In March of 2020, Japanese Prime Minister Shinzo Abe told the world, “During the Olympics and Paralympics, cars and buses will run through the city powered by hydrogen, and the athletes’ village will run on electricity made from hydrogen.” As we reported at the time, that was a bold promise that was built on a lie. There was nothing “green” about those fuel cell buses. The hydrogen Japan intended to use didn’t come from Japan. It mostly came from Australia, where it was supposed to be made from coal using carbon capture technology. That technology didn’t exist at the time and still doesn’t today.
To make matters worse, the hydrogen fuel cell buses manufactured by Toyota cost $900,000 for a 6-year lease — which did not include the cost of the hydrogen. Japan was completely mesmerized by the promise of a hydrogen-based economy after the Fukushima disaster. A lot of smart people bought into that promise, largely under pressure from the Japanese government, which is why Toyota and Honda wasted years developing hydrogen fuel cell powered cars that had no refueling infrastructure and precious few customers.
Japan should not have been surprised. A decade earlier, Vancouver also tried to introduce hydrogen buses at the 2010 Olympics — an experiment that failed miserably. After the games were over, the fuel cells in those buses were ripped out and replaced with diesel engines. Like Japan, Vancouver had no local supply of hydrogen, so the fuel for the buses had to be trucked in from Toronto. Needless to say, it was super expensive, which put another hole in the dream of hydrogen-powered transportation.
Nevertheless, hydrogen remains high on the list of things we could do to decarbonize the global economy. In the US, the Inflation Reduction Act contains billions of dollars worth of incentives for the nascent green hydrogen industry. Green hydrogen is not green in color; it is made by splitting water molecules apart using electricity into their component parts — hydrogen and oxygen. That sounds all well and good, except that it takes massive amounts of electricity to make the process work. If that electricity comes from thermal generation powered by burning coal or methane, is the resulting hydrogen really green? The answer should be intuitively obvious to the most casual observer. If you answeredd no, go to the head of the class.
BNEF Sees Continued High Prices For Green Hydrogen
This week, BloombergNEF threw a bucket of cold water on green hydrogen, which has been touted by politicians and business leaders as a key fuel for a carbon free future. But it will remain far more expensive than previously thought for decades to come, the new report from BNEF says. Previously, it had forecast steep declines in the price of green hydrogen, but in its forecast published December 23, 2024, it more than tripled its 2050 cost estimate, citing higher future costs for the electrolyzers themselves. BNEF says the current price range for green hydrogen is $3.74 to $11.70 per kilogram. It now expects prices in 2050 to range between $1.60 to $5.09 per kilogram
BNEF took an in-depth look at how green hydrogen will fare in New York, Texas, and Utah. The report found that Texas will create the cheapest green hydrogen, but costs will only fall from $7.22 per kilogram today to $4.82 in 2030. If Biden’s planned tax credit of $3 per kilogram is included, Texas hydrogen costs could fall below $1 by 2040, according to the forecast. But the fate of US hydrogen incentives remains uncertain. Although industry executives remain hopeful the new administration will continue many of the initiatives of the Biden government, partly because oil companies are interested in hydrogen, Trump has said little about it. His threatened tariffs on imported products could boost the price of foreign-made electrolyzers, but BNEF’s price forecast did not take tariffs or subsidies into account. Slow hydrogen demand growth has forced companies worldwide to scale back their ambitions. Equinor, Shell, and Origin Energy all canceled hydrogen production projects this year due to a lack of buyers.
If those subsidies are no longer available, that will alter the financial calculus. “The higher costs for producing green hydrogen without any subsidies or incentives means it will continue to be challenging to decarbonize hard-to-abate sectors such as chemicals and oil refining with hydrogen produced via electrolysis powered by renewables,” said BNEF analyst Payal Kaur. In comparison, the most common form of hydrogen used today, which is stripped from natural gas with the carbon emissions allowed to escape into the atmosphere, costs between $1.11 and $2.35 per kilogram, according to BNEF. The research firm expects prices for such “gray” hydrogen to remain largely the same through mid-century.
In the US, billions of dollars of projects have been stalled waiting for the Biden administration to issue final rules for a tax credit meant to spur production. Part of the delay involves rules pertaining to how the electricity needed will be derived. The administration is concerned that the large amount of power needed to split water molecules via electrolysis may limit the amount of renewable electricity available for other purposes. It wants the hydrogen producers to make their own arrangements for renewable energy instead of simply connecting to the grid and sucking up every available electron. To make the plan work as intended, those renewable energy resources would need to be co-located with the electrolyzers, something the hydrogen producers are balking at.
BNEF sees only two markets — China and India — as likely to see green hydrogen become cost competitive. In those countries, green hydrogen will reach a price comparable to gray hydrogen by 2040. The forecast puts Biden’s goal of driving US hydrogen costs down to $1 per kilogram by 2031 out of reach. Many analysts consider that price essential to convincing potential customers to start using the fuel.
Hydrogen mesmerizes people because when it is used as a fuel, it has no emissions other than water vapor and heat. In that regard, it is the ideal way to power a zero emissions world. That’s the theory. The reality is that making green hydrogen is a costly process because of the amount of energy needed. That’s before adding in the cost of converting it to a liquid so it can be transported easily and cheaply.
The bottom line is that hydrogen may become commercially viable for some hard to decarbonize industries like steel but as a fuel for transportation — whether on land, in the air, or at sea — is too expensive and likely to stay that way for decades, if the people at BNEF are to believed. We would be better off investing in ways to reduce the demand for fossil fuels and expanding the supply of electricity from renewables than continuing to chase the hydrogen dream.
