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Will Blue Hydrogen incur a carbon tax?

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By John Poljak

· 5 min read

According to the IEA, burning all the world’s natural gas in 2020 contributed 7,140 million tonnes of CO2 about 22% of all fossil fuel emissions but not burning natural gas contributed 3,600 million tonnes of CO2 equivalent emissions.

Can the fossil fuel industry be in trouble for not doing something?

Unfortunately, yes. The problem is leaks.

The IEA’s methane abatement database, essentially covering leaks from the energy supply chain, fugitive emissions, venting and incomplete flares estimates the oil and gas industry emitted 70 million tonnes/year with gas making up 42Mt.

Natural gas (methane) has a 100-year global warming potential of 34x CO2 but over a 20-year horizon this rises to 86x meaning leaks have the same effect as the total CO2 emissions of Europe.

Is there a solution?

The fossil fuel industry is still looking to solve the first problem which is to eliminate CO2 emissions.

Blue hydrogen, manufactured with natural gas where the CO2 is captured and stored (CCS) has been touted as a palatable alternative to burning fossil fuels direct. While losing up to 30% of energy to produce, proponents have stated that it can be more easily substituted into existing energy supply systems without the additional cost of greener options such as electrolysers.

But a recent report has cast doubt on whether blue hydrogen is truly carbon neutral. Natural gas leaks and according to a report by two professors from Robert Howarth of Cornell and Mark Jacobson of Stanford University, it leaks a lot.

Based on studies from the production of shale gas in the USA, the authors calculated a leakage rate of 3.5%. It would effectively double carbon emissions when making grey hydrogen from natural gas.

The authors then moved their attention to CCS and instead of finding 90% capture, they calculated an overall capture rate of 62%. Adding the additional fugitive emissions from the extra energy required for CCS, meant that the total emissions from trying to capture emissions was almost as bad as not capturing them at all and worse than if burning natural gas direct.

Is this the end of blue hydrogen?

The authors calculated the 3.5% fugitive emission rate on a specific scenario, shale gas from America.

Applying this to an entire industry is difficult as there are many different paths that the energy supply chain can take. Using the IEA’s 42Mt from the methane abatement database and dividing it by global gas production at about 139 Exajoules or 2.8 gigatons, fugitive emissions works out to be 1.5%, much less than the Howarth/Jacobson study.

But this is still a sizable amount, equivalent to the total CO2 emissions of Europe and it becomes a question of economics and whether emissions should be abated by other measures.

Within this figure there is much variation. A recent US Department of Energy report calculated natural gas from Russia to Rotterdam had lifecycle emissions rate of 5.1%, Australia to Shanghai LNG of 2% and using Norway as the benchmark has emissions as low as .3%.

Using the above leakage rates and applying the Howarth Jacobson logic to a 90% or 62% CCS can give widely different results.

The key issue is that emissions can be controlled by the industry if they want to.


Is it a question of cost?

In 2017, the IEA Greenhouse Gas R&D Programme sponsored a report on the cost of integrating carbon capture technology to an SMR (steam methane reforming) based hydrogen production unit.

When hydrogen combusts or is used in a fuel cell, it does not emit carbon dioxide but the process to make it does. For every kilogram of hydrogen, 9 kg’s of CO2 are produced or 64kg of CO2 per GJ. In comparison, burning natural gas directly would emit 51kg per GJ.

The IEA report estimated the cost of producing grey hydrogen at €1.3/kg based on a natural gas price of €6/GJ. Adding 90% CCS requires almost double the capital costs, 10% more additional natural gas and increases the price to €1.84/kg or a 45% increase to the price.


In comparison, the recently completed €20m 10MW PEM electrolyzer by Shell at its Refhyne facility would produce hydrogen at EUR 5/kg (assuming an electricity price of € 60/MWh)

So blue hydrogen involves a delicate balancing act where it needs a subsidy to compete with direct natural gas and grey hydrogen but not too much of a subsidy that green hydrogen is competitive.

Using €5/kg as a benchmark and even with today’s high price of gas (€10/GJ), it would take a carbon tax of €130/ton to make green cheaper than grey assuming an emission rate of 3.5% Adding blue hydrogen even under the Jacobson scenario and it works out to be €165/ton or €200/ton if CCS works properly with a 90% capture rate. Reduce the fugitive emissions to 1.5% and the tax needs to be €425/ton.

Or the industry could plug the leaks?

The IEA estimates the cost of abating 70% methane leaks would range from $-6/MMBTU to $30/MMBTU. Adding this up, it works out after savings from capturing extra product to be a net annualised cost of $5 billion.

To put that in perspective, ExxonMobil spent $10billion on sales and administration. You could literally solve most of this problem by firing 50% of Exxon’s accountants and giving it to the production maintenance department to spend.

Averaging this over the entire industry, it works out to be 4 cents per gigajoule.

So the key issue is not the fact that blue hydrogen will incur a carbon tax but why is the fossil fuel industry not bothering to fix a problem that is little more than a rounding error in its collective financial statements?


Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.

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About the author

John Poljak is the founder of keynumbers, a website dedicated to analysing energy and economic issues. He holds degrees in commerce and computing from the University of Western Sydney. Prior to starting up keynumbers, he had an international career working as a consultant in the Oil & Gas industry including stints in West Africa, Europe and the Middle East

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