This is an extract from a recent report “Blue Hydrogen: Not Clean, Not Low Carbon, Not a Solution” prepared by IEEFA.

Key findings

  • The U.S. Department of Energy is negotiating with several selected companies to establish regional hydrogen hubs that derive hydrogen from methane. They will be costly, and DOE must ask hard questions before it commits the funding. 
  • DOE is under pressure to put the cart before the horse—to build hydrogen projects based on unproven technologies and undemonstrated markets.
  • By the time DOE’s selected applications are processed and the surviving projects are built, EV market trends will have expanded the already strong role of BEVs substantially, weighing against most vehicular uses of hydrogen.
  • If DOE fails to exercise discretion in reviewing and finalising the hydrogen project proposals the result is likely to be a substantial waste of taxpayer dollars for an outsized hydrogen-based economy that will never arrive.

The Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law, makes $8 billion in funding available for such projects. The hydrogen hubs are intended to be commercial scale developments, not small pilot projects. They will be costly. DOE must ask hard questions before it commits the funding. 

Producing hydrogen from fossil fuels does not make sense as a climate strategy. Blue hydrogen— derived from the methane in natural gas, a fossil fuel—will not meet the federal definition of clean hydrogen, and would worsen greenhouse gas (GHG) emissions. The scale of the hydrogen push also does not make sense from an economic perspective. Despite the influx of federal funding, the long-term viability of the proposed hydrogen hubs will likely still be ruled by actual market forces. 

Public dollars should not be sunk into projects that are likely to fail to achieve financial viability due to a weak market. Six of the seven hydrogen hubs selected by DOE to receive federal funding intend to market some portion of the hydrogen gas for use in transportation. The projects must be scrutinised closely for market risk, even if the developers identify initial offtakers. The infrastructure required will take some years to develop. Given market trends, time is not on hydrogen’s side. 

DOE’s Assumption About the Future of Hydrogen Use in the Vehicle Sector Is Wrong 

DOE reported in 2020 that hydrogen’s existing market in U.S. transportation was negligible, based on research by its National Renewable Energy Laboratory (NREL).The NREL had projected at the time the potential market for hydrogen in fuel cell vehicles would be 29 million metric tons per annum (mtpa), including 21 mtpa for light-duty FCEVs and 8 mtpa for medium-to-heavy-duty FCEVs—not taking costs and competition into account. But the NREL had calculated that the impact of cost and competition factors reduced its projection to 17 mtpa. The 17-mtpa projection assumed the use of 12 mtpa of hydrogen to power 18% of cars and 26% of light-duty trucks, plus 5 mtpa of hydrogen to power 22% of medium- and heavy-duty vehicles. DOE’s 2020 Hydrogen Program Plan adopted the NREL 17 mtpa target in its Research & Development Success scenario, although it did not differentiate between light-duty and medium-to-heavy-duty FCEVs.

DOE’s National Clean Hydrogen Strategy and Roadmap, issued in June 2023, abandons the 2020 assumptions about light-duty FCEVs. It continues to assume an 8 mtpa potential market for FCEVs, however, based on hydrogen fueling 10% to 14% of all medium-duty and heavy-duty trucks. Even that reduced projection is not likely to happen. Consumers of zero-emission vehicles are already buying BEVs. U.S. purchases of BEVs during the third quarter of 2023 topped 313,000, and the year’s total is expected to reach or exceed one million—four times higher than annual BEV sales In 2020 and a 49.8% increase from the same period just a year ago. Light-duty vehicles account for the bulk of BEV sales, but—as discussed further in this report—significant inroads are being made in medium-duty vehicles and are expected even in heavy-duty vehicles. During the same quarter, only 950 FCEVs were sold.

Six of the seven regional hydrogen hub proposals selected by DOE to receive federal funding intend to market some portion—as yet generally not publicly disclosed—of their produced hydrogen gas for use in transportation. In the early stage of DOE’s H2Hub application process, the agency reviewed preliminary project descriptions. It has now begun negotiating with the selected applicants regarding project design and funding. But this is just the beginning of the funding process. DOE contemplates four phases of development:

BEVs Dominate the U.S. Market for Zero-Emission Light-Duty Vehicles

Light-duty vehicles—such as passenger vehicles, sport utility vehicles (SUVs), minivans and other light-duty vans and pickup trucks account for roughly 58% of GHG emissions from transportation in the United States. Battery electric technology is dominating the field in decarbonizing these vehicles. The U.S. Energy Information Administration (EIA) reports that, as of the second quarter of 2023, electric vehicles and hybrids already make up 16% of light-duty vehicle sales, and for reasons explained here, the percentage is likely to continue to increase. From a market penetration perspective, BEVs and plug-in hybrids combined comprise 22.4% of alternative light duty vehicle registrations, following hybrids (55%) and just edging out biodiesel (22%). BEVs alone comprise 15% of the registrations.

Battery Electric Technology Is Making Significant Inroads Into Bus and Medium-Duty Truck Sales and Is Predicted to Dominate the Zero-Emission Market for Such Vehicles

Because of their greater weight and vehicle miles travelled, medium- and heavy-duty trucks produce 23% of the GHG emissions emitted by the U.S. transportation sector, even though they make up only 5% of the vehicle population. Decarbonization of this sector is important, but the role of hydrogen fuel cell technology will be limited. Battery Electric Technology Is Likely to Take Over Most Short-Haul Heavy-Duty Trucking and May Encroach on the Long-Haul Market

The nature of the heavy-duty trucking market, defined by DOE as vehicles over 26,000 pounds, is broadly misunderstood. What typically comes to mind is trucks travelling thousands of miles. In fact:

•Only 9% of heavy-duty trucks are engaged in long haul trucking, defined by DOE as more than 250-mile-long truck trips.

• Within that segment, an even smaller portion accounts for over-the-road (OTR) trucking. For example, trips of 1,000 miles or more constituted less than one-seventh of trips in the American Transportation Research Institute’s survey of fleet operators conducted in 2022.

• The American Transportation Research Institute’s survey of fleet operators found regional trips—between 100 and 500 miles in length—are the most common, accounting for more than one-third of the sample in 2022.

Looking Ahead

Improvements in battery technology can reasonably be expected to propel BEVs even further ahead of hydrogen fuel cell technology. Research and experiments at DOE’s Pacific Northwest National Laboratory are underway to develop sodium-ion batteries, which would be free of lithium, nickel, cobalt or graphite. The Sweden-based Northvolt AB has developed a sodium-ion battery that is targeted for energy storage, and hopes to develop a vehicle model as well.

ETST suggests that modular design has the potential to allow replacement of individual modules rather than an entire battery pack, which would reduce maintenance costs and improve sustainability of battery electric trucks, especially for long-range and heavy cargo hauling. ETST also notes battery recycling could reduce costs for enhanced lithium-ion batteries, an effort that is the target of DOE-funded research.

Momentum for innovation in the heavy-duty truck market is likely to increase. California’s Advanced Clean Truck (ACT) regulation is exerting pressure on this sector for the transition. ACT requires manufacturers of medium- and heavy-duty vehicles to make zero-emissions or near-zero-emissions vehicles an increasing percentage of their annual sales from 2024 to 2035. 

Also, California’s new Advanced Clean Fleet regulation requires certain types of heavy-duty truck fleet owners to purchase only zero-emission vehicles starting Jan. 1, 2024, and declares the goal to convert all Class 7-8 trucks at intermodal seaports and rail yards in the state by 2035.

A memorandum of understanding signed by 17 states and the District of Columbia, which together account for 43% of the U.S. population and more than one-third of the nation’s medium-and-heavy duty vehicles, sets a goal of 100% zero-emission sales for medium- to heavy-duty vehicles by 2050.

Conclusion 

Hydrogen has very little future in the vehicular transportation sector. Although the Bipartisan Infrastructure Law instructs DOE to promote diverse uses for hydrogen produced by federally funded projects, the statute also gives DOE discretion to determine if a proposed end use is impracticable. By the time DOE’s selected hydrogen project applications are fully processed and the surviving projects are built, the market trends cited in this report will have expanded the already strong role of BEVs substantially, weighing against most vehicular uses of hydrogen. DOE should use the current project negotiation period to scrutinise the applicants’ marketing assumptions, including assumptions about uses in the vehicular sector, and require changes in project scale where assumptions are unrealistic. If DOE fails to exercise its discretion diligently in reviewing and finalising the hydrogen project proposals currently before it, the result is likely to be a substantial waste of taxpayer dollars for an outsized hydrogen-based economy that will never arrive.

Access the complete report here