“Texas’s natural resources make it a natural fit for hydrogen energy and vehicles.” – Texas Monthly
Key Questions:
The energy industry continues to face growing energy demands from an increasing population, while also being called to reduce carbon emissions on a significant scale. Innovations in technology and process, including Carbon Capture, Utilization, and Storage, provide one pathway for an array of industries both to meet demand and to attempt to achieve carbon neutrality. Toward that end, industry and government are increasingly focused on the use of hydrogen, an energy source touted as an affordable, reliable, clean, and secure energy by the U.S. Department of Energy (DOE) and industry groups alike. The DOE has billed hydrogen as the fuel product that can “enable U.S. energy security, resiliency, and economic prosperity.”i As a key player in the oil and gas industry, Texas has the opportunity to lead the way in providing that energy stability and reliability, while also seeing the economic benefits of advancing the potential future of fuel.
Why Hydrogen?
Hydrogen is a one-hundred percent renewable, zero emission fuel that can be produced from various resources, including natural gas, nuclear power, biomass, and renewables, such as solar and wind power. In 2020, one percent of hydrogen production in the U.S. was from electrolysis, while 99 percent was from fossil fuels. “Fossil fuels are expected to continue as the main source of hydrogen through 2050 based on International Energy Agency projections driven by abundant supply, low cost, and expected development of large-scale
carbon capture and storage.” ii However, because it can be produced through diverse resources, it can be produced on a large scale. Hydrogen is an invisible gas, but it is classified in name by colors, from green to grey to blue, yellow, turquoise, and pink. While broadly all hydrogen is seen as a “clean” fuel, the three main variations of produced hydrogen, grey, blue, and green, each produced through different processes and with different carbon intensities:
vi
Although green hydrogen is seen as the ultimate goal for zero emissions, it requires twice as much water as steam methane reformation to produce grey or blue hydrogen and can be two or three times as expensive to produce as grey or blue hydrogen, depending on the price of natural gas.vii The European Union has called for the increased use and focus solely on green hydrogen in order to meet the EU’s goal of net-zero emissions by 2050. In the U.S., however, the landscape holds a mix of gray, blue, and green hydrogen, as the industry weighs investment, demand, and regulation. Case in point: the Port of Corpus Christi (PCC), the US’s leading energy export gateway, is actively cultivating production of low-carbon hydrogen from diverse feedstocks to supply world-scale international demand. In public presentations, PCC leadership has stated that while the port has numerous commercial scale electrolytic (green) hydrogen projects in development, they are also recognizing that bringing hydrogen production to world scale will require using natural gas feedstock, at least for the next 8-10 years. To this end, PCC is partnering to develop scalable, centralized geologic storage for captured carbon, which will enable low-carbon hydrogen production from the regions abundant, affordable natural gas. The Center for Houston’s Future recently released a report outlining the ways in which Houston could become the epicenter of a global clean hydrogen hub, including the utilization of existing hydrogen production facilities and pipelines on the Gulf Coast, reliance on Houston’s industrial energy consumer base, and the renewable energy assets already in place. The report projects that a Houston-led clean hydrogen hub could reduce carbon emissions by 220 million tons by 2050. viii
In that report, the Houston Energy Transition Initiative (HETI), through their collaborative of the Greater Houston Partnership and Center for Houston’s Future, also forecasted that Texas could build a $100 billion hydrogen economy, with 180,000 jobs by 2050, through initiatives focused on policy, infrastructure, innovation, and talent. The report projects that clean hydrogen demand could grow from current 3.6 million tons (MT) to 21 MT by 2050, with 11 MT of local demand and 10 MT available for export. ix
On a global level, PricewaterhouseCoopers analyzed the green hydrogen market on a worldwide scale and released findings on potential demand growth. The report projected that through 2030, demand growth will maintain a moderate, steady growth through smaller application across industrial, transport, energy and building sectors. The growth is then expected to accelerate from 2035 forward, due to a decrease in production costs over time, technological advances, and economies of scale.x In 2020, GoldmanSachs projected that green hydrogen could supply up to 25% of the world’s energy needs by 2050 and become a $10 trillion market by 2050.xi
Other companies such as Sempra are seeking ways to support green hydrogen initiatives, with goals to support the expansion of electric grids, with increased flexibility, with low or zero carbon energy such as hydrogen. The Southern California Gas Company recently announced a green hydrogen energy infrastructure system, called The Angeles Link, to serve the Los Angeles County with a hydrogen-ready, interstate pipeline system in an effort to decarbonize dispatchable electric generation.xiiMore innovative initiatives to use hydrogen in order to deliver reliable, affordable energy that is low or zero-carbon are sure to follow.
Hydrogen Economy Advancement
According to the International Energy Agency (IEA), the current largest consumer of hydrogen is in oil refining, followed by use in chemical production, ammonia production, and methanol production. Steelmaking consumed a minor amount of hydrogen in 2020, but demand in the iron and steel industry is expected to rise. In the transportation sector, hydrogen has been used in limited amounts, but as fuel cell electric vehicle development expands in the U.S. and Japan, increased use is expected as a motor fuel for both light and heavy duty vehicles.xiiii The Texas-based company Hydron has begun the effort to bring hydrogen-powered, autonomous ready long-haul Class 8 trucks to the Texas roadway.xiv Hydrogen fuel cells offer several distinct advantages over battery electric vehicles in the heavy freight sector, with substantially longer range and lower refueling times.
A federal effort to further increase reliance on all hydrogen is already underway. DOE has put in place a major initiative to advance the production, transport, storage, and utilization of hydrogen in an affordable way, across multiple sectors.xv “[email protected],” the DOE initiative, is built on the idea that hydrogen as a fuel source carries many benefits. First, hydrogen contains the highest energy content by weight of all fuels and is seen as a critical feedstock for all chemical industry. Second, it can be a zero-emissions fuel, making it a critical part of many industry and government goals for reducing or eliminating emissions. Hydrogen can also be used as a ‘responsive load’ on the grid, enabling stability and energy storage and increasing utilization of power generators.
The DOE identifies the next steps in expanding the value proposition of hydrogen technologies as increasing infrastructure and seeking further opportunities for the use of hydrogen. Those other uses include “steel manufacturing, ammonia production, synthetic or electrofuel production (using CO2 plus hydrogen), and the use of hydrogen for marine, rail, datacenter, and heavy-duty vehicle applications.”xvi The [email protected] program offers some incentive, focusing on early-stage research and development projects and facilitated through
cooperative agreements with matching DOE funds. There remains a push, however, for a prominent role for the private sector in advancing hydrogen use: “[w]hile DOE’s role focuses on early-stage R&D, such as new concepts for dispatchable hydrogen production, delivery, and storage, reliance on the private sector for demonstration is critical.”
In October of 2021, Senator John Cornyn and others introduced a bi-partisan bill package to incentivize hydrogen infrastructure and adoption of hydrogen in certain sectors. The three-bill initiative creates research and grant programs for advancements in hydrogen infrastructure, with the following three focus areas:
1. Maritime: Creates a grant program for hydrogen-fueled equipment at ports and in shipping;
2. Heavy Industry: Creates a grant program for commercial-scale demonstration projects for end-use industrial application of hydrogen, which includes the production of steel, cement, glass, and chemicals;
3. Infrastructure: Creates a pilot financing program to provide grants and low- interest loans for new or retrofitted transport infrastructure, storage, or refueling stations.
In this initiative, priority will be given to projects that will maximize emissions reductions. In February of 2022, the Port of Corpus Christi and Apex Clean Energy, Ares, and EPIC Midstream entered an agreement to explore development of gigawatt-scale green hydrogen production, storage, transportation, and export as part of PCC’s burgeoning hydrogen hub. This agreement builds upon an agreement from May of 2021 to work towards developing infrastructure to support green hydrogen production.
Major oil companies such as BP and Shell are pursuing hydrogen projects that may begin as blue hydrogen but will likely yield increasingly more green hydrogen as the electrolier marketplace matures. With this increased focus, BP projects that hydrogen could make up 16% of global energy consumption by 2050 if net zero carbon-emissions goals are to be met, where it is currently at less than 1%.xvii Currently, the United States produces more than 10 1million metric tons of hydrogen each year, which amounts to one-seventh of the world’s
supply.xviii A move toward increased hydrogen production has been percolating in the Texas industry for years. In a 2017 Texas Monthly article, Michael Lewis, program manager for fuel- cell vehicle research in the Center for Electromechanics, University of Texas at Austin, identified Texas’ unique ability to be a leader in hydrogen production. “Texas’s natural resources make it a natural fit for hydrogen energy and vehicles. Our natural gas resources are an economical feedstock for hydrogen production. Curtailed wind power in West Texas could power the production of hydrogen for use in vehicles and other applications. And miles of hydrogen pipeline already exist along the Texas coast, which would ease distribution.”xix With Texas holding the majority of 1600 miles of hydrogen pipeline infrastructure xx, Texas has an advantage in pursuing the advancement of hydrogen production.
Geological storage of hydrogen is another topic that must be considered in the advancement of hydrogen use. Salt caverns have met current storage needs, which allow for fast withdrawal and injection rates but can be costly and have limited capacity. The Bureau of Economic Geology at the University of Texas (BEG) has identified two categories of storage reservoirs that could provide more available and advantageous storage: (1) depleted oil and gas reservoirs; and (2) saline aquifers, which have proven storage capabilities and are already supported by infrastructure. xxi The BEG has identified the need for an inventory of sites for use in order to make progress on hydrogen storage; the identification of such sites could also help further other low carbon initiatives such as CCUS, by locating storage that could be utilized for both long term sequestration and immediate term hydrogen storage.
Hydrogen Incentives
Industrial adoption of hydrogen as a primary fuel could be accelerated by additional incentives. One proposal is to create “Hydrogen Development Zones” taking advantage of the Opportunity Zone Program, a federally approved program meant to spur economic development and job creation in distressed communities. The program offers incentives such as capital gains abatement when private businesses invest eligible capital into pre-qualified opportunity zone assets. A sustainable energy enterprise, earlier discussed as a company engaged in CCUS, and further here in hydrogen production, could potentially apply for the tax incentives when pursuing increased hydrogen production in a “Hydrogen Development Zone.” Tax relief could further be encouraged through the Governor’s Office of Economic Development and Tourism, with a directive for tax incentives to foster job creation and development of sustainable energy in Hydrogen Development Zones.
A statutory definition of hydrogen could be included, to include products derived from hydrogen or any other conversion technology that produces hydrogen from a fossil fuel feedstock. Another necessary action would be requiring Texas and its partners, including local governments, industry, and institutions of higher learning, to consider a number of factors in their duties to support the state’s Hydrogen Initiative. Relating to procurement, a state agency that seeks to purchase any item requiring the use of a power source, including but not limited to motor vehicles, material and cargo-handling equipment such as forklifts, harbor craft, generators, power systems, portable floodlights, microgrids, and telecommunications equipment, should include in the request for proposals provisions that allow for the consideration of items that are powered by Texas hydrogen.
The Legislature could also authorize state government, specifically the Office of the Governor and TCEQ, to consider investments in hydrogen fueling infrastructure and the production of sustainable hydrogen as a transportation fuel, and also define transportation electrification to include sustainable hydrogen used as a transportation fuel. Relatively small changes to Texas Emissions Reduction Program alternative fuel requirements could open underutilized funds currently allocated exclusively to compressed natural gas vehicles.xxii Finally, industrial revenue bonds for the purpose of achieving a Texas Hydrogen Development Zone goal could be authorized through the governor and the Legislature, along with permitting counties, municipalities and other political districts to bond for sustainable projects.
Although hydrogen prices have increased in line with other energy sources, due to increases in the natural gas markets, long-term growth projections still anticipate a reduction in hydrogen price as technology continues to advance and scale increases. xxiii Thanks to robust existing hydrogen infrastructure and frenetic commercial activity in the hydrogen value chain at Port Corpus Christi and other cornerstones of the global energy marketplace, Texas could easily become the leading producer of low-cost hydrogen in the nation. With an
increased focus from the industry, along with support from state and local government leaders, Texas is in the best possible position to benefit from an increased reliance on this low to zero-emissions fuel.
i https://www.energy.gov/eere/articles/five-things-you-might-not-know-about-h2scale
ii https://www.beg.utexas.edu/research/areas/hydrogen
iii https://www.jdpower.com/cars/shopping-guides/whats-the-difference-between-gray-blue-and-green-hydrogen
iv https://theconversation.com/blue-hydrogen-what-is-it-and-should-it-replace-natural-gas-166053I
v https://www.activesustainability.com/sustainable-development/what-is-green-hydrogen-used-
for/?_adin=02021864894
vi https://energyeducation.ca/encyclopedia/Types_of_hydrogen_fuel
vii Blue Vs. Green Hydrogen: Which Will The Market Choose? (forbes.com)
viii https://www.houston.org/news/report-houston-region-poised-become-global-clean-hydrogen-hub
ix https://www.mckinsey.com/~/media/mckinsey/business%20functions/sustainability/our%20insights/houston%20as%20the%20epicenter%20of%20a%20global%20clean%20hydrogen%20hub/houston-as-the-epicenter-of-a-
global-clean-hydrogen-hub-vf.pdf?shouldIndex=false
x https://www.pwc.com/gx/en/industries/energy-utilities-resources/future-energy/green-hydrogen-
cost.html#:~:text=Through%202030%2C%20hydrogen%20demand%20will,form%20to%20develop%20hydrogen%20projects.
xi https://www.goldmansachs.com/insights/pages/gs-research/green-hydrogen/report.pdf
xii https://www.sempra.com/newsroom/spotlight-articles/green-hydrogen-leadership-opportunity
xiii https://www.iea.org/reports/hydrogen
xiv http://www.hydron.com/; https://hydrogen-central.com/tusimple-co-founder-mo-chen-launches-hydron-
producing-hydrogen-powered-autonomous-ready-freight-trucks/
xvhttps://www.energy.gov/eere/fuelcells/downloads/h2scale-handout
xvi https://www.energy.gov/eere/fuelcells/downloads/h2scale-handout
xvii Big Oil Companies Push Hydrogen as Green Alternative, but Obstacles Remain – WSJ
xviii https://www.energy.gov/eere/articles/five-things-you-might-not-know-about-h2scale
xix https://www.texasmonthly.com/news-politics/electric-vehicles-energy-problem-hydrogen-may-answer/
xx https://www.energy.gov/eere/fuelcells/hydrogen-pipelines
xxi https://www.beg.utexas.edu/research/areas/hydrogen
xxii https://www.tceq.texas.gov/airquality/terp/tngvgp.html
xxiii https://www.utilitydive.com/news/green-hydrogen-prices-global-report/627776,
The Texas energy industry faces a significant challenge today. The oil and gas industry is being asked to continue to provide reliable energy for an increasing population as well as for developing and emerging economies who strive to lift themselves out of ‘energy poverty’, while simultaneously meeting growing calls to reduce carbon emissions and address climate change. The pressure from financial institutions, in concert with federal regulatory agencies, means that the state must incentivize large-scale deployment of carbon capture technology.
It is a recognized fact that energy demand has and will continue to grow. Specifically, the U.S. Energy Information Administration (EIA) projects a close to 50% increase in world energy use by 2050.i The EIA projects that total volumes of fossil fuels consumed in the United States will increase by 10% between now and 2050 and that 74% of America’s energy will still come from fossil fuels in 2050. Further, the EIA projects that by 2050 fossil fuels will still supply 69% of the world’s energy. As demand for fossil fuel energy continues to rise around the world, well-funded groups, financial institutions and regulatory agencies are making significant efforts to drastically reduce or even eliminate fossil fuels in an attempt to solve the carbon emissions issue. The result of such a course of action would undermine efforts to expand energy supply, increase energy poverty and make the current energy shortages around the world look miniscule in comparison.
The fossil fuels industry is faced with the dual problems of meeting increasing fossil fuels energy demand while also dealing with increased market – and – regulatory pressure to reduce greenhouse gas emissions. To address these problems, new technology and innovation is being advanced in the industry. One of these processes, Carbon Capture, Utilization, and Storage (CCUS) has been billed as part of a viable solution to achieve carbon neutrality without undermining the advancements of mankind’s quality of life to which the abundance and use of fossil fuels have dramatically contributed over the last 150 years.
However, CCUS is a costly and complex process. For Texas to take advantage of the opportunity CCUS provides, Texas has a unique opportunity to achieve – continued robust production of energy, but with lowered carbon emissions – with the addition of critical incentives.
What is “CCUS”?
Carbon Capture, Utilization, and Storage (“CCUS”) is the process of capturing carbon dioxide emissions produced from industrial sources to be used to increase hydrocarbon recovery, utilized for various industrial applications, or to be stored underground. Dedicated carbon storage is possible through the process of deep injection into secure geological formations, some of which may be depleted crude oil and/or natural gas reservoirs, brine-filled aquifers or mineralized basalt formations.ii Many projects in the United States and around the world have been developed, as industry has seen CCUS as a way to reduce
emissions while increasing production to meet demand.
The Opportunity for Texas
For CCUS, the existence of reservoirs and available pore space in Texas play a key role in their feasibility. Columbia University’s Center on Global Energy Policy released a case study1 on possible industry efforts to achieve significant CO2 reduction and removal. The study focuses on the idea of “net-zero industrial hubs” as a pathway to reducing emissions, focusing on Texas’ potential, particularly regarding storing carbon when it comes to CCUS:
Texas is also home to an important natural resource required for a net-zero industrial hub: subsurface pore volume for CO2 storage. The combined onshore and offshore saline formation capacity along the Gulf Coast alone is estimated above 1 trillion tons capacity—more than 10,000 times the annual emissions of Houston—and the Gulf of Mexico pore-volume storage resources
is the largest in the United States.iii
Due to its storage resources available, and current infrastructure already in place, Texas stands to play a significant role in the development and advancement of CCUS.
Possible Incentives
Because CCUS is complex and still emerging as an industry, it requires significant integration across technical and legal disciplines as well as large capital investment for companies during the development, construction and operation phases. Costs for CCUS projects are estimated to cost approximately $400 million per 1 million tons per annum., captured and stored, divided among the cost of capture, transportation, and storage. This significant cost requires some type of financial incentive for companies looking to enter the CCUS industry, particularly as the regulatory, legal, and economic frameworks are still being
developed or need clarification both on a federal and state level. A GAO report on CCUS from December 2021 cites several barriers to CCUS development on the economic level, including viability risks of the host industrial emission point source, volatility in the fossil fuel commodities market, high expected project costs, and uncertainty within carbon markets
and tax incentives, making it difficult to estimate economic viability.iv
In the International Energy Agency (IEA)’s report2 on CCUS in Clean Energy Transitions, the agency notes that several policy developments will be necessary to support this new industry:
A range of policy instruments are at policy makers’ disposal to support the establishment of a market for CCUS and address the investment challenges. In practice, a mix of measures is likely to be needed. These measures include direct capital grants, tax credits, carbon pricing mechanisms, operational subsidies, regulatory requirements and public procurement of low-carbon
products from CCUS-equipped plants. Continuous support for innovation is also needed to drive down costs, and develop and commercialize new technologies.v
Establishing sufficient incentives, on a federal and state level, could provide not only financial support but also certainty in pursuing new CCUS projects. CCUS is equivalent to making existing industrial activities carbon-free, whether for electric power, transportation fuels, petrochemicals, fertilizers, ammonia, methanol, and hydrogen. These existing sectors are large employers, particularly with well-educated, technical workforces in both the
corporate and field levels.
Federal Incentives
At the federal level, the tax credit for carbon dioxide sequestration (referred to by its Internal Revenue Code section, “45Q”) is a credit based on metric tons of carbon captured and sequestered when that carbon would have otherwise been released into the atmosphere. The captured carbon must be disposed of in “secure geological storage” to be credited.vi The credit has been expanded several times since its passage and remains a major incentive on the federal level for carbon capture projects.
Recent federal legislation increasing incentives will make an impact on CCUS funding but will not completely close the gap for companies seeking to enter the new industry. New federal regulation increases the 45Q credit to $85 per ton from $50 per ton for captured and stored carbon, $60 per ton for beneficial use of captured carbon emissions, and $60 per ton for carbon stored in oil and gas fields.vii The bill also increases credits for direct air capture projects, from $50 per ton of carbon captured to $180 per ton for carbon stored in geological formations, $130 per ton for utilization projects, and $130 per ton for storage in oil and gas fields. However, the cost of the technology, compounded with current inflation rates that will significantly impact the installed costs of CCUS infrastructure, make the current 45Q levels inadequate to encourage many companies to engage in new CCUS projects.viii Accordingly, industry seeking to adapt and deploy CCUS technologies should be able to turn to state-level programs to supplement and induce CCUS projects.
State Incentives
1. Tax Credit for Clean Energy
The Legislature created a tax credit for clean energy projects in 2013, aimed at coal projects. Though now expired, the statute provides a good framework to build upon for the clean energy project that is CCUS. The statute provided a tax credit equal to the lesser of 10% of capital costs of the projects or $100 million, and was limited to three projects, to be carried forward for no more than 20 consecutive years. The statute had a requirement that the project must sequester at least 70% of the carbon dioxide resulting from the project. In recent CCUS projects, the capture rate can vary depending on the type of CO2 facility, from 60% up to 85%. With input from industry, designating a required capture rate could work to limit the amount of eligible projects or applying categories of required capture rates with different levels of incentives, would help in capping the financial expense to the state while still supporting major CCUS projects.
2. “Prop 2” Pollution Control
Another potential for tax relief falls under the Tax Relief for Pollution Control Property Program, called “Prop 2”, which provides tax relief for facilities using certain property or equipment for pollution control. The TCEQ program offers tax relief for pollution control property or facilities that are used to “meet or exceed laws, rules, or regulations adopted by any environmental protection agency of the United States, Texas, or a political subdivision of Texas, for the prevention, monitoring, control, or reduction of air, water, or land pollution.”xiii
To receive the tax exemption, applicants must request a use determination by TCEQ. Upon receiving a positive use determination, applicants then apply to their local property tax appraisal district for the property tax exemption.ix Currently, statute provides that property used to capture carbon dioxide is eligible for the tax credit but includes a limiting factor that the property is eligible if the Environmental Protection Agency (EPA), permitting authority, or other entity adopts rule or regulation regulating carbon dioxide as a pollutant.x
Rather than rely on various regulations subject to change, the state should remove the limiting factor to ensure that CCUS projects are eligible for the credit. Statute should also provide for a minimum amount of property tax relief rather than relying entirely on a determination by local appraisers with the floor increasing depending on the scale of the project. In addition, because the tax exemption is a constitutional provision, a constitutional amendment will also be required in order to amend the tax relief provision. If CCUS is considered a pollution control project or equipment, Prop 2 could provide another opportunity for tax relief when it comes to the cost of CCUS.
3. TERP
The Texas Emissions Reduction Program (TERP) offers financial incentives to eligible businesses and others for the reduction of emissions from vehicles and equipment. Texas Council on Environmental Quality (TCEQ) administers the program, funded by revenues from fees and surcharges relating to certain off-road equipment and on-road vehicles. TERP is intended to help Texas meet the goals of reduced pollution and improved air quality.
With amendment, CCUS could be considered eligible for several current grant programs in TERP, such as the New Technology Implementation Grant Program (NTIG) or the Emissions Reduction Incentive Grants (ERIG). Under the NTIG Program, there are several categories where CCUS could be applied, and should be included. “Advanced Clean Energy Projects” include projects that involve electricity generation through fuels such as coal or biomass, natural gas and use new technologies to reduce certain emissions from stationary sources. With the inclusion of natural gas in the category and a required reduction of carbon dioxide, a CCUS project should be considered eligible. Eligible projects under the “New Technology – Stationary Sources” category are projects that reduce emissions of regulated pollutants from stationary sources, including pollutants subject to TCEQ permitting. Carbon dioxide, as one of the major greenhouse gases, is currently permitted through TCEQ. Through either a new facility or the retrofit of an already existing facility, CCUS is a new technology that could be applied here and should be specifically included. “New Technology – Oil and Gas Projects” is another area CCUS may be applicable, as it is aimed at reduction of emissions from upstream and midstream oil and gas activities. The Emissions Reduction Incentive Grant Program (ERIG), providing grants for the upgrading or replacing of certain equipment to reduce emissions, may be another avenue for CCUS incentives. Establishing the avenue for TERP funding to apply to CCUS can help TCEQ and the state achieve the goal of reduced emissions while also allowing the state to continue its robust energy production.
4. Purchasing Preferences
There are several provisions dealing with procurement that might aid in incentivizing the purchase of products developed from captured carbon, or other low carbon processes, like hydrogen. For example, for contracts performed in nonattainment areas, the comptroller and state agencies may give preference to goods or services of a vendor that meets or exceeds environmental standards relating to air quality, when the cost would not exceed 105 percent of the cost of another vendor.xi Another provision gives a preference for some recycled, remanufactured, or environmentally sensitive products when certain factors allow,
such as price, quantity and quality.xii Amending either of these provisions, or creating a new provision, pertaining to products produced through low carbon efforts, could help incentive the market for low carbon products.
Limits on Incentives
To make CCUS incentives feasible on a state level, limiting factors are necessary, especially as the industry is developing in the state. Various metrics could apply to limit the total funds expended by the state, such as limits based on percentage of carbon captured or the size of the project. Pictured below are estimated target percentages of carbon captured per type of processing plant. As an example, the state could target plants capturing 90%- 95% of carbon emitted.
In addition to applying limits based on the size of the project or the amount of carbon captured, projects in non-attainment areas could be a priority. Non-attainment areas are those that do not currently meet National Ambient Air Quality Standards (NAAQS).
Incentives Around the Country
Several other states have created incentives meant to encourage a reduction in carbon emissions, some related directly to CCUS projects, and others related to and encompassing CCUS through enhanced oil recovery projects (EOR). Below is a summary of the tax incentives, bond authority, and eminent domain powers that have been enacted in other states to help support and develop CCUS. While bond amounts in each state are unknown, similar ideas could serve as a framework to be tailored to Texas. Importantly, this white paper does not cover other states’ initiatives concerning other elements of CCUS, namely pore space ownership and long-term liability ownership. These topics are summarized by CNC white papers elsewhere, whose conclusions with those offered herein are intended to advocate for comprehensive policy.
1. Illinois
In 2007, Illinois authorized the Illinois Finance Authority to issue bonds to finance the development and construction of coal-fired plants with carbon capture projects. Utilities in the state were also authorized to charge a fee to customers for deposit to the Renewable Energy Resources Trust Fund and Coal Technology Development Assistance Fund. Per the statute, the funds are to support the capture of emissions from coal-fired plants and the development of further capture and sequestration of carbon emissions.
2. California
California has a broad system regulating emissions, which incentivize CCUS projects as means in which to meet benchmark emissions standards in the state. California also provides an enhanced oil recovery tax credit that is similar to the federal enhanced oil recovery credit. In California, the credit is equal to 5 percent of the qualified enhanced oil recovery costs for qualified oil recovery projects within the state. However, this credit does not apply to taxpayers that are retailers of oil or natural gas or refiners of crude oil if daily refinery output exceeds 50,000 barrels.
3. Kansas
Kansas allows a five-year exemption from property taxes for property used for carbon dioxide capture, sequestration or utilization, and any electric generation unit used to capture and sequester carbon dioxide emissions. Kansas also allows for accelerated depreciation on CCUS machinery and equipment. There are also deductions from adjusted gross income available, starting with 55 percent of the amortizable cost down to 5 percent in following years for a 10-year period.
4. Louisiana
Louisiana provides a Sales and Use tax exemption for anthropogenic carbon dioxide used in a tertiary recovery project, once approved by their Office of Conservation in the Department of Natural Resources. The exemption does not specifically require geologic sequestration to qualify. The state also allows a 50 percent reduction on severance tax for the production of crude oil from a tertiary recovery project using anthropogenic carbon dioxide.
5. North Dakota
North Dakota classifies CO2 pipelines as common carrier, thereby granting them the right of eminent domain. The state also provides an exemption from their Sales and Use tax, a rate of 5 percent, for all gross receipts from the sale of carbon dioxide used for enhanced recovery of oil or natural gas. Another exemption from the Sales and Use tax is allowed for gross receipts from sales of tangible personal property used to build or expand a system used for carbon dioxide storage, transportation, or for use in enhanced recovery of oil or natural gas. The property must be incorporated into a new system rather than be used to replace an existing system, although there are exceptions for expansion purposes.
North Dakota also provides a property tax exemption for pipelines and related equipment for the transportation or storage of carbon dioxide for use in enhanced recovery or geologic storage, during construction and the following ten years.
An ad valorem tax exemption applies to coal conversion facilities and any carbon dioxide capture system located there, plus any equipment directly used for geologic storage of carbon dioxide or enhanced recovery of oil or natural gas classified as personal property. The exemption does not apply to tangible personal property incorporated as a component part of a carbon dioxide pipeline, but this restriction does not affect eligibility of such a pipeline for the carbon dioxide pipeline exemption.
Finally, carbon dioxide capture credits are available for coal conversion facilities that capture 20 percent of carbon dioxide emissions during a certain period. The owner of such a facility may take from a 20 percent reduction of the North Dakota privilege tax, a tax levied on operators of coal conversion facilities, up to a maximum of a 50 percent reduction when 80 percent or more of carbon dioxide emissions are captured. The tax reduction is available for ten years from the date of the first capture or ten years from the date the facility is eligible for the tax credit. xiii
Summary
Texas has the opportunity to lead the way in showing that the fossil fuel industry is ready to continue to provide affordable energy, electricity, and a vast array of products for the benefit of consumers while still improving our environment through lower carbon emissions. Consumers will continue to need fossil fuels for electricity, fuels, and products, but their production and use can become carbon neutral through CCUS. CCUS can be the answer to meeting government-mandated reductions in emissions, without harming the vital fossil fuel industry.
On both the federal and state level, renewable energy has benefitted from substantial subsidies.xiv As Texas has focused on incentivizing wind and solar energy in part to help reduce emissions, a new focus on enabling the oil and gas industry to utilize CCUS to reduce emissions will achieve similar goals, while still affording the state the ability to produce reliable, affordable energy. In addition, Texas’ existing workforce will be protected while also new technical jobs will be created. With a dedicated focus, the Texas energy industry stands to be the model toward reliable and secure energy production, and carbon neutrality,
through CCUS.
i https://www.eia.gov/todayinenergy/detail.php?id=41433
ii https://www.energy.gov/carbon-capture-utilization-storage
iii Columbia | SIPA Center on Global Energy Policy | Evaluating Net-Zero Industrial Hubs in the United States:A Case Study of Houston
iv https://www.gao.gov/products/gao-22-105111
v https://www.iea.org/reports/ccus-in-clean-energy-transitions
vi https://fas.org/sgp/crs/misc/IF11455.pdf
vii https://www.jdsupra.com/legalnews/key-climate-and-energy-provisions-in-5560526/
viii https://www.catf.us/2022/06/inflation-creates-new-urgency-for-passage-of-45q-enhancements/#:~:text=In%20the%20most%20recent%20draft,for%20inflation%20beginning%20in%202 027.
ix https://www.tceq.texas.gov/airquality/taxrelief
x Tex. Tax Code § 11.31
xi Tex. Govt. Code Tit.10, Ch. 2155.451
xii Tex. Govt. Code Tit. 10, Ch. 2155.455
xiii FTI Orrick USEA CCUS Report.pdf
xiv https://www.dsireusa.org/
The Carbon Neutral Coalition (CNC) is advocating for energy sources to be carbon neutral by 2050. While all energy sources and emitters should drive toward carbon neutrality, one key area that will be pivotal in this effort is the electricity grid in Texas. In this area, that objective can be met in a reasonable, rational manner, where energy made and consumed is: (1) available and reliable to all consumers; (2) affordable and cost competitive; and (3) with a carbon neutral future as the mission.
Establishing a more reliable electric grid is an issue critical to the state, as significant effects from unexpected weather extremes exposed our need for more dispatchable energy. At the same time, Washington and Wall Street have increased demand for energy that is carbon neutral, if not carbon free. The ability to meet carbon neutral goals, while ensuring thermal baseload and dispatchable generation on the grid, will be challenged by the need to effectively integrate and effectively utilize our mix of coal, natural gas, wind, solar, nuclear and other sources. The answer to the issues exposed by weather events is far beyond simply “weatherization,” but rather requires a fundamental ability to integrate fuel sources, storage options, and reliability. The ultimate goal of the CNC is increasing grid reliability, including looking to possible transmission solutions, along with carbon neutrality.
In response to Winter Storm Uri and the Texas legislature’s response, ERCOT and PUC have made several important steps toward improving reliability, including creating an Electricity Supply Chain Map, locating critical electric and natural gas facilities throughout the state, along with emergency contact information, in order to respond more efficiently in case of emergency. The PUC plans to update the map two times per year. The map is meant to provide advance warning to ERCOT when there are failures in the natural gas transportation system. There are also new weatherization requirements, and the Legislature created an advisory council, the Texas Energy Reliability Council to encourage communication and address planning for emergency preparedness. The Legislature also created the State Energy Plan Advisory Committee and charged the committee with preparing a state energy plan to evaluate and make recommendations to improve reliability, stability, and affordability of electric service in the state.
Beyond weatherization, the system management to assure reliability, and Electric Reliability Council of Texas (ERCOT)’s operational strategy, will both be central to the discussion and also the fundamental construct of the manner in which electricity providers make and sell power into the grid. Costs for generation should include installed capital, necessary infrastructure for wires and distribution, complete life cycle analysis (LCA) of technology options, and consideration of the impact to the emissions profile of the system in Texas.
The market demand for low carbon energy must also be considered, as dispatchable power will be increasingly required to be carbon neutral. It is essential that Texas meet the objective of carbon neutrality so that our industries remain competitive and that the jobs and industrial growth in Texas are expanded. The demand for lower carbon emissions will drive the marketplace. One recent announcement points in that direction:
“Google’s parent company, Alphabet, and Microsoft and Salesforce have collectively promised to spend $500 million on technology to capture and store carbon emissions. Three other companies — AES, an electric power distribution company headquartered in Virginia; Mitsui O.S.K. Lines, a Japanese transport company; and Swiss Re, a reinsurance company based in Switzerland — each committed to removing 50,000 tons of carbon from the atmosphere by 2030. The governments of India, Japan, Sweden, Denmark, Italy, Norway, Singapore and Britain have also joined the coalition.”1
Consequently, taking no action to reduce or capture carbon emissions can drive industries elsewhere if the state continues to produce high intensity carbon electricity that will then contribute to high carbon intensity goods produced.
However, there is a counterbalancing threat that reducing emissions produces an outcome that makes our grid less reliable and less resilient, or non-competitive, from a cost perspective. There are a number of barriers to making the electricity grid reliable and sustainable. The system requires the continued implementation of carbon neutral options that includes nuclear and geothermal, but the state must consider the use of Carbon Capture, Utilization and Storage (CCUS) as the necessary option as a means of reducing emissions while providing reliable energy.
With CCUS, the carbon that is captured is the carbon dioxide that is emitted from producing facilities such as oil and gas refineries, petrochemical plants, electric power plants, cement, steel and other manufacturing facilities. The combustion of fossil fuels produces this CO2 emission, and it represents a significant portion of these industrial process plants’ “carbon footprint.” The process of CCUS is where the CO2 captured or removed from the plant emissions streams and is then purified and compressed into a concentrated stream. The CO2 is then introduced to a pipeline or other transportation media such as ships or rail vessels, and ultimately utilized for value or injected into geologic formations to assure safe and permanent long-term storage.
Technologies and approaches such as CCUS provide a way for increased energy production with reduced emissions. In LaPorte, Texas, a company called NET Power has successfully executed a process to generate zero-emission electricity from natural gas, delivering that electricity onto the ERCOT grid. The technology burns natural gas with pure oxygen, and recycles the resulting CO2 through the combustor, turbine, heat exchanger, and compressor, creating lower-cost power with zero emissions. NET Power now seeks to accelerate development of more commercial projects to “help achieve aggressive climate targets at an affordable price.”2 While the NET Power achievement is promising, a key consideration is that as the state seeks ways to build dispatchable energy that is carbon neutral, building new commercial technologies and plants will often be cost prohibitive. CCUS, however, is not limited to new plants, but can be applied by retrofitting currently operating plants, lowering costs and bringing older technology in line with new regulations on emissions.
The electric power grid must grow and meet the increased demand for electricity that is projected to increase globally by 50% in the next 30 years3, and move towards carbon neutrality, making CCUS essential. Not only must we add capacity to generate more electricity, but those electrons must be reliable and available such that the baseload needs of 24/7 operations be met. Gas and coal powered generation can be made carbon free by deployment of CCUS and represent the key pathway to delivering this capability. Engaging in all aspects of CCUS, with support from industry and through incentives, results in positive market signals for growth of industry, promoting more investment, and providing more dispatchable energy.
Incentives in Texas to promote wind and solar have led to much broader deployment in our state than anywhere else in the United States4, but renewables still do not provide close to the amount of energy needed in the state.
Incentives to promote all forms of carbon-neutral electricity will be necessary through technology investments, direct incentives and in the creation of a system strengthened underpinned with baseload power, that is carbon neutral, and operated with the full range of technology and fuels to optimize performance. Therefore, creating an economic framework to encourage the adoption and deployment of CCUS is critical.
The Texas Emissions Reduction Program (TERP) presents one opportunity for state incentives. The TERP program offers financial incentives to eligible businesses and others for the reduction of emissions from vehicles and equipment. The Texas Commission on Environmental Quality (TCEQ) administers the program, and it is funded by revenues from fees and surcharges relating to certain off-road equipment and on-road vehicles. CCUS could be considered eligible for several current grant programs in TERP, such as the New Technology Implementation Grant Program (NTIG) or the Emissions Reduction Incentive Grants (ERIG).5 In 2021, TCEQ granted TERP funds to one carbon capture project by Vistra Energy, for the installation of a carbon capture facility next to an existing facility, with the end use for enhanced oil recovery (EOR). CNC’s goal is to expand the use to carbon capture projects for uses beyond EOR, particularly more dispatchable energy for the grid that is carbon neutral.
Another incentive proposal is to utilize a tax credit already in statute, the Tax Credit for Clean Energy.6 Initially created in 2009, this tax incentive was modified in the 83rd legislative session. Though expired in 2018, this program provides the framework needed to create a tax incentive for CCUS projects. The value of the tax credit was equal to the lesser of 10% of capital costs or $100 million, limited to three projects. If this program were to be extended to all thermal generating facilities, there would have to be some limiting principle, such as basing eligibility on plants in non-attainment areas otherwise the fiscal cost could be prohibitive in the near term. With an updated incentive, combined with federal tax incentives such as the Section 45Q incentive7 and other state incentives, Texas could become the preeminent space for CCUS technology and advancement, providing reliable, low-carbon energy to the grid.
The market signals and technical goals are clear: (1) Reliability and baseload capacity with 24/7 carbon neutral electricity; (2) CCUS must be recognized as necessary for both coal and natural gas fired units, in order to produce a 24/7 carbon neutral source of electricity; (3) CCUS must be incentivized in Texas to become viable; and (4) There must be policy parity across all technologies and fuels to achieve carbon neutrality.
The impact we can make with a more reliable electric grid is also clear. Texas can continue to attract investment and industrial growth. Workforce, economic growth and gains, and an attractive place for global investment are all hallmarks of the Texas energy industry, and bolstering the grid with reliable, low-carbon energy will support further growth. That electricity, coupled with other energy sources, can meet future demands while also meeting new goals on carbon. Consumer and industry satisfaction can help attract new industries and population and dissuade business migration away from Texas. Finally, emissions reductions can be realized here in Texas unmatched globally, and can have a massive, positive impact on U.S. emissions.
CCUS is an acronym that represents Carbon Capture, Utilization and Storage. The carbon that is captured is the carbon dioxide that is emitted from producing facilities such as oil and gas refineries, petrochemical plants, electric power plants, cement, steel and other
manufacturing facilities. The combustion of fossil fuels such as coal, oil, natural gas and other hydrocarbons produces this CO2 emission, and it represents a significant portion of these industrial process plants’ “carbon footprint.” CCUS is a process where the CO2 is captured or removed from the plant emissions streams and then purified and compressed into a concentrated stream. The CO2 is then introduced to a pipeline or other transportation media such as ships or rail vessels, and ultimately utilized for value or injected into geologic formations to assure safe and permanent long-term storage. The key elements of the value chain are capture, transportation, and utilization of the CO2 for chemical or physical value, then final injection for storage into geologic formations.
There are a number of key aspects of CCUS that are fundamental to the goal of Carbon Neutrality. Industrial Emissions of CO2 represent nearly half of the overall anthropogenic (man-made) footprint. Tailpipe emissions from Internal Combustion Engines (ICEs) is just
slightly greater. Industries that aspire to a carbon neutral goal have CCUS as an essential lynchpin for the energy transition to effectively lower carbon emissions. The key transition markets that require CCUS are:
1. Enabling the hydrogen economy – CCUS enables the removal of carbon from hydrogen, a versatile energy source gaining traction, for use in transportation, power generation, fuel substitution in manufacturing and energy storage. All of these require CCUS to de-carbonize the hydrogen produced from natural gas, and this hydrogen will represent over 90% of the anticipated growth of hydrogen, currently
13 billion cubic feet per day, that is projected to increase by as much as 10X over the coming 50 years. Hydrogen volume growth and technology scale up will require natural gas-based hydrogen with reduced carbon emissions that is via CCUS to make this growth possible.
2. Resilience for the electricity grid – The electric power grid must grow and meet the increased demand for electricity that is projected to increase by 50% in the next 30 years, therefore CCUS is essential. Not only must we add capacity to generate more electricity, but those electrons must be reliable and available such that the baseload needs of 24/7 operations be met. Gas and coal powered generation can be made carbon-free by deployment of CCUS and represent the key pathway to delivering this capability.
3. Industrial plants improvements – These facilities have emissions that can only be captured by CCUS, or by conversion to electricity that requires CCUS supported baseload power, or by substituting existing fuels with CCUS supported carbon-free hydrogen. Industries cannot achieve carbon neutrality without CCUS.
Texas must act on CCUS as we face the growing challenges of a global community demanding products that are lower carbon or carbon free. To meet the global demands for the energy transition, the elimination of fossil fuels is not a feasible objective over the next
30-50 years globally, and Texas is a major part of this global marketplace. Our industries, our workforce, and our economic structure are driven by supply of all forms of energy that much of the US receives from Texas. We will continue to have our energy in demand, but the
requirements of the marketplace will also demand carbon neutrality – and CCUS is the backbone of that necessity. We can gain increased ability in meeting domestic demands while positioning Texas products preferentially in the global marketplace through lower
carbon intensity production. We cannot meet the demand growth without fossil fuels –and we cannot meet such demand for low-carbon products without CCUS.
Texas has more carbon dioxide emissions than any other state in the United States. We also are blessed with geologic resources to store a greater amount of CO2 than all of our state’s emissions for the years to come. For that matter, this makes Texas not only capable of delivering the low carbon needs of our industries but to become a national resource for the Gulf Coast and potentially other parts of the U.S. in the pursuit of carbon neutrality. We can become the unmatched global center for reducing CO2 through emissions reductions and carbon storage greater and more efficiently than anywhere else in the world – and not by subtracting or lessening our industries but by enabling this technological transformation to achieve affordable, reliable and carbon neutral in total.
The state must enact thoughtful legislative and policy support to realize this vision. Key areas that require attention are:
1. Land and pore space ownership on shore.
2. Offshore geologic assessments and clarity in applicable laws.
3. Economic incentives to support CCUS through bonds, economic development zones, etc., essentially mirroring of the renewables support that accelerated Texas to the forefront of those industries.
4. Policy support for infrastructure development such as pipelines.
5. Risk mitigation for CO2 injection into geologic formations through supporting policies and long-term ownership and commercial structures to share the risk of CCUS as a public good investment.
6. Leadership in permitting – Class 6 primacy.
We operate globally, with companies committed to net neutral and net zero goals, with a skilled workforce equipped with technologies that are world leading. We can lead CCUS commercialization efforts while becoming an international technology and know-how hub to impact the global CO2 footprint and unlock tremendous economic opportunities in Texas.
“Texas’s natural resources make it a natural fit for hydrogen energy and vehicles.” – Texas Monthly
Key Questions:
The energy industry continues to face growing energy demands from an increasing population, while also being called to reduce carbon emissions on a significant scale. Innovations in technology and process, including Carbon Capture, Utilization, and Storage, provide one pathway for an array of industries both to meet demand and to attempt to achieve carbon neutrality. Toward that end, industry and government are increasingly focused on the use of hydrogen, an energy source touted as an affordable, reliable, clean, and secure energy by the U.S. Department of Energy (DOE) and industry groups alike. The DOE has billed hydrogen as the fuel product that can “enable U.S. energy security, resiliency, and economic prosperity.”i As a key player in the oil and gas industry, Texas has the opportunity to lead the way in providing that energy stability and reliability, while also seeing the economic benefits of advancing the potential future of fuel.
Why Hydrogen?
Hydrogen is a one-hundred percent renewable, zero emission fuel that can be produced from various resources, including natural gas, nuclear power, biomass, and renewables, such as solar and wind power. In 2020, one percent of hydrogen production in the U.S. was from electrolysis, while 99 percent was from fossil fuels. “Fossil fuels are expected to continue as the main source of hydrogen through 2050 based on International Energy Agency projections driven by abundant supply, low cost, and expected development of large-scale carbon capture and storage.” ii
However, because it can be produced through diverse resources, it can be produced on a large scale. Hydrogen is an invisible gas, but it is classified in name by colors, from green to grey to blue, yellow, turquoise, and pink. While broadly all hydrogen is seen as a “clean” fuel, the three main variations of produced hydrogen, grey, blue, and green, each produced through different processes and with different carbon intensities:
Grey hydrogen, which is currently the most common, is derived from natural gas, and is most commonly used in the chemical industry to make fertilizer and for refining oil.iii
Although green hydrogen is seen as the ultimate goal for zero emissions, it requires twice as much water as steam methane reformation to produce grey or blue hydrogen and can be two or three times as expensive to produce as grey or blue hydrogen, depending on the price of natural gas.vii The European Union has called for the increased use and focus solely on green hydrogen in order to meet the EU’s goal of net-zero emissions by 2050. In the U.S., however, the landscape holds a mix of gray, blue, and green hydrogen, as the industry weighs investment, demand, and regulation. Case in point: the Port of Corpus Christi (PCC), the US’s leading energy export gateway, is actively cultivating production of low-carbon hydrogen from diverse feedstocks to supply world-scale international demand. In public presentations, PCC leadership has stated that while the port has numerous commercial scale electrolytic (green) hydrogen projects in development, they are also recognizing that bringing hydrogen production to world scale will require using natural gas feedstock, at least for the next 8-10 years. To this end, PCC is partnering to develop scalable, centralized geologic storage for captured carbon, which will enable low-carbon hydrogen production from the regions abundant, affordable natural gas. The Center for Houston’s Future recently released a report outlining the ways in which Houston could become the epicenter of a global clean hydrogen hub, including the utilization of existing hydrogen production facilities and pipelines on the Gulf Coast, reliance on Houston’s industrial energy consumer base, and the renewable energy assets already in place. The report projects that a Houston-led clean hydrogen hub could reduce carbon emissions by 220 million tons by 2050. viii In that report, the Houston Energy Transition Initiative (HETI), through their collaborative of the Greater Houston Partnership and Center for Houston’s Future, also forecasted that Texas could build a $100 billion hydrogen economy, with 180,000 jobs by 2050, through initiatives focused on policy, infrastructure, innovation, and talent. The report projects that clean hydrogen demand could grow from current 3.6 million tons (MT) to 21 MT by 2050, with 11 MT of local demand and 10 MT available for export. ix
On a global level, PricewaterhouseCoopers analyzed the green hydrogen market on a worldwide scale and released findings on potential demand growth. The report projected that through 2030, demand growth will maintain a moderate, steady growth through smaller application across industrial, transport, energy and building sectors. The growth is then expected to accelerate from 2035 forward, due to a decrease in production costs over time, technological advances, and economies of scale.x In 2020, GoldmanSachs projected that green hydrogen could supply up to 25% of the world’s energy needs by 2050 and become a $10 trillion market by 2050.xi
Other companies such as Sempra are seeking ways to support green hydrogen initiatives, with goals to support the expansion of electric grids, with increased flexibility, with low or zero carbon energy such as hydrogen. The Southern California Gas Company recently announced a green hydrogen energy infrastructure system, called The Angeles Link, to serve the Loas Angeles County with a hydrogen-ready, interstate pipeline system in an effort to decarbonize dispatchable electric generation.xii More innovative initiatives to use hydrogen in order to deliver reliable, affordable energy that is low or zero-carbon are sure to follow.
Hydrogen Economy Advancement
According to the International Energy Agency (IEA), the current largest consumer of hydrogen is in oil refining, followed by use in chemical production, ammonia production, and methanol production. Steelmaking consumed a minor amount of hydrogen in 2020, but demand in the iron and steel industry is expected to rise. In the transportation sector, hydrogen has been used in limited amounts, but as fuel cell electric vehicle development expands in the U.S. and Japan, increased use is expected as a motor fuel for both light and heavy duty vehicles.xiii The Texas-based company Hydron has begun the effort to bring hydrogen-powered, autonomous ready long-haul Class 8 trucks to the Texas roadway.xiv Hydrogen fuel cells offer several distinct advantages over battery electric vehicles in the heavy freight sector, with substantially longer range and lower refueling times.
A federal effort to further increase reliance on all hydrogen is already underway. DOE has put in place a major initiative to advance the production, transport, storage, and utilization of hydrogen in an affordable way, across multiple sectors.xv “[email protected],” the DOE initiative, is built on the idea that hydrogen as a fuel source carries many benefits. First, hydrogen contains the highest energy content by weight of all fuels and is seen as a critical feedstock for all chemical industry. Second, it can be a zero-emissions fuel, making it a critical part of many industry and government goals for reducing or eliminating emissions. Hydrogen can also be used as a ‘responsive load’ on the grid, enabling stability and energy storage and increasing utilization of power generators.
The DOE identifies the next steps in expanding the value proposition of hydrogen technologies as increasing infrastructure and seeking further opportunities for the use of hydrogen. Those other uses include “steel manufacturing, ammonia production, synthetic or electrofuel production (using CO2 plus hydrogen), and the use of hydrogen for marine, rail, datacenter, and heavy-duty vehicle applications.”xvi The [email protected] program offers some incentive, focusing on early-stage research and development projects and facilitated through cooperative agreements with matching DOE funds. There remains a push, however, for a prominent role for the private sector in advancing hydrogen use: “[w]hile DOE’s role focuses on early-stage R&D, such as new concepts for dispatchable hydrogen production, delivery, and storage, reliance on the private sector for demonstration is critical.”
In October of 2021, Senator John Cornyn and others introduced a bi-partisan bill package to incentivize hydrogen infrastructure and adoption of hydrogen in certain sectors. The three bill initiative creates research and grant programs for advancements in hydrogen infrastructure, with the following three focus areas:
In this initiative, priority will be given to projects that will maximize emissions reductions. In February of 2022, the Port of Corpus Christi and Apex Clean Energy, Ares, and EPIC Midstream entered an agreement to explore development of gigawatt-scale green hydrogen production, storage, transportation, and export as part of PCC’s burgeoning hydrogen hub. This agreement builds upon an agreement from May of 2021 to work towards developing infrastructure to support green hydrogen production.
Major oil companies such as BP and Shell are pursuing hydrogen projects that may begin as blue hydrogen but will likely yield increasingly more green hydrogen as the electrolier marketplace matures. With this increased focus, BP projects that hydrogen could make up 16% of global energy consumption by 2050 if net zero carbon-emissions goals are to be met, where it is currently at less than 1%.xvii Currently, the United States produces more than 10 1million metric tons of hydrogen each year, which amounts to one-seventh of the world’s supply.xviii A move toward increased hydrogen production has been percolating in the Texas industry for years. In a 2017 Texas Monthly article, Michael Lewis, program manager for fuel cell vehicle research in the Center for Electromechanics, University of Texas at Austin, identified Texas’ unique ability to be a leader in hydrogen production. “Texas’s natural resources make it a natural fit for hydrogen energy and vehicles. Our natural gas resources are an economical feedstock for hydrogen production. Curtailed wind power in West Texas could power the production of hydrogen for use in vehicles and other applications. And miles of hydrogen pipeline already exist along the Texas coast, which would ease distribution.”xix With Texas holding the majority of 1600 miles of hydrogen pipeline infrastructurexx, Texas has an advantage in pursuing the advancement of hydrogen production.
Geological storage of hydrogen is another topic that must be considered in the advancement of hydrogen use. Salt caverns have met current storage needs, which allow for fast withdrawal and injection rates but can be costly and have limited capacity. The Bureau of Economic Geology at the University of Texas (BEG) has identified two categories of storage reservoirs that could provide more available and advantageous storage: (1) depleted oil and gas reservoirs; and (2) saline aquifers, which have proven storage capabilities and are already supported by infrastructure. xxi The BEG has identified the need for an inventory of sites for use in order to make progress on hydrogen storage; the identification of such sites could also help further other low carbon initiatives such as CCUS, by locating storage that could be utilized for both long term sequestration and immediate term hydrogen storage.
Hydrogen Incentives
Industrial adoption of hydrogen as a primary fuel could be accelerated by additional incentives. One proposal is to create “Hydrogen Development Zones” taking advantage of the Opportunity Zone Program, a federally approved program meant to spur economic development and job creation in distressed communities. The program offers incentives such as capital gains abatement when private businesses invest eligible capital into pre
qualified opportunity zone assets. A sustainable energy enterprise, earlier discussed as a company engaged in CCUS, and further here in hydrogen production, could potentially apply for the tax incentives when pursuing increased hydrogen production in a “Hydrogen Development Zone.” Tax relief could further be encouraged through the Governor’s Office of Economic Development and Tourism, with a directive for tax incentives to foster job creation and development of sustainable energy in Hydrogen Development Zones.
A statutory definition of hydrogen could be included, to include products derived from hydrogen or any other conversion technology that produces hydrogen from a fossil fuel feedstock. Another necessary action would be requiring Texas and its partners, including local governments, industry, and institutions of higher learning, to consider a number of factors in their duties to support the state’s Hydrogen Initiative. Relating to procurement, a state agency that seeks to purchase any item requiring the use of a power source, including but not limited to motor vehicles, material and cargo-handling equipment such as forklifts, harbor craft, generators, power systems, portable floodlights, microgrids, and telecommunications equipment, should include in the request for proposals provisions that allow for the consideration of items that are powered by Texas hydrogen.
The Legislature could also authorize state government, specifically the Office of the Governor and TCEQ, to consider investments in hydrogen fueling infrastructure and the production of sustainable hydrogen as a transportation fuel, and also define transportation electrification to include sustainable hydrogen used as a transportation fuel. Relatively small changes to Texas Emissions Reduction Program alternative fuel requirements could open underutilized funds currently allocated exclusively to compressed natural gas vehicles.xxii Finally, industrial revenue bonds for the purpose of achieving a Texas Hydrogen Development Zone goal could be authorized through the governor and the Legislature, along with permitting counties, municipalities and other political districts to bond for sustainable projects.
Although hydrogen prices have increased in line with other energy sources, due to increases in the natural gas markets, long-term growth projections still anticipate a reduction in hydrogen price as technology continues to advance and scale increases. xxiii Thanks to robust existing hydrogen infrastructure and frenetic commercial activity in the hydrogen value chain at Port Corpus Christi and other cornerstones of the global energy marketplace, Texas could easily become the leading producer of low-cost hydrogen in the nation. With an increased focus from the industry, along with support from state and local government leaders, Texas is in the best possible position to benefit from an increased reliance on this low to zero-emissions fuel.
i https://www.energy.gov/eere/articles/five-things-you-might-not-know-about-h2scale ii https://www.beg.utexas.edu/research/areas/hydrogen
iii https://www.jdpower.com/cars/shopping-guides/whats-the-difference-between-gray-blue-and-green-hydrogen iv https://theconversation.com/blue-hydrogen-what-is-it-and-should-it-replace-natural-gas-166053I v https://www.activesustainability.com/sustainable-development/what-is-green-hydrogen-used for/?_adin=02021864894
vi https://energyeducation.ca/encyclopedia/Types_of_hydrogen_fuel
vii Blue Vs. Green Hydrogen: Which Will The Market Choose? (forbes.com)
viii https://www.houston.org/news/report-houston-region-poised-become-global-clean-hydrogen-hub ix
https://www.mckinsey.com/~/media/mckinsey/business%20functions/sustainability/our%20insights/houston%20 as%20the%20epicenter%20of%20a%20global%20clean%20hydrogen%20hub/houston-as-the-epicenter-of-a global-clean-hydrogen-hub-vf.pdf?shouldIndex=false
x https://www.pwc.com/gx/en/industries/energy-utilities-resources/future-energy/green-hydrogen cost.html#:~:text=Through%202030%2C%20hydrogen%20demand%20will,form%20to%20develop%20hydrogen% 20projects.
xi https://www.goldmansachs.com/insights/pages/gs-research/green-hydrogen/report.pdf xii https://www.sempra.com/newsroom/spotlight-articles/green-hydrogen-leadership-opportunity xiii https://www.iea.org/reports/hydrogen
xiv http://www.hydron.com/; https://hydrogen-central.com/tusimple-co-founder-mo-chen-launches-hydron producing-hydrogen-powered-autonomous-ready-freight-trucks/
xv https://www.energy.gov/eere/fuelcells/downloads/h2scale-handout
xvi https://www.energy.gov/eere/fuelcells/downloads/h2scale-handout
xvii Big Oil Companies Push Hydrogen as Green Alternative, but Obstacles Remain – WSJ
xviii https://www.energy.gov/eere/articles/five-things-you-might-not-know-about-h2scale xix https://www.texasmonthly.com/news-politics/electric-vehicles-energy-problem-hydrogen-may-answer/ xx https://www.energy.gov/eere/fuelcells/hydrogen-pipelines
xxi https://www.beg.utexas.edu/research/areas/hydrogen
xxii https://www.tceq.texas.gov/airquality/terp/tngvgp.html
xxiii https://www.utilitydive.com/news/green-hydrogen-prices-global-report/627776/