Hydrogen backers warn of 'bottleneck' as states patch regulatory gaps

The Biden administration's vision for a national hydrogen economy has been met with an outpouring of development proposals. But regulation and policy gaps could soon become a weak link, according to stakeholders involved in the production, distribution and offtake of hydrogen.

Uncertainty around the regulation of hydrogen and carbon capture infrastructure was highlighted several times during a July 14 online event hosted by the U.S. Chamber of Commerce. Industry leaders warned that projects could be slowed down by multiple layers of permitting and a mismatch between state and federal policies.

Hydrogen is a clean-burning gas with a range of end-uses, including energy storage, manufacturing and electricity generation. The potential decarbonization tool has been met with broad support from the federal government. The U.S. Department of Energy has made available $8 billion for at least four regional hydrogen hubs within the U.S. and $1 billion to reduce the cost of renewable electricity-powered hydrogen.

Federal incentives are "very important," said Jeff Gustavson, president of Chevron Corp.'s low-carbon investment arm, Chevron New Energies. "But there's a lot of local work that has to be done."

In 2021, Chevron pledged to spend $10 billion on low-carbon ventures, including hydrogen and carbon capture, utilization and storage, or CCUS. However, environmentalists say that is not enough to reach net-zero emissions by mid-century, and at least one of those projects has already been put on hold.

"It's sometimes difficult to get things lined up locally in order to get the permits that we need," Gustavson told the Chamber of Commerce. "And there's a mix of different regulatory environments, which makes it very complicated and can extend the timeline."

Developers brace for red tape

So far, hydrogen pipelines can be found in only a handful of states, mostly along the Gulf Coast. Carbon dioxide pipelines, which have been around for decades in the oil industry, are only slightly more common, stretching about 5,000 miles in the U.S. Both pale in comparison to the country's natural gas network made up of about 3 million miles of mainline and other pipelines, according to the U.S. Energy Information Administration.

As companies invest in carbon capture and storage infrastructure — encouraged by what are known as 45Q tax credits — carbon dioxide pipelines are getting more regulatory scrutiny.

"The key [is] a durable regulatory framework for hydrogen and CCUS at both the state and federal level," said Jane Stricker, executive director of the Houston Energy Transition Initiative. "Consistency across [both] is really important, with particular focus on the permitting and siting of the hydrogen infrastructure as well as the CO2 pipeline infrastructure."

Stricker also sought clarity on the regulation of long-term carbon dioxide storage, including on Class VI well permitting, long-term liability and primacy, and whether the state or federal government has enforcement responsibility. Class VI wells, or underground CO2 injection sites, are permitted by the U.S. Environmental Protection Agency. Only two Class VI wells have been permitted to date.

At stake are about two dozen hydrogen hub projects that have already been launched in the U.S. At least 10 of these projects plan to produce so-called blue hydrogen, using natural gas, and will depend on the availability of CCUS infrastructure.

"I'll be honest. I'm increasingly concerned that [the lack of] sound, clear policy will become a bottleneck here," Gustavson said. "You can see industries building the foundation now to really start to scale these businesses. I don't want to get to a point where we're waiting to make sure we have some of that policy certain before we start building these projects."

Paul Glaser, chief engineer at General Electric Co. subsidiary GE Research, also called for continued momentum. Glaser warned against the "valley of death," or abandonment of new technologies once the research and development funding dries up.

"Keeping your eye on the long game and helping our customers get over the valley of death are two things I would ask both the executive and legislative branches to maintain and deliver," Glaser said.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.