Discover more from Due Diligence
Why climate change is bad, according to sciencey people (who aren’t me).
Perhaps hydrogen is the (economically viable) solution.
Good morning, investors!
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Without further ado…
Climate change is bad.
I’d like to think we’re all onboard with that, but let’s refresh our understanding of the environmental sciences and look at why it’s bad:
Climate change encompasses not only the rising average temperatures we refer to as global warming but also extreme weather events, shifting wildlife populations and habitats, rising seas, and a range of other impacts. [National Geographic]
The root cause of climate change is the burning of fossil fuels (natural gas, oil, and coal) and the subsequent excessive creation of greenhouse gasses, most notably carbon dioxide. The world needs energy to sustain itself, hence the burning of fossil fuels, but the operative word before was “excessive” because our energy needs are perpetually growing, so we’re pumping alarming levels of carbon dioxide into the atmosphere.
Greenhouse gases occur naturally and are part of our atmosphere's makeup. For that reason, Earth is sometimes called the “Goldilocks” planet — its conditions are not too hot and not too cold, but just right to allow life (including us) to flourish. Part of what makes Earth so amenable is its natural greenhouse effect, which keeps the planet at a friendly 15 °C (59 °F) on average. But in the last century or so, humans have been interfering with the planet's energy balance, mainly through the burning of fossil fuels that add carbon dioxide to the air. [NASA]
The oversimplified solution is to make a broad energy switch from fossil fuels to renewable ones, such as hydrogen. Unlike natural gas, oil, and coal, pure hydrogen doesn’t emit greenhouse gasses when burned — only harmless water vapors.
Pure hydrogen is not only extremely reactive and flammable but also rare (at least on earth), which means we have to rely on chemical processes to create it.
Not all hydrogen is created equally; certain processing methods can still produce carbon dioxide, partially offsetting the environmental benefits.
Enter green hydrogen, the only true “clean” hydrogen that can be produced in a climate-neutral fashion. Electrolysis is a process in which an electrical current passes through water and separates hydrogen from oxygen. Coupled with a renewable energy source like wind or solar, you produce a truly carbon-neutral fuel.
While green hydrogen is clearly the ideal option of the hydrogen rainbow, over 95% of current hydrogen production uses fossil fuels. Part of the problem is cost — it has to be economically viable to commercialize green hydrogen.
In 2021, green hydrogen cost around $5 per kilogram in the US; by comparison, gray hydrogen was $1.50/kg. Prices are expected to fall though thanks to macroeconomic forces and sizable incentives from public policy.
In June 2021, the Department of Energy launched the “Hydrogen Shot” initiative, aimed at accelerating hydrogen technology advancement in order to cut the costs of clean hydrogen by 80% to $1/kg by 2030.
If the Hydrogen Shot goals are achieved, scenarios show the opportunity for at least a 5-fold increase in clean hydrogen use. A U.S. industry estimate shows the potential for 16% carbon dioxide emission reduction by 2050 as well as $140 billion in revenues and 700,000 jobs by 2030. [DOE]
Then, in June 2022, the Bipartisan Infrastructure Law added $9.5 billion of funding for clean hydrogen.
More recently, the Inflation Reduction Act created a tax credit for the domestic production of clean hydrogen — up to $3/kg for qualifying companies. That could pave the way for green hydrogen to rival its fossil fuel counterparts.
6 green hydrogen companies that benefit from the Inflation Reduction Act
So, who’s positioned to benefit the most from the government’s hydrogen subsidies?
Let’s highlight the six of the most prominent hydrogen players:
Air Products & Chemicals, Inc. APD 0.00%↑
Plug Power Inc PLUG 0.00%↑
Bloom Energy Corp BE 0.00%↑
Ballard Power Systems Inc BLDP 0.00%↑
FuelCell Energy Inc FCEL 0.00%↑
Nikola Corp NKLA 0.00%↑
There are also bigger companies that aren’t pure plays in the hydrogen space but have related projects in the works, including (but certainly not limited to) Cummins Inc. CMI 0.00%↑, Shell SHEL 0.00%↑, and Linde LIN 0.00%↑.
We’ll keep an eye on these stocks and dig into recent developments over the coming weeks.
Three Eye-Opening Tweets
And finally, we close with three eye-opening tweets.
Plastic is back.
Speaking of credit cards, what’s going on at AMEX? (See thread)
Bounce back or false hope?
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