Decarbonisation Technology - November 2023 Issue

the amount of decarbonisation of the hydrogen has been achieved. To be considered renewable or low-carbon hydrogen, a 70% or higher emission reduction must be achieved compared to fossil fuel-based hydrogen. y Two accounting methods are typically used, allowed, or specified for tracking the chain of custody of low-carbon hydrogen: mass balancing and book-and-claim. Some regulatory or standard organisations allow one or the other, while some allow the application of both methods. • Mass balancing relies on the physical delivery of the hydrogen along with a matching certificate that describes the energy sources used to produce the hydrogen. The primary advantage of this approach is that the accounting follows with the point-of-sale and allows tracing of said hydrogen in downstream uses that mix with fossil-based hydrogen. The downside is that this physical delivery requirement reduces the market potential for that produced hydrogen. • Book-and-claim separates the physical delivery from the certificate. Hence, the hydrogen can be physically delivered into the marketplace, and the certificates can be traded for those who need to buy obligations. The advantage of this method is that there is more flexibility in the marketplace. However, the downside is that the loss of the physical delivery tied to the certificate means the resultant hydrogen cannot be easily tracked through the supply chain. z Carbon accounting boundary : Conceptually, the boundary for emissions accounting for low carbon hydrogen production and usage should be consistent among all governing entities. However, two primary boundaries exist – Well-to-Gate and Well-to-Wheel. The Well-to-Gate approach includes the power generation, transportation of that power, and subsequent hydrogen production, but excludes the downstream transportation and final usage. Well-to-Wheel extends the Well- to-Gate elements to the final point of use. Understanding the boundary of each emissions standard and regulation will ensure the balances are properly addressed. The final focal area is the economic incentives for low-carbon hydrogen production. Comparing current costs for renewable power generation as well as the scale of production and the additional

costs of CO₂ capture within blue hydrogen with that of conventional grey hydrogen, the cost of green hydrogen is four to 10 times higher than grey hydrogen, while blue hydrogen is two to four times higher than grey hydrogen. To close these gaps, several options and mechanisms exist or are becoming available. Carbon taxes and emission trading systems (ETS) Several options exist within these trading systems. In essence, the regulators either define a specific carbon tax based on emission values using a standard accounting system or allow for trading of credits among producers and consumers of those credits in order to create an economic incentive to reduce emissions. Within the ETS systems, either a Cap-and-Trade or Baseline-and-Credit system are used, as well as offset options, where third parties guarantee to complete projects and operations to meet an obligation. One of the main challenges with these methods from a hydrogen economy perspective is that, though they create an economic benefit or penalty to drive a given policy, the markets for these systems are often slow to meet the targets and these systems do not always effectively bring together producers and consumers in an efficient market. For credits to be traded, they have to be certified by one of the national certification or voluntary schemes that comply with the methodology and sustainability criteria such as that defined in the Delegated Acts of the Renewable Energy Directive (RED) for ‘renewable liquid and gaseous fuels of non-biological origin’ (RFNBO). Government entities are striving to drive the right economic behaviors, but the shift will take time and effective refinement to achieve the desired outcome. Continued and more integrated collaboration between the private sector and governments is needed to improve the effectiveness of these systems. California LCFS One regulatory and market-maker scheme that has seen success is the California Air Resources (CARB) Low Carbon Fuel Standard (LCFS). Though known more commonly in the arenas of incentivising energy efficiency within industrial sites and driving the adoption of renewable