C-MACC Hydrogen Economy Weekly No.23
- Weekly Theme: Blue Hydrogen Will Be Key
- News Update
- Projects Update
- Ammonia/Methanol Update
- Power Update
- Next Week: Strategies For Equipment Makers
- Wherever carbon capture and storage are possible, blue hydrogen will likely be cheaper than green.
- It is also the only near-term option for hydrogen at scale, which is important for the fuels markets.
- Regional average costs say green needs huge incentives, but there will be small pockets of low costs.
- While tax incentives give the US a major blue hydrogen advantage, blue in other regions beats green.
- The incentives/encouragement to get blue hydrogen moving are minor versus the same for green.
The chart below shows what looks like an insurmountable difference between the economics of making blue hydrogen in North America compared to the rest of the world. This results from two factors – a credit for CCS in the US, and what that credit allows you to do with technology. The 45Q credit in the US is based on the CO2 you sequester rather than the product you make, and consequently, a technology that allows you to capture the CO2 more easily but produces much more of it can be a positive if you can keep capture and sequestration costs down. The lines in the chart below represent different carbon capture costs, from as low as a $40 per ton credit in the US to as high as $150 per ton in some of the higher-cost European locations. The break in the lines is a switch between ATR technology, which can produce as much as 11 tons of CO2 per ton of hydrogen (we are using 8), and SMR technology, which makes between 5 and 6 tons of CO2 per ton of hydrogen but whose cost of capture is higher. These are cash costs – financing costs range from a low of $1.2/KG to a high of $5-6/KG. The best-case US is 6x cheaper than the higher-cost alternatives where there are no carbon credits. This is not an exact comparison, because in many countries, you are offsetting a carbon tax or other cost, which should be used as an offset, but this is hard to generalize as it would depend on the use of the hydrogen. Decarbonizing steel in Europe may have the highest offset, for example. We use North America in the analysis below as we are giving Canada the benefit of the doubt for the proposed carbon tax break that is under discussion.
Exhibit 1: While the US advantage looks unassailable, we are comparing blue with blue, not blue with green.
Source: Capital IQ and C-MACC Analysis