Executive Summary

Hydrogen may be a bridge fuel on the road toward a green economy, but it is not yet ready for prime time. The cost of generation, in terms of price and greenhouse gas (GHG) emissions for hydrogen derived from nonrenewable sources, renders it impractical in the short run for everyday consumers or many commercial and industrial uses. However, future technological breakthroughs and investments in infrastructure may allow hydrogen to become another tool in the transition toward net zero. According to the IEA, hydrogen’s market share is expected to grow significantly over the next decade, but government policy plays a crucial role in advancing hydrogen as a low-carbon fuel.¹ Sectors that might benefit from advances in hydrogen fuel technology include long-range road transportation and aviation. Considering the ongoing need for additional low- and no-GHG emission transportation by 2050, hydrogen will likely be critical for hard-to-electrify sectors of the economy.

Hydrogen is an energy carrier and not an energy source. That means that despite being the most abundant element in the universe, it is highly reactive and needs to be generated from other chemical compounds such as natural gas, methane, or water to be used as an energy source. Unlike many fossil fuels, hydrogen does not face any supply shortages or constraints due to geopolitical risks.

Insights for What’s Ahead

• Hydrogen only qualifies as a low-GHG emission fuel if it is generated from water using renewable energy. Alternative hydrogen types require the use of carbon sequestration to reduce their adverse GHG impacts. While technology has improved in recent years, further progress is needed before commercial applications are viable at scale.
• Procuring environmentally friendly (“green”) hydrogen for industrial uses is still too costly to be economically viable for many businesses. Most industrial hydrogen demand is met by hydrogen generated from coal or natural gas, creating significant GHG emissions. Using water and renewable energy would create an environmentally friendly alternative but at more than three times the cost.²
• Hydrogen might provide a reasonable way to store renewable energy in the medium and long term while avoiding losses similar to those in battery units. Electricity generated during periods of excess supply can be used to split water atoms and effectively store electricity chemically in specially designed caverns and storage tanks. Such storage would be able to address volatility and electricity shortages, assuming the infrastructure exists to draw from those hydrogen supplies as needed.
• Fuel cell–powered vehicles have become a reality, but with current technology, hydrogen-powered vehicles are significantly less efficient than electric vehicles (EVs). Estimates suggest that EVs use roughly 80 percent of any electricity generated and supplied by the grid; hydrogen-powered vehicles use only between 30 and 40 percent.³ Moreover, businesses face significant uncertainty about the practicality of a hydrogen charging station network and the likely investment needs for such infrastructure. It is questionable if such a parallel network of hydrogen refilling stations would be efficient at all considering the infrastructure projects planned or already in place.

Hydrogen: The Basics

Hydrogen is an energy carrier and not an energy source. As of now, the commercial applications of hydrogen are limited to industrial processes—such as methanol and ammonia production—or oil refining, and some experimental transportation use cases. For instance, only a few car companies have hydrogen vehicles as part of their lineup, and annual sales pale in comparison to battery-powered EVs. As an energy carrier that needs to be split from other chemical compounds to be used as fuel, hydrogen has the potential to significantly reduce emissions after more traditional ways of electrifying the economy have been exhausted. But a wide application faces significant obstacles and constraints.

Nonetheless, once hydrogen does become commercially viable, businesses might view it as a gap fuel that allows for the reduction of GHG emissions where electrification might not be feasible. Sectors that might benefit from advances in hydrogen fuel technology include long-range road transportation, maritime shipping, and aviation.

Scientists differentiate between different types of hydrogen by referring to different colors:⁴

Brown or black hydrogen: Through a process called coal gasification, hydrogen is produced from either brown or black coal, creating significant amounts of GHG in the process.⁵

Grey hydrogen: Hydrogen is produced through an energy-intensive process called steam-methane reforming. Methane that is contained in natural gas is processed through various stages until nearly pure hydrogen remains. The process requires a significant input of energy and leaves GHG as emissions.⁶

Blue hydrogen: Hydrogen is produced in an identical process as for grey hydrogen, but GHG emissions are captured, making this form of hydrogen less environmentally impactful. The capture rate of GHG is 85-95 percent.⁷

Green hydrogen: In a process called electrolysis, water is split into oxygen and hydrogen using 100 percent renewable energy. This form of hydrogen promises to be the least environmentally impactful assuming that the input energy comes from exclusively renewable sources.⁸

As of now, most of the hydrogen produced is grey hydrogen. While that process is preferrable to hydrogen produced from brown or black coal, it still leaves GHG emissions that escape into the environment. The ideal process would be producing green hydrogen, but production costs are still significantly above what they are for grey hydrogen. Specifically, the cost to produce one kilogram of green hydrogen is roughly $5, contrasted with $1.50 for grey hydrogen and between $1.69 and $2.55 for blue hydrogen.

The Case for Hydrogen

Hydrogen is seen as a promising alternative, especially in the transportation industry, due to its immense energy density. In fact, it might be up to 100 times denser than a lithium-ion EV battery per kilogram (measured by how much electricity can be stored by one kilogram of mass). As a result, hydrogen might be a much more attractive fuel source for vehicles in long-distance transportation for which the weight of traditional batteries would be prohibitive. For instance, trucks traveling from the East Coast to the West Coast of the US could possibly run on hydrogen, whereas a battery-operated truck would sacrifice up to one-third of its payload to batteries.⁹

In addition, compared to recharging conventional batteries, it takes much less time to refuel a hydrogen-powered vehicle. In a world of just-in-time deliveries and tight supply chains, those time savings would directly translate into lower operating costs for businesses and lower freight expenses for beneficial cargo owners.

Hydrogen would also be a suitable energy carrier for industries that are hard to electrify such as the commercial aviation industry. Due to their prohibitive weight, batteries with current technology would not be able to power a commercial airliner on a long-distance route without also taking up most of the cargo and passenger space on board. The same is true for ocean container vessels, the largest designs now carrying more than 14,000 TEUs (a twenty-foot equivalent unit (TEU) is equal to a 20-foot container). However, hydrogen-powered engines might be able to provide feasible alternatives. In addition, the refueling infrastructure would not have to be as distributed in the case of commercial aviation or ocean shipping as in the case of automobiles on a road network.

An advantage of using hydrogen is the ability to store it in specialized facilities such as underground caverns or storage tanks. The time frame for such storage would be much longer than traditional electricity storage in batteries without any energy loss during the duration. In fact, stored hydrogen could be designated as a strategic resource for future need and access in times of shortages or supply disruptions for other energy types. It would further allow excess supplies of renewable energy, generated by somewhat volatile sources such as wind and solar, to be stored, overcoming some of the need to closely match up renewable energy generation capacity with current electricity demand.

Lastly, unlike many fossil fuels, hydrogen does not face any supply shortages or geopolitical constraints. In the case of green hydrogen, the production process would utilize water, a resource that is abundantly available at low cost, as its main input.

The Case Against Hydrogen

The biggest problem with broad use of hydrogen is the infrastructure needed to produce green hydrogen at scale. If hydrogen is supposed to be a fuel to close the GHG emission gap toward net zero, as we outlined in US Energy Transition: The Path Toward Net Zero, then only the use of green hydrogen makes environmental sense. However, the costs of green hydrogen are still significantly higher than other types. A reduction in costs requires additional breakthroughs in the utilized technology and processes, and there is significant uncertainty about when these cost reductions can be realized.

The production of green hydrogen also relies on an available supply of renewable energy. Even with a renewable energy share of roughly 20 percent of the US’ total electricity supply, the capacity to generate electricity without GHG emissions does not yet exist to the extent necessary to support production at scale. Massive investments in renewable energy would be needed in addition to what is already required to move the economy toward net zero by 2050.

Currently, hydrogen as a fuel for vehicles is much more inefficient than are electric batteries. The “energy vector transition”—the way energy is generated, transmitted, and finally used by a hydrogen fuel cell—results in only roughly 40 percent of the energy used to power the engine compared to 80 percent for an EV. In other words, of the 100 watts of electricity generated by a wind turbine or solar panel, 60 percent would be lost in the case of a hydrogen fuel cell, while a battery-powered vehicle would use 80 percent of that energy.¹⁰

If the transportation sector proceeded on a two-pronged path, jointly developing hydrogen fuel cell vehicles and battery-powered EVs, then the country’s transportation system would also need two networks of charging stations spread out across the US. Ultimately, both EVs and fuel cell vehicles will likely have significantly greater range than the currently standard range of approximately 250 miles for fossil fuel vehicles or EVs. A future refueling network could therefore be somewhat less dense. But that still means that such a network of refueling stations would have to number in the thousands. As a point of reference, there are roughly 145,000 gasoline refueling stations in the US today.¹¹

Concluding Thoughts

The energy crisis of 2022 has demonstrated the need for greater energy security and uninterrupted supply chains. Hydrogen might be an alternative to fossil fuels, and in the case of green hydrogen, it might be a way by which the country can proceed toward the end goal of a net-zero economy. But while much research is underway, the current production costs of green hydrogen are still unfavorable, and the supply of renewable energy is too limited to leverage hydrogen production at scale. Nevertheless, considering that there will likely be an ongoing need for additional low- and no-GHG emission transportation by 2050, hydrogen will likely play an important role for hard to electrify sectors of the economy. But it will depend on sensible government policy to achieve this goal. There is uncertainty about feasibility and costs, and businesses should view hydrogen as an additional avenue toward greater decarbonization at a time when all possible strategies should be on the table.