Governments are jump-starting the green hydrogen economy

Posted: July 16, 2024

Making fertilizers to grow our food consumes 3-5% of the world’s natural gas and produces 1-3% of its CO₂ emissions. Most of that carbon footprint comes from extracting hydrogen from natural gas to make ammonia-based fertilizers.

Luckily, innovators like Zhenyu Zhang are working on ways to efficiently extract hydrogen from water using carbon-free electricity, resulting in what’s known as green ammonia. Not only can green hydrogen and ammonia production help us sustainably grow our food, these sustainably produced^* chemicals have great potential as alternative fuels—both for personal vehicles and also for heavy industry, power generation and shipping. Using hydrogen to generate power using fuel cells, for example, produces only heat and water as byproducts.

One of the biggest hurdles to using hydrogen for fuel is economic. It’s not commercially viable to make vehicles and factories powered by hydrogen unless there’s already an infrastructure in place to supply them with it. But, it’s also not commercially viable to create such an infrastructure unless there are already factories and vehicles waiting to consume hydrogen. 

Because of this classic catch-22, several governments are intervening to jump-start the hydrogen industry. Together, German state and federal governments are investing over €13 billion in public-private partnerships to develop hydrogen technology. In the U.S., the Inflation Reduction Act has a tax credit, 45V, of up to $100 billion for low-emissions hydrogen.

Additionally, the U.S. Bipartisan Infrastructure Law is funding the Regional Clean Hydrogen Hubs, or H2Hubs. These hubs will bring together both hydrogen producers and consumers so they can together build up the infrastructure that will make a hydrogen economy viable. Similarly, Saudi Arabia is partnering with private companies to fund the Neom Green Hydrogen Company, which promises to produce 600 tonnes of carbon-free hydrogen per day by 2026. 

These government interventions follow from the view that it’s essential for governments to shape markets to tackle large collective-action problems, like climate change. Such thinking has been driven by the work of researchers like the economist Mariana Muzzucato, who argues that private sector investment has generally followed the lead of large, high-risk investments by entrepreneurial states. As many EU energy executives have said recently, there will only be market incentive to reap the rewards of a hydrogen economy if governments provide both subsidies and regulations.

Of course, using government policy to shape markets raises controversies about just how they should be shaped. In the U.S., there is already debate over whether hydrogen subsidies should only go to companies that are completely powered by new clean energy investments or also to companies that produce hydrogen with at least some carbon-intensive energy. The latter argue it’s worth subsidizing carbon-intensive hydrogen, at least for now, to help jump-start the industry as a whole.

The question of just what the proper role of government is in promoting new technology is not new. As we discussed in the latest episode of the Our Industrial Life podcast, multiple countries went to war over control of the new guano fertilizer trade in the 19th century. The U.S. still has a law on the books from 1856 allowing U.S. citizens to annex to the U.S. any uninhabited island covered in guano.

To learn more about the history, chemistry and economics of green hydrogen and ammonia, check out the latest episode of the podcast, Our Industrial Life.