Transforming our Future: Is Hydrogen the New Oil?

The Supreme Court’s landmark ruling that limited the EPA’s ability to restrict carbon dioxide from power plants was certainly a climate setback but larger market forces are at play that are shifting the energy sector away from fossil fuels.  

The Supreme Court recently dealt a stinging blow to the climate by limiting the Environmental Protection Agency’s authority to regulate carbon dioxide emissions from power planets. Seeing the writing on the wall, the oil companies are making big bets on one option with a huge upside: clean hydrogen.

The West Virginia v E.P.A decision stripped away an essential tool that President Biden was planning to use in his quest to cut U.S. greenhouse gas emissions in half by 2030, an agenda that had already been seriously impaired when proposed legislation to replace coal and gas-fired power plants with wind, solar and nuclear energy was removed from a pivotal domestic policy bill last Fall in response to objections from West Virginia Senator Joe Manchin.

While tax credits to boost renewables and incentives to accelerate electrification remain in the proposed spending bill (which has been stalled in Congress for months), other elements that would ensure a clean energy future are in question, such as the termination of oil, gas, and coal extraction from federal lands (Biden’s pause on new drilling was overturned by a legal challenge from a group of attorneys general from fossil fuel-producing states.)

The Biden Administration avows that there remains a pathway for the United States to meet its climate goals through a patchwork of executive actions and state-level policies, such as California’s requirement for 100 percent zero-carbon electricity by 2045.

But the fulcrum that represents the turning point for the energy sector will not come from the regulatory arena.  Rather, long-lasting, uncontested change must gestate within the market itself.

Fortunately, that change is already in process.  Wind is now the cheapest form of wholesale power and solar is the least expensive form of retail energy on average throughout the U.S.

Renewables account for approximately 20 percent of the nation’s energy mix, a number that is growing year over year.  In contrast, coal has fallen to about 21 percent of our energy mix (yet it still contributes more than half of the carbon dioxide emissions generated from power production.)

According to the Energy Information Administration, approximately 30 percent of today’s coal-fired capacity is expected to be retired by 2035 for one simple reason: renewable energy and gas-burning plants are less expensive to operate.

The Hydrogen Solution

Despite the last-ditch efforts launched by the fossil fuel companies to squeeze every penny possible out of the oil economy, the oil giants are making multibillion dollar investments in clean hydrogen and other renewables to ensure their place in the low-carbon future.

Hydrogen is a good fit for the oil companies.  First, it’s feasible source of power for high-intensity industries like concrete and steel that use massive amounts of energy during the production process. 

Second, unlike solar and wind power that generate electrons, hydrogen is a molecule that requires pipelines and infrastructure. The fossil fuel companies understand molecules.  They know how to build processing plants, storage facilities, and pressurized pipelines to transport molecules around the world for use in industry, commercial transportation, and agriculture.  In this way, hydrogen offers a lifeline to the future for the big oil companies.

Investing in Green Hydrogen

Until only recently, hydrogen has been highly resource intensive, demanding large amounts of energy to produce, and difficult to transport.  It has therefore only been generated in relatively small quantities at spot locations where it is utilized. 

Furthermore, hydrogen production isn’t all the same.  Most hydrogen produced today is called gray hydrogen, which is derived from natural gas using an energy-intensive process that emits a large amount of carbon dioxide. 

Blue hydrogen, touted as a clean alternative, still utilizes natural gas mixed with hot steam and catalysts, but the carbon emissions are captured and stored.  Even so, the total emissions from blue hydrogen are calculated to only be about 12 percent less than gray hydrogen.

Green hydrogen, the result of splitting water into hydrogen and oxygen using renewable electricity, represents the moneyball for the big fossil fuel companies.

BP is leading a $36 billion investment in Asia Renewable Energy Hub, which is installing a 26-gigawatt solar and wind farm in Western Australia dedicated to generating electricity to produce approximately 1.6 million tons of green hydrogen annually. 

Total is part of an international syndicate that is pouring $50 billion over the next decade into facilities that will generate 1 million tons of green hydrogen by 2030 from 30 gigawatts of solar and wind powered electrolyzers.

Shell has already developed a 10-megawatt plant in Germany dedicated to green hydrogen production and has plans to expand capacity.

The Long Game

Even though the oil majors are strategically placing their bets, the green hydrogen future isn’t a slam dunk.  Scaling facilities from megawatt to gigawatt production isn’t without risk—it will take massive amounts of operational knowledge, infrastructure, and financing, and there is still a lot of research and development necessary to reach growth and efficiency targets.

But large-scale green hydrogen may represent the natural progression for the oil majors, offering a climate-friendly, profitable pathway to remain power players in the transition to a low carbon future.