Welcome to Part III of this three-part series on unpacking the green hydrogen economy for the layperson. This edition is focused on unpacking the potential applications of green hydrogen further into industrial applications and in supporting ‘green’ steel. I also unpack the social and regulatory challenges of powering the future green hydrogen economy and explore the risk of misallocation of scarce resources for an emerging industry entirely dependent on public subsidies.
Other industrial processes like steel making
There is a strong case that the demand for hydrogen in its existing industrial applications (such as oil refining and fertiliser production) will reduce over time. In fact, a reduction in oil refining is the whole point of the energy transition and increasing options to reduce nitrogen fertiliser use is being pursued with more refined precision agricultural practices. However, the negative demand thematic in existing industrial applications could be offset by the potential for green hydrogen to decarbonise the steel industry. The prize is high as every tonne of steel produced emits on average 1.85 tons of carbon dioxide, equating to about 8 percent of global carbon dioxide emissions.
There are two ways to use green hydrogen in steel production. First, it can be used as an alternative injection material to pulverised coal (PCI), to improve the performance of conventional blast furnaces. While the injection of green hydrogen into blast furnaces can reduce carbon emissions by up to 20 percent, it is not carbon-neutral steel production because regular coking coal is still a necessary reductant agent in the blast furnace. Second, hydrogen can be used as an alternative reductant to produce direct reduced iron (DRI) that can be further processed into steel using an electric arc furnace (EAF); an outcome that would be nearly carbon-neutral steel production. This presents its own challenges in terms of the reliable supply of DRI.
To put the size of the challenge in steelmaking in perspective, Bluescope Steel has considered the implications of relining their blast furnace to handle hydrogen. Capital costs are estimated at more than A$2.8 billion (more than four times more expensive than relining a blast furnace) and would require an electrolyser of around 1.4GW; requiring 3GW of installed renewable electricity generation capability coupled with storage to ensure continuous supply. This compares to the largest electrolyser operational in Australia today of 1.5MW and the current energy demand of the steelworks today of around 100MW. While the prize for growing a green steel industry for a renewable energy superpower like Australia is very high (today Australia produces 38% of global iron ore and 18% of metallurgical coal but produce just 0.3% of the worlds steel), the overall cost is equally high, and the technology has yet to be proven on a large scale.
Importing energy economies driving some exceptions to simple rules
As a simple rule, if an electron can be used directly it will likely outplay the cycling of the electron (electrolyser) to a hydrogen molecule (fuel cell) to an electron every day of the week. However, this simple rule comes with one important caveat.
If a country is ‘short’ in energy generating capacity, and in a renewable energy world, constrained in land mass then it will be an energy importer. Where energy can be imported over wires in the form of electrons then it will generally always be economically sensible to do so (as happens across much of Europe today). However, there are some major industrial countries (such as Japan, Korea, Taiwan) that are ‘short’ in energy, ‘short’ in land mass, and not easily supplied with imported electrons through wires. They have and will likely continue to be dependent on importing energy molecules – today in the form of fossil fuel molecules and tomorrow potentially in the form of a clean hydrogen molecule.
If energy is imported in the form of a hydrogen molecule, the end-use opportunity for hydrogen may be broader than those that exist in the countries from which those hydrogen molecules were sourced. In energy ‘short’ economies, the penalty to take an imported hydrogen molecule and put it to work in a fuel cell versus burning it in a generator to then power a battery electric vehicle may be less dramatic. Therefore, it is not surprising that Japan is the leading proponent globally of hydrogen fuelled mobility, but equally not contradictory that countries like Australia shouldn’t be following suit.
An important debate to minimise the risk of misallocation of valuable public resources
Public subsidies for hydrogen in sectors exposed to electrification stand in stark contrast to subsidies for hydrogen in the industrial sector; the latter operate in a context where no other decarbonisation option is available. A realistic discussion on the future breadth of the green hydrogen economy is important to minimise the risk of misallocation of valuable public resources.
Throughout this series, I founded my discussion on the underlying chemistry and thermodynamics of hydrogen. As I close out my enquiry on the social implications of green hydrogen, I empty the memory bank of my high school science days in relation to hydrogen’s chemical and thermodynamic characteristics.
Hydrogen’s manufacture is water intensive
Not only is the manufacture of hydrogen through electrolysis energy intensive, it is also water intensive; consuming at minimum 9 litres of water to produce every 1kg of hydrogen. This raises two challenges, firstly whether water is available where the cheap renewable power is generated and secondly, the opportunity cost of using such water for producing hydrogen versus redirecting to other value adding applications for that water. In a world of increasing water scarcity, hydrogen production at scale will be another significant pressure on such a valuable life-giving resource. The social debate around water use is still in its infancy and likely to impact the trajectory of green hydrogen going forward.
Its high flammability makes safety and social acceptance critical
Hydrogen’s high energy density brings an additional risk of increased flammability; being 4 x the flammability of existing fossil fuels. Hydrogen’s flammability risk was famously imprinted on historical mindsets with the Hindenburg disaster in 1937. If the hydrogen industry is to emerge at scale, engaging the community around how and where hydrogen is manufactured, stored, and distributed and in what sorts of applications it is applied will be required; and this has yet to fully unfold. As the hydrogen industry looks to scale up it will have to address both the real issues and community perception of its safety; communities will expect it and regulators will demand it. How this debate evolves will again influence costs and breadth of application for hydrogen.
Renewable energy and land use
There is much talk in Australia of the potential for hydrogen exports to rival that of the LNG industry over time. This is not a ridiculous aspiration given Australia’s large land mass and large renewable energy (particularly solar) resource establishing Australia as a global renewable energy superpower. However, it is again helpful to convert this aspiration into numbers. If Australia were to export as much hydrogen by energy value as the LNG we exported in the year to June 2020 (33 million tonnes) we would need about eight times (2200TWh) the total electricity that was generated in Australia in 2019 (265TWh). If this energy was to be supplied by solar, we would need around 1000GW capacity which is around 75 times Australia’s installed solar capacity in 2019 or more than the installed solar capacity worldwide.
These sorts of numbers raise important social issues around the highest and best use of land and the scale of the energy distribution networks required to support an industry of this size. Already, there is growing community pressures around the impact of renewable energy generation in terms of aesthetics, noise, and detrimental impact on wildlife and this is likely to heighten materially at the sort of generation levels required to support a green hydrogen industry at scale. These tensions will only increase the lower the community buy-in around the full lifecycle benefits of green hydrogen.
With no shortage of green hydrogen aspirants looking for government support a key social question is the opportunity cost of directing subsidies towards green hydrogen relative to alternative uses. To reiterate, at current price points there is no natural demand market for green hydrogen. Demand will only be supported by government subsidies and, large amounts of it, for the foreseeable future. In Part I, I talked about prioritising public subsidy support to the refining and chemical industries to solve an existing carbon problem; a problem that doesn’t have a viable direct electrification alternative. In Part II, I assessed alternative end-use cases for green hydrogen and discussed the risk of resource misallocation if subsidies are directed towards applications ultimately best suited to electrification.
The final area of focus is around the levels of resource allocation towards the energy transition versus other equally well needing community goods – whether it be health, housing or education. To bring to life the inherent trade-offs in public funding choices take a simple and real current example. Should governments be subsidising a heavy vehicle green hydrogen initiative or accelerating investment in the inland rail project to remove trucks completely off the interstate road. In an environment of constrained resources, these trade-offs are being made consciously or unconsciously by governments every day.
The pathway forward
The technical pathway forward is all focused about reducing the green premium and reducing hydrogen manufacturing costs from around $5-8/kg today to less than $2/kg and ideally less than $1.50/kg (of note $1.5/kg still represents around $12.5/Gj gas price or some 25-50% above today’s price). This improvement in cost competitiveness can only come through lower renewable electricity costs driven by lower prices for solar and wind energy and falling costs for electrolysers. The falling costs for electrolysers are based on scaled up production, technology learning rate, an increase in system size from 20 towards 100 MW, and associated operating efficiency improvements. As already noted, the least regrets focus of these improvements, and associated public funding, should be towards solving hydrogen’s carbon problem today when used as a feedstock into industry. This is in preference to opening new markets for hydrogen – many of which will ultimately be absorbed into the electrified economy. Unfortunately, current global spending patterns on hydrogen don’t necessarily reflect this view.
The technology pathway needs to be matched by a broader and more informed community discussion around the support, acceptance, and eventually demand for green hydrogen-based products. This will be matched by discussion around the relative merits (and opportunity cost) of a strongly government subsidised domestic and internationally traded hydrogen economy and hydrogen’s associated issues in relation to safety, water and land use. The outcomes of these discussions will naturally feed into a regulatory environment that will undoubtedly shape the green hydrogen’s final trajectory.
Green hydrogen is just another demand on clean renewable energy from wind and solar farms and associated energy storage systems. The full implications on land use of these low energy-density generating sources is still unfolding as is the relationship with communities who interact with them – albeit strains are already starting to show. In Europe alone, there are over 1000 different community-based coalitions have formed in a bid to arrest the further march of wind and solar farms across the countryside given the perceived impact on quality of life and on broader biodiversity sustainability. However, as these social and political issues with green hydrogen unfold against the backdrop of a zero carbon by 2050 ambition, it may have the unintended consequence of elevating viable energy alternatives that exhibit a different cost/benefit package. Don’t be surprised if energy-dense nuclear fission/fusion works its way up the leader board. There is plenty of good money (and science fiction precedence!) being directed at this potential outcome.
For those readers that have come along this green hydrogen journey with me, I thank you for your perseverance and I would be happy to hear your views – whether they be aligned or contrary. While there are many further nooks and crannies around green hydrogen that I could have explored, I trust that you have been able to navigate a logic spine that helps you be better informed, assists you to participate actively in important public dialogue, and importantly form your own views whether your children’s money through debt funded public subsidies is being directed in the right areas to deliver them the best sustainable future.