ExxonMobil’s Blue Hydrogen Ambitions Hang in the Balance Amid US Tax Credit Uncertainties

By February 23, 2024 4   min read  (676 words)

February 23, 2024 |

2024 02 23 09 39 48
  • US Tax Incentive Disputes Threaten Hydrogen Project

ExxonMobil’s strategic endeavor to pioneer the foremost blue hydrogen initiative globally at its Baytown refinery, Texas, is subjected to meticulous evaluation due to the dynamic nature of federal fiscal incentives related to tax credits. This period is pivotal as clean hydrogen is identified as a crucial component for mitigating climate change effects, presenting a viable solution for the decarbonization of critical sectors such as heavy industry and transportation.

The Baytown Project in Jeopardy

ExxonMobil’s announcement to construct a cutting-edge clean hydrogen facility, heralded as the world’s largest, marked a significant stride towards clean energy. However, draft rules issued by the Treasury Department, which provide no incentives for clean hydrogen fuel produced using natural gas with reduced methane emissions, have cast doubt on the feasibility of the Baytown project. According to ExxonMobil’s global business manager for hydrogen, Mark Klewpatinond, without a competitive edge in natural gas production, the Baytown facility’s progress is uncertain, as it would have to vie for capital with other company projects.

The Hydrogen Tax Credit Conundrum

The core of the issue lies in the tax credit structure included in 2022’s Inflation Reduction Act. The act aims to foster the production of clean hydrogen, particularly green hydrogen projects, which use electricity from renewable sources to convert water into hydrogen. However, the stringent criteria set for claiming the highest tax credit—$3 per kilogram—favor green hydrogen projects directly powered by renewable energy like wind and solar farms. Blue hydrogen projects, which depend on natural gas and carbon capture, are likely to receive a lesser credit of up to 60 cents per kilogram, even if their total emissions are comparably low.

National Clean Hydrogen Strategy

President Joe Biden’s administration is diligently working towards transitioning the industrial sector to clean hydrogen fuel, aligning with the national goal of net-zero greenhouse gas emissions by 2050. Nonetheless, the energy-intensive nature of hydrogen fuel production, coupled with the desire to avoid inadvertently supporting hydrogen facilities with high greenhouse gas footprints, complicates the tax credit landscape.

ExxonMobil’s Stance and Industry Response

While ExxonMobil deliberates the continuation of the Baytown project, other industry players like Linde and Air Products have moved forward with their blue hydrogen facilities, undeterred by the draft tax rules. The industry awaits the Treasury Department’s final regulations, with many clean hydrogen initiatives pausing to assess their economic viability.

Environmentalist Concerns and Political Pressures

Environmental advocates, such as the Sierra Club, push for federal subsidies to be reserved only for hydrogen facilities that construct their own renewable energy infrastructure. Meanwhile, ExxonMobil and others urge flexibility to avoid repeating the failures of past hydrogen initiatives. Politically, the Biden administration is receiving input from across the aisle, with figures like Senators Sherrod Brown, Joe Manchin, and Bob Casey stressing the need for technology-neutral clean hydrogen incentives.

The Roadmap and Market Projections

The administration has projected a goal of 10 million tons of clean hydrogen production per year by 2030 and committed $7 billion to establish seven hydrogen hubs across the nation. However, energy analysts anticipate a slower market development, foreseeing a gradual expansion from current industrial hydrogen users to broader applications in transportation.

The Blue Hydrogen Technology Debate

ExxonMobil’s selection of Topsoe’s SynCOR autothermal reformer (ATR) for the Baytown facility, while efficient, requires more electricity than conventional steam methane reforming and may not align with the Treasury’s draft guidance for zero-carbon electricity. The reliance on gas-fired power plants for electricity may further complicate eligibility for the tax credit, as the Department of Energy has suggested that ATR with CCS may not qualify for the clean hydrogen production tax credit.

The 45Q Tax Credit as an Alternative

Despite the challenges with the hydrogen tax credit, blue hydrogen producers could consider the 45Q tax credit, which offers $85 per tonne of CO2 captured and stored, independent of upstream emissions. This could potentially provide a more lucrative incentive for blue hydrogen projects, depending on their carbon capture rate.



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