same operating region. All projects would need to avoid causing grid congestion by locating close to the generator they are sourcing electricity from, and only in areas without preexisting grid constraints.
- Lastly, hourly time-matching requires electrolyzers’ electric consumption to match clean energy production down to the hour. Doing so eliminates the possibility of subsidizing electricity produced by fossil fuels during hours when there is no renewable source (i.e., it makes no sense to produce H2 during the nighttime with solar power), which would increase emissions fivefold.
Although there are still technical challenges that need to be addressed to fully implement the three pillars, it is paramount that project developers today know the direction for which the hydrogen industry should be aiming for, so they can allocate resources to tackle those challenges. We recognize that a transitional period with more flexible rules may be beneficial to quickstart the renewable hydrogen economy, but this should end no later than 2030. In the long run, anything other than the three pillars would be subsidizing the creation of non-green and greater emission-causing hydrogen. If our industry comes together, we can make great strides toward the development of zero-carbon infrastructure and truly clean energy solutions in the United States, and we have the ability to get it right.
We welcome those who support this approach by joining the aforementioned Initiatives that ensure a competitive and emissions-curbing approach to the production of hydrogen. In addition, we look forward to collaborating with those end users looking to make the transition to green hydrogen to reach out to us as we strive for an efficient decarbonization of the economy in North America. Together, we can create a hydrogen industry we all can be proud of.