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Energy Customer Markets Are Key to Scaling Clean Hydrogen

The Clean Energy Buyers Institute’s NextGen CFE Initiative aims to expand the menu of carbon-free electricity procurement options available to clean energy customers, to help customers optimize the decarbonization impact of their procurement decisions and send more targeted demand signals that accelerate systemic grid decarbonization.

Over the past decade, voluntary purchases of carbon-free electricity (CFE) hastened the deployment of 60 gigawatts of new wind, solar, and storage capacity to the U.S. grid. With mounting pressure to achieve the next level of deep decarbonization, energy customers want more solutions to achieve more differentiated impacts through CFE procurement decisions. Clean hydrogen is one of the solutions customers may want to procure, to achieve their CFE procurement goals and advance economy-wide decarbonization. 

With U.S. federal incentives for clean hydrogen through the Inflation Reduction Act (IRA) taking effect this month, along with parallel policy developments in the European Union and other international markets, we need new ways to verify the clean electricity credentials underpinning clean hydrogen production. As the U.S. Department of Energy prepares to fund regional hydrogen hubs and finalize requirements for the Clean Hydrogen Production Standard (CHPS) that will jumpstart the U.S. clean hydrogen economy, it is critical that energy customers have the opportunity to engage and transact clean hydrogen, to achieve their individual goals and send powerful market signals that unlock greater and swifter investments in clean hydrogen. 

Policymakers must create this market infrastructure that establishes self-sustaining voluntary markets and scales commercial clean hydrogen transactions, verifiable claims, and new investments. 

CEBI recently sat down with RMI, the Center for Houston’s Future, and EnergyTag to better understand opportunities, challenges, and functional requisites to enable a voluntary market for verifiably clean hydrogen, ranging from the use cases for clean hydrogen to how to get the incentive design and carbon accounting right. Here are some key insights from that discussion:

Hydrogen can serve as a transportation fuel, a grid stabilizing storage reserve, and perhaps most promisingly, as a low-cost way to decarbonize several emission-intensive industries that are hard to abate. With incoming tax credits from the IRA that may help make clean hydrogen production more cost-competitive, the green premium of adapting this new technology may significantly decline. These production tax credits may bring the cost of green hydrogen-based production close to parity with fossil-based alternatives in industries that now contribute up to 20% of global carbon emissions, including shipping fuel, fertilizer feedstock, and steel production. 

The European Union’s recent decision to include hydrogen on the list of imports subject to its Carbon Border Adjustment Mechanism (CBAM), a carbon tariff, also highlights the growing relevance of verifiably clean hydrogen production in markets outside the United States. 

With the opportunity clean hydrogen presents to scale industrial decarbonization, it is critical that system stakeholders urge decision makers to move quickly to put voluntary market frameworks in place that include the right provisions. The question of how to “get it right” rests on expanding the voluntary market system to introduce verifiably clean (meaning carbon-free) hydrogen. Energy customers must be able to discover, procure, and verify procurement of clean hydrogen so they can achieve their goals and advance broader decarbonization across the economy. 

Access to a consistent, tradeable, and certified commodity for each kilogram of clean hydrogen will unleash further investment and drive additional clean energy generation. This means the United States can and should follow the lead of stakeholders abroad in developing an energy attribute certificate (EAC) for clean hydrogen, such as CertifHy in the European Union and the I-REC for Hydrogen Code.

Commercializing clean hydrogen solutions through EACs can expedite the uptake of this new technology by creating real customer markets. EACs in electricity markets provide proof that one megawatt-hour of CFE was generated and delivered to the grid. These market instruments underpin voluntary CFE procurement by creating a transactable commodity that customers can procure. 

By linking the EACs associated with clean electricity production to the associated kilograms of clean hydrogen production, the resulting clean hydrogen EAC will create an auditable product that gives customers confidence that their clean hydrogen is in fact carbon-free. EACs for clean hydrogen will unlock a voluntary market and, in turn, increase investments. 

Clean hydrogen production will also create new load on electric grids. To optimize the decarbonization impact of this new load and avoid unintended grid impacts that could increase local grid emissions, clean hydrogen production could send time-sensitive market signals through hourly EACs, known as granular certificates (GCs), to optimize for grid decarbonization impact. 

Clean hydrogen also creates new questions that require clarification from the Greenhouse Gas Protocol around how customers should account for their procurement and use of clean hydrogen. CEBI details various initial recommendations addressing these issues in our comments to the U.S. Internal Revenue Service (IRS) and forthcoming related recommendations to the Greenhouse Gas Protocol’s Scope 2 and 3 updates process currently underway. 

If you are interested in engaging in CEBI’s work to expand voluntary markets for clean hydrogen, reach out to Kate Harrison at kharrison@cebuyers.org. Stay tuned for more information about CEBI’s clean hydrogen insights in the coming months.