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Special Report

Developing U.S. clean hydrogen strategy includes exports as a production catalyst

July 20, 2023

The Biden administration has rolled out the first comprehensive U.S. clean hydrogen strategy, which includes a long-term goal of robust hydrogen exports to provide energy security for allies and catalyze domestic production as it works to combat climate change.

What's inside

This special report assesses the Biden administration's push to develop and implement a clean hydrogen strategy that includes exports as a key component, putting it squarely in the nexus of trade, climate change and industrial policy.

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Clean hydrogen “is an important element of the Nation’s path to decarbonization,” the administration said last month in its first-ever “U.S. National Clean Hydrogen Strategy and Roadmap,” published by the Energy Department. “Though much remains uncertain, the potential for hydrogen is clear. Focused investment and action in the near, mid, and long-term will lay the foundation for broader clean hydrogen adoption, drive down cost, and increase scale in a sustainable and holistic manner.”

The benefits, according to the strategy, “will both enable decarbonization of hard-to-abate sectors and create and preserve good-paying jobs, provide environmental and energy justice benefits, and create energy independence and export opportunities for the United States.”

The strategy puts the emerging hydrogen sector squarely within the increasingly complex and growing nexus of climate, trade and industrial policy as the U.S. and other countries around the world work to decarbonize economies.

However, for the U.S. to realize its hydrogen export aspirations, industry analysts argue it must first overcome significant regulatory, infrastructure and political challenges – and even then, success isn’t guaranteed.

First steps

The global clean hydrogen market is in its nascency, valued at under $4 billion in 2022, according to U.S.-based Allied Market Research, a market research and consultancy firm. But with projected applications in heavy industry, including steel manufacturing, oil refining and chemical production, along with long-distance transportation, heating, and energy storage, hydrogen adoption is expected to soar as countries accelerate their transition to a green economy – and economies without sufficient or affordable production capabilities could turn to exporters to meet demand. By 2032, the global green hydrogen market could be worth more than $18.3 billion, according to the same report.

Both the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, two of President Biden’s most prominent legislative victories, include extensive government support for the U.S. hydrogen sector to significantly lower the cost of production.

Those bills, combined with the announcement in early July of a demand-side initiative to provide producers with more market certainty, are key to the first phases of the Biden-Harris administration’s clean hydrogen plan. The roadmap published last month outlines a whole-of-government approach to the scaling and adoption of clean hydrogen by identifying industry uses, lowering production costs and establishing regional clean hydrogen production hubs near end-users, which the administration says could spur export opportunities.

The U.S. “could emerge as a net exporter of hydrogen and hydrogen derivatives if it can move quickly to capitalize on its domestic advantages,” the Energy Department said in a March report, “Pathways to Commercial Liftoff: Clean Hydrogen.” It articulates the role strong export markets could play in bolstering the domestic industry, noting that exports would lower the cost of transporting hydrogen from production centers to coastal hubs by “accelerating the development of large-scale hydrogen pipeline infrastructure.”

Further, sustaining demand for electrolyzers, components capable of separate hydrogen from water molecules, after domestic plants have been stocked could help create a thriving U.S. electrolyzer manufacturing sector, and international trade could spur innovation in contract structures and financing, the report said.

Working in the U.S.’ favor is its abundance of renewable energy sources, inexpensive natural gas and geology capable of high volumes of carbon sequestration.

“Within the United States, there is an enormous amount of renewable resource potential in the form of wind, solar. We also have a strong nuclear and hydropower base,” Frank Wolak, president and CEO of the Fuel Cell & Hydrogen Energy Association, a hydrogen industry group based in Washington, DC. The Biden administration has said it aims to leverage these advantages in international hydrogen markets.

“Many of the projects that I'm working on right now in the United States do aim to export the products, the hydrogen,” said Mona Dajani, global head of renewable energy and the hydrogen and ammonia practice at Shearman & Sterling, a law firm, and a DOE “ambassador.” Department ambassadors are high-profile individuals from academia, the private sector, government, and community organizations appointed by the department to share updates on DOE programs with their networks and attend program events.

“We are investing billions and billions in hydrogen hubs with an eye to export,” Dajani said.

Potential hydrogen markets overseas already are taking shape. Japan, Korea and the European Union have adopted hydrogen strategies that rely on imports, with the EU expecting to import half of its hydrogen by 2030, according to the European Commission. In February 2022, the world’s first ship carrying liquefied hydrogen loaded its maiden cargo in a joint venture between Australia and Japan.

Central to the administration’s export aspirations is the Regional Clean Hydrogen Hubs scheme, established under the Infrastructure Investment and Jobs Act signed in 2021. DOE’s Office of Clean Energy Demonstrations plans to spend $7 billion to establish six to 10 regional hydrogen hubs across the United States, according to DOE. Candidate applications were due in April and the OCED will announce the regions selected for the program in the fall.

“What makes that program really unique is that it's trying to create a full value chain,” David Hart, professor of public policy at George Mason University, told Inside U.S. Trade. Hart said the core of the program is focused on hydrogen production but added that the administration also is “interested in finding customers for that hydrogen and moving the hydrogen within the region.”

“We're talking about a program that's going to build … hydrogen factories, hydrogen pipelines, and then possibly helping end users, like industrial facilities, that are going to use the hydrogen,” Hart said.

To further incentivize hydrogen production and lower costs, Congress included in the IRA a 10-year production tax credit worth up to $3 a kilogram for clean hydrogen. Producers also claim a 30 percent investment tax credit and can stack the benefit on top of other tax credits in the bill. The Export-Import Bank’s “Make More in America” program also prioritizes financing for environmentally beneficial projects including hydrogen projects for which developers anticipate at least 25 percent of output.

Permitting concerns

The administration is spending big to subsidize hydrogen production. In addition to the $9.5 billion allocated to clean hydrogen in the infrastructure bill, the Congressional Budget Office anticipates the IRA clean hydrogen tax credits eventually will cost more than $13 billion.

But the scale of additional infrastructure needed to establish a robust hydrogen industry in the U.S. is also vast. Hydrogen producers today must wait two to three years for electrolyzers. Electrolyzer production capacity will have to grow more than 20 times from today’s levels to reach 20-25 gigawatts per year by 2030, according to the DOE report. For comparison, the International Energy Agency estimates the entire global electrolyzer manufacturing capabilities in 2022 amounted to almost 11 GW. And that is just the mobilization effort needed for electrolyzers.

For carbon sequestration, which is essential to allow the U.S. to use its abundant and affordable natural gas in hydrogen production without substantially boosting greenhouse gas emissions, the U.S. will have to scale up its storage capabilities from around 25 million metric tons of carbon today to between 175 and 425 million by 2050. In addition, new pipelines and port facilities will be needed for transportation.

Despite the hurdles, Tim Tarpley, president of the Energy Workforce and Technology Council, is optimistic.

“The U.S. is in a real good position to be a leader in hydrogen production and export,” said Tarpley, who also sits on the Commerce Department’s International Trade Advisory Committee on Energy and Energy Services. But the biggest challenge will be overhauling the U.S. permitting system to allow the administration’s financial incentives to work, he said.

“This IRA is great. This is a tremendous opportunity here. Our companies are very excited. But there's this missing part that we need to do at the same time and that's permitting reform, because if we don't do it, we're going to miss a lot of opportunity here,” Tarpley added in an interview.

Securing permits for infrastructure construction projects in the U.S. can take years, but the IRA’s tax credits expire in 2032. Without a more streamlined and efficient permitting process, Tarpley says, the fruits of the IRA are at risk of withering on the vine before companies can reach them.

“The average time now for a natural gas pipeline permit is, in some instances, approaching more than five years. And that's if you can get a permit,” Tarpley said.

For a Class VI well used for carbon sequestration, only two of the six permitted wells that have ever been approved in the U.S. are in use – and both took six years to process, according to the Environmental Protection Agency. Mayer Brown, a global law firm, reports that there were 14 Class VI well permit applications pending as of 2022.

“All of a sudden a 10-year tax credit payout doesn't look so enticing when you're not going to even get permitted for five years,” Tarpley said.

There are signs that Congress is taking the issue seriously. The legislative package that lifted the debt ceiling in June contained an amended version of a bill designed to update the National Environmental Policy Act of 1970 to expedite the permitting process.

The reforms set a new two-year deadline for environmental impact statements and one-year deadlines for more modest “environmental assessments.” Applicants can sue the review agency if those deadlines are missed, according to an analysis by the Center for Strategic and International Studies. The courts, however, have no deadline to act, and developers may be reluctant to sue the agency they rely on for permitting.

Some of the delay, the CSIS analysis argues, is because agencies spend an average of four and a half years compiling thousands of pages of environmental assessments to “litigation proof” the document and prevent a project’s opponents from sinking it in court. The debt ceiling legislation sets new page limits on documents, but they do not apply to appendices.

“Really without some element of litigation reform, that NEPA provision will not be really as helpful as it could be,” Tarpley said.

In a “dear colleague” letter circulated on July 9, Senate Majority Leader Charles Schumer (D-NY) identified permitting reform as a key legislative issue for the months ahead.

“The one thing we’ve got going for us this time is kind of everybody needs permitting reform. So-called traditional oil and gas needs it. Renewables need it. Wind and solar need it. Hydrogen certainly needs it. Carbon capture needs it,” Tarpley said, adding, “that'll force the folks up there in DC to take action on it.”

The Biden administration’s June roadmap identifies leveraging “global collaborations on hydrogen infrastructure to inform long term investment plans and hydrogen exports opportunities” as part of its 2030-2035 plans, and DOE’s March report cites the Hydrogen Council’s estimate that the U.S. could be exporting around 20 million metric tons per annum by 2050. But Tarpley maintains the U.S. could be in a position to scale up clean hydrogen production and exports earlier if permitting issues and other hurdles are eliminated.

“I am very bullish on hydrogen,” he said. “If we can fix that, if we can really open up that issue, I think we'll see investment pour in.”

Thomas Koch Blank, managing director of climate-aligned industries at the Rocky Mountain Institute, warned investors to brace themselves.

“It'll be a bumpy ride, like any fast-growing market,” he said, “but maybe in this case, since there's so much subsidy on the table, as soon as something snaps into focus, there will be a bit of a gold rush.”

Eyeing existing infrastructure

While Congress deliberates over permitting reforms for new infrastructure construction projects, the U.S. can leverage existing infrastructure in natural gas supply chains to give its clean hydrogen exports a leg up.

Liquefied natural gas terminals, designed to load, carry, and unload LNG from ships, can be efficiently converted into hydrogen terminals, and existing LNG pipelines could be adapted to accommodate blends of natural gas and hydrogen with only modest modifications, according to DOE. Koch Blank argues that this puts the U.S. “ahead of the curve.”

“There's a whole ecosystem and economy that is geared towards monetizing and exporting energy commodities,” Koch Blank told Inside U.S. Trade, describing advantages many would-be hydrogen exporters don’t possess.

“We have existing ports that are set up for both import and export and [hydrogen] can be tied into this existing infrastructure,” Tarpley said, citing the Gulf Coast’s ports as a prime example.

This, too, poses challenges. Tarpley noted that insurers are hesitant to underwrite pipelines for uses beyond their original design without further safety assurances; meanwhile, several groups, including Food and Water Watch, a nonprofit focused on corporate accountability, have warned that blending hydrogen and natural gas could increase the risk of leaks and blowouts.

“The more that you use hydrogen or mix hydrogen in existing infrastructure and the longer that is shown to be safe and the engineering is sound, then the insurance will follow,” Tarpley said. “But it's not quite there yet.”

Along with insurance and permitting obstacles, would-be investors in U.S. hydrogen export projects also face uncertainties over the treatment of U.S. exports to Europe. Prominent EU lawmakers have called for tariffs to be applied to U.S. hydrogen exports over the Biden administration’s extensive use of government subsidies. Also, whether the EU’s carbon border adjustment mechanism will apply to some clean hydrogen imports is unclear.

The CBAM, which will start to be applied on Oct. 1, covers ammonia, which is a common method of hydrogen transportation. Ammonia, made up of nitrogen and hydrogen, is less expensive than hydrogen to liquefy and transport, so hydrogen exporters, including Saudi Arabia’s Aramco, have used ammonia as a carrier to ship hydrogen internationally. The hydrogen can then be separated out in the destination country. Hydrogen industry groups have called for further clarification on whether EU imports of clean hydrogen that use ammonia only for transportation purposes will be subject to the carbon price. Also uncertain is whether Europe will limit its hydrogen purchases to “green” hydrogen – hydrogen produced from renewable energy sources – or permit “blue” hydrogen produced using natural gas with carbon capture to prevent emissions.

“You need to comply with the IRA requirements to get some of the support for your production facilities in the U.S. but, specifically for green hydrogen or green ammonia, you also need to hit the requirements on the European side or the Japanese side in order to make sense as an export flow,” Koch Blank said. “There are moving parts on both ends of these supply chains in terms of specific definitions and requirements. And that is holding back investments.”

Koch Blank added that “there are projects that arguably could be ready to go, but they're not pulling the trigger because the dust hasn't settled on exactly how the requirements will look on both ends.”

Other countries’ efforts

Other governments have been working on memoranda of understanding to give investors more certainty over future access to export markets. The European Commission has signed hydrogen MOUs and established partnerships with several countries including Egypt, Kazakhstan, Japan, and Morrocco; in February, Australia and Japan also penned an MOU.

The U.S., however, has not followed suit. “It is a little bit surprising that they haven't done that yet,” said Paul Saunders, president of Energy Innovation Reform Project. Saunders suggested that the Biden administration’s focus on electric vehicles and batteries may be part of the reason.

“That really seems like where the vast majority of the political level attention is going,” Saunders said. “I view it kind of less as a reflection of a decision not to pursue that, or something; I view it more as just the administration has had other priorities.”

Koch Blank also expressed surprise that the U.S. has not been out in front on negotiating hydrogen export MOUs but said that tensions over U.S. subsidies might be to blame.

“My interpretation is that the U.S. export for some reason is seen more as a threat than as an opportunity in Europe,” Koch Blank said.

“I do think [negotiating MOUs] should be a priority for the U.S.,” Dajani, the lawyer and DOE ambassador, said. She added, however, that she believes the U.S. will catch up. “Europe is a little bit ahead of the U.S.,” she said, adding that “we have to learn to walk before we can run.”

“I wish it was faster, but I don't think that it's going to leave us in the dust or anything like that,” Dajani added.

Tarpley suggested that existing U.S. LNG contracts could be adapted to include hydrogen exports, particularly those signed following Russia’s invasion of Ukraine. In 2022, U.S. natural gas exporters capitalized on the price volatility brought on by the conflict to lock in 45 long-term LNG contracts and contract expansions, according to research from Friends of the Earth, Public Citizen and BailoutWatch.

“I really would like to see the use of those existing relationships and that framework to expand into hydrogen,” Tarpley said. “We already have agreements with a lot of our allies and Eastern Europe. So, I do think the framework exists.”

The Indo-Pacific Economic Framework for Prosperity might also offer an opportunity to facilitate hydrogen exports overseas. At an IPEF ministerial meeting in Detroit in May, some IPEF partners agreed to establish a “regional hydrogen initiative” as part of the agreement’s clean economy pillar. However, the initiative’s focus is limited to boosting adoption and does not cover trade. Whether cooperation on hydrogen exports will feature in the supply chain or trade pillars of the agreement remains unclear; several analysts believe it will.

“Hydrogen will likely be included in just about any framework of discussion that's going on between the U.S. and Europe and the U.S. and Asia,” said Wolak, the president of the hydrogen and fuel cell industry group.

U.S. export potential

Even if the U.S. can improve its permitting procedures, rapidly scale up hydrogen infrastructure and production capabilities and incorporate provisions to facilitate exports via IPEF, questions remain over how large the U.S. export market could become.

Hydrogen is an extremely light gas and becomes highly flammable when mixed with air, making it challenging to transport. The costs of transforming hydrogen into a transportable form and then converting it back at its destination can run much higher than shipping costs themselves.

Francesco La Camera, director-general of the International Renewable Energy Agency, believes this challenge might make hydrogen export markets highly regionalized.

“The cost of transport will make the difference in the competitiveness,” La Camera told Inside U.S. Trade. Unlike oil and gas, “almost everyone can produce hydrogen. Spain could be an important powerhouse, Africa a tremendous powerhouse,” La Camera said. Exporters might find a global market for their hydrogen in the short term, but “in the middle, long term, the competitiveness will make the difference,” La Camera added.

As markets regionalize, Europe could find itself with several large hydrogen producers on its doorstep. But large Asian markets like Japan and Korea will have to import hydrogen by ship across long distances no matter where it is made, leaving U.S. hydrogen producers no more disadvantaged than any others.

However, U.S. LNG infrastructure, concentrated in the Gulf of Mexico, might be insufficient to serve those markets. “Once you're on the wrong side of the Panama Canal from Japan and Korea, I think it's just less attractive,” Saunders said, adding that political and public opposition would make building the large-scale infrastructure required to export hydrogen from the U.S.’ west coast challenging.

“Are you going to run a hydrogen pipeline across California?” Saunders asked. “I don't really see companies or the state really pushing and competing to develop that kind of infrastructure there.”

On this point, however, recent conflict in Europe may have strengthened the U.S.’ hand. Europe’s scramble to reorient its energy supply chains in the wake of Russia’s invasion of Ukraine demonstrated to policymakers that the stability and reliability of trading partners matters. This thinking may influence future hydrogen sourcing decisions, Tarpley said.

“The United States has got to be top on anybody's list, if you're sitting in Eastern Europe or you're sitting in Tokyo or in Korea,” Tarpley argued. “That stability will overcome logistical challenges.”

However, Tarpley said the industry could do more to communicate the benefits and the safety of hydrogen to overcome some of the political and public opposition development projects will inevitably face.

“You get into a lot of these local communities and there's pushback,” he said. “And that's okay. You know, it's just on us to do that education.” -- Oliver Ward (

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