The Biden administration’s recent restrictions on accessing incentives for hydrogen investment have triggered a ripple effect, prompting global reactions and concerns, especially from Australian officials who feared a capital diversion overseas.
The newly released rules, part of the Inflation Reduction Act (IRA), outline conditions for accessing tax credits for green hydrogen projects, playing a pivotal role in the Biden administration’s emission reduction policy.
Released just one working day before the Christmas holiday, the rules impose specific criteria for developers to access tax credits. One key requirement is the presence of a renewable energy source in the same power grid region, operating simultaneously with the green hydrogen project. Stakeholders have been granted a two-month window for commentary and feedback before the rules are finalized, highlighting the administration’s commitment to transparency and consultation.
While the Biden administration aims to provide clarity and structure to hydrogen tax credits, criticisms have already emerged, particularly from notable figures like Andrew Forrest, the billionaire behind Fortescue. Concerns revolve around the perceived strictness and onerous nature of the rules, potentially hindering the progress of green hydrogen projects in the US.
Fortescue, a key player expanding its ventures from iron ore into the energy sector, had announced substantial investments, including the Phoenix Hydrogen Hub in the US. Valued at $750 million, this initiative encompasses an 80-megawatt electrolyser and liquefaction plant with a production capacity of up to 11,000 tonnes per year of liquid green hydrogen. The new rules have raised worries about the viability and progress of such projects, triggering a call for careful review and engagement with stakeholders.
While the rules disappoint green hydrogen developers in the US, Australian officials express relief as the stringent criteria could potentially divert less investment away from Australia. This sentiment aligns with the Australian government’s hydrogen investment program, Hydrogen Headstart, which is capped at $2 billion.
Mary Burke Baker, head of tax policy practice at Washington-based K&L Gates, argues that the new rules may impede clean hydrogen development in the US and fail to provide a competitive advantage. This sentiment is echoed by David Wochner, the law firm’s managing partner, who anticipates a possible shift of investments to countries with more favorable or less onerous regimes.
As the Biden administration’s tax credit rules navigate the complex landscape of green hydrogen investments, the global dynamics of hydrogen development are undergoing a transformation. The delicate balance between incentivizing clean energy and maintaining economic viability remains at the forefront of discussions. The future of green hydrogen projects, their economic feasibility, and the direction of global investments now hinge on strategic decisions and adaptations in response to these evolving regulations.
