Everything is bigger in Texas, including the hydrogen

Washington D.C. Correspondent
An illustration in black and white with an outline of the state of Texas and two hydrogen molecules, as well as a construction crane and hydrogen storage facilities in the background.
Illustration by Nadya Nickels and Samson Awosan.

In a few years’ time, a renewable hydrogen facility spanning 300 acres — about twice the size of Disneyland — is set to begin operating in Texas’ Matagorda County along the Gulf of Mexico.

Planned by international clean energy company HIF Global, the mega-scale project is estimated to cost more than $6 billion. Once it’s up and running, the plant will produce a projected 300,000 metric tons of hydrogen a year to make a cleaner burning, close to carbon neutral shipping fuel known as eMethanol.

It is the second largest clean hydrogen project announced in the United States, according to Cipher’s new Cleantech Tracker. Only a $6.6 billion project from ExxonMobil that aims to produce hydrogen from natural gas with carbon capture and storage near Houston is larger.

In fact, Texas is the site of nearly half of the nation’s largest such projects exceeding $1 billion in investments, Cipher’s tracker finds. When combined with investments in Louisiana, the two states are responsible for about 75% of the total announced spending in this emerging technology.

President Biden’s administration has pledged to produce 50 million metric tons of clean hydrogen by 2050, five times the amount of hydrogen produced currently in the U.S. by unabated oil and gas. Proponents are aiming for clean hydrogen to replace fossil fuels in industries like steel manufacturing and heavy-duty transportation.

Investment in clean hydrogen surged in 2022 and was on track to do the same in 2023 following federal support in the form of subsidies and grants for the nascent industry in the 2021 Infrastructure Investment and Jobs Act and the Inflation Reduction Act.

Expect this trend to continue after the Biden administration finalizes its rules for which projects will receive the most valuable tax credits from the IRA. Although in the short term, experts say some projects could be shelved due to the strictness of the draft rules, released last month.

The clean hydrogen economy is attracting investors in Texas for a lot of the same reasons the state has been ground zero for all types of energy before it. The state is the top producer of oil and gas in the U.S. and is second only to California at adding energy storage and wind and solar energy.

Texas, along with neighboring Louisiana, already has dedicated infrastructure for producing hydrogen from fossil fuels that can provide the backbone upon which to build a clean version of the industry, experts said.

“No other region has this advantage,” Ken Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute of Public Policy, told Cipher in an email.

The region has large tracts of land to spare for new wind and solar farms, relatively easy permitting processes, a large skilled labor force, proximity to energy intensive industries that can use clean hydrogen, an established network of hydrogen pipelines and three of the largest ports in the nation, said Mona Dajani, global co-head of the energy, infrastructure and hydrogen practices at the law firm Baker Botts.

A group of companies also won $1.2 billion in federal funds as part of the 2021 infrastructure law to develop a hub on Texas’ Gulf Coast of hydrogen producers and consumers to further accelerate the use of this clean molecule.

Despite the high-dollar investments, developing a clean hydrogen economy in Texas will be “a plus, but not a great plus” to the state’s overall economic growth because making hydrogen is very similar to what industries there have been doing for a very long time, said Ed Hirs, an economist and energy fellow with the University of Houston.

Making clean hydrogen — either from splitting water with renewable energy or from natural gas equipped with carbon capture and storage — is drawing the lion’s share of investment among emerging technologies aimed at cleaning up the economic sectors considered hardest to decarbonize, according to Cipher’s tracker.

Many of these projects have so far only been announced and are not yet under construction (let alone operational). Out of 74 projects in the pipeline, 15 are under construction with only 10 small clean hydrogen facilities currently operating, including in southern California, Nebraska and New Jersey.

Companies directly using wind and solar power to make hydrogen, like HIF Global, will likely reap the largest tax credits. Because the proposed guidelines are stricter than what some companies sought, other hydrogen producers may not benefit as much as they anticipated, and some announced projects could fall through.

At least one project is already under review. Citing the rules’ strict guidance on certifying renewable electricity, New York-based Plug Power has put a project in the Texas panhandle on hold until the guidance is finalized, Plug Power’s CEO Andrew Marsh told Cipher. The company is still moving forward with constructing a facility in the Dallas-Fort Worth area.

Economics aside, other aspects of the Texas hydrogen boom include the potential environmental and social impacts.

Gulf Coast communities, and particularly communities of color in the region, have historically been burdened with dangerous air pollution emitted from oil refineries and chemical plants.

Environmental advocates in Texas and Louisiana are concerned the clean hydrogen sector will fuel more industrial development in the heavily industrialized region. They’re also concerned about leaks from storage tanks and pipelines of carbon dioxide, hydrogen — a versatile yet volatile gas — and other gases like ammonia that can contribute to poor air quality.

“Because we already have all these industries at our front door or down the street, any new technology risks that arise will add onto what we already face,” said Erandi Treviño, a Houston-based organizer for the Texas office of the nonprofit Public Citizen.

As part of its proposal, the organizations behind the Gulf Coast hydrogen hub pledged the project would benefit disadvantaged communities in the area through jobs (the hub estimates it will create 45,000 jobs, mostly in construction), training programs, higher education curriculums and community-based grants.

However, environmental advocates question the quality of those jobs and whether they are worth potentially trading public health and safety.

“They are creating jobs to work in hazardous industries. Besides, most of the jobs created by these hubs are temporary and in construction with very few jobs for permanent skilled workers,” said Paige Powell, policy manager with Commission Shift, a nonprofit that monitors the activities of the Texas Railroad Commission, the agency that regulates the state’s fossil fuel industry.

For his part, economist Hirs expects the hydrogen industry will mostly be “repurposing” existing oil and gas sector jobs, rather than creating many wholly new ones.

Advocates will closely monitor the finalized plans for the Gulf Coast hydrogen hub. Until then, it is unclear exactly how local communities will benefit from this boom.

“The devil lies in the details,” said Powell, “so it’s important to know how the government plans to define environmental justice benefits for those vulnerable communities.”