Considerations for a Hydrogen Regulatory Framework in the U.S.

Interest and investment in hydrogen are rapidly gaining traction in the U.S., largely in recognition of hydrogen’s long-term potential as a low-carbon solution for hard-to-electrify sectors, such as heavy duty industry and transportation. Additionally, there is an increasing realization of the tremendous benefits hydrogen can provide as a fuel diversification strategy, including reducing exposure to volatile global energy commodity prices and bolstering energy security and independence. The U.S. federal government has signaled its support for a clean hydrogen economy by injecting billions of dollars in funding to stimulate the industry and demonstrate clean hydrogen’s potential. Further, some state governments are beginning to provide incentives like grants and tax credits to attract hydrogen development within their borders.   

Despite the U.S.’s increasing interest and investment in hydrogen, the creation of complementary federal and state regulations lags, risking diminishing returns to expansive, taxpayer-funded government initiatives. While private industry has swooped in to take advantage of this generational funding opportunity, there is increasing acknowledgment that broader commercialization will require greater certainty around the regulatory landscape and market rules. The concept of “regulatory certainty” is a cornerstone of the long-standing regulatory compact established for investor-owned electric, gas, and water utilities. Regulatory certainty asserts that the regulator will grant the utility an exclusive right to operate in a particular area in exchange for providing non-discriminatory service to all interested customers in its service territory. Further, in exchange for the utility offering prices (i.e., rates) and services that promote safety, reliability, resilience, and affordability, the regulator permits the utility to earn a reasonable rate of return on its investments to serve customers. This latter component is particularly crucial in the context of the emerging hydrogen sector, as the assurance of cost recovery could induce utilities to invest large sums in infrastructure to produce, store, and transport hydrogen from supply regions (e.g., hydrogen hubs and areas with excess renewable energy supply) to demand centers (e.g., industrial clusters). Providing regulatory certainty has been key to developing foundational sectors of our economy (i.e., electric, natural gas, and water utilities) over the past century, raising the question of whether a similar regulatory framework is needed in the U.S. for hydrogen.

In this white paper, Guidehouse outlines the current state of a hydrogen framework in the U.S., the need for a well-defined and consistent regulatory framework, and recommendations for hydrogen regulation in the U.S. This white paper highlights the following:

• Is there a need for regulation?
• Current hydrogen framework in the U.S.
• Case study of the European Hydrogen Backbone
• Recommendations for future hydrogen regulation in the U.S.

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