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In a low-carbon world, low-emissions hydrogen will be useful as an energy carrier and when end uses are too hard or expensive to electrify. Thus, hydrogen plays a key role in modeled scenarios of a decarbonized future. Notably, the International Energy Agency’s (IEA) Net-zero Scenario has called for hydrogen from low-carbon sources to make up 10 percent of final energy consumption worldwide by 2050. This large scale of projected consumption means that standing up an industry to make, process, and use low-carbon hydrogen is one part of a needed response for many countries, including the United States.
In the Infrastructure Investment and Jobs Act (IIJA), the U.S. Congress authorized the creation of Regional Clean Hydrogen Hubs (H2Hubs) to address the multiple challenges facing this nascent industry. In the United States, there is presently little production of low-emissions hydrogen, few users, and almost no linkages between them. To solve these challenges, the legislation calls for each H2Hub to establish “a network of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity” to demonstrate the production, processing, storage, transportation, and use of clean hydrogen.
Under the legislation, hydrogen is considered clean if less than two kilograms of carbon dioxide (CO2) is emitted for every kilogram of hydrogen produced. The production of such low-emissions hydrogen is the key requirement of the H2Hubs program, which also needs to demonstrate the production of clean hydrogen from different sources, including fossil fuel feedstocks, renewables, and nuclear power. H2Hubs will also need to demonstrate the use of hydrogen in power generation, industry, heating, and transportation.
The legislation also calls for H2Hubs to be an engine of economic growth and investment in the regions where the hubs are located. Beyond the formal requirements for technical demonstration, the only other instruction from Congress is that the U.S. Department of Energy (DOE) “shall give priority to regional clean hydrogen hubs that are likely to create opportunities for skilled training and long-term employment to the greatest number of residents in the region.” In a June 2022 announcement on the program, the DOE highlighted how the economic goals of the program are part of the IIJA and President Biden’s agenda, including by “enhancing U.S. competitiveness in the world, creating good jobs, and ensuring stronger access to these economic benefits for underserved communities.”
The H2Hubs program offers $8 billion in investment for a nascent industry that could both help the United States reduce greenhouse gas emissions and lead the way in a growing part of the global energy industry, creating jobs and economic benefits at home. As communities, states, and consortia compete for H2Hubs grants, they can design hubs for technical and economic success. And the DOE can build upon existing experience instituting Energy Innovation Hubs to build ecosystems of innovation at a large scale.
In spring 2022, the CSIS Energy Security and Climate Change Program hosted several workshops to explore how best practices in regional economic development and innovation policy could help inform the design and administration of H2Hubs. The program also considered how hub models are being used around the world to foster investment in clean-hydrogen production and create market demand for it. This report is a product of those workshops and research that preceded and followed them.
Countries are planning pathways to net-zero greenhouse gas emissions that rely on clean hydrogen, leading to growing investment interest around the world. Potential producers see clean hydrogen exports as an economic opportunity. Potential consumers see its benefits for decarbonization and energy security. However, globally, interest is only beginning to turn into investment.
The Global Hydrogen Review from the IEA tracks planned clean-hydrogen projects. As of November 2021, combined projects under development would produce 17 million tons (Mt) of low-carbon hydrogen by 2030, 8 from electrolysis and 9 from fossil fuels with carbon capture. The IEA estimates that global demand would be 80 Mt in its net-zero 2050 scenario.
Most policy support to date has focused on the supply side of the equation. Measures to induce demand are harder to find. Without adequate demand, however, scaling production processes for hydrogen will not create a reasonable path toward commercialization or reliable supply. A clean-hydrogen production tax credit was among the tax incentives proposed as part of President Biden’s climate agenda, indicating that such a policy may be implemented in the United States in the future.
The Russian invasion of Ukraine may have created an early market for low-emissions hydrogen. The European Union’s RePowerEU plan targets consuming 20 Mt of hydrogen from low-carbon sources, with 10 Mt produced within the European Union and 10 Mt imported. Such a strong market pull could make a significant difference for nascent projects in countries targeting Europe as an export market.
Under the authorizing language of the IIJA, H2Hubs must satisfy requirements for regional diversity, feedstock diversity, and end-use diversity across the different hydrogen hubs. This section reviews those requirements and shows that the early response to H2Hubs indicates the program should be able to satisfy the IIJA’s technical demonstration requirements.
To satisfy regional diversity, the DOE is required to support at least four hubs in distinct regions. Responses to the DOE request for information suggested nine regional clusters (the Pacific Northwest, California, the Southwest, the Central United States, the Gulf Coast, the Great Lakes, New England, Appalachia, and Alaska and Hawaii). More granular independent studies have identified at least 13 regional clusters featuring existing hydrogen production, consumption, or infrastructure, where multiple clusters exist within broad geographical regions (e.g., the areas around Baton Rouge, Louisiana, and Houston, Texas, are both on the Gulf Coast).
In the June 2022 notice of intent, the DOE noted that it would likely target 6–10 hub proposals for advancement through the first phase of concept to planning. A survey of press releases, coverage in the trade press, and other resources shows 22 efforts to establish candidate hubs (at various levels of conceptual development) around the country as of June 2022. That figure leaves plenty of options for the DOE to later choose among or consolidate and still meet the requirements of geographical diversity.
The purpose of the hub model is to accelerate and support the coordinated actions of firms at different parts of the clean-hydrogen value chain and connect them with research, development, and workforce capacity. Rather than focusing solely on geographic region or states, H2Hubs can better define their footprint in terms of the connections they plan to build among firms, installations and infrastructure, existing institutions such as universities and colleges, and civil society actors. This network approach will better allow for self-organization among regional actors, complementing more formal coordination efforts.
Flexibility for self-definition would allow multiple H2Hubs, or at least nodes within them, to work in the same geographic regions and add scale and diversity to the portfolio of H2Hubs without forcing consolidation. For example, the Gulf Coast—spanning Texas, Louisiana, Mississippi, and Alabama—hosts existing infrastructure, consumers of hydrogen in the chemical industry, and prospective participants in H2Hubs. Multiple hubs may be created in this wide geographical region without straining local resources. Likewise, market opportunities in states with net-zero targets or high levels of current hydrogen consumption can be made accessible to multiple H2Hubs through connective infrastructure that crosses states.
Adapted from response to DOE Hydrogen Program Request for Information #DE-FOA-0002664
From early announcements, H2Hub proposals will include hydrogen produced from fossil fuel feedstocks and from electrolysis powered by renewables. Several nascent hubs also include nuclear-powered electrolysis as part of their concept. The key indicators of long-term viability for either will be the cost of producing hydrogen from electrolysis with clean power at scale and the emissions intensity, including upstream emissions, of hydrogen made with fossil fuel feedstocks.
The United States currently produces approximately 10 Mt of hydrogen per year, about 95 percent of which is made via natural gas reforming (also known as steam-methane reforming or SMR) in large central plants. Several of those plants use carbon capture to reduce the emissions intensity of hydrogen production, but no facility is yet producing hydrogen with an emissions intensity at or below the benchmark set by the IIJA.
Technical assessments show that it is possible to produce hydrogen from fossil fuel feedstocks with emissions intensity at or below 2 kilograms of carbon-dioxide equivalent at the production facility. At a high rate of CO2 capture, hydrogen produced with SMR or auto-thermal reforming will meet the emissions intensity target, according to studies from Pembina and the Global CCS Institute. However, capturing the carbon dioxide at high efficacy and at reasonable cost will require innovation.
A key challenge for fossil fuel hydrogen will be the emissions associated with natural gas production and distribution. Even at high capture rates, carbon capture and storage (CCS) might not be effective for producing clean hydrogen after taking into account fugitive methane emissions, other upstream emissions, and carbon emissions outside of the CCS process stream, particularly under the least favorable assumptions for methane-leak rates and high global-warming potential. Managing upstream emissions is not a formal requirement of the H2Hubs program, but it has been identified as a priority by the DOE and will be a key metric for marketing hydrogen for the purposes of decarbonization.
The main alternative to hydrogen produced from fossil fuel feedstocks is hydrogen produced by electrolysis. At current levels of carbon intensity, the emissions associated with grid-powered electrolysis would exceed the clean-hydrogen standard. When electrolysis is powered by renewables or nuclear power exclusively, this concern will be obviated. Cost is the other challenge. Electrolysis is an expensive process because of the price of electrolyzers—but in the long term, predicted declines in the cost of electrolysis will help scale up this pathway and make green hydrogen more competitively priced.
Nuclear energy is another electrolysis-based alternative. A source of both constant clean electricity and thermal heat at scale, nuclear power could be leveraged for hydrogen production via electrolysis at higher temperatures, resulting in higher efficiencies and decreased electricity consumption per unit of hydrogen.
Hydrogen consumption in the United States is currently dominated by users in the refining sector (57 percent), ammonia and methanol production (38 percent), and metal treating (2 percent). The H2Hubs program aims to increase end-use diversity by ensuring that hubs gear hydrogen use toward at least one of the following sectors: electric power generation, residential and commercial heating, heavy industry, or transportation.
The H2Hubs program requires end-use diversity, but the ultimate goal is to support the development of comprehensive, established markets. Moving from single end uses to regional markets with multiple participants will take focused effort by flexible institutions operating alongside, or within, H2Hubs.
Despite its promise, clean hydrogen has no established market where supply and demand meet through transparent prices. As hydrogen hubs take shape and support the production and use of clean hydrogen, establishing markets for clean hydrogen will be essential to the sustainability of the industry in the United States. Without a growing market, the regional expertise and infrastructure established by hubs will have little room to grow or sustain themselves after federal support is exhausted. And without sufficient offtake agreements and commercial demand, it may be hard to attract private capital to hubs at large scale.
Hubs, host regions, and the DOE will need to find creative approaches to market building. As interest in building sustainable markets for hydrogen develops around the world, several tools have emerged that may guide best practices for planning and execution. These tools take advantage of hubs as financial and logistical focal points and engage with state policymakers to foster an adaptive policy framework.
Government procurement at sufficient scale can create initial demand for clean-hydrogen supplies and demonstrate political commitment to developing a clean-hydrogen economy. The viability of this policy tool rests on the authority and long-term commitment of the federal executive branch, which can help make demand predictable, thus facilitating the speedy development of a clean hydrogen market. In Executive Order (EO) 14057, signed in December 2021, the Biden administration recognized the role of the federal government as “the single largest land owner, energy consumer, and employer” in the nation that should “lead by example to leverage scale and procurement power to drive clean, healthy, and resilient operations.” Sustained commitment to these goals by future administrations will be important for market formation.
Federal standards setting can similarly be used to encourage clean-hydrogen applications in sectors that are otherwise hard to electrify and thus decarbonize. As a purchaser of end-use products or their components, any federal government agency could essentially specify the use of clean hydrogen in their manufacture. For example, a federal government could require steel and other materials used to construct federal buildings to meet a stringent emissions threshold that can essentially be met only through steel-production methods using clean hydrogen. Smelting iron to produce steel is highly carbon-intensive, making the iron and steel sector one of the most carbon-emitting industrial activities today. Instructing its contractors to use green steel (e.g., made from hydrogen-powered direct reduction of iron), federal agencies can jumpstart the demand for clean hydrogen. In fact, using construction materials with low-embodied carbon emissions is among the target areas for federal procurement under EO 14057.
In an exchange—a marketplace for clean-hydrogen trading—the operator coordinates consumers’ purchase of clean hydrogen from producers, rather than having them contract with each other directly. Exchanges can be an effective tool to reduce transaction costs by participants, for instance by bundling consumer offtake to meet what a single large producer can provide. They can be particularly useful in building a market for clean hydrogen given that the pace and scope of scaling up remains uncertain on both the production and demand sides due to uncertainty over regulations and financial availability.
H2Global in Europe is an example of how a government-funded intermediary can conduct dual auctions, one with commercial suppliers and another with commercial offtakers. This model of an exchange provides certainty to both producers and consumers by subsidizing and guaranteeing hydrogen trades. Contracts and deliveries can be short on the offtaker side, but the mechanism aims for the auctions to be held frequently enough to allow prices to rise to reflect the development of climate regulations that create greater value over time. This approach can accommodate new entrants—suppliers and offtakers—in a dynamic manner, unlike some other tools that set structural or physical parameters for a consortium of participants.
Policies at the subnational level can also help develop clean-hydrogen markets. Like the federal government, states have their own procurement policies and regulate utilities to set a variety of policy goals. Many states already have decarbonization commitments that include emissions-reduction targets for the power sector or statewide net-zero emissions goals. Several have also issued detailed action plans and sector-specific targets to meet such climate goals. These targets could unlock new and additional demand for clean hydrogen.
Both New York and California have set economy-wide net-zero emissions targets. As firms, gas utilities, and others in these states chart a course toward these targets, the market opportunity for prospective end uses of clean hydrogen is significant. Associated policies, such as California’s cap-and-trade program, low-carbon fuel standard, and zero-emission vehicle mandate, offer additional sources of potential support and crediting for clean-hydrogen deployment.
Government support for innovation can help develop new technologies and resources that help transform the U.S. economy. Low-cost solar power, hydraulic fracturing, and electric vehicles have all benefited from government and DOE support for research, innovation, and deployment. Efforts like the Energy Innovation Hubs or Manufacturing USA Initiative help create regional centers of research, innovation, and new investment.
H2Hubs could yield significant climate and economic benefits. Innovation to reduce the costs and improve the emissions-abatement potential of clean hydrogen will aid decarbonization worldwide. The investment that accompanies H2Hubs will lead to employment, value creation, and economic growth in the regions where hubs operate. And by building clean-hydrogen supply chains domestically, the program can help establish the United States as an international leader in clean hydrogen. To maximize these benefits, H2Hubs need to look beyond the applied challenges of project finance and technical demonstration and work more broadly on building sympathetic ecosystems of innovation.
Regional innovation clusters—which typically include universities, labs, research parks, incubators, and manufacturing hubs—have long supported economic growth, job creation, and competitiveness. Concentrating innovation activities geographically, even within a shared facility or research park, can facilitate cooperation and information exchange among scientists, engineers, and firms. With the right incentives, it is possible to coordinate their research efforts so they share high-cost equipment and provide complementary resources. University or community partners also provide opportunities to nurture and train commercially relevant talent. These collective efforts, combined with sustained funding, can help develop the scale and technologies to compete globally. Such regional innovation centers are normally supported by policy initiatives at the local or state level but are more effective when supported by complementary federal efforts and spending.
There is no manual for how to build a successful regional innovation hub, but there are lessons from previous efforts that apply to hydrogen hubs. Regional innovation is strongly associated with networks of linked industries, specialized services, connected universities, vocational training, research facilities, and supportive public and private institutions. When those nodes are connected under strong leadership that has sufficient support, the chances of realizing sustained and lasting benefits for society and local communities are maximized.
Dedicated local leadership is a key element of success for regional innovation efforts. The most successful regional innovation initiatives are “often fostered by a small number of key individuals bridging the space between science and commercialization.” Local leadership helps initiatives remain closely networked with existing institutions so they can earn the trust and support of local communities and elected officials. Local leadership is also likely to prioritize capturing the long-term jobs, economic investment, and industry footprint promised by hubs.
Innovation is a complex process characterized by successes as well as failures. Hubs will need to be resilient in terms of both the political commitment and resources necessary to surmount inevitable setbacks and capitalize on successes. Effective hub leadership is essential to manage small failures and prevent them from cascading into a loss of confidence. Setting up an incremental process of planning and iteration that includes key stakeholders is important to build and maintain the momentum for long-term success.
Programs that make big, inflexible bets have a high risk of failure. That was a key lesson from the carbon-capture-and-storage demonstration program for coal-fired power plants and industrial facilities that launched in 2009. In a CSIS workshop, regional innovation experts emphasized how modifications to such initiatives need to be made incrementally and carefully. Without stable leadership, the possibilities that draw private capital, new talent, and new customers to a hydrogen hub risk being overshadowed by perceived risk.
The hydrogen economy will require engineers, technicians, and operators with specialized training and certifications. Many of these job categories do not yet exist but are expected to have higher than average wages and new training requirements. Colleges, universities, and community colleges should engage with H2Hubs to develop curriculums and programs necessary to develop a clean-hydrogen workforce. The DOE can work with H2Hubs and their educational partners to define baseline standards for curriculums. With an eye to developing a national network of clean-hydrogen hubs, the DOE should make credentials associated with formal workforce development programs at H2Hubs transferable among the H2Hubs.
For those jobs that will require technical skills but not the completion of a bachelor’s degree, H2Hubs can look to best practices in developing a skilled workforce. Developing this talent will help the nascent hydrogen industry meet its needs with input from industry, labor unions, civil society, and regional community colleges. Partnerships with employers and local and national educational institutions can develop shorter credentialing programs that can be stacked over time and focus on skills specifically designed to meet employer needs.
In addition, according to the DOE (RFI DE-FOA-0002664) RFI, “EEEJ [equity, environmental and energy justice] benefits will be a high priority as the H2Hubs are developed.” H2Hubs should be thinking about how clean-hydrogen job programs and enterprise creation can include groups or populations in line with the DOE’s definition of disadvantaged communities.
Adapted from response to DOE Hydrogen Program Request for Information #DE-FOA-0002664
Within clusters, innovation comes from providing internal and external incentives. It is drawn out by developing human capital, sharing common resources, easing barriers to entry, and garnering public support to bring new technologies down the cost curve. Neither H2Hub participants, nor the DOE, can take for granted the trust and cooperation needed for these activities, which must be actively fostered.
Each hub will be different, as each will start with a voluntary consortium that leverages existing infrastructure, research resources, and market opportunities. The key areas that will require some planning include:
The scale of DOE funding available for H2Hubs and the potential economic benefits that hubs will bring to communities have generated substantial interest around the country. The DOE can leverage that interest to build a portfolio of initiatives to satisfy statutory obligations, demonstrate critical technologies, and seed a broader network for producing and using clean hydrogen to meet national energy needs.
When it comes to the hubs’ long-term success as engines of innovation, two issues loom largest. First, the path from technical demonstration to market formation will require more than just funding. Complementary policies could come from the state or federal level to drive demand for clean hydrogen. California and New York already have net-zero goals that will aid market formation across different plausible end uses, but additional mechanisms will be needed in other regions. At the hub level, the formation of local exchanges could help bring additional consumers into hubs over time.
Second, for hubs to turn into engines of economic growth and technical innovation, the systems that support and encourage innovation will need to be there from the start. This includes strong and dedicated local leadership, plans for attracting additional funding, sustained community engagement, and building complementary elements such as innovation parks. These hubs need to grow from regional support rather than be built with permission.
Even as they help mitigate climate change, regional clean-hydrogen hubs could reap the local benefits of a growing industry by leveraging existing infrastructure and natural-resource endowments; training a skilled, well-paid workforce; and identifying emerging market opportunities. If effectively designed, the H2Hubs program developed by the DOE can be a key tool for supporting this nascent industry, reducing the costs of clean-hydrogen production, and developing end uses for clean hydrogen in regional economies. Overall, this initiative offers an excellent opportunity to address a central global challenge while accruing benefits locally and nationally in a virtuous cycle.
Joseph Majkut is director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jane Nakano is a senior fellow with the CSIS Energy Security and Climate Change Program. Mathias Zacarias is an intern with the CSIS Energy Security and Climate Change Program.
The authors would like to thank the following individuals for sharing their expertise to inform our research, workshops, and paper: Sujai Shivakumar, Phillip Singerman, and Charles Wessner.
This report was made possible by research support from Breakthrough Energy.
This report is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2022 by the Center for Strategic and International Studies. All rights reserved.
