From the Robert Bryce Substack
Robert Bryce
Hydrogen producers can get up to $25B per EJ in federal tax credits! That’s 9x solar, 47x wind, & 1,800x hydrocarbons; I’ll be talking H2 & alt-energy in Eldorado, TX on Thursday
The hydrogen sector caught fire in 1937. Photo: Wikimedia
The late Charlie Munger was among the most successful investors of the modern era. Munger, who died late last year, was the vice chairman at Berkshire Hathaway, the conglomerate headed by his friend and colleague, Warren Buffett. Munger, a native of Omaha, had many pithy sayings, but among his most memorable was: “Show me the incentives, and I’ll show you the outcome.”
Whenever you wonder why the U.S. isn’t building more nuclear power plants and is instead lavishing hundreds of billions of dollars on politically popular forms of alt-energy, remember Munger’s line.
As I noted in May in “The H Stands For Hype,” few segments of the energy sector have gotten more media hype in recent years than hydrogen. That hype has gone into overdrive because of fat government subsidies. The German government has earmarked some $14.2 billion for investment in about two dozen hydrogen projects. I continued:
Here in the U.S., the 45V tax credit in the Inflation Reduction Act provides lucrative subsidies for hydrogen production. Big business is lining up to get those subsidies. In February, energy giant Exxon Mobil warned that it might cancel a proposed hydrogen project at its Baytown, Texas refinery depending on how the Treasury Department interpreted the “clean” hydrogen rules in the IRA. Regardless of tax credits and subsidies, making and using hydrogen is a high-entropy, high-cost process. As a friend in the oil refining business told me last year, “If you like $6-per-gallon gasoline, you’re gonna love $14-to-$20-per-gallon hydrogen.”…Hydrogen is insanely expensive, in energy terms, to manufacture. It takes about three units of energy, in the form of electricity, to produce two units of hydrogen energy. In other words, the hydrogen economy requires scads of electricity (a high quality form of energy) to make a tiny molecule that’s hard to handle, difficult to store, and expensive to use.
On Thursday, I’ll be speaking about hydrogen and alt-energy in Eldorado, Texas. I was invited to speak in Eldorado by a group of local ranchers who are concerned about a proposed hydrogen project in Schleicher and Tom Green Counties that is being pushed by ET Fuels, a Dublin-based firm. The event is free and open to the public. The caption for my talk: “Money, Physics, & The Backlash Against Alt-Energy.”
The ranchers are also concerned about other massive alt-energy projects being proposed for the Edwards Plateau. Two publicly traded companies — Apex Clean Energy, a subsidiary of Ares Management Corporation (market cap: $44 billion), and NextEra Energy (market cap: $159 billion) — are also developing hydrogen projects in the region. As I have previously reported, NextEra has become an expert at subsidy mining. The company’s latest 10-K filing shows it has nearly $3.7 billion in tax credit carryforwards that it will use to defray its future tax bills. Apex and NextEra are reportedly planning to lease and pave hundreds of thousands of acres on the Edwards Plateau with solar panels and wind turbines.
Now, back to hydrogen. It’s the most common element in the universe. It’s also one of the most difficult to produce and manage. About 98% of global hydrogen production now comes from hydrocarbons, with some 75% from natural gas via the steam methane reforming process. Oil refiners use a lot of hydrogen to remove sulfur from motor fuel. Water electrolysis, producing hydrogen by splitting water molecules, accounts for less than 2% of world hydrogen output. Why does electrolysis account for such a small percentage? The answer is simple: it requires vast amounts of electricity.
Under rules published earlier this year by the Treasury Department and Internal Revenue Service, hydrogen producers can collect $3 per kilogram of hydrogen under the production tax credit if they use electricity from low- or no-carbon sources. (The exact amount is less than 0.45 kilograms of greenhouse gas per kg of hydrogen.) According to the latest figures from the Treasury Department, the PTC is the single most expensive energy-related tax expenditure in the federal code. Between 2024 and 2033, the PTC is expected to cost some $276.6 billion.
In Schleicher County, ET Fuels plans to capitalize on the PTC. It aims to build 600 megawatts of alt-energy capacity, split evenly between wind and solar, to fuel electrolyzers that will produce hydrogen from local groundwater. (The company plans to convert the hydrogen into methanol for motor fuel for ocean-going ships.) That means ET Fuels will be eligible for the $3/kg subsidy. How does that stack up to other subsidies and the market price of natural gas? The numbers are simply astonishing.
Before we jump into the subsidies, a quick refresher on SI units and exajoules (EJ) should be helpful. As seen above, 1 EJ is roughly equal to 1 quadrillion Btu. It’s also approximately equal to the energy contained in 1 trillion cubic feet of natural gas.
As you may recall, I’ve been tracking federal alt-energy subsidies for a while. I wrote two pieces on the subject last year, including this piece (denominated in EJ) and this one (denominated in quads). One kilo of hydrogen contains about 120 megajoules (MJ) of energy. That means hydrogen producers can collect tax credits of $0.025 per MJ of energy produced. As seen above, that works out to $25 billion per EJ, which is more than 9 times what’s given to solar and a whopping 1,900 times the amount given to nuclear.
The numbers are similarly gobsmacking when comparing hydrogen subsidies with the market price of natural gas. Natural gas prices have increased over the past week or two and now stand at about $2.17 per million Btu. Thus, the tax credit for “green” hydrogen is worth 11 times the current market price of natural gas.
I will close with another Munger quote: “If you have a dumb incentive system, you get dumb outcomes.” It’s hard to conjure a dumber incentive system than one that gives hydrogen producers tax credits 1,900 times larger than those given to nuclear energy producers.
I will be writing more about the hydrogen push in Texas and the rural backlash against alt-energy over the coming weeks. If you happen to be in Eldorado on Thursday afternoon, stop by the Schleicher County Civic Center. It will be fun.
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A little known and consequently greatly overlooked fact about burning hydrogen—”green” or otherwise—with air:
Burning hydrogen with air (as opposed to pure oxygen) produce oxides of nitrogen (NOx) because air is mostly made up of nitrogen and heating air to high temperatures during combustion creates NOx. All oxides of nitrogen indirectly contribute to the creation of ozone, a greenhouse gas, through photochemical reactions in the atmosphere.
Please pass it on to the ranchers in Eldorado, as well as others that you speak to.
Science (as exemplified in chemistry) matters!
Oh, they have an answer for that – Selective Catalytic Reduction (SCR). So build a system that is 10X the cost with a quarter of the efficiency and then saddle it with the same emission controls used on diesels. What could go wrong?
For one thing, catalyst “poisoning” by impurities in either the hydrogen stream or the air flow into the combustion chamber.
Another inconvenient fact: catalytic converters age and deteriorate (reduction in efficiency) over time.
“There is no such thing as a free lunch.”
Aren’t catalytic converters extremely expensive? They sure are on cars/trucks.
Platinum is expensive, which is why catalytic converter theft is profitable.
I saw a YouTube video- a guy was napping in his car- bent over so he couldn’t be seen by a catalytic converter thief- who climbed under the car and started removing it- the driver heard a noise- didn’t know what was happening- so he started the car and drove ahead- running over the thief. I guess that’ll learn him. 🙂
BIOFUELS FROM POND ALGAE BY EXXON AN ECONOMIC DISASTER
https://www.windtaskforce.org/profiles/blogs/biofuels-from-pond-algae
Since 2009, ExxonMobil and Synthetic Genomics have been partners in research and development of oil from algae to produce biofuels to replace traditional transportation fuels.
In 2017, ExxonMobil and Synthetic Genomics announced breakthrough research published in Nature Biotechnology that resulted in a modified algae strain that more than doubled oil content without significantly inhibiting growth, a key challenge along the path to commercial scalability.
In the California desert near the Salton Sea and the tiny town of Calipatria, an acre-size rectangular pond is filled with saltwater and algae. The pond is one of several at the site for the production of biofuel at scale.
“The goal is a sustainable, renewable biofuel that can be cost-competitive with pumping oil out of the ground, but can scale to levels that go far beyond demonstration levels, according to Oliver Fetzer, chief executive officer at Synthetic Genomics.
In 2017, the partners announced, after nine years of research, they had solved one key challenge for making biofuel from algae. By tweaking a particular gene in a certain species of algae, the algae produced twice as much fat as it would in the wild, but still grow as quickly as usual. That fat can be made into biofuel.
Scientists are continuing development of the basic biology to make algae even more productive. That effort is in parallel with solving engineering challenges to efficiently grow and harvest algae.
In the ponds, engineers are studying how to best move algae to expose it to the most sunlight and CO2, both of which it needs to grow. At first, the testing will be with natural strains of algae. Later, the testing will be with gene-edited algae. The partners need time to obtain acceptance by regulators and the public.
In seven years, 2025, and continued advancements regarding gene-editing and farming of algae, they estimate production of about 10,000 barrels of biofuels from algae per day. That’s a tiny amount compared to crude production.
“Ten thousand barrels a day would be world-scale for current biofuels,” says Vijay Swarup, vice president for research and development at ExxonMobil Research and Engineering Company. “It is an important step, because we will learn about the engineering fundamentals tied with the biology fundamentals. The goal is hundreds of thousands of barrels a day. If we didn’t think this as scalable, reliable, affordable, and sustainable, we would not be working on it. We proceed only with scalable solutions. We are not interested in niche applications or additive applications. The goal is large scale.”
The algae would be grown on arid land that is not capable of growing food crops
The process uses saltwater to avoid burdening the local water supply
At some sites, including the test site near the Salton Sea, the algae farms may be able to use waste CO2.
Exxon’s continued investments in non-fossil-fuels is happening under a cloud of increasing attention–and major lawsuits–for how much the company knew about the climate damage its product was causing.
Startup efforts by other companies attempting to make biofuels from algae have failed in the past, in part because they made rosy assumptions about oil prices.
Whereas a truck running on biofuel still has CO2eq emissions, those combustionemissions can be considered carbon neutral, because the algae absorb almost all of the CO2eq as it grows.
Upstream CO2eq: The CO2eq of upstream energy, likely from fossil sources for at least the next few decades, has to be counted. That CO2eq could equal at least 40% of the combustion CO2eq. That CO2eq would be from:
– Providing make-up seawater to maintain salinity
– Operating and maintaining the facilities
– Providing large quantities of fertilizer to grow algae
– Processing the algae oil into B100
– Transporting the B100 to users
NOTE: The CO2 of fossil fuels is from carbon that was buried many millions of years ago.
https://www.fastcompany.com/40539606/exxon-thinks-it-can-create-biofuel-from-algae-at-massive-scale
http://www.windtaskforce.org/profiles/blogs/replacing-gasoline-and-diesel-fuel-with-biofuels
No thanks. That’s a lot of words having nothing to do with the topic of burning hydrogen with air.
BTW, your referenced link states:
“Since 2009, ExxonMobil and Synthetic Genomics have been partners in research and development of oil from algae to produce biofuels to replace traditional transportation fuels.”
Well, in the 15 years since 2009, I’ve seen NOTHING on the adaptation of algae-derived oil as a commercially-viable replacement for traditional transportation fuels.
and
” . . . an acre-size rectangular pond is filled with saltwater and algae. The pond is one of several at the site for the production of biofuel at scale.” At scale? . . . seriously?
Your post presents a great marketing blurb, but nothing of meaningful substance nor of relevance to using, or not using, hydrogen as a future widespread fuel.
BTW, are you aware that the text of the marketing article you posted DOES NOT support “an economic disaster” that is mentioned in the article’s title?
Are there any consequences if these algae get into the wild?
Very nice.
Ironic since you could use nuclear to make hydrogen (not that hydrogen would in any way be economic nuclear generated or not).
They will not produce hydrogen for $3/kg using this method. The cost of intermittency is too high. It is an enormous waste of capital. With 600MW of intermittent generation, you would aim for an optimum cost power supply system operating at 10% CF (60MW continuous) with 50hour battery (3GWh). So roughly $3bn spent for sales of $40M/yr. So 75 years to pay for a plant capital that will last 20 years. It might be viable at $20/kg.
USA is just stingy on subsidies. If they want NetZero, they need to get real about subsidies.
Grid scale wind and solar subsidy farmers in Australia get $48/MWh of guaranteed theft from consumers. They also average $43/MWh in the wholesale market. So more than half their income is from direct theft. These figures are in little Aussie battlers not USD.
The $3/kg for hydrogen equates to $90/MWh in heating value. So around $45/MWh in electrical output for efficient combustion. Same as grid wind and solar in Australia.
Twiggy Forrest had 700 people employed on his green hydrogen fantasy before anyone gave him the bad news that it was a money pit of gigantic proportions.
With 600MW of intermittent generation, you would aim for an optimum cost power supply system operating at 10% CF (60MW continuous) with 50hour battery (3GWh)
A very interesting and useful rule of thumb for assessing wind generation projects. It seems reasonable, but do you have a source?
http://www.environment.gov.au/submissions/nem-review/willoughby.pdf
Inevitably solar gives lower system cost because it is more predictable. The requirement will ben set by winter sunshine so the achieved CF will reduce with increasing latitude.
My own experience with off-grid at 37S was solar CF of 3.8% to get 99.9% reliability with 50 hour battery. But panels are not optimised for winter input.
That’s 9x solar, 47x wind, & 1,800x hydrocarbons
Is the claim that fossil fuels are highly-subsidised correct?
Hydrogen subsidies are $1,800 for each $1 of oil subsidies.
So, no. Fossil fuels are not highly-subsidized on a ratio basis.
However, there is a lot more fossil fuel processing than hydrogen.
So based on production scales it seems likely that fossil fuel subsidies exceed hydrogen at this time.
The gross totals will change as hydrogen increases and fossil fuel decreases.
Molar heat capacity, Isobaric (J·mol-1·K-1)
Ethanol liquid 112
Gasoline (octane) liquid 228
Hydrogen gas 28.82
Methane at 2 °C gas 35.69
Thank you . . . the point being?
The math says you need ~8x hydrogen produce to do the same work as 1x gasoline.
I’m sorry that you don’t understand that molar heat capacities (values of such as posted by George B) have ABSOLUTELY NOTHING to do with the specific heats of combustion (from which work can be extracted) for fuels, including hydrogen and gasoline which are listed.
Before the math comes a necessary understanding of the terminology of science.
And BTW, it takes 3-4 times the volume of LH2 to provide the same energy-of-combustion of a unit volume of gasoline, NOT “~8x” as you state, assuming zero boil-off conditions
(see https://wattsupwiththat.com/2024/08/12/the-true-cost-of-bidens-bet-on-bevs/#comment-3954843 )
If you’re talking about gaseous hydrogen, the GH2:gasoline volume ratio for equal heat (energy) of combustion is more like 3000:1.
It takes about three units of energy, in the form of electricity, to produce two units of hydrogen energy.
Other estimates are 3-4 units of electrical energy to produce 1 unit or hydrogen energy.
The latest version of the IPCC’s Global Warming Potential Values (Aug 7th 2024) gives CO2 a GWP of 1 but does not appear to have a value for hydrogen. Earlier versions gave hydrogen a GWP of 11.5.
In their paper ‘Climate consequences of hydrogen emissions’ I.B.Ocko and S.P.Hamburg (Copernicus) say
“Hydrogen is an indirect greenhouse gas whose warming potential is widely overlooked and underestimated because it is relatively short lived lasting only a couple of decades. It has much stronger warming potency in the near to medium term”
You will have to define the meaning of an “indirect greenhouse gas” . . . I’m at a loss to understand that reference.
Hydrogen gas, being a collection of homonuclear diatomic molecules, does NOT absorb IR/LWIR radiation because such molecules have no intrinsic dipole or a temporary dipole caused by molecular vibrations or rotations. Same story for nitrogen and oxygen gases.
A “life” of “a couple of decades” of persistence in Earth’s atmosphere is no reason to overlook or underestimate the influence of any chemical possibly affecting climate.
I think that what the paper is saying is the same as your last paragraph.
Did not understand my reference to hydrogen being an “indirect greenhouse gas” as being meaningless terminology?
Get back to me when you do.
BTW, “On average, a hydrogen molecule (H2) spends about 2 years in the atmosphere.”
(source: https://www.caryinstitute.org/news-insights/blog-translational-ecology/hydrogen-fuels )
You’re only off by about one order-of-magnitude . . . congratulations!
I am only quoting what their paper said – if it is wrong then it is them you need to take it up with.
Really? So, you don’t mind repeating gibberish without criticism?
It takes galactic chutzpah to call $1.2 trillion in emergency spending that increases inflation due to the extra money printed by the treasury “inflation reduction.” Or extraordinary economic stupidity. I vote both. The Democrat party is both arrogant and stupid.