With the administration aiming to get clean hydrogen production to 50 million metric tons a year by midcentury — 50 times what it is now — the Department of Treasury's proposed rules do not specify any one technology but set strict guidelines on projects' carbon footprints if they're to claim the tax credit.
Clean hydrogen developers along the Gulf Coast and across the nation have been eagerly awaiting the rules to see how much — if any — of the tax credit they can claim, with the potential to earn up to $3 per kilogram of clean hydrogen for 10 years. For Air Products' $4 billion green hydrogen project in North Texas, which is billed as the largest of its kind in the country, that could mean up to $219 million a year in tax credits in addition to revenue from selling hydrogen to industries that are hard to decarbonize, such as shipping and trucking, along with existing hydrogen customers like oil refineries.
Speaking with reporters ahead of the rule's release, administration officials said the proposed rules aimed to get projects built but not at the expense of the environment, explaining that green hydrogen projects, which require huge volumes of electricity, could actually emit more greenhouse gas emissions than existing facilities if they relied on coal plants for power. And there is much they were still working out, like how electricity from nuclear power plants, most of which are decades old, should be considered and even whether the proposed structure for claiming tax credits made sense.
"This is a very complex, complicated issue and set of systems," said Deputy Energy Secretary David Turk. "We're eager to solicit feedback to make sure we get this right."
So-called green hydrogen plants would need to buy electricity from wind and solar farms that are no more than three years old. Also, starting in 2028, green hydrogen producers would be judged on whether they produce hydrogen at the same time they as the clean electricity they are using is generated, to avoid reliance on reliance on fossil-fuel fired generation for backup.
And blue hydrogen projects, which rely on natural gas and carbon capture, would need to keep their emissions within a certain threshold in order to claim any portion of the tax credit, likely difficult considering the high degree of emissions from natural gas drilling itself, according to recent analysis by the Department of Energy. Those projects that exceed the emissions limits would instead rely on a new carbon capture tax credit that pays $85 per ton of carbon dioxide captured and stored underground.
The rules are drawing criticism from some clean hydrogen developers, who were lobbying for looser regulations around their electricity supplies and how their carbon footprints were calculated. Frank Wolak, president of the Fuel Cell and Hydrogen Energy Association, said the proposed guidance would prohibit green hydrogen producers from buying clean electricity through the power grid, limiting them to large-scale projects with their own wind and solar farms.
"You're going to have a binary world where you only have perfectly green facilities with new resources and blue hydrogen, and nothing in between," he said. "If you want to get up that development curve, that first stage of clean hydrogen has to come from a variety of resources."
However, some developer applauded the proposed rules, which are expected to be finalized next year. Air Products, the Pennsylvania-based industrial firm developing a number of large scale green and blue hydrogen projects, released a statement describing the rules as, "essential to delivering real emissions reductions, creating the stimulus for broader investments across the hydrogen value chain and cementing the U.S.'s global climate leadership."
The tax guidance has been the subject of ongoing debate in Washington, dividing Democrats between those who want to see the industry given flexibility in its early days and those worried a clean hydrogen boom fueled by billions of dollars in tax credits could have unintended consequences.
In a letter to Treasury Secretary Janet Yellen in October, Sen. Sheldon Whitehouse, D-R.I., along with seven other senators, warned against. "weak standards for what constitutes clean hydrogen" under the code, known as section 45V.
"Without safeguards, 45V risks creating a shell game in power markets, where existing clean generation gets nominally claimed by hydrogen electrolyzers but the resulting gap in grid capacity is backfilled by fossil fuel generation," they wrote.
The tax credit is but one in a myriad of policies aimed at expanding clean hydrogen, including $7.5 billion for the development of seven hydrogen hubs around the nation, including one in Houston.
And dozens of clean hydrogen projects are in the works around the country, betting that industry will be willing to spend more for clean energy to meet corporate sustainability targets.
"These tax credits are an important part of our strategy to unlock private investment across the clean hydrogen sector," said John Podesta, a senior adviser to the president on clean energy. "This technology is going to be crucial for hard to decarbonize industries."
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