US Department of Energy Investments in Hydrogen Production Should Scale to Market Realities

Bad News for Blue Hydrogen

From an Article by Suzanne Mattei, Dennis Wamsted, & Seth Feaster of the Institute for Energy, Economics and Financial Analysis, December 19, 2023

The small and shrinking market potential for hydrogen fuel cell vehicles is a reality.

Key Takeaways:

The U.S. Department of Energy is negotiating with several selected companies to establish regional hydrogen hubs that derive hydrogen from methane. They will be costly, and DOE must ask hard questions before it commits the funding.

DOE is under pressure to put the cart before the horse—to build hydrogen projects based on unproven technologies and undemonstrated markets.

By the time DOE’s selected applications are processed and the surviving projects are built, EV market trends will have expanded the already strong role of BEVs substantially, weighing against most vehicular uses of hydrogen.

If DOE fails to exercise discretion in reviewing and finalizing the hydrogen project proposals the result is likely to be a substantial waste of taxpayer dollars for an outsized hydrogen-based economy that will never arrive.

The U.S. Department of Energy (DOE) is negotiating with several companies to build costly hydrogen hubs that derive hydrogen from natural gas (methane), but the agency must ask hard questions before committing any more public funds for the “blue hydrogen” projects, according to the latest Institute for Energy Economics and Financial Analysis (IEEFA) report.

Public dollars should not be sunk into projects that are likely to fail to achieve financial viability due to a weak market, IEEFA warns, and the market scenario for hydrogen in vehicular transportation is particularly troubling.

The scale of the hydrogen push does not make sense from an economic perspective. Despite the influx of federal funding, the long-term viability of the proposed hydrogen hubs (H2Hubs) will likely still be ruled by actual market forces.

In a 2022 report, IEEFA found hydrogen had an extremely limited future in the market, including vehicular transportation, warning that the H2Hubs may be obsolete before they launch. With the rapid advances in battery electric technology and sustained growth in its market share, the market scenario for hydrogen in vehicular transportation is even more dubious today.

“DOE is under pressure to put the cart before the horse—to build hydrogen projects based on unproven technologies and undemonstrated markets,” said Suzanne Mattei, IEEFA energy policy analyst and author of the report. “But the agency has statutory authority to use good judgment to avoid sinking tax dollars into white elephants.”

Six of the seven hydrogen hubs selected by DOE to receive federal funding intend to market some portion of the hydrogen gas for use in transportation. The infrastructure required will take some years to develop. Given market trends, time is not on hydrogen’s side. This IEEFA report, part of a series, examines the dwindling market for hydrogen in vehicular transportation.

The report finds:

DOE makes unrealistic assumptions about the vehicle market for hydrogen. In 2020, it projected hydrogen could power 18% of cars and 26% of light-duty trucks. Now, just three years later, the agency recognizes hydrogen technology has lost to battery electric technology in the light-duty vehicle market.

Battery electric vehicles (BEVs) will dominate the U.S. market for zero-emission passenger cars, pickup trucks and other light vehicles because car manufacturers and customers have overwhelmingly moved in that direction.

Battery technology is making significant inroads into bus and medium-duty truck sales, and is already predicted to dominate the zero-emission medium-duty truck market. Projections indicate battery technology also is likely to capture most of the short-haul heavy-duty truck market.

BEVs also may well encroach on the regional long-haul market. Only 9% of U.S. trucks are engaged in long-haul service, defined by DOE as trucking more than 250 miles, and within that segment, an even smaller portion accounts for trips of a distance of 1,000 miles or more.

US Department of Energy Investments in Hydrogen Production Should Scale to Market Realities