Over the last few years, the conversation surrounding greenhouse gas emissions (GHG) and decarbonization goals has become louder and louder. In April 2021 US President Joseph Biden announced a goal of reducing US GHG emissions by 50-52% by 2030, and the COP-26 summit held in November 2021 saw many other world leaders setting similarly ambitious goals for GHG emissions reductions and decarbonization. One energy source with the potential to help achieve these goals is green hydrogen.
When used as a fuel source, hydrogen emits no carbon dioxide and creates almost no air pollution. However, not all hydrogen is created equal: different methods of producing hydrogen fuel create varying levels of emissions. “Grey” hydrogen is produced using fossil fuels, usually natural gas, and the carbon dioxide released as a by-product during the creation process is neither captured nor mitigated. “Blue” hydrogen is also created from fossil fuels, but the carbon dioxide by-product is captured and stored to minimize emissions to the environment. “Green” hydrogen, which is created from the electrolysis of water and powered by renewable energy, is the most environmentally neutral hydrogen fuel.
The use of green hydrogen as a fuel could lead to significant emissions reductions and create a path toward achieving the ambitious goals set by US and international leaders. However, hurdles remain before green hydrogen production and use can be successfully scaled up. Green hydrogen requires significant infrastructure for production, transportation, and storage, and that infrastructure is not yet widely in place. Establishing that infrastructure will not only involve significant monetary cost, but also create significant GHG emissions, which is less than ideal for a fuel source intended to result in significant emissions reductions.
In combination with the disclosures that would be required under a recently proposed US Securities and Exchange Commission (SEC) rule, the high emissions associated with bringing green hydrogen to scale could mean that SEC registrants with publicly stated GHG emission reductions goals—registrants that could benefit most from the use of this low-carbon energy source—may be less willing or able to use and support green hydrogen development in its earlier stages.
The tension between green hydrogen’s potential as a tool for emissions reduction and the emissions required to realize that potential is magnified by the recently proposed SEC rule, the Enhancement and Standardization of Climate-Related Disclosures for Investors rule (Climate Disclosures Rule). While the SEC has for some time signaled that it considers material climate-related risk information to be worthy of disclosure, if finalized as proposed, the Climate Disclosures Rule would be the first prescriptive rule explicitly requiring public companies to make specific GHG-related disclosures.
Notably, the Climate Disclosures Rule includes various requirements for public companies to disclose Scope 1 emissions, or direct GHG emissions that occur from sources owned or controlled by the company; Scope 2 emissions, or indirect emissions primarily resulting from generation of electricity purchased and used by the company; and Scope 3 emissions, or all other indirect emissions not accounted for in Scope 2 emissions. Registrants that have publicly set climate-related targets or goals would also be required to provide information such as the anticipated timing for achieving those goals and data demonstrating their progress.
The Climate Disclosures Rule could incentivize funds to invest in “greener” companies and incentivize companies to turn toward “greener” energy options. However, that incentive would not necessarily aid environmentally neutral energy sources such as green hydrogen that are not yet to scale. As noted above, green hydrogen infrastructure will create a significant level of emissions before green hydrogen fuel is able to provide any significant emissions reductions. This means that the Climate Disclosures Rule—and its requirement that registrants report emissions such as indirect emissions associated with the production of green hydrogen—could come into effect while the emissions associated with creating green hydrogen infrastructure are still high.
Reaching scale and realizing its potential for emissions reductions will require investment in and customers for green hydrogen. However, the high emissions associated with bringing green hydrogen to scale could mean that companies and funds that have publicly committed to reducing GHG emissions—that is, those companies and funds that might be more interested in utilizing low-carbon fuels—might find it difficult to use or invest in green hydrogen and still satisfy the requirements of the Climate Disclosures Rule.
The proposed Climate Disclosures Rule, intended to incentivize movement toward more environmentally neutral companies, could mean that impact investment funds prioritizing investment in green technologies and companies, and companies that have taken a net-zero pledge or stated explicit emissions reduction goals, are less likely to be among the earlier investors in and users of green hydrogen. Although the timing of a finalized Climate Disclosures Rule—and what that final rule may look like—is not yet clear, the emissions associated with producing green hydrogen may be high enough that registrants with publicly stated emissions reductions targets would find it difficult to invest in green hydrogen while satisfying their reporting requirements under the Climate Disclosures Rule.
In contrast, registrants that have not publicly stated a goal with respect to emissions reductions would not be bound by the requirement to report on progress toward emissions reduction goals. Rather, those registrants could weigh the risks of investing in green hydrogen now, along with the emissions required to be disclosed under the Climate Disclosures Rule, and provide a well-drafted disclosure balancing the indirect emissions associated with green hydrogen against the anticipated future GHG emission reductions.
While one might expect that registrants with publicly stated emissions reductions goals would be interested in a fuel as low carbon as green hydrogen, the incentives created by the Climate Disclosures Rule make it more likely that those registrants will hold off on green hydrogen investment and use until other registrants—those without publicly stated targets—have created enough support so that green hydrogen is a more widespread energy source.
Green hydrogen has the potential to be an important tool in the international push to reduce GHG emissions. However, until green hydrogen production, transportation, and storage infrastructure is scaled up to meet potential demand, the emissions associated with establishing that infrastructure remain high.When taken in combination with the SEC’s proposed Climate Disclosures Rule, those emissions could lead to conflicting incentives that make it more difficult for registrants with explicitly stated climate-related goals to take advantage of green hydrogen until it is more firmly established as a fuel source.
 87 Fed. Reg. 36,654 (June 17, 2022) (proposed rule).
 See, e.g., 75 Fed. Reg. 6,290 (Feb. 8, 2010) (Commission Guidance Regarding Disclosure Related to Climate Change).
 87 Fed. Reg. at 36,677.
 Id. at 36,668; see also SEC, Fact Sheet: Enhancement and Standardization of Climate-Related Disclosures, at 2 (SEC Fact Sheet).
 The SEC Fact Sheet, issued when the Climate Disclosures Rule was announced, included a sample timeline based on a December 2022 final rule, which would place the earliest GHG disclosure compliance dates in fiscal year 2023. SEC Fact Sheet at 3. A 2019 report by the International Energy Agency (IEA) estimated that the cost of low-carbon hydrogen—which is driven in part by the extent of green hydrogen infrastructure—would drop dramatically by 2030. IEA, The Future of Hydrogen: Seizing Today’s Opportunities, at 14. Taken together, these timelines indicate that there could be multiple years of overlap between required disclosures under the Climate Disclosures Rule and continuing expansion of green hydrogen infrastructure.