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Hydrogen - hot air or hot stuff?


'The global transportation sector is a major polluter and in 2021 produced more than seven billion metric tons of carbon dioxide (GtCO2). Passenger cars were the biggest source of emissions that year, accounting for approximately 39 percent of global transportation emissions.’ (31st May 2023 Statista (1)).

We have been presented with the idea that EVs (Electric Vehicles) are the answer to turning transportation ‘green’ and helping the world transition into a low carbon economy. But is it as simple as that, or are there more effective solutions, that have even higher potential when it comes to getting the world to move more sustainably?

Hydrogen is seen as playing a key role in the decarbonisation of energy-intensive sectors. It can reduce CO2 emissions in industrial processes, and act as a sustainable combustible heat supply. It can also be used as a sustainable fuel in the transport sector, and according to Autocar (2); ‘Rolls-Royce is considering swapping from conventional batteries to hydrogen fuel cell powertrains for its future electric cars once the technology is mature enough to be commercialised at scale’.

So what is hydrogen and how can it be used as energy? Hydrogen is a naturally occurring chemical element that can be found in almost limitless quantities. It is also fourteen times lighter than air, colourless, odourless, and can be combusted without producing any CO2 emissions, whilst not being self-ignitable, corrosive or radioactive. In order to utilise its energy content though, it has to be separated off from hydrogen-rich compounds such as natural gas, biomass or water via the use of chemical, electrical, thermal or solar energy.

Water electrolysis involves using electricity to break down water into oxygen and hydrogen. There is a system of colours that indicate both the production method and its carbon footprint. So if the electricity produced by water electrolysis is obtained from renewables (like wind / solar power), it is referred to as green hydrogen. Whereas grey hydrogen is produced conventionally using natural gas, but then if the carbon emissions resulting from the process are not released but instead captured and stored (carbon capture), it is then referred to as blue hydrogen.

Green hydrogen in particular, which is produced by renewable energy is considered a key technology in the effort for climate neutrality.

So how do Electric Vehicles compare to Hydrogen Vehicles?

Hydrogen and Electric cars are both considered environmental-friendly alternatives to traditional petrol and diesel vehicles. Hydrogen cars are still, in essence, an electric vehicle as they utilise fuel cells that convert the hydrogen gas into electric current, powering the motor to run efficiently. So a hydrogen fuel cell electric vehicle like the Toyota Mirai produces its own electricity through a chemical reaction in its fuel cell stack.

In comparison, electric cars run on batteries charged by electrical grids, which need recharging when they run low. The value of lower emissions in EVs at first glance is impressive, however when you delve deeper, their overall sustainability is not so impressive, and this is on account of their batteries. Two primary environmental costs relating to an electric car stand out, the manufacturing of batteries and the energy source to power these batteries. To really evaluate the true green advantage an EV has over the Internal Combustion Engine (ICE) vehicle, we must take into account each step of making the car rather than just looking at the final product. The initial manufacturing process for both car types and the emissions this produces remain the same in both ICE and EV. However, the environmental impact of battery production begins to change when we contemplate the manufacturing process of an EV’s battery.

These batteries contain some combination of lithium, cobalt, and nickel. Mining these materials comes at a high environmental cost, a characteristic that makes the EV manufacturing process more energy intensive than that of other vehicles. Toxic fumes are released during the mining process, as well as this being a very water-intensive activity.

Both the two principal methods of extracting lithium (brine harvesting from lakes and hard rock mining) carry risks of environmental and social damage due to the toxic chemicals necessary. This has resulted in the Ganhetan industrial zone (where the lithium is separated from the other metal salts) being renowned for its air pollution, and also increased rates of fluorosis, a disease that causes teeth to become brittle. High concentrations of toxic metals in the soil have made the surrounding area unsuitable for agriculture. Additionally, toxic chemicals used by the Ganzizhou Rongda Lithium mine in eastern Tibet, have found their way into the Lichu River on more than one occasion, killing fish and farm animals belonging to the community of Minyak Lhagang.

On top of the toxic effect, producing one tonne of lithium requires approximately 2 million tonnes of water, which makes battery production an extremely water-intensive practice (Earth.Org(3)). In light of this, the South American Lithium triangle consisting of Chile, Argentina, and Bolivia, experienced substantial water depletion due to the intensive lithium extraction in the area.

As well as lithium, nickel and cobalt have similar problems, demonstrated by satellite analysis in Cuba revealing an absence of life in over 570 hectares of land, and contamination of over 10 kilometres of coastline where nickel and cobalt mines are present. The Philippines had to shut down 23 mines, many producing nickel and cobalt, because of the environmental degradation that it caused.

Recycling and reusing batteries can provide some reprieve from the mining process, but the technology involved is still inefficient. Only 5% of the world’s total batteries are currently recycled (Chemical & Engineering News(4)). This is mainly due to the cost and the lengthy process needed to recycle batteries, and instead batteries end up in landfills adding again to the environmental footprint of the vehicle. But as well manufacturing, powering the batteries also contributes to environmental dilapidation, especially in developing economies like India. In reality, as is the case with sourcing hydrogen, the source of electricity used to power the EV’s batteries determines how eco-friendly an EV really is. According to the Ministry of Power (5), as of 2021, India sourced 61% of its power from thermal sources including fossil fuels like coal, which accounts for 60% of the country’s total emissions. In addition there is the environmental cost of transporting coal to India.

As hydrogen fuel cells can be 100% renewable and environmentally friendly, a hydrogen car is therefore a decent choice environmentally speaking. While driving the hydrogen car, it releases pure water vapour and filters out ultrafine dust from the atmosphere, leading to eco-friendliness. So as we have seen, although electric cars don’t emit any fumes or cause air pollution, they can greatly impact the environment, due to the manufacturing and disposal of EV batteries leading to pollution and resource depletion. Hydrogen cars have the upper or greener hand here, as recycling hydrogen fuel cells is easy and cost-effective.

When it comes to refuelling, it will take only a few minutes to refill/refuel the hydrogen gas tank due to its time-effective and instantaneous process. Because refilling a hydrogen car is very similar to filling up with petrol or diesel, it is also almost as quick (taking around 5 minutes to fill a tank). This is certainly an advantage over the lengthy waiting time of charging an electric car.

As well as quicker refuelling, hydrogen cars are not only faster, but also offer a long distance range with just a single tank of fuel, with zero emissions (as the only thing that a hydrogen car emits is water vapour) and no need for heavy and bulky batteries on board.

However the major drawback to hydrogen vehicles is the lack of existing infrastructure, with limited refuelling stations currently available, and this is one of the biggest reasons for the slow uptake of hydrogen vehicles. According to UK H2 Mobility, there are currently 11 hydrogen stations open in the UK, obviously far less than the amount of petrol stations and public EV charge points. Although more hydrogen filling stations are planned, for now, not having a filling station nearby is plainly totally impractical for many people.

There are also production challenges, as when it comes to the production of hydrogen, it can be energy-intensive and may rely on various non-renewable sources. Cleanliness therefore depends on how hydrogen is produced and highlights the need for further investment in renewable energy and green hydrogen production capabilities to enable cars to run off green hydrogen. What’s the future for hydrogen cars?

For truly sustainable mobility, hydrogen is a fuel that cannot be ignored. It is also regarded as a much better potential alternative for fueling HGVs, where electric trucks are hindered by battery capacity and having to recharge using the power grid. The biggest downside, though, as mentioned is that developing a full hydrogen refueling infrastructure, where the gas is produced and then transported to stations, will take billions of pounds and a number of years to fully develop.

The key to encouraging hydrogen vehicles is by making them part of a wider ‘hydrogen economy’. As the building of refuelling stations for hydrogen cars alone would be inefficient, and preferably the whole energy sector would incorporate hydrogen into the mix, from refuelling cars to storing energy for homes. Another benefit of hydrogen is that it can potentially be produced on site rather than being transported like fuel, or delivered through the grid like electricity.

Many western countries would need to alter their energy supply radically to make hydrogen a viable mass transport fuel. Currently, the UK doesn’t have enough infrastructure today to make widespread adoption possible, but this can change given long-term investment and direction from both government and industry. On 9th June 2023, I attended a conference on Green Hydrogen, ran by the Western Gateway Partnership (a collaboration of research institutions, local authorities, universities, manufacturing and engineering companies within the South Wales and Western England area). They have produced a Hydrogen Delivery Pathway to 2050, demonstrating that hydrogen will play an important role in providing energy security in several key sectors.

The UK Hydrogen Strategy was published in summer 2021, setting out the government’s target to produce 5GW of clean hydrogen by 2030. A hydrogen economy for certain areas, such as powering the haulage sector, buses, automobiles and even domestic boilers, is in the pipeline as the UK prepares to meet net zero by 2050.

Our Positions in Hydrogen:

Across the Sustainable and SRI models is the Impax Asian Environmental Markets fund, which invests in DENSO.DENSO is challenging itself to develop a solid oxide electrolysis cell system looking ahead to a future of hydrogen society.DENSO recognise that hydrogen is gathering attention as a carbon-free energy carrier, and is a key solution to reduce greenhouse gas emissions, but that this needs to be green hydrogen, rather than hydrogen that is currently produced from fossil fuels. As we have seen green hydrogen is generated from renewable energy through electrolysis of water and DENSO is developing a solid oxide electrolysis cell (SOEC) system, which is a next-generation water electrolysis system with significantly high efficiency.

‘’Utilization of hydrogen is essential to achieve carbon neutrality in the future, and it must be economical. We work on the development with the hope of making hydrogen production economically viable and helping solve global problems.” (DENSO).

Also in our Sustainable models is the iShares Japan Equity ESG Index Fund, the largest holding currently in this fund is Toyota. Toyota positions hydrogen as an important fuel in its efforts to reduce CO2 emissions with the aim of achieving carbon neutrality. Toyota is working with partners in a variety of industries in the areas of producing, transporting, storing, and using hydrogen to promote both fuel cell electric vehicles (passenger, commercial trucks and buses) and fuel cell products. This includes the development and demonstration operation of fuel cell stationary generators.

In doing so, Toyota aims to contribute to the realisation of a hydrogen society by promoting the use of hydrogen. Toyota introduced the world’s first production hydrogen powered car in 2014, and they are taking emissions fuel cell technology to ‘new heights’ with their second generation Mirai, a vision for cleaner mobility that’s already on the road.

Toyota has also been competing using a hydrogen-engine Corolla in the Super Taikyu Series since Round 3 of the 2021 season, and raced the same car at Thailand's Chang International Circuit in December 2022. By doing so, it has been refining its technologies in the tough environment of motorsports and accelerating its efforts for producing, transporting, and using hydrogen to further the progress towards a carbon-neutral society.

Across our Sustainable and SRI range we also hold the Pictet Clean Energy fund, one of its largest holdings is RWE. Together with partners from other companies and associations, RWE is currently pressing ahead with around 30 green hydrogen projects in Europe. They are also a huge producer of clean energy (necessary to produce Green Hydrogen).

Conclusion

Derived from the most abundant element in the universe, hydrogen fuel is clean, flexible, and energy-efficient. The global hydrogen generation market size was valued at USD 155.35 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 9.3% from 2023 to 2030 (6). However, hydrogen power still has hurdles to overcome before it can achieve widespread adoption. But with collaboration, innovation, the need to decarbonise the energy sector, achieve energy security and a global interest in reaching a “net zero” world, we are on the pathway to hydrogen becoming commercially valuable. Both EV and Hydrogen cars require electricity to work and this needs to come from renewable sources to make them actually a solution to climate change. We need to invest in renewable energy and infrastructure to be able to generate and utilise sufficient green hydrogen, and charge EV batteries. As sustainable investors we are positioned to be part of this transport evolution and invest in the innovation needed to combat climate change and improve the world for all its inhabitants.

Sources:

IMPORTANT NOTICE: This is a marketing communication from Alpha Beta Partners a trading name of AB Investment Solutions Limited. Registered in England at Northgate House, Upper Borough Walls, Bath BA1 1RG. AB Investment Solutions Limited is authorised and regulated by the Financial Conduct Authority. Reference No. 705062. This material is directed only to Financial Advisers in the UK and is not an offer or invitation to buy or sell securities. Opinions expressed, whether in general or both on the performance of individual securities and in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.


You should remember that the value of investments and the income derived there from may fall as well as rise and your clients may not get back the amount that they have invested. Past performance is not a guide to future returns.

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Important Information
 

This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities.

Opinions expressed, whether in general, on the performance of individual securities or in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.

You should remember that the value of investments and the income derived therefrom may fall as well as rise and you may not get back your original investment. Past performance is not a guide to future returns.

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