There's Something About Hydrogen

 Quick! When you think about hydrogen, what is the first image you think of? Is it the explosion of the Hindenburg? A mushroom cloud spreading over the New Mexican desert? These images likely come to mind courtesy of hydrogen's explosive energy.

This energy is what makes hydrogen a potential source of fuel. However, efforts to harness and commercialize hydrogen energy as a fuel source are similar to the suitors for the title character in "There's Something about Mary"—while many try, only the extraordinary succeed. Why is this the case with hydrogen?

Is it hydrogen's energy density? Unlikely. The energy density of hydrogen is approximately 120 MJ/kg, while the energy density of gasoline is only around 45 MJ/kg. To be fair though, a kilogram of gasoline occupies a smaller volume at around 1.35 liters compared to a kilogram of hydrogen at just over 14 liters at normal pressure. This explains why hydrogen is often compressed when used as a transportation fuel.

Is it instead the economics? Also unlikely. According to IEA, the cost of producing hydrogen using natural gas and carbon-capture utilization and storage ("CCUS") is between $1 and $2 per kg, while the cost of producing hydrogen with renewable electricity is more expensive at $3 to $8 per kg. Both of these production methods have a far lower carbon footprint than gasoline, and the use of hydrogen as fuel only generates harmless water vapor as a byproduct.

Whatever the reason, many investors have been disappointed with the poor profits and low returns seen within the hydrogen business recently. One hydrogen focused ETF is down 9% over the past year, while another ETF focused on hydrogen is down nearly 47% over the past year and down 43% since its inception. Of course, past performance is no guarantee of future results.

Will this change? Over the past couple of years, hydrogen has made a star turn in new federal legislation. For example, The Infrastructure Act, passed in 2021, references hydrogen 190 times, and an entire subtitle of the law is dedicated to encouraging the research and development of hydrogen. Furthermore, the Inflation Reduction Act, passed a year later in 2022, references hydrogen 78 times and creates a clean hydrogen production credit. 

What is the key takeaway here? The search for commercial hydrogen fuel seems like the search for the holy grail. It holds a powerful attraction for many yet appears to be difficult to grasp. Perhaps the recent federal legislation will make it easier to harness hydrogen's promise of explosive energy that does not contribute to climate change. Truly, there's something about hydrogen.

Read the full Climate Report here.

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