The buzz around green hydrogen has sparked what many are calling a new hydrogen boom. Advocates see it as a game-changer for clean energy, but the path forward is not without obstacles. From technological and economic hurdles to questions of scalability, there are challenges that cannot be ignored. At the same time, hydrogen remains a largely underutilized resource with enormous potential. This article explores hydrogen’s potential and its roadblocks, covering production methods, the 2025 investment boom, and the challenges shaping its future in the clean energy transition.
Different Shades of Hydrogen
Types of hydrogen are classified through a color-coding system that denotes the production method used:
Green Hydrogen: Produced through electrolysis powered by renewable energy sources, this method generates only water as a byproduct, making it a zero-emission option that directly supports net-zero goals.
Blue Hydrogen: Produced through carbon capturing during steam reforming of natural gas. This method is low-emission and much cheaper to produce than green hydrogen.
Gray Hydrogen: Produced solely through steam reforming without carbon capturing. This method is the method most commonly used to produce hydrogen currently.
Black and Brown Hydrogen: Produced through the use of black coal or lignite (brown coal). This method causes the most environmental damage.
Other color classifications not listed here include orange, purple, red, yellow, turquoise, pink, and white hydrogen.
The Drive Behind the 2025 Hydrogen Hype
Increased Investment Overall
Allied Market Research projects the green hydrogen market will grow by more than $140 billion between 2022 and 2032, an astonishing 50.3% compound annual growth rate. This surge in investment is expected not only to create thousands of jobs worldwide but also to strengthen global energy security.
Companies including Air Liquide, Shell, and Linde plc are already very involved in the green hydrogen industry, according to MENAFN. Involvement of heavy hitters like these is likely to encourage other energy companies to make their entry to push further into the hydrogen arena in the future.
Cost Reductions
While green hydrogen remains the most expensive to produce by far, at around $3.50 to $8 per kilogram, costs have been slowly decreasing over the past year thanks to improvements in the efficiency of electrolysis and the increased investments mentioned above leading to increased production.
As prices further decrease, green hydrogen will increase in viability as an alternative energy source, further encouraging more extensive investment and market participation.
Global Policy Pushes for Clean Hydrogen
Many countries, like China and Chile, along with regions like the EU are enticing growth in the hydrogen industry by offering subsidies to those who participate in production or who use green hydrogen to power operations. Many also have mandates placing restrictions on carbon emissions.
Beijing invested early in the push for green hydrogen by building up electrolyzer manufacturing. In South America, Chile’s National Hydrogen Strategy, introduced in 2020, sets out to achieve production of 1 million tonnes of green hydrogen annually by 2030, supported by 25 GW of planned electrolysis capacity.
Given the United States’ abundance of domestic natural gas reserves, it has obvious ability to get ahead in blue hydrogen production, which is considered low-emission and is much cheaper to produce than green hydrogen. By pairing natural gas with carbon capture and storage (CCS), blue hydrogen can be scaled more quickly and at lower cost, offering the U.S. a strategic advantage in supplying both domestic and international markets while renewable-based green hydrogen continues to mature.
Uses and Applications for Hydrogen Energy
Historically, hydrogen has been an important part of the global economy, especially because of its crucial role in producing ammonia used in fertilizers, which are essential for agricultural success and stability. More notably, hydrogen has been an indispensable part of oil refining.
Today, hydrogen can also:
- Meet rising energy demands driven by urbanization and population growth, bridging clean power gaps that renewables alone can’t fill. Deloitte’s 2025 Renewable Energy Outlook highlights a “race to overcome constraints” in clean energy supply.
- Support energy-intensive industries like food and beverage, steel, chemicals, and healthcare, all under pressure to decarbonize amid stricter carbon regulations and ESG mandates.
- Power hard-to-electrify transport sectors such as heavy-duty vehicles and aviation, where batteries fall short. Hydrogen’s versatility and storability make it a viable alternative to fossil fuels.
Challenges: Roadblocks and Downsides for Hydrogen
US Tax Code, Tariffs, and Policies
With the passage of the Inflation Reduction Act (IRA) during the Biden administration, a new tax credit for clean hydrogen production was created under § 45V (26 U.S.C. § 45V) to encourage research and development in the United States. The Internal Revenue Service (IRS) took two and a half years to issue guidance on how projects could qualify. During this period, many suppliers adopted a “wait-and-see” approach, which slowed activity in the clean hydrogen supply chain. The final guidance was released shortly before the change in administration.
The One Big Beautiful Bill Act (OBBBA) eliminated the § 45V credit for clean hydrogen production facilities that do not begin construction before January 1, 2028. It also phases out credits for wind and solar energy by 2032, while leaving the carbon capture and storage credit under § 45Q intact. These changes are expected to have a significant impact on domestic investment in clean energy projects.
In addition to the loss of a major tax credit, tariffs on imported materials further raise the already high cost of producing green hydrogen. Duties on key inputs such as polysilicon, solar cells, and steel from China and other parts of Asia are expected to make U.S. hydrogen projects more expensive and could limit opportunities for growth in the sector.
High Costs for Production
The challenge is not only the high cost of producing green hydrogen, but it is also the massive expense of building plants, pipelines, and storage. Add to that uncertainty over demand: without reliable buyers, even the most efficient facility risks becoming a stranded asset.
This lack of certainty has deterred U.S. investors and pushed away foreign interest. As one Intersect Power executive noted, they once held serious talks on gigawatt-scale projects with European and Asian customers, “but most of those folks have backed away from the table.” Unlike other power plants, hydrogen facilities cannot be repurposed, making the investment a high-stakes gamble.
The Investment Angle: Why It Matters
For investors, engineers, and executives, hydrogen represents one of the most dynamic growth opportunities in clean energy. According to Yahoo Finance, the Hydrogen ETF (HDRO) has gained about 25% year-to-date, though other sources report varying figures. Meanwhile, more than 1,900 startups are driving innovation in the sector, developing everything from portable hydrogen generators to AI-optimized production systems.
Keep an eye on strategic partnerships, particularly oil majors converting existing assets into hydrogen hubs across Texas and the Gulf Coast. These collaborations could accelerate both market adoption and investor returns.
Kuiper Law Firm, PLLC specializes in oil and gas law; if you have any questions about the information in this article, do not hesitate to contact us.
