The Bipartisan Infrastructure Law, passed by Congress in 2021, includes up to $7 billion to fund a Regional Clean Hydrogen Hubs Program. The U.S. Department of Energy, the program’s administrator, states that its goal is to facilitate the creation of “large-scale, commercially viable hydrogen ecosystems.” In its main publications on the program, the Department of Energy does not detail how taxpayer dollars for hydrogen ecosystems will translate into the holy grail of “commercial viability” for green hydrogen. Yet there is reason to believe that the Hubs concept can help bring about this outcome. The key idea is that of the “cluster.”
The term “cluster” as an economic construct was explained by Harvard Business School Professor Michael Porter in 1998 as “geographic concentrations of interconnected companies and institutions in a particular field.” The sprawling set of activities around the production of wine in California is one of many examples Porter advances. The great benefit of clusters, Porter says, is that they encourage interactions across cluster members that foster a variety of productivity enhancements. He describes how the bases of competition at play in the pre-globalized twentieth century have lost their force in the globalized twenty-first century: “The enduring competitive advantages in a global economy lie increasingly in local things – knowledge, relationships, motivation – that distant rivals cannot match.”
Without the cluster framework, the parties sponsoring each of the seven hydrogen hub projects selected for funding by the Department of Energy would appear to have a somewhat random aspect. To take the Pacific Northwest Hydrogen Hub (PNWH2) as an example, one notes representation on the Board of Directors from energy engineering and equipment company Mitsubishi Heavy Industries and hydrogen production companies Fortescue Future Industries and NovoHydrogen. This certainly makes sense. If the goal is to encourage green hydrogen production, a hub needs to include technologists and producers. And if this were a twentieth-century undertaking, hub membership might stop there.
However, one also notes Board representation from ammonia producer Atlas Agro, natural gas utility AltaGas, and public transit provider Lewis County Transit. The heterogeneous nature of these parties notwithstanding, it can quickly be seen that each is a potential consumer of green hydrogen. For Atlas Agro, green hydrogen is the main feedstock for the production of green ammonia. For AltaGas, green hydrogen could be blended into its pipeline natural gas to reduce its carbon footprint. For Lewis County Transit, green hydrogen will fuel its small but growing fleet of fuel-cell-powered transit buses. Porter argues that the co-existence of suppliers and customers in a cluster can create a virtuous cycle in which heightened awareness of customer needs drives improvement of product/service bundles, and heightened awareness of producer capabilities leads to articulation of evolving customer needs—all without breaking down the arm’s length relationships at the heart of competition-based economies.
Further perusal of the Board reveals representation from the Washington State Labor Council and the Cowlitz Indian Tribe. From a twentieth-century perspective, this is actively surprising. Why include organized labor and other community stakeholders in Hub leadership? True, workers will be needed to staff plants, but producers typically meet that need through established hiring processes. Porter places a great deal of emphasis on the workforce dimension of clusters, pointing out how they can create environments in which regional workers are motivated to acquire knowledge and skills relevant within a cluster and local institutions are motivated to offer programs that will allow them to do so.
A final look at the Board makeup reveals representation from the Oregon Department of Energy. This is perhaps the most unexpected finding of all. Twentieth-century thinking recognizes that government actors perform essential functions in society but that their modes of encouraging economic development are normally at a disinterested remove (and that when they are not encouraging economic development, their actions often have adverse effects on businesses). Porter has little patience with this view. On the contrary, he says that “Governments – both national and local – have new roles to play. They must ensure the supply of high-quality inputs such as educated citizens and physical infrastructure . . .” By sitting at the table with other Hub developers, the Oregon Department of Energy will gain the perspectives it needs to be able to coordinate with other agencies within and beyond the Oregon state government to help them discharge their duties in a way that is as supportive as possible of Hub development.
The embrace of the cluster concept by the sponsors of the PNWH2 was no accident. On the contrary, clusters have been an explicit focus of policymakers in Washington State since at least the 2022 launch of the Department of Commerce’s Innovative Cluster Accelerator Program (ICAP). The Consortium for Hydrogen And Renewably Generated E-Fuels (CHARGE) was among the first recipients of funding under ICAP. CHARGE was launched by Washington State University in 2021 with the mission of making Washington State “a global hub for commercializing alternative fuels.” Its cluster orientation was apparent in the relationships it built with the Pacific Northwest National Laboratory, selected utilities and public utility districts, and a variety of private-sector players. CHARGE was subsequently instrumental in convening the proponents of the PNWH2 when the DOE announced the Hydrogen Hubs program in September 2022 and is represented on the PNWH2 Board.
The economics of green hydrogen are currently challenging, with production costs at a significant premium over those of gray hydrogen. Technoeconomic analyses suggest that this is not a permanent reality but is rather an artifact of the early stage of green hydrogen development. A 2023 analysis suggests that green hydrogen will be able to close the cost gap as we enter the next decade and that “The dramatic drop in the price of green hydrogen is due to two key factors: economies of scale, and supportive policy.” Porter would argue that clusters create a context in which both factors can be applied highly effectively (as long as scale is understood in his revised terms: “A cluster allows each member to benefit as if it had greater scale”). It would appear that the creators of the Hydrogen Hubs program agree with him.
