Impact of additionality and time correlation requirements on the level of emissions in grid-connected renewable hydrogen production

How to produce hydrogen in an environmentally friendly way is a complex and topical issue. The European Union is at the forefront of legislative development of the hydrogen value chain in the West, with several guidelines and delegated acts presented in recent years. On the other side of the Atlantic, in recent months, the development of the renewable hydrogen industry has begun and with it the legislative characterisation of the sector. In the United States, a debate is taking place on the rules and regulations that renewable hydrogen production should have considered, to a large extent, the actions implemented in the European Union by the Commission.

Which are the main EU criteria?

The European Commission, through Delegated Acts, the Renewable Energy Directive II (RED II) and various more recent drafts, has defined the criteria on which producers of renewable hydrogen from electrolysis must rely to certify that the energy fed to the electrolysers is of renewable origin. For other production methods there are no explicit rules, only in the case of the EU taxonomy, where the criterion of emissions of less than 3 kg CO2/kg H2 is indicated in order to be eligible for funding. These criteria are mainly based on the following:

• Additionality criterion: defined as the mandatory construction of new renewable energy generation projects to feed the electrolysers, thus favoring the decarbonisation of the electricity grid. Specifically, only renewable energy from assets no older than 36 months may be used. Due to the immaturity of the sector in the European Union, the implementation of this requirement is postponed until 2028. In this way, renewable hydrogen will support decarbonisation by completing electrification efforts, avoiding pressures on the electricity grid.

• Temporal correlation: refers to the frequency with which producers will have to prove that their electrolysers are powered by renewable energies if they have a connection to the grid and the time difference between the production of electrical energy and the production of H2 with such electrical energy. At the European level, producers will have to carry out the justification processes on a monthly basis until December 31, 2026 and from 2030 for each hour of operation of the electrolyser. From January 1, 2027, they will be able to claim electricity from the grid as fully renewable, provided they have power purchase agreements (PPAs) with renewable generation plants or can prove that energy has been used in periods of excess supply.

• GHG emissions savings calculations: The second delegated act establishes the methodology for calculating GHG emissions savings from RFNBOs. It considers the amount of GHG emission savings from hydrogen, which must be at least 70% of 94 g CO2 eq/MJ.

• Geographical correlation: indicates the proximity between the electrolysers and the renewable energy source, thus avoiding cogestion in the grid for supplying energy at very distant points and avoiding possible fraud that may occur. The EU proposes hydrogen production provided that sufficient local renewable energy is available, so the electrolyser plant must be directly interconnected, and in the same taxation area.

The U.S. debate

The authorities managing the legislation for the renewable hydrogen sector in the United States want to follow criteria similar to those established by the EU, which has led 54 companies in the sector (such as Cummins, General Motors, Phillips, etc.) together with the US Chamber of Commerce to write a letter to the US government asking for reconsideration of the criteria, especially the additionality criterion.

The signatories of this letter refuse to adopt the additionality criterion, arguing that it “would significantly suffocate the renewable hydrogen market, adding unreasonable costs and delays for producers, which would contradict the IRA plan, thereby undermining the economic, labor and environmental benefits. In short, it would be an arbitrary and damaging approach to the country’s decarbonisation drive.

On the opposite side is the regulatory body, the Treasury Department. It argues that the criterion is necessary because without the implementation of new renewable power plants, and if existing plants are used to produce renewable hydrogen, the demand satisfied by renewables will have to be supplied by fossil fuel technologies, which is not helpful for achieving decarbonisation targets. Emissions could be multiplied by a factor of five if the practice is carried out without the additionality criterion. In addition, a Princeton University study suggests that costs are overstated, and argues that building new renewable production infrastructure and selling surplus energy can improve the economics of the project.

Research on the impact of temporary additionality requirements from the Massachusetts Institute of Technology (MIT)

Supporting the nascent renewable hydrogen industry and ensuring that it becomes a real force for decarbonisation is a complicated goal, largely because of the challenges of clean electricity supply. In an attempt to help regulators and clarify disagreements on regulatory issues, researchers at MIT have published a paper in the journal Nature Energy that describes a hypothetical path to scale the renewable hydrogen industry while limiting the level of emissions associated with production.

Currently, U.S. power grids run primarily on fossil fuels, so if increased hydrogen production results in increased electricity use, it could result in increased emissions. There is also a risk that “low-carbon” hydrogen projects could end up diverting renewable energy that was planned to supply the grid. It is therefore critical to ensure that low-carbon hydrogen gets electricity from “additional” renewables, especially when hydrogen production is supported by public subsidies. The challenge lies in enabling hydrogen producers to purchase renewable electricity in a cost-effective manner while minimising the risk of high emissions.

The Inflation Reduction Act (IRA) offers generous tax credits for low-carbon hydrogen production. But the law does not specify exactly how the carbon footprint of hydrogen should be judged, although the state of California has an amendment that regulates such activities, the CA-GREET3.0 model.

The article focuses on what hydrogen production looks like in the U.S. When renewable electricity from a wind farm or solar panel flows through the grid, it is mixed with electricity from fossil fuels. The recurring question is: what are the carbon dioxide emissions of grid users who are signing agreements to purchase electricity from renewables?

As for the temporal correlation, a distinction is made between annual, based on a less strict approach to the standard where the electricity used to generate H2 must be produced in the same year, and hourly, where hydrogen producers must use the electricity purchased one hour after its generation. Therefore, the calculated emissions balance depends on two basic mutually exclusive assumptions. Hydrogen production therefore competes directly with other electricity needs, such as electric mobility or heat pump heating, for example. The result of the analysis shows that those assuming direct electricity competition tend to overestimate emissions from H2 production by annual equalisation and underestimate emissions by hourly equalisation. The researchers assume that in the near future hydrogen production in the U.S. will be low and, therefore, there will be little competition for electricity. To increase renewable hydrogen production quickly and easily, the experts recommend an annual correlation initially. As time goes on and hydrogen production increases exponentially, hourly correlation will become a requirement and later the matching rules will be eliminated altogether if the energy supply has already been significantly and massively decarbonised.

Regarding additionality, another point of disagreement arises from how hydrogen producers purchase renewable electricity. If an electricity user gets power from an existing solar farm, they are simply increasing overall electricity demand and taking clean energy away from other users. But if tax credits only go to electrolytic hydrogen producers who sign power purchase agreements with new renewable energy suppliers, they are supporting clean electricity that would not otherwise have contributed to the grid. This concept is known as additionality.

The MIT researchers analysed previous studies that reached contradictory conclusions, and identified different interpretations of additionality underlying their methodologies. One interpretation of additionality is based on the assumption that new electrolytic hydrogen projects do not compete with demand for renewable energy resources other than hydrogen. The other assumes that they compete with all recently deployed renewables and, because of subsidies for low-carbon hydrogen, electrolysers have priority. Using DOLPHYN, a model of open-source energy systems, the researchers tested how these two interpretations of additionality (the “competition” and “non-competition” scenarios) impact cost and how temporal correlation requirements (hourly and annual) impact the level of emissions associated with grid-interconnected hydrogen production. They modeled two U.S. regional grids, those of Texas and Florida, which represent the high and low end of renewable energy deployment. In addition, they tested the interaction of four critical factors in electrolytic hydrogen production: public subsidies, the level of renewable grid penetration and energy storage deployment, limits to electrolyser capacity factors, as well as the competition of renewable hydrogen with natural gas-based hydrogen with carbon capture. The paper concludes that different interpretations of additionality in the models are the main factor explaining the very different estimates of electrolyser hydrogen emissions under annual time coincidence.

Conclusions

The renewable hydrogen sector in the North American country presents much lower levels of legislative maturity than in the EU. This may represent a competitive advantage, since it allows retroactive analysis of the measures that have been implemented from Europe, identifying which aspects can be improved and which should not be included in future regulatory criteria.

The debate on the criteria adopted by the legislative bodies and the criteria desired by the companies in the sector seems to have only just begun, as both sides have solid arguments to support their position. For this reason, and to give a boost to the situation, the U.S. government must find a way to encourage companies to make more investments in hydrogen production, not only in electrolysers, but also in meeting the additionality criteria, since the tax reduction per kilogram produced promoted by the IRA (Inflation Reduction Act) does not seem to be sufficient to promote this type of investment.

In addition, the large size of the USA, the different time zones (4 in total) and the urban layout of the cities, which, unlike Europe, tend to have a more extensive terrain model, can cause problems in the layout of the possible renewable electricity generation plants to feed the electrolyzers and their connection to the grid with which to inject the surplus energy generated, so that it will be necessary to plan carefully for the future in order to avoid problems of congestion of the grid. The importance of this approach also has an effect on the geographical and temporal correlation, especially due to the large distances already mentioned.

To conclude, an exponential increase in renewable hydrogen production in both Europe and the US could significantly reduce the level of emissions from existing industries and enable the decarbonisation of other critical industries. But at the same time, there is a real risk of implementing incorrect requirements and criteria and wasting a lot of money to subsidise carbon-intensive hydrogen production. Therefore, there is a need to balance the growth of the H2 production industry with reducing the risk of increased emissions.