Hydrogen startups are widely seen as a promising way to eliminate fossil fuels from heavy industry and long-distance transportation. But they have been stuck in limbo for several years now, waiting for formal guidance from the U.S. Treasury on lucrative tax credits.
Today, the wait is over as the Treasury Department releases final regulations making hydrogen producers eligible for tax credits under section 45V of the Suppression of Inflation Act.
“We are grateful for the final rule,” Beth Dean, Electric Hydrogen's chief legal officer, told TechCrunch. “Without that, the industry is really at a standstill.”
The rules, which took more than two years to develop, relax some of the draft rules and provide some leeway for existing nuclear and fossil fuel power plants.
Because hydrogen can be produced in so many different ways, the resulting regulations are a complex labyrinth of regulations designed to prevent trusted hydrogen producers from accidentally causing further pollution. It has become.
There are two main sources of hydrogen. One is produced by an electrolyzer, which uses electricity to split water molecules into hydrogen and oxygen, and the other is produced by steam reforming, which uses steam and heat to destroy methane molecules. and produces hydrogen and carbon. Dioxide.
However, there are countless variations of both. Steam reforming can either release carbon dioxide pollution into the atmosphere (so-called gray hydrogen is produced during the process) or it can capture and store carbon dioxide (blue hydrogen) . Electrolysers can be powered by renewable energy (green hydrogen) or nuclear power (pink hydrogen). If you want to know more, hydrogen comes in so many flavors that people sometimes refer to them all as the hydrogen rainbow.
The heart of the 45V rule is to ensure that new hydrogen production does not result in additional greenhouse gas emissions on the grid. To that end, the Treasury requires manufacturers to track the emissions produced for every kilogram of hydrogen throughout its lifecycle. This means, for example, that blue hydrogen producers must consider the global warming effects of methane leaks from natural gas pipelines.
Hydrogen producers will be required to purchase renewable or clean electricity from the region. By 2030, it will also be necessary to prove that the electricity was used to produce hydrogen within one hour.
Generally, hydrogen production that produces fewer greenhouse gases throughout its life cycle is eligible for larger tax credits of up to $3 per kilogram. According to BloombergNEF, the cost of green hydrogen typically ranges from $4.50 to $12 per kilogram, so maxing out credits could make the process competitive with fossil-based hydrogen in some regions. There is a possibility that it will become.
Nuclear and fossil fuel power plants will also benefit under the revised guidance. Previously, hydrogen producers had to source electricity from new nuclear power plants to qualify. Currently, existing nuclear power plants can provide up to 200 megawatt-hours of electricity. Certain fossil fuel power plants that have recently installed carbon capture equipment may also qualify.
While this rule is welcome, it's still not perfect. That's not surprising given the number of stakeholders. From Electric Hydrogen's perspective, Dean would like to see a little more flexibility in where producers can buy power and how much additional clean or renewable power they need to source. I am.
But what the industry needs most is certainty, Dean said. “We want something that stays in place and maybe can be adjusted,” she said. “We strongly encourage the next administration to keep this rule in place.”