The United States aims to establish itself in the global clean hydrogen race with generous new federal laws to kickstart its nascent clean hydrogen industry.

But hanging over this ambition are fundamental hurdles: Almost no clean hydrogen exists today, and barely any demand either. To fill these gaps, a debate is brewing about how exactly to use the odorless and abundant molecule in the most effective and efficient ways.

“Without robust demand, there is no market, and the viability of the entire low-emission hydrogen industry is jeopardized,” the International Energy Agency warned in its latest Global Hydrogen Review.

Last month, the U.S. government announced seven regional hydrogen hubs to collectively receive $7 billion. Guidance for generous clean hydrogen production tax credits from the 2022 Inflation Reduction Act is expected by year’s end.

The U.S. currently produces about 0.2 million metric tons (MT) of clean hydrogen a year. That’s just a minuscule fraction of the overall 10 MT of hydrogen produced in the U.S. today, which comes nearly entirely from unabated oil, natural gas and coal, according to consultancy Wood Mackenzie.

For clean hydrogen production, the U.S. Energy Department has set a goal of 10 MT by 2030 (about the same amount of all hydrogen today) and 50 MT by 2050.

Despite generous federal subsidies and other policies, companies that use hydrogen — such as oil major ExxonMobil and chemical giant Dow — are not yet shifting entirely to cleaner hydrogen mainly due to the high costs compared to the fossil-fuel kind.

While the new tax credits could help some, experts say the price gap still persists primarily because there’s no mandate or price on carbon emissions that would more forcefully compel companies in that cleaner direction.

“The U.S. has the most attractive market for hydrogen production, but the issue is that we don’t have an attractive market for hydrogen demand,” Bridget van Dorsten, senior research analyst with Wood Mackenzie’s hydrogen group, wrote in an email to Cipher.

Besides niche deals, like one where New York-based startup Plug Power will supply renewable hydrogen to fuel forklifts, vehicles and power distribution centers for Amazon, she said, “we haven’t seen much traction on the offtake side.”

Clean hydrogen can either be made by splitting water molecules with renewable electricity in a process known as electrolysis or from natural gas equipped with carbon capture and storage technology.

Because of its chemical versatility, hydrogen can technically be used in many ways ranging from industrial applications to transportation to power generation, but experts say that doesn’t mean it can be used economically in all those ways.

Clean hydrogen should be prioritized for situations where energy efficiency and direct electrification are not possible, like steelmaking and fertilizer production, according to experts at RMI, an energy nonprofit.

Let’s break down the ways hydrogen is used in the U.S. today, and the ways experts say it could — and should — be used in the future.

Fossil-fuel based hydrogen is currently used to refine oil products (55% of it), make ammonia for fertilizer (35%), help synthesize other chemicals (8%) and create metal products like steel (2%).  

In the short term, demand for clean hydrogen can be generated by transitioning these uses of fossil-intensive hydrogen in the fertilizer, chemical and refining sectors to clean hydrogen, according to the Energy Department. Doing so would require adding up to 200 gigawatts of renewable energy to the grid to power electrolysis (for comparison, that’s almost half of the energy consumed in the U.S. in a year).

The recent selection of the Gulf Coast, home to many refining and chemical companies, as one of the regional hydrogen hubs supports this potential use, according to Sasha Mackler, executive director of the energy program at the nonprofit Bipartisan Policy Center.

Beyond existing uses, clean hydrogen has the potential to fuel a diverse set of industries. Let’s quickly run down three: manufacturing, energy storage and transportation.

• Clean hydrogen can be used as a heating source and a chemical to power manufacturing of steel and concrete, where easy electrification is not an option.

• Renewable hydrogen is also being envisioned as a long duration storage option to help balance out variable wind and solar electricity. For example, Mitsubishi Power America is planning to store renewable hydrogen in two underground salt caverns in Utah that will have 100 times the energy capacity as the energy stored in all lithium batteries in the U.S. last year.

• Clean hydrogen or its derivatives, like methanol or ammonia, can be used as carbon-free fuels in shipping and aviation. Hydrogen can also be used in fuel cells to power motor vehicles, though competition is fierce with battery electric technology.

Economic and regulatory forces may lead to other applications of hydrogen that experts say are less than economically ideal.

A U.S. Environmental Protection Agency proposal would require utilities to replace coal and natural gas with hydrogen in certain power plants to generate electricity after 2030. But using renewable energy to make hydrogen that will be burned to generate electricity is an “utterly absurd” use of those renewable resources because 70% of the energy is lost in the process, writes Michael Liebreich, CEO of Liebreich Associates and founder of BloombergNEF.

Using $1 billion from the 2021 infrastructure law, the Energy Department is currently reviewing proposals for an independent third-party entity with an expertise in finance and markets that could help lower risk for both producers and end users in long-term contracts by providing some sort of price support.

This entity could be similar to the U.S. Department of Agriculture’s price-loss coverage program for farmers that guarantees profits for a range of crops and shields them against any price drops below a specified level, according to a recent Bipartisan Policy Center brief.

Or it could follow the European Union model, which already has a program like this for hydrogen called Hintco, a third-party delivery system that buys derivatives of the gas from producers through a reverse auction and then sells the product to end users through a regular auction, Mackler from the Bipartisan Policy Center said.

“We still don’t know how this would materialize,” wrote van Dorsten in an email to Cipher about the Energy Department initiative. “But that could catalyse existing hydrogen demand sectors (like refining, ammonia, methanol, etc.) to displace their carbon intensive hydrogen consumption with lower-carbon options.”