US clean hydrogen push faces another major setback
4 Min Read
Green hydrogen projects in the US face cancellations as tax credit cuts, rising costs, and energy competition stall progress, shifting focus to natural gas hydrogen with carbon capture.
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An employee drives a forklift at Energy Vault, a company that is creating an emergency power system that relies on hydrogen and battery storage, on Tuesday, May 27, 2025, in Calistoga, California. (AP)
Hydrogen has long been touted as a clean, abundant alternative to fossil fuels, dating back to a hydrogen-powered Cadillac in Jimmy Carter’s 1977 inaugural parade. Recently, Biden’s tax credits for low-carbon hydrogen production spurred a wave of corporate investments. However, the enthusiasm around hydrogen is waning, yet again, as its promise continues to face challenges.
The New York Times reported that companies from Arizona to Oklahoma are canceling clean hydrogen projects after Congress reduced the eligibility window for a Biden-era tax credit by five years, now requiring projects to begin construction by the end of 2027 to qualify, a deadline that Wood Mackenzie, an energy consulting firm, estimates about three-quarters of proposed projects will likely miss.
Hydrogen presents an appealing alternative, as it emits only water vapor rather than greenhouse gases when used, but it remains costly, energy-intensive to produce, and difficult to store and transport.
Hydrogen fails to meet expectations
Matthieu Giard, head of the Americas for Air Liquide, a French industrial gas company, told The New York Times that "the rationale behind it was that green hydrogen was going to be abundant and cheap," while adding that "it’s not really what we see today."
Currently, the majority of hydrogen is produced from natural gas, a process that emits carbon dioxide, the primary driver of climate change, while an alternative method uses electricity to split water into hydrogen and oxygen through electrolysis, though many projects attempting this cleaner approach have been canceled or are at risk of being discontinued.
Hydrogen faces numerous challenges, including rapidly increasing electricity demand across the United States, driven by growing power needs for electric vehicles, heat pumps, and the massive energy requirements of tech companies training and operating artificial intelligence systems, all while energy costs continue to rise.
The growing electricity demand creates greater competition for the energy needed to produce hydrogen through water electrolysis, while increasing difficulties and costs associated with installing wind turbines and solar panels in the US further reduce the economic feasibility of many green hydrogen projects.
Bernd Heid, a senior partner at McKinsey & Co. overseeing the firm's hydrogen initiatives, described the current situation as challenging, noting that the US hydrogen market is likely to remain stagnant for an extended period.
A challenging market
Several companies, including Australia's Woodside Energy and Fortescue, have recently abandoned planned low-emission hydrogen projects in the United States, with Woodside specifically attributing its decision to cancel an Oklahoma City-area development to rising costs and weaker-than-anticipated market demand.
Fortescue, a mining company that made significant investments in hydrogen, attributed its decision to cancel a $550 million Arizona-based project, originally scheduled for completion in 2026, to shifting US energy policies.
Fortescue's chief executive of growth and energy, Agustin Pichot, explained during a July earnings call that reduced policy certainty and weakened environmental commitments have stalled developing green energy sectors, creating obstacles for projects that were once considered viable.
Energy executives and analysts suggest that hydrogen projects utilizing natural gas while capturing and storing the majority of resulting carbon dioxide emissions underground may ultimately prove more viable in the US market compared to other production methods.
Natural gas-based hydrogen projects remain eligible for a separate tax credit that extends the timeline for construction commencement. The abundant domestic supply of natural gas in the United States, combined with the Trump administration's ongoing revisions to federal energy policies aimed at promoting natural gas production and consumption, further strengthens its position.
Despite the advantages, the natural gas approach still presents significant challenges, with McKinsey data showing that less than 15% of the low-emission hydrogen projects announced in the US since 2015 had progressed to the final investment decision phase by last year, where companies commit substantial funding ranging from hundreds of millions to billions of dollars for project advancement.
Exxon Mobil is considering building one of the world's largest low-emission hydrogen plants near Houston, using natural gas with carbon capture, but has yet to make a final decision. CEO Darren Woods emphasized that while government incentives help launch the project, its long-term viability depends on developing a self-sustaining market, warning that Exxon won’t proceed without a clear path to commercial viability.
