from natural gas in a reaction known as reforming.
One variant is 2H2O + CH4 -> CO2 + 4 H2.
More commonly the methane is only partially oxidized to give carbon monoxide which is hydrogenated to give other compounds.
Another, more insidious version is C (coal) + 2H2O -> 2 H2 + CO2.
Still a third and possibly even dumber version is to burn coal to generate electricity and use electrolysis.
No matter what George Bush tells you, hydrogen is NOT a form of energy. It is a medium of storing energy.
I have absolutely no faith that carbon dioxide sequestering schemes are workable. Carbon dioxide emissions according to the DOE from the United States are estimated to be in the neighborhood 8,000 million metric tons. (Note I am not talking like a member of the antinuclear religion when I use this number, and discussing 8 trillion grams or 85 trillion billion zillion milligrams of waste for "which there is no solution." I am talking about 8000 MILLION metric TONS for which there is absolutely positively no viable solution except: Dumping it your ocean, dumbing in your atmosphere, or pretending you can bury it in a giant balloon under ground in some state that you absolutely don't live anywhere near.)
http://www.eia.doe.gov/oiaf/aeo/index.htmlMoreover, this carbon dioxide will remain carbon dioxide not for one hundred years, or one thousand years or one million years, or one billion years. Not only that, but carbon dioxide is toxic. A person standing in a room filled with carbon dioxide, the waste for which there is no solution, will die within minutes. In fact a person standing in room full carbon dioxide that has been stored in a giant ballon under ground in some state that you don't live anywhere near for eight million years will kill someone within minutes.
Let's see, did I forget anything? Oh yeah. Corporations make money off of carbon dioxide production. Big giant malicious overweight MBA's in Hummers who smoke cigars and sleep with your wife's eighteen year old sister without their wives' knowledge are entrenched in the carbon dioxide business. This is why we don't have an absolutely free solar industry, because otherwise that guy wouldn't be able to buy your wife's sister diamonds and drugs that keep her from noticing that he has hair in his earlobes. Everytime the perfect solar solution (and all solar solutions are perfect) is invented a giant consortium of big giant malicious overweight MBA's in Hummers who smoke cigars and sleep with your wife's eighteen year old sister without their wives' knowledge buy up the technology and shit can it so you can't find out about it and stop buying their carbon based products that you need and love.
What else? Studies show that everyone who lives within 1000 miles of a carbon dioxide producing plant is grotesquely deformed and has extra heads and sometimes grow flippers. (Sorry, wrong form of energy there...)
Anyway, I'll bet that no one no where at any time will agree to have a 8000 million ton carbon dioxide disposal dump in their neighborhood, oh, and did I mention that the 800 million ton carbon dioxide disposal dump will probably be completely filled in a few decades?
And now for a serious word: There are ways to produce hydrogen that produce no carbon dioxide. No such systems are industrially on line right now, although the Chinese have a pilot plant for such systems under construction right now.
With the exception of the Chinese, many of us will simply plan on blowing up balloons. The party's just starting...
To reiterate what's been stated here many times, hydrogen is not particularly interesting as a fuel. It IS interesting as a synthetic intermediate used for the reduction of oxidized carbon.