Regulation of Hydrogen Transactions in the United States
Mona E. Dajani, Global Co-Head of the Energy & Infrastructure Projects team at Pillsbury Winthrop Shaw Pittman LLP, discusses the regulatory framework governing hydrogen in the USA.
The United States currently lacks a national regulatory framework for the hydrogen economy, much like the rest of the world. Rather, hydrogen is regulated under a patchwork of existing federal and state laws and regulations that apply broadly to hazardous chemicals, infrastructure development and isolated activities relevant to production and distribution.
The federal agencies with principal oversight over the hydrogen production, distribution and supply chains are the United States Environmental Protection Agency (EPA), the Department of Transportation (DOT), the Pipeline and Hazardous Materials Safety Administration (PHMSA), the Federal Motor Carrier Safety Administration (FMCSA), the Occupational Safety and Health Administration (OSHA), the Federal Energy Regulatory Commission (FERC) and the United States Coast Guard.
As explained below, many of the regulations that these agencies promulgated predate and, therefore, do not anticipate the development of the clean hydrogen economy, including the use of hydrogen for energy. Thus, many of the existed regulations are of limited applicability.
General Regulatory Framework
Storage
Different regulatory requirements apply to the storage of hydrogen, which can occur in different settings. The OSHA regulations and industry standards referenced in the previous section would apply to the storage of hydrogen in industrial equipment and containers.
Transportation
Regulation of hydrogen transportation depends on whether it is transported by pipeline or by other carriers (eg, car, train, ship or aircraft, although transportation by air is deemed unlikely for hydrogen). Additional requirements apply depending on whether transportation involves intrastate or interstate commerce. Releases of hydrogen that occur during transportation would be subject to federal, state and local discharge notification requirements, including those established under CERCLA and the DOT regulations.
Use
Electricity production
State regulatory frameworks may depend on various factors, including the following.
- Whether or not hydrogen is classified as a clean energy source, including whether and how the state may evaluate the source of the hydrogen used in electricity production, may affect the economics of locating a hydrogen electric generation facility in a particular state. Similarly, at least 12 states currently impose some version of carbon pricing, with numerous additional states considering such initiatives, and so how those states classify hydrogen with respect to carbon pricing will impact hydrogen’s use for electric generation.
- Whether the state’s electricity markets are decentralised or vertically integrated. In states with decentralised electric markets, the electric generation, transmission and distribution systems are owned and operated by different entities, whereas in other states vertically integrated utilities own all aspects of the electric supply chain.
- States regulate the rates at which electricity can be sold to end-use retail customers, and typically have jurisdiction over the rates, terms and conditions of service of the distribution side of the electric grid. In addition to state regulatory authorities, FERC also plays a role in regulating the use of hydrogen for electric generation:
- FERC imposes common carrier requirements on interstate transmission systems. This allows generation facilities to plug into the transmission grid and deliver their power to end-use customers, even if the generation facility does not itself own the transmission grid. The transmission companies’ common carrier rates are set forth in their tariffs, which are subject to FERC review and approval.
- Some regional grid operators that are regulated by FERC are considering how to incorporate state-determined carbon pricing into organised wholesale electricity markets. FERC recently issued a policy statement stating that it has jurisdiction over market rules incorporating carbon pricing and would evaluate proposals by grid operators to incorporate those prices into their markets. Therefore, just as states may impact hydrogen via carbon pricing, FERC’s review of the incorporation of carbon pricing into wholesale markets could impact hydrogen’s use for electric generation.
- FERC is authorised to classify certain kinds of small-scale power generation facilities as Qualifying Facilities (QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA) (16 U.S.C. ch. 46 § 2601 et seq). PURPA seeks to encourage electric conservation, increased efficiency and the development of renewable energy. Facilities that receive QF status from FERC obtain the right to sell energy or capacity to a utility at the utility’s avoided cost rates for power. In December 2020, FERC issued a final rule permitting certain hydrogen fuel cell facilities to be classified as QFs under PURPA (Fuel Cell Thermal Energy Output; Bloom Energy Corp., Order No. 874 (Final Rule), 173 FERC ¶ 61,226 (2020)). In addition to FERC, PHMSA regulates the use of hydrogen in fuel cells, including the design of fuel cell cartridges to prevent hydrogen leakage (49 C.F.R. § 173.230 – Fuel Cell Cartridges Containing Hazardous Material).
Electric grid services
FERC has jurisdiction over wholesale electric markets under the Federal Power Act (16 U.S.C. §§ 791-825r). FERC largely regulates the terms and services of wholesale electric markets through its oversight of the tariffs of transmission-providing entities and Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). In 2018, FERC issued a rule to remove barriers to the participation of electric storage resources in organised electric transmission markets managed by RTOs/ISOs (18 CFR Part 35 Elec. Storage Participation in Mkts. Operated by Reg’l Transmission Organizations & Independent Sys. Operators, Order No. 841, 162 FERC 61,127 (2018)). FERC’s rulemaking premised the participation of electric storage resources on the physical capabilities of the resource, rather than limiting it to any specific or existing technologies, thereby enabling the use of hydrogen to provide electricity storage services in wholesale electric markets.
Natural gas blending
FERC has recently asserted jurisdiction over the blending of hydrogen and natural gas for conveyance in pipelines. Although this jurisdiction has not yet been tested, FERC explained that it would assess proposals from pipeline owners or operators to allow a certain level of blending of hydrogen and natural gas on a case-by-case basis, examining the impacts on the pipelines’ customers, the ability to offtake the blend, and other criteria. This statement is significant and indicative of the heightened level of scrutiny given to hydrogen conveyance, since FERC’s regulations categorically exclude natural gas rate filings from National Environmental Policy Act review.
Use to create ammonia or ethanol
The regulations applicable to this end use would be substantially similar to those that apply to the operational phase of a production facility.
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