Game Changer: How Green Hydrogen Could Fuel Our Future and Help Solve the Climate Crisis

As a clean energy source, hydrogen almost couldn’t be more ideal. Not only is it a ubiquitous raw material, comprising some 90% of the universe,^footnote1 but hydrogen gas can also be used as a fuel—powering cars, heating homes and enabling heavy industry—that leaves only water and heat as byproducts.^footnote2

Right now, producing hydrogen gas is a fossil fuel-intensive endeavor, but when produced using sustainable energy, like solar and wind, hydrogen gas has the potential to be one of the greenest of green fuels. According to The Special 1 — Hydrogen Primer, a report from BofA Global Research, the rapidly decreasing cost of wind and solar power, improvements in the hydrogen production process and the urgent need to address climate change could make hydrogen a major factor across much of the global economy.^footnote3

“We believe we are reaching the inflection point for harnessing hydrogen effectively and economically,” says Haim Israel, head of Thematic Investing Strategy at BofA Global Research and lead author of the primer, adding that it could be key in the fight against global warming.

Because of its versatility, it is estimated that hydrogen could create as much as $11 trillion in investment opportunities over the next three decades.^footnote6 “The potential for green hydrogen as an investment theme is compelling because the decarbonization agenda is real,” says Martyn Briggs, thematic investing strategist at BofA Global Research and one of the authors of the report. “As we’re seeing more emphasis to reduce the world’s carbon footprint, we’re realizing that renewable electricity, alone, can’t get us over the finish line.”

Why green hydrogen could be a game changer

Green hydrogen gas is produced through electrolysis, a process that splits water into hydrogen and oxygen. Widespread adoption of that technology could, in effect, create a new industry and generate increased demand for its components, such as platinum, which is a key part of both fuel cells and electrolyzers.^footnote7

Fuel cells that use hydrogen to create electricity are the end use for hydrogen gas that’s gotten the most attention. But fuel cells are only one end use for this simplest of atoms. Numerous other areas of the economy could also benefit, including metals, mining and steel production, which currently tend to have large carbon footprints. Imagine, for example, a steel plant operating its blast furnaces with green hydrogen gas instead of liquid natural gas.^footnote8 This type of adoption could benefit the planet by reducing carbon emissions and could potentially benefit shareholders as well, since investors may be attracted to new leaders in green energy adoption.^footnote9

And since hydrogen fuel cells can be scaled up or down, individual cells can be used to power cars, trucks and buses. While only a few thousand hydrogen fuel cell electric vehicles (FCEVs) are on the road today, BofA Global Research projects that the market is quickly gaining steam and could reach 240,000 FCEVs worldwide by 2030^footnote10—fueled by reductions in cost and strong support from a number of governments, including China, Japan and the European Union.^footnote11

This, in turn, would create a demand for the fueling infrastructure—pipelines, storage and transport—needed to service a hydrogen-based fleet. Longer-term, we may even see the adoption of green hydrogen among companies involved in aerospace and shipping.^footnote12

This could be aided by a shift in policy to focusing on “climate solutions” rather than debating “climate change,” suggests Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “Governments are spending enormous amounts of money combating issues that climate change creates—floods, fires, destruction of arable land and the list goes on. If we could change that equation and take those dollars to reinvest in solutions, that absolutely changes the game.”

This may already be starting to happen. In some instances, governments are setting sustainability targets that focus on areas like decarbonization, the number of FCEVs needed to be produced or electrolyzer capacity. Indeed, the European Union recently made its European Hydrogen Strategy the centerpiece of its Green Deal^footnote13—while Australia, Japan, China, the United Kingdom and Korea all have green hydrogen strategies and/or targets of their own.^footnote14

For now, producing green hydrogen costs substantially more than the more common “gray” hydrogen, which is produced with natural gas—a financial reality that won’t change overnight.^footnote15 Yet established industries are finding ways to progress toward clean energy goals. Industrial gas companies, for example, don’t yet have the capacity to create green hydrogen but are creating joint ventures and partnerships that will do so.^footnote16

This is where investors could join forces with businesses to make a difference—and not just in supporting hydrogen-based startups. Although not without risk, investors are increasingly choosing to support companies with a strong focus on sustainability, including reducing the impact of their operations on the environment.^footnote17 And as more companies and industries seek to adopt cleaner energy sources, such as green hydrogen and other renewables, the opportunity set should continue to expand. While hydrogen alone can’t solve the challenges of climate change, it could be a critical part of a greener and cleaner global energy system.

Important Disclosures

Opinions are as of 01/11/2022 and are subject to change.

Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.

Investments have varying degrees of risk. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC and wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

7/22/2022