Hydrogen fuel could reduce emissions from industries with difficulty limiting climate pollution, including aviation and manufacturing chemicals, cement and steel products. But companies betting on green hydrogen require strong regulations to guarantee its source.
Some moderate Democrats argue that new Treasury Department rules could hinder this industry and criticize a proposal regarding production tax credits.
Tax Credits
Republicans have proposed repealing clean energy tax credits to raise the debt ceiling, but Democrats are resisting, asserting that such an effort would risk jeopardizing jobs in their districts and undermining efforts against climate change.
Hydrogen has the potential to replace fossil fuels in various applications, from aviation and transport fuels to producing chemicals and steel production and powering vehicles. Last year’s Inflation Reduction Act created a production tax credit to accelerate this industry by rewarding those producing hydrogen from low or no emission power sources such as nuclear, renewables or natural gas power sources.
However, new Treasury Department guidelines establishing additionality standards for claiming production tax credits could thwart many projects’ incentives to generate hydrogen fuel. “It makes no sense to put an end to hydrogen market before it even starts,” noted a representative from Constellation Energy who invested $1 billion into Mississippi green hydrogen plant.
Hubs
Hydrogen can help produce fertilizer, steel and chemicals without emitting greenhouse gasses that threaten our climate. Unfortunately, its mass production has yet to take place, making the process prohibitively expensive; nevertheless, the Biden administration has awarded $7 billion to seven regional hubs demonstrating new methods for making it.
Under a 2021 infrastructure law, these projects will receive funding. Spread across red and blue states alike are two projects in Pennsylvania – Mid-Atlantic Hub and Appalachian Regional Clean Hydrogen Hub both spanning portions of this state.
Hubs will use various methods of producing hydrogen, from steam-methane reforming to electrolysis. Of the seven project sites – including Minnesota and three neighboring states — four will pursue steam-methane reforming; this “blue” method requires carbon capture and storage while five are employing water splitting methods that are “green”.
Definitions
The hydrogen production tax credit rules set very stringent parameters on technology that would enable industries like aviation, shipping and producing chemicals and steel to reduce climate pollution without needing electric vehicles. They require that energy used in electrolyzers that separate hydrogen from water comes from low or no emission sources and meet an “additionality” criterion by purchasing from new power plants rather than simply buying energy off the grid.
These requirements have caused unease among investors in green hydrogen projects and investor-owned utilities such as Constellation. Investors argue that these regulations will stifle growth of an emerging industry while endangering America’s lead in clean energy transition. But the administration, having stood its ground against pressure from large industrial players and their trade group allies, defended these rules as essential in leading efforts around the globe to reduce greenhouse emissions.
Regulations
With generous federal subsidies of up to $3 per kilogram of clean hydrogen fuel produced, the government hopes to accelerate production while decarbonizing industries such as steelmaking and long-distance freight transport, as well as replacing 10 million tons of dirty hydrogen used today. But Treasury and Internal Revenue Service rules governing eligibility for credits being offered have come under harsh criticism by Democrats who fear these could stymie the industry.
Lawmakers and administration officials are working closely on one of the most closely followed climate decisions: green hydrogen production requirements. While no formal guidance from the Treasury Department has yet been released, leaked drafts indicate it may require producers to help finance and build renewable energy capacity themselves before matching their hourly energy consumption with those resources – this requirement has also been established through state legislation as well as being supported by many environmental groups as well as fossil fuel companies betting on green hydrogen as an energy solution.
