by WASHINGTON – The Biden administration on Friday released its long-awaited plan to provide lucrative tax breaks to companies that make hydrogen, a clean-burning fuel, proposing new rules intended to ensure that the planet does not spike as a result of the unintentional policy. heating emissions.
Hydrogen is widely seen as a promising tool to combat climate change, as long as it can be produced without creating any greenhouse gases. When burned, hydrogen releases mainly water vapor, and could be used instead of fossil fuels to make steel or fertilizer, or to power large trucks or ships.
But making hydrogen requires energy, and so-called pure hydrogen is scarce today. Currently, most hydrogen is made from natural gas in a process that emits planet-warming carbon dioxide.
Sign up for The Morning newsletter from the New York Times
Congress approved a tax credit last year to encourage companies to make more hydrogen from renewable energy and other carbon-free sources, sparking a fierce lobbying from businesses focused on who should be able to claim credit.
Experts have warned that some companies could claim to use wind or solar power to make hydrogen and indirectly raise emissions, and argued for safeguards to prevent that. Some industry groups wanted softer rules for the credit, so that a wider range of projects could qualify.
In the guidance issued on Friday, the Treasury Department strongly supported those who argued for tighter restrictions.
To qualify for the full tax credit, companies would typically have to use clean electricity from newly constructed sources, such as wind and solar farms, to run electrolyzers that split water into oxygen and hydrogen. Starting in 2028, those electrolyzers would have to run during the same hours that the wind or solar farms were operating.
Many hydrogen developers and environmental groups praised the proposal. Without those restrictions, they said, hydrogen producers could draw huge amounts of power from the existing grid and trigger a spike in greenhouse gas emissions if coal- or gas-fired power plants had to run more often.
“The United States has the highest tax subsidy in the world for hydrogen, so we think it should have the highest stringency for things that are considered clean,” said Eric Guter, Vice President of Hydrogen for for Air Products & Chemicals Inc., the world’s largest producer. of hydrogen. The company is developing a $4 billion project with AES in North Texas that will use wind and solar energy to generate hydrogen.
But other industry groups criticized the rules, saying they could prevent many early hydrogen projects from being developed.
The American Clean Power Association, which represents major wind, solar and transmission companies, said the requirement to match hydrogen production with one hour of clean electricity by 2028 was too strict.
“That provision will discourage a significant majority of clean power companies from investing in green hydrogen manufacturing and facilities,” Jason Grumet, the group’s CEO, said in a statement.
The Treasury Department will accept comments from the public for 60 days and may make changes before the plan is finalised.
Some nuclear power producers, for example, have called for the tax credits to be made available for hydrogen produced from existing nuclear plants. But the administration postponed a decision on that question, asking instead for more information on the industry. Very few nuclear plants are expected to be built in the near future.
Cost is currently the biggest obstacle to making hydrogen cleanly. Although some companies around the world have used wind, solar or nuclear power plants to run electrolyzers and make hydrogen without any emissions, that process costs about $4 to $6 per kilogram of hydrogen. That’s about two to three times as expensive as doing it with natural gas.
The hydrogen tax credit was intended to fill that gap and start a new industry, by providing up to $3 for every kilogram of “clean” hydrogen produced by companies over a ten-year period.
But defining what constitutes “clean” has been controversial.
Most of America’s electricity still comes from coal and natural gas plants, so if a company were to just plug a bunch of electrolysis into the existing grid to make hydrogen, emissions would likely rise. Likewise, if a hydrogen company tried to use electricity from an existing wind or solar farm, other coal or gas plants might have to run more often to make up for the lost power. Without safeguards, various studies have suggested, the tax credits could inadvertently lead to the emission of hundreds of millions of tons of extra carbon dioxide.
To avoid that outcome, the Treasury Department proposed a number of restrictions. To earn the full tax credit, hydrogen producers would have to draw on new sources of clean electricity built in the past three years. This could include a new wind farm or investments to increase the capacity of an existing nuclear plant. Those plants would have to be located in the same grid region as the hydrogen plant. And, starting in 2028, the electrolyzers could only run in the same hours that the clean power was available.
Some hydrogen companies said the proposed rules could be difficult to follow. Wind and solar power don’t run all the time, and trying to match hydrogen output with renewable fluctuations on an hourly basis would increase costs, they said.
“This policy will make it harder for everybody,” said Jacob Susman, CEO of Ambient Fuels, a clean hydrogen developer that was planning about $700 million in new projects. Still, he said his company would try to work with the new rules.
Companies and other experts said the new hourly matching rules could spur innovation. One US startup, Electric Hydrogen, is making an electrolyzer designed to ramp up and down with solar and wind output. The new rules could give that type of technology a leg up over less flexible electrolyzers made in China, the company said.
“There will be a lobbying blitz on the final rule,” said Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defense Council, an environmental group. “We are watching closely to make sure there are no new loopholes that will harm emissions or consumers.”
It is not yet clear how much clean hydrogen the United States will produce in the coming years. Although the Biden administration has laid out a strategy to produce 50 million tons of clean hydrogen by 2050, more than 50 times what is produced today, there are steep obstacles, including establishing systems to transport hydrogen and buyers find fuel.
To that end, the Department of Energy is also spending $7 billion to create hydrogen hubs across the country to connect producers and buyers, while establishing programs to stimulate demand for hydrogen and reduce the cost of electrolysis.
“We have a lot of tools in our clean hydrogen tool belt that we didn’t have before,” said David Turk, deputy energy secretary. “There is a great opportunity here.”
c.2023 The New York Times Company
