The Hydrogen Revolution: New Tax Rules Ignite Hope
Hydrogen startups have long been seen as a beacon of hope for cutting down fossil fuel reliance in heavy industries and long-haul transport. However, they’ve been in a holding pattern, eagerly awaiting guidance on lucrative tax credits from the U.S. Treasury. That wait is finally over! Today, the Treasury announced final rules for hydrogen producers to qualify for tax incentives under Section 45V of the Inflation Reduction Act.
“We’re grateful to have a final rule,” Beth Deane, chief legal officer at Electric Hydrogen, expressed to TechCrunch. “Without that, the industry is just kind of dead in the track.”
{Beth Deane, Chief Legal Officer, Electric Hydrogen}
These rules have been over two years in development and bring some relief by easing parts of the initial proposal. They offer a lifeline to existing nuclear and fossil fuel power plants while ensuring that hydrogen production doesn’t inadvertently increase pollution. The complexity of hydrogen production methods makes these regulations a carefully crafted maze.
There are two principal methods for producing hydrogen:
- Electrolyzers: Use electricity to split water molecules into hydrogen and oxygen.
- Steam Reformation: Uses steam and heat to break down methane into hydrogen and carbon dioxide.
These methods come in various forms. For instance, steam reformation can result in “grey hydrogen,” which emits carbon dioxide, or “blue hydrogen,” which captures it. Electrolyzers can run on renewable energy to produce “green hydrogen” or nuclear power for “pink hydrogen.” This dynamic landscape is often referred to as the “hydrogen rainbow.”
The crux of the 45V rules is ensuring that new hydrogen production doesn’t boost grid-based greenhouse gas emissions. To achieve this, producers must trace emissions for every kilogram of hydrogen throughout its lifecycle. Blue hydrogen producers, for example, need to consider methane leaks from natural gas pipelines.
By 2030, producers will have to demonstrate that their energy source was used within the hour to create hydrogen. Tax credits are scaled based on greenhouse gas emissions reductions during production, offering up to $3 per kilogram. Given that green hydrogen costs range from $4.50 to $12 per kilogram (BloombergNEF), these credits could make it competitive against fossil-derived options.
Nuclear and fossil fuel plants benefit as well. Previous rules required new nuclear power sources; now, existing plants can contribute up to 200 megawatt-hours of electricity. Furthermore, fossil fuel plants with recent carbon capture installations qualify under the revised rules.
While these regulations are a positive step forward, they’re not without flaws. Beth Deane from Electric Hydrogen highlights the need for more flexibility regarding electricity sourcing and clean energy procurement requirements. Nevertheless, she emphasizes that certainty is what the industry truly craves.
“We want one that stays in place and then can possibly be tweaked,” Deane remarked. “We really encourage the incoming administration to let this rule stand.”
{Beth Deane, Chief Legal Officer, Electric Hydrogen}
