California lawmakers have reached a deal that would set aside 15% of funds from a billion-dollar climate program to help companies build fueling stations for hydrogen cars and trucks.

After months of debate, Assemblymember Eloise Gómez Reyes, a Democrat from San Bernardino, said legislative leaders and Gov. Gavin Newsom agreed on a compromise for the funding. The 15% amounts to an estimated $106 million for new hydrogen fueling stations through July 2030, according to the California Hydrogen Coalition.

The state Senate and Assembly are expected to vote on the deal tonight as part of a bill that reauthorizes fees for the Clean Transportation Program, which funds infrastructure for zero-emission vehicles. The fees are paid by car owners — $2 car registration fees and $4 smog abatement fees.

The 15% carveout comes even though hardly anyone drives fuel cell vehicles powered by hydrogen: Californians own only about 12,000 of them, about 1% of the 1.1 million zero-emission vehicles on the road today.

Only two hydrogen models are currently being sold in dealerships, the Toyota Mirai and Hyundai Nexo, and many major automakers have said they plan to produce only battery-powered cars.

The new stations also would be available for medium- and heavy-duty trucks powered by hydrogen. But some experts say electric trucks are competing heavily for that segment, so the future market for hydrogen fueling stations is uncertain.

Teresa Cooke, executive director of the California Hydrogen Coalition, called the deal a win. The lobbying group for hydrogen supporters and suppliers — which includes Chevron, Shell and Toyota — originally sought nearly three times the amount they will now receive: They wanted about $300 million to create a statewide network of 1,000 fueling stations.

“It’s just the beginning, though, and now we have a lot more work to do with this technology and within this policy area,” Cooke said.

A Newsom spokesman said the governor supports the funding agreement. “This is a big deal in the fight against climate change — it’ll help build more electric vehicle chargers and hydrogen fueling stations, improve their accessibility and reliability, and cut air pollution,” said Alex Stack. “Governor Newsom looks forward to it reaching his desk.”

But Ethan Elkind, director of the climate program at the Center for Law, Energy & the Environment at UC Berkeley Law, told CalMatters that the set-aside is “largely a waste of money” for an “industry that has not proved itself after well over a decade of subsidy in California.”

Elkind added that while the state may have more hydrogen trucks in the future, there is “a much more immediate need to scale up chargers for electric trucks, which the state is really behind on deploying.”

“It’s too bad the Legislature had to make this compromise with hydrogen interests,” Elkind told CalMatters, “but that’s the nature of the sausage-making.”

“This is a big deal in the fight against climate change — it’ll help build more electric vehicle chargers and hydrogen fueling stations, improve their accessibility and reliability.”
— Alex Stack, Governor’s Office

Since the program raises money through vehicle registration and other fees, the funding bill needs two-thirds of lawmakers’ votes to be approved: 54 out of 80 in the Assembly and 27 out of 40 in the Senate.

The program will provide about $1.2 billion for all zero-emission vehicle infrastructure through 2035. Funds have explicitly been set aside for hydrogen fueling stations since 2013, when lawmakers approved a 20% annual carveout for them.

But since then, electric vehicles have dominated the market for zero-emission cars and environmentalists say the set-aside for hydrogen technology should be dropped altogether so more money would go toward battery charging stations instead. Only 1,767 fuel cell cars that burn hydrogen have been sold in California this year. Last year’s sales declined 20%, although sales are up this summer. Californians already own more than 760,000 battery-powered electric cars, with sales increasing.

So far, the California Energy Commission has spent $202 million for hydrogen fueling stations. The state’s funding has helped create a network of 65 hydrogen fueling stations, 20 of them in Los Angeles County. Driving a hydrogen car outside of California is virtually impossible: One other public hydrogen fueling station exists in the U.S., and it’s in Hawaii.

The Energy Commission’s staff has warned lawmakers that there won’t be enough hydrogen cars on the roads to use new stations already allocated state funds.

Funding for hydrogen stations is “largely a waste of money” for an “industry that has not proved itself after well over a decade of subsidy in California.”
— Ethan Elkind, Center for Law, Energy & the Environment at UC Berkeley Law

Stations will triple by 2027 — resulting in four times more than the amount needed to support even the “vehicle manufacturers’ best-case expected volume,” the commission said. They also warned that they haven’t received enough bids from hydrogen station developers to spend all the money the Legislature already has allocated.

The plan includes provisions that would make the funds available to other projects if there aren’t sufficient bids from hydrogen infrastructure developers.

Like battery-powered cars, hydrogen cars produce no emissions. But the electricity to run their motors uses compressed hydrogen gas, which the California Air Resources Board says is often derived from natural gas, a fossil fuel.

Major oil and gas companies see hydrogen as a potential way for their industry to remain viable in a decarbonized future. Some companies are exploring ways of making hydrogen a green energy source by splitting water using renewable-energy electrolyzers. But that technology remains much more costly than today’s process using fossil fuels.

Energy companies are also experimenting with capturing emissions from the natural gas process and then storing those emissions underground. But those carbon-capture techniques are not yet widespread.

Electric cars are reliant on energy from carbon-emitting power plants, but California is greening its grid. Under a state mandate, 100% of electricity must be renewable and carbon-free by 2045, with most coming from solar and wind.

Shell cancels plan to build hydrogen stations

The renewed funding comes after giant energy company Shell canceled a $40.8 million deal to build up to 50 hydrogen car refueling stations in California.

The company in July decided against requesting the state funds because the project was not economically viable, according to an email obtained by CalMatters through a public records request.

The email, signed by Shell employee Abhishek Banerjee, cited a number of factors for canceling the project, including difficulties getting permits and finding decarbonized hydrogen, construction costs and other factors.

The email also stated that “political and economic uncertainty in the initial stages of market deployment present a significant risk in further investment,” Banerjee wrote. “These barriers need to be overcome in order to enable future investment from Shell in this segment of the market.”

Only 1,767 fuel cell cars that burn hydrogen have been sold in California this year. Last year’s sales declined 20%.

A Shell spokesperson said the company remains “active in hydrogen in California and around the world,” adding that it is “vital to realize our net zero ambition and forming a future lower-carbon energy system.”

Reyes and Sen. Lena Gonzalez, a Democrat from Long Beach, initially tried bills that would have completely eliminated a hydrogen carveout. But they failed to get enough support from fellow Democrats so Reyes amended her bill in June to designate 10% of the program’s funds — $10 million a year through July 1, 2030 — to pay for hydrogen fueling stations. That move did not garner enough support from fellow Democrats who advocated for more hydrogen funding, while it was opposed by others who said it was too much.

The controversy in the Legislature threatened to jeopardize the future of the program, which is a key source of money for building new electric car charging stations. The program’s funding will expire next year if the Legislature doesn’t approve a plan this year.

The program, created in 2007, has invested nearly $1.6 billion in alternative fuels, charging stations and other clean vehicle technologies through March of this year. It’s considered an essential source of funding for California’s transition. The state estimates it will need nearly 1.2 million chargers for battery-powered cars by 2030; only about 88,000 are now installed.

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CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.