Firing Up Clean Hydrogen in Texas

As a global energy leader and the ninth-largest economy in the world, Texas is well-positioned to play a leading role in hydrogen market development in the United States and globally. Texas has unique local characteristics that may enhance the state’s ability to build out a robust hydrogen ecosystem, including existing infrastructure that can be utilized for transport and storage, a cluster of localized demand from industrial facilities, access to large port capacity for trade, a highly-skilled energy workforce, expertise throughout the hydrogen supply chain, and a supportive regulatory and investment environment. With unprecedented levels of federal funding from the Bipartisan Infrastructure Law and the Inflation Reduction Act, Texas has an opportunity to leverage its expertise and industrial capabilities to become a global leader in hydrogen. This brief provides insights from a C2ES roundtable located in Houston and held in partnership with the Center for Houston’s Future in June 2023 that explored the clean hydrogen opportunity and the associated market, regulatory, and technological challenges in Texas.

A factsheet summarizing key takeaways and policy recommendations can be found here.

Policy Recommendations

Localize positive impacts for communities and the workforce

• CEQ and other federal agencies should provide clear, transparent guidance on Justice40. They can do so by indicating, for example, how benefits are quantified and in what geographic radius the “communities” are defined.
• The Texas legislature should create a funding program to support paid local apprenticeship programs focused on clean hydrogen, covering curriculum development and coordination with community colleges, labor and trade associations, and private training programs relating to the energy transition.
• Congress should establish a funding program through DOE and EPA that facilitates engagement between developers of hydrogen infrastructure and communities—especially environmental justice communities, tribal communities, and energy communities. This program should focus geographically on proposed hydrogen hubs and/or on natural gas facilities or other existing infrastructure that will be utilized for hydrogen projects in the future. Information gained from listening sessions across all communities should be aggregated into a comprehensive report on existing community concerns and opportunities relating to clean hydrogen, while offering recommendations to update regulations and funding implementation guidelines to better meet the needs of communities.
• Congress should expand Department of Education resources for career and technical education that can support recent graduates and mid-career workers in skilled trades to acquire expertise relevant to the clean hydrogen industry, modeled on the Innovation and Modernization discretionary grant program under Perkins V, and accessible to educational institutions in Texas offering coursework under the Texas Career and Technical Education (CTE) Science, Technology, Engineering, and Mathematics (STEM)/Renewable Energy Career Cluster. Congress should also fund K–12 outreach programs that educate young people—especially those in marginalized communities—on career opportunities and skills needs in the sector.

Maximize the climate benefit of shifting to hydrogen

• In future rulemaking (whether in the context of power plant emissions or other sources, EPA should adopt a similar approach to the IRA’s “qualified clean hydrogen,” allowing a wide range of technologies to achieve an emission reducing low-carbon hydrogen standard and ratcheting down the standard with time as the hydrogen industry gains its footing.
• The Texas legislature should pass additional legislation to integrate the production, distribution, and storage of hydrogen, including hydrogen produced via an electrolyzer, into regulations that apply to natural gas and other fuels, such as the Public Utility Regulatory Act or other relevant sections of the administrative code.
• Congress should expand the 45X advanced manufacturing production credit to include electrolyzers, treatment, processing, and hydrogen-powered compression equipment production.
• Congress should provide additional funding and guidance for research, development, demonstration, and deployment (RDD&D) efforts at DOE for innovative production, transport, and utilization pathways of clean hydrogen. This should include new funding through the Office of Fossil Energy and Carbon Management for developing innovative processes to produce hydrogen, including those that utilize existing fossil energy resources like methane pyrolysis and biotechnology. Additionally, this should include increasing existing funding to the Energy Efficiency & Renewable Energy Office of Hydrogen Fuel Cell Technologies for RDD&D for reducing costs and improving the efficiency of electrolyzers, retrofitting existing infrastructure to transport hydrogen, and integrating hydrogen in the industrial processes of end users, particularly the chemical, fertilizer, refinery, and primary steel sectors. Finally, this funding should include support for commercialization of proven technologies.
• Congress should establish a performance standard through the EPA for energy intensive industries to reduce industrial emissions. This performance standard should be designed to encourage industrial hydrogen users to shift to lower-carbon intensity hydrogen, especially in the petroleum and chemical refining and fertilizer production.

Facilitate the transport and distribution of clean hydrogen

• The Argonne National Laboratory should update and modernize its Heavy-Duty Refueling Station Analysis Model to prioritize hydrogen fueling station design with a focus on standardization, ease of deployment, and cost reduction.
• Congress should clarify that the Federal Energy Regulatory Commission (FERC) has jurisdiction to regulate the siting of interstate hydrogen infrastructure (e.g., pipelines, compressor stations, and storage facilities), inclusive of 100 percent hydrogen, as well as interstate hydrogen commerce. This jurisdiction should exclude intrastate hydrogen pipeline infrastructure (e.g., pipelines, compressor stations, and storage facilities) not part of the interstate project which initiates the FERC permitting review.
• FERC should provide guidance to states to facilitate the development of transparent, consistent regulations for new hydrogen pipeline construction and interconnection, such as developing a model rule that states could use to facilitate the development of their own regulations.

Accelerate clean hydrogen demand

• EPA should increase the stringency of greenhouse gas emissions regulations for the power sector. The regulations should be inclusive of the deployment of hydrogen in the power. However, EPA should consider in these that strict, highly prescriptive rules on an early stage developing industry like clean hydrogen could prevent it from developing at the necessary pace and scale.
• Congress should implement an economy-wide carbon price.
• Congress should establish a Low Carbon Fuel Standard, or clean fuel standard, for the transportation sector consistent with achieving net-zero emissions by midcentury. The new technology-neutral fuel standard should offer an “opt in” approach for aviation and maritime fuels until they achieve a specific milestone (e.g., a certain level of market penetration or a certain number of years after enactment). Furthermore, it should provide compliance flexibility by allowing credit trading and credits for captured carbon and direct air capture. The lifecycle carbon intensity of hydrogen production pathways should be considered in its design.
• Houston, along with surrounding cities, should create a matching program to connect clean hydrogen producers with potential customers who are willing to pay a premium for low-emissions hydrogen. This program could be modeled on DOE’s H₂ Matchmaker program.
• Congress should provide additional funding through the Department of Energy (DOE), distinct from the regional clean hydrogen hubs program, to support projects that demonstrate end-use industrial applications of hydrogen, including in the production of steel, glass, and chemicals, as well as projects in the transportation sector. Such funding should include the Industrial Technology Validation Program at the Industrial Efficiency and Decarbonization Office. Expanding the scope of this pilot program to include project funding, in addition to monitoring and validation, can spur projects to validate these technologies and help companies make confident investments to integrate hydrogen into their operations. Criteria for funding should prioritize projects with the greatest commercial viability and path to rapid scalability. Developers should make every reasonable effort to enter into community workforce agreements within the Justice40 framework as they build out these projects.
• The DOE’s Office of Clean Energy Deployment should follow through on its commitment to invest $1 billion in pay-for-difference contracts and other demand-side incentives. Additionally, Congress should provide additional support for this program to better align with the scale of market opportunity. Pay-for-difference contracts, in particular, would help to establish a transparent market price for clean hydrogen to support cost competitiveness.

Conclusion

Texas is already positioned as a global leader in energy production and export; the state now faces an opportunity to become a global clean energy leader, in part through clean hydrogen production, distribution, and utilization. In order to lead, however, the state must prioritize the needs of communities and workers in the low-carbon transition, including through education and outreach, workforce development, and authentic engagement with communities at the project level throughout the development process. Additionally, federal support from Congress, through direction for agencies like DOE and FERC is crucial. It is these agencies that are tasked with effectively deploying of federal funds, clarifying regulatory authority, and shortening permitting timelines. All of this work is essential to support the industry’s ability to attract top talent, contributing to the success of the communities that build and host projects. Ultimately, as emphasized by participants in the June 2023 roundtable, a holistic approach to support the simultaneous scale up of the entire hydrogen value chain is necessary to truly capitalize on its potential to decarbonize crucial industries and support the long-term growth and sustainability of Texas’s economy.

View more from the C2ES Regional Roundtable series here.