Prospective hydrogen developers are changing the way they are arguing for tax credit eligibility and are putting pressure on the Biden administration to give its planned regulations more leeway after first warning that a strict emissions policy may crush the fledgling sector. Some sector players are now attempting to reach a compromise with the US Treasury Department by asking for exemptions and deferrals, following months of campaigning against stringent emissions requirements.
Profiteering over climate concerns
The Fuel Cell and Hydrogen Energy Association’s president and CEO, Frank Wolak, stated in an interview that “we haven’t decided on a place among all of our members.” “But deferring those starting points, rather than outright trying to defy them or contest them, is where we’re seeing our position is.” Proponents of Treasury’s plan stated that, if they were implemented carefully, they would also consider waivers from the requirement requiring green hydrogen projects to purchase fresh clean electricity. In order to determine eligibility for tax credits worth up to $3 per kilogram of hydrogen generated, the department is soliciting feedback on a proposed methodology for assessing the carbon emissions of hydrogen. This is why there has been a flurry of activity. Environmental organizations applauded Treasury’s framework, while industrial associations criticized the much expected guidance, especially the inclusion of the so-called additionality rule, which would prohibit green hydrogen plants from using the current system for electricity.
The true motives behind hydrogen tax credit lobbying
The rule is a reflection of suggestions made by many studies in 2023, which asked for actions known as the “three pillars” to stop the developing hydrogen sector from using up available renewable energy sources and diverting the remaining load on the grid to fossil fuel generation. Wilson Ricks conducted the Princeton University ZERO Lab’s examination of the 45V hydrogen production tax credit and found that in the absence of the three pillars, the subsidy might lead to higher greenhouse gas emissions than in a business-as-usual scenario. However, the IRS also signaled that it was open to relaxing its additionality requirement and considering scenarios in which using currently available clean resources may help prevent such problems. The IRS lists the production of hydrogen in areas with 100% clean power or where state emissions restrictions prohibit an increase in load from causing a rise in grid emissions as an unusual scenario. Another is using grid power that would otherwise be curtailed to run hydrogen electrolyzers exclusively during periods of strong renewable output.
Sacrificing climate progress for easy profit
In such cases, the IRS stated that it would take into account providing hydrogen producers with a chance to show, by modeling or other proof, that they would have a negligible effect on emissions. “Clean hydrogen producers should have the ability to offer modeling to prove their case and not simply be precluded because the rules don’t allow them to offer evidence that they’ve compiled,” Wolak stated. The Pacific Northwest, where hydropower accounts for the majority of electricity generated there, is one area that may profit. Malcolm Woolf, president and CEO of the National Hydropower Association, expressed his disappointment with the tax guidelines but stated that the IRS needs to at least exempt hydrogen projects in states that have clean energy standards.
The battle over hydrogen tax credits
According to Ricks, the IRS’s suggested remedy is problematic since it was not well-designed. According to Ricks, in the event of an excess of renewable energy, low power rates might be used as evidence that makers of hydrogen are utilizing clean electricity that would otherwise be restricted. But only in transparently priced power markets would the strategy be feasible, “so the Treasury may be reluctant to privilege certain regions by implementing it.” Additionally, given that a state may turn to buying renewable energy credits from other states in order to satisfy its clean power requirements, Ricks was skeptical that a regional exemption would reduce total system emissions.
Exposing lobbying efforts contrary to climate goals
Another suggested exemption would be for power stations, probably hydroelectric or nuclear, that could demonstrate that they would have to shut down if they didn’t sell their electricity to hydrogen makers. “This is potentially one of the more legitimate frameworks, because there are precedents for it,” Ricks stated. Ricks said that the IRS may take use of an already-existing structure, like the DOE’s civil nuclear credit program, instead of creating a financial test from the ground up. According to Fakhry, the proposed additionality exemption is supported by the Natural Resources Defense Council so long as there is a strict financial criteria.
