Biden Administration Introduces Proposed Rules for 'Clean' Hydrogen Production

Researched by Industrial Info Resources (Sugar Land, Texas)--The Biden administration's proposed rules for billions of dollars in tax credits for hydrogen producers has drawn plenty of praise and criticism.

Part of the Inflation Reduction Act of 2022, the tax credits are aimed at jump-starting the hydrogen production industry using energy that emits no or little greenhouse gases.

Unveiled on December 22 by the U.S. Department of the Treasury, the proposed tax credit rules would determine who gets the tax credits, and how much. Biden 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, as part of the nation's drive to reduce carbon emissions and mitigate climate change.

The incentives "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," U.S. Secretary of the Treasury Janet Yellen said in a press release.

According to the Treasury Department, while "clean" hydrogen holds considerable potential to reduce emissions across a range of sectors and applications, conventional hydrogen production typically results in significant climate pollution. 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.

Industrial Info is tracking more than 80 "Power-to-X" projects in the U.S., worth nearly $56 billion, that involve the production of hydrogen using emissions-free power. Subscribers to Industrial Info's Global Market Intelligence (GMI) Project Database can click here for a list of detailed project reports.

The proposed hydrogen tax credit has four tiers, based on the amount of emissions produced.

For hydrogen production facilities meeting prevailing wage and registered apprenticeship requirements, the amount of the credit ranges from 60 cents per kilogram of hydrogen produced to $3 per kilogram of hydrogen, depending on the "lifecycle emissions of the hydrogen production," which includes the power that is used to produce the hydrogen, according to the Treasury Department.

In general, the cleaner the project, the more credits it would get. Companies that use power from renewable or other non-emitting sources to produce hydrogen would get more. Companies that use fossil fuels to produce hydrogen would get less.

For projects that begin construction before 2033, the credit would be available for 10 years starting on the date that a hydrogen production facility is placed into service. The credit would remain available for some facilities well into the 2040s, according to the Treasury Department.

The catch is that the credit eligibility rules call for hydrogen producers to get their power from new clean energy sources, instead of power that's already on the grid. Clean power generators that begin commercial operations within three years of a hydrogen facility being placed into service are considered new sources. Power derived from solar, wind, hydro and nuclear sources produces no or little greenhouse gas emissions.

In addition, clean power must be sourced from the same region as the hydrogen producer. Starting in 2028, that power used for the electrolysis of water into hydrogen must be produced in the same hours as the hydrogen production.

Air Products and Chemicals Incorporated (NYSE:APD) (Lehigh Valley, Pennsylvania) praised the proposed rules, saying in a press release that they "will ensure subsidies from the U.S. government provide support for the development of truly clean hydrogen projects, in turn accelerating the growth of the clean hydrogen market. This implementation will also put the United States on a path to a globally harmonized clean hydrogen certification system, important for global energy trade and broader market lift-off."

But others, such as Fuel Cell and Hydrogen Energy Association Chief Executive Officer Frank Wolak, have a different view.

The proposed rules "will place unnecessary burdens on the still nascent clean hydrogen industry," Wolak said in a press release. "The nation needs common sense solutions for this tax credit that are aligned with the congressional intent to spur robust economic development and create jobs while reducing carbon emissions."

Wolak continued: "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. 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."

Senator Joe Manchin (D-West Virginia) accused the Biden administration of attempting to "kneecap the hydrogen market before it can even begin."

The proposed regulations for the tax credit are available for public comment for 60 days once they are published in the Federal Register.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 Trillion (USD).