On Friday, the Biden administration made its final decision Her long-awaited plan Offering billions of dollars in tax breaks to companies that make hydrogen, in hopes of building a new industry that might help fight climate change.
When burned, hydrogen emits mainly water vapor, and can be used instead of fossil fuels to make steel or fertilizer or to power trucks or large ships.
But whether hydrogen is good for the climate or not depends on how it is made. Today, most hydrogen is produced from natural gas in a process that emits so much carbon dioxide that it warms the planet. The Biden administration wants to encourage companies to produce so-called clean hydrogen using wind, solar or other low-emission electricity sources.
In 2022, Congress agreed Lucrative tax credit For companies that produce clean hydrogen. But the Treasury Department needed to issue rules to clarify exactly what companies had to do to claim that credit. The agency issued proposed guidance in 2023, but many companies were waiting for the final rules before making investments.
The final guidelines released Friday came after months of intense lobbying from lawmakers, industry representatives and environmental groups and nearly 30,000 public comments. They include changes that make it somewhat easier for hydrogen producers to claim tax credits, which could total tens of billions of dollars over the next decade.
“Clean hydrogen can play a critical role in decarbonizing multiple sectors of our economy, from industry to transportation, from energy storage to much more,” said David Turk, Deputy Secretary of Energy. “The final rules announced today put us on a path to accelerating deployment.”
Initially, the Treasury imposed strict conditions on hydrogen subsidies: companies could claim the tax credit if they used low-carbon electricity from modern sources such as wind or solar to power a machine called an electrolyser that can split water into hydrogen and oxygen. Starting in 2028, these electrolyzers must operate during the same hours as wind or solar farms.
Without these conditions, researchers He had warnedElectrolyzers could pull huge amounts of energy from existing electrical grids and lead to a spike in greenhouse gas emissions if coal or gas-fired power plants have to run more frequently to meet demand.
After a lot Industry groups and Lawmakers in Congress He complained that the proposed rules were too stringent and could stifle America’s nascent hydrogen industry before it even gets started.
Among the concerns: The technology for matching hydrogen production to hourly fluctuations in wind and solar power is still in its infancy. The owners of the nuclear reactors also said they were excluded.
Therefore, the final rules contain several important amendments:
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Hydrogen producers will have an additional two years – until 2030 – before they will be required to purchase clean electricity on an hourly basis to match their production. Until then, they can use a more flexible annual standard and still claim the tax credit.
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And in some states that require utilities to use more low-carbon electricity each year, hydrogen producers will now have an easier time claiming credit, on the theory that such laws will prevent a sharp rise in emissions. Only California and Washington meet that standard currently, but other states could qualify in the future, the Treasury Department said.
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Under certain conditions, companies that own nuclear reactors, which are scheduled to be retired for economic reasons, can now claim credit for hydrogen production if it helps the plants stay open. Existing profitable reactors will not be able to claim this credit.
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The final rule also sets standards under which companies can use methane from landfills, farms or coal mines to produce hydrogen — for example, if the methane is being emitted into the atmosphere.
Wally Adeyemo, deputy secretary of the Treasury, said the guidelines “include useful feedback from companies planning investments.”
Some hydrogen producers said many, if not all, of their biggest concerns were addressed in the final guidance, which is about 400 pages long.
“There is a degree of comfort that the rules, overall, represent an improvement over the original draft,” said Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, a trade group. “But there are a lot of details that need to be evaluated.”
Jacob Sussman, CEO of Ambient Fuels, a clean hydrogen developer planning nearly $3 billion in projects across the U.S., said a lack of clear guidance was holding back investment. “Now that we actually have something solid, we can move on to construction,” he said.
Environmentalists said most of the safeguards in the original proposal to prevent rising emissions were maintained.
“The additional flexibility afforded to the green hydrogen industry is not ideal from a climate perspective,” said Eric Kamrath of the Natural Resources Defense Council. “But the rule maintains basic protections that reduce hazardous air and climate pollution resulting from electrolytic hydrogen production.”
The Department of Energy estimates that using cleaner forms of hydrogen It could reach 10 million tons per year by 2030from almost nothing today.
But political uncertainty looms. A new Congress could repeal the tax breaks, although hydrogen generally enjoys support from 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 around appropriations, although that could take years.
The economy is another obstacle. Producing clean hydrogen still costs between $3 and $11 per kilogram, according to data from BloombergNEF. In contrast, the cost of producing hydrogen from natural gas ranges from $1 to $2 per kilogram.
The new tax credit would be worth up to $3 per kilogram, which could close the gap in some cases but not all. Technology costs must fall sharply.
Even with massive subsidies for hydrogen production, it is not clear that enough buyers will emerge. All over the world, hydrogen companies It canceled several major projects During the past few years due to lack of demand. Steelmakers and electric utilities, which may have an interest in the fuel, often reject the expensive equipment needed to use it.
“These new rules are likely to be helpful, even if they don’t go as far as many in the industry wanted,” said Aaron Bergman, a fellow at Resources for the Future, a nonpartisan research organization in Washington. “But there is still the challenge of finding people who will consume the hydrogen you produce.”
