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October 26, 2022

Facilitating Clean Hydrogen in the US: The Draft Clean Hydrogen Production Standard

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FACILITATING CLEAN HYDROGEN IN THE US: THE DRAFT CLEAN HYDROGEN PRODUCTION STANDARD

The U.S. Department of Energy (DOE) has now published draft guidance for a Clean Hydrogen Production Standard (CHPS). The draft CHPS also includes a questionnaire seeking feedback from hydrogen industry stakeholders by November 14, 2022, prior to the publication of a final CHPS. This article outlines the key features of the CHPS and the next steps in the process for a more detailed definition of “clean hydrogen” in the U.S.

The aim of the CHPS is to fulfill the requirements of the Infrastructure Investment and Jobs Act of 2021, also known as the Bipartisan Infrastructure Law (BIL), which aims to accelerate research, development, demonstration and deployment of hydrogen from clean energy sources as hydrogen plays a critical part in the comprehensive energy portfolio of the United States. It also aims to ensure consistency with the definition of “qualified clean hydrogen” in the recent Inflation Reduction Act of 2022 (IRA).

Under the BIL (section 40135), the Secretary of Energy was required to develop an initial standard for the carbon intensity of clean hydrogen production to (1) ensure support of clean hydrogen production from variety of sources, including renewable energy, fossil fuels with carbon capture, utilization, and sequestration (CCUS) technologies and nuclear energy; (2) define “clean hydrogen” to mean hydrogen produced with a carbon intensity equal to or less than two kgCO2e/kgH2 at the site of production; and (3) take into consideration technological and economic feasibility.

Purpose of CHPS

It is important to clarify (and the draft CHPS emphasizes throughout) that the CHPS is not a legally binding regulatory standard. It merely aims to provide guidance to the DOE with regard to its hydrogen programs, for example where the DOE is funding hydrogen-related activities including the Regional Clean Hydrogen Hubs Program (also known as the H2Hubs Program). (The H2Hubs Program makes available up to $7 billion in funding from the U.S. Government to establish regional clean hydrogen hubs across the U.S.)

Indeed, the draft makes it clear that the DOE may not necessarily be required to apply the CHPS’ emissions limits when considering future funding activities. According to the draft, the CHPS would not automatically exclude projects from eligibility for DOE funding programs if their emissions exceed the threshold for “clean hydrogen” or the lifecycle target threshold. However, such projects will be required to “demonstrably aid achievement” of the CHPS by way of maximum possible mitigation of emissions across the supply chain.

CHPS Lifecycle Emissions Target

While the BIL imposes a limit of two kgCO2e/kgH2 for hydrogen to qualify as “clean,” the draft CHPS proposes a lifecycle emissions target of four kgCO2e/kgH2, which is line with the highest carbon emissions threshold that will qualify for a clean hydrogen production tax credit under the IRA.

The CHPS’ doubling of the BIL “clean hydrogen” carbon intensity might initially seem inconsistent with the authority granted to the DOE under the BIL. The draft CHPS explains that the BIL should be regarded as applying a gate-to-gate emissions calculation boundary (i.e., emissions “at the site of [hydrogen] production”) whereas the CHPS is intended to accommodate “some additional emissions from upstream and / or downstream processes,” such as upstream methane emissions and downstream electricity usage for CCS activities.

It is clear that the DOE is trying to work with the two kgCO2e/kgH2 “clean hydrogen” definition constraint imposed by the BIL whilst finding ways to ensure that (a) technologies and supply chains deployable at scale today—which might not otherwise produce BIL-defined “clean hydrogen” at sufficient scale to achieve the U.S. Government’s policy objectives, can be supported by DOE funding programs; and (b) there is consistency with the four kgCO2e/kgH2 “qualified clean hydrogen” concept in the IRA.

The draft CHPS gives examples of the types of projects that the DOE expects to be able to comply with the four kgCO2e/kgH2 limit today. These include production of hydrogen from fossil fuels that employ high rates of carbon capture (~95%) and strict monitoring of methane emissions (not to exceed 1%). With regards to green hydrogen, the DOE opines that electrolysis systems that utilize 85% of energy from either renewables or nuclear with the remaining 15% from the U.S. grid can also meet the target employing the technology that is available today. Other technologies include certain biomass-based technologies, including gasification and reforming of renewable natural gas.

Lifecycle Elements

While the CHPS is not a regulatory standard and is not binding, it does offer interesting insights as to how the DOE interpretation and assessment of lifecycle greenhouse gas emissions. Interestingly, the DOE calculates the lifecycle greenhouse gas emissions using the GREET (Greenhouse gas, Regulated Emissions, and Energy use in Technologies) model aligns with section 45V provision of the IRA. The draft document also references the draft working paper of the International Partnership for Hydrogen in the Economy’s (IPHE’s) Hydrogen Production Analysis Task Force (H2PA TF), which recommends “using a comprehensive system boundary including emissions upstream and downstream of the point of production.”

As noted above, the CHPS’s lifecycle accounting of carbon emissions will include upstream processes (e.g., electricity generation, fugitive emissions), as well as downstream processes, ensuring that CO2 produced is duly sequestered, while allowing flexibility as to the ways to comply with the limit. In this regard the draft CHPS provide examples of key emission sources, dividing them according to stages in hydrogen production: (1) generation of electricity; (2) feedstock extraction; (3) feedstock delivery—e.g., fuel combustion, fugitive emissions; (4) hydrogen production and carbon capture—e.g., process emissions; (5) carbon delivery—e.g., fuel combustion for compression; and (6) carbon sequestration—potential leakages. The document gives stakeholders flexibility regarding how the lifecycle limit could be reached. For instance, systems that utilize less carbon-intensive electricity or those that reduce fugitive emissions “would have more flexibility at the site of production.”

Conclusion

  • Although the CHPS is not a regulatory standard and is neither binding nor drafted to impact tax credit eligibility for hydrogen production pursuant to the IRA, it does offer interesting insights as to how the DOE currently views of the concept of “clean hydrogen” as well as how to assess of lifecycle greenhouse gas emissions.
  • The DOE is seeking feedback from stakeholders on the draft CHPS by November 14, 2022, and the draft CHPS may be revised based on feedback received. In the draft CHPS, DOE attached a questionnaire seeking input on a wide range of issues related to the CHPS, as well as any other information that DOE should consider covering in the CHPS.

Special thanks to Kseniia Kolontai, Visiting Attorney, for co-authoring this publication.

Authors and Contributors

Omar Samji

Partner

Private Equity

+1 713 354 4887

+1 713 354 4887

Houston

Dan Feldman

Partner

Project Development & Finance

+971 2 410 8158

+971 2 410 8158

Abu Dhabi

Gabriel Salinas

Counsel

Private Equity

+1 713 354 4846

+1 713 354 4846

Houston

Humzah Yazdani

Associate

Private Equity

+1 713 354 4881

+1 713 354 4881

Houston