The Biden administration today unveiled a detailed proposal for distributing billions in tax credits to hydrogen producers, a move that aims to jumpstart the hydrogen industry in the United States.
The plan, part of last year’s Inflation Reduction Act, offers a tiered system for hydrogen production credits, favoring cleaner energy projects and also supporting those using fossil fuels. The U.S. credit is currently the most generous globally for hydrogen production.
The administration expects this initiative to generate $140 billion in revenue and create 700,000 jobs by 2030, potentially producing 50 million metric tons of hydrogen by 2050. This volume of hydrogen could match the energy usage of all buses, planes, trains, and ships in the U.S. combined. However, the reality of reaching this milestone is complex, as the existing infrastructure for liquid fuels does not readily support cleanly-made hydrogen delivery.
“The Biden-Harris Administration is driving American innovation in emerging industries to create good-paying jobs, strengthen U.S. energy security, and help the U.S. clear hurdles in our clean energy transition,” said U.S. Secretary of the Treasury Janet L. Yellen. “Incentives in the Inflation Reduction Act are helping to scale production of low-carbon fuels like hydrogen and cut emissions from heavy industry, a difficult-to-transition sector of our economy.”
“Today’s announcement will further unprecedented investments in a new, American-led industry as we aim to lead and propel the global clean energy transition,” said U.S. Secretary of Energy Jennifer M. Granholm. “Hydrogen has the potential to clean up America’s manufacturing industry, power the transportation sector and shore up our energy security all while delivering good-paying jobs and new economic opportunity to communities in every pocket of America.”
“The Inflation Reduction Act’s hydrogen tax credit will help build a clean hydrogen industry that will be critical in reducing emissions from harder-to-decarbonize sectors like heavy industry and heavy transportation,” said John Podesta, Senior Advisor to the President for Clean Energy Innovation and Implementation.
Hydrogen is increasingly recognized as a crucial energy source for sectors that emit significant greenhouse gases and are challenging to electrify. Current U.S. production, primarily for petroleum refining and ammonia production, largely contributes to climate change as it relies on natural gas. The new proposal aims to incentivize cleaner hydrogen production with a substantial credit of up to $3 per kilogram, depending on the lifecycle emissions.
A critical aspect of the proposal involves documenting electricity usage through “energy attribute certificates,” determining the credits for which producers qualify. The administration’s guidance has received mixed reactions, with some industry representatives welcoming the proposal, while others, including the U.S. Chamber of Commerce, express concerns that it might hinder the industry’s growth.
Additionally, to qualify for these tax credits, companies must demonstrate that they have used clean, zero-carbon electricity. This requirement has sparked debates over defining clean electricity and its implications for the power grid and hydrogen production. The Biden administration’s approach, supported by environmental groups, mandates that clean electricity must come from new power sources, be generated simultaneously with its use, and be produced within the same grid.
The proposal has also faced criticism from certain sectors, including Senator Joe Manchin, who described the draft as “horrible” and not aligned with the intent of the Inflation Reduction Act. Despite these criticisms, the administration maintains that the proposal will drive innovation and create jobs while transitioning to clean energy.
The hydrogen tax credit policy is seen as a key component of the U.S.’s climate strategy, with potential applications in decarbonizing heavy-duty transportation and industries such as steel, chemicals, and fertilizer production. However, its impact on electricity markets and the broader energy transition remains a subject of ongoing debate and analysis.
A period for public consultation on the proposed plans is now underway, with a public hearing set for March 25, 2024. The timeline for finalizing these guidelines remains uncertain.
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