The Biden administration on Friday released long-awaited final rules for a tax credit that will send billions of dollars to spotless hydrogen producers.
The up-to-date rules met with cautious praise from environmental groups. They said they would likely reduce planet-warming emissions, but included loopholes that would allow soiled hydrogen producers to continue to be rewarded.
The government is trying to escalate hydrogen production to replace fossil fuels as a power source for industries that emit huge greenhouse gases but are challenging to electrify, such as long-distance transportation and industrial manufacturing, including steelmaking.
Today, most hydrogen is made from natural gas, which contributes to climate change. But hydrogen can also be produced by splitting water using solar, wind, nuclear or geothermal power, producing little to no planet-warming greenhouse gases.
A year ago, the Treasury Department proposed a tiered system under which companies producing hydrogen through water splitting could be eligible for the full $3 per kilogram credit.
Now the final rule could extend full recognition to companies that exploit natural gas to produce hydrogen if they exploit technologies to capture and store the emissions, as well as companies that produce hydrogen from natural gas alternatives made from wastewater, animal manure and landfill gas. Hydrogen made from coal mine methane would likely qualify for lower levels of credit.
Administration officials said the credit is based only on the lifecycle emissions of the hydrogen production process and not on how the hydrogen is made. The credit is part of the Democrats’ Inflation Reduction Act passed in 2022, but is supported by some Republican members of Congress.
Deputy Treasury Secretary Wally Adeyemo said the bill, along with the bipartisan infrastructure bill, is the world’s most ambitious policy to support the spotless hydrogen industry.
Environmental group Earthjustice said the rules would support spotless hydrogen projects that broadly do not worsen the climate and harmful pollution. However, the group also said it was concerned that soiled hydrogen producers could also reap the benefits of this critical climate program.
Conrad Schneider, senior director of the Clean Air Task Force, an advocacy group, said the final rules would actually benefit the climate. If the hydrogen qualifies for a credit, that means it will be produced with lower carbon emissions than the fossil fuels it displaces, he said.
“We have a number of industrial sectors that are difficult to decarbonize – aviation, shipping, steel production – that currently use fossil fuels,” he said. “Such a tax incentive for the production of clean hydrogen will create a fuel that replaces these unabated fossil fuels and helps the climate.”
But Schneider said accurately tracking emissions from hydrogen produced with natural gas could be impossible if the Trump administration weakens methane regulations and emissions reporting requirements.
The Fuel Cell & Hydrogen Energy Association has more than 100 members involved in the production, distribution and exploit of hydrogen, including vehicle manufacturers, industrial gas companies, renewable energy developers and nuclear power plant operators. Frank Wolak, the association’s president, said they were relieved that the rules were finally in effect. The huge question now, he said, is whether the tax credit will advance the industry and give companies the confidence to make investments, or whether the provisions will work for some and not for others.
___
Associated Press climate and environmental reporting receives funding from several private foundations. AP is solely responsible for all content. At AP.org you can find the AP Standards for Working with Charities, a list of supporters and supported areas.
