Hydrogen tax credit rules give startups clarity while promoting nuclear and carbon capture
Hydrogen startups are widely seen as a promising way to phase out fossil fuels in heavy industry and long-distance transportation. But they have been stuck in limbo for the past two years, waiting for official guidance from the US Treasury Department on lucrative tax breaks.
The wait is over today with the Treasury Department advertisement Final rules for hydrogen producers to qualify for tax credits under Section 45V of the Act Inflation reduction law.
“We are grateful to have a final rule,” said Beth Dean, chief legal officer at Electric hydrogenTechCrunch said. “Without that, the industry would be dead in the tracks.”
The rules, more than two years in the making, water down some parts of the draft proposal, giving existing nuclear and fossil fuel plants some relief.
Because hydrogen can be manufactured in many different ways, the resulting rules are a complex maze of regulations designed to ensure that hydrogen producers who get the credit do not inadvertently cause more pollution.
There are two main sources of hydrogen: that produced by electrolyzers, which use electricity to split water molecules into hydrogen and oxygen, and that generated by steam reformation, which uses steam and heat to break down methane molecules, producing hydrogen and carbon dioxide.
But both have countless differences. Steam reforming can discharge carbon dioxide pollution into the atmosphere (producing so-called gray hydrogen in the process) or it can capture and store it (blue hydrogen). The electrolyser can be powered by renewable energy (green hydrogen) or nuclear energy (pink hydrogen). If you really want to dig deeper, there are so many flavors of hydrogen that people often refer to them all by name Hydrogen rainbow.
At their core, the 45V rules seek to ensure that new hydrogen production does not result in additional greenhouse gas emissions on the grid. To do this, the Treasury Department requires producers to track the emissions generated by each kilogram of hydrogen throughout its life cycle. This means, for example, that blue hydrogen producers must take into account the greenhouse effects of methane leaking from natural gas pipelines.
Hydrogen producers will have to purchase renewable or clean energy from the region in which they are located. By 2030, they will also have to prove the energy used to produce hydrogen within an hour.
In general, hydrogen production that generates fewer greenhouse gases over its life cycle gets larger tax breaks, up to $3 per kilogram. Green hydrogen generally costs about $4.50 to $12 per kilogram. According to According to BloombergNEF, the maximum certification could make the process competitive with fossil-derived hydrogen in some areas.
Nuclear power plants and fossil fuel plants also benefit from the revised guidance. Previously, hydrogen producers had to source power from new nuclear plants to qualify. Now, existing nuclear plants can generate up to 200 megawatt-hours of electricity. Some fossil fuel power plants that have recently installed carbon capture equipment will also now be eligible.
The rules, while welcome, are still not perfect. Given the number of interested parties, this is not surprising. from Electric hydrogenFrom Dean’s perspective, Dean would like to see more flexibility around where producers are allowed to buy electricity and how much additional clean or renewable energy they have to buy.
But Dean said what the industry wants most is certainty. “We want one that stays in place and then can be adjusted,” she said. “We really encourage the incoming administration to allow this rule to continue.”
