New Mexico front and center in nationwide debate over hydrogen - Albuquerque Journal

New Mexico front and center in nationwide debate over hydrogen

BayoTech Vice President of Project Management Manuel Barreiro, left, shows Robert Jung hydrogen generators. BayoTech has created 110 jobs, most of them in Albuquerque. (Mike Sandoval/For the Journal)

When this year’s legislative session begins tomorrow, the New Mexico Roundhouse will become ground zero for a roaring local and national debate about whether hydrogen can, or should, play a role in today’s efforts to combat climate change.

Gov. Michelle Lujan Grisham is promoting a newly drafted Hydrogen Hub Act as “signature” legislation in the 30-day session, proposing a slate of tax breaks to help build out an entirely new hydrogen industry in New Mexico from the ground up. The bill would elevate the production and use of “clean hydrogen” as a state-supported resource to help convert the electric grid to renewable generation, and to accelerate efforts to decarbonize transportation and other sectors of the economy.

Rep. Patricia Lundstrom, a Gallup Democrat who chairs the Legislative Finance Committee, is also promoting a new bill, the Hydrogen Hub Development Act. It would establish special zones in targeted areas across the state where new hydrogen projects would be located, potentially attracting associated industry that can use the hydrogen, or that can benefit from hydrogen-based electric generation produced there.

Lundstrom’s initiative could potentially pump up to $150 million in state money into public-private partnerships to build out hydrogen projects.

Taken together, the two bills would create a suite of government-funded incentives to help companies construct everything from hydrogen production and hydrogen-based electric generation to fueling stations and distribution infrastructure — all backed by a new statutory framework to guide the industry forward.

But that potential wholesale embrace of everything hydrogen is facing a wall of opposition from environmental organizations, which say the governor and local hydrogen supporters are rushing forward to build a new industry that could actually slow New Mexico’s transition to a clean energy economy, and possibly even worsen carbon emissions here. Rather than produce a new, “clean fuel” to help decarbonize things like transportation and residential and commercial heating, environmentalists say full-scale hydrogen production could instead perpetuate mining and consumption of natural gas for 20 years or more at a time when New Mexico and the nation are aggressively working to replace fossil fuels with renewables like solar, wind and backup-battery technology.

That’s because nearly all of today’s hydrogen production uses natural gas in a process that extracts hydrogen molecules from methane, a potent greenhouse gas, with substantial amounts of carbon emitted during operations. Industry and hydrogen supporters say carbon capture and sequestration technology can mitigate nearly all the carbon emissions, but that only intensifies the controversy, because carbon capture must still be proven environmentally and economically effective in commercial projects.

As a result, environmentalists want to halt the hydrogen-promotion bills in this year’s session and instead launch a broad public process to fully evaluate the pros and cons of hydrogen before moving forward. Thirty environmental, clean energy and local community organizations sent a joint statement to New Mexico’s state and federal officials last fall outlining “guiding principles” to better determine whether and how hydrogen development could potentially be used as a supporting tool to combat climate change.

“All of these issues demand careful and comprehensive consideration and appropriate safeguards in the specific context of New Mexico’s climate future and transition from fossil fuels,” the groups wrote. “To date, however, we have not seen any assessments evidencing such careful, deliberative, and comprehensive consideration.”

National debate

The local controversy reflects growing debate at the national and international levels over the role hydrogen can play as the world works to achieve carbon neutrality by midcentury.

President Joe Biden’s administration, backed by bipartisan support in the U.S. Congress, has embraced hydrogen as a critical tool in building a noncarbon economy. The $1.2 trillion federal infrastructure investment bill, approved by Congress and the president last fall, allocates $9 billion in spending on hydrogen development, including $8 billion to build four hydrogen demonstration hubs around the country, plus $1 billion for research and development projects.

And, although now stalled, the president’s $2 trillion “Build Back Better” bill would also include new tax incentives for hydrogen production and use, similar to the federal tax breaks that have helped accelerate solar and wind development across the country over the last decade.

As a noncarbon-emitting fuel, hydrogen does have major advantages, particularly to lower or eliminate emissions in hard-to-decarbonize sectors like freight transportation with long-haul trucks, shipping and aviation, or in heavy industrial processes like steel and cement-making, which require intense heat that today comes from burning fossil fuels.

It can also replace coal or natural gas to fire up power plants for electric generation, providing 24/7 backup for intermittent wind and solar systems.

Supporters say that’s critical as electric grids move to near-total reliance on renewables, and, especially, as public efforts to decarbonize more sectors of the economy gain force.

In New Mexico, for example, Gov. Lujan Grisham has set a state goal of a 45% economy-wide reduction in carbon emissions by 2030. But annual reports from New Mexico’s Climate Task Force show that, under current renewable-development policies, the state will come up short over the next decade and beyond, said state Environment Secretary James Kenney.

“We have ambitious climate goals, especially when adding a target of net-zero by 2050,” Kenney said. “We won’t meet those goals, even for 2030, unless we do more, and that’s where hydrogen comes in. It can play a critical role in decarbonizing transportation and other sectors.”

Economic benefits

Apart from its potential use in hard-to-decarbonize sectors, supporters say building a robust hydrogen industry in New Mexico can bring immense economic benefits, especially in communities hard-hit by the transition away from fossil fuels, such as in McKinley and San Juan counties, where coal-plant shutdowns have already displaced hundreds of workers.

Two large hydrogen projects are under development in those areas. That includes the Libertad Power Project, which aims to build a hydrogen hub near Farmington to supply clean electricity to utilities in western states, plus noncarbon fuel for vehicles and industrial processes. It aims to construct the state’s first newly-built hydrogen production and generating facility there by 2025, representing at least a $2 billion investment, with additional plans for more hydrogen development in southeastern New Mexico.

Texas-based Newpoint Gas LLC and the Blackstone Group — a global investment fund with $731 billion in assets under management — plan to convert the coal-fired Escalante Generating Station near Grants to a hydrogen production and generating facility, also by 2025. Current plant owner Tri-State Generation and Transmission Association shut down Escalante in 2020, laying off more than 100 employees, and triggering the layoff of about 50 more at a nearby coal mine that supplied the plant.

Rep. Lundstrom, who is also executive director of the Greater Gallup Economic Development Corp., has been working with Newpoint Gas to draft her hydrogen legislation, with the goal of building a hydrogen hub around Escalante that could attract associated industry and businesses to the zone.

“We want to repurpose industrial sites, and that’s the No. 1 site we’re looking at now,” Lundstrom said. “McKinley is the poorest county in New Mexico, so we’re focusing on an area that desperately needs economic vitality. … This could be a game changer.”

Another hydrogen-production company, BayoTech Inc., has already created 110 jobs, most of them located at the firm’s 15,000-square-foot headquarters in Albuquerque, where it designed the world’s first compact hydrogen generator for onsite production. It’s manufacturing partner, Farmington-based Process Equipment & Service Co., is building the production units, with projections for 200 new jobs there in the next few years.

New Mexico’s vast deposits of natural gas — backed by its well-established extraction-and-pipeline infrastructure and skilled workforce — give New Mexico huge advantages over other states that are now aggressively seeking to build hydrogen hubs, Secretary Kenney said. That can propel New Mexico into a leadership position on the ground floor of a newly emerging industry.

By embracing hydrogen now, New Mexico can capture a lot of the national and global investment currently pouring into development, including a slice of the $9 billion in federal funds contained in Biden’s infrastructure initiative, which the U.S. Department of Energy will award on a competitive basis.

If New Mexico fails to act, hydrogen development will continue anyway, but the state will fall behind competing states as the hydrogen economy gains force, Kenney said.

“It’s happening around us, even absent this legislation,” he said.

Pro or con?

Environmental groups, however, say the hype surrounding hydrogen development is based on “false promises.” And, given today’s rapidly changing energy markets, chasing industry investment here is a risky venture that could result in stranded assets and lost jobs down the road, apart from setting back renewable development in New Mexico.

Environmental groups generally agree that hydrogen can be a useful tool to decarbonize some things like heavy industry. But as hydrogen production expands, it could end up being applied in many areas that they say would be much better served by solar, wind or other renewable generation, using electricity to run things like cars and light commercial transportation, or appliances and heating-and-cooling systems in homes and businesses.

Hydrogen production is still significantly more expensive than solar and wind generation, and the use of hydrogen is much less efficient than electricity for many applications, such as home energy needs, said Tom Solomon, co-coordinator of the environmental group 350 New Mexico. That’s because it takes a lot more hydrogen to produce heat energy than just burning natural gas, meaning a lot of hydrogen must be produced and supplied to end users to meet energy demand, and thus a lot more natural gas must also be mined and processed to make the hydrogen.

“Hydrogen has about one-third the energy content, or density, of natural gas, and it’s more expensive to make,” Solomon said.

And only small amounts of hydrogen can be mixed with today’s natural gas in pipelines, because it can degrade that infrastructure over time, potentially leading to environmentally damaging leakage and expensive pipeline replacement.

Today’s gas appliances also aren’t designed for hydrogen, which is extremely flammable, so only a small amount — between 5% and 20% by volume — can be blended with natural gas, Solomon said. Hydrogen use beyond that level would require all new appliances with safety and emissions control in homes and businesses, and utilities would have to build entirely new pipeline systems to transport the fuel.

Yet utilities nationwide are now actively exploring low-level integration of hydrogen into their natural gas systems to lower emissions, which is one of the big markets prospective hydrogen users hope to tap. The New Mexico Gas Co., for example, announced in December that it will host the first commercial deployment of BayoTech’s compact, onsite generating unit at the utility’s Metro Service Center in midtown Albuquerque to study hydrogen use in common household appliances before later considering the injection of some hydrogen into the company’s natural gas pipelines.

Likewise, environmentalists say using electric batteries in cars and light commercial vehicles is far more efficient than hydrogen for replacing natural gas. And with electric auto production and sales rapidly growing, costs are declining much faster than for hydrogen-based vehicles, which would require a massive build out of new hydrogen filling stations nationwide.

As a result, environmentalists say New Mexico should first thoroughly study the potential end uses and markets for hydrogen before barreling forward with local industry development.

“New Mexico needs to aim before it shoots on hydrogen, not the other way around,” said Noah Long of the Natural Resources Defense Council. “Hydrogen may become a viable clean-energy technology for targeted areas in the future with further development. But we first need to get it right on how it fits into climate-change strategies, otherwise we risk using it for the wrong things and targeting the wrong industries, which can lead to dead ends.”

Rather than focus on hydrogen, the state could lower carbon emissions much more by directing more money into energy efficiency programs, such as weatherizing and upgrading energy systems in low-income homes, Long said.

“Right now our best options are tried-and-true technologies, building a lot more solar and wind generation to electrify transportation and the energy systems now used in homes and businesses,” Long told the Journal. “If the same $150 million now being considered for hydrogen hub development were instead directed into energy efficiency, we would achieve a lot more a lot faster, and without all the questions surrounding hydrogen.”

Lower or higher emissions?

While controversy swirls around the appropriate applications for hydrogen, the crux of the debate is centered on whether today’s technology can actually make the hydrogen production process clean and economically viable.

Environmentalists rely on a color-coding system of “grey, blue and green” production to broadly categorize hydrogen as clean or dirty.

Nearly all production today uses natural gas as the feedstock, and virtually all gas-based hydrogen is currently labeled “grey,” because carbon emissions are simply vented into the air. “Blue” production also relies on gas, but it uses carbon capture technology to sequester all emissions and then pipe it into deep underground geological formations for permanent storage.

Environmentalists favor “green” production, which uses electricity from renewable generation to extract hydrogen molecules from water with no carbon emissions in a process known as electrolysis.

But all new hydrogen projects in New Mexico, and most other states, are now focused on blue production, because electrolysis technology is still very expensive, and a lot more renewable generation must be built to power the process.

Industry groups like Libertad Power say they plan to transition to green production as costs decline and more renewable energy becomes available.

But environmentalists say electrolysis is rapidly developing and likely to become much cheaper than blue hydrogen in the next 10 to 15 years as the technology becomes more efficient, and as lower-cost solar and wind generation replace higher-priced natural gas. If accurate, blue-based hydrogen facilities could quickly become obsolete, leaving behind huge stranded assets from today’s planned investments.

More important, it’s unclear how much blue production can actually lower carbon emissions.

For one thing, carbon capture must still be commercially proven as an effective way to sequester emissions, and even if the technology works as projected, it doesn’t capture all emissions, and it’s not intended to.

Lundstrom’s bill, for example, only sets a 90% capture rate as the standard for future hydrogen production plants in New Mexico. And, to date, industry has yet to successfully demonstrate a sustainable, 90% carbon-capture rate even in facilities where it has been deployed.

That’s because, apart from the technological challenges, carbon capture is a very expensive technology, with costs undermining nearly all commercial projects to date across the globe.

Perhaps most important, even if carbon capture managed to sequester all emissions, hydrogen production based on natural gas means that methane leakage throughout the entire upstream process required to mine, compress, purify and transport the gas to a hydrogen facility must be included when determining how “clean” the hydrogen end product actually is.

Some recent mainstream studies, including one that researchers from Cornell and Stanford universities published in August, concluded that the greenhouse gas footprint from natural gas-based hydrogen is actually about 20% greater than simply burning gas or coal for heat.

“The notion of ‘clean hydrogen’ using natural gas is based on unsupportable assumptions about controlling greenhouse gas emissions,” said Tom Singer of the Western Environmental Law Center. “For natural gas-based hydrogen to be even close to a low-carbon fuel, all the upstream emissions would have to be near zero. And carbon-capture has yet to be proven effective, and is still far from being commercialized at scale.”

‘Color-coding’ vs. ‘carbon intensity’

To address the upstream emissions problem, state and federal agencies — with support from industry — are focused on measuring the full life-cycle of hydrogen production, with methane leakage from natural gas mining, processing and transport to hydrogen plants included when determining the total “carbon intensity” of the production process.

Basing government standards on carbon-intensity measurements rather than blue and green color codes allows policymakers to determine actual emissions reduction in a technology-neutral way, said Libertad Managing Partner Joe Merlino.

“Measuring life-cycle CO2 intensity is a much more productive path to jump-start the hydrogen economy and incentivize clean-energy development,” Merlino said. “We must have an evidence-based, data-driven perspective to sort out priorities and avoid dead ends. And it’s crucial to have that clearly positioned in New Mexico legislation and policies.”

Neither the governor’s nor Lundstrom’s initial draft legislation defined life-cycle measurements. But Secretary Kenney said state officials were working to update the initial legislation, based on evolving federal guidelines, to address carbon intensity before filing a final version for the session.

“We’re evaluating how far upstream and inclusive of the natural gas process the standards need to be,” Kenney told the Journal in late December.

In addition, the legislation is being developed alongside new state methane regulations to reduce and eventually eliminate emissions in the oil and gas industry, as well as forthcoming legislation and policies for statewide clean car and clean fuel standards — all in coordination with the governor’s executive order for an 45% economy-wide reduction in carbon emissions by 2030.

“We’ll be unrelenting and unwavering in enforcing compliance with those regulations,” Kenney said.

Environmentalists, however, say the state should first approve the clean-car and clean-fuel regulations — and codify the governor’s order on carbon reductions into law — before creating new laws to promote hydrogen production. And state agencies still need a lot more money and regulatory staff in place to enforce compliance with new regulations.

“We need to first put those baseline performance standards on the environment and emissions in place to enable effective regulation of the hydrogen industry,” said Long of the NRDC. “We have to pour the foundation before building the walls and not put the cart before the horse.”

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