In the previous article, I discussed the growing importance of Environmental, Social, and Corporate Governance (ESG) for companies. Perhaps no industry has a higher visibility on ESG metrics than the energy sector. After all, a substantial fraction of global carbon emissions arise from the production, transportation, and consumption of fossil fuels.
Energy companies have tackled this issue in several ways. Today, I want to discuss the role of hydrogen as a way of improving ESG metrics.
The Role of Hydrogen
Hydrogen is increasingly being viewed as an important tool for reducing carbon emissions, because the use of hydrogen for energy generates no direct carbon dioxide emissions. In May 2021, the International Energy Agency (IEA) released a new report detailing the “Seven Pillars” that would be required to get the world to net‐zero carbon emissions (NZE) by 2050. The report is Net Zero by 2050: A Roadmap for the Global Energy Sector. One of those pillars is “Hydrogen and hydrogen‐based fuels.”
The IEA report forecasts that “Global hydrogen use expands from less than 90 million metric tons (Mt) in 2020 to more than 200 Mt in 2030, as the proportion of low‐carbon hydrogen rises from 10% in 2020 to 70% in 2030.”
The IEA projects that about half of low‐carbon hydrogen produced globally in 2030 will come from coal and natural gas with carbon sequestration. Demand will come from industry, refineries, power plants, and the transportation sector. Hydrogen will be increasingly blended into natural gas for distribution to homes and industry.
Bank of America
BAC
recently released its own hydrogen forecast, in which they estimated annual hydrogen revenues of $2.5 trillion by 2050 made possible by hydrogen infrastructure investments of $11 trillion. The authors project that hydrogen volumes will increase by 6x by 2050, supplying 22% of global energy production.
Not All Hydrogen is Created Equally
But the key to having hydrogen help transition the world to net zero emissions is to ensure that the carbon is produced with a low carbon intensity. According to the U.S. Department of Energy (DOE), more than 99% of hydrogen today is produced from fossil fuels. Around 95% is produced via the steam methane reforming (SMR) process, and another 4% comes from partial oxidation (POX). While fossil fuels currently provide feedstock for hydrogen production, most production is done without regard to the carbon dioxide released, negating the net zero contribution of the resulting hydrogen fuel.
Hydrogen production “pathways” can be evaluated according to their carbon intensity (CI). This measures the amount of greenhouse gas (GHG) emissions released into the atmosphere per unit of fuel energy over the fuel’s lifecycle. Carbon index analysis considers the entire production process from site location, to facility construction, to energy requirements for production, to CO2 capture, to transportation and delivery. The California Air Resources Board (CARB) has estimated that hydrogen production via SMR has a relatively high CI of around 150 grams of carbon dioxide equivalents per megajoule (gCO2e/MJ). A low-carbon economy will require hydrogen production with a lower CI.
Hydrogen production can also be classified using a color scheme. Grey hydrogen denotes hydrogen produced from fossil fuels – with the subsequent carbon byproduct being emitted to the atmosphere. Most of today’s hydrogen production is grey.
The long-term ideal is green hydrogen, which is hydrogen produced from renewable sources at a low CI, compared to SMR. However, the DOE estimates that the cost of producing hydrogen from renewable sources is presently $6 to $12 per Kg, versus less than $2/Kg when it is produced from fossil fuels.
Production costs for various hydrogen production pathways.
U.S. Department of Energy
Source: Hydrogen Strategy: Enabling A Low Carbon Economy; Department of Energy; July 2020. Link.
At a price that is 3-6 times higher than hydrogen produced from fossil fuels, the green hydrogen ideal is still at a significant economic disadvantage.
It is possible to capture and store (CCS in the previous graphic) or otherwise utilize the carbon dioxide when hydrogen is produced from fossil fuels. This hydrogen has a low carbon footprint and is classified as “blue hydrogen”.
Thus, production or use of blue hydrogen offers the fossil fuel industry a significant opportunity to improve their ESG scores. The DOE estimates that blue hydrogen can be produced via the SMR process for $2.27 per kilogram – an overwhelming cost advantage over hydrogen produced from renewable sources.
Blue hydrogen has a substantially lower CI score than grey hydrogen, and is significantly cheaper than green hydrogen. It can serve as an ideal transitional step in the decarbonization of the economy.
The Cornell and Stanford Study
I would be remiss to ignore that a recent report from researchers at Cornell and Stanford Universities claims that the use of blue hydrogen is actually worse than simply burning natural gas.
However, as Ted Nordhaus, Founder and Executive Director of The Breakthrough Institute recently pointed out in a Twitter thread, the study’s findings were based on worst-case scenarios throughout the analysis.
Nordhaus writes “If gas production is crazy leaky, you value methane reductions MUCH more than carbon reductions, and you assume that carbon capture tech doesn’t capture over a third of the carbon, blue hydrogen is worse than gas!” He adds that by using a less extreme set of assumptions — by the admission of one of the study’s authors —the global warming potential (GWP) would be 10 times lower than the study concluded.
However, it is fair to point out that the CI of blue hydrogen will depend very much on the entire production process. If methane is obtained from a process with a high leakage rate, and the carbon isn’t captured and stored, then the CI is going to be much higher.
In the next article, I will provide specific examples of how some companies are using hydrogen to improve ESG metrics.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
