Plug Power and Cummins’ Accelera say the proposed rules will reduce investment in clean hydrogen production plants as the new credit seems less generous than expected.
New Federal Tax Credit for Hydrogen Production
The Biden administration promotes hydrogen as critical to helping reduce harmful carbon dioxide emissions in the United States. However, the proposed rules for a new federal tax credit designed to support the production of clean forms of the essential fuel do not appear beneficial for companies trying to do so already – and may lead them to look to Europe.
Clean Tax Credit for Green Hydrogen Production
The clean hydrogen production tax credit provided by the Treasury Department offers between 60 cents and $3 per kilogram of hydrogen produced with little or no emissions. It was expected that green hydrogen, made from water and renewable energy, would be favored over “blue” hydrogen, made from natural gas which captures the resulting carbon dioxide. However, the proposed rules include a “time compatibility” element, where the credit is only provided for each hour hydrogen is produced using carbon-free energy, making it difficult for any company to maximize the maximum benefit of $3 per kilogram. According to the written rules, hydrogen makers are also required to use new clean energy facilities instead of relying on existing ones, a requirement known as “addition.”
Impact on the Industry and Shift Towards Europe
Andy Marsh, CEO of Plug Power, a leader in manufacturing water-splitting solutions for green hydrogen and fuel cells, said: “When we look at the addition and time compatibility, we think the $3 credit on average becomes a $1 credit across the United States.” He added, “When I look at the (proposed rules), we really feel that the U.S. is now taking a real step backward in hydrogen compared to Europe.” This is because Europe does not include a time compatibility element in its clean hydrogen program and encourages the use of sources like nuclear power while providing earlier financial assistance for building production facilities, according to Marsh.
Corporate Criticism and Its Impact on Climate Goals
Accelera, the clean energy unit of Cummins, which produces diesel engines, criticized the proposed rules, stating they include “excessive constraint requirements that will limit the impact of incentives and jeopardize the U.S. progress toward climate goals,” according to the company’s statement. The company said, “The guidance as written will slow or stop investments in hydrogen and may adversely affect planned hydrogen projects, including those tied to the administration’s hydrogen hub initiative.”
Challenges and Opportunities in the Clean Hydrogen Industry
Hydrogen, the most abundant element in the universe, is already heavily utilized in the U.S., primarily in oil refining, chemical manufacturing, and food processing. However, most hydrogen is produced from natural gas through a process that emits carbon dioxide into the atmosphere. Improvements in water-splitting solutions and a significant increase in wind and solar farms across the U.S. open the door to more carbon-free fuel; however, the cost of doing so remains high. Without a generous tax credit, clean hydrogen will remain a less attractive option for industries pressured to reduce their greenhouse gas emissions, such as steelmaking, fertilizer production, and heavy trucking.
Public Comment and Final Implementation
The proposed rules for the tax credit known as 45V were developed with input from federal agencies, including the Department of Energy and the Environmental Protection Agency, which administers the Clean Air Act. There will be a 60-day public comment period on the proposal and the final tax credit may not be implemented until late 2024. The Fuel Cell and Hydrogen Energy Association stated: “The guidance announced by the Biden-Harris administration today will place an unnecessary burden on the emerging clean hydrogen industry going forward,” and added, “Congress intended for the tax credit to be an incentive to boost domestic clean hydrogen production and allow the U.S. to maintain an international competitive edge, not to be an unintended backdoor to regulate the use of the electric grid.”
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