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National Petroleum Council calls for carbon price to advance hydrogen development

In a blockbuster report on the U.S. hydrogen industry, the NPC, an advisor to the Department of Energy, called for greater government action in order to meet ambitious net zero emissions targets by 2050.

The National Petroleum Council (NPC) is calling for a robust carbon pricing mechanism among a series of new measures for advancing the U.S. hydrogen economy.

As currently stated, policies for hydrogen are severely inadequate for the U.S. to meet net zero targets by 2050, a report by the NPC finds, and industry and lawmakers must implement a series of new policies and incentives in order to spur the massive capital investment required to develop a clean hydrogen economy.

The NPC, an oil and gas advisory group to the DOE, has been calling for a carbon price since 2011, and renewed those calls in recommending an explicit long-term carbon price as a cornerstone of a future policy framework.

“A long-term, effective, durable, and transparent price on carbon could phase in as shorter-term low-carbon energy funding and tax incentives are phased out to enable a smoother and more efficient market transition,” the report states. “Explicit carbon pricing in the form of a carbon tax or a GHG cap-and-trade program provide the most economically efficient climate policy.”

The NPC has some 200 members from the oil and gas industry, as well as electric companies, research groups and academic institutions. Industry participants that led individual chapters of the report include Chevron, McKinsey & Company, Air Liquide, Southern California Gas, ExxonMobil, and bp.

Phase in, phase out

The report recommends that the administration work with Congress to phase in an economy-wide price on carbon “well before the current incentives, such as 45V, expire.”

Additionally, the council recommends that, once the carbon price is established, “current implicit pricing incentives (e.g., 45V PTC, 45Q PTC) be phased out in such a way as to allow a long-term explicit pricing policy to be phased in to facilitate a smoother market transition and provide a more stable investment environment for low-carbon energy and hydrogen industry growth.”

Alongside carbon pricing, the report makes an additional 102 recommendations. Among them, the council advocates for increased federal and state policy support. This includes expanding incentives such as tax credits and grants, with particular emphasis on leveraging the 45V hydrogen production tax credit and the 45Q carbon capture tax credit to spur technological adoption and infrastructure development.

The NPC calls for the simplification of regulatory processes to speed up the deployment of hydrogen technologies. This recommendation focuses on harmonizing safety standards and expediting permitting processes to facilitate a smoother rollout of hydrogen infrastructure.

The report also highlights the need for enhanced RD&D efforts across the hydrogen value chain to drive technological advancements and reduce costs. It advocates for stronger collaboration between government and the private sector to foster innovation in hydrogen technologies.

Without these actions, significant differences in the projected capital investment required under two pivotal scenarios for hydrogen development would emerge, according to the study. Under the Stated Policies scenario, assuming existing policy frameworks, only $290m of investment is deployed into both blue and green hydrogen by 2050 in the U.S. In contrast, under a net zero scenario, capital investment is projected at approximately $1.9 trillion by 2050, $124bn for blue hydrogen and $1.78 trillion for green hydrogen.

source: National Petroleum Council

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The MoU seeks to identify, evaluate, and develop favorable locations to power Hy2gen’s renewable hydrogen and e-fuel production from offshore wind in the U.S.

Hy2gen USA Inc., the US subsidiary of global green hydrogen producer Hy2gen, and offshore wind energy developer, Ocean Connect Energy Inc. (OCE), have executed a Memorandum of Understanding (MoU) for the mutual investigation of the potential to power renewable hydrogen production from offshore wind.

The MoU formalizes a collaboration between the two companies to identify, evaluate, and develop favorable locations to power Hy2gen’s renewable hydrogen and e-fuel production from the gigawatt-scale offshore wind energy generation that OCE develops in the USA and worldwide, according to a news release.

Hy2gen and wind energy experts OCE have formed a 10-month working group to identify and mature high-capacity offshore wind energy areas where project development may be held back by constrained grid transmission, low electricity demand, or other factors. “Where green hydrogen production can be built near the point of interconnect from offshore wind energy generation, we have the potential to create predictable and lasting demand for the energy. This makes the need for new grid transmission less urgent and the need for infrastructure investment less substantial, while accelerating wind energy project execution,” said David White, president of Hy2gen USA Inc. “Green hydrogen can change the paradigm of where offshore wind is developed,” added Kevin Banister, chief executive officer of Ocean Connect Energy.

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Through its global subsidiaries, Hy2gen has set out to become the largest and most reliable renewable hydrogen fuel provider—a powerful accelerator of green transformation. “We have a tremendous prospect in our work with Ocean Connect Energy,” White affirmed. “We have laid out concrete benchmarks and time frames to motivate and monitor our progress together. We’re intent on bringing our projects to life as soon as possible.”

With its global team and decades of experience, OCE is committed to leading projects through all phases of development and into operation, according to the release.. Fundamentally, this includes considerations for offtake early in the process. Hy2gen and OCE will look to establish this supply-demand relationship to provide the reliability and confidence both parties seek to move development forward.

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Sky Harvest Carbon, the Dallas-based carbon credit project developer, is preparing to sell credits from its first project, roughly 30,000 acres of forest in the southeastern US, while looking toward its first equity raise in 2024, CEO and founder Will Clayton said in an interview.

In late 2024 the company will seek to raise between $5m and $10m in topco equity, depending on the outcome of grant applications, Clayton said. The company is represented by Scott Douglass & McConnico in Austin, Texas and does not have a relationship with a financial advisor.

Sky Harvest considers itself a project developer, using existing liquidity to pay landowners on the backend for timber rights, then selling credits based on the volume and age of the trees for $20 to $50 per credit (standardized as 1 mtpy of carbon).

The company will sell some 45,000 credits from its pilot project — comprised of acreage across Virginia, North Carolina, Louisiana and Mississippi – in 2024, Clayton said. The project involves 20 landowners.

Clayton, formerly chief of staff at North Carolina-based renewables and P2X developer Strata Clean Energy, owns a controlling stake in Sky Harvest Carbon. He said he’s self-funded operations to date, in part with private debt. The company is also applying for a multi-million-dollar grant based on working with small and underrepresented landowners.

“There’s a wall of demand… that’s coming against a supply constraint,” Clayton said of companies wanting to buy credits to meet carbon reduction goals.

Sky Harvest would be interested in working with companies wanting to secure supply or credits before price spikes, or investors wanting to acquire the credits as an asset prior to price spikes, Clayton said.

“Anybody who wants to go long on carbon, either as an investment thesis or for the climate benefits to offset operational footprint, it’s a great way to do it by locking supply at a low cost,” he said.

A novel approach to credit definition

Carbon credits on the open market vary widely in verifications standards and price; they can cost anywhere from $1 to $2,000.

“There’s a long process for all the measurements and verifications,” Clayton said.

There are many forestry carbon developers paying landowners for environmental benefits and selling those credits. Where Sky Harvest is unique is its attempt to redefine the carbon credit, Clayton said.

The typical definition of 1 mtpy of CO2 is problematic, as it does not gauge for duration of storage, he said. Carbon emitted into the atmosphere can stay there indefinitely.

“If you’re storing carbon for 10, 20, 30 years, the scales don’t balance,” Clayton said. “That equation breaks and it’s not truly an offset.”

Sky Harvest is quantifying the value of carbon over time by equating volume with duration, Clayton said.

“If you have one ton of carbon dioxide going into the atmosphere forever on one side of the scale, you need multiple tons of carbon dioxide stored on the other side of the scale if it’s for any time period other than forever,” he said, noting that credit providers often cannot guarantee that the protected trees will never be harvested. Sky Harvest inputs more than 1 ton per credit, measured in periods of five years guaranteed storage at a time. “We compensate for the fact that it’s not going to be stored there forever.”

Monitoring protected land is expensive and often difficult to sustain. Carbon markets work much like conservation easements, but those easements often lose effect over time as oversight diminishes (typically because of staffing or funding shortages at the often nonprofit groups charged with monitoring).

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A similar methodology has been put forward by the United Nations and has been adopted in Quebec, Clayton said.

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“We can replicate this 1,000 times,” Waddington said of the immense number of available wells in the region, which can be acquired cheaply. Additional growth could come in the San Juan region of New Mexico, where coal capacity is being retired quickly.

The fuels could be sold as renewable diesel into markets with incentives, like California’s LCFS, Waddington said. The renewable fuel is significantly (10X) more expensive than natural gas produced as a by-product of oil production. But, CCF is not looking to participate in the LCFS program or the EPA-run RFS program.

“The voluntary market for RNG has really taken off,” he said. A contract for renewable diesel offtake is pending with a Wyoming-based oil and gas company looking to lower its CI score.

CCF’s projects are much larger than a typical RNG project, Waddington said; the first project will produce at some 700 cfpy and include 185 tons of CCS. CCF is looking for EPC providers now.

The executive team of CCF has a minority position of the company, Waddington said. The founders and the management team together have a majority position.

The company’s first 139-well project in Wyoming is awaiting final approval from the federal Bureau of Land Management.

CCF is primarily VC-backed to date. The company received approximately $7.8m through the Energy Matching Funds program of the Wyoming Energy Authority early this year.

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