Headwinds And Tailwinds Clash In Derailed New Mexico Hydrogen Bill.

Originally published on Forbes.com on February 10, 2022

Such a large concept, that would benefit by integrating with the oil and gas industry, was perceived by many as a tax credit subsidy to the industry.

Last month, House Bill 4, called the Hydrogen Hub Development Act, was voted down by the committee on House Energy, Environment and Natural Resources. There were various reasons for this.

The bill would contain tax incentives to start a new industry that would be part of the transition to renewable energies but would link to the booming oil and gas industry. The oil and gas industry would provide the natural gas to produce the hydrogen, and then sequester or bury the carbon-dioxide (CO2) bi-product underground – a process called carbon capture and storage (CCS). Hydrogen generated in this way from methane is called blue hydrogen.

Additionally, the bill is amongst the first in the United States to include specific incentives for the production of hydrogen from renewable natural gas, which can yield “carbon-negative” hydrogen.  Such pathways do not implicate the oil and gas industry, but are a unique feature that incentivizes investment that generates the cleanest hydrogen available.

The analysis below explains why the Hydrogen Hub Act was voted down in New Mexico, and addresses complications that can arise when a state pushes plans to transition to renewable energies.

The prize.

A big chunk of money — $8 billion — was earmarked in the Infrastructure Act to set up clean hydrogen hubs, a minimum of four of them, across the USA. Two of these should be located next to states with “the greatest natural resources.”

The governor, Michelle Lujan Grisham, sees in this a strong tailwind for New Mexico. A brand-new industry in blue hydrogen generation would provide good-paying jobs particularly in parts of the state where coal-burning power plants are shutting down.

The bill would reduce greenhouse gas (GHG) emissions in certain hard-to-abate hydrogen applications including commercial trucking, aviation, shipping, and steel or cement manufacturing plants. Hydrogen can also be injected into the natural gas grid supply to lower its carbon footprint.

But there is a serious headwind connected to emissions of gas. Blue hydrogen is much more common and cheaper than green hydrogen that is made by electrolyzing water. Blue hydrogen comes from methane, so this method utilizes natural gas as a feedstock.

If the source of methane is gas from drilled wells, its production entails methane leaks at wellheads, in pipelines, and in gas-processing facilities, and methane has a much greater global warming effect than its more common GHG sister, carbon dioxide. This is an issue that should be addressed by direct regulation of oil and gas production methods.

Also, natural gas is the feedstock and fuel for heating and decomposing methane into hydrogen, so the resulting CO2 has to be captured and permanently buried by the CCS method.

On top of all this, CCS has its own scale-up challenges.

A stronger headwind.

The above headwind is a technical one, and careful improvements, already in the works, may reduce the headwind to a breeze.

But there is another, stronger headwind, a political one, that took people by surprise. One of the ideas behind the hydrogen option was to engage the oil and gas industry which is absolutely booming in New Mexico.

Facing the dilemma that exists between maintaining oil and gas interests that provide 35% of the state’s general revenue, and climate commitments to reduce GHG emissions to net-zero by 2050, the state must have felt like the Hydrogen Hub bill was a win-win.

But not so. It back-fired because environmental and other interests could only see tax handouts to big oil, to increase gas production for the hydrogen generators and to bury the by-product CO2 underground. Oil companies already receive significant subsidies, and are also making enormous amounts of money: roughly $24 billion per year at the wellhead.

The political headwind was too strong. The Hydrogen Hub proposal, relabeled House Bill 227, was submitted this week to a different House committee, the House Appropriations and Finance Committee. But it was withdrawn.

BayoTech Hydrogen.  

The derailment of the Hydrogen Hub proposal was disappointing to some because of BayoTech, a company that actually produces hydrogen fuel in New Mexico.

The BayoGaas Hub lays claim to a smaller and more efficient generator that makes hydrogen cheaper and with lower carbon footprint than large centralized plants that deliver hydrogen to chemical makers and refineries.

Feedstocks can be clean natural gas or other renewable sources that can make hydrogen that is carbon-negative. Biomethane sources such as anaerobic digesters that involve production of renewable biomethane from farm and agricultural waste, wastewater treatment plants, and landfill gas represent a tremendous opportunity for renewable hydrogen production.

Three hydrogen hubs are being deployed in the US in 2022, with plans to expand the network into the UK and globally. Each of the hydrogen hubs in BayoTech’s network produces 1-5 tons of hydrogen each day. Hydrogen is delivered locally in high-pressure transport trailers carrying gas cylinders.

Hydrogen for transit buses.

Hydrogen is a fuel of choice for some mass transit district (MTD). For example, Champaign-Urbana in Illinois has a growing fleet of hybrid and hydrogen fuel cell electric buses. MTD deployed two hydrogen fuel cell buses in 2021.

But the two new hydrogen buses arrived before the on-site hydrogen generator was completed. BayoTech was called in to provide portable hydrogen in high-pressure transport trucks, which successfully charged up the fuel cells so that employees could train and test out the buses.  BayoTech saved the day by providing temporary fueling stanchion and trailer.

According to BayoTech, hydrogen fuel-cell buses perform as well as conventional diesel buses but with zero tailpipe GHG emissions. Advantages over electric motors include a range of 300 miles, a refill time of 10 minutes, and fueling stations that can accommodate up to 100 buses.

Hydrogen fuel, carefully generated to minimize its carbon footprint, has applications on a smaller scale such as mass transit buses. Advantages of portability and flexibility are maximized around local hydrogen hubs.

The smaller scale of the transit buses separates them from the Hydrogen Hub Act proposed in New Mexico. Such a large concept, that would benefit by integrating with the oil and gas industry, was perceived by many as a tax credit subsidy to the industry, when the goal of many stakeholders was to transition from fossil fuels to renewable energies.