Democratic lawmakers and clean energy groups who often align themselves with President Biden on environmental policy are turning against his administration’s latest green energy tax credit guidance.
In highly-anticipated guidance released late last month, the White House, Treasury Department and Department of Energy proposed rules governing tax credits for hydrogen power production, which advocates believe will be a critical tool for decarbonization. The guidance, though, tethers the Inflation Reduction Act’s (IRA) highest production credit of $3 per kilogram of hydrogen produced to strict eco standards.
“The Biden Administration’s proposal attempts to launch a green hydrogen industry while guarding against any possibility of emissions increases during initial commercial deployment,” said Jason Grumet, the CEO of the American Clean Power Association, a clean power industry group often allied with the Biden administration.
“Unfortunately, the Administration proposal contains a fatal – but fixable – flaw that must be addressed to realize the economic, environmental, and climate benefits of commercially scaling a domestic green hydrogen industry,” Grumet added. “While ACP embraces the basic structure of the Administration’s three-pillar approach, the rushed imposition of the most burdensome restrictions fails to acknowledge the market realities of new technology deployment.”
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The hydrogen production tax credits are some of the most generous clean energy incentives earmarked under the IRA, Democrats’ massive climate and tax bill President Biden signed in August 2022, and are worth up to $100 billion. The legislation marked the nation’s most ambitious effort yet to spur the growth of hydrogen generation, which remains a nascent technology requiring billions of dollars in investment to achieve large-scale production.
But a common pathway for hydrogen production is electrolysis, a process by which hydrogen is split from water using an electric current. While the only emissions from electrolysis are hydrogen and oxygen, environmentalists have argued that hydrogen reliance could be rendered pointless as a zero-emissions power source if the electricity generated for that process is generated from fossil fuel-fired sources.
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“The Clean Hydrogen Production Credit aims to make production of clean hydrogen with minimal climate pollution more economically competitive and accelerate development of the U.S. clean hydrogen industry,” the Treasury Department said on Dec. 22.
Under the guidance, hydrogen producers are only eligible for the highest tax credit if electricity is generated from a green energy source, such as wind and solar, that came online within three years of a new facility being placed into service. That provision means a facility fueled by green energy that has been operational for more than three years is ineligible for the credit.
In addition, the guidance requires that, beginning in 2028, hydrogen developers’ electricity generation is sourced from a clean source on an hourly basis, the most stringent timescale. In other words, the electricity generated by electrolysis must be produced within an hour of hydrogen production from that electricity.
Sens. Tom Carper, D-Del., the chairman of the Environment and Public Works Committee; Sherrod Brown, D-Ohio, the chairman of the Banking, Housing and Urban Affairs Committee; and Bob Casey, D-Pa., all quickly expressed concern following the release of the guidance last month.
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“The development of the U.S. clean hydrogen industry is critical to reducing greenhouse gas emissions, meeting our nation’s climate goals, and creating good-paying jobs across America,” Carper said in a statement. “While I applaud the Biden Administration’s work to advance clean hydrogen, I fear that this proposed rule may well miss the mark.”
“When developing the Inflation Reduction Act, we intended for the clean hydrogen incentives to be flexible and technology-neutral,” he continued. “Treasury’s draft guidance does not fully reflect this intent, potentially jeopardizing the clean hydrogen industry’s ability to get off the ground successfully. Fortunately, the Biden Administration has made it clear that there will be opportunities in the days ahead to revise the rule. Without meaningful changes, I will find it difficult to support the final rule.”
Brown, meanwhile, argued the guidance would “undermine” the nation’s ability to produce affordable clean hydrogen.
“I have serious concerns about the administration’s proposed guidance,” the Ohio Democrat said. “These new proposed rules will slow down and ultimately undermine our country’s ability to produce the clean hydrogen needed to build the energy economy of the future.”
“We wrote the Inflation Reduction Act to lower energy costs for Ohioans and unleash innovation in clean energy production in Appalachia and across the Midwest – and these rules undermine that clear goal,” Brown added. “The administration must listen to Ohioans and fix the serious flaws in these rules before they are finalized.”
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And Casey similarly expressed concern that the administration’s proposal would harm workers and the economy.
“I have serious questions that this proposed rule will hinder our ability to produce clean hydrogen to power the U.S.’s energy future,” Casey said in a statement. “Further, it appears that this rule may cut out of the equation Pennsylvania workers and businesses that are ready and willing to lead the way on hydrogen power.”
“Pennsylvania jobs are at stake, and I am going to keep pushing the Administration to listen to Pennsylvanians, especially those in energy communities, and ensure our Commonwealth is poised to take full advantage of this tax credit in the way that Congress intended,” he said.
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Prior to the announcement last month, Carper, Brown, Casey and nine other Senate Democrats had called on Biden to issue looser guidance that would progressively get stricter over the next decade.
Overall, hydrogen has been widely pegged as a key technology for reducing future greenhouse gas emissions, especially in hard-to-decarbonize sectors like shipping, heavy trucking and cement and steel manufacturing. The transportation and industrial sectors account for nearly 60% of U.S. end-use emissions.
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