CCUS: The viable interim solution to advancing low-carbon hydrogen production

Nadim Chaudhry, CEO of World Hydrogen Leaders, examines the opportunities for CCUS-enabled low-carbon hydrogen and how US policy is accelerating the advancement of this vital fuel of the future.

While its relevance in helping to reach climate goals has long been recognised, deployment of carbon capture, utilisation and storage (CCUS) has been slow and consistently accounting for less than 0.5% of global investment in clean energy technologies.

Although CCUS is not a new technology, and there are currently around 41 operational facilities globally, it has typically been deployed at a small scale – mainly for R&D projects and for enhanced oil recovery.¹  In order for CCUS to meaningfully contribute to climate change goals, the amount of CO2 captured would need to grow four-fold from current levels by 2030.²  However, stronger climate targets and investment incentives are now starting to drive increased momentum into CCUS – and one of the key strategies to provide a boost to the technology is the efficient production of hydrogen.

The role of CCUS in low-carbon hydrogen production

Hydrogen is a versatile energy carrier that can help support the decarbonisation of a range of hard-to-abate sectors where electrification from renewable sources cannot deliver the level of energy output required. These include iron, steel, chemicals and cement production, as well as hydrogen-based fuels for aviation, shipping, and long-distance haulage.

CCUS can facilitate the production of low-carbon hydrogen (sometimes referred to as ‘blue’ hydrogen) from natural gas and provide an opportunity to bring it into new markets in the near term – and at a reasonable cost.

It can help alleviate pressure on already constrained electricity grids, allowing renewable electricity generation and electrolytic hydrogen production to scale at a more manageable pace. This benefit of CCUS-enabled hydrogen over the next decade has been recognised in the Committee on Climate Change’s recently published 2023 Progress Report to Parliament.

Today, the cost of CCUS-enabled hydrogen production is likely to be around 50% of hydrogen production via electrolysis powered by renewables-based electricity. While the cost of electrolytic hydrogen is anticipated to reduce over time with the onset of increasingly cheaper electrolysers and renewable electricity, CCUS-equipped hydrogen will most likely remain a competitive option across regions typically associated with low-cost fossil fuels.

Recently there has been a significant increase in the appetite to develop CCUS projects, with a 50% increase in CO2 capture in the 12 months between 2022 to 2023.³  This has been driven by governments internationally coming under increasing pressure to meet global climate targets, implementing robust legislation and providing clear pricing signals in order to make CCUS commercially viable.

Despite this positive news, there remain three significant issues. Of the many announced CCUS projects, only around 5% have taken firm investment decisions due to the uncertainty of demand, a lack of clarity around certification and regulation – and, critically – the lack of infrastructure available to actually deliver the hydrogen to customer sites. And according to the IEA, to help deliver a majorly decarbonised heavy industry by 2030, a third of all hydrogen production will need to be dedicated to those hard-to-abate sectors. Currently, these applications only account for around 0.1% today, meaning there is considerably more work to do.

Challenges with deploying CCUS at scale

Because CCUS is far from a mature industry, a single stakeholder is typically unable to take on all the expertise, risk and capital expenditure needed across the whole value chain. As such, the most significant challenges with deploying CCUS at scale are the multiple different, distinct stakeholders that need to be co-ordinated, including the industrial plants that are the CO2 emitters themselves, the various CCUS technology suppliers which separate and capture the CO2, providers of processing, compression solutions, transportation solutions and, finally, experienced storage providers who can inject and store the CO2 underground.

© shutterstock/Keshi Studio

It is evident that urgent policy action is needed to create demand for low-carbon hydrogen and unlock the necessary investment to accelerate the scale-up of production and the building of delivery infrastructure.

The US leading the way

Currently, different policy approaches are being undertaken by governments to encourage the deployment of CCUS at scale. In particular, the United States has provided a much-needed shot in the arm for the infrastructure required to scale up technologies. Incentives under the Inflation Reduction Act (IRA) provide project developers with a $50 per metric tonne of CO2 tax reduction where CO2 is stored in dedicated storage sites. The Infrastructure Investment and Jobs Act passed in November 2021 also provided a combined $15bn to support CCUS and low-carbon hydrogen production.

The IRA has had a considerable positive impact on hydrogen production, enabling the US to have the largest hydrogen project pipeline of any country. It currently accounts for 18% of the total announced capacity, putting Australia in second place at 14%. And while the percentage of hydrogen projects in the EU surpasses both of those (at 29%), it should be remembered that this figure accounts for the whole of the EU (consisting of 27 countries) and the UK, which ultimately results in relatively minor pipelines per country.

While Europe may be advancing the highest number of projects overall, the US is considerably closer to offering early scale-up. The generous IRA tax credits eventually help a strong flow of US projects towards final investment decision (FID).

The majority of announced projects are for green hydrogen, which is produced using renewable energy and electrolysis, and is the cleanest form of hydrogen production. However, it is also expensive, making access to cheaper clean power necessary to achieve the desired economics.

While most of the recently announced projects are for carbon-free hydrogen, the most advanced projects are dominated by blue hydrogen, especially in the US. Blue hydrogen is mainly produced from natural gas and creates carbon dioxide as a by-product, so it’s a low-carbon solution but not strictly a ‘clean’ one. However, it enjoys a significant cost advantage over green hydrogen, particularly where natural gas is cheap, as in the US and Canada.

Today, the cost of CCUS-enabled hydrogen production remains around half that of producing hydrogen through electrolysis powered by renewables-based electricity. And while the cost of electrolytic hydrogen will decline over time, with cheaper electrolysers and renewable electricity, CCUS-equipped hydrogen will most likely remain a competitive option in regions with low-cost fossil fuels and CO2 storage resources.

In discussions with Greg Bean, Director of the Gutierrez Energy Management Institute at the University of Houston, he said: “Recent federal government policies affecting low carbon intensity (LCI) hydrogen – specifically the funding of seven hydrogen hubs, along with  IRA production tax credits for LCI hydrogen and enhanced CCUS tax credits – should accelerate the initial wave of CCS hydrogen given its current cost advantage over electrolytic hydrogen, especially in the US with low natural gas prices. However, the more favourable tax treatment for electrolytic hydrogen in the IRA and the likely reduction in electrolytic hydrogen cost suggests that it might ultimately have a larger market share in an aggressive decarbonisation scenario.”

Hydrogen trading is still relatively nascent but could see significant growth this decade. Even low-carbon hydrogen will be crucial for net importers to reach net-zero targets and for net exporters like the US to maximise benefits from clean energy deployment. CCUS-based hydrogen is likely to become an internationally traded commodity to help countries meet their hydrogen demand more economically.

However, Greg Bean goes on to note: “With main export markets likely to be in Europe and North Asia, there could be policy actions in these countries that penalise or limit CCS hydrogen imports. A relevant example is the “maximum methane intensity values” and associate penalty structure being discussed for LNG imports into Europe. Time will tell.”

Conclusion

We are in a decisive decade and need to scale solutions today if we wish to avoid the worst of climate impacts on our society and global ecosystem. Both CCUS and low-carbon hydrogen are well-tested and the US has shown that they can be rapidly scalable solutions that can deliver decarbonised industries at a lower cost.

The significant opportunities for low-carbon hydrogen can only be delivered through co-ordinated international collaboration. This requires cross-industry partnerships that must work together based on guiding principles of lower costs, speed, and uncompromising quality.

World Hydrogen Leaders will be hosting the world’s largest hydrogen event in Copenhagen, Denmark, from 30 September to 4 October 2024. For more information and to register please visit World Hydrogen Week.

References

  1. Global Status of CCUS Report 2023, CCUS Institute
  2. Accelerating deployment – CCUS in Clean Energy Transitions – Analysis – IEA
  3. Global Status of CCUS Report 2023, CCUS Institute

Please note, this article will also appear in the 18th edition of our quarterly publication.

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