The Biden administration has introduced new rules on hydrogen ahead of President-elect Donald Trump’s upcoming inauguration in a bid to extend the efforts of the Inflation Reduction Act (IRA) and advance the U.S. green transition.
New Hydrogen Rules
At the beginning of January, the U.S. Department of the Treasury and Internal Revenue Service released the final rules for the section 45V Clean Hydrogen Production Tax Credit, which was created under the IRA.
These new rules are aimed at supporting the expansion of the hydrogen industry. They offer clarity, investment certainty, and flexibility for those in the industry looking to better understand their eligibility for the credit.
The new rules state that to be eligible for the full tax credit, projects must meet prevailing wage and apprenticeship standards. This requirement was introduced in line with the Biden administration’s aims to deliver good-paying clean energy jobs to workers across the country.
The U.S. Deputy Energy Secretary David Turk stated, “Clean hydrogen can play a critical role decarbonizing multiple sectors across our economy, from industry to transportation, from energy storage to much more.” Turk added, “The final rules announced today set us on a path to accelerate deployment of clean hydrogen, including at the Department of Energy’s Clean Hydrogen Hubs, leading to new economic opportunities all across the country.”
John Podesta, the Senior Advisor to the President for International Climate Policy, emphasized government efforts to include stakeholders in the hydrogen industry in the elaboration of the new rules to understand the needs and expectations of those in the sector. Podesta expects the rules will help “make the United States a global leader in truly green hydrogen.”
U.S. Hydrogen Targets
In 2024, the U.S. Department of Energy (DoE) established the national goal of increasing annual “clean hydrogen” production from almost none to 10 million metric tons by 2030, and 50 million metric tons by 2050. The DoE also set a goal to reduce the cost of clean hydrogen by 80%, to $1 per kilogram, within a decade.
Eligibility for the Tax Credit
The rules will support the expansion of the hydrogen industry, with funding for both gray and green hydrogen production. Green hydrogen is produced using renewable energy to power electrolysis, whereas gray hydrogen is produced using natural gas to power the process.
The tax credit’s value is based on the lifecycle greenhouse gas emissions of hydrogen production. Companies can reduce the emissions of gray hydrogen operations by investing in carbon capture and storage technologies, which could make them eligible for a higher tax credit.
Hydrogen is a versatile energy carrier that can be used as a fuel for a wide range of applications. It is widely viewed as a key means of decarbonizing hard-to-abate industries that cannot be powered by alternative renewable energy sources, which could make it a critical part of a green transition.
However, investment in clean hydrogen has been limited due to the high costs associated with its production. Gray and blue hydrogen cost around $12/ Megawatt Hour (MWh) to produce in the U.S. and $32/MWh in Europe, while green hydrogen costs around $44/MWh to produce in the U.S. and $100/MWh in Europe. The introduction of tax credits is, therefore, expected to speed up the rate of deployment of new clean hydrogen operations across the U.S. and eventually help drive down costs as the scale of production increases.
Angela Anderson, the Director of Industrial Innovation and Carbon Removal at the U.S. Climate, World Resources Institute, stated, “The final rule ensures that only hydrogen projects produced from zero-carbon energy will qualify for the most generous tax incentives.” Anderson added, “These rules will encourage industrial companies to adopt a vital clean energy solution that will both slash their pollution and boost their competitiveness.”
Urgency to Pass the Rules
The Treasury first proposed guidelines to govern tax credits subsidizing clean hydrogen over a year ago. The new rules were finally passed on 6th January and came into effect the following week. However, they could still be challenged or overturned using a legislative process by the Republicans in control of the U.S. Congress. This could mean that only existing hydrogen producers may be eligible for tax credits and only while the Biden administration remains in power.
The Biden administration has raced to approve huge quantities of green funding in recent months ahead of Trump’s inauguration as president on 20th January. Many worry that the reach of the IRA is under threat of being significantly reduced once Trump comes into power, as he has repeatedly threatened to reduce spending on green energy and cleantech in favor of greater fossil fuel production.
While it is likely that the new Trump administration will seek to weaken the IRA – the most far-reaching U.S. climate policy to date, as it has brought in billions in investment over the last two and a half years it is unlikely that he will scrap it altogether. However, the passing of new rules and the approval of green funding outlined in the IRA have provided greater security to those in the sector concerned about the uncertain outlook of the energy industry under Trump.
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