Lobbying under way as US clean hydrogen rules in debate

Lobbying under way as US clean hydrogen rules in debate
The US Treasury Department unveiled new hydrogen tax credit guidelines just befiore Christmas / MohitSingh, Creative Commons
By by Roberta Harrington in Los Angeles January 11, 2024

A public hearing will be held in late March on the US Treasury Department’s new and controversial clean hydrogen guidance, unveiled just before Christmas. And fierce lobbying is now under way to try and influence the final rules.

It is unclear when the rules will become established.

The proposals are a tiered system that the administration says will bring $140bn in revenue and 700,000 jobs by 2030, helping the US produce 50mn tonnes of H2 by 2050.

“That’s equivalent to the amount of energy currently used by every bus, every plane, every train and every ship in the US combined,” said Energy Deputy Secretary David Turk in a phone call with reporters.

To achieve the top tier, Treasury released proposed three pillars or requirements for additionality, hourly matching and geographical correlation to try to make sure that fossil fuel does not directly or indirectly produce the electricity used to make the green hydrogen.

Additionality means that green hydrogen would have to be produced from new renewable energy, and not fossil fuel-powered electricity, according to the proposals. Existing clean energy can thus continue to help decarbonise the grid.

Time-matching is how often producers would have to prove that their electrolysers – which create hydrogen from electricity – are powered by 100% renewable energy. Hourly matching must be achieved by 2028.  

Geographical correlation means that an electrolyser should be close enough to the green electricity used to power it, so that so that electricity actually used does not come from nearer dirty electricity-producing plants.

So for example, green hydrogen projects must source clean electricity from the same regional grid, installed within three years of hydrogen production being initiated.

Similar measures have been introduced in the EU, though they are not as strict as the US's will be starting in 2028.

The US incentives for clean hydrogen, as laid out in the Inflation Reduction Act (IRA) of 2022, are the strongest in the world. A draft of the criteria developers have to meet in order to gain the top credit had been leaked in early December.

The top US credit for green hydrogen is $3 per kilogram, but can be as low as $0.60 for hydrogen with higher ‘whole lifecycle emissions’. To achieve $3, the emissions intensity must be 0.45 kgCO2e/kgH or less. For the $0.60 credit, it must be 2.5-4 kgCO2e/kgH.

Most blue hydrogen, made from natural gas with carbon capture and storage (CCS), is likely to be ineligible for the credit because of upstream methane emissions, the Department of Energy has said.  

Currently, almost all of the 10mn tonnes per year (tpy) of hydrogen made in the US is from fossil fuel, and creates the equivalent of about 100-150mn tonnes of CO2 equivalent emissions, equal to 2-3% of total US emissions. It is used primarily for petroleum refining and ammonia production.

But since hydrogen could also be used for steelmaking, fertiliser and long-distance freight, it is especially important that clean hydrogen is used so the processes contribute as little as possible to climate emissions.

The Treasury Department’s proposal was welcomed by environmentalists and some clean hydrogen companies.

"The Treasury Department [has] proposed a framework that aligns with the best available evidence, protects consumers and the climate, and sets the right foundation for robust and durable growth of the US clean hydrogen sector," wrote Jesse Jenkins, assistant professor and macro-energy systems engineering and policy expert at Princeton University.

Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defence Council, called Biden administration’s proposal “a win for the climate, US consumers and the budding US hydrogen industry.”

She added: “This will turbocharge the US hydrogen market toward long-term success, position us as the global leader of an emerging industry, protect electricity consumers, expand new clean energy jobs and deliver on the climate promise of the IRA. Backed by overwhelming evidence that these rules are both very feasible and necessary, Treasury’s proposal will ensure that the clean hydrogen industry grows while actually reducing emissions.” 

The Clean Air Task Force described the proposal as “an excellent step toward developing a credible clean hydrogen market in the United States.”

Opponents of the proposals say they will just increase the green hydrogen’s cost, reduce how many hours an electrolyser can run, stymie the green hydrogen sector’s growth and hold the sector to standards that others in clean energy are not held to.

The American Petroleum Institute said that “hydrogen of all types” is required and it urged the Biden administration to create more flexibility for hydrogen expansion, rather than a restrictive scenario.

Marty Durbin, the US Chamber of Commerce’s senior vice president for policy, told AP that the guidance “will stunt the growth of a critical industry before it has even begun” and that his organisation plans to advocate during public comment “for the flexibility needed to kickstart investment, create jobs and economic growth, and meet our decarbonisation goals.”

“What we can’t have is an industry that is stalled because we have imposed requirements that the marketplace is not ready to fulfil,” said Frank Wolak, president of the Fuel Cell & Hydrogen Energy Association. New resources need time to be brought online, he said.

Overly restrictive guidelines mean that “you’ll see a much smaller, if not negligible growth in this industry and a failed opportunity to capitalise on the IRA”, he said.