On Monday, January 24, the Hydrogen Hub Development Act was introduced for consideration by the 2022 New Mexico legislature. It is House Bill 4 (HB 4) and it is sponsored by Gallup Democrat Representative Patricia Lundstrom and Las Cruces Democrat Representative Nathan Small. Lundstrom is the chairs the powerful Legislative Finance Committee (LFC). The bill is supported by Governor Michelle Lujan Grisham who has made passage of the bill a major priority in the 30-day short session where she controls the agenda.
House Bill 4 (HB 4) would create a legal framework for hydrogen energy development in the state. Lujan Grisham Administration government officials and the oil and gas industry contend that the development of the state’s hydrogen can provide a tool for the transition to a clean energy economy. They argue that hydrogen has many potential applications as a relatively clean-burning fuel that doesn’t emit carbon dioxide.
The $1.2 trillion federal infrastructure bill, approved by the U.S. Congress and signed into law last year by President Joe Biden, includes $8 billion to build four initial “hydrogen hubs” around the country. It also includes $1 billion in federal assistance for hydrogen-technology research and development.
State officials and legislators have been working on HB 4 for some time. The Lujan Grisham Administration and Senator Lundstrom originally developed two separate bills, but they eventually consolidated them into HB 4. The agreed to bill reflects significant changes based on public feedback.
Environmentalists sharply criticized the original governor’s bill for allowing hydrogen producers to emit up to 9 kilograms of carbon for every 1 kilogram of hydrogen produced when applying for tax credits even though its mandated a drop to just three-to-one over eight years.
Environment Department Secretary James Kenney said the consolidated HB4 overhauls 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.
TAX BREAKS AND INCENTIVES TO BUILD HUBS
HB 4 provides for new tax breaks and industry incentives designed to help the industry to develop hydrogen production and distribution facilities across New Mexico. The ultimate goal is to build a market for local and regional hydrogen consumption.
HB 4 will reward with loans and grants the creation of “hydrogen hubs” where public and private entities create partnerships. Those partnerships created will be required to build out “hydrogen infrastructure in designated zones” converting them into industrial parks where companies that consume or market hydrogen-based products and services can locate together.
Environment Department Secretary James Kenney said HB 4 as introduced overhauls 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. The bill provides significantly reduced tax breaks for “low-carbon” hydrogen, with the eligibility ratio now starting at only four-to-one.
The actual tax breaks under HB 4 vary and are based on carbon emissions and if the production facility is located inside a “hydrogen hub.”
Under HB 4, all income tax deductions are capped at 17 million kilograms of hydrogen per year. The lowest level of “qualified” hydrogen outside a “hydrogen hub” could receive up to “850,000 per year. The highest level of “carbon negative” production could receive up to $5.1 million a year.
Under HB4, “carbon negative” hydrogen production will receive 30 cents for every kilogram of hydrogen produced and 100% gross receipts tax and compensating tax deductions if located inside a “hydrogen hub” and 15 cents per kilogram outside a “hydrogen hub.”
“Clean”, which means no carbon emitting, hydrogen production will be eligible for 30 cents per kilogram and 66% deductions inside a “hydrogen hub” and 10 cents per kilogram outside a “hydrogen hub.”
“Qualified” hydrogen production, which is a maximum of 4 kilograms of carbon for every 1 kilogram of hydrogen produced, can receive 10 cents per kilogram and 33 cents deductions inside a “hydrogen hub” and 5 cents outside a “hydrogen hub.”
WHAT ADVOCATES ARE SAYING
Advocates, including the Governor, are 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. Advocates argue hydrogen can help decarbonize transportation when electric batteries are not viable options, such as long-haul trucking, trains and planes for freight. Proponents also argue that hydrogen development could be used to produce electricity, replacing fossil fuels like coal or natural gas to run turbine generators in power plants.
In her January 18 State of the State Address, Governor Lujan Grisham expressed her support for the development of the hydrogen industry and said:
“…clean hydrogen will support thousands of jobs, especially in rural New Mexico, while helping us sprint toward our net-zero carbon deadlines and decarbonize the transportation sector.”
On January 25, Lujan Grisham said in a statement:
“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 [HB4].”
Lundstrom for her part said in a statement:
“This bill creates and protects good, family-supporting jobs for New Mexicans, while reducing emissions and addressing climate change. … the economy in New Mexico is based on energy. I think new Mexico should be the lead on this thing. We should be close to it and we should be leading the pathway. … ”
HB 4 creates a “hard cap” on carbon emissions for hydrogen production that is used to run electric generating facilities, imposing a maximum of 375 pounds of carbon for each megawatt hour of electricity produced. The cap will reduce emissions in hydrogen-based electric generation by at least 50% compared to a new natural gas plant.
Environment Department Secretary James Kenney said HB 4 could make the state’s goal of 45% lower carbon emissions by 2030 and carbon neutrality by 2050 much more achievable. Kenny said:
“This will help us get there. … We hope the Legislature will take the big, bold, brave step needed to approve it.”
WHAT THE OPPOSITION IS SAYING
The hydrogen development plan has major critics. New Mexico environmental groups are highly critical of the Governor over the issue. At issue is hydrogen’s actual ability to lower carbon emissions in the hydrogen-production process and the potential danger of applying hydrogen solutions to decarbonize energy use in areas better served by renewable resources. Upwards of 30 environmental organizations are calling upon the Lujan Grisham Administration to initiate a study of the pros and cons before considering any new hydrogen legislation.
Environmentalists argue that large-scale hydrogen production would do little to lower carbon emissions, perhaps make them worse, because hydrogen is made with natural gas that has a huge amount of carbon dioxide. Environmentalists sharply criticized the original governor’s bill for allowing hydrogen producers to emit up to 9 kilograms of carbon for every 1 kilogram of hydrogen produced when applying for tax credits, although it did mandate a steady drop to just three-to-one over eight years.
Environmentalists fear that methane released in mining and transporting natural gas to hydrogen plants will offset any potential benefits from capturing carbon released during hydrogen production. Environmentalist argue a lot more funding and staffing to monitor and enforce compliance is needed under the bill.
Tom Singer of the Western Environmental Law Center is critical of HB 4 that 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. Singer notes there is no clear definition in the bill 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 the end user.
Singer put it this way:
“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.”
Western Environmental Law Center Executive Director Erik Schlenker-Goodrich also expressed concerns and said:
“Methane-based hydrogen production is a very risky investment bet with state resources or private-sector capital … hydrogen may be cost competitive in the short-term, but that could be reversed by 2030 compared with green hydrogen. We could invest billions in New Mexico in a scheme that could be outdated by other technologies in a decade.”
ENVIRONMENTALISTS PREFER “BLUE” VERSUS “GREEN” HYDROGEN
“Blue” hydrogen refers to a process that captures and sequesters carbon emissions released during production. That’s considered to be a step above “gray” hydrogen production, which uses the same process but simply vents those emissions into the atmosphere with no effort to capture and sequester them.
Environmentalists prefer “green hydrogen,” which uses renewable generation from solar or wind to power a process known as electrolysis. That process pulls hydrogen molecules from water, with no carbon emissions. But green production is still too expensive for widespread deployment, and the technology cost isn’t expected to drop enough for large-scale commercialization until the 2030s.
Environmentalists fear the emerging focus on hydrogen could derail the accelerated adoption of renewable energy generation now underway nationwide as policymakers and investors pursue massive hydrogen development rather than pushing full speed ahead on solar, wind and battery-storage technology.”
DEMOCRATIC LEADERSHIP EXPRESS RESERVATIONS
State Senate majority leader Peter Wirth said he is concerned about relying on “carbon capture and sequestration technology”, known as CCS, when producing hydrogen. The industry has said CCS will trap carbon that is then released when pulling hydrogen out of the methane contained in natural gas. The problem is the extraction technology has yet to be proven efficient and economically viable in commercial projects.
Wirth had this to say:
“I have real reservations … It’s an extremely complicated question whether carbon sequestration technology is reliable. … We don’t want the discussion of hydrogen to take us away from [solar, wind and other renewable generation.] … We need careful, deliberative analysis to see where we go.”
Speaker of the House Brian Egolf had this to say about HB4:
“It may not get done in this session. … We don’t want to rush a decision. The consequences of getting it wrong are too dire.”
Links to quoted news source materials are here:
“New Mexico Legislative Guide”, page 14 and 15:
“Ready or not its legislative time”
COMMENTARY AND ANALYSIS
In even number years, the legislature convenes for 30 days, known as a “short session”. The 30-day sessions are dedicated to budget legislation and the agenda is set by the “Governor’s Call”, meaning the Governor dictates was legislation can be considered. In odd number years, the legislature convenes for 60 day sessions and legislators can introduce legislation on any topic or matter they choose and not subject to the Governor’s call.
There is very little doubt that the Hydrogen Hub Development Act is one of the most complicated, scientific and technical pieces of legislation to be considered by the legislature in decades. After all, it involves our environment which is why it is generating such fierce debate.
Senate Majority Floor Leader Peter Wirth identifies what the real problem is when he says “… It’s an extremely complicated question whether carbon sequestration technology is reliable. … We need careful, deliberative analysis to see where we go.”
With 21 days left in the 30 days session that is supposed to be concentrating on budgetary matters, there is simply is not enough time to give “careful, deliberative analysis” to a new industry that may have a detrimental impact on our environment. It is very foolish to believe that part time legislators will have enough time to have a thorough understanding of the Hydrogen Hub Development Act with so much more being considered and be able to make an informed decision.
When Speaker of the House Egolf says of the Hydrogen Hub Development Act “The consequences of getting it wrong are too dire”, the chamber which he leads needs to listen and act accordingly with a memorial calling for a study and deferring the legislation to a later session.
Given the magnitude what is being proposed, there is no doubt that an extensive state-sponsored study of the pros and cons should be conducted before considering any new hydrogen legislation.
Time is also of the essence given the available funding and the environmental crisis of global warming. The Governor should order the withdrawal HB4 from her Governor’s Call of the 2022 legislative agenda and order the study to be a major priority over the next few months.
Further, the Governor should call a special session dedicated exclusively to environmental issues, the Hydrogen Hub Development Act and New Mexico’s share of President Bidens $1.2 trillion federal infrastructure bill and the $1 billion in federal assistance for hydrogen-technology research and development. Otherwise, Hydrogen Hub Development Act should be held over to the 2023 legislative session.
On January 27, it was reported that after 6 hours of discussion and debate, the House Energy, Environment and Natural Resources Committee voted to table the measure. In the shortened legislative session, it is unlikely the measure will be brought up again.