The rules set forth by the Treasury will require that clean hydrogen be produced via electrolysis supplied with power from zero-emission clean energy resources that are located within the same geographic region, as measured on an annual basis through 2027

On Friday, December 22, the US Treasury Department released initial guidance regarding the Inflation Reduction Act’s (IRA) clean hydrogen (45V) tax credit program. Clean Energy Group (CEG) applauds the Treasury’s decision to follow the guidance of climate scientists, environmental justice advocates, and technical experts and apply appropriately strict standards to ensure that the 45V tax credit incentivizes truly clean hydrogen production that will not lead to a dangerous increase in greenhouse gas emissions. “Fossil fuel companies have spent $41 million in federal lobbying around hydrogen, including for laxer rules around the 45V credit. This guidance is a huge and much-needed win for hydrogen policy driven by climate science, not by fossil industry money,” says CEG Project Director Abbe Ramanan. The rules set forth by the Treasury will require that clean hydrogen be produced via electrolysis supplied with power from zero-emission clean energy resources that are located within the same geographic region, as measured on an annual basis through 2027 and then on an hourly basis starting in 2028. The energy resources must be built no more than three years prior to the launch of the hydrogen production facility. As CEG outlined in joint comments last year, these three requirements – hourly matching of clean energy, localized energy that can be directly transported to the production facility, and new, additional renewable energy resources developed solely for hydrogen production – are critical to producing zero-carbon hydrogen. As outlined in the IRA, the 45V tax credit is tiered by emissions intensity, with zero-carbon hydrogen eligible to receive a maximum credit of $3.00 per kilogram of hydrogen produced. The only way to produce zero-carbon hydrogen is via electrolysis, in which hydrogen is extracted from water using an electric current. However, electrolysis is an incredibly energy-intensive and inefficient process. To minimize inefficiency, electrolyzers must be run nearly constantly. Due to these issues, it is vital to have strict guardrails around electrolytic hydrogen production. As several studies show, if an electrolyzer is powered by a grid that has even a low mix of fossil fuel resources, the increase in demand will result in hydrogen production with roughly double the carbon-intensity of hydrogen produced directly from fossil fuels alone. Market-based procurements of clean energy, such as annual Renewable Energy Credit (REC) purchases, would not be substantially beneficial since the high electricity demand of electrolysis would not be directly matched in time and location to zero-emission electricity generation, thus leaving the door open for dirtier sources of energy to power hydrogen production and increased greenhouse gas emissions. Requiring the buildout of new renewable energy resources to directly power hydrogen production is also vital to ensuring that hydrogen production does not divert essential existing renewable energy resources away from directly decarbonizing grid emissions. While the Treasury’s guidance is an important step towards recognizing the need for strict regulation of clean hydrogen production, it is important to note that the 45V credit does still provide tiered incentives which include hydrogen produced from fossil fuels with carbon capture and storage, an incredibly harmful, polluting, and emissions-intensive process. In addition, all hydrogen, regardless of how it is produced, is an indirect greenhouse gas once leaked into the atmosphere. There is still a deep need for more thoughtful, responsible, and equitable engagement with the environmental justice communities who stand to be the most harmed by irresponsible hydrogen development. CEG encourages the Treasury and other federal agencies to continue to listen to scientists and advocates and guard against uses of hydrogen that can jeopardize a just clean energy transition. Clean Energy Group | www.cleanegroup.org SOURCE: North American Clean Energy

Clean Energy Group Statement on Treasury Department Hydrogen Tax Credit Guidance