Blue hydrogen dreams fizzle as CCS faces harsh reality check

By mid-2026, the U.S. blue hydrogen sector is grappling with a wave of financial and market setbacks, as 65% of projects valued over $45 billion face delays or cancellations. Major players like Air Products and ExxonMobil have shelved or postponed flagship initiatives, including Air Products' $9 billion Louisiana project, underscoring the fragility of demand linked to geopolitical tensions such as those between the U.S. and Iran that have dampened fertilizer-related chemical markets integral to blue hydrogen's viability.

Lower carbon prices have compounded the economic challenges for carbon capture and blue hydrogen projects, with ETFs like KraneShares' KRBN experiencing declines since 2022 amid political pressures on EU carbon allowances. This bearish pricing environment has led to project cancellations, exemplified by Air Products scrapping a $4.5 billion CCS-enabled hydrogen and ammonia facility in Louisiana, signaling that capital-intensive ventures now face heightened financial risk without robust market incentives.

Despite federal support through the 45Q tax credit, blue hydrogen projects remain economically precarious without guaranteed long-term offtake contracts and demand-side policies. By 2025, low natural gas prices and subsidies no longer sufficed to secure financing, as demonstrated by Air Products’ escalating cost estimates—from $4.5 billion to $7 billion for the Louisiana Clean Energy Complex—and the subsequent leadership upheaval driven by investor concerns over overinvestment and financial exposure in the low-carbon sector.

Beyond economics, community opposition and environmental concerns have intensified the risk profile of blue hydrogen and CCS projects, with resistance to CO2 pipeline routes and storage under Lake Maurepas fueling public outcry. Meanwhile, in Canada, companies like Entropy highlight how low carbon pricing in Alberta stifles carbon capture expansion, prompting calls for federal policy reforms to allow carbon credits in higher-priced sectors such as transportation fuels, data centres, and oil sands to unlock further investment.

Government policies and tax incentives like the U.S. 45Q tax credit remain pivotal in enabling carbon capture and storage (CCS) and blue hydrogen projects, yet their effectiveness is uneven across sectors. While ethanol facilities benefit from lower capture costs ($15-$35/ton) making 45Q credits ($85-$180/ton) attractive, power and industrial sectors face prohibitive costs exceeding $100 per ton, limiting broader adoption. The cancellation of $1 billion in Biden-era grants by the Trump administration, despite preserving and enhancing 45Q credits, underscores ongoing policy uncertainty that hampers scaling efforts. This dynamic is exemplified by Big Tech companies deprioritizing CCS due to high costs—estimated at $20-$30 per MWh—and longer deployment timelines, which can double power production expenses, as noted by Wood Mackenzie’s Peter Findlay.

The viability of large-scale blue hydrogen and CCS projects in the U.S. is heavily contingent on sustained government incentives and regulatory certainty, with the 45Q tax credit being the linchpin for project economics. The recent cancellation of Air Products’ $4.5 billion Louisiana Clean Energy Complex highlights the fragility of these ventures amid financial and regulatory uncertainties, despite initial enthusiasm fueled by the Inflation Reduction Act’s $7 billion Hydrogen Hubs funding. Moreover, evolving project financing now demands long-term offtake contracts and demand-side incentives beyond cheap natural gas and production subsidies, reflecting a maturing but challenging market landscape. Community opposition, particularly resistance to CO2 pipeline routes and storage sites, further complicates regulatory approvals and social license to operate.

Carbon pricing volatility and delays in regulatory reforms, such as pending EU ETS changes, continue to undermine the economic attractiveness of carbon capture and green hydrogen projects globally. The decline of the KraneShares Global Carbon Strategy ETF since 2022, driven by political pressures on EU carbon allowances, and Air Products’ project cancellations illustrate how lower carbon prices and shifting political attitudes create a challenging environment. While government intervention may eventually stabilize green hydrogen markets, current short- and medium-term outlooks remain bleak, with industry insiders describing it as 'not a good industry to be in, for now.'

In Canada’s Alberta, federal and provincial incentives such as the CCUS Investment Tax Credit (ITC) and Alberta’s ACCIP are critical to enabling carbon capture projects like Entropy Inc.’s Glacier facility, yet administrative delays in disbursing these funds are inflating financing costs and deterring investment. Despite legislative advances like Bill C-15 extending CCUS ITC rates through 2035 to provide long-term certainty, Entropy warns that the disconnect between policy enactment and timely program administration weakens incentive effectiveness. The company is also advocating for policy reforms to allow carbon credits from natural gas used in transportation fuels, aiming to broaden market opportunities amid Alberta’s low carbon pricing. Entropy’s CEO underscores that carbon capture remains an essential component of a comprehensive decarbonization strategy, despite criticism that it may prolong fossil fuel reliance.

Equinor’s Northern Lights project exemplifies decades of proven expertise in CO2 capture and permanent storage on the Norwegian continental shelf, having safely stored millions of tons of CO2 annually. While the project is scaling injection capacity from 1.5 to 5 million tons per year and envisions expanding storage to 50 million tons, these volumes remain modest compared to the gigaton-scale reductions needed globally, highlighting the immense challenge of scaling CCS infrastructure beyond current commercial phases.

In North America, pioneering projects like Entropy’s Glacier Phase 2 demonstrate technological innovation by integrating 15 MW natural gas co-generation with post-combustion CCS, capturing over 90% of CO2 emissions and targeting nearly 200,000 tonnes sequestered annually. Supported by proprietary technologies such as iCCS™ and real-time carbon accounting via EntropyIQ, Glacier Phase 2 sets a scalable blueprint for low-carbon power, though its economics remain vulnerable to policy and administrative delays in accessing federal and provincial incentives.

Despite technological advances, cost remains a formidable barrier to widespread CCS deployment, with capture costs varying dramatically by source—ethanol facilities benefit from lower costs due to high CO2 concentrations, while natural gas plants face expenses that can double power production costs. Projects like Google’s partnership in Illinois and Frontier Infrastructure’s Sweetwater Carbon Storage Hub illustrate efforts to commercialize CCS at scale, yet policy uncertainty and fluctuating government support continue to impede broader adoption.

Eni’s Liverpool Bay CCS Limited (LBCCS) project stands as a pioneering example of large-scale infrastructure repurposing, leveraging over 120km of existing pipelines and offshore facilities to establish the UK’s first carbon storage initiative that reuses former oil and gas assets. This strategic reuse not only reduces upfront capital costs but also accelerates deployment timelines, positioning LBCCS as the backbone of the £2 billion HyNet industrial decarbonisation cluster.

The HyNet cluster is designed to capture and permanently sequester substantial CO₂ volumes from diverse industrial sources—including cement production, low-carbon hydrogen, and energy-from-waste sectors—across North West England and North Wales. By channeling emissions into depleted gas reservoirs beneath Liverpool Bay, the project not only advances regional decarbonization goals but also promises significant economic benefits, such as creating approximately 2,000 construction jobs and catalyzing supply-chain investments.

With a meticulously planned timeline, LBCCS secured an Agreement for Lease in August 2024 and aims for financial close by April 2025, setting the stage for first CO₂ injection by 2028. Phase 1 targets the storage of 109 million tonnes of CO₂ over its operational life, initially capturing 4.5 million tonnes annually and scaling up to 10 million tonnes post-2030, underscoring the project’s ambition to deliver long-term, scalable carbon management solutions.

By mid-2026, the promise of carbon capture and storage (CCS) as a cornerstone of decarbonization has been tempered by stark realities: the Institute for Energy Economics and Financial Analysis (IEEFA) revealed that most CCS projects underperform, capturing well below the targeted 90%, with only about 50 facilities worldwide sequestering a mere fraction—roughly one thousandth—of global emissions. This technical underachievement is compounded by steep costs; in the US, CCS retrofits on gas plants add $20 to $30 per MWh, potentially doubling electricity prices, while European estimates for capture, transport, and storage soar between $170 and $340 per tonne, significantly overshooting earlier projections. These economic and operational hurdles cast doubt on CCS’s viability as a primary decarbonization tool, suggesting it may be more appropriate as a supplementary, later-stage technology after more cost-effective green solutions have been deployed.

Critics have increasingly framed CCS as a form of greenwashing that enables fossil fuel companies to perpetuate emissions under the veneer of 'low-carbon' credentials, a concern echoed by environmental groups who argue that investments funneled into CCS could yield greater climate benefits if redirected toward alternative clean energy technologies. Despite the World Economic Forum’s earlier optimism forecasting a quadrupling of CCS capacity by 2030, the combination of technical setbacks and economic burdens has fueled skepticism among industry leaders, many of whom now advocate prioritizing renewable and other green technologies before committing heavily to CCS. This evolving perspective underscores a growing consensus that while CCS might retain a niche role in the energy transition, its future contribution will likely be limited and contingent on overcoming significant challenges.