Monthly Market Commentary

Fuel of the Future

Philip Blancato, Chief Market Strategist, Osaic

Green Hydrogen

Green hydrogen is a hot topic nowadays, leaving many to wonder how important a role it will play in the future as an energy source to heat homes, run factories, and advance vehicles. Green hydrogen, also referred to as “clean hydrogen,” is a clean burning fuel that has significantly low carbon emissions.1 This is among its main differences from grey hydrogen, which is produced using fossil fuels such as natural gas or coal. The dominant method used to produce green hydrogen is a process called electrolysis. Despite the widespread usage of electrolysis, green hydrogen remains a scarce element. Regardless of its exponential growth, green hydrogen will remain scarce in the short term due to costs and a lack of electrolysis technology. As we develop and innovate new ways of producing energy, green hydrogen may be the one that triumphs over the rest.

Why is it Green?

One of the most appealing aspects of hydrogen is in how it differs from the process of burning fossil fuels, which produce greenhouse gases. According to the U.S. Department of Energy, hydrogen combustion produces only heat and water, making the results a more attractive feature when determining the future of hydrogen as a fuel. Green hydrogen only emits water vapor, unlike coal and oil, which leave residue in the air. The important process that separates green hydrogen from the other forms of hydrogen is that it is produced by splitting water (H2O) into hydrogen and oxygen using renewable energy (Figure 1).2

Geologic Hydrogen vs Electrolysis

1. One of the types of hydrogen that can be produced is called geologic hydrogen. It is also known as gold or white hydrogen on the hydrogen color spectrum. Geologic hydrogen results from the chemical reaction between iron-rich minerals in the Earth’s crust and water filtering down from the surface, “The Earth does the production for you using pressure and temperature,” said Michael Webber, a professor in Energy Resources at The University of Texas, Austin. Webber describes this process as “clean,” “cheap,” and a “game changer.”3 Geologic Hydrogen is yet another form of hydrogen that many people believe to play a key role in a more efficient future.
2. Electrolysis is the process that produces green hydrogen. In this process, the H2 is separated from the O, and this requires electricity to form hydrogen. Electrolysis currently remains the most common technique, and it involves the “breaking” of water molecules using an electric current.4 Ultimately, electrolysis is a promising option for carbon-free hydrogen production.

Uses of Today

Today, hydrogen’s main uses are within the chemical industry and the petrochemical industry. In the chemical industry, it is mostly used for manufacturing ammonia and fertilizers. While the petrochemical industry uses it to produce petroleum products. Green hydrogen is the only form of hydrogen that is produced in a climate-neutral manner, 5 and it should be the only hydrogen being used if we want to attain net zero carbon emissions as early as possible. However, methods of low-emission hydrogen production need to see a significant advancement as we move forward.

Net Zero Carbon Emissions

To reach the common goal of net zero carbon emissions by 2050, strong development and growth need to be shown in hydrogen production. To reach that goal by 2050, low emission hydrogen production will need to be about 180 million metric tons by 2030, says The International Energy Agency.6 Today, we are just over 90 million tons, so we will nearly have to double production. The potential in this industry is recognized around the world. For example, the current administration’s infrastructure bill awarded $9.5 billion in funding for hydrogen production and to run numerous industrial processes around the country.7

Amazon & Tesla

Amazon seems to have taken a liking to the idea of green hydrogen and its role in the future of energy. It is understood that Amazon is all for hydrogen as they have announced new investments in Electric Hydrogen and Sunfire, which are responsible for the development of vital technology for the deployment of green hydrogen.8 Amazon has adopted green hydrogen in hopes of helping decarbonize its operations. The attraction to hydrogen that Amazon seems to have could mean that there is more in store for green hydrogen. Amazon, being one of the most influential and valuable brands in the world, could have a drastic effect on hydrogen, considering a large part of their company is transportation. In contrast, Elon Musk is against hydrogen fuel cells and their position in the fuel industry, calling them “mind-bogglingly stupid” and “fool cells.”9 In the eyes of Tesla, lithium-ion batteries are the future of vehicles and transportation. All, all of Tesla’s traction batteries are lithium-ion batteries and there are no signs of Tesla converting to hydrogen. 10 These kinds of batteries have become part of many lives as competitors are trying to build better, cheaper, and more efficient versions. The argument of whether the future of efficient cars will be powered by hydrogen or lithium-ion batteries remains unsettled.

Conclusion

There are many ways in which green hydrogen can power our future. Like any other innovative technology, the progression for manufacturing and utilization will take time, along with understanding how hydrogen can become the most efficient energy source. There is a path to which we attain net zero carbon emissions by 2050, and green hydrogen may play a key role in that journey. As important companies strive to implement green hydrogen into their businesses such as Amazon, we will observe how the global economy will react to adopting a new form of energy.

Disclosures

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.

The statements provided herein are based solely on the opinions of the Osaic Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Osaic or its affiliates. Certain information may be based on information received from sources the Osaic Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Osaic Research Team only as of the date of this document and are subject to change without notice. Osaic has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Osaic is not soliciting or recommending any action based on any information in this document.

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1 https://initiatives.weforum.org/accelerating-clean-hydrogen-initiative/clean-hydrogen-and-its-uses
2 US Department of Energy – The green hydrogen is the fuel of the future – AleaSoft Energy Forecasting
3 Underground Hydrogen Could Supercharge Green Energy. First, Scientists Have to Find It. – WSJ
4 Green hydrogen production: how does it work? (engie.com)
5 Grey, blue, green – the many colours of hydrogen explained | World Economic Forum (weforum.org)
6 IEA – International Energy Agency
7 DOE Establishes Bipartisan Infrastructure Law’s $9.5 Billion Clean Hydrogen Initiatives | Department of Energy
8 Amazon invests in green hydrogen companies (aboutamazon.com)
9 Tesla CEO Elon Musk criticizes fuel cell idea: ‘staggeringly dumb’ (inverse.com)
10 https://www.cnbc.com/2021/10/20/tesla-switching-to-lfp-batteries-in-all-standard-range-cars.html

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