7th Jan 2022
In the wake of the Cop26 climate change conference in Scotland, green fuels like hydrogen are again in the news. But there are at least two types of eco-friendly hydrogen fuel — blue hydrogen and green hydrogen.
What is the difference between blue and green hydrogen energy stocks, and which kind of hydrogen fuel cell stocks should investors focus on?
What are green hydrogen stocks?
Hydrogen is abundantly available across the planet, but primarily in the form of water, as a compound with oxygen. It requires processing to isolate hydrogen molecules and convert them into fuel that can be stored, transported, and used as energy.
Green hydrogen companies, like Sun Hydrogen stock 1, use electrolysis to separate the hydrogen molecules, then pass them into pressurized containers for storage until they are ready to be transferred into fuel cells and released as energy. When the power for this process comes from renewable sources, like wind, solar power, or hydroelectric, it produces zero carbon emissions.
What is blue hydrogen?
Another option is to extract hydrogen from natural gas, using steam methane reforming (SMR) to split it into hydrogen gas, which is captured and converted into fuel cells, and carbon dioxide. This is known as gray hydrogen.
Blue hydrogen uses the same process as gray hydrogen, but with the addition of carbon capture and storage (CCS) technology to capture those emissions and store them underground to reduce the impact on the environment.
Why is hydrogen fuel important?
Governments are under pressure to set and meet carbon neutral targets, but there is little enthusiasm for widespread lifestyle changes to reduce energy consumption. While renewable electricity from sources like wind, solar, or biomass have their place, they aren’t sufficient to fully replace fossil fuels, and aren’t appropriate for certain use cases.2 However, hydrogen is energy-dense, with long-duration discharge cycles that can store energy and release it elsewhere when needed.
“Hydrogen is not a panacea or a silver bullet, but it appears to be critical for decarbonization of ‘hard-to-electrify’ sectors such as long-haul heavy trucking, international marine shipping and some parts of heavy industry,” said Mike Fowler, director of advanced energy technology research at the Clean Air Task Force3.
At the moment, by far most of the world’s hydrogen fuel is “gray hydrogen”, which produces hundreds of millions of tons of carbon emissions each year4. As a result, there’s interest in blue and/or green hydrogen as a planet-friendly alternative.
The relative merits of blue and green hydrogen
As long as it’s powered by renewable energy, green hydrogen produces zero carbon emissions and barely any other pollution. The drawback is that green hydrogen production is relatively expensive. The ICF (Inner City Fund) calculated that in 2020, green hydrogen cost approximately $3/kg, compared with $1.30/kg for blue hydrogen and $0.70/kg for gray hydrogen5.
However, costs are dropping as the price of renewable energy falls and the technology matures to make electrolyzers lower cost and more efficient. Redirecting the approximately $6 trillion of government fossil fuel subsidies to green hydrogen would further improve the cost differential6.
But even without a carbon price, ETC (Energy Transitions Commission) director Faustine Delasalle says “we expect that by 2030, green hydrogen can cost below $2 per kilogram in most geographies and even lower in favorable geographies with very cheap renewables.” In areas such as Australia, green hydro could cost as little as $1/kg by 2030.7
In contrast, blue hydrogen is the least expensive low-carbon hydrogen production option8, but it’s no eco-friend9. Blue hydrogen captures between 50% and 90% of the CO2 produced by steam methane reforming (SMR) 10, but in the process it releases methane, a greenhouse gas (GHG) that is considered to have a bigger impact on the climate than carbon. Over a 100-year period, methane’s global warming potential is 28-36 times greater than CO₂.11
It doesn’t help that CCS itself requires natural gas. According to research by Robert W. Howarth at Cornell University and Mark Z. Jacobson at Stanford University, this results in a GHG footprint that is 20% higher than if you burned natural gas or coal, 60% higher than diesel oil, and only 18%-25% lower than gray hydrogen. “To call it a zero-emissions fuel is totally wrong,” said Howarth. “What we found is that it’s not even a low-emissions fuel.”12
Both blue and green hydrogen are seeing action
Green and blue hydrogen energy stocks are both benefiting from carbon neutral targets. Construction company JCB has agreed to buy 10% of the green hydrogen produced by Australian firm Fortescue Future Industries (FFI), which aims to produce 15 million tonnes of the fuel by 2030, rising to 50 million by 2040. JCB chairman Anthony Bamford said the deal was a “major advance on the road towards making green hydrogen a viable solution.”13
In the US, the National Grid, in collaboration with Stony Brook University and New York State, is considering how best to integrate blue hydrogen into its existing gas infrastructure, and the Gulf Coast utility Entergy, wants to ship blue hydrogen through the oil industry’s existing hydrogen pipeline to replace electricity.14
Which hydrogen will save the planet?
The race between blue and green hydrogen is coming down to short term vs long term. Although blue hydrogen is nowhere near as eco-friendly as green hydrogen, it’s nonetheless the more practical option for the moment15. The tech is mature, and costs are stable and relatively low. Unsurprisingly, oil and gas companies are advocating for blue hydrogen, since it allows them to continue selling natural gas.
But in the long term, green hydrogen is expected to overtake blue hydrogen. According to a report by the ETC, “It is therefore likely that the ‘green’ production route will be the major production route in the long term, though with a significant role for ‘blue’ in transition and in specific locations where gas costs are very low.16” David Joffe, the head of carbon budgets at the CCC in the UK, warned that blue hydrogen would help cut millions of tons of emissions in the next crucial few years as green hydro production matures, but the government must shift to green hydrogen by the late 2030s to meet climate targets.17
Green hydrogen or blue hydrogen: which hydrogen fuel stocks should you choose?
For investors with limited funds, it can be a struggle to choose between blue gas hydrogen stocks and green hydrogen companies’ stock. However, both types of hydrogen stocks could play an ongoing role in the fuel mix.
One alternative to trying to pick the best hydrogen stocks is to invest in a hydro ETF like Defiance’s HDRO, which offers the opportunity to spread your investment across a number of potentially promising hydrogen stocks and enjoy participating in this disruptive energy subsector.
1 Not currently a HDRO holding
2 Research trends and opportunities in hydrogen fuels,” Naum Sayfullin, June 4, 2020. https://www.cas.org/blog/hydrogen-fuels-research
3 “Biden-backed ‘blue’ hydrogen may pollute more than coal, study finds” August 12, 2021 https://www.theguardian.com/environment/2021/aug/12/clean-fuel-blue-hydrogen-coal-study
4 “Grey, blue, green – why are there so many colours of hydrogen?” July 27, 2021. https://www.weforum.org/agenda/2021/07/clean-energy-green-hydrogen/
5 “Examining the current and future economics of hydrogen energy” August 13, 2021 https://www.icf.com/insights/energy/economics-hydrogen-energy
6 “IMF estimates global fossil fuel subsidies at $6 trillion-Georgieva” September 24, 2021 https://www.reuters.com/business/energy/imf-estimates-global-fossil-fuel-subsidies-6-trillion-georgieva-2021-09-24/
7 “‘Green hydrogen will be cost-competitive with grey H2 by 2030 — without a carbon price'” April 27, 2021 https://www.rechargenews.com/energy-transition/green-hydrogen-will-be-cost-competitive-with-grey-h2-by-2030-without-a-carbon-price/2-1-1001867
8 “Green hydrogen costs could reach parity in a decade, report finds” August 13, 2021 https://www.axios.com/green-hydrogen-costs-renewable-09ca9ff0-16bf-4684-aba0-fc40cf1fb94c.html
9 “How green is blue hydrogen?” August 12, 2021 https://onlinelibrary.wiley.com/doi/full/10.1002/ese3.956
10 “Examining the current and future economics of hydrogen energy” August 13, 2021 https://www.icf.com/insights/energy/economics-hydrogen-energy
11“Understanding Global Warming Potentials” https://www.epa.gov/ghgemissions/understanding-global-warming-potentials
12 “For Many, Hydrogen Is the Fuel of the Future. New Research Raises Doubts.” August 13, 2021 https://daily.energybulletin.org/2021/08/for-many-hydrogen-is-the-fuel-of-the-future-new-research-raises-doubts-the-new-york-times/
13 “JCB inks multi-billion pound deal to buy green hydrogen” November 1, 2021 https://www.building.co.uk/news/jcb-inks-multi-billion-pound-deal-to-buy-green-hydrogen/5114481.article
14 “For many, hydrogen is the fuel of the future. New research raises doubts” August 12, 2021 https://www.fr24news.com/a/2021/08/for-many-hydrogen-is-the-fuel-of-the-future-new-research-raises-doubts.html
15 Expressed here “Examining the current and future economics of hydrogen energy” August 13, 2021 https://www.icf.com/insights/energy/economics-hydrogen-energy and “Green hydrogen costs could reach parity in a decade, report finds” August 13, 2021 https://www.axios.com/green-hydrogen-costs-renewable-09ca9ff0-16bf-4684-aba0-fc40cf1fb94c.html and “How green is blue hydrogen?” August 12, 2021 https://onlinelibrary.wiley.com/doi/full/10.1002/ese3.956
16 “‘Green hydrogen will be cost-competitive with grey H2 by 2030 — without a carbon price'” April 27, 2021 https://www.rechargenews.com/energy-transition/green-hydrogen-will-be-cost-competitive-with-grey-h2-by-2030-without-a-carbon-price/2-1-1001867
17 “Carbon from UK’s blue hydrogen bid still to equal 1m petrol cars” August 2, 2021 https://www.theguardian.com/environment/2021/aug/22/uk-switch-to-hydrogen-power-must-not-rely-on-fossil-fuels-warn-campaigners