In a new report prepared with support from the Environmental Defense Fund, economists from The Brattle Group evaluate the factors driving investment in hydrogen (H2) as a low-carbon alternative fuel or energy carrier. Specifically, they explore how the production and delivery costs of H2 are changing under the influence of recent strong tax incentives, US Department of Energy (DOE) support for hydrogen research and hub development, rapid commercialization, and projected technology improvements.

The report, Emerging Economics of Hydrogen Production and Delivery, compares the cost of hydrogen under a few different modes of production, as well as potential differences based on year and region. These comparisons include:

  • Production technology and power source – electrolysis powered by renewables (producing what’s known as “green hydrogen”), steam methane reforming with carbon capture and storage (“blue hydrogen”), or electrolysis powered by nuclear (“pink hydrogen”)
  • Intermittent power when renewables are available versus steady-state production
  • Expected H2 production technology and input costs in 2023 versus 2030
  • Regional variations when comparing California to the Southeast US (specifically, the Gulf Coast) and New York
  • Delivery and storage costs from production sites to market areas

The report finds that public programs, especially the recent federal Clean Hydrogen Production tax credits (45V), can offset around half of green H2 production costs, making it competitive with conventional H2 (known as “grey hydrogen,” which is produced from natural gas without carbon capture). The projected decline in electrolysis costs could achieve comparable reductions, potentially reaching or beating the DOE’s “hydrogen shot” goal of $1/kg by 2030 in some markets. Blue hydrogen costs are also projected to reach cost parity with grey hydrogen by 2030. These costs will likely be competitive with natural gas as a fuel, especially if it has a carbon emissions penalty.

A nationally interconnected market for clean H2 may be slow in coming, according to the report; instead, H2 will likely be produced in close geographic proximity to end users, with costs and technologies used varying by location. Finally, the authors note that there is a clear ladder of priority for use across industries, with hard-to-electrify industrial applications and some heavy-duty transportation at the top of the list. However, meeting the DOE’s projected national demand by 2050 of 50 million metric tons per year of H2 could require up to 700 GW of renewable power.

Emerging Economics of Hydrogen Production is authored by Principal Frank Graves, Senior Associate Josh Figueroa, Energy Associate Ragini Sreenath, Senior Energy Analyst Jadon Grove, Senior Research Analyst Lorenzo Sala, and outside expert Stephen Thumb. The full report is available here.