US hydrogen groups raise alarm on proposed rules for tax credits

HOUSTON (ICIS)–The proposed rules that will govern the US hydrogen tax credit program are too strict and may do too little to promote the nascent industry, two hydrogen trade groups said on Friday.

However, environmental groups and an industrial gas producer lauded the proposal rules because they ensure that the most lucrative tax credits go to hydrogen produced with the lowest emissions.

The US Department of the Treasury and the Internal Revenue Service (IRS) revealed the proposed rules on Friday for the Section 45V tax credits, which will be issued to companies producing blue or green hydrogen.

The rules define such key terms as lifecycle greenhouse gas emissions, qualified clean hydrogen and qualified clean hydrogen production facility.

The process to approve the guidelines will kick off on 26 December, when they should be published in the Federal Register. Afterwards, groups will have 60 days to comments before the government issues final rules.

HYDROGEN GROUPS RAISE CONCERNS
The proposals will place unnecessary burdens on an industry that is still nascent, according to Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association (FCHEA). Members include companies involved in green and blue hydrogen.

“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 said. “The US 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.”

Wolak’s comments implied that the guidelines would function as “an inadvertent backdoor to regulate use of the electric utility grid”.

The Clean Hydrogen Future Coalition identified what it called serious concerns with the guidelines. Board members include oil, gas and renewable energy producers.

“Treasury’s proposed guidance runs counter to Congressional intent for the credit: to incentivize the rapid development of a domestic clean hydrogen industry,” it said.

It warned that the requirements in the proposed guidelines would drive up production costs and delay the investments needed to reduce the costs of electrolyzers. Electrolyzers produce green hydrogen buy using renewable power to split water molecules.

OTHERS SUPPORT PROPOSED GUIDELINES
Not all groups raised concerns.

The Sierra Club, a US environmental group, said the proposed guidelines would encourage the production of the cleanest version of hydrogen. The government resisted pressure for fossil fuel producers to weaken the standards.

Under the guidelines, green hydrogen producers will have to ensure that the sources of their renewable energy are built specifically for their operations within the previous three years. They will need to track their energy sources on an hour-to-hour basis starting in 2028.

In addition, the proposal takes into account methane emissions and leakage  associated with blue hydrogen. Blue hydrogen relies on natural gas as a feedstock and sequesters the carbon dioxide (CO2) produced in the process.

“With this new guidance, we can see the Biden administration is making the right choices for ensuring only truly clean hydrogen is eligible for the highest credit, enabling heavy industry to decarbonize without rewarding dirty hydrogen production,” said Patrick Drupp, Sierra Club director of climate policy. “We urge the administration to finalize strong standards that fully reflect the total emissions impact of hydrogen production to protect communities and our climate.”

The Environmental Defense Fund (EDF) lauded the administration for taking steps to ensure that hydrogen can address CO2 emissions.

“The draft rule takes us a very big step forward toward a genuinely sustainable hydrogen economy that delivers real benefits for the climate and for the broader clean energy ecosystem,” said Amanda Leland, EDF director. “We applaud the administration’s diligent work.”

Looking ahead, the final rule needs to take into account the methane emissions associated with blue hydrogen and the warming potential of hydrogen itself, the EDF said.

Air Products, a US-based industrial gas producer, expressed support for the proposed guidelines. Air Products is developing large green hydrogen projects.

“The proposed rules will ensure subsidies from the US government provide support for the development of truly clean hydrogen projects, in turn accelerating the growth of the clean hydrogen market,” Air Products said.

In addition, it will put the US on a path to a globally harmonized clean hydrogen certification program, Air Products said. This will benefit global energy trade and the development of a hydrogen economy.