The US Department of the Treasury recently released the Final Rule for hydrogen production tax credits, providing a significant boost to the green hydrogen industry.
This clarification on federal tax credits, especially for green hydrogen, is seen as a positive step for the growing sector. Green hydrogen is one of several hydrogen types covered by the new federal tax credit under the 2022 Inflation Reduction Act’s section 45V. To qualify as clean hydrogen, greenhouse gas emissions from production must not exceed 4 kilograms of carbon dioxide equivalents per kilogram of hydrogen. The goal is to reduce reliance on natural gas and encourage investment in alternative hydrogen sources like biogas, biomass, and green hydrogen.
The tax credit’s success depends on the lifecycle emissions of produced hydrogen. For green hydrogen, this means examining the electricity source used. Renewable energy-powered facilities meet clean standards effortlessly, but grid-connected ones face challenges due to varying energy sources on the grid. Proper accounting for these energy sources is crucial to prevent encouraging fossil fuel use, which counteracts climate goals.
New rules give green hydrogen producers until 2030 to meet accounting standards for the best tax benefits, extending the original deadline by two years. This extension has been praised for promoting rapid short-term growth while ensuring long-term gains. The intention is to bolster domestic energy and industrial security by diversifying hydrogen supply chains through initiatives like the Department of Energy’s Regional Clean Hydrogen Hubs program.
Natural gas can qualify for tax credits if paired with carbon capture. The American Petroleum Institute acknowledged that while the Treasury’s rules allow natural gas to compete in new markets, the stipulated carbon capture remains a complex challenge. Globally, alternative hydrogen supply chains are developing, with countries like Canada exporting green hydrogen, potentially surpassing US efforts if it fails to capitalize on opportunities.
While carbon capture is beneficial in various forms, its economic viability in energy systems is unproven in the US. Previous projects, like FutureGen, highlight challenges in carbon capture’s feasibility. The future will reveal if green hydrogen can assess new opportunities under the Final Rule amidst a changing political landscape.
As global demand for sustainable hydrogen grows, the US faces competition from international initiatives. The success of the Regional Clean Hydrogen Hubs, primarily focused on sustainable systems, will be crucial. One exception, the Appalachian Regional Hydrogen Hub, relies on natural gas coupled with carbon capture, yet faces investment hesitancies and developmental challenges.
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