The following is a contributed article by Drake D. Hernandez and Emre Gençer, graduate researcher and research scientist, respectively, with the MIT Energy Initiative.
Hydrogen is a fundamentally different energy commodity that merits its own regulatory structure in the United States.
Markets for traditional energy commodities — electricity and natural gas — along with associated transmission infrastructure and regulatory structures have developed over the past century and a half in the United States. Hydrogen, on the other hand, has historically been used as a feedstock for industrial processes. Consequently, the market for hydrogen has been dominated by bilateral contracting structures which tie hydrogen production assets to consumption sites.
Industrial gas companies have realized benefits to the development of a hydrogen network to balance supply and demand of hydrogen across their customer base and have constructed the necessary infrastructure to balance their system. Since the consumption of hydrogen does not yield carbon dioxide emissions, the molecule has been increasingly mentioned as a zero-carbon energy vector to aid in the deep decarbonization of energy systems around the world.
Regulatory structures for oil, natural gas and electric power developed reactively in the United States — that is, infrastructure and markets had developed prior to a regulatory scheme being introduced. There currently is not a liquid market for hydrogen and a ubiquitous transmission infrastructure has not been developed. Rather than wait for this infrastructure to develop organically, the federal government should consider taking steps in advance to minimize regulatory risk for hydrogen infrastructure projects by providing clear regulatory treatment of said infrastructure.
If the United States turns to hydrogen at scale to enable deep decarbonization of the economy, transmission infrastructure will likely need to be built and it will be in the public interest to regulate this hydrogen transmission infrastructure similar to other energy commodities. Namely, the United States should consider if the authority to site of this infrastructure and regulate its activity should be assigned to a particular agency.
The Federal Energy Regulatory Commission's role
The Federal Energy Regulatory Commission (FERC) has full jurisdiction over the siting of interstate natural gas pipelines and no jurisdiction over siting electric power transmission lines, except in limited cases. The Federal government has yet to make a determination as to how the government will regulate the construction of hydrogen infrastructure. Many studies in the early-to-mid 2000s addressed the future of hydrogen infrastructure in the United States as the country looked to hydrogen as an alternative to oil for the transportation sector, but no specific authority for economic regulation of hydrogen infrastructure has been written into law.
The hydrogen infrastructure that currently exists and operates within the United States comes under the authority of The Pipeline and Hazardous Materials Safety Administration (PHMSA), which operates within the Department of Transportation (DOT). PHMSA has regulated hydrogen pipelines in the United States since 1970 "via 49 CFR Part 192." 49 CFR Part 192.3 defines "Gas" as "natural gas, flammable gas, or gas which is toxic or corrosive." PHMSA's domain in regards to the pipeline sector is safety. The administration's charter, according to CFR Part 192.1, is to prescribe "minimum safety requirements for pipeline facilities and the transportation of gas."
As mentioned prior, hydrogen is fundamentally different than the aforementioned energy commodities. Hydrogen is not a primary energy source — rather, it must be produced, similar to electric power. However, hydrogen is also a gas at standard temperature and pressure as is natural gas. Moreover, hydrogen is similar to natural gas in that it can serve as a fuel for electric power production.
Hydrogen offers a potential pathway towards the decarbonization of sectors which are difficult or impossible to electrify. If the United States is seriously to consider hydrogen as an essential energy vector in the future, both large-scale transmission infrastructure and the regulatory frameworks under which this infrastructure might be developed need to be crafted and examined.
FERC's role in the development of hydrogen transmission infrastructure
Establishing FERC's jurisdiction over pipeline transmission of low- or no-carbon fuels could play an important role as the United States moves towards the deep decarbonization of its economy. However, the current certification process does not require a screen of projects to determine whether they are being developed to specifications that would allow for a transition and move to hydrogen at scale.
The Agency for the Cooperation of Energy Regulators (ACER), which is the European Union agency responsible for advising on member state regulatory authorities, issued a white paper on February 9, 2021, entitled When and How to Regulate Hydrogen Networks. This white paper introduces a recommendations for European energy regulators. One recommendation addresses the aforementioned issue at hand: value the benefits of repurposing of gas assets for hydrogen transport.
In short, this recommendation suggests regulators should consider "all relevant factors" when assessing applications for new natural gas infrastructure certificates of public convenience and necessity, including a cost-benefit analysis associated with developing these projects such that they can be easily retrofitted as demand for low- to no-carbon fuels increases into the mid-century.
In an effort to prompt questions concerning FERC's role in the development of interstate hydrogen transmission infrastructure, the MIT Energy Initiative has recently submitted comments to FERC under their Pipeline Certification Process Notice of Inquiry (PL18-1) highlighting the above study from ACER and stressing the importance of hydrogen-ready natural gas infrastructure development in order to minimize stranded asset risk. As FERC has opened this Notice of Inquiry to evaluate the natural gas pipeline certification process, the authors recommend considering how the transportation of hydrogen can potentially utilize the existing energy transmission infrastructure in the United States.
Owners of existing assets under a new regulatory paradigm
As mentioned above, hundreds of miles of dedicated hydrogen transmission pipeline infrastructure are in operation today in the United States — some of which operate on an interstate basis. If hydrogen ultimately falls under the purview of FERC, so too will the operation of these interstate hydrogen pipeline systems. Any effort to place hydrogen under FERC's purview must address what will be done with these existing assets.
These pipeline systems currently operate as private carriers as opposed to common carriers. The key differentiation is private carriers have "no duty to serve the public and may accept or reject offers even if it has available capacity to carry goods" while a common carrier is "one who undertakes for hire to transport the goods of those who may choose to employ him… [he] is, in general, bound to take the goods of all who offer." The systems currently in operation are meant to balance the owner's — generally an industrial gas company — individual load on the system.
As the federal government looks to minimize regulatory risk and enable the development of a more expanded hydrogen transmission network, particular attention must be paid to the owners of current infrastructure such that the proposed regulation does not greatly impact their operation.
Hydrogen is a different energy commodity for which neither a ubiquitous transmission network nor liquid market has been developed. The federal government has an opportunity to strategically enable the development of this infrastructure that has the potential to provide consumers with a steady supply of affordable low-carbon hydrogen as the country targets net-zero emissions by 2050.
FERC may be the appropriate agency to craft regulation to minimize regulatory risk and chart a path for the development of this infrastructure, however FERC does not have jurisdiction over hydrogen under either the Natural Gas Act or the Federal Power Act. An act of Congress will be required to move hydrogen under the purview of FERC and appropriately separate responsibilities for infrastructure development between FERC and the DOT, under PHMSA.
Hydrogen also offers an opportunity to minimize stranded asset risk for existing natural gas transmission infrastructure. The opportunity to simultaneously decarbonize the economy while creating value for existing asset owners makes hydrogen a particularly bipartisan issue today. However, it must be noted that there are companies that own hundreds of miles of interstate hydrogen transmission pipelines in the Gulf Coast region today. Any regulation written to enable the development of this interstate hydrogen infrastructure must consider the owners of infrastructure currently in operation.