Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends and opportunities.
Speaker: The following podcast was recorded on the 2nd of November 2023 by HSBC Global Research.
Speaker: All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
Speaker: Remember, you can follow this weekly podcast on Apple and Spotify or wherever you get your podcasts by searching for The Macro Brief.
Speaker: Hello and welcome to the Macro Brief, which today comes to you from New York.
Speaker: I'm your host, Aline Van Dyne.
Speaker: I'm Global Managing Editor, and I'm here with Samantha Ho, our Senior Clean Tech Analyst.
Speaker: Today we are discussing a rapidly changing sector that will likely impact our listeners in one way or another, but remains shrouded in mystery for many.
Speaker: And that is hydrogen.
Speaker: Green hydrogen, made using sustainable energy sources, could be a key solution in the transition to a net-zero economy.
Speaker: And the U.S. has big ambitions to lead the world in turning that promise into a commercial reality.
Speaker: Now, $8 billion in federal stimulus could be unlocked over the next three years to support hydrogen projects.
Speaker: So is the hype around hydrogen justified?
Speaker: Let's bring in Samantha.
Speaker: Can you start by explaining what exactly is clean hydrogen?
Speaker: Yeah, so the U.S. currently produce most of its hydrogen from gray sources.
Speaker: So that would be your coal, for example.
Speaker: Green hydrogen is the opposite end of this spectrum of sources that hydrogen can produce from, with green being hydrogen produced from renewables such as solar and wind.
Speaker: The U.S. has really taken a pretty agnostic view in terms of where we would like hydrogen to be from.
Speaker: The goal is just to shift away from gray and closer to green, and we are happy to qualify blue hydrogen made from natural gas with the carbon dioxide sequestered.
Speaker: That will qualify as clean hydrogen based on the stimulus that the federal government is going to provide.
Speaker: And so is this US definition, is that different to what's going on in Europe or other parts of the world?
Speaker: So every country pretty much has their own rules.
Speaker: And in terms of when that requirement is applicable is
Speaker: It's still to be defined in the US.
Speaker: We're anxiously awaiting guidance from the tax authority in terms of some of these guidelines in terms of when the hydrogen has to be green by, but overall,
Speaker: From what we're seeing in terms of the Hydrogen Hubs Initiative, there is broad support for clean hydrogen produced from natural gas, but also nuclear.
Speaker: So not only just green in the U.S., at least not in the immediate term.
Speaker: The Europeans have actually put in timelines in terms of when they would like to see these projects be supported only by the renewable sources.
Speaker: There's going to be a phasing in in terms of the rules, in terms of when that electricity is sourced from.
Speaker: But in the US, we're really focused on just deploying the technology quickly.
Speaker: The view is that it will not be very strict in the immediate term.
Speaker: So Samantha, $8 billion in the next three years potentially coming from the government or from various government sources.
Speaker: Where is that actually coming from?
Speaker: Yeah, so during the past couple of years, the federal government
Speaker: did approve three laws that have a pretty significant impact in terms of the build-out of a hydrogen economy here in the U.S. The first one was the Infrastructure Act.
Speaker: Huge investment in terms of mostly for transportation, bridges, and whatnot,
Speaker: But there are investment there for our energy system and within there, there is support for development of hydrogen infrastructure.
Speaker: There's also the CHIP and Science Act that is really thinking long term into investments in new technologies that are just not at all tested or commercial.
Speaker: And the thing is, these two acts really had broad bipartisan support.
Speaker: What did not have bipartisan support was the Inflation Reduction Act.
Speaker: That was very party-line, so it's going to be a target in terms of just the natural campaign cycles and the election cycle, and you'll see it brought up.
Speaker: But I think the thing to keep in mind about the Inflation Reduction Act
Speaker: is it actually addressed a lot of different technologies.
Speaker: And it was very powerful in terms of, you know, the support there is in tax credits is not government grants, but tax credits, and it's not kept.
Speaker: One thing also to note, Aline, is that this is just the federal piece of the spending, even without the federal piece, there's a lot of state and local support for hydrogen as well.
Speaker: That's very interesting.
Speaker: And I know in your report, you really explain that a lot of this funding is already allocated.
Speaker: It's not subject to continued political debate, which of course is really relevant given the political situation in Washington and given the election cycle.
Speaker: Let's just talk about how much will actually be produced.
Speaker: Now, in your report, you say that currently globally, 1 million metric tons of clean hydrogen is being produced.
Speaker: That's not that much.
Speaker: The current administration has a target to develop 10 million metric tons by 2030.
Speaker: How much is that?
Speaker: If it went towards an electric fuel cell vehicle, for example, like a passenger vehicle, 10 million metric ton of hydrogen, that really would support only about 50 million passenger EVs running on hydrogen fuel cells.
Speaker: If you think about the amount of clean hydrogen that's produced currently, that's 1 million metric ton out of 40 globally.
Speaker: So not a lot at all.
Speaker: And in the U.S., it's basically zero out of 10.
Speaker: The U.S. is currently using hydrogen that is produced from mostly gray sources, so your coal, but then also some gas.
Speaker: And the goal really of the administration is to get emission from our current supply and consumption down to zero, to take that 10 million that we use currently.
Speaker: Let's just make it clean so that we don't have emissions coming from that.
Speaker: And do you think they will achieve that?
Speaker: I think we'll get close.
Speaker: You know, I think one of the beautiful things about hydrogen is that it's a highly captive market.
Speaker: You have large industrial players that are actually producing it on site for consumption on site.
Speaker: a highly captive market where the players have an incentive to actually transition.
Speaker: Think of all the companies that have set their own net zero emission target.
Speaker: This would go a long way in terms of achieving it.
Speaker: So I think it makes a lot of sense in the US.
Speaker: We're not looking for the commercial or consumer market to come in here and drive the demand for
Speaker: hydrogen is really targeted towards large-scale, hard-to-decarbonize type of industries.
Speaker: And I think there's just a lot of advantages that the U.S. have that we will get close to the target.
Speaker: And what about other uses?
Speaker: For example, electric vehicles.
Speaker: I mean, how does the amount of hydrogen consumed now or the 10 million metric tons, how does that...
Speaker: fit into the electric vehicle picture.
Speaker: So in the US especially, the hydrogen fuel electrical vehicle market is really not existent.
Speaker: You might have some municipal buses that runs on it.
Speaker: California is definitely ahead of the curve in terms of adoption of hydrogen for the transportation segment.
Speaker: And if you look specifically at some of these hydrogen hubs, the one in California especially is very targeted towards developing hydrogen for transportation.
Speaker: But again, this is kind of a small part of the overall potential demand.
Speaker: And if you look at the trajectory of just that 10 million tons, we're really not expecting much of that to be driven by transportation.
Speaker: Longer term, yes, maybe we'll get a bigger slice of the pie for transportation, but it's definitely not the focus right now.
Speaker: Okay, well, Samantha, thank you for explaining all that.
Speaker: It's definitely an area that will continue to grow by the sounds of it.
Speaker: Thank you so much.
Speaker: Thanks, Celine.
Speaker: Before we go, a few more things to highlight.
Speaker: The Federal Reserve kept rates on hold at the latest meeting on Wednesday, and Ryan Wang, our US economist, expects rates to stay at the current 5.25% to 5.5% range until the middle of next year.
Speaker: He sees a gradual policy loosening beginning in the third quarter of 2024.
Speaker: The Bank of England was also on hold this week, as predicted by our senior UK economist Liz Martins on last week's podcast.
Speaker: Liz doesn't see rate cuts anytime soon either, with the first reduction not penciled in until the first quarter of 2025.
Speaker: And if you'd like to know more about the UK, we're holding our State of Play seminar in London on the 16th of November.
Speaker: The event features presentations on the outlook for the economy, sterling, gilt, credit and equity markets.
Speaker: So if you're an HSBC client and would like to attend, please get in touch with your HSBC sales representative.
Speaker: This week, our team has also updated views on the bond market, global equity strategy, and emerging market currencies.
Speaker: So if you'd like to know more about those or anything we've talked about on today's podcast, please email askresearch at hsbc.com.
Speaker: And don't forget to follow the podcast.
Speaker: Just search for The Macro Brief wherever you get your podcasts.
Speaker: So that's all from us.
Speaker: Thanks very much for listening.
Speaker: We'll be back next week.
