Treasury Department releases proposed rules for hydrogen production tax credits
Fri, December 22, 2023
Treasury Secretary Janet Yellen said Friday that hydrogen production tax credits in the Inflation Reduction Act are helping to scale up low-carbon fuels production. Treasury released proposed new rules Friday on the tax credits.
Senior Advisor to the President for Clean Energy Innovation John Podesta said Friday Biden administration hydrogen production tax credits will build a clean hydrogen industry in the United States. He said that's a critical step in reducing emissions.
Fri, December 22, 2023
Treasury Secretary Janet Yellen said Friday that hydrogen production tax credits in the Inflation Reduction Act are helping to scale up low-carbon fuels production. Treasury released proposed new rules Friday on the tax credits.
Photo by John Angelillo/UPI
Dec. 22 (UPI) -- The Treasury Department Friday released proposed rules spelling out how hydrogen production tax credits will work under the Inflation Reduction Act's Clean Hydrogen Production Credit.
The agency outlined three criteria for taxpayer use of energy attribute certificates that will be used to assess and document qualification for hydrogen production credits.
"The Inflation Reduction Act's hydrogen tax credit will help build a clean hydrogen industry that will be critical in reducing emissions from harder-to-decarbonize sectors like heavy industry and heavy transportation," Senior Advisor to the President John Podesta said.
First, it established that recipients must use new clean power, clarifying that clean power generators that began commercial operations within three years of a hydrogen facility placed into service are considered new clean power sources to use the EACs. Newly added capacity or "uprates" can also qualify as new clean power.
The second requirement for the EACs is deliverable clean power. That's power that must be sourced from the same region as the hydrogen producer. The new proposed rules will seek comment on how to consider transmission of clean power between regions.
Dec. 22 (UPI) -- The Treasury Department Friday released proposed rules spelling out how hydrogen production tax credits will work under the Inflation Reduction Act's Clean Hydrogen Production Credit.
The agency outlined three criteria for taxpayer use of energy attribute certificates that will be used to assess and document qualification for hydrogen production credits.
"The Inflation Reduction Act's hydrogen tax credit will help build a clean hydrogen industry that will be critical in reducing emissions from harder-to-decarbonize sectors like heavy industry and heavy transportation," Senior Advisor to the President John Podesta said.
First, it established that recipients must use new clean power, clarifying that clean power generators that began commercial operations within three years of a hydrogen facility placed into service are considered new clean power sources to use the EACs. Newly added capacity or "uprates" can also qualify as new clean power.
The second requirement for the EACs is deliverable clean power. That's power that must be sourced from the same region as the hydrogen producer. The new proposed rules will seek comment on how to consider transmission of clean power between regions.
Senior Advisor to the President for Clean Energy Innovation John Podesta said Friday Biden administration hydrogen production tax credits will build a clean hydrogen industry in the United States. He said that's a critical step in reducing emissions.
Photo by Chris Kleponis/UPI
The third requirement is new clean deliverable power annually generated.
For this, Treasury said that the EACs will "generally need to be matched to production on an hourly basis-meaning that the claimed generation must occur within the same hour that the electrolyzer claiming the credit is operating."
The new proposed rules include allowing annual matching until 2028, when hourly tracking systems are expected to be more widely available.
The goal of the credits is to incentivize clean power production and carbon reduction.
"Incentives in the Inflation Reduction Act are helping to scale production of low-carbon fuels like hydrogen and cut emissions from heavy industry, a difficult-to-transition sector of our economy," said U.S. Treasury Secretary Janet Yellen.
The IRA's Clean Hydrogen Production Credit for facilities meeting prevailing wage and other requirements will range from 60 cents per kilogram of hydrogen produced to $3 per kilogram.
That credit will be available for 10 years beginning when a production facility is put into service for projects that begin construction by 2033. That means these credits could be available for some hydrogen facilities well into the 2040s.
The third requirement is new clean deliverable power annually generated.
For this, Treasury said that the EACs will "generally need to be matched to production on an hourly basis-meaning that the claimed generation must occur within the same hour that the electrolyzer claiming the credit is operating."
The new proposed rules include allowing annual matching until 2028, when hourly tracking systems are expected to be more widely available.
The goal of the credits is to incentivize clean power production and carbon reduction.
"Incentives in the Inflation Reduction Act are helping to scale production of low-carbon fuels like hydrogen and cut emissions from heavy industry, a difficult-to-transition sector of our economy," said U.S. Treasury Secretary Janet Yellen.
The IRA's Clean Hydrogen Production Credit for facilities meeting prevailing wage and other requirements will range from 60 cents per kilogram of hydrogen produced to $3 per kilogram.
That credit will be available for 10 years beginning when a production facility is put into service for projects that begin construction by 2033. That means these credits could be available for some hydrogen facilities well into the 2040s.
Updated Fri, December 22, 2023
FILE PHOTO: The U.S Treasury building in Washington.
By Timothy Gardner
WASHINGTON (Reuters) -The U.S. proposed rules on Friday for how energy companies can access billions of dollars in tax credits for producing low-carbon hydrogen using new clean energy sources but left thorny issues, such as how nuclear power could benefit, uncertain.
The credit will be based on the life-cycle greenhouse gas emissions from the power source used in hydrogen production, and ranges from 60 cents to $3 per kilogram, the Treasury Department said in the 128-page proposal.
"The 45V clean energy hydrogen production tax credit is an important part of our strategy to unlock private investment across sectors to build a clean energy economy and tackle the climate crisis," John Podesta, a White House climate adviser, told reporters in a call.
To get the credit, hydrogen producers would have to prove they have used clean electricity built within three years that a hydrogen plant went into service. The Biden administration is, however, seeking feedback over the next two months from the nuclear industry and other low-carbon power generators on how their existing plants could benefit.
The uncertainty has concerned nuclear power producers looking to produce hydrogen using their virtually emissions-free electricity. Existing nuclear power is featured in three of the seven hydrogen hubs the Energy Department is supporting with billions of dollars in public funding. But building new nuclear power is costly and fraught with delays.
"For an administration that wants to reduce emissions and fight climate change, it makes no sense to kneecap the hydrogen market before it can even begin," said Senator Joe Manchin, a Democrat who opposes the restrictions.
Business groups including the Chamber of Commerce have also slammed new clean energy requirements, saying it will slow down the build-out of a hydrogen economy.
Renewable energy backers and many environmental groups, however, say the strict limits are necessary to ensure that hydrogen production - which is energy-intensive - doesn't inadvertently lead to an increase in use of carbon-emitting fossil fuels overall.
“Today’s proposed rules are a win for the climate, U.S. consumers, and the budding U.S. hydrogen industry,” said Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defense Council.
The Biden administration believes that low-carbon hydrogen can fight climate change by fueling heavy industry such as aluminum, cement and steel and long-haul transportation.
The credits were outlined last year in President Joe Biden's signature climate law, the Inflation Reduction Act, and are part of the administration's plan to put the country on a path to producing 50 million metric tons of the fuel by 2050.
Streams of clean hydrogen can be produced with electrolyzers powered by wind and solar power, nuclear, or natural gas with carbon capture, that split water into hydrogen and oxygen.
Today the vast majority of hydrogen is produced with fossil fuels with unabated emissions, at a fraction of the cost of clean hydrogen.
The proposal also says the clean power must also have been sourced from the same region as the hydrogen producer and have been generated about the same time that the hydrogen was produced.
'SURRENDER LEADERSHIP' ON NUCLEAR
Operators of nuclear power say the credit is necessary to produce hydrogen and help keep their plants open.
A senior U.S. official said there are potential pathways for nuclear power to get the credit, including upgrading or relicensing plants, or showing how producing hydrogen would help them avoid shutting plants.
The proposal also contains a potential carve-out for nuclear that allows a percentage of a company's power generation to go into clean hydrogen, but the administration needs more information from the industry, a senior official told reporters on the call.
The proposed rule will undergo 60 days of comment and public hearings before being finalized.
Constellation, the largest U.S. nuclear power operator, which hopes to build a $900 million hydrogen production facility at an Illinois plant, slammed the proposal.
"If finalized, America will surrender hydrogen and deep decarbonization leadership to China and Europe, both of which have policies that smartly utilize their existing nuclear plants to make hydrogen and speed decarbonization," Constellation said in a statement.
The proposal also suggests ways that natural gas emitted from landfills, called renewable natural gas, and gas emitted from oil drilling could be captured and used for hydrogen production.
(Reporting by Timothy Gardner; Editing by Christopher Cushing and Jonathan Oatis)
Treasury proposes strict climate rules for lucrative hydrogen energy tax credit
Rachel Frazin
Fri, December 22, 2023
Producers of hydrogen energy would have to comply with strict climate rules to qualify for a lucrative tax credit under new proposed guidelines from the Treasury Department.
The Biden administration and climate advocates say these guidelines would ensure the nascent power source develops in a sustainable way rather than becoming a significant contributor to global warming.
But many industry players say the rules would stifle hydrogen’s growth — with negative implications for companies and the planet in the long run.
The stakes are high. Hydrogen power is seen as a key tool to transition industries, such as aviation, steel and cement — whose emissions are particularly difficult to eliminate — to a cleaner power source.
The tax credits are key for making hydrogen from low- or no-emitting sources economically viable.
Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, said without access to the credit, hydrogen produced from renewable sources is “not market feasible.”
Hydrogen energy can be made by either using electricity to separate the hydrogen out of water molecules in an electrolyzer or through a reaction between methane and steam.
Later use of the hydrogen itself does not create any emissions, but the process of making it with steam or generating the electricity to power the electrolyzer can produce climate-warming emissions.
The Inflation Reduction Act (IRA), the Democrats’ 2022 climate, tax and health care bill, provided significant tax credits for hydrogen energy whose production meets certain emissions thresholds.
The proposed guidance released Friday sets out rules for what hydrogen can qualify for a clean hydrogen tax credit provided by that law.
The proposal says that to get the tax credit, an electrolyzer would need to be fueled by new power sources as opposed to existing electricity that’s already on the grid.
It would also be required to get power that’s generated in the same geographic region where the electrolyzer exists.
For the first few years of the guidance, it would allow the new renewable energy sources to generate power during the same year that it is used by the electrolyzer. Starting in 2028, however, the electricity would have to be produced within the same hour as it is used by the electrolyzer.
Administration officials told reporters that without strict stipulations, renewable-based hydrogen energy’s total emissions footprint may be greater than that of fossil-based hydrogen that’s already in use.
That’s because without strict rules, electrolyzers would be able to take renewable power from the electric grid that is ultimately replaced with fossil fuels to meet the rest of the power needs.
“Clean hydrogen holds the potential to reduce emissions in some of the most difficult to decarbonize sectors of our economy. But producing it today typically entails significant climate pollution,” Deputy Treasury Secretary Wally Adeyemo told reporters.
“That’s why the … credit is aimed at building a clean hydrogen industry in the U.S., and the proposed rules we are releasing today are aimed at achieving that goal.”
Environmental advocates have been pushing for strict guidelines — saying they are necessary to make sure hydrogen actually delivers climate benefits. They largely cheered the Biden administration’s proposal.
“These are flexible rules, they’re pragmatic, they’re straightforward to implement,” said Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defense Council.
She added the White House is “absolutely right” in its assessment that the strict rules are necessary to meet emissions limits set forward in the Democrats’ bill.
However, many major industry players have balked at the idea of stringent rules, arguing more flexibility is needed to get the hydrogen industry off the ground.
“It really represents a setback for the growth of hydrogen in the United States,” said Wolak, with the Fuel Cell and Hydrogen Energy Association. “It ultimately puts constraints on the intent of the IRA to broadly accelerate hydrogen.”
Marty Durbin, senior vice president for policy at the Chamber of Commerce, said it also takes away an opportunity from the U.S. to be a leader on hydrogen after the European Union put similar rules in place to those proposed by the Biden administration.
“We lose … the U.S.’s ability to be the global leaders in this technology,” he said.
Durbin, whose group represents business interests broadly, said most of its members are unified on the issue.
But a coalition of other industry players has called for strict rules, arguing that weaker rules could hamper a buildout of hydrogen.
“Weaker rules would result in highly subsidized hydrogen projects that drive large greenhouse gas emissions increases and electricity price spikes that would engender public backlash and stymie our industry’s growth,” they wrote this week
Fri, December 22, 2023
Producers of hydrogen energy would have to comply with strict climate rules to qualify for a lucrative tax credit under new proposed guidelines from the Treasury Department.
The Biden administration and climate advocates say these guidelines would ensure the nascent power source develops in a sustainable way rather than becoming a significant contributor to global warming.
But many industry players say the rules would stifle hydrogen’s growth — with negative implications for companies and the planet in the long run.
The stakes are high. Hydrogen power is seen as a key tool to transition industries, such as aviation, steel and cement — whose emissions are particularly difficult to eliminate — to a cleaner power source.
The tax credits are key for making hydrogen from low- or no-emitting sources economically viable.
Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, said without access to the credit, hydrogen produced from renewable sources is “not market feasible.”
Hydrogen energy can be made by either using electricity to separate the hydrogen out of water molecules in an electrolyzer or through a reaction between methane and steam.
Later use of the hydrogen itself does not create any emissions, but the process of making it with steam or generating the electricity to power the electrolyzer can produce climate-warming emissions.
The Inflation Reduction Act (IRA), the Democrats’ 2022 climate, tax and health care bill, provided significant tax credits for hydrogen energy whose production meets certain emissions thresholds.
The proposed guidance released Friday sets out rules for what hydrogen can qualify for a clean hydrogen tax credit provided by that law.
The proposal says that to get the tax credit, an electrolyzer would need to be fueled by new power sources as opposed to existing electricity that’s already on the grid.
It would also be required to get power that’s generated in the same geographic region where the electrolyzer exists.
For the first few years of the guidance, it would allow the new renewable energy sources to generate power during the same year that it is used by the electrolyzer. Starting in 2028, however, the electricity would have to be produced within the same hour as it is used by the electrolyzer.
Administration officials told reporters that without strict stipulations, renewable-based hydrogen energy’s total emissions footprint may be greater than that of fossil-based hydrogen that’s already in use.
That’s because without strict rules, electrolyzers would be able to take renewable power from the electric grid that is ultimately replaced with fossil fuels to meet the rest of the power needs.
“Clean hydrogen holds the potential to reduce emissions in some of the most difficult to decarbonize sectors of our economy. But producing it today typically entails significant climate pollution,” Deputy Treasury Secretary Wally Adeyemo told reporters.
“That’s why the … credit is aimed at building a clean hydrogen industry in the U.S., and the proposed rules we are releasing today are aimed at achieving that goal.”
Environmental advocates have been pushing for strict guidelines — saying they are necessary to make sure hydrogen actually delivers climate benefits. They largely cheered the Biden administration’s proposal.
“These are flexible rules, they’re pragmatic, they’re straightforward to implement,” said Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defense Council.
She added the White House is “absolutely right” in its assessment that the strict rules are necessary to meet emissions limits set forward in the Democrats’ bill.
However, many major industry players have balked at the idea of stringent rules, arguing more flexibility is needed to get the hydrogen industry off the ground.
“It really represents a setback for the growth of hydrogen in the United States,” said Wolak, with the Fuel Cell and Hydrogen Energy Association. “It ultimately puts constraints on the intent of the IRA to broadly accelerate hydrogen.”
Marty Durbin, senior vice president for policy at the Chamber of Commerce, said it also takes away an opportunity from the U.S. to be a leader on hydrogen after the European Union put similar rules in place to those proposed by the Biden administration.
“We lose … the U.S.’s ability to be the global leaders in this technology,” he said.
Durbin, whose group represents business interests broadly, said most of its members are unified on the issue.
But a coalition of other industry players has called for strict rules, arguing that weaker rules could hamper a buildout of hydrogen.
“Weaker rules would result in highly subsidized hydrogen projects that drive large greenhouse gas emissions increases and electricity price spikes that would engender public backlash and stymie our industry’s growth,” they wrote this week
Hydrogen Subsidy Worth Billions Includes Strict Environmental Safeguards
Ari Natter
Fri, December 22, 2023
(Bloomberg) -- Billions of dollars in hydrogen-industry subsidies from President Joe Biden’s signature climate law will come with stringent environmental safeguards, raising concerns that strict rules will stifle production of the nascent climate-friendly fuel.
Under the proposed rules laid out Friday, the new clean-hydrogen tax credit won’t benefit existing nuclear power plants, which is a blow to reactor owners such as Constellation Energy Corp. that lobbied for inclusion. Administration officials, however, said that could change when the guidelines are finalized.
The hydrogen credit, which provides as much as $3-per-kilogram of production, is meant to spur a domestic industry for the clean-burning fuel, which is seen as a critical for decarbonizing steel, cement and heavy transportation. But the guidance, which is still in draft form and subject to revisions following a 60-day public comment period, has been the subject of intense lobbying in Washington over what kinds of projects will qualify.
Biden administration officials said they opted to reserve the credit for hydrogen produced using renewable power brought online within the last three years and generated at the same time and on the same power grids as the gas itself.
The Treasury Department’s proposal “will help build the clean hydrogen industry while including important environmental safeguards,” said John Podesta, Biden’s senior adviser for clean energy.
Senator Joe Manchin, a West Virginia Democrat who has opposed attaching strict environmental rules to the tax credits, blasted the rules, saying they’d hobble the hydrogen industry before it ever gets up and running.
“Make no mistake, obstructing hydrogen development in our country is the short-sighted goal of the far-left advocacy groups who lobbied the Administration for these restrictions because they oppose all energy sources other than solar and wind,” Manchin said in a statement. “For an Administration that wants to reduce emissions and fight climate change, it makes no sense to kneecap the hydrogen market before it can even begin.”
Shares of FuelCell Energy Inc. initially fell when the rules were released, then rose as much as 3.2%. Plug Power Inc. dropped as much as 4%. Constellation Energy fell 3.6%.
The Treasury Department proposal includes a requirement starting in 2028 that hydrogen can only be produced within the same hours as new clean power is generated. It has drawn opposition from the American Clean Power Association, which counts hydrogen- project developers NextEra Energy Inc. and AES Corp. as members. The so called hourly matching requirement could create a price premium of 20% to 150%, making green hydrogen uneconomic for most applications, according to a survey conducted by the Washington-based trade group.
The draft rules “will fall woefully short in achieving the Administration’s decarbonization objectives” and “are counter Congress’ intent,” said Andy Marsh, chief executive officer of hydrogen company Plug Power.
Other groups that slammed the administrations guidance ranged from the Fuel Cell & Hydrogen Energy Association to the U.S. Chamber of Commerce. But the guidelines drew praise from project developers and domestic electrolyzer manufacturers like Hy Stor Energy and Electric Hydrogen Co.
“Strong proposed standards will be a sprint to success for the U.S. electrolytic hydrogen market, accelerate the build-out of domestic clean hydrogen infrastructure, and enable substantial industry growth,” the companies wrote in a Dec. 20 letter that was also signed by hydrogen supplier Air Products and Chemicals Inc. and others. “Weaker rules would result in highly subsidized hydrogen projects that drive large greenhouse gas emissions increases and electricity price spikes that would engender public backlash and stymie our industry’s growth.”
The Natural Resources Defense Council trumpeted the proposed rules, which they said would amount to several hundreds of billions of dollars in subsidies.
“Treasury’s proposal will ensure that the clean hydrogen industry grows while actually reducing emissions,” said Rachel Fakhry, a policy director with the Washington-based environmental group. “We cannot settle for anything less.”
Bloomberg Businessweek
Hydrogen tax credit plan unveiled as Biden administration tries to jump start industry
FATIMA HUSSEIN and JENNIFER MCDERMOTT
Updated Fri, December 22, 2023
Hydrogen storage tanks are visible at the Iberdrola green hydrogen plant in Puertollano, central Spain, March 28, 2023. The Biden administration on Friday, Dec. 22, released its highly anticipated proposal for how the U.S. plans to dole out tax credits to hydrogen producers. (AP Photo/Bernat Armangue, File)
WASHINGTON (AP) — The Biden administration released its highly anticipated proposal for doling out billions of dollars in tax credits to hydrogen producers Friday, in a massive effort to build out an industry that some hope can be a cleaner alternative to fossil fueled power.
The U.S. credit is the most generous in the world for hydrogen production, Jesse Jenkins, a professor at Princeton University who has analyzed the U.S. climate law, said last week.
The proposal — which is part of Democrats’ Inflation Reduction Act passed last year — outlines a tiered system to determine which hydrogen producers get the most credits, with cleaner energy projects receiving more, and smaller, but still meaningful credits going to those that use fossil fuel to produce hydrogen.
Administration officials estimate the hydrogen production credits will deliver $140 billion in revenue and 700,000 jobs by 2030 — and will help the U.S. produce 50 million metric tons of hydrogen by 2050.
“That’s equivalent to the amount of energy currently used by every bus, every plane, every train and every ship in the US combined,” Energy Deputy Secretary David M. Turk said on a Thursday call with reporters to preview the proposal.
That may be a useful metric for comparison, but it's a long way from reality. Buses, planes, trains and ships run on liquid fuels for which a delivery infrastructure exists, and no such system exists to deliver cleanly-made hydrogen to the places where it could most help address climate change. Those include steel, cement and plastics factories.
Hydrogen is being developed around the world as an energy source for sectors of the economy like that which emit massive greenhouse gases, yet are difficult to electrify, such as long-haul transportation and industrial manufacturing. It can be made by splitting water with solar, wind, nuclear or geothermal electricity yielding little if any planet-warming greenhouse gases.
Most hydrogen today is not made this way and does contribute to climate change because it is made from natural gas. About 10 million metric tons of hydrogen is currently produced in the United States each year, primarily for petroleum refining and ammonia production.
As part of the administration’s proposal, firms that produce cleaner hydrogen and meet prevailing wage and registered apprenticeship requirements stand to qualify for a large incentive at $3 per kilogram of hydrogen. Firms that produce hydrogen using fossil fuels get less.
The credit ranges from $.60 to $3 per kilo, depending on whole lifecycle emissions.
One contentious issue in the proposal was how to deal with the fact that clean, electrolyzer hydrogen draws tremendous amounts of electricity. Few want that to mean that more coal or natural gas-fired power plants run extra hours. The guidance addresses this by calling for producers to document their electricity usage through "energy attribute certificates" — which will help determine the credits they qualify for.
Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defense Council called the proposal “a win for the climate, U.S. consumers, and the budding U.S. hydrogen industry.” The Clean Air Task Force likewise called the proposal “an excellent step toward developing a credible clean hydrogen market in the United States.”
But Marty Durbin, the U.S. Chamber of Commerce's senior vice president for policy, said the guidance released today “will stunt the growth of a critical industry before it has even begun” and his organization plans to advocate during the public comment process “for the flexibility needed to kickstart investment, create jobs and economic growth, and meet our decarbonization goals.”
He accused the White House of failing to listen to its own experts at the Department of Energy.
The American Petroleum Institute said in a statement that “hydrogen of all types" is needed and urged the administration to foster more flexibility for hydrogen expansion, not less.
The Fuel Cell & Hydrogen Energy Association includes more than 100 members involved in hydrogen production, distribution and use, including vehicle manufacturers, industrial gas companies, renewable developers and nuclear plant operators. Frank Wolak, the association's president, said it's important the industry be given time to meet any provisions that are required for the top tier of the credit.
“What we can’t have is is an industry that is stalled because we have imposed requirements that the marketplace is not ready to fulfill,” Wolak said, particularly with the time it takes to bring new renewable resources online.
If the guidance is too restrictive, he said, "you’ll see a much smaller, if not negligible growth in this industry and a failed opportunity to capitalize on the IRA.”
Other industry representatives welcomed the proposal.
Chuck Schmitt, president of SSAB Americas — a supplier of steel plates— said the proposal “supports SSAB’s leadership and innovation in the decarbonization of the steel industry. This clarifying language will help drive new technology investment and create clean energy jobs in the United States.”
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LET THE WHINING BEGIN
Industry leaders blast Treasury’s draft guidance for clean hydrogen tax credits
Emma Penrod
Fri, December 22, 2023
Dive Brief:
The U.S. Department of the Treasury and the Internal Revenue Service on Friday released proposed regulations defining criteria hydrogen producers will have to meet to qualify for the 45V clean hydrogen production tax credits created by the Inflation Reduction Act.
According to the proposed rules, hydrogen producers would have to use renewable or zero emission electricity from generators who began operation no more than three years prior to the construction of the hydrogen facility. The electricity would also have to be sourced from within the same geographic region as the hydrogen production facility, and would be subject to hourly matching rules beginning in 2028.
Hydrogen industry leaders panned the proposal, saying the framework is too rigid and will impede the growth — and decarbonization — of U.S. industry.
Dive Insight:
The past year has seen discussion of the IRA's 45V hydrogen production tax credit criteria turn into a “political brawl,” according to Keith Martin, co-head of U.S. projects at global law firm Norton Rose Fulbright. So it is not surprising that the Treasury's draft guidance, released the Friday before Christmas after weeks of delays, prompted frustration and even threats of lawsuits the morning of its release.
The IRA assigns a graduated value to the 45V credit, so that the value of the credit ranges from $.60 per kilogram of hydrogen to $3 depending on the intensity of the hydrogen's lifecycle carbon emissions, and whether the hydrogen producer meets prevailing wage and apprenticeship criteria. But in it's draft guidance, the Treasury Department proposes additional eligibility criteria regarding the age and location of renewable electricity used to drive hydrogen production. Hydrogen producers must also meet hourly matching rules by 2028 to qualify for the credit — a rule Martin said will make it difficult to finance hydrogen projects going forward.
The proposed rules include similar criteria for other potential hydrogen feedstocks, in addition to clean electricity. Hydrogen producers, for example, must show that any renewable natural gas they used was not previously used for another purpose.
The Biden Administration touted the proposed rules as a way to reduce carbon emissions.
“The Inflation Reduction Act’s hydrogen tax credit will help build a clean hydrogen industry that will be critical in reducing emissions from harder-to-decarbonize sectors like heavy industry and heavy transportation,” John Podesta, senior advisor to the president for clean energy innovation and implementation, said in a statement.
But the hydrogen industry is broadly critical of the draft guidance.
Although some hydrogen producers, including electrolyzer manufacturer Electric Hydrogen, welcomed the guidance, the rules unpopular within the hydrogen industry, and some leading hydrogen producers are already talking about suing to stop the implementation of Treasury's proposal, according to Mona Dajani, a partner at Baker Botts, where she co-chairs the firm's energy, infrastructure and hydrogen practice.
The proposed rules also garnered criticism from Sen. Joe Manchin, D-W. Va.
“Adding onerous new restrictions for the hydrogen tax credit is particularly hypocritical when this administration has bent, broken, and ignored the law again and again to make it easier to access electric vehicle tax credits,” Manchin said in a statement. “Today’s proposed rule doesn’t just violate the law — it makes absolutely no sense, and I will continue to fight this administration’s manipulation of the IRA.”
A number of industry associations, including the American Council on Renewable Energy and the Fuel Cell and Hydrogen Energy Association, argued that the rules would impair the growth of the hydrogen industry and push jobs overseas. Plug Power, which produces green hydrogen and specialized hydrogen-fueled vehicles such as forklifts designed for use inside warehouses, argued that the strict standards would not only stall industry development, but hinder progress toward national emissions goals as well.
“From our preliminary review, the draft framework will fall woefully short in achieving the Administration’s decarbonization objectives, such as the Clean Air Act Section 111 performance standards and DOE Clean Hydrogen Hubs program,” Plug Power president CEO Andy Marsh said in a statement. “A robust domestic clean hydrogen supply is essential to decarbonizing heavy industry, and the draft regulations are counter to Congress’ intent and the statutory mandate of Section 45V.”
This story was originally published on Utility Dive.
White House unveils strict hydrogen regulations in victory for environmentalists
Thomas Catenacci
FOX NEWS
Fri, December 22, 2023
The White House unveiled highly anticipated guidance placing significant restrictions on the type of hydrogen power development eligible for generous federal tax credits.
The proposed guidance, released Friday morning in a joint announcement by the White House, Treasury Department and Department of Energy, tethers the 2022 Inflation Reduction Act's (IRA) highest production credit of $3 per kilogram of hydrogen produced to tight green energy standards.
The restrictions had been supported by environmentalists and some green energy companies but opposed by business and clean power industry groups.
"The Inflation Reduction Act’s hydrogen tax credit will help build a clean hydrogen industry that will be critical in reducing emissions from harder-to-decarbonize sectors like heavy industry and heavy transportation," John Podesta, President Biden's clean energy czar, said in a statement.
Fri, December 22, 2023
The White House unveiled highly anticipated guidance placing significant restrictions on the type of hydrogen power development eligible for generous federal tax credits.
The proposed guidance, released Friday morning in a joint announcement by the White House, Treasury Department and Department of Energy, tethers the 2022 Inflation Reduction Act's (IRA) highest production credit of $3 per kilogram of hydrogen produced to tight green energy standards.
The restrictions had been supported by environmentalists and some green energy companies but opposed by business and clean power industry groups.
"The Inflation Reduction Act’s hydrogen tax credit will help build a clean hydrogen industry that will be critical in reducing emissions from harder-to-decarbonize sectors like heavy industry and heavy transportation," John Podesta, President Biden's clean energy czar, said in a statement.
President Biden visits the Cummins Power Generation Facility as part of his administration's Investing in America tour in Fridley, Minn., April 3, 2023.
"Today's announcement will further unprecedented investments in a new, American-led industry as we aim to lead and propel the global clean energy transition," added Energy Secretary Jennifer Granholm. "Hydrogen has the potential to clean up America's manufacturing industry, power the transportation sector and shore up our energy security all while delivering good-paying jobs and new economic opportunity to communities in every pocket of America."
Hydrogen has been widely pegged as a key technology for reducing future greenhouse gas emissions, especially in hard-to-decarbonize sectors like shipping, heavy trucking and cement and steel manufacturing. The transportation and industrial sectors account for nearly 60% of U.S. end-use emissions.
Overall, the hydrogen production tax credits are some of the most generous clean energy incentives earmarked under the IRA, Democrats' massive climate and tax bill President Biden signed in August 2022, and are worth up to $100 billion. The legislation marked the nation's most ambitious effort yet to spur the growth of hydrogen generation, which remains a nascent technology requiring billions of dollars in investment to achieve large-scale production.
However, the formulation of the tax credits has sparked an intense debate in recent months, leading to delays in issuing Friday's guidance, as a result of the potential carbon emissions produced in the production of hydrogen.
The credits will be available for 10 years, starting on the date a hydrogen production facility is placed into service for projects that begin construction before 2033.
The IRA includes four tiers of credits, ranging from $0.60 per kilogram to $3 per tier, which are determined based on the carbon intensity of that production.
A common pathway for hydrogen production, for example, is electrolysis, a process by which hydrogen is split from water using an electric current. While the only emissions from that process are hydrogen and oxygen, environmentalists have argued that hydrogen reliance could be rendered pointless if the electricity is generated from fossil fuel-fired sources.
"The Clean Hydrogen Production Credit aims to make production of clean hydrogen with minimal climate pollution more economically competitive and accelerate development of the U.S. clean hydrogen industry," the Treasury Department said Friday. "Today’s proposed regulations advance those goals and will support the development of a robust U.S. clean hydrogen industry that creates good-paying jobs, while also reducing carbon emissions."
Energy Secretary Jennifer Granholm hosts a news conference in December 2022.
Under the guidance, hydrogen producers are only eligible for the highest tax credit if electricity is generated from a green energy source, such as wind and solar, that came online within three years of a new facility being placed into service. That provision means a facility fueled by green energy that has been operational for more than three years is ineligible for the credit.
In addition, the guidance requires that, beginning in 2028, hydrogen developers' electricity generation is sourced from a clean source on an hourly basis, the most stringent timescale. In other words, the electricity generated for electrolysis must be produced within an hour of hydrogen production from that electricity.
And the final key provision for hydrogen produced using electricity mandates clean energy is sourced from a project in the same region.
"The proposed 45V rules represent a major milestone in determining tax credits on a technology neutral basis, ensuring the life cycle emissions analysis required by statute will be accurate, account for system-wide impacts and avoid wasteful subsidies for electrolytic hydrogen projects that are purportedly clean but actually use dirty electricity," said Mike Kaercher, the director of the Climate Tax Project at the Tax Law Center at NYU Law.
"Experts have estimated that lax rules could have locked in hundreds of millions of additional tons of carbon emissions in the long run."
A CF Industries fertilizer complex is pictured in Donaldsonville, La., June 30, 2022.
However, the proposal is facing significant pushback from industry groups and hydrogen companies that have argued for the federal government to begin implementation of the IRA tax credits with lax guidance to incentivize greater investment and development in the near term.
Groups like the U.S. Chamber of Commerce, the Fuel Cell and Hydrogen Energy Association (FCHEA) and the Clean Hydrogen Future Coalition, in addition to hydropower and nuclear groups, have argued strict regulations like those unveiled Friday will deter investment, increase the cost of hydrogen, lead to fewer projects in the coming years and discriminate against existing low-carbon power sources.
"The guidance announced today by the Biden-Harris administration will place unnecessary burdens on the still nascent clean hydrogen industry," FCHEA President and CEO Frank Wolak said Friday. "The nation needs commonsense solutions for this tax credit that are aligned with the congressional intent to spur robust economic development and create jobs while reducing carbon emissions.
"Congress intended the tax credit to spur domestic clean hydrogen production and allow the United States to maintain an international competitive advantage, not to be an inadvertent backdoor to regulate use of the electric utility grid," he added.
"The United States cannot achieve its climate goals without clean hydrogen, and these proposed regulations and requirements will unnecessarily hold back our domestic industry, driving investment, manufacturing and technology leadership overseas."
Sen. Tom Carper, D-Del., chairman of the Senate Environment and Public Works Committee, wrote last month that "by avoiding overly stringent requirements, we can nurture innovation, support the growth of clean hydrogen and the newly funded hubs and accelerate our clean energy transition."
Marty Durbin, the president of the U.S. Chamber’s Global Energy Institute, said the guidance will "stunt the growth of a critical industry before it has even begun."
Andy Marsh, the CEO of hydrogen fuel cell systems developer Plug Power, added the framework will "fall woefully short in achieving the administration’s decarbonization objectives."
Meanwhile, the guidance is likely to also face congressional opposition, including from several Senate Democrats who have argued the IRA was designed to allow for a slow phase-in of stringent guidance.
"Overly prescriptive guidance could prevent the growth and certainty needed for clean hydrogen to provide meaningful alternatives for difficult to decarbonize sectors, reach competitive hydrogen market prices, and realize the more than 100,000 new jobs the Energy Department projects the clean hydrogen industry could create by 2030," a group of 11 Senate Democrats wrote to Treasury Secretary Janet Yellen, Podesta and Granholm on Nov. 6.
Senators Maria Cantwell, D-Wash.; Sherrod Brown, D-Ohio; Joe Manchin, D-W.Va.; Dick Durbin, D-Ill.; Kirsten Gillibrand, D-N.Y.; Patty Murray, D-Wash.; John Fetterman, D-Pa.; Tammy Duckworth, D-Ill.; Kyrsten Sinema, D-Ariz.; Bob Casey, D-Pa.; and Gary Peters, D-Mich., all signed onto the letter.
Senate Environment and Public Works Committee Chairman Tom Carper, D-Del., sent a similar letter three days later.
Moderate Democrats fume over Biden hydrogen proposal
Rachel Frazin
Fri, December 22, 2023
Moderate Democrats are fuming over the Biden administration’s decision to propose significant climate change-related stipulations on the use of a lucrative tax credit for hydrogen energy producers.
Sen. Joe Manchin (D-W.Va.), a frequent critic of the administration’s climate policies, said the proposal “makes absolutely no sense.”
And moderates who have been more supportive of the administration, like Sen. Tom Carper (D-Del.), are also pushing back on Biden’s rules.
The hydrogen energy issue is one that divides Democrats, with more conservative Democrats pressing for flexibility they say will help a nascent industry that could be important in the climate fight. Liberals argue that loose rules could make hydrogen energy a climate change problem rather than a solution.
Hydrogen energy can be made by either using electricity to separate the hydrogen out of water molecules in an electrolyzer or through a reaction between steam and methane, a key component of natural gas.
The fuel could be a key tool for cutting emissions from industries whose climate pollution is difficult to mitigate, including aviation and making chemicals, cement and steel.
The Inflation Reduction Act signed by President Biden last year provided a tax credit for hydrogen that is intended to jumpstart production of hydrogen made using low- and no-emitting power sources.
But the question of who can qualify is a contentious one, and moderate Democrats argue the administration is going too far with its new rules.
“This Administration cannot keep itself from violating the Inflation Reduction Act in their relentless pursuit of their radical climate agenda,” Manchin said in a written statement.
He said that the move would “kneecap the hydrogen market before it can even begin.”
Manchin vowed to fight the proposal, saying: “Today’s proposed rule doesn’t just violate the law — it makes absolutely no sense, and I will continue to fight this Administration’s manipulation of the IRA.”
Manchin, who is not running for reelection but has flirted with a third-party presidential bid, has criticized a number of Biden administration climate policies, including its handling of a tax credit for people who purchase electric vehicles, saying it was applied to vehicles too broadly and that a new guidance is too loose on Chinese battery components.
Such criticisms sometimes leave Manchin on an island in the Democratic party, that wasn’t t the case on Friday.
Carper, a frequent Biden ally who chairs the Senate’s Environment and Public Works Committee, also criticized the guidance.
“When developing the Inflation Reduction Act, we intended for the clean hydrogen incentives to be flexible and technology-neutral,” Carper said in a written statement.
“Treasury’s draft guidance does not fully reflect this intent, potentially jeopardizing the clean hydrogen industry’s ability to get off the ground successfully,” he added.
Sen. Sherrod Brown (D-Ohio), who faces a tough reelection battle next year in an increasingly red state, also said that the proposed guidance would “undermine” the law’s goals of lower energy costs and innovation.
“These new proposed rules will slow down and ultimately undermine our country’s ability to produce the clean hydrogen needed to build the energy economy of the future,” Brown said in a written statement “The proposed rules’ lack of flexibility will cut out Ohio workers and Ohio businesses from creating the energy of the 21st century.”
This pushback is not a surprise. Last month, 11 Democrats signed onto a letter pushing for flexible rules for the hydrogen industry. Carper was not on that letter but also sent his own missive calling for flexibility.
At issue is whether to require hydrogen producers to build new clean power sources to fuel hydrogen production, or whether electrolyzers should be allowed to pull existing power off the grid.
Climate hawks warn the latter could result in more fossil fuel use because it could drive up power demand in general and push planet-warming gas plants online.
They have also called for this new power to be in the same geographic region and produced within the same hour that it is used to try to limit hydrogen’s impacts on power demand overall.
“I applaud the Biden administration for taking this important step to ensure that we develop a truly clean hydrogen industry,” Sen. Jeff Merkley (D-Ore.) said in a statement. “Hydrogen has the potential to be a key part of the climate solution, but only if we get it right.”
“Creating hydrogen energy can be very greenhouse gas-intensive. I and others have pushed hard for high standards because if hydrogen is not clean, then it cannot be a solution for hard-to-decarbonize sectors like heavy industry, and could even take us in the wrong direction,” he added.
Merkley led a letter in October pushing for stringent standards and was joined by seven of his colleagues.
Sen. Martin Heinrich (D-N.M.) who signed onto the letter, also praised the rule in a post on X — formerly known as Twitter.
“.@USTreasury’s hydrogen tax credit guidance includes the climate safeguards that will ensure the hydrogen economy of the future is clean,” he wrote.
“The alternative would have made the problem worse, not better. I applaud the Biden Administration’s leadership here,” he added.
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