Industry in the United States will soon have access to the cheapest green hydrogen in the world, allowing companies to replace polluting coking coal, natural gas and heavy fuel oil with this low-carbon energy at low or low cost. no additional cost thanks to production tax credits in the recently passed Inflation Reduction Act.
This means fertilizer makers, steelmakers and shipping companies in the United States can take the lead in international commodity markets and make green reindustrialization a reality. Crucial to U.S. energy security, U.S. industry will be able to rely on green hydrogen as a reliable, domestically supplied green fuel source and can increase its use to protect against volatility in international coal, petroleum and natural gas.
Under the new law, producers of green hydrogen made from renewable electricity will receive a $3 credit for each kilogram (kg) of carbon-free fuel they can supply for ten years after the eligible facilities. Production tax credits allow green production of steel, fertilizer and transportation fuel to be competitive with current fossil feedstock prices.
Ammonia for fertilizer, currently produced with natural gas at around $700 per ton (/t), can be produced at $500/t with subsidized green hydrogen. Steel, produced today with coal at $590/t, can be produced at $560/t with subsidized green hydrogen. Expedition fuel, produced with ultra-low sulfur fuel oil at $1,000/t, can be replaced with ammonia derived from green hydrogen produced at a similar cost with the subsidy. In regions with ideal renewable resources, where green hydrogen can effectively be produced at $1/kg with the tax incentives, green feedstock costs will fall even lower than fossil feedstock prices.
The additional $8 billion in federal funding support for hydrogen hubs in the Infrastructure Investment and Jobs Act (IIJA) passed last year will spur the development of foundational infrastructure connecting industry to new green hydrogen projects. Mandated by the IIJA, the US Department of Energy is already rolling out support programs that will activate the entire hydrogen value chain at the regional level.
Green steel and green manures will maintain cost competitiveness even if global fossil fuel markets return to historically low prices. Eco-friendly shipping fuel may require a premium or additional policy if bunker fuel prices drop below current prices. The new tax credits accelerate a trend already underway and bring green hydrogen to price parity – namely the lower cost of electrolyzers used to produce green hydrogen – by inducing investors to invest earlier in this crucial production technology.
Green hydrogen will play a crucial role in decarbonizing fertilizer and steel production as well as shipping – all hard-to-reduce sectors with limited options to mitigate their greenhouse gas emissions. Switching to green hydrogen fuels and feedstocks would significantly reduce emissions from these sectors, but high costs and limited availability compared to fossil alternatives have so far prevented industries from switching to energy. own. For example, while gray hydrogen of fossil origin could historically be supplied to industries for as little as $0.7/kg, base costs for green hydrogen are expected to exceed $3/kg and it is not not yet produced on an industrial scale in most of the United States. .
Investors will pour money into green hydrogen projects now that the fuel is cost competitive, creating a positive cycle of increased availability and near-term cost savings. Substantial hydrogen production in the United States could be commissioned within two to five years, and it will continue to grow throughout and beyond the subsidy period. The pace of project development is also accelerating to meet the demand for low-carbon fuel in European markets, which are facing the dual pressures of the energy security crisis and the need to meet the targets. climate change in a carbon-free industry. This project construction will reduce demand for fossil fuels in several key commodity segments over the medium term and accelerate cost reductions over the next decade.
The development of the green hydrogen market in the United States has traditionally been supported by the private sector. U.S. green hydrogen players risked falling behind companies in China and the EU, where governments directly subsidize technology investments and infrastructure development to increase domestic green hydrogen supply and demand. . Now, with the passage of the Cut Inflation Act and the world’s most ambitious clean hydrogen subsidy program, U.S. companies that deploy green hydrogen will be rewarded if they can quickly expand and advance market growth.
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The new US support for the production and use of green hydrogen will in turn send strong signals globally that the market is ready to evolve. Pioneers in the United States can scale up the pace and volume of their investments with significantly reduced financial risk. This will accelerate technology cost reductions along the green hydrogen value chain, ultimately enabling wider global deployment of the carbon-free fuel at lower cost, particularly in developing countries.
At the same time, U.S. industry can lead the way in decarbonizing hard-to-reduce sectors, showing how countries can reduce industrial and transportation emissions without sacrificing economic growth. With the establishment of green hydrogen centers across the country, new opportunities for green hydrogen distribution will arise, including opportunities to expand exports at competitive global prices. American companies integrated into hubs would be well placed to become leaders in the international trade of green hydrogen.