Hydrogen Industry Raises Alarm Over Leaked US Tax Credit Rules

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Could jeopardize success of nascent climate-friendly fuel

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Published Dec 04, 2023  •  Last updated 5 days ago  •  2 minute read

Rules for a production tax credit for hydrogen have yet to be finalized. Photo by Alex Kraus/Bloomberg

A leaked draft of high-stakes United States Treasury Department rules for a production tax credit for hydrogen created in President Joe Biden’s signature climate law is setting off alarms by the industry, which says the requirements put the success of the nascent climate-friendly fuel at risk.

The rules, which have yet to be finalized, include measures sought by environmentalists that would require hydrogen-production operations to be powered by wind, solar or other clean-power projects built within the last three years to qualify for a US$3-per-kilogram credit, according to people familiar with the draft. Some of the details of the tax guidelines were reported earlier by Politico.

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“If true, the Biden Administration’s proposed strategy for implementing these provisions will fail to get this new industry off the ground,” Jason Grumet, chief executive of the Washington-based American Clean Power Association, said in a statement Monday. “It is surprising and disappointing that the administration would propose such a rigid approach that is at odds with decades of learning about new technology deployment.”

The Treasury Department, which is expected to make its guidance public by year’s end, declined to comment.

The rules governing the hydrogen tax credits have sparked a fierce lobbying battle. The guidance in the Treasury Department draft also calls for hydrogen projects to be supplied with new, clean-power sources operating on the same grid on an annual basis through 2027, then on a hourly basis starting in 2028, the people said.

Hydrogen is seen as a critical fuel for decarbonizing steel, cement and other heavy industries, and the tax credit is viewed as an essential incentive to spur its development.

But environmentalists warn that unless there are strict rules requiring that hydrogen be produced with new, clean power sources operating on the same grid and during the same time, it could drive further demand for fossil-fuel based electricity — and unleash more greenhouse gas emissions.

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A main point of contention is whether — and when — projects should face stronger hourly time-matching requirements, instead of more lenient annual mandates and if there should be any grandfathering for projects that begin construction in the near term.

— with assistance from Jennifer A. Dlouhy.

Bloomberg.com

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