Emerging clean technologies: policy-driven cost reductions, implications and perspectives

Abstract: Hydrogen production from water electrolysis, direct air capture (DAC), and synthetic kerosene derived from hydrogen and CO2 (`e-kerosene') are expected to play an important role in global decarbonization efforts. So far, the economics of these nascent technologies hamper their market diffusion. However, a wave of recent policy support in the United States, Europe, China, and elsewhere is anticipated to drive their commercial liftoff and bring their costs down. To this end, we evaluate the potential cost reductions driven by policy-induced scale-up of these emerging technologies through 2030 using an experience curves approach accounting for both local and global learning effects. We then analyze the consequences of projected cost declines on the competitiveness of these nascent technologies compared to conventional fossil alternatives, where applicable, and highlight some of the tradeoffs associated with their expansion. Our findings indicate that enacted policies could lead to substantial capital cost reductions for electrolyzers. Nevertheless, electrolytic hydrogen production at $1-2/kg would still require some form of policy support. Given expected costs and experience curves, it is unlikely that liquid solvent DAC (L-DAC) scale-up will bring removal costs to stated targets of $100/tCO2, though a $200/tCO2 may eventually be within reach. We also underscore the importance of tackling methane leakage for natural gas-powered L-DAC: unmitigated leaks amplify net removal costs, exacerbate the investment requirements to reach targeted costs, and cast doubt on L-DAC's role in the clean energy transition. Lastly, despite reductions in electrolysis and L-DAC costs, e-kerosene remains considerably more expensive than fossil jet fuel. The economics of e-kerosene and the resources required for production raise questions about the fuel's ultimate viability as a decarbonization tool for aviation.

• The paper estimates significant policy-driven capital cost reductions in water electrolysis, projecting decreases of up to 74% by 2030.
• The paper employs experience curve models to show that DAC’s cost declines are modest, with high net removal costs exacerbated by methane leakage.
• The paper reveals that synthetic kerosene remains costly compared to fossil jet fuel, emphasizing sustained policy support is crucial for competitiveness.

This paper (2408.10824) analyzes the potential cost reductions of three key emerging clean technologies—water electrolysis for hydrogen production, direct air capture (DAC) for CO₂ removal, and synthetic kerosene (e-kerosene) for aviation fuel—driven by current policy support, primarily by 2030. The authors employ experience curve models, accounting for both global and local learning effects, to project capital and levelized costs and assess the implications for the competitiveness of these technologies compared to fossil alternatives.

For Water Electrolysis, the paper projects substantial capital cost reductions by 2030, ranging from 41% to 74% depending on the technology type (Alkaline or PEM) and region (USA, EU, China, ROW). This is based on a model where stack costs follow a global learning curve (due to mass manufacturing), while Balance of Plant (BoP) and Engineering, Procurement, and Construction (EPC) costs follow region-specific local learning curves. The key drivers for these reductions are expected to be economies of scale and automation in manufacturing driven by increased demand from policy support, as well as optimization of supply chains and standardization of plant designs.

However, despite these capital cost declines, the Levelized Cost of Hydrogen (LCOH) from electrolysis is unlikely to be competitive with fossil hydrogen (typically $0.5 - $2.5/kg) by 2030 without continued policy support. Achieving LCOH of $1-2/kg, necessary to compete broadly, requires unrealistically low electricity costs, even with projected capital cost reductions. Policies like the US Inflation Reduction Act (IRA) 45V hydrogen production tax credit are highlighted as crucial for enabling cost parity with fossil hydrogen, potentially bringing subsidized costs down to $1-2/kg for a range of electricity costs and utilization rates. A critical practical consideration for scaling electrolytic hydrogen is ensuring a sufficient supply of low-cost clean electricity without hindering overall grid decarbonization efforts, suggesting a potential need to prioritize off-grid projects or high-impact end-uses.

In the case of Direct Air Capture (DAC), specifically liquid-solvent (L-DAC) technology which is currently being scaled up, the paper projects more modest capital cost reductions. Based on the global project pipeline by 2030 (3.5 Mt/y capacity) and a global learning curve analogy from sulfur scrubbers, L-DAC capital costs are projected to decline by roughly 12% to 38%, from around $2600 to $1600-2300 per tCO₂/year capture capacity.

The implications for the net removal cost of CO₂ from the atmosphere are significant. While current capture costs are estimated around $483/tCO₂, upstream methane leakage from the natural gas often used in L-DAC processes can increase the *net* removal cost to over $600/tCO₂ at high leakage rates. Even with projected cost declines by 2030, net removal costs are expected to remain high, between $346 and $427/tCO₂. The paper finds that the industry's aspirational target of $100/tCO₂ is likely unattainable for L-DAC by 2030 or even significantly beyond, as it would require unrealistic levels of cumulative investment (hundreds of billions of dollars) and capacity build-out (hundreds of millions of tonnes/year) even under optimistic learning rates. A net removal cost of $200/tCO₂ might eventually be reachable but still requires substantial cumulative investment ($163B for 160 Mt/y capacity under base assumptions). A paramount practical implication for L-DAC is the urgent need to address upstream methane leakage. High leakage rates amplify net removal costs, increase the investment needed to reach targets, and threaten the legitimacy of L-DAC as a credible carbon removal solution. The paper stresses the necessity of carbon accounting standards that measure and reward net removal, including fuel cycle emissions, to incentivize developers to minimize upstream emissions or switch to clean energy inputs.

Regarding Synthetic Kerosene (e-kerosene), produced from electrolytic hydrogen and captured CO₂, the paper projects that even with the anticipated cost reductions for electrolysis and DAC by 2030, e-kerosene will remain considerably more expensive than fossil jet fuel. Current estimated costs are $11-16/gal, and projected 2030 costs would still be $1-4/gal higher than that range, far exceeding typical fossil jet fuel prices ($1-3.25/gal). Achieving competitive e-kerosene costs requires a combination of very low hydrogen and CO₂ costs, which are not expected without substantial, sustained policy support like IRA incentives. While policy can reduce the cost premium, the fuel will likely remain expensive. At low blending mandates (e.g., 5%), the impact on flight costs is estimated to be relatively minor ($14-30 per passenger for a transatlantic flight). However, scaling e-kerosene production to meet a meaningful portion of global aviation demand faces significant practical challenges beyond cost, requiring massive amounts of infrastructure, hundreds of gigawatts of low-carbon electricity, and hundreds of millions of tonnes/year of CO₂. The paper raises questions about the ultimate viability and scalability of e-kerosene as a primary aviation decarbonization tool due to these immense resource requirements and high costs, suggesting that alternative strategies like electrification for short-haul flights or demand reduction should also be considered.

In conclusion, the paper emphasizes that while policy support is driving significant cost reductions for electrolysis and, to a lesser extent, DAC by 2030, these technologies are still unlikely to be cost-competitive with fossil alternatives without continued policy intervention. L-DAC faces the additional challenge of high base costs and the critical need to address methane leakage to ensure its climate benefits and economic viability. E-kerosene remains prohibitively expensive and requires vast resources for large-scale deployment, casting doubt on its potential as a primary decarbonization pathway for aviation. The projected cost reductions are not guaranteed and depend on sustained policy environments, effective coordination across stakeholders, proactive planning, and overcoming practical hurdles related to permitting and financing.