Hydrogen developers, lawmakers ask who will regulate this emerging industry

Prospective hydrogen developers, equipped with public and private support to build a new energy economy from scratch, face an uncertain path when it comes to pipeline building and ratemaking oversight.

The Federal Energy Regulatory Commission has already asserted some authority in this area, but how far the agency's jurisdiction extends will in part depend on Congress, energy experts told S&P Global Commodity Insights.

"For project developers, an increasingly big part of what they're looking for is that regulatory certainty," said Chris Psihoules, a senior associate at Norton Rose Fulbright who advises energy industry clients. "And right now they just don't have that, and that goes for siting interstate lines and, obviously, transportation."

Some natural gas operators are already eyeing hydrogen's potential compatibility with existing natural gas infrastructure. A slew of pilot projects are underway to test the blending of hydrogen into existing natural gas streams, creating a fuel up to about 20% hydrogen. FERC Chairman Richard Glick in late 2021 declared the commission's authority over such projects. But at what point a blended pipeline becomes a hydrogen pipeline — falling outside FERC's jurisdiction under the Natural Gas Act — has yet to be examined, the chairman added.

The U.S. has about 1,600 miles of hydrogen pipeline, mostly in the Gulf Coast. However, these pipelines are closed networks built to fulfill individual off-take agreements, which exempts them from FERC's competition rules. The U.S. Department of Transportation already oversees hydrogen pipeline safety.

Lawmakers mull congressional action

The Infrastructure Investment and Jobs Act authorized the U.S. Department of Energy to spend $8 billion on the development of regional hydrogen hubs in hopes of spurring a national hydrogen economy. What has followed is a chicken-and-egg situation, according to hydrogen watchers, in which developers are looking to regulators and regulators are waiting for new project proposals.

The U.S. federal government has historically responded to new energy commodities with sweeping new legislation. In 1938, amid fears of monopolies created by distribution bottlenecks, Congress passed the Natural Gas Act that gave the agency now known as FERC broad jurisdiction over the interstate flow of natural gas.

Now, the Biden administration has joined clean energy advocates in seeking to substitute natural gas with hydrogen, which emits only water when combusted. The fuel has dozens of proposed end uses in energy storage, metals refining, manufacturing, commercial heating and electricity generation.

According to Psihoules, the Natural Gas Act is unlikely to apply to common carrier hydrogen pipelines. But the Interstate Commerce Act, or ICA, which gives FERC authority to regulate interstate oil pipelines, may give the commission authority over hydrogen without any new legislation. FERC did not respond to requests for comment.

"I think if FERC is going to declare jurisdiction, it's going to be under the ICA," Psihoules said. "I think you can make the argument, based on the language of the ICA, that if the hydrogen is being used for fuel, that FERC has jurisdiction. At least that's the theory that I'm operating on at this point."

Senators at a recent Energy and Natural Resources Committee hearing agreed that FERC should have authority over the interstate flow of hydrogen.

But Republican lawmakers are also reluctant to pass any new energy legislation in the style of the Natural Gas Act, which gives FERC siting authority over new pipeline builds. Sen. Joe Manchin, D-W.Va., and a number of Republican lawmakers have criticized the commission for slowing the construction of natural gas infrastructure.

"I'm concerned that congressional action makes it harder to permit a pipeline, which is already very difficult," ranking member Sen. John Barrasso, R-Wyo., told Commodity Insights. "I'm not interested in passing any new legislation that gives [FERC] more authority to force natural gas to stay underground."

In May, U.S. President Joe Biden nominated Glick to serve a second five-year term. Barrasso said he expected the upcoming nomination hearing to be "quite an informative discussion" as to FERC's role in siting new energy build-outs.

Democrats were more willing to entertain a top-down approach to hydrogen policymaking. Sen. Martin Heinrich, D-N.M., questioned whether the ICA gives FERC sufficient jurisdiction over pipelines transporting green hydrogen, or hydrogen produced from renewable electricity. According to Heinrich, the act's definition of "fuel" may leave room for ambiguity.

Developers wait their turn

Some business leaders worry that inaction, whether from Congress or agencies, could slow the rollout of hydrogen infrastructure. Jeff Gustavson, president of Chevron Corp.'s low-carbon investment arm, said at a U.S. Chamber of Commerce event July 14 that he was optimistic about the pace of hydrogen development but "increasingly concerned" that policy uncertainty could create a bottleneck.

Plug Power Inc. President and CEO Andy Marsh, in testimony to legislators July 19, focused on more incentives, including clean hydrogen production and investment tax credits. But the executive also supported a top-down regulatory regime, the absence of which could "stall crucial investments that would otherwise be subject to a patchwork of state regulations," Marsh wrote in his testimony.

Other projects plan to bypass the common-carrier pipeline. Mike Hopkins, CEO of infrastructure development company Bakken Energy LLC, agreed that interstate hydrogen pipelines would one day become the industry standard. In the meantime, the North Dakota hydrogen hub developer plans to start delivering liquified hydrogen in 2027 in cryogenic tanks on the back of a truck.

Part of that decision comes down to today's sporadic demand for hydrogen, which makes trucking more economical. Ultimately, though, the U.S. government will be the one to take the lead on laying out a framework for an interstate hydrogen pipeline network, according to Hopkins.

"It's something that the country is definitely going to have to decide, on a policy level, that they want it or that they need it in order for that to happen," Hopkins said. "I just don't see individual companies trying to push forward pipelines unless there's overwhelming policy support that this is critical infrastructure for the country."

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