Paul Rodden • Season: 2023 • Episode: 238
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In episode 238, Amazon jumps into the green hydrogen debate and could sway hydrogen development in a big way. All this on today's hydrogen podcast.
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Amazon jumps into the green hydrogen debate and could sway hydrogen development in a big way. All this on today's hydrogen podcast.
So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where's capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast.
In an article in The American Prospect David Deyan writes Amazon's quiet role in the green hydrogen debate. David writes, if you get DC tip sheet newsletters or perish the thought print editions of your local newspaper, you may have noticed a flood of advertising on a relatively obscure issue. Organizations are trying to influence upcoming Treasury Department guidance on tax subsidies for hydrogen production. Supporters argue that quote, green hydrogen is an abundant clean fuel that could power transportation and factories without emitting greenhouse gases. Detractors say that the process of producing hydrogen is incredibly energy intensive, and could be counterproductive if the electricity that goes into it burns carbon.
The debate lines up about the way you would expect environmentalists on one side businesses with a stake in the hydrogen industry on the other, but there's a wildcard in the mix. Amazon, the E commerce giant has signed deals that will likely make it the nation's biggest consumer of hydrogen fuel, which it sees as essential to reach its decarbonisation goals. Amazon hasn't taken a public position on the controversy, but it is a principal member of the lead lobbying group for looser Treasury rules on hydrogen tax credits. Members provide funding to the organization. Amazon's climate pledge calls for the company to be powered by 100% renewable energy power by 2025 and to reach net zero carbon emissions by 2040. It has been a financial booster of hydrogen productions for a while back in 2020. Amazon's climate pledge fund a $2 billion investment fund for sustainable technologies issued a series a funding to ZeroAvia, which is a UK based company attempted to use hydrogen to fuel airplanes. This continued in 2022 with investments and electric hydrogen and Sunfire. companies that develop electrolyzers, which are large machines that create hydrogen by splitting water molecules apart. But Amazon is not just a funder of hydrogen companies, it's a major consumer. Last August, Amazon made a deal with plug power to purchase 10,950 tons per year of green hydrogen to be used for forklifts, logistics trucks and buildings starting in 2025.
It's one of the largest contracts in the industry to date, building a relationship between Amazon and plug that started back in 2016. Amazon has been replacing batteries in its forklifts with fuel cells in a partnership with plug in the unique deal which at the time was seen as quote a big boost for the fledgling hydrogen economy. Amazon received warrants for 16 million shares of plug common stock, which vest if it spends 2.1 billion with plug over the life of the seven year contract. As part of its earlier 2016 Deal. Amazon already retain the right to buy 23% of plug. So as an investor, customer and part owner, Amazon has major incentives for the hydrogen industry's success. electrolyzers offer the promise of decarbonizing difficult sectors where emissions cannot easily be reduced, because hydrogen can serve as a portable energy dense fuel similar to gasoline or oil. likely use cases include aviation, cargo, shipping, and heavy industrial production, like concrete and steel. The problem is that electrolyzers need enormous amounts of electricity to produce hydrogen and right now, little of that power is clean.
Even Amazon estimates that about 95% of the hydrogen produced today involves hydrocarbon electricity primarily from natural gas. If renewable sources power the electrolyzers, the green hydrogen produced would present a quicker path to net zero emissions. The Biden administration sees the potential in hydrogen. It recently announced a $1 billion Department of Energy Program to create regional hubs for clean hydrogen network and the inflation Reduction Act included as much as 100 billion for the section 45 V hydrogen production tax credit, which offers $3 For every kilogram of hydrogen produced from carbon free electricity about half the current cost. But the Treasury Department has yet to finalize rules on what will account under the tax credit. It all comes down to ensuring that the electrolyzers are truly clean powered. Currently, most green hydrogen companies do not build renewable energy and feed it directly into their electrolyzers. Though some, like Hy Stor energy and Air Products are planning to do so, without a direct source, there's no way to know a specific electron is clean or not given the mix on the grid. Hydrogen producers want to solve this by using market based solutions to prove that their energy is green. This involves the purchase of renewable energy certificates or REC's, which are sold by a clean power source that operates on the grid, which hydrogen companies would then claim with Treasury to verify that its product is green. Environmental groups want to tighten up that process which they find unreliable, they have endorsed three pillars most clearly expressed in the study by Princeton University.
First, they want additionality, meaning that the Clean Energy must come from New sources not currently on the grid. Second, they want those clean energy sources to be local, so they respond directly to hydrogen producers demand, this is called deliverability. And third, they want time matching so that the electrolyzers run at the same time as the clean energy sources. This prevents an electrolyzer from running overnight on natural gas while claiming solar energy that runs during the day. In a quote from Holly Burke, communications director with Evergreen action, which has released their analysis on the situation says if IRS fails to implement the three pillars that wind up using billions of federal dollars intended to fight the climate crisis to actually increase pollution. This would be a huge divergence from congressional intent for the IRAs clean energy tax credits and the Biden administration's own climate goals.
Now, as you would expect, the company is trying to profit from hydrogen production and real in the federal tax credits have a different point of view. They think the current system should suffice to prove clean energy intent that anything else would make hydrogen production too costly and strangle. A nascent industry European rules for green hydrogen has split the difference adopting additionality deliverability and time matching with a long phase in that lets producers figure out how to meet the goals. As heatmaps Emily Pontecorvo has explained the issue gets to the crucial question of managing decarbonisation with technologies that use a lot of energy. Some of that goes back to ethanol production from corn, which studies have found counterproductive, but which has become such a political football that it's renewed year after year. The core question is this. Will subsidies be enough to ensure that polluting industries go green? Or will regulations have to be imposed in tandem to make the carbon benefit real? This fight over the Treasury rules has spurred all the recent advertising in an unusually public manner.
The fuel cell and hydrogen Energy Association, a leading industry trade group has taken out full page New York Times ads and sponsored DC tipsheet Punchbowl news this week with language that's impenetrable to normal readers. One ad reads if US regulators require additionality, for the hydrogen production tax credit, our clean hydrogen future could be stopped before it's even started. The ads intimate that China would be a beneficiary of a stringent regulatory framework and 3.4 million jobs are at risk. NextEra Energy the largest electric utility holding company has also run ads favoring a looser regulatory approach. One of the FCHEA/s 46 principle members as Amazon a relatively unique addition because the rest of the membership is primarily energy companies or auto manufacturers that have embraced hydrogen fuel cells. As a leading customer that would probably pay more for green hydrogen if tighter rules were in place.
Amazon clearly has an interest in the outcome. Plug Power is also a principal member along with ZeroAvia and electric hydrogen. Amazon has either invested in those companies purchase hydrogen from them, or both. FCHEA president and CEO Frank Wolak said in response to questions that members self select their membership level between principal and supporting members, Amazon chose the higher level Wolak would not disclose Amazon's involvement in the organization or any of its working groups. He said we do not share information as to the level of involvement of individual member companies. In May the FCHEA wrote to Treasury laying out his goals for implementation and endorsing the use of RECs or power purchase agreements to prove clean electricity for hydrogen production plug power and ZeroAvia signed the letter. Though Amazon was not a signatory lobbying disclosures also reveal the trade group spending approximately $780,000 to lobby Congress over the past decade. The most recent tax filing from the FCHEA from 2021 shows 2.89 4 million dollars in revenue split between member dues and assessments and contracts and other fees, which refers to managing events or developing market reports. Energy groups have not explained how much they're spinning on their green hydrogen ad campaign. Again, in a quote from Wolak, American needs clean hydrogen to reach our economic and climate goals. Clean hydrogen has tremendous potential to decarbonize a wide range of hard to abate sectors and flexible guidance in line with the legislative intent of the IRA will allow the industry to scale up to achieve that potential.
Environmental groups have also waged their own ad campaigns in the media. Burke from Evergreen pointed out that Amazon has not made any public statements about the hydrogen tax credit, but the organization to which it pays dues has come out pretty strongly for lighter rules. Burke also states that once we fund a polluting industry, we are creating a monster that will fight us on efforts to reduce pollution at every turn. Amazon status is a member of FCHEA and the lobbying group's ongoing effort to weaken hydrogen guidance only makes that risk all the more dangerous. The Natural Resources Defense Council didn't want to speculate on Amazon's unclear position. But Rachel Fakhry, policy director for their climate and clean energy program noted that companies like Google and Nucor Steel, both on the hydrogen purchasing side have been out in support of rigorous rules and a hydrogen molecule with a rock solid environmental integrity. There's certainly plenty of muscle on the side of green hydrogen without Amazon.
The hydrogen Council formed at Davos in 2017 has 145 high powered members from the banking and industrial spheres, including oil and gas companies like Chevron, BP and Exxon Mobil. Plug Power is also a member of the special interests have delivered hundreds of comments to the IRS and the clean hydrogen guidelines. Environmental groups issued their own comments as well. Initially, the rules were supposed to be out in April. Treasury hasn't yet set a timetable for finalizing them, though heat maps reported Thursday that they would not be finalized until October. It's one thing to face a lobbying blitz for oil and gas companies and a new sector promising jobs. It's another win that's paired with one of the biggest companies in the world, which has shown considerable influence with lawmakers and regulators. Amazon spent $21.3 million in lobbying in 2022 and 9.9 million already this year, some of that lobbying expense in 2023 went towards environment and clean air and water issues. Some industry players actually favor stricter clean energy standards, arguing that hourly matching and other guardrails will lead to near zero carbon fuels and that the government shouldn't be paying to increase emissions. One of them is electric hydrogen, which was received funding from Amazon. Again, in a quote from Burke, it seems like this is an obvious opportunity for Amazon to put their money where their mouth is and publicly disavow FCHEA's position exert their influence as a powerful member of the lobby group to get them to back down or if it comes to it, leave the FCHEA, we've seen other corporations part ways with trade groups that don't match their values. Why not Amazon? Okay, so I know I'm running over my usual time.
But this article is, in my opinion, great research journalism, on the behind the scenes campaigns for lobbying hydrogen regulations. This is a great high level look at both sides of the argument. Now, I know I've talked about these regulations several times in recent weeks. But that's because how this develops will certainly affect how the hydrogen industry in the US will take shape. To compare though, how these regulations have been initiated in Europe, to what could potentially happen here in the States doesn't necessarily bear the same weight. Hydrocarbon feedstock is much more pursued here in the US, compared to Europe, and the CCUS technologies applied to that hydrogen development, clear the clean hydrogen provisions in the IRA. So the necessity to have these regulations in place before our hydrogen infrastructure takes place isn't as critical. But even more interesting is to see how these regulations could potentially affect capex numbers for some of the largest corporations in the world. And having that understanding helps to have a much clearer picture of why we will start seeing non energy companies start diving into the politics of energy policy.
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Hey, this is Paul. I hope you liked this podcast. If you did and want to hear more, I'd appreciate it if you would either subscribe to this channel on YouTube, or connect with your favorite platform through my website at www.thehydrogenpodcast.com. Thanks for listening. I very much appreciate it. Have a great day.