Houston and the state of Texas sit at the center of the energy world. With decades of oil and gas industry experience and a skilled energy workforce, the state is looking for opportunities as the energy economy moves to a low-carbon future. Hydrogen, a versatile energy carrier with applications in many emissions-intensive industries, offers a commercial opportunity for Texas to leverage its existing infrastructure, expertise, and workforce and endure as an industry leader in a low-carbon energy future.
In June, C2ES convened a roundtable in Houston, with experts from industry, government, labor, NGOs, and academia to discuss needs for a robust, sustainable, and equitable hydrogen industry in Texas. Given the urgency of climate change and the role hydrogen will play in decarbonization, heavily emitting sectors must rapidly scale-up the use of hydrogen as a fuel. The federal government has worked to address this need with funding in the Inflation Reduction Act and Infrastructure Investment and Jobs Act, including the U.S. Department of Energy’s Regional Clean Hydrogen Hubs program and the hydrogen production tax credit.
As companies capitalize on these incentives to integrate hydrogen into their business models and decarbonize their operations, hydrogen production, distribution, and end-use has the potential for rapid growth. But catalyzing the commercial uptake of hydrogen requires addressing many challenges. Considering hydrogen’s role in meeting climate goals and current government support, roundtable participants discussed how to ensure the decisions made today to stand up a hydrogen industry will secure long-term success for this crucial energy source.
Scaling the Hydrogen Industry
The key challenge to scaling the hydrogen industry is ensuring the fuel is dependably delivered at a competitive price from the point of production to end-use. Participants from across the hydrogen value chain brainstormed solutions to the challenges hindering the reliability and affordability of hydrogen. They also proposed ways to scale the industry equitably by ensuring benefits are shared and community concerns are addressed.
The discussion highlighted several key policies, private partnerships, and industry actions needed to improve the economics of hydrogen and ensure the industry has positive impacts on communities at the forefront of the energy transition.
- Take a holistic approach to building out the value-chain for the hydrogen industry to scale. Focusing solely on expanding production or developing hydrogen end-uses will not be enough to jump-start the market. Industry actors and regulators must work together to make sure hydrogen supply matches demand. This temporal alignment of growth in supply and demand will provide midstream infrastructure developers with the financial certainty they need to build out hydrogen transport infrastructure.
- Positive benefits for workers and communities must be central to the discussion and planning decisions around the buildout of hydrogen. Project developers must engage with local communities to build buy-in among residents by being transparent about the economic, environmental, and social impact of projects. Additionally, developers should hire local workers to ensure economic benefits are shared among those who the project affects. Paid apprenticeship programs are a useful tool to empower local workers to build industry skills while being paid, and to improve the safety and appeal of energy jobs. Ensuring these community considerations are met is becoming a policy priority at the national level. For example, federal funding and guidelines currently encourage community engagement and benefits through the Justice40 Initiative.
- Take advantage of export markets in the near term, but be diligent to build up domestic demand. Foreign markets, especially Europe and Asia, are interested in importing hydrogen as a clean fuel source. For example, the Japanese government and European Union are setting targets to import 3 million and 10 million tons of hydrogen, respectively, by 2030. However, transporting hydrogen long distances has challenges that can strain its economic viability. One potential solution, combining hydrogen gas with nitrogen to create ammonia as an energy carrier, could enable foreign markets to be a major driver of demand for hydrogen in the near term. However, participants stressed the need to avoid reliance on foreign markets and encouraged the simultaneous build-up of foreign and domestic demand sources.
- Policymakers must provide a stable regulatory environment for permitting and access to hydrogen distribution infrastructure. Creating clear permitting rules for new hydrogen pipelines and storage and establishing an open access system will unlock a key bottleneck that is inflating the price of delivered hydrogen. The open access system, which allows multiple producers and end-users use of the same pipelines, was a key contributor to the growth of the natural gas industry. Creating a transparent and consistent permitting process and an open access system for pipelines will be a key driver to lower costs of clean hydrogen distribution.
Scaling the hydrogen industry requires addressing many challenges simultaneously. Policymakers and industry actors must move quickly to ensure that production increases swiftly alongside demand. With transferable oil and gas industry experience, a skilled workforce, and immediate high-value applications for hydrogen, Texas, and Houston in particular, could be a national leader in the growth of a hydrogen industry.