A decade ago Toyota was the world’s biggest carmaker, and it remains so, selling over two million more vehicles last year than second-ranked Volkswagen. Also a decade ago Toyota announced that it had designed a hydrogen fuel cell sedan, the Mirai (Japanese for “future”) which went on sale in 2015, which it hoped would usher in a wave of hydrogen-powered cars. It was not to be. Last year alone over 750,000 electric cars were sold in the US. Only about 15,000 hydrogen vehicles have ever been sold in the US.
While appearance may have harmed Toyota’s hydrogen-powered Mirai abroad – Car and Driver called the first model “spectacularly ugly” – hydrogen-powered vehicles were likely always doomed in America. There are only 57 hydrogen fueling stations in the US and a Mirai costs over 50% more than Toyota’s plug-in Prius. Yet hydrogen is surging in the US now and domestic production is likely to grow enormously over the coming decade.
Unlike fossil fuels, extractable, pure hydrogen is rare on Earth, and the energy to produce it is always less than the energy that can be extracted from it. However, water is extremely common on Earth and electrolysis – using electricity to split H2O into oxygen and hydrogen – is a simple process that enables excess electricity to be captured and transported. Hydrogen carries about three times more energy per gram than kerosene, but 3000 times less per unit of volume as a gas, so its value comes in places where ample space is available, unlike cars and planes (although Toyota will release a new hydrogen car this year in Japan and Airbus claims that it will have a hydrogen plane by 2035).
The big drivers behind hydrogen’s new wave are climate change and renewable energy. Electricity providers must always produce as much electricity as is withdrawn from the system at any given time, even if that means that electricity prices turn negative (when supply significantly exceeds demand) or capacity payments to peaker plants, which are kept running on standby in case demand peaks. Peaker plants generally emit more pollution than non-peaker plants even when they use the same type of fuel. Wind and solar farms often produce the most electricity at times that do not align with high demand. With solar the problem is more pronounced, as solar farms typically produce the most electricity during the middle of the day, just when electricity demand falls, an issue known as the duck curve. The impetus to avoid negative electricity prices, capacity payments, and duck curves is leading grid operators – and by extension, investors – to pour money into electricity storage solutions. While standard batteries remain very popular, in many cases hydrogen is a more efficient solution and a more versatile one. Beyond electricity, hydrogen can be burned, used to produce ammonia (a critical agricultural feedstock), and may eventually play a significant role in global heating and transportation.
Hydrogen’s versatility, energy storage potential, and ability to work well with clean energy is expected to quintuple global demand by 2050 to half a billion tons or more annually. As hydrogen production and demand grows, the source of electricity used to produce has led the industry to utilize a rainbow of names, with black hydrogen made from coal; gray and blue hydrogen made from natural gas with uncaptured and captured carbon, respectively; green hydrogen made from wind and solar; and pink, made with nuclear (there are also brown, turquoise, yellow and white).
Hydrogen production had long been dominated by the gray version, given the low-cost and abundance of natural gas. Heating methane, the main component of natural gas, with water produces three hydrogen molecules for each methane molecule, but also produces carbon monoxide. Unless this is captured, CO is damaging both to health and acts as a greenhouse gas. Its low cost of roughly $1/kg overrode these concerns, especially with green hydrogen around $5/kg. However, last year’s soaring prices for natural gas after Russia’s invasion of Ukraine, growing calls for hydrogen to mitigate climate change and health-harming pollutants, and the passage of the American Inflation Reduction Act, IRA, changed the calculation for many hydrogen producers or would-be producers, especially those able to operate within the United States.
While most attention on the IRA has focused on its consumer provisions and clean energy production tax credits, including for nuclear energy, the bill also provides a large tax credit for hydrogen on a sliding scale, with projects that produce less carbon dioxide or equivalent, CO2e, receiving larger credits, topping out at $3/kg. Prior to the IRA, estimates were that green hydrogen might reach $1-$2/kg by the middle to the end of the decade. With the IRA and support from the Biden administration, it is highly likely that clean energy hydrogen – green, pink, and perhaps blue – will be cost competitive with gray hydrogen within a few years.
As hydrogen demand grows nationwide, ever more projects are likely to produce hydrogen as the principle goal, rather than producing hydrogen as a means to avoid negative electricity prices and capacity payments, or to absorb excess renewable electricity production. Hydrogen-as-the-goal will lead some companies to buy more electricity from an electric grid or, alternatively, to acquire their own wind farms, solar farms, or nuclear power plants simply to produce hydrogen, without feeding into a grid at all. As a precursor to the nuclear part, the US Department of Energy, DOE, is working with four nuclear power plant operators to support hydrogen demonstration projects. The DOE plans to fund regional clean hydrogen hubs across the country to support the buildout of hydrogen infrastructure, as part of its so-called Hydrogen Shot aimed at $1/kg clean hydrogen. Down the road companies may acquire small modular reactors, SMRs, to mass produce hydrogen with on-site electricity.
Hydrogen may also help to decarbonize industrial processes. Cement production and steelmaking both require vast amounts of energy and produce massive amounts of CO2, depending on production methods, with each accounting for about 8% of global CO2 emissions. Cement- and steelmaking can easily generate a ton of CO2 for each ton of cement or steel produced. The standard means of producing cement and steel require high heat. The most common method of steel production, blast furnace basic oxygen, is the most polluting and accounts for almost all of China’s steel production. China produces almost ten times more steel than second-ranked India. Hydrogen can be used in a steelmaking method called direct reduction, and hydrogen can be burned instead of used for electricity to produce the high heats required for cement and steel production. That sparks the intriguing possibility that in future cement and steel fabricators would acquire microreactors, SMRs with electrical capacities under 10 MW, to produce electricity and hydrogen on site. If future regulations put a cost or cap on carbon emissions, that would enable nuclear-powered cement and steel makers to avoid fines or caps and potentially to sell credits. As China aims to expand its nuclear fleet massively and decarbonize its economy, it may be among the first countries to pursue this approach en masse, but SMR firm NuScale and steel firm Nucor, both American, are already in talks for NuScale’s SMRs to power Nucor’s electric arc furnace steel plants.
As promising as hydrogen’s future looks – pink, green, or blue – Toyota offers a lesson in potential hydrogen pitfalls beyond the Mirai. Electric vehicles, EVs, and plug-in hybrids, PHEVs, accounted for about one in eight cars sold globally last year, but only about one in fifty within Japan. Toyota only sold about 24,000 EVs in 2022; Tesla alone sold millions. Despite revolutionizing car manufacturing with lean manufacturing – or as it was originally called, the Toyota Way – and then capturing the hearts of green vehicle lovers with the Prius, the world’s biggest car manufacturer continues to hold onto hydrogen car hopes long after the rest of the world has abandoned it. If there is a hydrogen lesson to learn from Toyota, it is that choosing when and how to enter – and to exit – the hydrogen market is critical, regardless of a firm’s size or experience. Alas, Toyota called its new hydrogen car Crown, when it could have called it quits.
