With these opportunities in mind, Deloitte and the World Wildlife Fund (WWF), co-authored this paper on behalf of the Renewable Thermal Collaborative. The primary goal is to better understand the potential for and barriers to the use of green hydrogen for industrial heat applications, and to identify stakeholder priorities for acting on green hydrogen’s potential to decarbonize industrial heat use.
The assessment evaluates the following questions:
- What is the technical and economic potential for scaling the use of green hydrogen for industrial process heat in a cost-effective, environmentally friendly, and socially responsible way?
- What are the major technological, financial, policy and other barriers in the nascent hydrogen market in the United States?
- What are the potential pathways for scaling green hydrogen for industrial heat use in the United States?
This paper provides insights and recommendations for large corporate energy buyers and other key market and policy stakeholders looking to scale green hydrogen for industrial heat applications.
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This report covers the technical, economic, social, and policy considerations impacting the adoption of green hydrogen for industrial heat in the United States. It focuses on five priority subsectors, which together account for more than 70% of industrial heat demand: oil refining, chemicals manufacturing, pulp and paper, iron and steel, and cement.
The assessment evaluates the following questions:
- What is the technical and economic potential for scaling the use of green hydrogen for industrial process heat in a cost-effective, environmentally friendly, and socially responsible way?
- What are the major technological, financial, policy, and other barriers in the nascent hydrogen market in the United States?
- What are the potential pathways for scaling green hydrogen for industrial heat use in the United States?
Because of the nascency of the hydrogen market and the limited supply of green hydrogen in the short- and mid-term, the report also looks at the broader hydrogen value chain and other use cases of green hydrogen to support green hydrogen in playing an appropriate role in decarbonizing industrial process heat vis-à-vis other decarbonization needs.
Accounting for approximately 24% of the total emissions in the U.S., the industrial sector is the largest source of U.S. emissions after electricity and transportation. Over half of these industrial emissions come from fossil fuel combustion for generating process heat. Decarbonizing industrial process heat, and overcoming the many technological, market, and policy barriers that prevent companies from using renewably powered heat, is essential for meeting a 1.5°C climate ambition.
Green hydrogen has a critical and unique role to play in decarbonizing industrial process heat. The industrial sector often needs high heat for production. Green hydrogen is a great candidate to decarbonize high-heat industrial processes, such as manufacturing steel, chemicals, and cement. According to the Renewable Thermal Vision Report published by the Renewable Thermal Collaborative, blue and green hydrogen can supply approximately 13% of the industrial process heat by 2050.
The Inflation Reduction Act (IRA) is a major piece of legislation for green hydrogen. It has the potential to significantly reduce the production cost of green hydrogen and increase interest from various sectors. However, given the limited supply of green hydrogen in the short- and mid-term, and various competing use cases (such as long-haul transportation, ammonia, etc.), energy buyers and policymakers need to better understand the potential to use green hydrogen for industrial heat applications as well as the barriers that exist in the broader hydrogen economy.
The RTC and Deloitte co-authored this report to better understand the potential to use green hydrogen for industrial heat applications, the current obstacles, and which stakeholder priorities are most important. Ultimately, this report aims to help identify the appropriate role green hydrogen can play in industrial decarbonization for large energy users.
The modeling methodology for sectoral hydrogen adoption pathways involved three modules connected via a central decision engine. The demand module breaks down total industrial heat demand into temperature groups and projects demand for each over time. The supply module determines the marginal supply of each fuel by subtracting demand for higher-priority use cases from total projected supply. The Levelized Cost of Energy (LCOE) module estimates the cost of various low-carbon hydrogen, waste biomass, and existing fossil fuels. This cost of adoption includes production, storage, and transportation costs and costs to refurbish or replace existing combustion equipment. The adoption pathways are ultimately identified by matching the demand with residual supply under cost constraints.
The modeling utilizes four scenarios to consider the potential impact of the federal policy push to create a hydrogen ecosystem and the impact of industrial electrification on the scaling of green hydrogen.
Four factors are considered in the scenarios: high electrification, low electrification, high policy, and low policy. The high electrification scenarios assume continued, rapid development of electrification technology, reducing demand for low-carbon hydrogen. The low electrification scenario assumes slower adoption of electrification technology, leading to increased demand for fuel-based replacements such as waste biomass, biofuel, and hydrogen. In high policy scenarios, incentives from the IRA will be carried forward through 2040, and nationwide carbon pricing will be implemented in line with the IEA’s net-zero scenario for advanced economies. In low policy scenarios, no further expansion or extension of incentives from the IRA and the adoption of nationwide carbon pricing is likely to remain low, gradually phasing in from $0 per metric ton in 2040 up to $50 per metric ton in 2050.
This report provides insights and recommendations for large corporate energy buyers and other key market and policy stakeholders to scale green hydrogen for industrial heat applications. Based on the analysis, energy buyers interested in scaling green hydrogen for industrial heat applications will likely need to consider the following three key takeaways:
- The IRA will likely dramatically lower green hydrogen production costs. However, infrastructure and cost barriers persist in other parts of the hydrogen value chain. Transportation, storage, and retrofitting investments on the end-use side still pose challenges to scaling the demand for green hydrogen. Overcoming these challenges will likely require additional policy support.
- Green hydrogen will likely be a crucial component of the decarbonization strategy for chemicals, cement, iron and steel. Therefore, energy buyers in these sectors will likely be early adopters and may want to begin to take advantage of current policies, like the IRA and regional hubs, as part of a broader plan to decarbonize.
- Buyers outside these sectors can still participate by leveraging their geographic proximity to green hydrogen hubs and establishing early relationships with hub developers. By taking proactive early actions, other sectors could have the opportunity to enter buyers’ consortiums or teaming agreements with larger buyers to explore innovative procurement options. These early efforts will likely be significant in accelerating the growth of the broader hydrogen economy.
The report aims to help RTC, energy users in different sectors, policymakers, hydrogen producers, and other stakeholders better understand the remaining gaps and barriers, their roles in the broader hydrogen economy, and inform RTC’s strategies on hydrogen. The RTC plans to engage energy buyers in key sectors and geographies and promote early action. The RTC plans to identify opportunities to engage policymakers about the need for policy support on the end user side. We hope this report will stimulate deeper conversations and collaboration among RTC Members, Solutions Providers, and other industry stakeholders on critical issues, including implementation and gaps of IRA, infrastructure needs, innovative procurement models, sustainability, the social considerations of hydrogen, etc.
As the green hydrogen economy grows, so will its impacts. Areas likely to host significant green hydrogen production, use, and related infrastructure (e.g., California and the Gulf Coast) could see profound changes in their communities. Green hydrogen production requires water, significant amounts of renewable electricity, and the physical footprint of plants, pipes, and storage media. Therefore, it needs to be designed and developed carefully and sustainably. Hydrogen will likely also bring new jobs, both in the construction and ongoing operation of plants and in the broader hydrogen economy. Finally, hydrogen use could prevent harmful pollution and damage to the environments by displacing fossil fuels where gas, oil, and coal are extracted.
The RTC will continue to work with Members and Solutions Providers and other market and policy stakeholders to promote careful, inclusive planning practices, better health and safety standards, clear requirements about use of renewable electricity, and robust methodology for life cycle emissions accounting to help ensure that the scaling of green hydrogen benefits local and historically marginalized communities.