On Friday, the Biden administration made the final decision his long awaited plan offering billions of dollars in tax credits to companies that produce hydrogen in hopes of building a new industry that could help fight climate change.
When burned, hydrogen releases mostly water vapor, and it can be used instead of fossil fuels to make steel or fertilizer, or to power large trucks or ships.
But whether hydrogen is good for the climate depends on how it's made. Today, most hydrogen is produced from natural gas in a process that releases a lot of planet-warming carbon dioxide. The Biden administration wants to encourage companies to use wind, solar or other low-emission electricity sources to produce so-called clean hydrogen.
Congress approved it in 2022 income tax credit for companies producing pure hydrogen. But the Treasury Department had to issue regulations to clarify exactly what companies must do to claim this credit. Agency It released proposed guidance in 2023 however, many businesses were waiting for the final rules before investing.
The final guidelines, released Friday, followed months of intense lobbying by lawmakers, industry representatives and environmental groups and nearly 30,000 public comments. They include changes that make it slightly easier for hydrogen producers to claim tax credits that could amount to tens of billions of dollars over the next decade.
“Clean hydrogen can play an important role in decarbonizing many sectors in our economy, from industry to transportation to energy storage and more,” said Deputy Energy Secretary David Turk. “The final rules announced today put us on track to accelerate deployment.”
Initially, the Treasury placed strict conditions on hydrogen subsidies: Companies could claim a tax credit if they used low-carbon electricity from newly built sources such as wind or solar power. electrolyzer can split water into hydrogen and oxygen. Starting in 2028, these electrolysers will have to operate during the hours that wind or solar farms operate.
Without these conditions, researchers warnedif coal or gas-fired power plants had to run more often to meet demand, electrolyzers could draw large amounts of power from existing power grids and increase greenhouse gas emissions.
Still a lot industrial groups and Legislators in Congress He complained that the proposed rules were so strict that they could shut down America's nascent hydrogen industry before it even got off the ground.
Among the concerns: The technology to match hydrogen production with hourly fluctuations in wind and solar power is still in its infancy. Owners of nuclear reactors also said they were left out.
As such, the final regulations contain several significant amendments:
-
Hydrogen producers will get an additional two years until 2030 before being required to buy clean electricity on an hourly basis to match their production. Until then, they can use the weaker annual standard and still claim the tax credit.
-
In some states that require utilities to use more low-carbon electricity each year, hydrogen producers will find it easier to claim the credit, on the theory that the laws will prevent an increase in emissions. For now, the Treasury said only California and Washington meet the criteria, but other states may qualify in the future.
-
Under certain conditions, companies that own nuclear reactors that will be retired for economic reasons can claim credits for producing hydrogen if it helps keep the plants open. Existing reactors that are profitable will not be able to claim the credit.
-
The final rules also specify the methane that companies can use to produce hydrogen from landfills, farms or coal mines—for example, if the methane were otherwise released into the atmosphere.
Treasury Undersecretary Wally Adeyemo said the guidelines “include useful feedback from companies planning investments.”
Some hydrogen producers said the nearly 400-page final guidance addresses most, if not all, of their biggest concerns.
“There is some comfort that the regulations, on balance, have improved from the original draft,” said Frank Wolak, chief executive of the Fuel Cell and Hydrogen Energy Association, a trade group. “But there are many things that need to be evaluated in the details.”
Jacob Susman, CEO of Ambient Fuels, a clean hydrogen producer, said it plans about $3 billion in projects in the United States. “Now that we have something really solid, we can start building,” he said.
Environmentalists said many of the safeguards in the original proposal to prevent rising emissions were kept in place.
“Additional concessions to the green hydrogen industry are not climate-perfect,” said Eric Kamrath at the Natural Resources Defense Council. “However, the rule maintains key safeguards that minimize hazardous air and climate pollution from electrolytic hydrogen production.”
The Department of Energy estimates that cleaner forms of hydrogen are being used It may increase to 10 million tons per year by 2030above virtually nothing today.
But political uncertainty prevails. The new Congress could eliminate the tax credits, although hydrogen is generally supported by both Democrats and Republicans, and a number of oil and gas companies have invested in hydrogen technologies. The Trump administration could also review the rules on the loans, though that could take years.
Economics is another obstacle. According to data from BloombergNEF, producing cleaner hydrogen still costs between $3 and $11 per kilogram. In contrast, it costs about $1-$2 per kilogram to make hydrogen from natural gas.
The new tax credit will be up to $3 per kilogram, which could fill the gap in some cases, but not all. Technology costs had to drop dramatically.
Even with large subsidies for hydrogen production, it is not clear that enough buyers will emerge. Hydrogen companies in the world canceled a number of large projects due to lack of demand in the last few years. Steelmakers and power utilities that may be interested in the fuel often forego the expensive equipment required to use it.
“These new rules will probably help, even if they don't go as far as many in the industry would like,” said Aaron Bergman of Resources for the Future, a nonpartisan research organization in Washington. “But there's still the problem of finding people to consume the hydrogen you produce.”