Hydrogen startups are widely seen as a promising way to phase out fossil fuels from heavy industry and long-distance transportation. But they have been in limbo for the past two years, waiting for official guidance from the US Treasury on lucrative tax credits.
The wait ended today, with the Treasury announcing final rules for hydrogen producers to qualify for tax credits under section 45V of the Inflation Reduction Act.
“We’re grateful to have a final rule,” Beth Deane, chief legal officer at Electric Hydrogen, told TechCrunch. “Without that, the industry is just dead on track.”
The rules, which have been more than two years in the making, soften some parts of the draft proposal, giving some time to existing nuclear and fossil fuel plants.
Because hydrogen can be produced in many different ways, the resulting rules are a complex maze of rules designed to ensure that hydrogen producers who receive the credits do not inadvertently cause more pollution.
There are two main sources of hydrogen: that produced by electrolysers, which use electricity to split water molecules into hydrogen and oxygen, and that generated by steam reforming, which uses steam and heat to break down methane molecules , producing hydrogen and carbon. dioxide.
But both of these have a host of variations. Steam reforming can release carbon dioxide pollution into the atmosphere (producing so-called gray hydrogen in the process) or capture and store it (blue hydrogen). Electrolyzers can be powered by renewable energy (green hydrogen) or nuclear energy (pink hydrogen). If you really want to dig deep, there are so many flavors of hydrogen that people often refer to them all as the hydrogen rainbow.
Essentially, the 45V rules aim to ensure that new hydrogen production does not result in additional greenhouse gas emissions to the grid. To do this, the Treasury Department requires manufacturers to track the emissions generated by each kilogram of hydrogen throughout its life cycle. This means, for example, blue hydrogen producers must account for the global warming effects of methane leaks from natural gas pipelines.
Hydrogen producers will have to buy renewable or clean energy from the region where they are located. By 2030, they will also have to show that the energy has been used to produce hydrogen within the hour.
In general, hydrogen production that generates fewer greenhouse gases throughout its life cycle receives larger tax credits, up to $3 per kilogram. Green hydrogen generally costs about $4.50 to $12 per kilogram, according to BloombergNEF, so the maximum credit could make the process competitive with fossil-derived hydrogen in some regions.
Nuclear and fossil fuel power plants also benefit from the revised guidance. Previously, hydrogen producers would have been required to source power from new nuclear plants to qualify. Now, existing nuclear power plants can supply up to 200 megawatt-hours of electricity. Also, some fossil fuel power plants that have recently installed carbon capture equipment will now qualify.
The rules, while welcome, are still not perfect. Given the number of stakeholders, this is not surprising. From Electric Hydrogen’s perspective, Deane would like to see more flexibility around where producers are allowed to buy electricity and how much additional clean or renewable energy they are required to buy.
But, Deane said, what the industry wants most is safety. “We want one that stays in place and then can be changed,” she said. “We really encourage the next administration to let this rule stand.”
