Below is the text version for the "National Petroleum Council Study on Low-Carbon Hydrogen" H2IQ Hour webinar held on June 20, 2024.
>>Kyle Hlavacek: Hello and welcome to this month's H2IQ Hour webinar. Today we have a presentation of the National Petroleum Council study on low-carbon hydrogen and its potential to support the U.S. in achieving a net zero emissions future. My name is Kyle Hlavacek with the Department of Energy's Hydrogen and Fuel Cell Technologies Office supporting stakeholder engagement and other outreach activities.
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>>Christopher Freitas: Thank you, Kyle. And I want to thank first, before we get started, Darin Rice from Chevron and Mark Shuster, University of Texas, two principals associated with the Harnessing Hydrogen study. And John Guy, who is, I refer to him as my senior vice president of the National Petroleum Council, and he predates my work at the Department of Energy, and I started in 1980. Thank you all who are calling in for this study today.
The National Petroleum Council's sole purpose is to inform the Secretary of Energy, to advise and make recommendations to the Secretary of Energy on matters relating to oil and natural gas, or the oil and natural gas industries. The NPC goes back to 1946. In that period of time, it was started under President Truman, and the advisory committee was for the Secretary of the Interior up until 1977. In 1977, when the Department of Energy was formed, administrative functions and charter and membership activities were transferred to the Department of Energy and specifically the office I serve in, the Office of Fossil Energy and Carbon Management.
The NPC, as established in 1946, has produced over 200 studies. And today we're going to be looking at and having Darin and Mark express and tell us going forward about the Harnessing Hydrogen study. That was a request that came to the Secretary. The Secretary requested the Department, to the National Petroleum Council, on November 8, 2021. For over two and a half years, over 100 plus organizations, 200 participants, participated in the development of this study. I want to thank Darin and Mark, and all of those who participated in the study who may be joining in also, as basically are in the background. But Darin, take it on from here please.
>>Darin Rice: OK. Hey, thanks Christopher. So once again, Darin Rice. I'm the general manager of strategy for Chevron's new energy, for hydrogen specific. Mark, you want to introduce yourself real quick? Quick background on you?
>>Mark Shuster: Yes, thanks Darin. So, I'm Mark Shuster. I'm interim director at the Bureau of Economic Geology at the University of Texas at Austin.
>>Darin Rice: So, I would say first of all, thank you for this opportunity. Second of all, as I look at Mark, him and I didn't actually know each other two years ago. And as I go through this study, you'll realize why we are very familiar with each other as of today. As I start on this slide, so what I'm going to do is there's a handful of slides that help tell the story around what we've done and why we did them. It'll probably take me about 25 minutes or so. It's a replication of what we presented to Secretary Granholm on April 23, delivering upon her request of what will it take to deliver hydrogen. Feel free to, you know, interrupt if needed. But we'll for sure have some time at the end for Q&A.
This slide is a bit of, as you look at this slide, a few things I want to say. Which is, it's been a long journey. A good journey. And I think the combination of long and good has a lot to do with the diversity of the partnerships that we've had. You can see on the left-hand side a bit of how we organized ourselves to answer the seven key questions that Secretary Granholm asked of this study around, you know, key questions with the target of advising what it takes to scale this hydrogen economy.
I'll start by saying that we recognize that there are a lot of existing policies that are exceptional that are in place. And a lot of existing policies that activate this economy. But part of the punch-lining conclusion is, not enough to achieve at scale. I think that when we looked at how we were going to organize and execute upon this study, this is the organization that we ended up with.
And I want to kind of point your attention to chapter one, which is what was led by Mark, which is defining the role. Chapter two, which was how we produce at scale, led by Air Liquide, Bob Brinkman. Chapter three, which was infrastructure, led by So Cal Gas, Vijai Atavane. Integrated supply chain, the economics of how this all works and the consideration of the resulting carbon intensities, led by Melany Vargas from Wood Mac. Demand drivers, Mike Kerby from Exxon. Policy, Poh Boon Ung from BP. And societal considerations and impacts from a combination of the Great Plains, Mitchell Foundation, Matt Fry and David Monsma.
I go through that list because it's important to understand, if you now look to the right-hand side pie chart, we call ourselves the National Petroleum Council. However, it's a bit of a misnomer in that it's more than just integrated oil and gas. In fact, less than 30% of the participants were oil and gas when it comes up to this study, and you can see some of the points or descriptors on the right.
So that's a bit of my introduction to this study. If you go to the next slide, there's a lot of—
>>Christopher Freitas: Darin, let me just add that there were seven major chapters. And as Darin pointed out, there were seven industry leads, associatives, and there were corresponding Department of Energy leads within those chapters. Because there's a Federal Advisory Committee act, there's both in the—industry and government input on both sides. Although this is a study request being presented and developed by industry for Secretary Granholm directly.
>>Darin Rice: Thank you, Christopher. I won't dwell on this slide, and there's a lot of details on here. I think the point, the key takeaway is it's been a journey. We started this Q2 of 2022. So, I smile when I say that, because in some sense it's a bit of wow, it's been a long time, and I can't believe that it's been so long. On the other side of it, it's, I say the same thing. It's been a long time, and I can't believe what we've accomplished in those two years, leveraging the diversity of the team and getting alignment with some of these recommendations.
I think that the work continues and hopefully we'll give you some insights and pull you into going into the report because it's not just producing the report. That's only half the battle. The rest of it is, what's the impact and how do we get this story to be told.
If you go to the next slide, I remember two years ago sitting and talking to all these folks. There was 29 core members when we were trying to figure out how to actually motivate this, motivate the organization and start on this work. And we asked ourselves, what's going to be different when we produce all this? We wanted it to be unique, but we weren't really sure how it might be unique. And so, this is a pretty simple slide that will help me explain my view of the unique attributes or key attributes.
The first one being expert input, right? There's many conclusions that are backed by data outputs. But you know, and I'll get into the modeling and the partnership with MIT. But the key wasn't necessarily the outputs. The key was robust input alignment. What were the techno-economic assumptions. How do we bring in all the different views. And I think that's a bit of what makes us unique, to the point of if you can imagine diversity of the group. We could have gone a lot quicker, but this diverse team took longer. But took us farther.
When it comes to the targeted role of LCI hydrogen. The other part of what I think is unique is oftentimes you talk about LCI hydrogen, and it's a great application for hard to abate. Well, when I talked to my family or my friends and I used that word hard to abate, and they say what do you mean, hard to abate? Sometimes it's a bit hard to go yeah, what do I mean? How do I concisely define that?
And so, in this report, don't underestimate the power of the narrative. I think we put into context what hard to abate application is, right? Transportation, power industry. But also, the context of what is the problem we're trying to solve. Putting net zero, getting to net zero in the context of GDP. Putting the application of hydrogen in context of a lower cost to society. We have a very clear narrative, which I think at this stage of the journey, that's half the battle is education. Because until you understand, it's hard to promote the right policies and investments.
And then lastly, this is a U.S. specific report. And we didn't find any detailed analysis on the United States. And so, I think this is different than others, because we have gotten extensive regional analysis, which will hopefully enable a bit more focused and applicable policy application.
So, if you go to the next slide, before we go into the details much further, I want to put a quick word on modeling. We partnered with MIT to conduct this complex modeling. And the modeling accounts for all elements of the energy systems over time. As I said in the previous slide, we leveraged expert inputs. We delivered two scenarios. And one was a stated policy scenario, and one was a net zero scenario. We leveraged IEA World Outlook 2022 context as well as including federal and state policies as we knew it at the time. And so, the point is, great partnership. Quantitative based in many regards.
But I would also say that this is not a crystal ball. The conclusions are not what we assume will necessarily happen, because the outcomes and our conclusions are directional and only as good as the inputs. And hopefully you'll find that transparency around the inputs will be educational and help everybody connect the dots. But we didn't just finally use the outputs. We used the expert analysis and debated and recognized the modeling limitations. And so that combination I think has produced a really good product.
So, let's jump ahead two slides. Let's get into some of the findings. We had 19 key findings, 23 recommendations. This is a slide that you know, kind of rolls off my tongue today. But I remember when we were trying to go through this. It was pretty enlightening, and this is part of the narrative. If you look along the left-hand side, this is more of a global net zero story. Not a hydrogen specific, necessarily.
And we wanted to put into context that achieving net zero is not just a hydrogen thing, and there's many solutions required to get there. Hydrogen can play a role. But more specifically we think the right application is in these hard to abate sectors. So, if you look at the left-hand side once again, the blue line represents the stated policy scenario. And you can see that from an emissions standpoint, we're not on track with current policies. And in a net zero scenario, when you say what does it take to get to net zero and how does hydrogen play, you can see that hydrogen, the gray sliver, is what the role could be. You know, reducing about 8% of U.S. emissions. And the right-hand side is a bit more of the context of why hydrogen.
So, the top line, the red line, we're putting that in terms of time relative to GDP. The cost to society bar by our modeling estimation would be to get to net zero, it will cost the economy about 3% of GDP. So, about a trillion dollars a year. Point one. Point two is, within that cost there's a whole bunch of tools that you're using.
And without hydrogen, right? There are other ways to achieve net zero. But without hydrogen, we believe that the cost to society will be a half a percent to a percent higher. So more than $160 billion to $260 billion a year. And so that is part of it. It's not just about getting to net zero. But it's getting to net zero in the most cost-effective manner. So, I think that's all I really wanted to set up here. So, let's go to the next slide.
So, I wanted to put that into context, right? So how we then used the modeling was, we were trying to say OK. We know what trajectory we want to be on, relative to some of our modeling IEA curves. And how do you get there? So, cost of carbon is something that we focused on, or implied cost of carbon. And so, what this curve represents is what, the way that we were doing it is I'm going to probably oversimplify. We forced in an implied cost of carbon. And we let the model choose all the aspects of what it had in its hands, tools, to lower emissions. You know, LCI hydrogen, CCS, DAC, electrification.
And this was the resulting curve that came out. You can see that these are pretty high numbers, especially in 2050. This is marginal cost to reduce the remaining emissions that you need to mitigate over time. And you can see at the end the price setting mechanism to get that last, those last emissions down to net zero. It's quite expensive. And essentially what you're doing is you're operating at a direct air capture price that [inaudible]. So, keep this chart in mind as we go forward with some of the other conclusions. While we talk about $700 a ton, if you actually do the math, the average cost of carbon to get to net zero is somewhere around $250 a ton over time.
OK, so. I talked about hard to abate. So, let's define that a little bit more. This slide visualizes the sectors that do benefit most from hydrogen. So, on the industrial side, whether you're using it as a feedstock or whether you're using it as a fuel, that's one such application. On the heavy-duty transportation side, whether we're talking trucking, or marine, or aviation, or rail, that's another application. On the power side, we're talking dispatchable power, largely for grid resiliency. And we did put in export demand. We kind of lifted that from a different study. Like I said, this was a U.S. study. But export is another demand center, because much like what I just described for the U.S., other geographies like Europe and Asia have those same issues that we're trying to mitigate.
So that is a bit of what this chart is describing. And so, if I meet, if I put your eyes to the right-hand side, the net zero scenario, you can see that we're projecting 75 million tons per annum is what the demand will be with our assumptions that delivers, helps deliver net zero, you know, at a lower cost to society. The point is, you can see in 2050 industry leads, followed by heavy-duty transportation and dispatchable power. And exports. So heavy-duty is about 60%, transportation, dispatchable power, exports, the remaining a third, a third, a third.
All right. Let's go to on the supply side. So, I've set up the demand side, and how demand will kind of play out. On the supply side, we focused on two key pathways. And we focused on the renewable power electrolytic pathway and the CCS natural gas pathway. Largely because we believe that those are the two pathways that will scale the quickest, and this was a question around what does it take to scale.
Left-hand side for the stated policies, what we see is essentially what we produce today is what gets abated tomorrow. And that's really through CCS, you know, SMR, ATR sort of reforming along with CCS, with modest adoption of electrolytic. If I look to the right-hand side, kind of matching the 75 million, you can see that there's a mix of both the natural gas with CCS pathway plus renewable power and electrolytic.
And it's a sizable challenge. If I point your eyes to the dotted lines, or the dotted line and the dark black line, where you can see quite a bit of capital required in order to realize this sort of scale. So about $1.9 trillion cumulative in a net zero 2050 production, of which 95% of that is more for the renewable power electrolytic pathway. Because it's just, you know, there's a lot that needs to happen more so than the other side, other pathway, when you come to electrolyzers. Salt cavern stores, liquid storage, wind, solar, grid transmission, and such. There's still, there is still some cost from a, and learnings around scaling the natural gas, the CCS side. But much of the capital is on the electrolytic pathway.
The point here is that sizable challenge, in addition to noting this needs to happen—this also needs to be permitted. It all still needs to be accepted by local communities. It all needs to be built and operated, right? And so, there's a community engagement and societal considerations and safety component to our recommendations as well.
I mentioned regionality, right? And so, I've set up the whole how does demand work, how does supply work. I want to work—I want to kind of talk about the regionality piece. I'm going to use the demand side of things. And one of the things that we recognized is that not all regions are created equal. Right? And the largest demand that will naturally occur will occur in three main regions, right? It will be the Great Lakes region. It will be the Gulf Coast region. And it will be the West Coast region.
And I think that we wanted to highlight this because we want people to know that you need to be thoughtful around how policy is written to ensure that you take advantage of the natural things that certain regions provide if you really want to deliver hydrogen in the best, quickest, most cost-efficient manner. And so, you see here that like in the Gulf Coast for example. What do they have? They have natural gas. They have good renewable resources. They have existing infrastructure. And they have so much industry anchored, that it's a great anchoring demand that allows some confidence when you're setting up the supply chain that people will offtake.
On the West Coast, it's a little bit different. And I'll get into a little bit of the nuance there. But you can see, the pie is a little bit different in the net zero case, with the green transportation being a significant more portion. And that's an indication of hey, you know, California, West Coast is a bit more policy enabled, and you can see how that might change the profile. And then once again in the Great Lakes, they also have natural gas. They also have good renewables. But once again, this is just kind of helping people understand not all regions are created equal.
All right. so, before we get into some of the policies and contexts, very busy slide. I'll do my best to try to walk you through it. But one of the points that we wanted to talk about is when you're looking at what we're trying to achieve here, getting back—to get to net zero, there's a certain cost to society. You know, 3% GDP. This attempts to put that into context.
I'm going to focus you on the left-hand side of the chart, OK? So, if you first look at the green bar, there's a range. But I'm going to narrow you in somewhere around the middle and call that renewable power plus electrolytic pathway could deliver hydrogen at about $4 a kilogram. The blue range, if I point you to the middle. And let's say that's natural gas with CCS, that's about $2 a kilogram.
So, this is a U.S. Gulf Coast example. So, a $4 electrolytic delivery, a $2 CCS enabled pathway. 2050. No policy in place, because by then IRA and such will have expired. It does include learning curves, so improvements to capital for some of the investments. Improvements in carbon intensity for some of the feedstocks. But ultimately, that's kind of what you have in 2050.
The point now on this slide is for example, what are you trying to displace? So, what we're trying to displace as an example in the industrial sector is hydrogen, unabated hydrogen used as refinery feedstock. Or natural gas used for industrial heat. The two black bars I just mentioned are to the right of that. And you can see that even in 2050, from a dollar per kilogram standpoint, both electrolytic and natural gas are out of the money. And I think this is a key point to say, is that they're out of the money but they are a lower carbon intensity than the incumbent fuel.
So, if I go back to the refinery feedstock example, the electrolytic pathway, let's call it a zero carbon intensity, the natural gas with CCS pathway delivers a one carbon intensity. And the refinery feedstock is about a ten. And so, my point is that until we recognize the value of carbon, the production pathways will always be out of the money even in 2050. And so, this is my way of saying, it's critical. Policy is critical to close the gap. Technology is important, but without policy, you will never close the gap in a sustainable way.
And the right-hand side is a different example for transportation demand. It's a little bit of a bigger gap, because it's a bit more of a costlier delivered product, because of the more extensive inefficient delivery system because it's a wider span. OK?
All righty here. So, key recommendations. As I said, that's a bit of the story. I've kind of walked you through some of the key findings. If I go to the next slide. There was 23 recommendations that we came up with. And we grouped them into three primary themes. The first being policy and regulations. The second being societal considerations, impacts and safety. And the third being technology research, development and deployment.
I think one thing of note, the middle column is something that, I mean, we're proud of it all. But the middle column is something that I think delivered upon hey, what's the history, what do we think we should go forward. But it was also codeveloped and consistent with the natural gas study that the NPC did in parallel with this study.
The only other thing I'd say on this slide is if you can imagine 29 different voting members from a broad range of groups looking at all these recommendations and agreeing and endorsing. We got such a high degree of alignment and agreement on this. It was quite incredible. And really good. So, it's my way of saying, these are robust and well accepted recommendations.
>>Christopher Freitas: And Darin, if you don't mind, if you'd stay back on that slide. Can you go back? So, this is the first time that the National Petroleum Council actually addressed societal consideration, impacts and safety. This is a direct request. And societal consideration, impacts and safety is both in the hydrogen study and also in the reducing greenhouse gas emissions study. So, this is very unique. Unique to the NPC under the administration's environmental Justice 40, and, which came out after, the executive order came out after the actual request to, the Secretary's request to the NPC for this study. But the great news is that SCI and SSCI impacts were addressed within the framework of the H2 and GHG study. So, thank you, Darin, for bringing that part.
>>Darin Rice: OK, so I think I've got about five more minutes to get through some of these things that I won't do justice to. But I will attempt, and some of these slides are not ideal because there are so many words. So, let me call out a few words, and I'll give some context, right?
As I said, from a policy and regulation standpoint, what I'm trying to do is just give an overview of those handful of recommendations in that first swim lane. But the key point here is without policy support, the end user will not want to adopt LCI hydrogen because it's not cost competitive with the higher carbon [inaudible]. And so, this first bullet, right? Price on carbon is something that our—is a key recommendation. We believe in a price for carbon consistent of what we've stated before. And so that's a key recommendation. Point one.
We also recognize that while that's been suggested before, that's not an easy thing to do for a variety of reasons. And so, we figured, you know, the DOE might say hey, thanks for that. That's not entirely helpful because it's hard to go from nothing to something like that.
So, one of the other suggestions, if a price on carbon isn't imminent, is how do you step into this? So, the second bullet, sub bullet one, low carbon intensity standards. We're proposing a low carbon intensity standard, a federal low carbon intensity standard for both industrial and transportation sectors, right? It's a sector-based, technology-neutral standard that could act as a bridge to a price on carbon starting with industry and transportation applications because they're the highest potential for emissions reductions. Much like, you know, I'm sitting here in California. Much like what California has done, there's aspects of this replicating at the federal level to get us started. So that's more on the demand side.
On the supply side, 45V, one thing I'd note is that we assumed when it comes to additionality and regionality and hourly matching, we assumed the most stringent interpretations of 45V largely because it was the simplest way to model. And so, we didn't comment on whether we agree with all those aspects and what should exist and what should not exist. That's just how we modeled it.
What we did do, however, in the recommendations, is we suggested that from matching the credit claiming period, we should match the credit period to the asset life cycle. People are trying to make big investments, and investors need to have confidence that they're doing the right thing that could get a decent return. Also on the inputs, right? For example, natural gas is a feedstock for the CCS pathway. We recommended that we should allow customized inputs to essentially encourage innovation and encourage low carbon intensity improvement on the feedstock side. So that's another part of our recommendation.
I will say, however, the GREET model has an average number. One of the things that, the unintended consequence that we didn't want to have, and we clarify this in the report, is you know, any time someone is inputting a lower number versus the standard, then the average number becomes not representative but with the remaining average. So don't know how to solve that problem. But the point here is we want customization of the inputs.
Infrastructure capital, global carbon intensity standards. You need to connect supply and demand, and this requires support. Exports are also a key, and global standard recognition gives us some momentum to get the infrastructure in place because markets have confidence.
And then lastly, when it comes to regulatory frameworks and permitting, as I said there's a whole lot that needs to be done. And we need to build this with speed. And we need to ensure that investors have confidence that we can build this. And so, therefore, permitting is critical. We did also recommend some things around unblended interstate pipelines as well as classic permitting timelines and decision points.
All right, the next slide, the second swim lane, societal considerations, impacts and safety. The point here is we need to be intentionally accounting for societal considerations, impacts and safety. It's critical that we increase public acceptance and collaboration. It's necessary to support timely understanding and development of these projects. We need to be able to build it and operate it. And essentially in operating that, ensure public safety and recognize in doing that, there's also some health and economic benefits. Some companies know how to do this well. Many others don't know nor have the resources. And so, these recommendations are really intended to be actionable to advance best practices and impacts when it comes to engaging and having the right solutions in wherever we build things.
And then lastly, technology research and development and deployment, the last, the next slide here. If I move forward. So, tech investments, while I said the tech investments won't close the cost parity gap, tech investments are important to ensure that we focus these on the most critical bottlenecking components, right? If you can envision a value chain up and running, now it's about trying to make sure that you expand the potential of reducing the cost of delivering the molecule. The other thing I'd say is outside of hydrogen used as the feedstock, all these applications as a fuel, as a transportation mode, as a dispatchable power, they're all in the new use cases. So, we need to make sure that RD&D helps get us there.
And so, it's really about enabling these end uses, as I just said. The other thing I point in the first cluster of bullets is leak detection. One of the things is, hydrogen is an indirect warming gas. Not a greenhouse gas. And the bottom line is for a variety of reasons, you want to minimize leakage. And so, monitoring and ensuring a robust value chain is super critical, and that's, you know, one standout here when I look at the first cluster of tech recommendations.
And then lastly, right, the second cluster of bullets, technical bottlenecks could inhibit deployment. We need to ensure these value chains can get built with speed and maintained to ensure that they deliver and are robust. And I think that whether it's materials sourcing or codes and standards, these are certain recommendations that we highlight and that have a robust narrative.
OK, last slide. And then we'll open it up to questions. You know, this is maybe the, a way that you circle back. What did I just try to cover? I think point one is LCI hydrogen can play a critical role. It addresses hard to abate. And there's actually an economic benefit when it comes to—relative to other alternatives that can be used. The next one is just, you know, significant policies and actions are required, right? To get to net zero, right? It needs to, the customer needs to have an incentive to switch. And recognizing the cost parity gap between a low carbon option and an incumbent is critical, and it won't get closed just by technology alone.
All different pathways need to be deployed. You can't just wait for one pathway, because everything scales differently. CO2 captured today is worth a lot more today than it is tomorrow, just because of the compounding effects. And so, it's like all hands on deck, and use all pathways that you can. And then lastly, recognize the regional variances. We talk a lot about solutions that are tech neutral, and let the markets play out. Same thing from a regional solutions standpoint. All regions are different and recognize their natural advantages and ensure that policy and technology exploit those in a positive way.
All right. So, there you go. Thank you for your patience. That's a bit of a whirlwind drive. Now I will pause and open it up to questions.
>>Christopher Freitas: Thank you Darin. And Mark, did you have anything you wanted to add at this point in time? Or Steve, you're also on the call. Steve Kellogg from Exxon Mobil also is a coordinating subcommittee member.
>>Mark Shuster: No, I just want to point out that Steve Kellogg had joined, so good to see you, Steve.
>>Steve Kellogg: Yeah, there's nothing I wanted to add. I want to leave as much time for questions and dialogue as possible.
>>Christopher Freitas: OK. Well, the first question we have to answer right now is, hello, is a report available to the public? It is. And if you can, you can go to the harnessinghydrogen.npc.org website, and you could see, find the report there. John, it's not yet back from copy editors but I believe that it is, the executive summaries are available for both studies at this point in time, are they not? Great. Thank you.
Again, let me report or, Darin, you did a wonderful job going over the major seven questions that the Secretary asked the National Petroleum Council to address with the hydrogen study. We do have a question that came in from Tom Dower. Did the modeling factor each industry's ability to pass on additional costs, e.g., price elasticities? Getting at how realistic some of the model outcomes are for early industrial uses, particularly for trade exposed industries.
>>Darin Rice: Yeah, so maybe I'll start. And Mark or Steve, if you want to add or subtract feel free. So, you know, if you can recall, I showed you a price of, implied cost of carbon slide. So, what we were trying to do is you were forcing in an implied cost of carbon in order for them all to pull in the optimized tool. So, no, it was almost just—basically it's a way of assuming that the market will basically pay for whatever the cost is, to mitigate the—be coherent with the emissions trajectory that we're trying to match.
>>Christopher Freitas: OK. Do you want to add to that?
>>Darin Rice: Yeah, any—I don't know if that answers the question.
>>Steve Kellogg: To be totally honest, I was busy thinking about how to answer John Marion's question in the chat and I missed that question. If someone wants to reiterate for me, I'm happy to potentially add on.
>>Christopher Freitas: It is basically, did the modeling factor each industry's ability to pass on additional cost, e.g., price elasticities. Getting at how realistic some of the model outcomes are for early industrial usage, particularly for trade exposed industries. I would assume like cement and steel and ammonia.
>>Steve Kellogg: Right. Oh, yeah, there's a lot to be said about that. So, our modeling was a U.S.-only activity. And so, it didn't have the ability to really appreciate international trade effects. I will also say that in our—one of our key recommendations was that we need additional policy—additional policy. And we gave some specific recommendations on how that might be implemented. And one of the key things in there is we said that we needed the policy to be sensitive to the fact that, you know, that there's import and export considerations. So, we said that basically we need sort of an American version of the CBAM for imports, and we need some sort of, potentially, reimbursement on exports for countries that are not, that don't have comparable GHG policy.
And then, in the modeling, what we did is we basically said, we did a lot of work for every single industry to say, what are the different ways to decarbonize those industries? What is the cost of the technologies to decarbonize those industries? What is the incumbent cost? What's the delta cost? Between continuing to use the incumbent and doing abatement using whatever the best technology is, whether it's hydrogen or otherwise.
And then we articulated that back as an avoided cost of carbon or implicit cost of carbon. And we didn't specify the extent to which that missing money or required avoided cost of carbon came from being able to pass that on to a customer versus whether that came from policy, or whether that resulted in demand elasticity or anything in fact. So, we just said here's how much the missing money is. And that could be made up from voluntary premiums, passing it on to customers, policy, feels like I'm missing a bucket of places that that could come from. But that's kind of the way we thought about it.
And we did do a little bit of thinking about demand elasticity, honestly. The MIT models do have ways of appreciating the fact that as things become more expensive, there may be some erosion of demand. And what Darin showed you is an example of the outcome of that. The slightly lower GDP in the net zero case than in the base case. An unabated case. Hopefully that helps. I know I said a lot and I said it fast. So hopefully that helps give you kind of a sense of how we did that.
>>Christopher Freitas: Thank you Steve. We have another question that came in from Steven Barrera on topic 22. Jonah, if you go to that. And that addresses grid integration. What are the findings regarding load growth for states? Most states are anticipating increasing load and are figuring how to add more generation to address set load increases without raising rates. I'm assuming this increase in LCI hydrogen alone [inaudible] increase load. Darin, do you want to take a stab at that?
>>Mark Shuster: Maybe, let me start and then I'll pass it over to Darin or Steve. But first is, and I'm not sure if it was clear in the presentation, but all the assumptions with regard to electrolysis are behind the meter. So, this is essentially, we've not assumed the grid structure, grid delivery. But I think the implication from the question and comment is real. That, you know, the—we would envision a significant increase in wind and solar as well as electrolytic infrastructure requirements, in order to be able to deliver LCI hydrogen, particularly in the net zero case. And that would have implications on the grid. Darin?
>>Darin Rice: Yeah, so correct me here, because I'm going to throw out some things. So, I don't know that—I think we just recognized that it's a big, it's a huge opportunity. And what I mean by that is I think within the modeling, correct me if I'm wrong, but at some point, we assumed that the grid was net zero. Maybe that was by 2035 or what have you. I think that was an input. But we also recognize that you know, NREL has suggested to get to net zero for the grid is a huge task, right? Probably growing more than three times by 2035 relative to 2020. So, point one.
I believe for what I showed you on the electrolytic side, the increased renewable power or the increased electricity required probably doubles—is a doubling requirement versus the baseline. So, my point is, we got some stats around the challenge. And I think one of the recommendations is this is a big deal. And modeling and grid resiliency is just a task that was too complex for our study, and it's just recognizing that that needs to be done going forward.
>>Christopher Freitas: So, there was a question coming, what was the Secretary's response to this report? And I'll let Darin and Mark and Steve, and I suggest you remember back to the April 23 and her remarks after was initially delivered by Austin [inaudible]. Thank you.
>>Darin Rice: Yep. Mark, I think I was sitting next to you. So maybe I'll walk it back even before that. Brad Crabtree, when we were doing, I think it was a study committee report out. One of the things that he said, which was great, is—
>>Christopher Freitas: For those on the—Brad Crabtree is the Assistant Secretary for the Office of Fossil Energy and Carbon Management.
>>Darin Rice: Yeah. And because we were always going two years ago, oh man, how do we do this quickly? How do we make it relevant? Are we too late? And one of the things he said is that I've read your report multiple times, and the details are fantastic. I think the objectivity with how you've laid out different pathways is really informative. And this couldn't be coming at a better time. And the reason why I say that, or he said that, is because people are now just realizing what this is. It's great to get on board early and say yes, yes, yes. And now they're starting to realize the difficulty and the cost.
So, policy is becoming even harder to maybe influence. And so having the education, having the detail, having the quantitative analysis is really timely to support, you know, the arguments and the decisions that need to be made. And then if I go back to April 23, Secretary Granholm, her key word and which you've probably seen if you've looked up any articles, was sobering. Thank you for this report. It's a very sobering report. And you can take that as a good thing or a bad thing. Meaning, is it so sobering that we've just killed this, right? Or is it sobering where people put into context that, thank you very much for all the policies and the leadership that the U.S. has had to get this thing activated.
But our work is not done. There's still a lot more that needs to be done for us to have a chance to fully utilize hydrogen to scale our economy to deliver a solution that ultimately is the lowest cost solution to society. So, the sobering word is what sticks in my mind, which I'm biased. But I took that as a good reaction.
>>Christopher Freitas: Darin, I would agree with your assessment and with remarks that Secretary Granholm provided to the Council. We have another question coming. Given that the CCUS-based H2, blue H2, is integral to 2050 goals, were there perspectives on if carbon capture can truly achieve carbon capture rates of 90%, which is necessary for the carbon intensity to blue H2 to be truly low. Mark, can you address that?
>>Mark Shuster: Yeah. So, I think you know, we had a lot of discussion on, first of all, capture rates. And we went with these numbers. One of the key elements is that if the technology is available, it will take, you know, deploying carbon capture and essentially refitting or new build. I think the issue and one of the recommendations that we speak to is, it's also the pace that CCS can actually be deployed. And one of the key hurdles right now, or slowdowns, is with respect to classics well primacy, and being able to have a storage of carbon underground. So, we speak to it. It is, you know, achievable. Is it challenging? Yes.
>>Christopher Freitas: OK, so there's two quick questions I hope we can address, is that were there any thoughts on incorporating societal considerations, impacts and safety throughout the tech RD&D, and second, why does the Northeast barely play any role within the context of the study? So one is on modeling, the other is on SCI and recommendations for the secretary on RD&D.
>>Darin Rice: Yeah. Let me start with the northwest. I think, correct me if I'm wrong, Steve, Mark.
>>Christopher Freitas: Actually Northeast.
>>Darin Rice: Oh, the Northeast. I think it's the same thing. I think it's this low industrial anchor demand and really expensive renewables. I think that's what it really comes down to. Relative to the other areas.
>>Mark Shuster: That's what I recall as well, Darin. And then the question with respect to why didn't we choose to embed the safety and societal considerations within the chapters. I would say that the chapters speak to each of those items. However, we wanted to make sure that the discussion of the societal considerations and safety had its own weight. Had its own—through its own chapter.
>>Christopher Freitas: Another—go ahead.
>>Darin Rice: Maybe what I'd add, Christopher, is when you read the societal considerations, impacts and safety, I think the other part in keeping it standalone is, there's a lot of history that's in there as well. So, there's a bit of educational context. And so rather than, you know, and trying to say, because to some degree the culmination of the recommendations are a bit more—you just need to engage in a meaningful or right way, best practices way, have data, have outcomes kind of performance managed and stuff, to make sure you know what's making a difference. So that's part of it. But the other part is just recalling, how did we get to where we are and what's the history. And so that was just more, as was said, just in a more efficient way to concentrate the read.
>>Christopher Freitas: OK, so let me get to another question. And I want to thank those who are sending Qs and As, I hope we can get to all of them. And this question is, I appreciate the reinforcement, the need to drive down the cost of deploying LCI hydrogen to make green end use products more competitive. Do you see any low-hanging fruit from the technology development side which would help to lower costs for green products?
>>Darin Rice: I'm happy to go second. Any reaction, team?
>>Christopher Freitas: Steve, from your perspective on the study? Or from Mark, from an academia?
>>Mark Shuster: I can maybe kick off with one element of it. So, and it's not, you know, specific just to production of hydrogen. We looked at a total delivery cost. And a key part of higher cost for electrolytic hydrogen is the fact that you have to store it and transport it. And so, technologies that could reduce the storage cost in particular would help significantly reduce the overall delivery cost of electrolytic hydrogen. That's one element. There are many others, and maybe Steve or Darin can speak to them.
>>Darin Rice: Yeah, let me react to that. And it's significant, right? I mean, and what Mark was saying, and I'm reacting that just, you know, you've got a lot of different components to the renewable power component, whether it's how big do you build the electrolyzer? How do you match the renewables? You know, what is the storage mechanism? And the combination of picking the location right and the capacity factors and the overbuild and the storage could be the difference between two to three dollars a kilogram savings.
>>Christopher Freitas: OK. I think we have time for one more question to be answered. And this is on, for all three of you please. The benefit—the question is the benefit to society of LCI hydrogen is huge. But is intangible. If a model can compute the cost of CO2 emissions, and that cost is converted to the benefit of LCI hydrogen, then it would make the case of LCI hydrogen more than welcome. Any work done in this direction? Or any work being done in this direction?
>>Darin Rice: I'm not sure I understand the question.
>>Christopher Freitas: Seems to be about SCI, societal cost, the societal cost of carbon, and basically, we drive down the societal cost of carbon, or you raise the societal cost of carbon at a certain point, and we have the necessary financial incentives through U.S. Treasury LOIs for the industry to move forward with the LCI hydrogen. They should be offsetting on the benefits of the, I would think, of the tax incentives of 45Q if extended, would equal where the market is on the SCI costs, societal considerations. Excuse me, societal considerations, impacts and the social costs of carbon.
>>Steve Kellogg: That's a very complicated question and in some ways a bit of a fraught one. As you guys know, EPA has had societal costs of carbon that vary widely over the last, I don't know, eight years or more, ranging from, if you go back 15 years, I think it was zero or not even appreciated for a while. Then it was in the neighborhood of 50 bucks. Then it bounced up around the neighborhood of 200 bucks. But, and then there's of course a lot of debate going on about what is the appropriate societal cost of carbon? Actually, I think Resources for the Future did some really good work on that, if you want to do a little bit of Googling.
But you know, one thing I would say is we did calculate the implicit cost of carbon, of using hydrogen to abate all the end uses that we looked at. And it was—it ranged. It ranged from as low as like, $50 a ton for feedstock hydrogen. And it got up into the hundreds of dollars for some industrial and more difficult cases. But a lot of that hydrogen was deployed at an implicit cost of carbon below what the EPA currently calls the societal cost of carbon, which I think is encouraging. And I think it makes your point that indeed there's a net benefit to deploying LCI hydrogen even as it's a very high-cost solution.
You know, you can also observe that our shadow cost of carbon, or the cost of carbon required to actually achieve net zero got quite high. It got up into the $700, $800, $900 a ton range in the out years. And if you compare that to EPA's current social costs of carbon, you might view that as somewhat troublesome. And if anybody finds work on that, and how to reconcile those two statements, I'd love to have it. That's something I personally worry about quite a lot, and I haven't managed to get my brain around.
Because DAC, people argue about the cost of DAC. We had it up in that $800 ton range. And that was our kind of backstop emission control technology, to get down to the net zero. There's people who think that can get as low as 200. But kind of median, the P50 seems to be it could get down to 50 to 800. Currently it's in the thousands. So, if you have to use DAC as a backstop, and we actually believe that societal cost of carbon is 200, that says that you may not somehow get to net zero. So again, very complicated issue.
But the key thing you can observe from our study is that we had implicit costs of carbon associated with deploying hydrogen that were lower than today's EPA social cost of carbon. And that makes your point, that it's worth deploying this. It's in society's best interests to do this.
>>Mark Shuster: And I think we demonstrated it from the GDP perspective that you know, if you don't include LCI hydrogen, it's going to cost more by 2050.
>>Darin Rice: Yeah, and I think maybe it's been said, but what we didn't account for is, I mean, really, we were just trying to focus the cost parity gap between what you're trying to displace. And that's how we developed our savings. And by no means did we actually then try to justify it a different way, right? With climate changes, and the world dynamics change, and local communities, you know, people are going to benefit from weather patterns. People are going to benefit from local emissions. We didn't quantify any of that, to try to justify the hydrogen piece in it. So easy to be defensive. And ignore the fact that the benefits associated with getting to net zero, which are not part of this analysis.
>>Christopher Freitas: So, I want to thank all that are on this call. I want to hand it back to Kyle. Kyle, thank you so much for developing this H2IQ Hour. And if anyone who's on a panel, who called into it, needs additional information, please contact either myself, Christopher Freitas, at the Office of Fossil Energy and Carbon Management, or through Kyle. And we'll get back with you on additional questions that you might have raised in the chat that have not been answered today. We certainly have the opportunity to address these with our CSC members that participated in this study.
>>Kyle Hlavacek: Thanks Christopher. And that concludes our H2IQ Hour for today. Once again, I'd like to thank Christopher, Darin, Mark, and Steve for today's impactful presentation. The slides and link to the recording of this webinar will be available within the coming weeks in the H2IQ Hour archives. Please be sure to subscribe to HFTO news to stay up to date. Thank you for attending, and we look forward to seeing you at our next H2IQ Hour webinar. Take care.
>>Christopher Freitas: Thank you.
>>Darin Rice: Thank you.
>>Mark Shuster: Thank you.
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