Fossil fuel companies among winners of $7bn in US green funding

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Joe Biden’s administration awarded $7bn to US clean hydrogen projects on Friday, including several involving fossil fuel companies, as Washington moves to build up a sector hailed as key to its decarbonisation effort.

The projects include $1.2bn to a hydrogen hub in Texas that counts oil supermajors ExxonMobil and Chevron as partners. A further $925mn will be granted to a project running through West Virginia, and partnered with Marathon Petroleum and EQT. Both hubs are expected to produce the bulk of their hydrogen from fossil fuels and then capturing the emissions.

Administration officials named seven projects in total, including two that are partially based in the 2024 electoral swing state of Pennsylvania, with others based in Ohio, Texas, North and South Dakota, Minnesota and the Pacific Northwest. Together, the seven hub winners will commit nearly $50bn in investment.

Exxon and Chevron, which have prioritised hydrogen and carbon capture over renewables in their decarbonisation strategy, cheered the announcement. Mark Klewpatinond, head of Exxon’s hydrogen business, said his company’s “extensive experience” would help advance hydrogen development in the Gulf Coast.

The announcement risks attracting criticism from clean energy and environmental groups, which have pushed the Biden administration to avoid funding as many fossil fuel-based hydrogen projects as possible. The funding, approved under the administration’s Infrastructure Act, stipulates the money must be handed out to hydrogen produced from a wide array of sources and locations.

The Sierra Club does not support fossil-based hydrogen or consider it a long-term climate solution, the environmental organisation’s director of climate policy, Patrick Drupp, said. “Today’s announcement holds promise but there is also reason to be concerned, especially in the Gulf [which] could keep us dependent on the oil and gas industry.”

“These companies have deep balance sheets they can deploy to scale up clean hydrogen . . . Smaller developers who don’t have the same balance sheets that were trying to get any funding possible would probably benefit more,” said Oleksiy Tatarenko, head of non-profit RMI’s hydrogen initiative.

Nearly 80 projects submitted applications for clean hydrogen hub funding, which marks the largest federal investment in the nascent sector so far. The announcement is one of two heavily anticipated decisions expected by the sector this autumn.

Biden’s flagship clean energy bill, the Inflation Reduction Act, contains about $5.3bn in further tax credits for clean hydrogen production and has transformed the US into one of the most cost-competitive markets for the fuel. Big oil groups have joined the lobbying blitz to keep upcoming rules for the tax credit flexible.

Clean hydrogen has long been touted as a potentially revolutionary alternative to fossil fuels, with the promise to power heavy industries and act as a store of energy. Nearly all current US hydrogen production is produced from natural gas that generates large amounts of carbon dioxide.

However, scientists have found differences in how hydrogen is produced can cause the carbon emissions to vary significantly. Whereas so-called “green” hydrogen uses wind and solar energy to power the production of hydrogen, “blue” hydrogen uses natural gas and carbon capture technologies.

Scientists from Cornell and Stanford University estimate the carbon footprint of “blue” hydrogen is 20 per cent larger than burning gas directly for heat.

While US oil majors have bet on hydrogen as part of their decarbonisation strategies, the fuel is expected to play a minor role in meeting the US emissions reductions targets compared to wind and solar.

The $7bn is also relatively small compared with the cost to build clean hydrogen facilities, and many analysts have warned the lack of demand-side incentives risk undermining the viability of projects.

“[The funding] is intended to actually jump-start some of these hubs. In reality, it’s a drop in the bucket,” said Jim Bowe, partner at King & Spalding’s Hydrogen Initiative, who worked with hydrogen hub applicants and estimates one hub could cost almost $10bn.

“The question that . . . we will be wrestling with, is will the demand be there to support these hubs when they need it? Not will the demand be there eventually, but will it be there soon enough and in large enough quantities?”