Assembly Select Committee on Select Committee on Building a Zero-Carbon Hydrogen Economy

Good morning, everyone. I'd like to thank you for coming to the first hearing of the Select Committee on Building a Zero-Carbon Hydrogen Economy. Today's hearing is both a continuation and a beginning of a dialogue on the issues of hydrogen. We've been working on hydrogen for-- I've been working on hydrogen almost since the moment I joined the Assembly. In terms of trying to move this important topic forward for California. Hydrogen has lots of potential solutions for hard to decarbonize sectors of our economy, particularly clean and medium heavy duty transportation sector.

And, of course, the issue of long term energy storage. We're best served if hydrogen competes with battery technology out there in many places. In some places, hydrogen is certainly going to be superior. In other places, battery technology. Many places, they will be able to work together. So I think it's really important that we make sure we realize the promise of hydrogen for California as we begin these beginning steps of trying to implement a new era of hydrogen production.

We know that hydrogen currently is being produced in California, but with fairly disproportionate amounts of emissions. And we hope that we can uniquely position California so that we get all the benefits and minimize the challenges associated with hydrogen production. And with that, we've got, I think, a very robust agenda for today. We have a time constraint with many members having to leave.

We, unfortunately, have been constrained to having our Select Committee hearings either before sessions on Monday or after sessions on Thursday, which requires us to be probably more efficient than normal in our hearings. So we have a 15 minutes overview, and we really appreciate it. And if Lukas Wernert from the European Union fellow would come forward, and we also have Dr. Jess Jenkins of Princeton University just to give us an initial overview. And we'll go with five minutes for you, Lucas, and then Dr. Jenkins will follow you on the thing. So welcome. Thank you very much for being here, a fellow serving at UC Davis at this point in time. Thank you, Lukas.

I think you're going to need to-- All right. Still don't have you there. Sergeants, can you help us there with. Here we go. Let's try that now.

Hello.

There you go.

Good morning. Thank you for having me. I'm Lukas Wernert, and indeed, I'm a fellow, European Union fellow at UC Davis for this year. Like Arnold Schwarzenegger, I'm born in Austria, and I have an interest in hydrogen, but otherwise, my day job is being an official of the European Commission in Brussels that you could compare to the Department of Energy in Washington. And my last job there has been the development of the European hydrogen grid. I'd like to give you a quick overview of European hydrogen policy.

Before doing that, maybe. Is somebody changing the slides? Thank you. You can go to the next, please. I'd like to just take a step back and say, what is the European Union? Just a quick reminder, we are 27 member states that delegate powers to Brussels. The big difference in terms of energy policy to the US is we are highly energy import dependent.

I think that's something that is different in the United States, which also means for us, renewable energy is even more important than for you folks here. We really need to be able to produce as much as we can on our territory, and that cannot be fossil.

I'm going to ask you to bring that microphone as close as you can.

Sure. I'm sorry. Yes, of course. And I'm sorry for my German accent. Now, in terms of the journey we are on-- you can switch the slide, please-- we are on a similar trajectory as California or the US. We are transforming our energy system towards a 2050 decarbonization ambition. How do we do that? We start from being as energy efficient as we can. We try to electrify what makes sense.

And then for certain sectors, as the Assemblymember has already underlined, for heavy duty transport, long haul and certain industry applications, low carbon fuels like hydrogen can play an important role. And we're not talking about niche here. We expect that in 2050, 15% of our energy mix will come from hydrogen. So that's an important quantity. Next slide, please. How much hydrogen we use in Europe? About 8 million tons. That's not yet clean. That's still gray hydrogen mostly. Next slide, please.

And when we talk about the policy challenges for hydrogen, we have a few that we have been trying to address since 2020 when we put out our first hydrogen strategy. First of all, talking about markets and their framework, we want to be sure that actors know what they can and can't do, who can operate, how remuneration takes place, and also how we plan infrastructure jointly with electricity infrastructure.

Talking about demand, we want to make sure that hydrogen contributes in the sectors where it has the most impact, and that it's not something that we should use everywhere in all parts of the economy. Speaking about hydrogen production, supply, the electricity grid in Europe, as in the US, is under heavy strain. And we must make sure that when we produce hydrogen from renewable sources, we do not add strain to the already challenged grid. That's what we try to do with our rules.

Investment is a key concern in the hydrogen sphere. We will need a massive amount of private investments in particular. What we to try to do with public policy is put in place, the right incentives that incentivize private investors to chip into the hydrogen economy development. Costs and technology, well, there will be a lot of R & I, research and innovation, needed, and we need to bring the costs of hydrogen down, because at the moment there is a high premium on clean hydrogen in the EU.

But everywhere, import dependency, very important challenge for us, less important for you. So what I will now focus on are the first four points, and I will leave 5 and 6 aside. Next slide, please. Just a quick overview. We are talking about 8 million metric tons of hydrogen planned in the EU by 2030. Next slide, please. And we're talking about a similar quantity of hydrogen that should be produced if the projects pick up as we hope.

We are mostly talking about e-fuels, ammonia and certain industry applications. There is less direct transport use of hydrogen in the EU forecast at the moment. Next slide, please. You will see on this slide a host of legislation and policies that are in place in the EU. And I will not bore you with the details, but just let me focus on a few things.

When it comes to hydrogen production, our main focus has been putting in place rules that make sure that renewable hydrogen is produced in a way that's most sustainable. And the famous three pillars that are also very much discussed in the US, I mean, are basically the blueprint there. I just continue--

I don't know what she meant.

Okay. We have covered the hydrogen production by the European emissions trading. That's a bit like the cap and trade in California, and also other incentives. Next slide, please. Talking about hydrogen demand, what I would ask you to retain is the EU approach is focused on binding targets. That's probably a big difference compared to the US.

But we really want to make sure that in industry and in transport, member states are obliged to have a certain share of renewable hydrogen, of hydrogen produced based on renewable electricity in their mix. And that's the cornerstone of our approach there, with a particular focus and support for the maritime and aviation sectors. Next slide, please. We've also put in place some market and infrastructure rules and planning, and there is a host of support and instruments comparable to the IRA, although different in the European context.

And most recently we've done an auction for a fixed premium for renewable hydrogen. It was very successful. Next slide. And that's the slide I would like to finish on. What's important, I think, for you to retain is that in the EU, there are, of course, like here, different ways of producing sustainable hydrogen.

You can do it based on biomass, you can do it based on renewable sources, excluding biomass and that's mostly wind and solar production and that's where the three pillars kick in in the European Union. And you can of course also produce this based on low carbon fuels. For that, the rules are still to come in the EU. What's important for us sustainable hydrogen needs to have 70% less emissions than its fossil competitors if you want.

And I think with that I would like to finish and I'm interested in getting your questions. Thank you.

Great, thank you. We're going to hear from Dr. Jenkins and then we'll open it up for questions by the Committee to round out this first panel. And Dr. Jenkins, are you available?

Yeah. Can you hear me in the chamber?

Yes, we can. Welcome. Thank you.

Hi, thanks for the opportunity to join you today. Will you be presenting with slides there or should I share screen here? Okay. I will share.

One moment. If you have my slides on hands there, it might actually be easier. It looks like they're giving me an issue with sharing here. I might have to quit and rejoin to do so.

All right, I'll be back momentarily then.

If you can't get those up. Just going to have to proceed without the slides. We can't get them up from this end here, Sergeant, can you.

Sorry, apologies. Give me one moment.

Okay. Is that working now?

There we go. We got your slides.

Great. Sorry for the technical glitches. I appreciate the opportunity to testify remotely. The carbon emissions appreciate it, too, so thank you. I'm happy to talk today about some of the requirements to actually build a truly clean hydrogen industry, which is, of course, fundamental to reaching the net zero greenhouse gas emissions goals in the State of California or across the United States. I'll start with the promise of hydrogen, which is that it is itself a carbon free energy carrier.

And that means that, like electricity, we can use it in a variety of endeavor applications, where using it doesn't emit directly greenhouse gas emissions. Right. Combusting or using hydrogen in a fuel cell simply releases water or water vapor. And it's a flexible fuel that we can use in a variety of different contexts, both to transport energy across the country and to use it as a fuel or a feedstock for various chemical processes.

Now, of course, hydrogen today, however, is produced in a highly emitting process, largely through the production of methane reforming from natural gas, where we take CH4, or methane, split apart the hydrogen atoms, and the result is CO2 emissions that, as of today, are directly vented into the atmosphere. This results in roughly 10 to 15 kilograms of CO2 per kilogram of hydrogen produced, depending on the efficiency of the process and the upstream emissions associated with methane leakage across the oil and gas supply chain.

Today, we produce about 10 million tons of hydrogen in the United States. And so total emissions from US hydrogen production is on the order of 100 to 150,000,000 tons. That's about two to 3% of all emissions in the United States and equal to about 4.5 million US households average emissions. So it's a fairly sizable sector of industrial greenhouse gas emissions. Now, of course, in the future, the promise of hydrogen as a zero carbon energy carrier may mean massively increased demand.

So not only do we need to replace the roughly 10 million tons of production from fossil methane today, we also are likely going to need to expand that to at least in one net zero pathway from the REPEAT Project, which I run at Princeton, we see on the order of 8 quadrillion BTU's of demand by 2050, a quad is roughly 10 million tons, rounding it off at least. So that's about eight times the current demand for hydrogen.

And of course, if we want to be reaching a net zero goal, all of that has to be very low lifecycle greenhouse gas emissions, ideally zero. It's also important to note that while hydrogen is flexible and it can do many things, that doesn't mean it's the best application or the best tool for all applications.

And in many cases we have alternatives readily available, including direct electrification, which will always be more energy efficient use of clean electricity than producing hydrogen, which involves the loss of energy through the electrolysis process, which is about where you lose about 30% of the overall energy inputs. That's before storing, transporting and then reusing the hydrogen on the other end.

And so in areas where we have cost effective strategies that result in lower costs of carbon mitigation per ton, or where the alternatives have lower carbon intensity than the use of hydrogen. Examples of that are on road vehicles and trains, both passenger and freight trains. It's advisable to pursue alternatives to hydrogen rather than pursue the use of hydrogen in these end use applications.

There are other clear cases that are where hydrogen is the best alternative, where it has a lower cost per ton of CO2 mitigated and achieves a much lower CO2 intensity, meaning it reduces emissions to a greater extent than available alternatives.

This includes use cases like iron and steel production through direct reduction of iron ammonia synthesis, where we're displacing existing fossil methane reforming, and as well as oil refining, where a large amount of hydrogen is produced from methane reforming for use as a chemical feedstock for desulfurization and other processes. In the middle are the sometimes use cases where it may be that hydrogen can achieve a lower carbon intensity, but probably has a higher cost per ton of CO2 abated, or vice versa.

Here we have a variety of potential use cases that we need to keep a close eye on, evaluate carefully, and try to understand the staging of uses in the near term versus the longer term. And so there are a variety of potential cases we need to be careful about, but do have significant potential for end use application. Now, of course, there's a variety of different ways to produce hydrogen, and that highly depends on the that has a significant impact on the overall greenhouse gas intensity.

The main way, as I mentioned today, is through methane reforming, which could be paired with carbon capture and storage to take the processed CO2 emissions from the methane reforming process and store them safely underground. Of course, as much of the focus is on water based electrolysis, which has the potential to be fully carbon free.

If we're able to use exclusively zero carbon electricity to power electrolysis, which splits water into hydrogen, releasing only oxygen. You can see there's quite a range of different carbon intensities for these processes. They mentioned about 10 to 15 million equivalent per kilogram of hydrogen for methane reforming. And of course, if we use purely zero carbon power, we would have zero emissions.

But I want to draw your attention to the last bar there, which is electrolysis using average grid power and the range of emissions outcomes we've shown there are the result of varying the emissions intensity, or the emissions impact of connecting electrolyzers to the grid without ensuring they're supplied by carbon resources.

And I just want to point out that while California has one of the cleanest electricity mixes in the country, using the EPA's eGRID average emissions rate for California today, we estimate that if you were to plug an electrolyzer into the average grid in California, that it would result in about 11 kilograms of CO2 emissions per kilogram of hydrogen, roughly comparable to fossil based methane reforming. So really no improvement relative to fossil methane.

That might be surprising, but the reason for that is that, again, electrolysis is a very energy intensive process, and so we have to be using very clean fuels, or it's very easy to result in significant emissions impacts. As another comparison, the 45V tax credit at the federal level specifies an emissions threshold of 0.45 kg, or nearly zero.

If an electrolyzer uses only a couple of percentage points of its energy from coal or natural gas, that's enough to blow through that very tight emissions limit. So we really need to ensure these resources are supplied basically exclusively by clean electricity. The issue is, how can we be sure that an electrolyzer connected to the grid is truly clean?

If you're plugged directly into a new clean resource, like a new wind or solar or nuclear facility, it's quite easy to verify that the electrolyzer is consuming purely clean resources. The broader challenge, and where it's important that we set effective regulatory standards, is when we have electrolyzers connected to the broad power grid there. The challenge is that we don't route electrons through the grid like we route freight from a warehouse to your home when you're delivering Amazon packages or something else.

Instead, electricity all mingles, commingles in the electricity grid, and follows the path of least impedance or wherever the physics dictates it goes. And so it's very difficult to differentiate where your power is actually coming from. And this is the challenge before us now in terms of trying to define standards for grid connected electrolyzers. It's relevant in Europe, it's relevant at the federal level and relevant for California as well.

And this is what has led to the emergence of the so called three pillars that are three conditions that are required to build a truly clean hydrogen industry. Those three requirements are that an electrolyzer connected to the grid is supplied by incremental clean supply, so new clean resources. Second, that the consumption of electricity by that electrolyzer is aligned temporarily or hourly with the supply of clean electricity. And third, that the supplier can actually deliver to the location of the consumer on the grid.

And when you think about this, it makes pretty common sense. What we're basically saying is that if you want to claim you're powered purely by clean electricity, then you have to be sure that there is new clean supply that's generating at the same time you're consuming and could deliver to your location on the grid. And if those three criteria are met, then the emissions impacts are effectively equivalent to plugging physically in to a new clean resource.

That's really the only assurance we have that grid connected electrolyzers can produce carbon free power. And that's why both the proposed rules for 45V implementation at the US Treasury and the European Commission standards for clean hydrogen rely on all three of these criteria.

Thank you.

Stop there and look forward to your questions in this panel and later on in the third panel as well. Thanks.

Perfect timing. I was just getting ready to stop you. We have used our 15 minutes here for this first session, and I'm very interested in making sure that we move on to panel 2 and 3. So unless somebody has, if you have an urgent question that you want to ask at this point in time, please do, but try to make it as efficient as possible.

Are we going to be able to come back?

Well, both of these speakers are on again today, so that they will be available for us to ask a question. I do have one sort of summary point I'd like to make here about this, but please, if you guys. I don't want to cut you off.

I would just say so, Mr. Chair, I'm very happy to wait to ask questions later. Definitely have a ton of questions. You all have packed a lot of information into 15 minutes, but happy to hear from all of our speakers.

I know you're going to be leaving in an hour, so I want to make sure- you want to pick one or two of those questions right now?

I'm good to wait.

You sure? Right.

Can I just ask a quick question, yes or no, on the second presenter, Dr. Reid, not Dr. Reid.

Dr. Jenkins.

Dr. Jenkins, yeah. In your presentation, what I understood is that between 10 and 15 kilograms of CO2 are generated to produce 1 kilogram of hydrogen, is that correct?

From fossil methane reforming, which is the conventional approach today, yes, that's correct.

Okay. I'll follow my questions for today.

Thank you. Anything else? So if I could just summarize 1 point that has come up sort of oftentimes, and that is if we just plug in our electrolyzers into the grid right now, today, because hydrogen is a very energy intensive, electrolyzing hydrogen to create hydrogen, very energy intensive. We actually have some significant emissions problems because you can't just identify, hey, you want the grid to deliver you renewable electrons.

And so the three pillars have been sort of formed to deal with that fundamental fact that you have an enormous amount of increased potential energy demand. And you hear there that it's eight times the hydrogen production today. And so if you're going to have that big of an increase in demand, if you're not careful to make sure that you bring renewable resources on at the same time, we could end up inadvertently actually creating more emissions, more pollution as we bring hydrogen on.

And that's what we're trying to get the best of both worlds, bring hydrogen on and at the same time try to do it cleanly. So with that, I'm going to turn to our second panel, and we have two people for our second panel and really appreciate the fact that we have a last minute pinch hitter coming up. And Dr. Brower, who I really appreciate you being available at the last minute and being here, Dr. Brower.

And I've had some great conversations with Dr. Brower about hydrogen, and he's the UC Irvine Director of the Clean Energy Institute and also representing or speaking on behalf of ARCHES today. And then we also have Beth Traxx, and she's the Vice President of the Environmental Defense Fund. And we specifically have this titled as the focus on the three pillars. Overall, should we incorporate the three pillars or should we not incorporate the three pillars from an overall standpoint?

Because our panel after this will be more specific about hourly matching, more specific about additionality, those two particular issues. So with this, Dr. Brower, you get to lead off, and five minutes for both of you, if we can. All righty.

Hello, distinguished Members. Thank you for the opportunity to speak before you today. My name is Jack Brower. I am a Professor of mechanical and aerospace engineering and Director of the Clean Energy Institute at the University of California, Irvine, and I've been directing teams of engineers and scientists to do hydrogen related research for the last 25 years. I also am today representing ARCHES, the Alliance for Renewable Clean Hydrogen Energy Solutions, which is the USDOE selected California Regional Hydrogen hub.

I've been involved with that organization since its inception and am currently also an interim board member. The position of ARCHES has been made clear in our letter to the honorable Janet Yellen, Secretary of Treasury, and the White House Senior Advisor, John Podesta, which is before you today. This letter, which we delivered on February 26, 2024 essentially states that we desire an alternative compliance pathway for California and other states that have date certain decarbonization laws and regulations in place.

I don't want to read this to you, but I draw your attention to page six of this letter in which we propose alternate language for this compliance mechanism. Essentially, it says that the requirements of additionality, deliverability, and time based EACs should not be applied in jurisdictions that have these features.

First, date certain decarbonization by at least December 31, 2050 and the hydrogen production facility can be operated up and down according to grid requirements and that hydrogen production is already planned for in state plans like the integrated resource plan. This is the case in the State of California, and in particular in response to Professor James' comments recently, if you have a dispatchable hydrogen production facility, you could operate mostly in the middle of the day and as a result have way lower carbon emissions than the average grid.

Do you see how a dispatchable unit would operate mostly on solar power if you had it only operating during the middle of the day? Okay, it would be way less than the 11 kilograms of CO2. That's the average California grid. Okay, so that's an important point, but let me just suggest the circumstances in which these conditions apply as they can for a dispatchable hydrogen production facility installed in California. Any additional constraints on that facility would lead to harm. What kind of harm could that lead to?

First, it will delay the advancement of clean, renewable hydrogen production in California. One reason for that is that many of the projects included in ARCHES and projects planned for in the state already require access to the PTC and certainty of that access before financing will be allowed. Second, it will harm by adding cost and burden to clean renewable hydrogen, making it less competitive with natural gas and diesel alternatives.

A recent E3 study and you know E3, they're highly regarded in California for their modeling of the CARB Scoping Plan and the Integrated Resource Plan of the CPUC. They noted that ultra low carbon intensity hydrogen can be achieved without additionality, deliverability, and time matching. And in 100% of the scenarios they considered adding, any one of these or just the time matching burden or requirement would add up to $4 per kilogram, essentially erasing the benefit of the PTC.

Third harm, it will delay or eliminate some of the arch's projects themselves, leading to increased use of natural gas and diesel. This is because those who want to use it instead of natural gas and diesel also require a lower cost than we can currently produce it today by electrolysis. They need also the PTC to make these things work. Fourth, it will eliminate the potential for clean hydrogen solutions to help our California grid with challenges associated with negative prices and curtailment.

If we applied these additional constraints to hydrogen, it would essentially remove hydrogen from the regular electric market. It would treat it separately and not allow it to participate in the market to help with curtailment and negative prices.

And you're at the five minute mark.

I am. Okay, I'll wrap it up. Finally, it will delay the certain pollutant emissions reductions that are associated with our introduction of renewable clean hydrogen into diesel, freight and port applications, which are the most harmful to people because of criteria pollutants, and health impacts. Every objective analysis of the future says we need renewable, clean hydrogen and its features to decarbonize and depollute everything. That's what we intend to do with ARCHES, and additional constraints won't help. Thank you.

Thank you very much.

Now, Ms. Beth Trask.

Is my mic on?

No, you're not on.

Do I turn it on?

Just bring it closer.

Bring it closer.

Okay. Is that working?

You could be louder.

All right, how's that?

That's better. Be nice and close.

All right, I will. Thank you so much, Chair Bennett and Members of the Committee. Really appreciate the opportunity to be here. I'm Beth Trask. I'm a Vice President for Energy Transition at the Environmental Defense Fund. We are a global, nonpartisan, not-for-profit organization whose mission is to stabilize the climat, and we've been active in California since the early 70s. We're all here today because hydrogen has so much potential as a climate solution, especially for those hardest to debate sectors of the economy.

But even though it is carbon free, hydrogen is not a silver bullet. Like any complex energy system, it presents many risks that we have to manage carefully if we're going to achieve those climate benefits. And the degree to which we do achieve the climate benefits are going to be based on how carefully we produce it, how carefully we manage it, and how responsibly we deploy hydrogen. These climate impacts of hydrogen vary greatly based on a number of factors that are often overlooked in analyses.

These include the warming impacts of hydrogen itself when it is leaked to the atmosphere. And that's an issue that EDF is studying quite closely right now. The impact of upstream methane emissions that are a factor, whether you're using fossil based gas or a biogas, the efficiency of carbon capture, if you need to capture carbon emissions, in the case of fossil hydrogen, and how electricity is sourced, which, of course, is the main subject of today's panel. EDF has a peer reviewed paper just published last month that details all of these factors that influence the climate benefits of hydrogen. And I'd be happy to share that with the Committee.

The bottom line, all these details really, really matter, and we have to get them right. So the three pillars are, of course, a big component of getting hydrogen right, and has been discussed already in the prior speakers. That's because hydrogen is so energy intensive to produce. Just a quick example, to power a car or a bus from hydrogen requires three to four times more renewable power than if we were going to power that car just with a battery. And that's because of the conversion.

You have to turn the renewable power into hydrogen and then use it to power the car instead of just directly taking that energy to power the car. So if you can electrify, as has already been said, we have to electrify. It's our best solution. So where we do need hydrogen, we have to do it really carefully.

And one way is to ensure that the increased demand for renewable electricity doesn't outpace our ability to produce it and deploy it, because that would inadvertently ramp up more fossil to fill the gap. Smart policy design can solve this problem, and that's why we're talking about the three pillars. They've already been discussed. I won't go into detail, obviously. Number one is about additional or clean resources. Number two is about matching consumption and production on an hourly basis.

And the third is about being located in your deliverability region. This is not a new framework. Lukas can speak about all the ways in which the EU has been working to implement this since they passed the three pillars program in 2022. And what we have seen in Europe has been quite encouraging. The number of hydrogen projects announced that are three pillar compliant have increased since 2022 in Europe. EDF has researched the landscape of literature on the three pillars.

We've commissioned a study with the consulting firm ERM to look at 30 different studies on the three pillars, and we'd be happy to provide this study to the Committee as a resource. I'm going to just briefly highlight some of the findings of that study. Across the board, all studies, there's strong consensus across the studies of the three pillars that it will prevent hydrogen from increasing grid emissions. That's very, very clear.

If we don't implement a strong three pillar framework, we will lead to significant net increases in grid emissions and fundamentally make our grid dirtier. The three pillars will set up a more successful clean hydrogen economy in California over the long term. They will direct investments to the right locations and the right technologies. This prevents the burst of the bubble that we're all afraid of. At the end of the 10 year federal tax credit, that goes away, and what are we left with?

We want to be left with a really strong, clean hydrogen economy here in California and in other parts of the nation. For example, electrolyzers that are more flexible and are able to ramp up, up and down to match variable energy supply, those happen to be manufactured here in the US as opposed to the steady state, cheaper electrolyzers that are made in China. We want to incentivize those more flexible electrolyzers. Hourly latching will allow us to do that.

The three pillars also incentivize investment in our power sector. Solutions like batteries, long term storage, transmission lines, and grid management tools that prevent the spikes in consumer prices.

And you're at the five minute mark, so if you can...

Boy, that does go fast.

I agree.

Okay, maybe I just wrap up really quickly, zipping through. One key point I want to get on the table, which is about the cost. Obviously, we worry about costs. Advanced grid modeling across a number of studies have shown that hourly matching would only increase costs by 10 to 20 cents per kilogram. And hourly matching systems do exist right now. They're functional in other parts of the country. We can talk more about that in the Q and A time. And finally, three pillars will enable international trade.

We can form an alliance with Europe that will create a powerful trading bloc that will counter a lot of competition that is expected from China. And the three pillars system will set us up to meet our climate goals from day one, instead of passing it down a number of years. So I'll end there. And I thank you all.

Thank you very much. Well, excuse me. I think we've set the scene for the focus of our conversation today, which is we have ARCHES contention that we should be essentially exempt from the three pillars because we're California and because of the unique things that we have in California. We have other people, EDF's position is no, there still are significant challenges with this as we move forward.

So I certainly want to make sure that we use now the next 15 minutes for our Committee to be able to ask questions. The fundamental question that I have for both of you is that, currently, the reference was we could produce energy during the day, and you talked about that possibility. But even sometimes during the day, we are using fossil fuel to produce our energy during the day.

So in terms of meeting the goals of the three pillars, I see two issues that I would like to keep coming back to with all of the speakers, and that is if we have the exemption on additionality that ARCHES is asking for, how do we make sure that we send the right pricing signals to develop enough renewable energy out there? That's one. And the other fundamental question is, if we don't have hourly matching, how do we send the right signals?

And the example I'll use is this. And that is right now we have annual matching in California. If you have annual matching, you could buy electricity from Arizona at 2:00 in the afternoon on July 15, and you could then turn around and use that credit to use a less clean fuel, a dirtier fuel on December 15, at 2:00 in the morning.

And if we don't have hourly matching, the question I have is, how do we send the price signal that says at 2:00 on December 15, we ought to be trying to send the best price signals we can to develop renewable energy sources at 2:00 in the morning? Like wind or geothermal. If we don't have hourly matching, I have not seen how we send the right signals so that we end up for California. So we have two challenges in front of us.

Get this infant industry off the ground and try not to put unnecessary hurdles in front of it, and at the same time incentivize, so that in the long run, particularly when the credits are gone, the 45V credits are gone, we have the most robust and diverse renewable portfolio out there for California. So that's my fundamental question. I'd like to give both of you a quick minute for that, and then I won't ask any more questions. I'll turn it over to my colleagues. So go ahead, 1 minute from each of you.

Okay, thank you. California has for a couple of decades already passed laws and established regulations that true up renewable production with renewable consumption for the RPS program, for example, on an annual basis, for the LCFS program on a quarterly basis. And they have market mechanisms which actually are verifiable for making those certain. And over time, those must increase to shorter time periods. This is one of the reasons why LCFS is shorter than RPS. It was passed later.

And there already are regulatory barriers against things like resource shuffling. Right. We cannot take an existing resource that's used for RPS and give it to someone else. No, no. We have to have an additional resource if you want to use it for meeting your RPS. Okay. So there are already laws and regulations in place in the State of California that are better than any other state in the world, right, for making sure that over time we reach the goal that you have.

Great. Okay, thank you very much.

Every time, every hour matched. Sorry.

We're going to fight time the whole time. So 1 minute, also, for you.

I guess I would simply say that the three pillars really benefit California. I mean, if we're looking across the seven hubs that the DOE has selected across the country, California has a better opportunity than any of them to meet the requirements of the three pillars and to really thrive by doing so. California has, obviously, abundant resources for producing renewable power and as well as aggressive, ambitious goals under the RPS to get to higher and higher levels over the coming years.

By most analyses, it does not look like California is going to have any trouble complying with the three pillars, which gives it an advantage over other parts of the country. If some flexibilities are absolutely needed, they really are essential. There are a few ways that could be looked at very carefully, making sure that they are airtight flexibilities. For example, curtailment is one that has been considered on the table.

If you're producing excess wind or solar, you could use that curtailed power as the source of your additionality or incrementality. That is a possibility, something the EU has looked at. There also is a potential for some flexibility around the state emissions cap, which is a binding cap that might allow some flexibility. And that's another thing that the EU has looked at. So I think there's some things to explore. But bottom line, California doesn't need a lot of flexibility. It sort of has what it needs to be compliant.

Thank you very much. Assembly Member Cottie Norris. Petrie-Norris. Right.

Thank you, Mr. Chair. And I'll just first say thank you for convening us for this very important conversation. I think that we are all committed to ensure that hydrogen in California is clean. I think for me, I also want to make sure that we establish a statutory framework for clean hydrogen that kind of puts it in the context of California's existing energy.

And I think that that kind of gets at the heart, Mr. Brouwer, of what you were talking about in your comments, and you pointed to your letter where you have called for an alternative compliance pathway. As I know you know, but I don't know if my colleagues know, the Governor actually sent a letter alongside Governor Kotek and Inslee. That's Oregon and Washington, right?

Yes, Oregon and Washington. All the Western state governors.

The western states governors, kind of echoing that same request for an alternative compliance pathway. I think essentially saying, if I understand, hey, we've already got laws on the books that accomplish this stuff, so there's a smarter way for us to get there. So I guess, can you just explain to us in non-doctor terms, non-science terms, why a three pillars framework might make sense in dirty states across the country, but does it make sense here?

Yes, I agree that when a federal law is passed and you have different jurisdictions, different states, different jurisdictions that don't have a date certain decarbonization strategy in place, that we need safeguards like the three pillars for achieving what the US DOE requires for PTC. Okay. Because there will be, over time, consequential emissions associated with connecting to grid power, making electrolytic hydrogen. And those consequential emissions will always be higher.

In the case of California though, those consequential emissions are going to be higher at certain hours, lower at other hours, and on a trend of going down. So it's this policy framework that we already have in place for date certain decarbonization that over time always assures emissions are going down, down, down to zero by date certain.

Okay.

Sometimes up and down along the way.

Great. That's your 1 minute in terms of response.

I don't know if you have any. I guess, in 60 seconds, why do you, I guess, disagree with the assertion that given all of the very robust protections, all the very robust laws that we already have on the books, the very well established clean energy framework that exists for California, an alternative doesn't make sense.

Again, California can meet the three pillars. There's very little question about that, and I think most studies show that. So I think it's a question of why do we need flexibilities for California? That I think, I'm still not quite understanding from the argument. I will say that in the case of the Hydrogen Production Tax Credit, the 45V federal credit. I mean, it's a subsidy for a very, very, very generous subsidy, $3 per kilogram at the highest tier.

And you get that if you really deserve it. If you really, really are clean. It doesn't mean you can't produce hydrogen otherwise, it just means you're not entitled to that very generous tax credit. Every hub is going to be, every producer, and every hub is going to be competing to get to that $3 level. And so it's really a race to the top. So why wouldn't we want to incentivize a race to the top, is my question. And effectively, it's a level playing field because everyone's going to be trying to get there.

I'm just going to offer a quick observation. And that is, I think, two fundamental points. One is, I think some people would disagree that the Governor's letter asks for the same kind of alternative approach that ARCHES is asking for. And that ARCHES is asking for basically a complete waiver of the 45V rather than an alternative. The waiver being we don't need it. And that's what they would call the alternative approach.

But the other is the fundamental question of whether California's current system will actually get us green enough. And I think there's been lots of frustration as people are saying, we're not going to hit our 2030 goals, we're not going to hit. So the fact that we're not hitting our goals is one of the pieces of evidence that's out there. But you said you had one more question.

I do have a question, and what I'm trying to get my head around in sort of all of these conversations. But as we're looking at, I think we recognize that our clean energy puzzle has got a lot of pieces. Right. And there are different resources that make sense to solve different parts of that puzzle. And I'm a big believer that we've got to take an all of the above approach, and you want the cleanest energy source to fit the mission. Right.

And so I guess I'm wondering, and I don't know if our gentleman on the Zoom screen is there is comparison to the average the relevant question or is it a question of comparing it to the real world alternative, which is actually, as you said, we're talking about hydrogen as being utilized in our hardest to abate sectors. So that is much dirtier than the average.

And I guess I asked that because I think sometimes, we all want the 100% clean solution, but for certain sectors that's actually impossible. And so in some cases you are way better off taking let's take the 80% clean solution as opposed to the 10% clean solution that we have today.

And I think I asked that question because I think it's important for this conversation and I think it's really, really foundational as we chart a path forward and ensure that we're not making perfect the enemy of the good and moving as quickly as possible in pragmatic and real ways to deliver on our clean energy objectives.

So as quick as we can with the two answers.

It's a great question, and I think it warrants a lot of investigation. I guess my answer to that is let's put all of these alternatives on the table and truly do the lifecycle analysis that's necessary. It's not just looking at hydrogen versus diesel or hydrogen versus whatever your status quo fuel is, or hydrogen versus looking at the average grid emissions. It's also looking at other alternatives. Electrification is a viable alternative even in the hard to decarbonize sectors for various individual applications.

We could be really pushing the bounds of electrification. We could be pushing the bounds of efficiency, alternative technologies, other approaches. I just think it needs to be... You're absolutely right. And we need to just throw all of these opportunities on the table and assess them using the same parameters. We may find, it's a more complicated equation, but I think ultimately we can get to the right answer about where hydrogen is the right solution to meet our climate objectives.

Dr. Brouwer?

Yes, I agree. We need to improve carbon accounting so that we can account for the California situation. We have a California GREET model already, but it needs to be improved, and it can be improved to include these ideas of additionality, deliverability, and time based. Let me just suggest though that we need all of these solutions to succeed.

We need electrification of everything we can possibly electrify, we need batteries wherever we can use them, and we should use efficiency and those sources first in these applications, and only when you can't decarbonize it with something like batteries or direct electrification, then you use the alternative route of hydrogen. So we're in agreement with regard to that. And there are current market mechanisms in place that can guarantee to California standards that it's green electricity you are purchasing. Okay. We currently have standards for that.

And if an electrolyzer can qualify for that, so could a battery electric vehicle, so could a building, so could any of these resources that are using renewable electricity. From my perspective, we should treat them all equally the same.

Thank you very much. Assembly Member Bryan.

Thank you. Thank you for this incredibly robust conversation. I think that this is critically important. I mean, obviously the federal government is making a tremendous investment, and I'm glad that we are going to be one of the nodes that is receiving that investment to prop up this emerging and new industry. I think that the proposition that was made by my colleague that if we can get 80% there, I think that's good. I hear that in some of the things that I've seen, given our existing infrastructure, is that the blend is more like 20% there to keep the existing infrastructure, in some cases without kind of...

If you're talking about freight, if you're talking about diesel trucks, yeah, we're not even 20.

Right. And so we've definitely got some work to do in regards to the pillars though, the alternative compliance. It's interesting that we brought this up today because I was asked if I would join on to legislation that would push the retrofit date for some of our hospitals. A bill that was signed in 1994, I believe, to retrofit by 2030. And that is the target we set. And that's a target we're not going to meet, and that's a target that we're going to have to provide some support and relief.

So are we not just trying to escape the federal regulatory frameworks that we can regulate ourselves and give ourselves an out, which I think is counter to California's kind of goals of being the climate leader that we are, but we want less clean states to have a more stringent and cleaner framework for how they develop hydrogen and give ourselves kind of the wiggle room to not meet our overall targets.

And one of those reasons being that we set up a hydrogen infrastructure that is not as clean as other states that were compliant with the three pillars. Is that not part of the conversation here?

I think it's actually just the opposite. I think California already has in place the legal framework to make sure that it is green today and over time continues to get cleaner and support the whole grid and all of society in that direction. We already have those policies in place. We've been arguing about this for 20 years in this state. This is why I'm proud to be a Californian because we have the best environmental policies anywhere in the United States, and maybe best in the world. Already.

So you would contend that if we don't adopt the three... Well, one, the federal government have to waive us from the three pillars to begin with, right? Given the current framework.

I don't know what they're going to implement.

But if they don't, for example, we would then just still be compliant and build up our framework based on the three pillars because this is a massive investment that they're offering, is that right?

We would be compliant with the goals of the three pillars, which are to make sure that we have additional electricity, that renewable electricity or zero emissions electricity that goes in, that we can deliver that electricity, and that if we use an environmental attribute, that it's on an hourly basis. That will be accomplished in California by date certain 2045.

So without the three pillar regulatory framework coming from, without an alternative compliance mechanism, we would still accept this massive federal investment and meet the goals as currently articulated by the federal government. Is that right?

The federal government doesn't have requirements for ARCHES. It's just that the projects that are in ARCHES require the PTC to make them make financial sense. It's a little bit...

I guess what I'm saying is these are letters pending to the federal government. If they say no, we are still going to develop clean and green hydrogen, accept this investment, and continue to move forward. Is that right?

Okay, we could, but we could fail in achieving and have to return the money. Because projects will not be able to proceed unless they can qualify for the PTC. Okay. I don't know for sure if I'm answering your question.

I guess so. Are we suggesting then that other hubs in other states that don't have an alternative compliance framework like us with date certainty, they then have no shot in this game to begin with? Because if their projects can't get off the ground for the same reasons ours can't get off the ground, then this is all just a wash by the federal government. Is that what we're suggesting?

No, no, no, no. Okay, let me suggest that application of the three pillars in jurisdictions that don't have a date certain decarbonization, or especially all the regulations and laws in place to actually accomplish that by date certain, they should abide by the three pillars. And in this way, I agree with EDF in suggesting that California has an advantage. We already have laws in place that move us in that exact same direction. And so they will have a more difficult time complying with and receiving the PTC than California.

Okay.

And California is just not needed because we have existing law that gets us to the same place.

And I definitely hear that argument. That's my last kind of comment about it. That's what's confusing me. If we're already much closer to the goals of the three pillars than anybody else, then our comparative advantage is established by the fact that we've been moving this direction already. Correct? And if this framework by the federal government negates the ability to build this out correctly, then nobody but us is even close to being able to do this.

And this is kind of a worthless investment by the federal government based on the idea that we can't get our projects off the ground and we're further ahead. That's what I'm confused on, and I don't know that you've kind of cleared that up for me. I'm just trying to better understand why, with all of the framework that we've put in place that is actually closer to those goals than others, why we're not already competitively further ahead than some of these other places.

We are further ahead. Okay. But we are not, today, there are no mechanisms today in California to accomplish hourly matching, nor has there been any regulatory framework in which this has been achieved yet. Okay. And so what it will favor are those hubs that make fossil hydrogen. That's what will be favored. Those will still succeed because we're only arguing about electrolytic hydrogen. So the fossil hydrogen hubs will proceed no matter what. They're not even involved in this discussion. It's those that are depending upon electrolytic hydrogen.

And that's why the western states governors have gotten together both in Washington state, where they plan to mostly use hydro, and in California, where we plan to mostly use sun and wind power. Do we want there to be a date certain decarbonization alternate compliance pathway?

I'm just a quick summary because we're going to Assembly Member Reyes. But I posed the question a little bit differently, and that is, if California is going to get there anyway, why would it hurt us to adopt the three pillars? Because California is going to get there anyway, and nobody is asking for us to do hourly matching immediately. You said nobody could do hourly matching. But yes, there are adjustments we have to make. Even the federal government doesn't say hourly matching right away.

But if on the one hand we're saying California is going to do all of this stuff, then how does it hurt us to assure ourselves that we're going to do all this stuff by putting it into legislation? Because a lot of people would contend that our patchwork of laws out there, RPS standards, LCF standards, quarterly matching, our annual matching, are not actually going to get us there or give us the assurance we're going to get there properly. But Assembly Member Reyes.

Thank you. I've got to tell you that it was frustrating hearing the answers that were given to my colleague because if we are poised to meet the three pillars, then, as was mentioned, then this is the race to the top. Saying, we're going to meet the three pillars, we're getting all this federal money, we are going to be the ones that are going to receive this and move forward.

Rather than trying to say, you're giving us too much to have to do, we can do it, but you're giving us too much to do. So now it's the race to the bottom. And I think California, because we have done so much, we are poised to receive this money. Just last year we worked on AB 126, the Clean Transportation Program, and there was lots of discussion about hydrogen.

And then part of the issue was that money had already been allocated for hydrogen infrastructure that was never done. The biggest complaint was that there had not been private investment, and if there isn't private investment, then the money that could be going to do this work couldn't go anywhere because private investment was missing. Now we have ARCHES, we have all this federal money that is coming our way to help us use hydrogen as an alternative.

And I think there are some places where hydrogen can be used as an alternative. My colleague was saying that most, 80%, can get to electrification and do that successfully. We're just talking about 20% that needs something more.

So if we're going to limit it to that area that is hard to electrify, then those are the areas then that would seem to me, logically, are the ones that are going to have the greatest investment because we can't electrify. Is part of what we're saying then that hydrogen should only be used in limited, hard to electrify sectors, not the sectors that can decarbonize more efficiently through electrification. Is that what we're saying, or are we trying to use hydrogen even in the places where we can electrify?

So I believe that we should always try to make renewable electricity first and use it immediately when it's made and not store it or do anything. And we should electrify as many end uses as is physically and humanly possible. And we should then use the most efficient storage means wherever possible. This is why we always do renewable electricity, electrification, and batteries first, always. And hydrogen is the solution that comes next. This is why, for example, we've invested in solar and batteries and wind in this state.

I think it's the right policy. And then battery energy storage as the next thing. After that, we have difficult to abate sectors, and they include things that are impossible to abate, like steel or cement without hydrogen, or plastics or ammonia. Impossible without hydrogen. So we absolutely need it for that. And then comes the ones that are kind of in between, where 20% could be batteries, 80% could be batteries, or 20% could be hydrogen, and 80%...

And thank you.

Can be hydrogen. Okay, so, yes, we aim things at those most difficult to abate sectors when we apply hydrogen. That's exactly what ARCHES is doing. ARCHES is putting it in freight and ports. That's where it's going. And buses.

I completely agree. We're in agreement on this point. And just to add that I think there is a lot of tension right now in various sectors who see hydrogen as a way to prove their viability in a net zero world like gas utilities. So there's a lot of conversation happening at the Public Utilities Commission level about whether or not hydrogen blending into gas utility systems makes sense at all, knowing what we know now about the potential for electrification. So it's an open question that's being sort of debated right now.

So for me, hydrogen is one of the options, and it should be left open. In my area, medium and heavy duty vehicles. That's not light duty vehicles, but medium and heavy duty vehicles. Absolutely. It's something that hydrogen needs to be explored so we can use it more efficiently.

But I'm just concerned about the fact that we're receiving all of this federal money, that California has lots of laws in place, as you've mentioned. We accept that there's a great investment being put into hydrogen, but my question is, why fight it?

And, I'm sorry...

Let's do the investment. So here's my other question. Should California only use hydrogen produced via electrolysis for renewable resources?

It should be the main way we produce hydrogen around the world, globally, in the future. Absolutely. It should be the main way.

Thank you.

Sun and wind power... Okay. Let me say I disagree with the characterization of race to the bottom. I actually think California policies are already at the top. And if we just keep focused on meeting our own policy goals and using our own regulatory framework, which uses some market mechanisms. Okay. If we focus on making that succeed, we will be at the top.

And that is one of our debatable points. Assembly Member Carrillo.

Thank you, Mr. Chair. The question that I posed first on Mr. Jenkins comment on the 10 to 15 CO2 per kilogram of hydrogen, Mr. Brouwer, do you think that that's an accurate approximation of what it costs?

Yeah, that's a good number for SMR.

And when Mr. Wernert was presenting, I believe I heard him say that the EU's three pillars model, the goal there was to use less carbon fuels. And I believe that he mentioned that about 70% of that is produced through the low carbon fuels is part of the three pillars. Is that about right? Maybe yes, maybe no.

Sorry, what I meant to say was that

You can have a seat.

We have in EU law the requirement that sustainable hydrogen needs to ensure 70% emissions reduction compared to fossil fuel.

So that's the current model in the EU, in producing hydrogen.

In the EU we produce at the moment, as in the US, mostly fossil based hydrogen, but it is the aspiration and it is the law that we now need to implement over time.

My point in asking that question, it's simply that we're trying to model after the EU's three pillars, which obviously they're not doing 100%. So in the debate about the questions here about should California go into the three model pillars.

The other thing is that, Ms. Trusk, in your comments, you said that if we can electrify, we should, but I think that we can agree that we're not going to be able to electrify the whole state. Not even putting the hydrogen equation as being part of that solution, because without hydrogen, we're not going to meet those requirements because we just don't have the capacity to electrify the state unless we use more nuclear power to produce electricity. That's what I think.

Because a lot of the debates that we've been going through, 2045, the way that is going, we're just not going to get their chance by electrifying the state without more nuclear power, possibly, which is not the cleanest way to do it either. So I see the debate going and it seems like we're going around and around trying to say that we don't necessarily have to follow the three pillars model to be 100% as it's been presented or proposed.

Because if we're trying to model after the EU's three pillars, they're not using that 100% yet either. Right. So do we really need to do the three model, the three pillars model that the EU is following?

And thank you for that. I think it's time for us to make the transition. As we make the transition, I think we've set things up. If everybody will hold for a second. I think we've set things up for the fundamental question that I think captures here, which is are California's policies good enough that we don't need the three pillars to get there or not, is the fundamental question. So we'd like to hear that from the other panelists when you're on.

But at the same time, I would offer that the European Union certainly has robust environmental policies also, and they've decided to adopt the three pillars in spite of the fact that they have other robust environmental policies. So for me, the fundamental question is, are our policies robust enough to get us there? And I don't think anybody's going to get to perfection with or without the three pillars. But that's the fundamental question and I think a perfect segue.

We have now seven panelists to talk specifically, and we'd like this panelist to talk about how with hourly matching, are California's policies good enough or not good enough to get us there without the three pillars? How with additionality, are California's policies good enough or not good enough to get us there? And we really appreciate having the three of you here and you're going to stay up Lukas, but the two of you, thank you very much. This is very robust. I wish we had more time. I wish they would let us schedule this in between our sessions rather than before or after when we would have more time, but we'll make the transition.

Thank you very much. If we'd have the other five panelists in the room come up and we'll have two panelists that will be on the screen. So we appreciate you, Dr. Jenkins, waiting up there. And Paul Wilkins is going to be on the screen also. I'm also going to ask that we do this when we have you on for your, we ask for four minutes from you folks if we can.

We're going to ask these two gentlemen to speak and then we're going to ask the two of you to switch seats. We'll ask you to switch seats as we move forward. Actually, I wish I would have done this in the first place, but, Matthew Friedman, Staff Attorney, is that you?

That's perfect. You're in the right seat. And then Dr. Jeffrey Reed. Good. You guys are in the right seat. Then we're going to take the next two people so that otherwise you're going to be speaking with your back to the panelist here. And we certainly want to honor the panelists behind you. I know you're okay, but I'm going to feel more comfortable if they do a quick switch in terms of doing that. So this is Matthew Friedman. He's a Staff Attorney for the Utility Reform Network.

That's me.

And we have the fundamental question, and if you can help us with your insights on are California's policies good enough when it comes to hourly matching and additionality to address the issue, or do we need the three pillars to move forward? And your thoughts, thank you very much for being here, Mr. Friedman.

Thank you, Mr. Chair and Members of the Committee, my name is Matt Friedman. I'm a Staff Attorney with the Utility Reform Network. TURN is a nonprofit ratepayer advocacy organization fighting for lower bills and rates to hold utilities accountable in the state and in favor of aggressive clean energy and decarbonization policy. And I've personally worked on hydrogen issues for a number of years here in the Legislature and on clean energy policy for about 25 years in California. To answer the question, are California's policies good enough?

The short answer is no. California lacks an adequate statutory definition today of clean or renewable hydrogen. The only definition we have today is for green electrolytic hydrogen, which is in Public Utilities Code Section 400.2, which essentially allows hydrogen produced via electrolysis to be considered green, even if the sole source of electricity is a coal fired power plant. That's not acceptable.

We do have provisions in SB 100, the landmark legislation that establishes our ultimate goal of total decarbonization, that prohibits the use of resource shuffling to achieve our carbon reduction goals. So it is expressly prohibited under state law to simply reshuffle the existing deck in order to claim progress. But the agencies really have done very little to nothing to implement this particular provision. But it's there. In light of California's failure to enact a meaningful definition of clean hydrogen, we support the three pillars.

We think they're absolutely essential, and we think the existing policies don't get us there. And when I read the letter from the California agency heads to the Treasury Department and the White House asking for essentially an exemption for California from the proposed tax credit rules, I was stunned. Frankly, the letter is an embarrassment to the State of California, and it's an exercise in magical thinking.

The claim that due to our existing policies, all incremental customer load is automatically served by zero carbon electricity is an absolute fiction, and it is fundamentally at odds with all of the state's other existing programs. Which is why that statement is so shocking. There's not a single program in the State of California that automatically assumes that when a customer puts their load onto the electric grid, it is zero carbon, that all of our programs have essentially solved for that load.

And adopting the principle in those letters would eviscerate existing state programs. We've made great progress in our emissions accounting, but our emissions accounting in California starts with the core proposition that a new electricity load on the system starts out as dirty and has to prove itself to be clean through the acquisition of dedicated renewable resources to serve that load. And that includes the Power Source Disclosure Program run by the Energy Commission. It includes the Integrated Resources Program at the Public Utilities Commission and the Energy Commission.

And although we do have very ambitious requirements for clean energy under the Renewable Portfolio Standard Program and integrated resources planning, there are a number of reasons why these programs just don't get us to the place that the proponents would have us think they go. Changes in incremental procurement of new clean resources are slow, and there's a huge lag time. Renewable Portfolio Standard has three to four year compliance periods.

There's only a 60% target by 2030, and there's a ton of excess compliance in the system today, where a lot of load serving entities have overcomplied and can use that overcompliance to meet future obligations without purchasing a single additional megawatt hour of clean electricity. The integrated resource planning program basically does not have specific compliance obligations that are tied to changes in retail loads. It's a rolling set of future procurement obligations allocated based on overall system needs.

It's a much more nuanced and complex process that really doesn't tie to retail loads the same way that proponents would have you believe. And for the publicly owned utilities that are not regulated by the PUC, they have a very light touch oversight by the Energy Commission. There's almost no enforcement power. They submit plans. The plans sit there. Whether they meet them or not is not a factor in determining whether there's any enforcement. All we have left are the SB 1000 carbon emissions targets, which are sector wide, which require 90% by 2035, 95% by 2040, and 100% by 2045.

And we're at the four minute mark for you. So I know this is frustrating for everybody.

I'll just close by saying that I really want to echo the statements made by several Members of the Committee today that this should be a race to the top and not to the bottom. We should be setting the highest standards, and California, as a leader in this sector, should be pushing the bar, not asking for a special deal from the Federal Government. Thank you.

Thank you, Dr. Reed.

Thank you very much. Wow.

UC Irvine Clean Energy Institute presenting the California Hydrogen Business Council today.

I'm sorry, time is quite a pressure here, but thank you. It's a privilege to be here. As you mentioned, I am Chief Scientist at the Clean Energy Institute at UC Irvine. My research focuses on a variety of things, but mostly on optimal uses of hydrogen in the future, decarbonized and deep polluted economy, and finding optimal ways for that. So I'll start with. I'm sure we're all common in our goal here to ensure that California achieves real, verifiable and permanent reductions in greenhouse gas.

And this is really about how to optimize policy to get there in a way that balances feasibility with rapid reduction of emissions. So I'd like to start by something that's very fundamental here, and distinguish between improving our methods for doing carbon intensity calculation and carbon attribution to projects, and the specification of specific restrictions on use cases, which in the case of the three pillars, actually what they are is restrictions on how renewable power can be procured for electrolyzers.

There's some implications in some venues that pillars are a method of calculating carbon intensity. They are not. They're saying you have to do certain things in order to demonstrate one use case that is undebatably zero carbon. However, that doesn't address the many, many other ways that that can be done. This is what we mean by flexible compliance. The cap and trade program itself is the banner example of that. If we have a binding cap on greenhouse gas, that can't be violated.

We did in 2006 and 07 decide that to achieve least cost reduction of carbon, we let people reduce more emissions at one point in time, and then sell that to someone else who has a compliance obligation, creating a net zero, but reallocating who actually has to achieve that reduction. And that's exactly what renewable energy credits are designed to do, except they don't represent a ton of carbon or any carbon metric. They represent a megawatt hour of renewable electricity.

And so it takes a little bit of additional math to say, how does that relate to a carbon intensity calculation? On a direct emissions point of view, these resources are zero carbon. But when we place them on the grid, let's say on a given day, those change the way the grid dispatches. And so that has what's called a consequential emission on the grid, I'll point out, that can be negative or positive.

When you generate - over generate solar in the middle of the day, that creates an emissions reduction because you're usually backing out a combined cycle. If you then use power at night in our state, you're usually using combined cycle also. So that nets out and you actually have a zero carbon. However, let's say if the daytime combined cycle was more efficient than the nighttime, the way we deal with that is by attributing the carbon to that user, and they may have to retire more credits.

So the fundamental point is we should be focusing on carbon intensity calculation methodologies and evolving those. This is actually what the statute dictates for the 45 e credits. It says, if the ... model as it existed at that time, isn't good enough, create a successor model. That hasn't been done. Instead, EPA, guiding Treasury have suggested these procurement restrictions. So before I run out of time, let me read the recommendations from the CHBC and then we can say more if there's any left in the four minutes.

CHBC respectfully recommends to the Committee that California's best policy choice is to let the existing California laws and regulations do their work to ensure real, verifiable and permanent GHG reductions. Point one. Improve the California ... carbon accounting model to account for consequential emissions and implement those changes at an appropriate point in time and apply them uniformly to all electric loads. Allow market demand and California's multi agency integrated planning processes determine what resources are added to serve new load.

The data show that as the demand for renewable power grows, either from obligated entities under the RPS or voluntary buyers such as corporates that want to improve their environmental footprint, lead one to one to additions in renewable capacity. This doesn't need to be ordered, but by not ordering it, we retain some.

Thank you very much. You're at four minutes. Could you wrap up, please?

Okay, I will wrap up. I have one more point. That California and the Federal Government should create regulatory certainty as soon as possible and maintain greenhouse gas accounting protocols constant for the life of each project once in service. Because there's a very strong statement made by the developers and investors in the sector that that is close to priority one for them. They need to know what the rules are at the time they make an investment decision, and those have to stick for the life of the project.

Which is one of the reasons why we're trying to work hard to get this done. Thank you very much. We have now Dr. Jenkins, who's on the screen, while the two of you will switch out. If you wouldn't mind, we'd like you to stay up here for questions. Just switch out. And moving into those spots would be Jeremy Smith and Lukas Wernert. Right. And then we're on to you for four minutes. Dr. Jenkins, fundamental question. You've done research on California.

Our fundamental question is, are our current policies strong enough that we don't need the three pillars? And you have four minutes for that and any thoughts you have on hourly matching and additionality. Thank you very much, Dr. J.

Thanks very much. I appreciate the opportunity. Again, my answer to the question is no. Professor Brower noted earlier, and as ARCHES has argued, California should be exempted from three pillars rules because it's trying to get to zero emissions by a date certain as in 2050 under the state's law. It's important to note the European Union also has a binding emissions cap and requirement to reach net zero by 2050. And yet the European Union required these important three pillars requirements as well.

And of course, that's in the context of a binding emissions cap that covers all major emitting sectors and all member countries in the EU. When California does reach zero emissions, it will be trivial to meet the three pillars. There'll be an abundance of clean hydrogen or clean supply 24 x 7. But that future will not be reality until 2050. The question this Committee needs to consider now is how to define clean hydrogen today and until that promised future is reached. That's the question before us.

And there is no reason to believe that California's requirements under current law justify an exemption from the three pillars. California's requirements should be no less stringent than the EU, shouldn't it? California itself has an economy wide emissions cap, but its electricity supply is part of a much larger electricity grid that imports and exports significant amounts from its neighbors, including those without any emissions cap or binding RPS policies.

In fact, this point has been studied pretty extensively in multiple peer reviewed studies which conclude that California's current carbon border adjustment or prohibition on reshuffling are insufficient to prevent carbon leakage. I'm happy to provide those studies to the Committee later. My Princeton research group explicitly modeled electrolysis in the context of California, Washington, Oregon, and the broader western interconnection, and we found that electrolyzers in California that do not meet the three pillars requirements result in substantial indirect emissions of about 10 to 40 kilograms of CO2 per kilogram of hydrogen.

That's equal to or worse than fossil methane reforming. In a recent addendum, we also modeled specifically this question whether a state with a binding emissions cap and high shares of renewables can be exempted from incrementality requirements. We found that even in these states, waiving the requirement results in significant consequential emissions. The main effect is that more existing renewables and hydro are consumed in the states under the emissions cap, but that reduces those states' net exports.

As a result, coal and gas fired generators elsewhere in the western interconnection without emissions caps, such as Utah, Montana, Nevada, Arizona, et cetera, increase their production, including of fossil generators, to compensate for the reduced imports. This form of leakage is not addressed at all by any of California's current policy. The California Carbon Border Adjustment applies only to imports. I'm not aware of any mechanism that could conceivably address that, other than to effectively require incremental supply for all of new California loads.

Furthermore, while the SB 100 statute will require the state to meet 100% of retail supply by 2045, again, that's over a decade from now. And as interpreted by the CPUC, the statute doesn't actually require 100% of hourly demand to be met by clean resources, as the proposed rules require 100% of retail sales to be matched on an annual basis. And retail sales are always less than total generation due to losses in transmission and distribution and energy storage.

So we have to generate more than we consume on the retail side. And peer reviewed studies have also demonstrated that the prohibition on resource reshuffling is not actually effective in preventing leakage. Finally, I note that Professor Brower mentioned the E3 study. I think it's important to note that this consulting report is fatally flawed because the methods it uses are incapable of estimating the full emissions impact from adding gigawatts of electrolysis to the grid.

That's because it doesn't consider changes in generation and storage capacity resulting from this new electrolysis demand. If we want to capture the significant indirect emissions, we have to capture both operational impacts and impacts and installed capacity on the grid. These are also called structural changes. It's notable that every study that has employed a capacity expansion planning framework necessary to address these structural effects has confirmed my group's finding that all three pillars, incrementality, temporal matching, and deliverability, are necessary.

Thank you. That's four minutes going.

Could you wrap up, please?

Sorry.

Yeah, I'll close there. Thank you.

You said finally, you want to note. We'll let you wrap up there. All right, great. All right. And we'll now move to Jeremy Smith of California State Building and Construction Trades. Mr. Smith.

Thank you. Mr. Thank you. Mr. Chair and Members of the Committee, thank you for the introduction. As most of you likely know, the State Building Trades is a founding partner in the ARCHES hydrogen hub. The $1.2 billion award is the largest in the country and is a result of an incredible partnership between the building trades, the UC system, the governor's office, and our national labs. The $1.2 billion award is only the beginning of the story.

However, this hub will mean billions of additional dollars in private and public funding as we move forward. But we need to be able to move forward. ARCHES is currently working with the Department of Energy to finalize the terms of this incredible grant to California's hydrogen infrastructure. We need to ensure that as we move our own in state policy along, we remain mindful that this federal investment hangs in the balance.

We also need to ensure that we do not move in a way that is premature and leaps ahead of the Federal Government or inadvertently stymies our ability to receive this once in a generation funding. The Federal Government is currently working on the tax structure that will support and incentivize hydrogen. We have been thrilled with much of the federal policy that is driving hydrogen forward, including the Inflation Reduction Act.

The White House and Congress have prioritized skilled construction workers in an historical way, and we are grateful that for once the workers who are going to build these projects are thought of. Proposed Rule 45V is undoubtedly designed to incentivize utility skilled deployment of a nationwide hydrogen infrastructure, and we agree with most of what is in the draft and have been part of many discussions in California and in Washington DC about its applicability in California.

We have voiced concerns about specific portions of 45V as currently proposed and how it could affect California specifically, including hourly matching and then pragmatic effect of the three pillars in our state. We do not think that California needs to adhere to the three pillars. California is different from the other hubs. We were early adopters to renewable energy generation.

It was and continues to be the building trades who fight and fought for both the policies and entitlements to build utility scale solar, onshore wind, geothermal and pump storage that already exists in California. Over the objections of some folks who belong to entities who are in this room today. Our members can build any form of energy generation and we work hard to build new renewable projects. Our pivotal role in making California a global leader in renewable power generation makes us uniquely positioned to further help direct California energy policy. And the California hydrogen hub is different in another way.

It's the only hub that has a system wide project labor agreement, meaning that as the hub moves forward, it will not only put thousands of journey people to work, but it will churn the apprenticeship training system and create opportunities for the next generation of construction workers to learn a trade and earn a path to the middle class. California's already robust renewable generation is much different than what is found in other states, as is California's unique power needs, as we've heard today.

So it is going to require an eye towards a uniquely California approach to thread the needle in such a way to propel California's hydrogen infrastructure forward. There are billions of dollars of economic activity and thousands of jobs that can be created, while at the same time allowing California to take a giant step forward towards meeting the climate crisis and the aggressive carbon reduction goals that we've all set for ourselves in California.

And we can keep the lights on in California in a way that doesn't price out blue collar Californians, including the nearly 450,000 that we have the great privilege to represent. We have a lot to get done in California to meet all of these goals. And we don't have the benefit of a wide margin of error as the Department of Energy funds are on the line now. If California missteps policy wise, it could cost us billions of dollars of investment and billions more in economic activity.

As we speak, our partners in ARCHES and the President of the State Building and Construction Trades Council, Chris Hannan, are across the table with the Department of Energy. And we should be doing everything we can to support these efforts. And a big part of that is creating a stable political environment in this area. Finally, this process is a regulatory process and not going to be decided by political rhetoric.

And we urge this Legislature and everyone who can join us in realizing the incredible potential clean hydrogen can provide our state to participate in the federal process first. If after that process is complete, we need to act further in California, we still can. We have not forfeited that opportunity. But what we will have done is allow the federal process to proceed. I'm almost done. And to give ARCHES the best possible environment to be successful. Thank you.

Thank you. Very impressive on your timing.

I practiced.

Now we'll turn to Lukas for your second presentation.

Thank you. And given that I spoke already enough today, I'll keep it very short and focus just on three points. Firstly, comparing the EU and the US approach, or the Californian approach

If you can stay really close to that microphone.

Yes, I can. Sure.

Difficult to hear you.

Sure. I'd like to make three points. Firstly, I mean, we've spoken about the comparison between. I think I'll do it without slides. Thank you. We spoke about the comparison between the EU and the US approach. And what we have in the EU today is the best we could come up after three years of intense discussions. And as Dr. Jenkins and the Chair said, despite the fact that we have a significant corpus of flanking legislation that tackles different aspects of climate change and energy transition.

Secondly, I think it's important to stress that there are a number of useful flexibilities or compromises that we found in the EU apply to the three pillars that are maybe an inspiration for the discussion at the federal level or also in California. I'm talking there about a threshold above which incrementality -like when the grid is sufficiently decarbonized or renewable - incrementality would no longer apply, the possibility to use curtailed electricity, the possibility to phase in requirements later than is currently being discussed in the US.

I think that these are flexibilities that one could consider. And then maybe the last and most important point, after all these long discussions and passionate discussions like the one here today, the EU hydrogen industry accepted the rules that were applied and they even welcomed them. The best proof of that is that we had 20% more hydrogen projects planned after adoption of the rules than before. So our industry has not broken down.

And we are just in the process of assessing submissions to an auction for a fixed premium to hydrogen producers. These producers need to demonstrate that they are respecting the EU rules. They need to demonstrate that they have an offtaker. And we budgeted $800 million or euros. I mean, it's almost the same for that, and it was 20 times oversubscribed. Just to show you that there is a high interest, and we will do more of that. So the EU system works. It's the best compromise that we could find. Thank you.

Great. Thank you very much. And very efficient with your presentation there. And we will now.

Great. Move over to Sara Gersen, a senior attorney at Earthjustice.

Good afternoon, and thank you to Assembly Member Bennett for the opportunity to join you. And thank you to the entire committee for taking a close look at hydrogen production. Because today hydrogen production is a major climate threat. And there's also an opportunity to transform hydrogen into a tool for meeting our climate goals. Specifically, hydrogen produced with the three pillars can carry renewable energy into sectors of our economy that lack other decarbonization options.

And thankfully, the technology exists today and is ready to scale, as we heard from Mr. Wernert, to produce hydrogen with zero emissions. So the legislature doesn't need to choose between supporting a modern hydrogen industry and aligning hydrogen production with California's climate and public health goals. Zero-emission hydrogen production uses new renewable resources delivered in real-time to split water molecules.

But running the exact same hydrogen production equipment on grid electricity without the three pillars will lead to significant spikes in pollution because the new load would drive up generation at fossil fuel power plants. In fact, even with California's relatively clean grid, hydrogen produced with grid electricity is far worse for the climate than the hydrogen that industry is producing to date from fossil fuels.

We've heard the question: are California's policies enough to make the hydrogen produced by plugging into the grid zero-emission or logically eligible for these tax credits that set very ambitious carbon intensity thresholds? The answer to that question is emphatically no.

And I don't want to repeat too much of what my other fellow speakers have already said, but if there were any evidence or data to back up that notion, ARCHES could have asked the Treasury Department to just let it use the data on the consequential emissions of plugging into the grid to establish the carbon intensity scores for hydrogen for purposes of the tax credit. But it didn't do that because, as Professor Jenkins explained, when you run the models, when you rely on the data and see what those emission impacts are, they're a really scary story for the climate. And the three pillars aren't just important for protecting the climate, they're also important for public health.

California's fossil fuel power plants are disproportionately located in disadvantaged communities, and CARB has recognized that the state's most polluted regions cannot achieve health-based air quality goals without a widespread transition to zero-emissions for large and small polluters alike. I commend assembly leadership for establishing the select committee on building a zero-carbon hydrogen economy, because zero carbon is exactly what it takes to align with California's commitment to a carbon neutrality by no later than 2045. The three pillars make this possible.

This committee's work is very timely because as the legislature explores ways to support this new industry, it needs to be careful to only encourage business models that align with California's long-term goals, realizing it would be so much more difficult to try the correct course in five years than to just get it right from the start.

And we're at the four minute mark.

Okay, thank you.

Close up. Thank you. We now have our final speaker, and he's going to be on the screen. And we welcome Paul Wilkins, who's the vice president of policy and government engagement for Electric Hydrogen.

Thank you, Assembly Member Bennett. Can you hear me all right?

Yes, we can. Nice job.

Terrific. And I also appreciate the academic promotion to doctor. Chairman Bennett, members of the select committee, thank you for the opportunity to testify. Electric Hydrogen is a manufacturer of advanced PEM electrolyzers for low-cost green hydrogen production. Since our founding three years ago, we have grown to over 150 employees at our offices and R&D facilities in San Carlos and San Jose. In the fall, we will begin installing our first 100-megawatt commercial system at a customer site in Beaumont, Texas.

Electric Hydrogen's mission is making molecules to decarbonize our world. We do that by making the world's most powerful electrolyzers to help our customers in hard-to-decarbonize sectors reduce their greenhouse gas emissions by replacing gray hydrogen or other fossil fuels with green hydrogen. Our goal is to make green hydrogen cost-competitive with gray hydrogen on an unsubsidized basis by 2030. CARB's scoping plan notes that green hydrogen production will have to increase 17 hundredfold to meet the state's 2045 net zero goal.

To achieve CARB's goal, policies must be put in place to ensure two things. First, guardrails must be put in place to ensure that grid-connected green hydrogen production reduces emissions. Second, policies must be put in place to help the industry scale and reduce cost. I'll address the latter point first. What enabled the wind and solar industry to scale over the last two decades is the combination of federal tax incentives on the supply side and state renewable portfolio standards on the demand side.

The green hydrogen industry can scale if policymakers follow the same model. The EU is doing exactly this, pairing subsidies from the European Hydrogen Bank on the supply side with a mandate that by 2030, no less than 42% of the hydrogen used by industry must be green hydrogen. When the Treasury Department finalizes rules for the 45V hydrogen production tax credit, a significant federal incentive will be in place. However, no meaningful green hydrogen mandates yet exist in California or any other state.

This is an opportunity for California to be a leader, as it has on so many other climate and clean energy issues. California currently accounts for about 18% of the hydrogen production capacity in the US. 99.9% of California's existing hydrogen production is gray hydrogen produced from natural gas. Mandating the replacement of even a portion of this production by 2030 with green hydrogen would drive significant scale and send a strong market signal.

As California scales green hydrogen, the state should put guardrails in place to ensure the emissions integrity of grid-connected green hydrogen production. Several other panelists have addressed the importance of requiring the three pillars to ensure grid-connected electrolysis projects reduce emissions, so I won't restate those points. Instead, I'd like to focus on the co-benefits of hourly matching. There is a real risk that China takes over the electrolyzer manufacturing market just as it did with solar panels.

China currently has over 13 gigwatts of annual electrolyzer production capacity, compared to less than three gigawatts of production capacity in the US. This advantage in scale allows China to manufacture electrolyzers at a third to a quarter of the cost of incumbent manufacturers in the US. However, 90% of China's production is low-tech alkaline systems with limited ramping capability. The US has a competitive advantage in the manufacturing of high-tech rampable systems that can load follow variable renewable generation.

Requiring hourly matching drives the market towards US-produced electrolyzers. Allowing annual matching for too long or not requiring matching at all opens the door to Chinese-manufactured systems. Electric Hydrogen acknowledges that it may make sense to phase in guardrails to allow Regis time to implement hourly matching while allowing industry to begin to scale. However, this period should be short to balance against the emissions and manufacturing benefits of hourly matching.

Members of the select committee, as you consider what policies will be necessary to scale the hydrogen industry with emissions integrity, I encourage you to keep in mind three things. First, the industry needs California's leadership in driving domestic demand for green hydrogen. Second, any policy California adopts can simply align with the requirements in the final 45V rule.

The federal incentive is incredibly lucrative, and once it is finalized, developers will build projects based on that standard. Having a separate standard for California will only make it harder to build projects. Third, we should learn from the mistakes of the solar industry and ensure a robust domestic electrolyzer manufacturing base.

Thank you very much.

Thank you for the opportunity to testify and I'm happy to answer any of your questions at the appropriate time.

Thank you very much, and we will now open it up to questions. And appreciate all the assembly members have been able to stay at this point in time and hopefully, we can be efficient with these questions. If any of the panelists have a hard deadline, please let us know. But with that, I'm going to try to rip through a few quick questions and--yes sir. Great. So I'm going to rip through a few quick questions and then turn to my colleagues. And then Mr. Freedman, Utility Reform Network, will rates go up if we don't have the three pillar additionality requirements as more and more demand for the renewable energy that's out there today increases?

I think that there's the potential to see upward pricing for existing renewable energy resources if there is no obligation to do incremental procurement to serve new hydrogen electrolyzer loads. There's already a lot of competition for existing resources and most if not all load serving entities in the state: utilities, community choice aggregators, direct access providers rely heavily on existing renewable energy resources to meet their compliance obligations under the renewable portfolio standard and for integrated resource planning purposes.

So adding more competition for a fixed supply of existing resources is likely to yield higher costs, higher pricing. Those higher prices will flow through to customers across the board. So creating more supply is really the key.

In the short run, there's a potential for increased rates as a result of that increased demand.

I believe so. There's other dimensions of increased costs for the system itself that are sort of second order that I think are significant as well.

Dr. Reed, do you believe that Cap-and-Trade is working for California today? Is it the effective policy that we need to get to where we need to be?

Well, I think like many policies, it's not perfect, but there was a great, great deal of discussion about carbon tax, just firm cap on everybody, Cap-and-Trade. And I think in this jurisdiction and others, it's the most economically efficient. And so it's what I think is a good model. We're not saying electrolyzers should be powered by grid energy and call that green. We're talking about how we may or may not be able to use renewable attribute credits, which are property rights, to claim renewables at various times. So it's not about saying grid electricity is zero carbon.

Great. And Mr. Smith, with the additionality requirements, it would encourage or require more renewable resources to be produced, potentially quicker, to meet the additionality requirements. Those renewable resources: solar, wind--those will primarily be skilled labor jobs, is that correct?

I would say that's correct, yes.

So just like before when you were leaders in terms of doing that additionality, if it is strictly enforced, could increase the amount of those jobs that are out there.

Yes, but if I may just add a caveat to that. I noted in my comments: what happens here is different than what happens at a county board or a city council where a solar project, for example, might be ultimately approved at the local level. And what we see is that entities who are up here--who have advocates up here, who are in rooms like this with us, advocating for more solar, more wind--those same entities have local folks, like we have local folks, showing up to county boards opposing the permitting of those projects.

Sure.

And so that's what we're seeing between here and down there. And that's a concern. So, yes, if we can get those things permitted at the local level.

If we can get the locals to be on board also. And pardon my informality, I'm going with first names here to speed things along. But Lukas, could you elaborate a little bit more? You said after you adopted the three pillars 20% more projects came online in the European Union.

I sure can. I'm quoting statistics of the European hydrogen lobby. So certainly a body that will be sympathetic to business interests. And in their yearly report on the state of the European hydrogen market, they counted an expected 491 projects for 2030 before the introduction of the rules. And after the introduction of the rules, that number went up to 586. We're talking about production projects of renewable hydrogen in the European Union.

Would you characterize the European Union's rules before the three pillars as being more robust than California's rules, less robust than California's rules, or equivalent to California's overall environmental rules and goals to get to clean energy?

I would say that in terms of the ambition, California and the EU are equivalent. In terms of the tools that we are applying, I think that you could say that we have probably a little bit more regulation than California has. So I think that maybe, yes, we have a little bit more instruments at our disposal, especially when it comes to targets, binding targets for demand that California doesn't have in the same way, I would say.

Was there a similar significant argument made that the European Union doesn't need the three pillars because you already have fairly strict rules in terms of environmental impacts?

Of course. Plenty of those arguments were made, and I think they also merit being examined very closely because the situations are different in different jurisdictions. But I think an essential question here is: how fast will these existing rules decarbonize our electricity grid? And I think, I mean, if California speaks about 2050 or also in the EU 2050, that comes relatively late compared to the next years, where we actually really need to upscale a sustainable industry.

Great. Thank you. And my final question--and I appreciate the patience of my colleagues here. Sara, I thought you made a really interesting point, and that was, if California is doing so well, then why would it be difficult to live with the three pillars? And could you just elaborate on that a little bit? Do you feel like--what is it that California is not doing well enough in and why we would need the three pillars?

Well, in almost every hour of the year, the marginal unit of electricity generation that's on our grid that ramps up in response to an electrolyzer or a data center or whatever, plugging in new load, is a fossil gas-fired power plant. And the three pillars is the tool that stops those consequential emissions from happening when this new industry comes online with an enormous new electrical demand that could be the result of policies that this legislature is putting in place.

Thank you very much. My colleagues--Mr. Bryan.

Yeah. I'm just really grateful to the chair for this conversation and the many more that we're going to have. I mean, this is an incredible opportunity to do something transformative. And no matter what side of the conversation you're on today, we are all a part of that, and it takes leadership at the federal level as well. Also, good to see friends at the trades here.

I think anytime we get to build new industry and invest in that kind of transformative change, you've got to think about the people, the skilled and trained folks who are going to be working in it and protect those industries. This is what we talk about with just transitions and other parts of the language. We've got to get this right. But I'm still just kind of deeply confused about kind of the assertion that we'll lose the money. Right?

If the federal government is proposing this kind of a regulatory framework and we're asking for a greater degree of self-regulation through our own state policies, why would that jeopardize our funding? Would they not have to waive us from what they're proposing and then prohibit us from going any further or adopting the very same regulations they're currently proposing? That's what I'm not understanding with this suggestion, that if we adopt the three pillars route at a state level in conjunction with the federal guidelines or at whatever timeline we are under, why would that jeopardize the funding?

I think there's a concern, if I may, through the chair, that the federal funding isn't going to cover the cost of these projects completely. We need to attract private investment as well. And so any uncertainty that is signaled from California back to the federal government during this sort of nascent period is a concern for us. We don't want to jeopardize the federal money and we don't want to send mixed signals to the private industry who's going to have to invest in this stuff too.

And so our fear is that if we are allowed to use kind of our own current regulatory framework, that is very attractive for private industry to come in, especially if it's comparative to the other hubs around the country who don't have that framework. And if we are to adopt the same rules, they won't show up? Or they will be less excited to show up because we've increased the regulatory burden--is this investment from the federal government not enough to draw up private industry to begin with?

If we can't hit the price point for the buyer, because in the EU, as was mentioned, they have a procurement program in place that makes a difference, people will gladly sell three pillars projects to a buyer who agrees to buy them at whatever they cost. In the ARCHES framework, the buyers have cost points they need to reach and was assumed in the design that the 3 kilograms would accrue to them. The main issue is California is solar-dominant.

And so if we produce all of our energy from solar in the day, all of our power from combined cycle at night, we've cut our carbon emissions by half. And you can do that up until about a 50% RPS, after which these three pillar issues must occur by natural effect to stay within your cap. But the simple answer to your question is: if we price the projects out of the market where the ports, the freights and the transits won't buy the hydrogen, then the projects won't go forward.

I think the argument that California can't afford to adopt the three pillars requirements is very self-defeating. It really stands in contrast to the argument we've heard today from folks saying California has got exceptional leadership in this area. And I appreciate what you said, assembly member. If we can't do it here, then who's going to do it around the country?

I think our goal should be to fight for a tough federal standard, because if there is a weak federal standard, the money is going to be dispersed widely to the lowest cost producers across the country. If it's easy to meet a weak standard, there'll be plenty of competition for the money. If we have a tighter standard, it's going to be harder to get that money and we are well positioned to meet the three pillars. We have the capability to do hourly matching.

Contrary to what some speakers said previously, we actually do have an hourly accounting system under development at the Energy Commission under the Power Source Disclosure program. The Integrated Resources planning program at the Public Utilities Commission requires forecasts of hourly load and supplies. We've got the technology and the institutional capability to do this. In terms of additionality, we know how to require new resources to be developed. It's not that complicated.

So I'm really kind of stunned by the argument that California is incapable of making this work or that it's so prohibitively costly that no one will ever build. And just to close, if we develop a weak standard, we're going to end up with a lot of projects locking into a weak standard and insisting that that standard can never change once they've made an investment. So now is the time to be thinking long and hard about how to get ahead of the curve.

I do appreciate the argument about: once we lock into a standard, the argument will be made, which is part of why I personally have been invested in trying to move this issue. So that before the investments get made, we make it clear what the investment rules are so people don't come and say, "We just invested $2 billion, we've got 2,000 skilled workers working on this job, and now you can't change the rules." That's why we should get it right at the beginning.

Sara, let you-

I wholeheartedly agree and would just add that California has earned its reputation for climate leadership by setting science-based standards, even when industry has complained that implementation would be prohibitively expensive. But once the policy signals are in place, time and time again, industry has responded with innovation and on-time compliance. So just the same here, state leaders need to set standards based on the science and set the stage for innovators to thrive.

Great, thank you. Assembly Member Bryan? Assembly Member Carrillo.

Ms. Sara Gersen, you mentioned how the three pillars are essential. I understand that. And the idea that in California, we'll be able to produce the energy that is needed not only for hydrogen, again, but across the board. And I believe that we in California are relying on out-of-state energy so that we are able to provide what we need. Does it matter then to you where that energy comes from?

If that energy were to be procured from out of state to be able to produce the three pillars requirement? Just like in the oil industry. In California, we're an island dependent on foreign oil. To me, that's kind of what I'm looking at is--we're able to bring the energy required to implement the three pillars because we're not going to be able to provide it. That's what I believe. Does it matter to you if it comes from out of state?

Because you mentioned also that the hydrogen production will be very, very detrimental to the state environmental policy that we've been creating. So the question I have for you is, is it important where that comes from? Is it okay if it comes from Arizona, New Mexico, other places?

Well, so one of the three pillars is a deliverability requirement. And because of the way the grid works, it's a lot easier to deliver energy to hydrogen producers in California if that renewable resource is in California attached to our grid. It is possible to have renewables delivered from Arizona or New Mexico. What would be really alarming and unacceptable would be if there were project developers who are claiming that they're using renewables, offshore wind in Massachusetts or something like that, that's not delivered to the hydrogen producer in California in real time.

Okay, thank you. Mr. Freedman, at your opening remarks and just a minute ago, you mentioned that the technology is there for us to be able to get to the electric needs that we have through new technologies coming on board. The concern that I have--if we don't add any other source of fuel to meet the state goals by 2045--is the efficiency requirements, also.

The challenges of the trucking industry, for instance, to be able to move the goods that we need throughout the state from the ports, going--even out of state--the battery systems is one way, yes, but again, the efficiency is the concern that I have because then how are we going to get our goods throughout the state if truckers have to stop, I don't know, two, four hours, six hours, whatever that long is.

And as technology improves, having to recharge those trucks is also going to take--I don't think it'll be five minutes. So that's going to be impacting us greatly by having the cost of our goods that we need be more expensive as well. And I'm not saying that we should sacrifice the environment to be able to get our goods in a timely manner.

Not only the trucking industry, but the aggregate industry, other industries that require a lot of electricity to be able to function and be able to survive in California and the world. And Mr. Smith brings a good point on the local governments. When we look at solar projects or wind farms or all of those renewable energy systems that we are talking about, it is the local governments that have to face the opposition from their residents.

So whatever we create here to be able to meet those goals goes back to the local governments, and they are the ones that are not able to have those jobs because of the opposition that our residents that we represent serve. I just wanted to express my concern because it's going to affect us all if we're not able to find a balance between, yes, protecting the environment, but also the job production that we need, particularly in areas where the hydrogen production could be a catalyst of economic development.

I just wanted to express my concerns, and I believe that we should keep in mind also that local economies across the state, everywhere in the state, not only in those selected areas, and keeping in mind those areas that have been forgotten for several, several years, decades at the same time. No question at all. I just wanted to express my concerns, and I believe that we should be able to find that medium.

Thank you. And Dr. Jenkins. I'd like to ask Dr. Jenkins to weigh in. I know we allowed everybody to sort of rotate through and answer the one question. Dr. Jenkins. And then Mr. Wilkins, I have one more question for you after Dr. Jenkins.

Thank you, Mr. Chairman. And unfortunately, I'll have to depart after this answer. Half past the hour here. I just wanted to respond to the first question you asked about the impacts on consumer electricity prices in the state. That is something that we modeled and looked at in our peer-reviewed study on the impact of electrolyzers in California. We estimated that if five gigawatts of electrolysis capacity were added in California and was not subject to the three pillars requirements, therefore didn't bring new clean supply on to match that increase in demand, then they would effectively socialize much of the cost of that increased demand onto other customers in the California grid.

And that increase in demand without increasing supply would cause local wholesale electricity prices to rise in California by about 8%. This is pretty basic economic theory. You add demand without adding supply, that's going to push up prices. And what the three pillars requirements do is require anyone who's adding new demand for electrolysis and claiming to be clean to also add new clean supply. And that keeps electricity prices low for the rest of the system, and it avoids passing on costs to other consumers.

And in fact, I believe this is one of the central reasons why the European Union, despite even having a binding emissions cap, was focused on the three pillars. So that electrolyzers that are claiming to be clean, claiming to use clean electricity, are not pushing the cost of developing new supply onto other consumers in the region. So it's a really important consumer protection as well, to have the three pillars rules in place. The last point on the feasibility of implementing the three pillars.

I just want to note that even if you don't have a registry that records hourly tracking, which can be brought online very quickly--the PJM Interconnection already has it, there's some capabilities to do this already in California. All you need is hourly meter data from your generator and from the hydrogen electrolyzer, and those need to be auditable, and you just need to show that those are both equal.

And then to avoid double counting of environmental attributes, we can use our existing registry systems to retire the corresponding number of conventional clean energy attribute credits. And this is exactly what companies like Google, who are doing 24/7 hourly procurement today, are doing in the absence of some of these hourly tracking registries that are coming online soon. So again, you don't have to require this today. You could give a couple of years, as the federal government has proposed with the treasury rules. But even today, it's technically possible for companies to do hourly matching right now from the get-go.

Thank you very much. Number one, did you say an 8% increase from 5%?

Yeah, 8%. That's right.

Right. And you'll make sure that we have that study in particular. Have you already submitted that study? Great.

That's right.

And then finally, since you're going to have to leave, we just want to let you know how much we appreciate your time and expertise that you shared with us today, and we will continue on here. Mr. Wilkins, I have a question, but I don't want--Assembly Member Alanis, you have any questions?

Right, okay. So, Mr. Wilkins, and we may be coming close to the end of the questions here for this, but you made reference to the value of the hourly matching in terms of moving production of electrolyzers to American electrolyzers that would be able to have greater variability in terms of their use. The Chinese--I want to be clear--the Chinese electrolyzers, to be efficient, would have a greater requirement to be on 24/7 is that correct?

Yeah. The issue, Assembly Member Bennett, is that primarily what China produces today at a large scale and low cost is low-tech alkaline electrolyzers that have a limited turndown ability. So they have a limited ability to ramp and load follow variable renewable production. And so there's a real risk that if temporal matching is not required, if hourly matching is not required or required at too late a date, it opens the door for domestic developers to purchase Chinese-made systems rather than rampable systems where the United States has a comparative manufacturing advantage.

So, one more argument for us to be clear about ultimately where we're going with hourly matching to send the right signals so that people would be less likely to purchase that kind of electrolyzer and more likely to purchase an electrolyzer that could ramp up and down and follow renewable resources.

That's exactly right.

Thank you. And then my final question for Mr. Freedman. Are you aware of any projects that are planning on using electrolytic hydrogen, but may use other resources today?

I am aware of a particular project that we've been litigating at the Public Utilities Commission being proposed by Sempra Energy and its subsidiary, San Diego Gas and Electric. They are proposing to put an electrolyzer at the Palomar generating station, which is a combined cycle, gas-fired turbine located in Escondido, California. They pitched it as a green hydrogen project because they are also installing some solar panels at the site.

But upon further inquiry, it became clear that the solar panels would only produce a small fraction of the energy consumed by the electrolyzer. And when we asked the utility, "Where are you going to get the rest of the electricity to run the electrolyzer?" They said, "We would get it from the gas power plant itself."

So their proposal is to run the gas power plant, use some of the electricity to run the electrolyzer, create hydrogen, which they would then feed back into the power plant to create more hydrogen. This is pitched as a green hydrogen project. And I know Sara and I are both in that proceeding. We've both urged the PUC to reject it. The utility wants $16 million in capital expenditures for that particular project. And it's an example of the disconnect between the promise of green hydrogen and a lot of the advertising and the slick materials that get circulated and the reality of some of these projects on the ground. So getting it right, the details matter.

So California's existing rules would not automatically stop that?

No. The utility is asking for approval of these costs to be recovered from its customers in the coming years and the PUC is going to decide, but there's no statutory prohibition on them building this project.

And if we had the three pillars, would there be the appropriate.

Thank you very much with my colleagues. You've been great with the panelists. You've all been great for the people that have waited and patiently to make comments. We're going to have public comments, 1 minute. But I can't say enough to the panelists how much we appreciate your expertise and the calm, professional sort of dialogue that we've had here today. I think this was extremely healthy for us overall in California. So thank you all very much. Really appreciate it. Feel free to stay and listen to questions or listen to comments and make any observations that you might have after that and stuff. But there we go. 1 minute and welcome.

And before we start on this, we did invite people to offer any creative ideas that they might have for how we can come up with alternative ways to accomplish the goals of additionality and temporal matching, et cetera. So our first, if you'll identify yourself and then give us your.

Thank you, Teresa Cooke, on behalf of the California Hydrogen Coalition, very pleased to represent members actually delivering clean hydrogen molecules to end users in California. As far as creative alternatives go, I would encourage you to look at SB 1420 by Senator Skinner. Assemblyman Bryan, in response to your question, there's a very big difference, as you're well aware, between an incentive versus a standard, which is what's being debated as being put into place in California.

It is our inability to produce a renewable hydrogen electron that can compete with diesel fuel, thus replacing these internal combustion engines and getting zev alternatives on the road, particularly in your backyard, representing a port adjacent district that is concerning to us, and whether it is via the arches incentive or a standard in California, it encourages private sector to walk away from the technology which is actually contrary to what it is that we all want to do here today. No one is saying that grid power in California is 100%. The point is not assuming the incredible burden of the three pillars when we're on a path to a 100%.

That's your one.

Thank you. Mix Cavarlo here on behalf of Linde PLC. We're the largest manufacturer of liquid hydrogen in the world, also largest manufacturer of electrolyzers in the world. To the point why would existing policy versus three pillars when they can achieve the same goal? We could buy a Bentley and we can drive from Ohio to Long Beach. It's going to cost us a lot less to do it with a Honda Civic, and they have the same role.

We can achieve the same environmental outcome at a lower cost within the framework of California's energy policy than applying three pillars, which has not been successfully deployed in the world. The European Union, from project announcement to final investment decision, has one of the lowest rates in the world for green hydrogen projects, and we're not seeing a robust development there. It actually disincentivizes going with electrolytic hydrogen and puts more incentive on going with other versions of hydrogen.

Additionally, the European Union does not ban fossil hydrogen in their mandates. It allows the continued propagation. And what we're debating here is a minimum mandate. Again, we've got to distinguish between an incentive, a procurement mandate, and a standard.

Thank you so much for hosting this. This is a really important conversation. And I just want to start off by saying that we've already learned the lesson of what it looks like to do climate policy in a way that actually causes harm to environmental justice communities. We've learned those lessons and we should apply those here in the conversation about how do we define green hydrogen? The three pillars are just the start. That's like the baseline.

And the fact that we're hearing pushback on those is really concerning, frankly. And what we should be also doing is looking at making sure that when we do hydrogen projects, we're not also increasing air pollution. We're not also increasing water pollution locally. If we get this wrong, we're not going to meet our scoping plan goals. We're at the risk of increasing emissions if we don't have a strong green hydrogen standard. So really appreciate the discussion today and just want to encourage environmental justice and environmental groups be part of the conversation continuing forward. Thanks.

Thank you.

Thank you, Mr. Chairman, Members Keith Dunn here. On behalf of the District Council of Iron Workers, I want to align myself with Jeremy Smith's comments from the building trade. It's nice to know that we're still talking about the workers and how these impacts are going to affect their lives directly. I also would like to suggest that this legislature and the administration start having some serious talks about the extension of the cap and trade program, not just for 10 years like we did last time, but for 30 years, or maybe even a little bit longer, because those are the type of resources we're going to need to start building these projects out. I also would suggest that we have two individuals who are going to be running for President of the United States.

One's the current President, and then there's another one. One has set a pretty aggressive goal on climate change. And I think that we know what the other 1 may do. We may want to start looking at supporting the Federal Government and their efforts rather than trying to fight them and push back. So thank you.

Thank you. Thank you for keeping comments brief. Next speaker .

Thank you. Raquel Mason with the California Environmental Justice Alliance. Good to be here today. We've really appreciated, assembly member, the conversations you've included us in on AB 1550 in the conversation today. But do want to name that missing from this panel and the other informational hearings we've had on hydrogen are the voices of impacted communities. And that's a key part of the conversation that we need to have.

Just to name broadly, environmental justice communities reject any dirty hydrogen production method that increases pollution in environmental justice communities or creates adverse climate impacts. Hydrogen delivery and storage infrastructure impacts on environmental health and safety require special attention and precautions. And we can only support hydrogen that does not keep fossil fuel infrastructure online. And we urge the legislature to take a full look at the water impacts that could have from hydrogen, especially in a state that has such water challenges like we do. Our ability to claim that California has created a just and truly zero carbon hydrogen economy demands full consideration of environmental justice communities. So we look forward to continuing conversations. Thank you.

Good afternoon, Chairman Members Matt Klopfenstein, on behalf of the Bioenergy Association of California. We represent over 100 local governments, public agencies, businesses, tribes and nonprofits that are all working to turn organic waste in the state into useful energy. One of the recent moves is to convert a lot of that into hydrogen. While I know that there will be probably a later panel that can dive into more of the biogenic sources of hydrogen issues, the three pillars do impact some forms of bioenergy to hydrogen projects.

And so I think want to just flag to ensure that that is considered. It can add some unnecessary complexity. Also, we have largely aligned our comments to the Federal Government with arches. So I want to echo those here today and also flag a couple of really good comments today by other speakers that wanted to kind of reference the RPS, we think that that's actually a really interesting framework to follow here. The state has given the energy sector a long time to figure out and do this in the right way, and we would encourage that kind of practice here with hydrogen. Thank you very much.

Thank you very much.

Hi, Christina Scaringe of the Center for Biological Diversity with thanks to the chair and the committee. Every technology must compete against alternatives, and in almost all use cases, other solutions outperform hydrogen as cheaper, simpler, safer, or more convenient. Hydrogen should be limited to sectors without a viable present day alternative, and wherever direct electrification can be used is the demonstrably better choice. Clean production demands adherence to the three pillars, using only clean renewable energy without diversion from more efficient uses. Biogas and biomass aren't clean.

They cause significant climate harms, polluting communities and ecosystems. They also delay and divert funds and attention from meaningful action. This critical decade. Hydrogen hype has ballooned far beyond IPCC's forecast as a targeted solution plagued by economic efficiency and technical issues. NIEFA cautions that we recognize its limited future and potential to be oversold by industry warning and advising to scale public investment to the narrow market reality.

Mr. Chair and members, John Winger, on behalf of the Coalition for Renewable Natural Gas, in the interest of time, would mostly align our comments with arches on the hourly matching. I think there is probably a future for that, but we strongly believe it should apply to everything, not just hydrogen.

We continue to believe that additionality is not needed when you have a binding RPS, and we do continue to have concerns that any additional requirements or burdens placed on this could have issues with getting the projects off the ground which will actually get the money in. And so we look forward to continuing the conversations. Thank you.

Good afternoon. Erin Lehane here today on behalf of the International Brotherhood of Boilermakers. I do appreciate the acknowledgement that workers will be a big part of the transition that is happening here. We do, in fact, represent the communities. Our members are blue collar workers across the State of California. We align ourselves with the state building trades and the comments that were made today by Jeremy Smith. We also align with the comments of arches.

We are hopeful that there will be an opportunity for arches to come before this committee and talk about the contents of their letter on 45 fee. We also, the International Brotherhood of Boilermakers have a letter in and we also align ourselves with the comments included within the letter on 45 fee from the State Building and Construction Trades Council of California. A lot is at stake here. Tens of thousands of industrial jobs across the State of California. And that's something that, with the current deficit, with things that are happening in California, with the power crisis, is something we should all be paying close attention to. Thank you.

Thank you. And I do want to point out arches was specifically invited and decided to send Dr. Brower as their arches representative.

Good afternoon, chair and members Rebecca Marcus, representing the Union of Concerned Scientists. UCS strongly supports the three pillars as they are essential to ensuring that green hydrogen is truly a climate solution and guard against the real possibility of it becoming a net emitter. UCS has been advocating for these guardrails to be included in the 45 V tax credit and we believe that they're also essential here.

As we heard today, without these pillars, green hydrogen could perpetuate to even increase fossil fuel use during certain times of the day and already overburdened communities. Further, as the state pursues none electrolytic hydrogen, it must be extremely careful in how it quantifies the benefits on feedstocks like dairy biomethane. We cannot assume that methane that is not converted to hydrogen would otherwise be vented. This will result in overcounting the benefits of this technology that has real public health impacts. Further, the state should ensure that hydrogen produced from this feedstock is actually delivered to and benefiting Californians rather than supporting digesters out of state. Thank you so much for this hearing.

Mr. Chair and members Greg Cook, representing the Northern California Power Agency. The expeditious development and production of hydrogen is critical if you're going to meet California's climate goals. The discussion today has been very important as you consider these issues going forward, please take a look at what is happening today with regard to developing, accessing, developing a new reliable electricity. New renewable and reliable electricity facilities takes a long time with permitting requirements.

Developing and citing new transmission facilities in today's environment takes more than 10 years. If you want to expedite hydrogen in California, we think you need to move very quickly and we would associate ourselves with the comments that arches made earlier today. Listening to the discussion today, Dr. Jenkins presented what he presented as a preferred project. NCPA has that project ready to go, located in Lodi. We would urge you urge the committee to come down and visit that project. Thank you very much.

Good afternoon, Mr. Chair and members James Thorwachter with the California State Council of Laborers. If I respect with time, we'd like to align our comments with the state building trades. I'd also like to just briefly add that when it comes to heavy duty trucks and high power construction equipment, we have very limited options today. So California needs choices. We need them now. So we strongly encourage the support of more hydrogen production. Thank you very much. Thank you.

Hi, Jamie Katz, Leadership Counsel for Justice and Accountability we work alongside San Joaquin and eastern Coachella Valley communities along the most impacted communities in the state. Many of these communities are slated to be the testing ground for hydrogen production, storage, transportation and use. We underscore that all hydrogen production must comply with the three pillars, no polluting feedstocks that harm nearby communities should be used for hydrogen, including dairy biomethane, better known as factory farm gas.

Hydrogen electrolysis must not interfere with or compete with communities'access, to clean and affordable drinking water. This means, among other things, that it cannot use water from an overdrafted groundwater basin. All projects must provide nearby communities with all information and time necessary to provide oversight and consent. Last week, residents in Pixley filed suit against Tulare county for unlawfully attempting to avoid conducting any environmental review on converting farmland into an ethanol to hydrogen plant. The full CEQA process without so called stream is necessary to provide residents with vital information.

Thank you, sir. Your time is up.

Hello, Kayla Karimi, Staff Attorney with the Center on Race, Poverty & the Environment. Hydrogen is a climate threat and public health threat if it is not done with strong precautions, limitations and equity principles, including the three pillars. I would like to emphasize the importance and necessity of the three pillars in California and to set that precedent and structure. As other speakers have stated. I would like to bring attention to the public health harms of hydrogen that utilizes fossil fuels, biomass or biogas. Our Central Valley communities have long suffered the harms of oil and gas. We cannot continue reliance on fossil fuels that harm communities and bring in new industry that will do even more harm in the name of economic efficiency. Thank you.

Thank you very much. This concludes our testimony, and this is now adjourned. Appreciate everybody's attendance.