Could green hydrogen stocks save the environment?

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Despite the chaotic withdrawal from Afghanistan, climate change has barely been off the front page this summer. Between the UN’s recent climate change report warning that within the next 20 years, global temperatures will exceed the Paris climate accords’ target of 1.5℃ above previous levels, and a spate of wildfires, mudslides, and floods ringing the world, causing immense death and destruction, climate change is impossible to ignore.

Is it still possible to halt climate change?

The same doom-laden UN report includes the hope that if drastic action is taken, global temperatures could stop rising and drop back below the 1.5℃ limit by 2100. The question is, what action should be taken?

Governments worldwide have already committed to zero emissions and carbon neutrality within a range of dates, but according to the report, that’s not likely to be enough. Plus governments may make promises, but that doesn’t mean it’s within their power to deliver them.

Extremist eco-fanatics like Extinction Rebellion are insisting on enormous lifestyle changes like meat-free diets, an end to fossil fuel investments, and something close to zero flights worldwide in order to meet and exceed these targets. It may be the ideal, but it’s not very realistic. The general public has woken up to the need to do something to save the planet, but they are highly resistant to this kind of sweeping change.

Small changes could make a big difference to the planet

Some politicians and thought leaders, however, are suggesting a different approach that involves smaller, more subtle, but permanent changes to the way we live and the adoption of greener alternative fuels, chief among them green hydrogen.

President Biden’s Infrastructure Bill, which was recently passed by the US Senate, is one example. It includes $100 billion ringfenced for upgrading and modernizing the electric grid; the removal of tax preferences from fossil fuel users so they can be redirected to industrial decarbonization projects; funding for the development of lower-cost, higher-efficiency green hydrogen electrolyzers; and incentives for people to adopt environmentally-friendly electric and fuel-cell vehicles (FCEV) instead of “gas guzzlers.”

A similar opinion has come out of the respected UK think-tank, The Tony Blair Institute for Global Change, which recently suggested that just a few small changes, like reducing the amount we fly by around 6%, the amount we drive by 4%, and converting 60% of cars to electric or FCEV by 2035 could be enough to beat climate change.

Green hydrogen companies’ stocks stand to benefit greatly from this less drastic approach to environmentalism.

Green hydrogen may save the day

Green hydrogen is produced from hydrogen molecules, which are available in abundance across the planet in a compound as water. It’s extracted using electrolyzers which harvest the hydrogen molecules and store them securely in pressurized containers before they are passed into fuel cells to be released later as energy. The electrolysis process itself can be powered using energy from either fossil fuels, which is termed “gray hydrogen,” or energy from renewable sources such as wind power, in which case it becomes “green hydrogen.”

As alternative fuels go, green hydrogen is a winner. It’s more reliable and consistent than green fuels like wind power, solar power, or biomass, none of which are sufficient to form the basis of an energy grid for mass use. Hydrogen is energy dense with a long-duration discharge cycle that enables it to store excess energy for release later when demand is at a peak. Unlike nuclear power, it has no public relations problem, and true green hydrogen produces next to zero carbon emissions or pollutants of any sort. Finally, green hydrogen is a molecular fuel, which means it can be used by highly-polluting industries that can’t turn to electrification.

The main barrier to green hydrogen adoption is the price, and fortunately that is dropping rapidly. The cost of hydrogen electrolyzers is quickly decreasing as R&D from hydro stocks produces more efficient options, and the price of renewable energy is similarly falling while supply rises. Additionally, government incentives help narrow the price gap between green hydrogen and fossil fuels for consumers.

One suggestion that’s being entertained alongside green hydrogen is so-called blue hydrogen, which derives hydrogen from the methane in natural gas while capturing the emissions produced along the way and storing them deep underground.

Although it’s appealing in some quarters, blue hydrogen has been condemned for actually producing more pollution than fossil fuels. Writing in the journal ‘Energy Science & Engineering,’ professors Robert Haworth and Mark Jacobson say “the greenhouse gas footprint of blue hydrogen is more than 20% greater than burning natural gas or coal for heat and some 60% greater than burning diesel oil for heat.”

Green hydrogen is already here

While the discussion continues, green hydrogen stocks are putting the theory into action. Hydrogen-powered buses are already running in cities like Frankfurt, Glasgow, and Barcelona and countries like Korea and Japan. The Port of Los Angeles is just one busy commercial center using hydrogen power, while Amazon, Walmart, and Target have all switched to hydrogen-powered forklifts in their warehouses.

Critical infrastructure like hospitals, water treatment plants, communication networks, and large data centers have acquired hydrogen-based microgrids that ensures their equipment continues running even if there’s a blackout. In the UK, the government is ironing out the kinks in a plan to roll out hydrogen-powered boilers for residential heating and cooking, instead of gas-powered ones that use fossil fuels, and South Korea is in the process of building a hydrogen plant that can provide residential energy for thousands of citizens.

All of this is pushing both ESG investors and those interested in disruptive technology to think harder about the best hydrogen stocks or a hydrogen ETF, with some big funds and private investors already entering the market. Deciding to invest in hydrogen might not save the planet, but it’s certainly doing its part.

 

Story by Sylvia Jablonski, Chief Investment Officer of Defiance ETFs. Jablonski manages Defiance’s retail and institutional investment research, capital markets and thematic ETF model portfolios. Acknowledged as a top expert in the ETF space, Sylvia is frequently featured on CNBC, Bloomberg and the Wall Street Journal.


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