Decarbonized Hydrogen in the US Power and Industrial Sectors: Identifying and Incentivizing Opportunities to Lower Emissions

Hydrogen has attracted significant interest for its potential contributions to a low-GHG economy, because of its capacity for storing chemical energy without carbon. In this report, we consider two methods of decarbonized hydrogen production, so-called blue and green hydrogen, for use in power generation, industrial heating, and as an industrial feedstock in the United States. We find that there is a near-term opportunity in using blue hydrogen to reduce feedstock emissions in oil refining and ammonia manufacturing. For green hydrogen to be competitive, substantial reductions in production and storage costs are necessary. However, if those costs decline sufficiently, green hydrogen has broad potential: for long-term energy storage, industrial heat, and as a feedstock for refining, chemicals, and steel. We then assess policy options to support decarbonized hydrogen in the power and industrial sectors. A tax credit has the advantages of familiarity (e.g., the 45Q tax credit for CCUS and the PTC for wind) and not raising prices within the sectors. Although an efficient tax credit for decarbonized hydrogen would be more complex than 45Q, we find that it could properly account for the climate benefits from decarbonized hydrogen.