In the US, some power stations are being upgraded to allow hydrogen to be blended with fossil gas, and the Norwegian oil company Equinor is teaming up with Thermal SSE to build a 1,800 megawatt (MW) “blue hydrogen” power plant in Britain.
In theory, carbon capture and storage works but nearly all plants use the captured carbon to pump more oil and many have been shut down as failures. Only a handful store carbon indefinitely and even these consume lots of energy and capture only some of the CO₂, which can leak.
Blue hydrogen’s main source is methane, a powerful greenhouse gas that is notorious for escaping drilling wells and pipelines. Research suggests that these issues make blue hydrogen worse for the climate than fossil gas.
Green hydrogen sounds like a win for developing countries. But cost and transport are problems
In the EU, as in many economies, electricity pricing is based on the principle of marginal costs, which means that the most expensive source (typically fossil gas) sets the wholesale power price. During sunny or windy spells, a glut of renewable energy generation can slash electricity prices, freeing them from the grip of natural gas prices for a few hours at a time.
This is often not enough to justify investments in the electrolysers which produce green hydrogen. Green hydrogen won’t gain the necessary price advantage over blue hydrogen and fossil gas until electricity markets are restructured.
Meanwhile, the high price of oil and gas has turbocharged the industry’s expansion. The US government is exhorting oil and fracking firms to “drill baby drill”. Britain’s government is to award more than 100 licenses to drill for oil and gas and colossal new fossil fuel investments have been announced across the Middle East and Africa.
In a few years when these new sources come onstream, and particularly if economic growth continues to slow and depress energy demand, gas and oil will become cheaper again – until the next price spike prompts new rounds of investment, and the infernal cycle continues. The owners of newly-built wells, pipelines and terminals will fight to defend those assets and stall decarbonisation.
Now fossil-fuel firms are rebranding themselves as agents of “carbon management.” The aim is to prevent their assets from getting stranded by repurposing them, presenting a largely fictional substance, blue hydrogen, as a low-carbon “bridge” to an unspecified green future.
Other sectors have joined the oil-led coalition. As the engineer Tom Baxter observes, gas network operators and boiler manufacturers see their survival in this ploy. Utilities are similarly keen, as hydrogen’s inefficiencies allow them to sell more power.
Tackling this stalling operation requires public policy. Governments will need to regulate or tax carbon out of the market while simultaneously ramping up renewables.
The approach to electricity pricing also needs to shift, to decouple the prices of electricity generated from renewables and fossil gas. The marginal pricing system hugely benefits renewable project owners, since they profit from high electricity prices and effectively zero input costs.
An alternative market structure would set rewards for generators according to their average costs plus a slight surplus which could be reinvested into deploying more renewables and other green technologies, providing consumers with cheap electricity. This can only be achieved through a robustly regulated market or by nationalising energy companies and setting prices and production.
These interventions would give green hydrogen a competitive advantage over blue or grey variants, one that could be furthered with other subsidies, such as tax credits on the model of the US Inflation Reduction Act. Above all, energy demand must be reduced to ease upward pressure on price.
In any future energy system, hydrogen will have a role. But its expansion must be carefully designed, to prevent the promise of green hydrogen disguising the risks of its blue and grey cousins.
