The high cost of business loans for women and people of color

Summary

Marketplace Podcast Summary: "The High Cost of Business Loans for Women and People of Color" Release Date: December 21, 2024
Host: Kai Ryssdal

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Introduction

In this episode of Marketplace, host Kai Ryssdal delves into a range of pressing economic issues, spotlighting the high costs of business loans for women and people of color while also exploring broader economic trends, including Federal Reserve policies, the RV industry's performance as an economic indicator, and developments in the energy sector. Through insightful conversations with experts from reputable institutions like The New York Times, Axios, and the University of Washington, the episode provides a comprehensive analysis of current economic dynamics affecting both consumers and businesses.

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Federal Reserve's Interest Rate Decisions and Market Reactions

Guests: Gina Smilek (The New York Times), Courtney Brown (Axios)
Key Topics: Federal Reserve's recent interest rate cut, inflation concerns, market surprises.

Kai Ryssdal opens the discussion by addressing the Federal Reserve's recent decision to cut interest rates by 25 basis points—a move that, while expected, still caught many by surprise. Courtney Brown explains that Fed Chair Powell described the decision as a "close call" (01:13), highlighting internal disagreements, such as Beth Hammock from the Cleveland Fed who preferred maintaining current rates. The expectation of fewer rate cuts next year—reduced from four to two—has heightened market anxiety, as reflected in the adjusted economic projections.

Gina Smilek emphasizes the resilience of the American economy, attributing its strength to consumer spending and corporate investment, which starkly contrasts with global trends. However, she warns that factors like fiscal policy shifts, tariffs, or a global economic slowdown could threaten this stability (02:41). Both guests agree that the Federal Reserve is entering a more uncertain phase, which necessitates cautious market navigation (06:04).

Notable Quotes:

• Courtney Brown: "The decision was a close call. Ultimately, it was the right call, but it was in fact, a close call." (01:13)
• Gina Smilek: "The American economy has been strong and an outlier based on the resilience of the American consumer and corporate investment." (02:41)

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The RV Industry as an Economic Indicator

Guests: David Whiston (Morningstar), Michael Hicks (Ball State University), Elizabeth Trovall
Key Topics: Decline in RV sales, consumer confidence, impact of high interest rates.

The episode transitions to the RV industry's downturn, using Winnebago's 18% revenue decline as a case study (09:21). David Whiston explains that the post-pandemic boom in RV sales has subsided as consumers become hesitant to make expensive purchases amid economic uncertainty and high-interest rates. Michael Hicks adds that this slowdown reflects broader consumer reluctance to invest in luxury goods during volatile economic times (10:21).

Elizabeth Trovall contextualizes this trend by linking RV purchases to economic confidence, indicating that such discretionary spending is typically reduced when consumers anticipate financial instability (10:43).

Notable Quotes:

• Michael Hicks: "It's definitely boom and then some of the air coming out of the balloon in a big way." (10:21)
• Elizabeth Trovall: "An RV is something that you buy when you're feeling economically confident." (10:43)

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High Cost of Business Loans for Women and People of Color

Guests: Kimberly Adams (Marketplace), David Whiston, Andre Perry (Brookings Institution)
Key Topics: Lending disparities, higher interest rates for minority-owned businesses, economic implications.

A significant portion of the episode is dedicated to examining the systemic disparities in business lending. Kimberly Adams shares the story of Niyako Pearl Perry, who faced significant hurdles in securing funding for her restaurant, Comfort Kitchen, attributed to her race and gender (12:28). The University of Washington's study, led by Bill Bradford, reveals that Black-owned businesses face interest rates up to 3% higher than those for white-owned businesses, with Hispanic-owned businesses experiencing nearly 2.9% higher rates (13:32).

Andre Perry from the Brookings Institution underscores how these disparities not only increase the financial burden on minority entrepreneurs but also limit their capacity to invest in more capital-intensive and job-creating industries (13:51). This systemic issue results in approximately $8 billion in excess interest payments annually, stifling economic growth and perpetuating inequality.

Notable Quotes:

• Kimberly Adams: "It took three years for Niyako Pearl Perry to get funding to start her restaurant." (12:28)
• Andre Perry: "Businesses are not really trusted with money if they are Black, brown, or Asian-owned." (13:51)

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Energy Sector Developments: Coal Demand and Hydrogen Hubs

Guests: Greg Nemet (University of Wisconsin, Madison), Erico de Francesco (Airliki), Christine Scheer (Global Energy Monitor), Brett Perlman (Houston's Future)
Key Topics: Global coal demand, clean hydrogen production, energy transition challenges.

The discussion shifts to the energy sector, highlighting the paradox of rising global coal demand driven primarily by China, despite advancements in renewable energy. Greg Nemet explains that China’s rapid electrification, fueled by sectors like electric vehicles and data centers, sustains its coal consumption (18:57). Meanwhile, in the U.S., older coal plants face economic challenges against cheaper energy sources, even as some operators reconsider shutdown plans to meet increasing electricity demand from new technologies (19:45).

The conversation also covers the U.S. government's investment in clean hydrogen hubs, particularly the Gulf Coast Hydrogen Hub in Texas and Louisiana. Erico de Francesco provides an on-the-ground perspective of hydrogen production facilities aiming to reduce the carbon footprint of heavy industries through advanced technologies like carbon capture (22:01). Brett Perlman discusses the long-term vision of integrating clean hydrogen to support both the oil and gas industries and environmental goals (23:43).

Notable Quotes:

• Greg Nemet: "Coal is kind of coming along for the ride on the drive to electrification." (19:18)
• Erico de Francesco: "Cryo cap carbon capture technology could remove roughly 95% of the CO2 emitted from this hydrogen plant." (24:59)

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Market Updates

Key Topics: Stock market performance, bond prices, economic indicators.

Kai Ryssdal provides a succinct market update, noting that major indices like the Dow Industrial, NASDAQ, and S&P 500 experienced gains, while the Dow and NASDAQ faced declines over the week. Specific company performances are highlighted, such as Winnebago’s significant stock drop amid declining sales, contrasted with companies like Camping World Holdings and Carnival Corp. reporting positive results.

Bond markets saw increased prices, leading to lower yields on the 10-year treasury note, which has implications for lending rates and economic activity.

Notable Updates:

• Dow Industrial: Up 1.2% on the day, but down 2.25% for the week.
• NASDAQ: Increased by 1% on the day, down 1.8% for the week.
• S&P 500: Jumped 0.11% on the day, down 2% for the week.
• 10-Year Treasury Yield: Down to 4.53%.

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Closing Remarks

Kai Ryssdal wraps up the episode by briefly touching upon government payment structures and teasing future segments on economic policies and trends. Listeners are encouraged to subscribe to the Marketplace newsletter for further insights and updates.

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Conclusion This episode of Marketplace effectively intertwines discussions on monetary policy, consumer behavior, systemic lending disparities, and energy sector transformations to provide listeners with a nuanced understanding of the current economic landscape. By featuring expert analyses and real-world examples, the podcast elucidates how macroeconomic decisions and systemic biases can have profound impacts on different segments of society.

Relevant Links:

• Marketplace Newsletter
• How We Survive Podcast

Transcript

[Kyle Rysdal]

It is a Friday of a Fed week. We will make it all make sense. From American public Media, this is Marketplace in Los Angeles. I'm Kyle Rysdal. It is Friday today. This one is the 20th of December. Good as always, to have you along, everybody. The board of governors of the Federal Reserve System spends as a unit a whole lot of time trying to make sure nobody is surprised by what it does or what it says it is going to do with interest rates. And yet this week, somehow people seemed surprised. So there we will begin. Gina Smilek is at the New York Times. Courtney Brown is at Axios. Hey, you two.

[Gina Smilek]

Hey, guy.

[Kyle Rysdal]

Courtney, let me start with you. The Federal Reserve cut interest rates 25 basis points this week as expected, but with inflation sticky, as we all know, they said, hey, you know what? Next year it's probably just going to be two cuts, not four. As we said a couple of months ago, the markets lost their mind. People were surprised. Why?

[Courtney Brown]

I think that, you know, I should start. One of the things that I thought was interesting that Fed Chair Powell told reporters on Wednesday was that the decision was a close call. He said ultimately it was the right call, but it was in fact, a close call. You had Beth Hammock, who's at the Cleveland Fed and relatively new to the Fed, she dissented. She preferred to keep rates on hold. But I do think there was this idea that 2025 was going to be the year of rate cuts, more rate cuts. And as you say, they wrote down four rate cuts in September and we got the new summary of economic projections and that was chopped in half. And I think there's fear that, you know, based on the inflation data being more sticky. Does the Fed raise rates at all? I think that is something that sparks some concern in financial markets this week.

[Kyle Rysdal]

Does the Fed cut rates at all, you mean to say?

[Courtney Brown]

Exactly.

[Kyle Rysdal]

Right.

[David Whiston]

Yes.

[Courtney Brown]

Does the right. Yes.

[Kyle Rysdal]

Right. If it raises rates, that's a whole different ball game. And we'll have a special and bring you both back. Gina, let me ask you this. You and your colleague Anna Swanson had a piece in the Times this week saying this economy is strong. You quote Chair Powell saying, I think it's remarkable, but as you point out, it doesn't necessarily have to stay that way given what is happening abroad in this country and in this economy with the politics thereof.

[Gina Smilek]

Yeah, absolutely. I think it's really interesting just how strong the American economy has been and how much of an outlier that is. And it's really all sort of based on the sort of resilience of the American consumer and the fact that American companies are investing when other companies really around the world, we're just not seeing that happening in the same way. And so I think those twin pillars of strength could really come under assault next year. If you see a situation where the fiscal policy situation changes a lot, where you see big tariffs or you see something else that disrupts the consumer. And I think B, if you see a real slowdown around the world that sort of spooks the business sector, I think that that could also be something that sort of calls this into question. And so I think sort of at this moment where everyone is watching with bated breath and saying, you know, what is the incoming Trump administration going to do and is that going to change up this trajectory?

[Kyle Rysdal]

Gina, do you think and look, I don't not to cast aspersions on what the Fed does because, you know, running this economy is really difficult. But do you think, Gina, to some degree they got lucky with the way things turned out?

[Gina Smilek]

I think it's probably some combination of luck and judgment, as monetary policy and economic policy kind of always is. It's certainly the case that inflation came down quite a bit because of good luck, just the way that it went up because of bad luck. A lot of this was about the pandemic. And when the pandemic reversed and sort of supply chains healed, we saw a lot of inflation coming down. Clearly, some of it is also that they tackled the problem pretty head on. They were a little slow to start, but they eventually got their arms around it and that they kept with it and that helped to bring inflation down. But I think we're now at the tricky part. This is the hard part. This is the part where they could really mess up. And this is the part where it gets hard to decide what to do next. And so I think it's going to be really interesting headed heading into 2025.

[Kyle Rysdal]

Courtney, I think that's so interesting that Gina points out that this for a lot of people is the hard part, because I it was like a year ago, maybe 18 months ago, the Raphael Bostic said on this program and elsewhere, this is the really hard part. And it was like 18 months ago.

[Courtney Brown]

Right, Right. And I feel like last year was when talk of or earlier this year was when talk of like the last mile is going to be the hardest. That rhetoric started and there were a lot of people who were why would the last mile be the hardest? And here we are. And it kind of looks like the last mile might be might be the hardest. And so it's like, on the one hand, you have this inflation stickier than I think all Fed officials wanted at this point. And on the other hand, you have this great uncertainty about what the incoming administration is going to do. And it's not like you just have to worry about tariffs. You have to think about how tariffs interact with what he might possibly do on immigration, with mass deportations, as he's promised, and tax policy and how all of these things blend together and what comes out as far as how the economy will, will perform. So just a lot of unknowns. It's uncomfortable.

[Kyle Rysdal]

Well, you know, so, Gina, on that whole unknowns thing, Powell said on Wednesday, we're in a new phase. Right. Everything from here is a new phase. And John Williams, I think today or yesterday, the head of the New York Fed said there's lots of uncertainty out there. We are still, as Powell said, which was a great turn of phrase. Right. It's like walking into a dark room or driving in the fog.

[Gina Smilek]

Yeah. And so you move carefully. I think this is part of the reason why markets were so freaked out this week, honestly. Is this new phase language? I think we knew that the Fed was planning on sort of shifting the way it was thinking about the world. They have been in this situation where they were recalibrating. They knew they wanted to get rates down a bit. They had been pretty clear that they were going to do it relatively quickly. That was the world we were in. We're now in this new place where they're going to kind of rely on the data and decide meeting by meeting in a way that they haven't really been up to this point. But I think markets really looked at that and said, oh, you're only going to cut rates if inflation comes down, AKA you may not cut rates at all, or you may cut rates a lot less than we were thinking. And so I think this new phase is a much more uncertain one if you're an investor.

[Kyle Rysdal]

Right. Courtney, just real quick on inflation. Personal consumption expenditures came out today. As regular listeners know, the Fed's preferred gauge of inflation, 2.2, 2.8% annually, which is in line with prior and month to month. It was pretty good. So bumpy, I guess, but bumpy on a good. In a good way.

[Courtney Brown]

Yeah. Well, I mean, bumpy. This was a, I think, better report if you look at some of the underlying details of the top line. Less so. The top line details. Less so. But I think it's, it's. Is this bumpy? Is it in fact bumpy or is there a real kind of stall out in progress. I mean we'll have to see what the, what the data ultimately says. But I think, you know, that's kind of the reason why we don't really know what's going to happen next year. We don't know if recent months data are bumps or if in fact there is going to be kind of, you know, lack of, lack of progress going on.

[Kyle Rysdal]

Lack of progress. Not what you want to hear. Courtney Brown and Axios Junius Malik at the New York Times, thanks. You too.

[Gina Smilek]

Thanks guy.

[Courtney Brown]

Thanks Kai.

[Kyle Rysdal]

Have a nice weekend. Wall street to end the 51st work week of the year by the dip, I believe is the phrase you are looking for here. We will have the details when we do the number we are in what you might call if you had a mind to the doldrums of corporate earnings season. All the biggies have reported already. The banks and the retailers and such and markets have reacted as markets will. But there are still companies of note letting us know how they have been doing. Today it was Winnebago, maker of motorhomes, travel trailers, pleasure boats too. And let's just say the open road has been a bit bumpy in the start of their fiscal year. The company reported this morning quarterly revenue down 18% over a year ago, quote driven primarily by lower unit volume and a reduction in average selling price per unit. That is investors speak for selling fewer RVs at lower prices because another quote here of the challenging macroeconomic environment. Marketplace's Stephanie Hughes is on the RV as economic indicator beat for us today.

[David Whiston]

In 2021, the RV business like the economy as a whole got hot. Consumers had cash to burn and the open road before them. So they bought RVs because people wanted.

[Michael Hicks]

To get away from everybody.

[David Whiston]

David Whiston follows the RV industry for Morningstar. At the end of 2021, Winnebago's quarterly revenue hit record highs, but that didn't last. And across the industry, sales fell and fell drastically in the last couple of years.

[Michael Hicks]

That boom is has ended and we're waiting for the next cycle.

[David Whiston]

Whiston says many consumers are still holding tight to the steering wheels of the perfectly fine RVs they already have, which he says can cost from tens of thousands to more than a million dollars. He says persistently high interest rates aren't encouraging. Many would be buyers to let go of their present vehicles.

[Michael Hicks]

We need more relief on that, I think to encourage people to buy what could be a second or third home for them.

[David Whiston]

Whiston says people are still feeling jittery about the economy, which makes them pause before buying a new Winnebago or any rv.

[Michael Hicks]

It's I don't want to say boom, bust, but it's definitely boom and then some of the air coming out of the balloon in a big way.

[David Whiston]

The slowdown in RV sales shows that consumers are still reluctant to make major purchases because they don't know what's going to happen with the economy and how much disposable income they'll have in the future. Michael Hicks is director of the center for Business and Economic Research at Ball State University.

[Elizabeth Trovall]

The way economists think about this, these are luxury goods. You know, an RV is something that you buy when you're feeling economically confident. You have a little bit of extra money in your pocket. If you can't afford now, you might hold off for a year or two.

[David Whiston]

Hicks points out that when interest rates started to rise, this had the effect of depressing consumption and thereby reducing demand, which slowed inflation.

[Elizabeth Trovall]

Increased interest rates over the past two years are designed to do precisely this, and we see them in action.

[David Whiston]

The Fed is now cutting rates slowly, but RVs are still a big purchase, and Hicks says instead of buying one now, people might wait until interest rates drop again next year, making one more affordable. I'm Stephanie Hughes, Marketplace.

[Kyle Rysdal]

This has been on this program a big week for interest rates. The Fed decision on Wednesday. Of course, we did a couple of pieces on the bond market, too. All of that matters because what the Fed does and how the bond market reacts is often what lenders use to help decide how much they are going to charge individuals and businesses to borrow. But those lenders have plenty of leeway in setting their rates. And despite laws banning discrimination in lending, disparities do exist, especially when it comes to race and gender. Some new research out from the University of Washington found that businesses owned by women and people of color are charged markedly higher rates for their loans, which then winds up costing them about $8 billion a year in excess interest payments. Marketplace's Kimberly Adams has that one.

[Kimberly Adams]

It took three years for Niyako Pearl Perry to get funding to start the restaurant she co owns, Comfort Kitchen in Dorchester, Massachusetts. She had to do some crowdfunding first, before regular lenders would even give her a shot. Even so, I know that our lending.

[David Whiston]

Terms are probably not the best.

[Kimberly Adams]

For one thing, she had to put up her house as collateral. And Perry, who also works with the center for Women and Business at Bentley University, believes a lot of the struggle was because of her race and gender.

[David Whiston]

It was as if I had to.

[Kyle Rysdal]

Justify our decades of experience, our background, where I know that there are other restaurants that that's not the case, frankly.

[David Whiston]

Because of their background.

[Kimberly Adams]

The University of Washington study backs up her experience. Bill Bradford is emeritus dean of the Foster School of Business and led the.

[Kyle Rysdal]

Study for black, Hispanic, Asian and well known businesses. They paid higher interest rates after you adjust for attributes that a lender would say affected the risk of the particular firm.

[Kimberly Adams]

Black owned businesses paid upwards of 3% more in interest than white business owners. Hispanic owned 2.9%. Andre Perry, a senior fellow at the Brookings Institution, also noted how the study found lenders were more likely to require co signers for loans to minority owned.

[Michael Hicks]

Businesses, which suggests that black, brown and Asian owned entrepreneurs aren't really trusted with money. White owned firms committed the least amount of collateral relative to the loan amount, so they're more likely to be trusted with money.

[Kimberly Adams]

These disparities can also shape what kind of business someone decides to start. The study authors say more expensive loans push people into less capital intensive industries, industries that could be creating more jobs and more economic growth for everyone. In Washington, I'm Kimberly Adams from Marketplace.

[Elizabeth Trovall]

Coming up, there are different cycles of pressurizing and depressurization.

[Kyle Rysdal]

Let's call it the hydrogen business cycle, shall we? First though, let's do the numbers. The Dow Industrial is up 498 today, 1.2%. 42,840. The NASDAQ increased 199 points. That is 1%. 19572s and P 500 jumped 63 points. One and one tenth of 1%. 5930 there for the week. The Dow subtracted two and a quarter percent. The NASDAQ slipped 1.8%. The S&P 500 dipped 2%. Winnebago drove down three and three quarters percent the day. Camping World holdings elevated 5%. Thor Industries, which is one of the world's largest RV manufacturers, in case you didn't know, picked up 1%. Carnival Corp. Corporation cruised up. Cruised up. I like that. 6.4%. Today after posting strong quarterly results, annual revenue for the cruise provider hit an all time high of $25 billion. That is up 15% from last year. Bond prices went up. That means the yield goes down. The Yield on the 10 year treasury note down 4.53%. You're listening to Marketplace. This economy can be complicated. That's why the Marketplace newsletter makes understanding it all simple. Get smart takes on the week's biggest stories delivered to your inbox every Friday. No jargon no hype, just economics you can use. Sign up [e-mail] subscribe hi, I'm Kai Rysdal, the host of How We Survive. This season is all about the institution that shaped me the US Military, and how it could shape the future of climate tech. You've probably heard that 2024 was the hottest year on record, that wildfires devastated Los Angeles and that the US withdrew from the Paris Agreement again. And while all that might feel pretty terrible, the climate crisis is not an inevitable reality. From simulated climate emergencies to micro grids and sustainable aviation fuel, we look at how the military is investing part of its 850 billion dollar budget in a greener, more resilient future. Listen to How We Survive wherever you get your podcasts. This is Marketplace. I'm Kai Rysdal. Time now for another in our semi regular series, Market Forces Are Going to Do what Market Forces are Going to Do Global demand for coal grew about 1% this year to a new all time high. That's according to some new analysis from the International Energy Agency. The IEA also figures global demand for that most dirty of fossil fuels will plateau by 2027, which is good, except that plateau has been predicted before, only to have demand continue to grow even as solar and wind and other renewables become larger parts of our energy supply. But demand for electricity is growing too, so coal is sticking around as marketplaces, Henry Epp reports.

[Michael Hicks]

To understand why coal continues to be a major energy source, we have to look across the Pacific Ocean. The biggest story is China, because China.

[Greg Nemet]

Consumes more coal than the rest of the world combined.

[Michael Hicks]

Daniel Cohan is a professor at Rice University. To power their industrializing economies, China, along with India, Indonesia, and a few other nations, keep growing their coal use, while the rest of the world has been moving in the opposite direction. Coal use in the US peaked in.

[Greg Nemet]

2007 and has fallen by more than half since then.

[Michael Hicks]

The UK has closed its last coal plant. Germany and other countries are planning to close their remaining coal plants. But in China especially, coal is sticking around largely because demand for electricity is growing so fast, says Greg Nemet, a professor at the University of Wisconsin, Madison.

[Greg Nemet]

And it's been driven by very rapid uptake of electric vehicles in China. In addition, rapid uptake of using electricity for industrial heat in China and also for data centers.

[Michael Hicks]

China is also adding solar, wind and nuclear power to its energy mix at a rapid rate. But as its economy electrifies, Nemet says.

[Greg Nemet]

Coal is kind of coming along for the ride on the drive to electrification, even though renewables are the ones that are really driving it.

[Michael Hicks]

Some of these trends are happening in the US too. Electricity demand is also growing here, in part due to the energy needs of new data centers that power artificial intelligence and other cloud computing. That has some coal plant operators reconsidering their plans for shutting down, says Christine Scheer, a research analyst at Global Energy Monitor.

[Kyle Rysdal]

So existing plants saying, well, maybe we.

[David Whiston]

Won'T retire next year, you know, maybe this we can sell some of our power to this data center and generate.

[Gina Smilek]

Some revenues that way.

[Michael Hicks]

What's tricky about that, Scheer says, is a lot of American coal plants are 40 to 50 years old.

[Kyle Rysdal]

There's a lot of maintenance costs in.

[David Whiston]

Trying to keep them online.

[Michael Hicks]

So depending on how quickly power demand grows, she says, utilities could opt for other cheaper sources, including renewables and natural gas. I'm Henriett for Marketplace.

[Kyle Rysdal]

Continuing with energy here. A word now about element number one on the periodic table hydrogen, which is present naturally in the atmosphere to the tune of not quite six tenths of a part per million. In other words, not a whole bunch. And that presents something of an industrial problem because hydrogen is essential for a number of things, including petroleum refining. That's in part why the federal government is investing $7 billion in regional clean hydrogen hubs around the country to get more of it. The biggest such hub is set to be on the Gulf Coast, Texas and Louisiana, home obviously to a whole lot of oil and gas processing. It launched a month ago, aimed at cutting the carbon footprint of some of this economy's most carbon intensive industries. Marketplace's Elizabeth Trovall got a look inside the existing hydrogen ecosystem.

[Erico de Francesco]

I'm at a hydrogen production facility in La Porte, Texas. It kind of looks like a giant outdoor industrial jungle gym because of all the metal tubes and cylinders. What you're hearing is new hydrogen molecules made from steamed natural gas that are being purified by pressure.

[Elizabeth Trovall]

There are different cycles of pressurizing and depressurization.

[Erico de Francesco]

That's Erico de Francesco with Airliki, a hydrogen hub partner. This is one of their plants.

[Elizabeth Trovall]

These are the valves for the bed that opening and closing, opening and closing.

[Erico de Francesco]

Once it's ready, the hydrogen will make its way to the customers concentrated along the Gulf coast through the company's pipeline. It's part of a hydrogen ecosystem that's been developing for decades.

[Elizabeth Trovall]

I mean, there is natural gas, it is abundant, it is price competitive and so on. Here you have a large number of industrial plants in chemical, in refining, in material sector, and so on.

[Erico de Francesco]

In fact, it's petroleum refiners who are the big consumers of hydrogen? Says Brian Murphy with S and P Global commodity insights.

[Greg Nemet]

About 70% goes into refining and chemicals, and it's used to take impurities out of crude oil, so sulfur or nitrogen out of that crude oil so it doesn't end up in the gasoline you burn in your car. And then we use about 30% of it to make ammonia, which is the main component of chemical fertilizers.

[Erico de Francesco]

That's right. Hydrogen is essential to feed and fuel Americans.

[Greg Nemet]

It's a sort of this hidden feedstock. It's behind some of the food you eat, it's behind some of the gas that you put in your car.

[Erico de Francesco]

The problem is, while hydrogen has helped clean the sulfur from our fuel, the way we typically make hydrogen today, using super hot steam to transform natural gas emits planet warming greenhouse gases.

[Greg Nemet]

Usually about 10 kg of CO2 produced for every kilogram of hydrogen.

[Erico de Francesco]

That's a lot. Which is why the idea behind the new hydrogen hubs expanding the use of new clean hydrogen technologies is so important. Brett Perlman is with the Economic Development Organization center for Houston's Future.

[Greg Nemet]

So if we basically substitute these cleaner forms of hydrogen for the existing hydrogen, that and that's a lot of CO2, we can both continue to have an oil and gas industry, but have it reduce the carbon intensity.

[Erico de Francesco]

Just from the Department of Energy investment, the Gulf Coast Hydrogen Hub will build four clean hydrogen production facilities. Ted Barnes is the hub's program manager.

[Kyle Rysdal]

There's one production project that will use natural gas with carbon capture and sequestration to produce clean hydrogen. And there'll be three that use electrolysis, using water with renewable electricity to create hydrogen.

[Erico de Francesco]

With these projects and new tax incentives, the idea is to bring down the cost of clean hydrogen and boost supply and demand for this more expensive, environmentally friendly product. Back at the early keyed hydrogen production plant in La Porte, the promise of clean hydrogen is right there. You can see it because in the middle of the cylinders and tubes and machinery, there's this giant open area. And one day, says Erico de Francesco.

[Elizabeth Trovall]

There'S not going to be an empty space there because there will be a cryo cap.

[Erico de Francesco]

Cryo cap carbon capture technology that could remove roughly 95% of the CO2 emitted from this hydrogen plant that's currently being released into the air. Timing is still tbd, but from the.

[Elizabeth Trovall]

Inception of the vision that we brought with this plant, it was to have a plant that was capture ready.

[Erico de Francesco]

Clean hydrogen at this plant has been years in the making. Still, the transition across the industry is just beginning. In Houston. I'm Elizabeth Troval for Marketplace.

[Kyle Rysdal]

This final note on the way out today, shutdown or no shutdown, we know not at the time this program goes to air, but I direct your attention now to 31 United States Code, Section 1341, paragraph C2, which says in relevant part, each employee of the United States government furloughed as a result of a covered lapse in appropriations, shall be paid for the period of the lapse in appropriations at the earliest possible date after the lapse in appropriations end. So people are going to get paid eventually. You know who does get paid on time? Yeah, that's right. Congress. Just the members, not their staffs. It's in the Constitution. Our theme music was composed by BJ Lederman. Marketplace's executive producer is Nancy Pargali. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. And I'm Kai Rizdol. Have yourselves a great weekend, everybody. We will see you right back here on Monday. All right. This is 8pM.