New Report Warns Against “Clean Hydrogen” Hype, Detailing a “Realist” Policy Approach

WASHINGTON—Governments around the world are embracing the promise of “clean hydrogen” as part of the green transition to address climate change. But a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, cautions that clean hydrogen is expensive to produce, difficult to transport, and a second- or third-best solution in almost all of the markets where it has been proposed.

ITIF’s report analyzes markets for hydrogen power—including production processes, transportation logistics, and end users—and concludes that much of the “clean hydrogen” story is hot air. But not all of it: The report outlines a detailed agenda for governments to invest in research, development, and demonstration (RD&D) projects, and a “realist” policy agenda to avoid potential pitfalls and capitalize on viable pathways to commercialize hydrogen by applying the benchmark criteria of price/performance parity (P3).

“Most proposed markets for hydrogen reflect magical thinking,” said Robin Gaster, a nonresident senior fellow at ITIF, who authored the report. “To truly drive the green transition, policymakers’ primary objective must be achieving price/performance parity, where clean energy technologies match the price and performance of current dirty technologies without extra subsidies. There are market applications for hydrogen that can meet that test. So policymakers need to adopt realist approach to focus on those areas with a targeted research agenda and rigorous evaluation metrics.”

The reality of clean hydrogen today is that its production is three-to-six times as expensive to produce as gray hydrogen (which accounts for about 98 percent of all hydrogen production today). Some proponents argue green hydrogen will be fully cost-competitive with fossil fuels by 2050. Unfortunately, the economies of scale that drove down wind and solar costs will not apply to green hydrogen. In short, green hydrogen is likely to remain much more expensive to produce. Subsidies can make the math work, but they will be large, needed long-term, and do not point to a useful energy pathway in low-income countries, or in other countries without the political will or fiscal headroom for ongoing subsidies.

In addition to clean hydrogen’s high costs, hydrogen infrastructure is very limited. Plus, many proponents assume the existing gray hydrogen markets will quickly switch to clean hydrogen. But they would be wrong.

Recent policy initiatives have focused heavily on rolling out hydrogen technology. ITIF recommends that an aggressive innovation agenda should be central, focusing on system-level research, technologies for improving green hydrogen production efficiency, addressing transportation (particularly through pipelines), and a more limited program focused on blue hydrogen.

ITIF’s analysis draws the following conclusions for policymakers to use as an operational framework for hydrogen:

1. View hydrogen policy through the P3 lens. If there is no pathway to P3, piles of expensive subsidies in the rich countries will not turn hydrogen into a global decarbonization solution. Ensure that the solutions we fund are those that can, in fact, be adopted in low-income countries.
2. Economies of scale won’t transform the economics of green hydrogen. It is currently not close to P3, and production costs are overwhelmingly driven by the input cost of green energy, so even sharp declines in electrolyzer costs won’t make much difference. Green hydrogen projects that rely mainly on scale for anticipated cost reductions should be avoided.
3. Minimize investments in blue hydrogen. This technology will, by definition, always cost more than gray hydrogen, and hence has no long-term future in the global energy mix; indeed, any successes will mainly block the path for green hydrogen.
4. Don’t invest in second-best solutions. For most proposed markets, green hydrogen is and will be a second- or third-best solution. Governments should use the P3 framework to help identify target markets that make sense and to avoid wasting enormous resources on markets that will never reach P3, including both existing markets and many proposed new ones.
5. We do not have all the technology we need! Of course, we can produce green hydrogen, but not at P3, not at the price and performance needed for global adoption. A targeted research program is, therefore, the most pressing need, especially to accelerate the research, development, and deployment of green hydrogen particularly aligned across the value chain for long-duration storage.
6. Location matters. “Additionality” is not theoretical; it is intensely practical: Green energy provided via the grid is heavily impacted by grid fees and taxes, making green hydrogen uncompetitive (without substantial subsidies) even if the electricity itself is priced at close to zero. We should, therefore, favor projects where green energy sources are co-located with green hydrogen production and avoid those where electricity comes from the grid, especially where grid electricity is expensive. Green grid energy may also have uses with more emissions impacts than making green hydrogen.
7. Avoid projects that require expensive transportation infrastructure. Transporting hydrogen is difficult and expensive. Fantasies about a “network” of regional hydrogen facilities are just that. Policy should favor projects that are co-located with end-users.
8. Invest in hydrogen as long-duration energy storage (LDES). Focus on the best case for green hydrogen by investing in hydrogen for LDES, as it may be a key step toward a fully sustainable grid. This also offers the best opportunity to bring green hydrogen to scale. Upstream of production, provide more funding for research across all technology readiness levels (TRLs) focused on increasing the efficiency of electrolysis and reducing the use of other key inputs such as water. Downstream, fund technologies that improve natural underground storage, compression, and the eventual reconversion of hydrogen to energy.

“The recent selection of hydrogen hubs in the United States and increased global investment in clean hydrogen reflects potential long-term importance”, said Gaster. “But policymakers must see past the rush to roll out hydrogen across the economy. We have neither the time nor the resources to waste on fanciful and expensive projects that lead nowhere, and we are still a long way from the technologies we need to reach P3. Accelerating RD&D around green hydrogen is critical.”

Read the report.