The Inflation Reduction Act, a significant law signed by President Joe Biden over a year ago, aims to combat climate change and promote renewable energy with the allocation of hundreds of billions of dollars. Included in this legislation are tax credits designed to make the production of clean hydrogen more affordable, with over $100 billion in taxpayer funds expected to be directed towards this emerging technology. Hydrogen, as a fuel that only releases water vapor when burned, is seen as a promising solution for reducing emissions in industries that are challenging to decarbonize through electrification, such as steel, cement, aviation, and long-distance trucking.
However, the environmental advantages of hydrogen are negated if it is produced using fossil fuels. Therefore, it is crucial for federal officials to ensure that the most valuable incentives support genuinely green hydrogen projects that do not contribute to carbon emissions. It was reassuring to see the Biden administration release stringent regulations last month, stipulating that hydrogen projects must adhere to rigorous life-cycle emissions standards to qualify for the most generous tax credits.
Producing hydrogen with methane, a highly polluting fossil fuel, is significantly cheaper than using electricity. The intention behind these subsidies is to disrupt this economic dynamic by making renewable energy-based hydrogen cost-competitive.
Clean hydrogen is created by splitting water molecules using large amounts of electricity. These energy-intensive projects can deplete clean energy resources and inadvertently increase the consumption of fossil fuels.
To address this issue, environmentalists have advocated for strict requirements to be imposed on hydrogen projects to be eligible for the most generous tax credits of $3 per kilogram of clean hydrogen. These requirements include utilizing additional sources of zero-emissions electricity, such as wind and solar power, generating hydrogen during the same hours as the water-splitting equipment operates, and ensuring regional delivery of the hydrogen produced.
The standards set by the Treasury Department largely align with these principles, much to the satisfaction of environmentalists and the consternation of business groups and politicians who favor fossil fuels, such as West Virginia Sen. Joe Manchin III. While there are still details to be worked out, federal officials are moving in the right direction.
California has a substantial stake in this matter, as it has been selected by the Biden administration as one of seven regional clean hydrogen hubs across the country to receive $7 billion in federal infrastructure funding. Therefore, it is disappointing that the Alliance for Renewable Clean Hydrogen Energy Systems, the state-led public-private consortium responsible for California’s hydrogen hub plan, has advocated against stricter standards, citing concerns about feasibility and competitive disadvantages compared to other technologies.
Enforcing strict criteria for what qualifies as green and clean hydrogen is necessary for the climate’s well-being, as is reserving the greatest incentives for hydrogen production that genuinely reduces planet-warming emissions. Consumer advocates have also emphasized the importance of these guidelines in protecting individuals from potential increases in electricity rates resulting from hydrogen projects diverting power from existing renewable energy sources.
Clean hydrogen is still in its early stages, and state and federal leaders must closely monitor how these incentives contribute to the growth of a sustainable industry. It is essential not to squander tens of billions of federal climate funding on projects that may have questionable environmental impacts.
