A new “Clean Hydrogen Bill” (SB 1075, Skinner) has been introduced in the California Legislature as a means of achieving the State’s goals for reducing greenhouse gas emissions and mitigating climate change. If passed, this bill would significantly increase the emphasis on “green hydrogen” as an alternative fuel in California’s economy, opening up material business opportunities for businesses engaged in the alternative energy sector.

SB 1075 would create the “California Clean Hydrogen Hub Fund” (“Hydrogen Fund”), making State subsidies available for “green hydrogen projects.”  Of note, “green hydrogen” is not produced from traditional fossil fuel feedstock sources. Instead, eligible production pathways include:

  • Green electrolytic hydrogen (e., hydrogen gas produced through electrolysis which does not include hydrogen gas manufactured using steam reforming or any other conversion technology that produces hydrogen from a fossil fuel feedstock);
  • Steam methane reforming, autothermal reforming, methane pyrolysis, and other pathways that convert biogas, biomethane, ethanol, and other renewable gases and liquids to hydrogen;
  • Gasification, pyrolysis, thermochemical conversion, and other pathways that convert biomass, including the organic portion of municipal solid waste and certain organic waste feedstocks;
  • Waste or byproduct hydrogen recovered from nonfossil fuel industrial processes; and
  • Photochemical or photobiological water splitting.

The bill would revise the definition of an “eligible renewable energy resource” for the purposes of the California Renewables Portfolio Standard Program to include facilities that uses biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuels, small hydroelectric generation of 30 megawatts or less, digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal, or tidal current, and any additions or enhancements to the facility using that technology (and meet certain other criteria).  However, a facility engaged in the combustion of municipal solid waste would not be considered an eligible renewable energy resource.

The California Infrastructure and Economic Development Bank (“Bank”) would subsidize new start-up technologies and projects by making loans, issuing bonds, and providing financial assistance for qualifying projects that “demonstrate and scale the production, processing, delivery, storage, and end use of clean hydrogen” and “advance progress toward a goal to produce or use 15,000 tons per day of clean hydrogen in California by 2030.”

The bill also requires:

  • the Bank to develop criteria, priorities, and guidelines for the provision of grants under the Hydrogen Fund in line with specified priorities and requirements of the federal Infrastructure Investment and Jobs Act;
  • the Governor to appoint (by April 1, 2023) a Clean Hydrogen Hub Director to coordinate efforts related to clean hydrogen production, processing, delivery, storage, and end use;
  • the State Air Resources Board (“State Board”) (by December 31, 2023), to identify the role of hydrogen, and particularly green hydrogen, in helping California achieve the goals of the act and the state’s other climate goals;
  • the State Board, in consultation with the California Energy Commission (“Energy Commission”) and Public Utilities Commission (“PUC)” (by June 1, 2024) to evaluate what steps are necessary to the efficient deployment, development, and use of hydrogen as an alternative fuel;
  • the Energy Commission, as part of the 2023 and 2025 editions of the State’s integrated energy policy report, to study and model potential growth for hydrogen and its role in decarbonizing, as defined, the electrical and transportation sectors of the economy, and helping to achieve specified goals;
  • the State Board, by June 1, 2024, in conjunction with the Energy Commission and the PUC, to jointly develop recommendations to the Legislature on definitions for different categories of hydrogen, and potential end uses for those categories of hydrogen and would authorize the use of the recommendations to the Legislature to inform the oversight and administration of their respective hydrogen programs and eligibility rules.
  • the State Board (by June 1, 2024) to (among other things):
    • jointly develop prohibitions against double counting (g., emission offsets) of environmental attributes associated with production, distribution, and use of hydrogen; and
    • calculate life-cycle carbon dioxide intensity values for hydrogen pathways that reflect the fuels, feedstocks, and production processes used for their production.

While the total amount of money to be allocated to the Hydrogen Fund is currently unclear, California hopes to include money received from federal appropriation. The bill explicitly states that the Legislature seeks to advance policies related to clean hydrogen in order to attract federal funding for a regional renewable energy focused clean hydrogen hub in California.

As further explained in the draft bill, the federal Infrastructure and Investment Jobs Act includes $8 billion to support at least four regional clean hydrogen hubs across the United States. The act requires the hubs to demonstrate a diversity of hydrogen end uses, including in electric power generation, industrial operations, residential heating, and transportation. The act allocates another $1 billion to support research, development, and deployment across multiple electrolysis technologies. The United States Department of Energy has subsequently identified nine regional clean hydrogen clusters, including California. California is the only state identified as a cluster itself, while the other eight include regions or combinations of states.

California views green hydrogen power deployment as a key component in meeting its decarbonization goals. The Bill’s proponents see developing green hydrogen at scale as a way to help decarbonize energy-intenstive industries, including cement and steel production, industry, thermal powerplants, agriculture, and the transportation sector, including light-, medium-, and heavy-duty vehicles, goods movement, rail, shipping, mining, and aviation, and accelerate progress towards the state’s climate, clean air, and clean energy goals.

We are tracking SB 1075 as it proceeds through the state’s legislative cycle. Stakeholders should also look for future updates as we analyze this bill’s significance for California businesses and their investors / lenders.