It’s all the same, but different
All hydrogen molecules are identical, irrespective of the hydrogen production method employed. It is therefore not possible to verify by chemical analysis whether hydrogen is blue, green or grey.
However, there are significant differences between the greenhouse gas (GHG) emissions footprints of green, blue and grey hydrogen. The treatment of green, blue and grey hydrogen will therefore vary in some jurisdictions from a regulatory or compliance perspective, and the purchase or use by a company of blue or green hydrogen may bring with it benefits when compared against the purchase or use of grey, brown or black hydrogen. These benefits can come in a variety of different forms and from many different sources.
Benefits of blue and green hydrogen
The benefits may be purely financial, for example the receipt of a tax credit or other reduction in liability to tax, or a reduction in the number of allowances that are required to be purchased by the relevant company under an applicable emissions trading scheme. The benefits may be compliance-related, for example assisting in satisfying an obligation to purchase, use or sell a certain percentage of fuels from lower-carbon sources, or an obligation to reduce aggregate GHG emissions below a specified threshold. Some benefits may be more indirect or intangible, for example the ability to sell into certain markets or jurisdictions (into which you could not sell grey hydrogen), the ability to market your product to consumers as “green” or “lower-carbon”, or broader ESG-related and corporate reputational benefits.
As a result of these benefits, some buyers are willing to pay a substantial premium for blue or green hydrogen – but how can a buyer ensure that it is in fact receiving blue or green hydrogen?
Certification and verification of blue and green hydrogen
The first challenge in the verification of blue and green hydrogen is that there is currently no accepted international standard or definition for blue hydrogen, green hydrogen or any form of lower-carbon hydrogen. This is primarily because there is currently no global trade in these products, and no industry or regulatory body has taken the step of providing an express standard or definition.
In the absence of regulatory standards, what constitutes blue, green or lower-carbon hydrogen will need to be contractually agreed between the relevant buyer and seller. In addition to specifying the production method (e.g., steam methane reformation (SMR) or autothermal reforming (ATR) of natural gas combined with carbon capture, utilization and storage (CCUS) technology for blue hydrogen, or electrolysis of water using renewable power for green hydrogen), further requirements may be specified such as:
- an aggregate cap on the GHG emissions associated with the production of the hydrogen;
- in the case of blue hydrogen, a floor on the percentage of GHG emissions that must be captured and either utilized or permanently stored by way of CCUS;
- in the case of green hydrogen, a requirement that the hydrogen production facility is directly connected to the renewable power production facilities, or a requirement to otherwise verify that all power required for the production of the hydrogen has come from renewable sources; and
- in the case of other forms of lower-carbon hydrogen, an understanding of how the GHG emissions in the production process are calculated, as in the case of electrolysis using grid-based power that is itself based on a portion of (but not entirely) renewable generation.
Those contractual arrangements will likely need to address a number of difficult questions around monitoring and verification, including for green hydrogen, whether guarantees of origin or renewable energy credits (or similar) can be attributed to the process to make grid power “green”. Parties may also need to consider building flexibility into their contractual arrangements to address the situation where the applicable jurisdiction adopts regulatory standards or definitions during the life of the hydrogen supply contract, necessitating a change in production accounting or verification for the hydrogen product.
Once the relevant requirements have been agreed between the parties, the buyer will need to carry out due diligence on the supply chain of the seller in order to verify that these requirements have been satisfied. This could be carried out by the buyer itself or, more likely, by an independent third party. If this third party will be certifying the GHG emissions associated with the blue or green hydrogen, then the requirements will also need to specify the standards that will apply for these purposes, for example: (i) the Product Life Cycle Accounting and Reporting Standard under the Greenhouse Gas Protocol; (ii) ISO 14067; or (iii) PAS 2050 from the British Standards Institution.
This independent certification may be sufficient for some buyers, and such an approach may be possible for sellers with simple value chains. However, difficulties can arise where value chains are more complex and where, for example, green or blue hydrogen is aggregated and stored with hydrogen produced from other supply sources (and potentially by other methods) before delivery to the buyer.
Guarantees/certificates of origin
Currently in the market, the best way of verifying that hydrogen is green, blue or lower-carbon is through a “guarantee of origin” or “certificate of origin” scheme. This is very similar to the schemes used in many jurisdictions around the world for certifying power produced from renewable sources. Such a scheme resolves the issue of the specific requirements for blue or green hydrogen, as these would be specified in the scheme documentation. This would also avoid the need for the buyer to verify the seller’s supply chain, as the seller would need to demonstrate the compliance of its hydrogen supply chain with the scheme documentation in order to participate in the scheme.
The great benefit of such a scheme is that it can decouple the “blue” or “green” attribute from the physical flow of hydrogen, and it is therefore possible to make blue or green hydrogen available independently from its production sites. This means that, in the future, when there is a developed infrastructure network for the delivery of hydrogen (e.g. pipeline or fueling stations), a buyer could purchase hydrogen from the network and get the benefit (whether from a compliance or voluntary perspective) of that hydrogen being blue or green, notwithstanding that it has physically purchased from an entirely commingled supply.
These guarantee/certificate of origin schemes are commonly legal or regulatory schemes, however, rather than voluntary. This means that buyers and sellers may be dependent upon such a scheme being adopted or applicable in their relevant jurisdictions.
One example of such a Guarantee of Origin scheme is the CertifHy project in the European Union. CertifHy issues Guarantees of Origin for: (i) green hydrogen (being hydrogen produced from renewable sources and having a greenhouse gas balance below 60% of the baseline for hydrogen produced by SMR); and (ii) low carbon hydrogen (being hydrogen produced from non-renewable sources but having a greenhouse gas balance below the same threshold).
The CertifHy scheme is currently only available for production in the European Union, Switzerland, Iceland, Liechtenstein and Norway. However, the roll-out of similar schemes in other jurisdictions is expected in the near-term, and this will greatly assist in the development of the blue and green hydrogen market. In the meantime, buyers and sellers will be responsible for developing their own contractual certification and verification mechanisms, in order to provide assurance as to the blue or green attributes of the hydrogen supplied.
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