The battle over building a hydrogen economy in New Mexico officially began on Monday when two lawmakers filed the long-awaited Hydrogen Hub Development Act for discussion in the current legislative session.
Rep. Patricia Lundstrom – a Gallup Democrat who chairs the Legislative Finance Committee – and Rep. Nathan Small, D-Las Cruces, are sponsoring the bill, which Gov. Michelle Lujan Grisham is pushing as “priority” legislation.
The act would authorize a slate of new tax breaks and other incentives for industry to develop hydrogen production and distribution facilities across New Mexico, and to build a robust market for local and regional hydrogen consumption.
It would particularly reward efforts to build new “hydrogen hubs” around the state, where public and private entities could form partnerships to become eligible for state-sponsored loans and grants. Those partnerships would be expected to build out hydrogen infrastructure in designated zones, potentially converting them into industrial parks where companies that consume or market hydrogen-based products and services can co-locate.
The bill is expected to face intense pushback in the Legislature from environmental groups and legislators who are skeptical about the real benefits.
But supporters say building a local hydrogen economy is critical to accelerate efforts to lower or eliminate carbon emissions because hydrogen is a relatively clean-burning fuel that doesn’t emit carbon dioxide. They contend it could help decarbonize everything from electric generation and long-haul trucking to heavy manufacturing operations and the heating and cooling of homes and buildings.
“This is New Mexico’s chance to reap the vast economic and environmental benefits of clean hydrogen, and I urge legislators to think boldly and support (it),” Lujan Grisham said in a statement Tuesday.
Lundstrom said the initiative could bring sustainable employment opportunities to local communities.
“This bill creates and protects good, family-supporting jobs for New Mexicans, while reducing emissions and addressing climate change,” Lundstrom said in a statement.
Environmentalists disagree. They say large-scale hydrogen production would do little to lower carbon emissions – and may even worsen them – because today’s hydrogen is made with natural gas, with a significant amount of carbon dioxide emitted in the process.
About 30 environmental organizations already called on the government in December to initiate an extensive state-sponsored study of the pros and cons before considering any new hydrogen legislation. And some legislators may introduce a memorial in the session supporting that, said Brian Egolf, Democratic Speaker of the House.
“It may not get done in this session,” Egolf said during an online town hall Saturday. “We don’t want to rush a decision. The consequences of getting it wrong are too dire.”
Peter Wirth, the Senate majority leader, said he’s concerned about relying on carbon capture and sequestration technology, or CCS, when producing hydrogen. Industry would use CCS to trap carbon that’s released when pulling hydrogen out of the methane contained in natural gas, but that technology must still be proven efficient and economically viable in commercial projects.
“I have real reservations,” Wirth said during Saturday’s town hall. “… It’s an extremely complicated question whether carbon sequestration technology is reliable.”
Even if CCS proves effective, opponents fear the methane released in mining and transporting natural gas to hydrogen plants will offset any potential benefits from capturing carbon released during hydrogen production. And despite new state rules to lower upstream gas emissions, regulatory agencies need a lot more money and staff to monitor and enforce compliance, especially if gas production increases to supply hydrogen plants, environmentalists say.
They also are concerned pursuing hydrogen now could also divert attention and resources away from building out solar, wind and other renewable generation, slowing the state’s transition to a clean energy economy.
“We don’t want the discussion of hydrogen to take us away from (that),” Wirth said. “We need careful, deliberative analysis to see where we go.”
State officials and legislators worked together since the fall to address many of those concerns in the new bill (HB 4). The governor’s cabinet and Lundstrom had originally developed separate hydrogen bills, but they consolidated them into HB 4, with significant modifications based on public feedback.
Environmentalists, for example, sharply criticized the original governor’s bill for allowing hydrogen producers to emit up to nine kilograms of carbon for every one kilogram of hydrogen produced when applying for tax credits, although it did mandate a steady drop to just three-to-one over eight years.
The new bill, however, completely overhauled tax incentive eligibility to encourage zero emissions, offering much higher tax breaks now for non-emission, “clean hydrogen,” and even bigger incentives for “carbon-negative” production, said Environment Department Secretary James Kenney.
In contrast, it provides significantly reduced tax breaks for “low-carbon” hydrogen, with the eligibility ratio now starting at only four-to-one.
Producers who locate in a hydrogen hub would also receive higher tax breaks than hydrogen facilities located outside hubs to encourage the build-out of those industrial zones.
“In terms of tax breaks, the most lucrative incentives would be for producing carbon-negative hydrogen, and especially if producers are located in a hydrogen hub,” Kenney said.
The bill also sets a hard cap on carbon emissions for hydrogen production that’s used to run electric generating facilities, imposing a maximum of 375 pounds of carbon for each megawatt hour of electricity produced. That would reduce emissions in hydrogen-based electric generation by at least 50 percent compared to a new natural gas plant, Kenney said.
The bill could make the state’s goal of 45 percent lower carbon emissions by 2030 and carbon neutrality by 2050 much more achievable, Kenney said.
“This will help us get there,” he said. “We hope the Legislature will take the big, bold, brave step needed to approve it.”
But many questions remain unanswered for environmentalists.
The bill, for example, authorizes third-party verification firms to certify that natural gas used in hydrogen production is “responsibly sourced,” meaning suppliers have reduced upstream methane emissions to a minimum. But there’s no clear definition of what “responsibly sourced gas” means, nor how total carbon reductions will be measured throughout the full “life-cycle” of hydrogen production, from upstream operations to end user, said Tom Singer of the Western Environmental Law Center.
“That sounds a lot like a ‘third-party’ hen house being overseen by oil-and-gas-producing foxes who want to claim that their gas is clean,” Singer said.
And state agencies will still need a huge increase in money and staff to monitor and enforce everything, said Tom Solomon of the environmental group 350 New Mexico.
“They’ll need a massive crew of enforcers,” Solomon said.
“As it stands now, our position on the legislation is still a hard ‘no.’”