The US government has gone on to finally unveil its long-awaited proposed rules as far as clean hydrogen production is concerned, thereby gauging the criteria that developers will have to meet so as to qualify for the hydrogen tax credit of almost $3 per kilogram.
Apparently, the credit was signed into law in August this year as part of the Inflation Reduction Act- IRA, however, a few companies have been looking to make final investment decisions when it comes to clean hydrogen projects until they find out if they can actually get to qualify for the tax credits.
It is well to be noted that the proposed guidelines almost match the draft version, including the controversial needs when it comes to additionality, hourly matching, as well as geographical correlation measures that are already introduced in the EU so as to ensure that fossil fuel-fired power cannot be used directly or indirectly in order to produce green hydrogen.
Green hydrogen projects across the US will have to go ahead and source power input from renewables assets on the similar regional grid that have been installed in the three years of hydrogen production taking off.
But while the EU enables the matching of renewable power to electrolyser function within a calendar month until 2030, a point at which the two must take place in a one-hour window, the US Treasury has already gone on to set annual matching up to 2027 as well as hourly matching from 2028 onwards, thereby making the rules more strict than what are there in Europe.
The senior advisor to the US President for clean energy innovation as well as implementation, John Podesta, remarked that the IRA’s hydrogen tax credit will go on to help build a clean hydrogen sector, which will be crucial in decreasing emissions from harder-to-decarbonize sectors such as heavy industry as well as heavy transportation.
Apparently, a public consultation on the proposals will now be taking place, with a public hearing that would be scheduled to take place on March 25, 2024. It is, however, not clear when the guidelines are going to be finalized.
Prospective hydrogen producers, along with some of the Democratic politicians, have lobbied pretty strongly against such rules, debating that they would raise the cost of green hydrogen by decreasing the number of hours an electrolyser can be functional, speed down the sector’s growth, and also be discriminatory due to other clean-energy solutions, like EVs and heat pumps, did not happen to be subject to such restrictions.
It was around recently that controversial Democratic senator as well as coal magnate Joe Manchin, whose vote had been critical to getting the IRA passed, remarked that the leaked regulations happen to be horrible, stating to Bloomberg that they are indeed fighting it. It does not happen to do anything that the bill does. They have gone on to make it ten times stricter for hydrogen.
In May this year, 54 hydrogen-related companies as well as organizations went on to sign a letter to the US government, thereby calling for no additionality clauses.
Environmental groups as well as analysts debated successfully that, sans the three rules in place, a rise in green hydrogen projects drawing electricity from the grid will go on to mean an indirect rise when it comes to greenhouse gas emissions, as fossil fuel-fired power plants go on to burn extra coal or gas so as to replace renewable energy being diverted to electrolysers.
Interestingly, the US hydrogen production tax credit, also called 45V after the IRA clause in which it is contained, is split within four rates that are based on emissions intensity, with only the top tier getting the full $3 per kilogram credit.
Blue hydrogen projects that happen to be made from natural gas with carbon capture as well as storage happen to be eligible to get the credits, but as per the US Department of Energy report released earlier in December, they are most unlikely to get to the 4 kilograms of carbon dioxide, which is equivalent to the per kilogram of hydrogen threshold, mostly due to upstream emissions of methane, which is indeed a powerful greenhouse gas.