Decarbonizing the Non-Grid Economy
In this post, we talk about what decarbonizing the entire economy really means in tangible terms. We break down the source of energy-based CO2 emissions in the US economy (hint: it’s really not the grid mostly), and what implies for the pathways to get there. Also, why is green hydrogen so important to the Energy Transition, and why are oil and gas majors now very interested in producing it?
“For every problem, there is a solution that is simple, neat, and wrong.” H.L. Mencken
What Does “Decarbonizing” the Economy Really Mean?
When I read the popular press, it bothers me when journalists confuse the concepts of decarbonizing the electric grid with that of ending carbon emissions completely. Shifting our production of electricity to non-carbon sources is admittedly a crucial goal. But the task of decarbonizing the “rest” of the economy is the far more important and challenging difficult problem ahead of us. Electricity production now represents less than one-third of all US emissions, and that figure is likely to fall rapidly in the very near future. We will need to building non-carbon sources faster and on a far bigger scale than contemplated to date.
As we dive into the numbers we’ll focus on the US economy, but the general observations here apply more globally.
Surprise! Electricity Production Causes a Minority of US Energy Emissions
A surprising fact is that eliminating emissions from the grid alone only solves a minority of our emission problem. Most of the CO2 we now emit now come from sources other than the production of electricity.
Total US CO2 emissions from energy consumption in 2019 were 5,130 million metric tons. This represented a 14.5% reduction from the all-time peak of 6,003 million metric tons in 2007.
In fact, US emissions from electricity production fell by about one-third from 2,425 million metric tons in 2007 to 1,619 million metric tons in 2019. This was primarily the result of shifting from coal generation to natural gas, efficiency improvements, and secondarily due to the growth of solar and wind.
If you do the numbers, it turns out that only 31.5% of US energy-related emissions came last year from the grid, and 68.5% came from other fossil fuel consumption. This 31.5% will likely decline steadily going forward. That means that at least 68.5% of the overall US decarbonization problem lies in reducing or eliminating the burning of fossil fuels used for other purposes than powering the grid. In fact, for reasons to be discussed in another post, this figure is more like 75-80%. Imagining that energy emissions are mostly from the grid makes the overall carbon problem look easier to solve than it really is.
One basic takeaway is very clear: most of the remaining decarbonization task in the US does not directly involve grid emissions, but instead that of eliminating or reducing the scope of non-grid fossil fuel use.
Thinking of Decarbonization as a Three-Pronged Strategy
It may help to think of decarbonizing the economy as having three simultaneous and interrelated pathways:
1. Decarbonizing the grid itself, by replacing coal and natural gas plants with renewables and other non-carbon forms of generation (“grid decarbonization”);
2. Electrifying directly some tasks which currently use fossil fuels, using things like battery electric vehicles, heat pumps and electric water heaters (“direct electrification”); and
3. Using other technologies to decarbonize other tasks by using renewable electricity indirectly, presumably through the use of green hydrogen, through a two-step process (“indirect decarbonization”).
At present, indirect decarbonization seems largely dependent on the use of green hydrogen. Green hydrogen is produced by splitting water (H2O) into hydrogen and oxygen molecules. Those of you who took the AP Chemistry test already knew this. The molecule-splitting is done by passing electric through water, using an electrolyzer. You get two hydrogen molecules for every oxygen molecule, but it’s the hydrogen molecule (H2) we care about.
Unfortunately, green hydrogen has not yet been produced with costs anywhere near those of natural gas or carbon-based hydrogen. As solar and wind have now become competitive, and the prospect of mitigating the intermittency, making green hydrogen competitive is likely now the most important obstacle to true decarbonization. Lots of pretty serious people are betting that it will be solved. Lots of major energy producers also seem to think that green hydrogen will prevail. But the success of green hydrogen is not a lock. If green hydrogen does prevail, it will require incremental electric generation on a scale which isn’t generally discussed.
On the other hand, direct electrification and indirect decarbonization, while dramatically increasing grid demand, may actually provide long-term benefits to maintaining grid stability with much higher penetration of renewables.
As one example, widespread adoption of BEVs will increase demand for renewable electricity, but their battery recharging may become a flexible source of demand to help deal with intermittency, and thereby encourage solar and wind market penetration. Similarly, residential heat pumps and water heaters which can be shut off remotely for brief periods can be used to enhance grid stability. Electrolyzers otherwise producing green hydrogen might add to system flexibility in this way as well. This additional grid flexibility may allow more rapid penetration of solar and wind on the grid.
Even With Green Hydrogen, We Will Need Lots of Renewable Electricity
Having looked at some of the first proposed large scale green hydrogen projects (all of which seem to be outside the US), what knocks me down is now much renewable electricity they apparently require. The largest one announced so far, in Saudi Arabia, suggests that 4,000MW of renewables (mostly wind) would produce “as much as” 237,000 tons of green hydrogen annually. Admittedly, the Saudi project doesn’t just produce hydrogen, it converts it into ammonia (which is easier to ship, and which also requires the facility to separate the nitrogen required for that). But best guess is that the hydrogen separation in the Saudi project requires at least 60% of the total energy.
As you may understand from earlier posts, I love back-of-the envelope calculations (Fermi estimation is its fancy name). The back of Prof. Fermi’s envelope today suggests that producing 237,000 metric tons of green hydrogen per year at the Saudi project will require at least 2,400MW of renewables (60% of 4,000MW). While 237,000 tons of hydrogen/year sounds like a lot, it really isn’t in a decarbonizing world. The U.S. currently uses more than 10 million tons of hydrogen annually now, so 237,000 tons of the stuff is barely 2% of that. My envelope tells me then that simply decarbonizing US hydrogen production, and not producing one bloody molecule more for any other use, would require at least 100,000MW of renewables, probably more.
To put this in perspective, even with the current US boom in building renewables, we built less than 21,000MW of renewables in 2019.
The most important takeaway in this post is that all three pathways of the US decarbonization effort will require huge increases in renewable energy, presumably in the form of electricity from solar and wind.
Eagle-eyed readers (you know who you are) may also note that there are other emissions, beyond those from energy consumption, which matter too. Unlike snowflakes, every CO2 molecule is exactly the same. That’s why they all tell the same jokes.
Many of these non-energy CO2 molecules are from agriculture, deforestation and the like. For the purposes of this discussion I will ignore these, both because they are difficult to quantify, and strategies for how to deal with them are generally different than the renewable electricity-focused ones discussed here. But non-energy CO2 emissions are important to be sure.
The Scope of Straightforward Direct Electrification
It’s difficult to predict exactly which non-grid tasks currently performed by fossil fuels will eventually be electrified directly and which will be electrified indirectly through use of green hydrogen. As examples, commercial aviation may be better powered by use of sustainable liquid fuels produced with green hydrogen, and producing sustainable plastics is almost surely a task for green hydrogen.
It is probably true that a lot of direct electrification can use technologies which are now either mature or reasonably close. At this point, cars and light trucks, water heating and space heating all seem likely to become fueled heavily by direct electricity. Electrifying these kinds of uses, and probably others, is therefore both a potentially large reducer of emissions and a huge source of demand for renewables.
Whether a given energy consumer chooses direct electrification or a hydrogen technology (say choosing between driving a BEV vs. a fuel-cell car) will be driven by an assessment of cost, reliability, convenience and other attributes. The magic of markets will produce winners and losers in the competition between, say, electric heat pumps and H2-powered heating systems using fuel cells. In the end, it may not matter enormously, either to emissions reduction or to the renewables industry, whether industries and consumers choose direct electrification or indirect decarbonization. Either choice will reduce CO2 emissions and require more renewable electricity.
The Allure of Hydrogen
Hydrogen has two main attributes which make it potentially crucial to the Energy Transition:
A. It is a potential long-duration solution for storing excess energy from excess intermittent wind and solar generation for weeks or months; and
B. More importantly, H2 can be used both as a fuel (either through a fuel cell or even as a direct supplement for natural gas) and as a feedstock for all sorts of energy uses for which direct electrification either will not work or are not practical. This is crucial for many other carbonization technologies.
First, renewables penetration on the grid runs into the problem of intermittency. What do you do with too much renewable electricity at a particular moment? This is potentially a significant problem. More to the point, what happens if you need more electricity than you have? This isn’t just a significant problem, it’s a big problem, as California found out last month.
If electrolyzer costs could be driven low enough, utilities and grid operators could perhaps rely upon them to absorb excess amounts of renewable electricity when available. This hydrogen could then be used for other purposes, or even as backup power later using peaker plants fueled by hydrogen instead of natural gas. In this way, hydrogen could operate as long-duration storage (e.g. effectively storing energy in April for use in August, say).
Unfortunately, electrolyzer and storage costs may never get cheap enough for hydrogen to operate significantly as long duration storage, simply because this requires having electrolyzers sitting around unused for long periods, and they require a major capital expenditure. Ongoing innovations in battery chemistries may solve the long-duration storage problem instead.
Second, and more importantly, green hydrogen may achieve climate change glory because in a very broad sense it is a wonder fuel, with a wide range of very significant uses.
As an example, using fuel cells, which convert H2 into electricity and heat, green hydrogen may power locomotives, ships, heavy-duty trucks, and industrial boilers. Fuel cells may be more efficient than direct electrification in taking carbon out of all sorts of applications.
Hydrogen can also potentially displace natural gas liquids as a feedstock for plastics, lubricants, ethylene, and other petrochemical building blocks. Hydrogen can supplement natural gas through direct injection in pipelines. It can also be used to produce ammonia, a key feedstock for fertilizer and other products. It may be used to produce sustainable “drop-in” fuels, most particularly aviation fuel, although the technology to produce these is far from mature.
Ever-lower renewables electricity pricing can greatly improve the competitiveness of green hydrogen, but numerous obstacles in electrolytic technology, hydrogen storage and transport also need to be solved. Hydrogen has various disadvantages, but if green hydrogen can compete with fossil fuel-based hydrogen (“steam methane reformation,” which consumes natural gas), an enormous amount of decarbonization seems certain to result.
The Oil and Gas Majors Embrace Hydrogen
In a series of developments I did not see coming, in recent weeks and months the global oil and gas majors (BP, Chevon, Shell and the like) have announced tangible steps in developing green hydrogen. While there may be a little corporate greenwashing going on here, these announcements seem largely genuine, as oral commitments to spend serious money are being made, and the majors’ existing business “drill and refine” models are being publicly discarded in part.
If you start from the premise that green hydrogen can be made competitive with fossil fuel- based hydrogen and natural gas, then this makes perfect sense. BP and their peers know that the future of oil and gas is increasingly limited, and they already have enormous expertise already in hydrogen. Hydrogen has been used in oil refining for many decades, and it’s used in the production of many petrochemical building blocks and products (plastics for an example) in which oil producers and refiners have been involved.
With extensive hydrogen expertise, lots of capital, declining mature markets, and worldwide scope, oil majors are obvious potential drivers of the green hydrogen train, but only if they perceive it as being economically feasible. Apparently, at least to some extent, they do.
I did not see that one coming, at least not so quickly.
Have a great week,
Pete