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U.S. guidance on green hydrogen tax credit spurs industry debate

an illustration of a hydrogen cell with different reaction emojis surrounding it

Illustration: Tiffany Herring/Axios

The U.S. Treasury Department's guidance for a green hydrogen tax credit has pitted the sector against itself.

Why it matters: The final parameters that Treasury determines will have a significant impact on the green hydrogen market, spurring some projects, and potentially killing off others.

Driving the news: On Dec. 22, Treasury released guidance that will determine what hydrogen projects would qualify for one of the most generous tax credits available globally via the Inflation Reduction Act.

  • The guidance is based on the three pillars approach, which says to qualify for the subsidy, a hydrogen project 1.) must be powered by a new clean energy supply, 2.) must be produced in the same region of the grid as the clean electricity, and 3.) must be matched hourly to the clean electricity by 2028.
  • The industry has 60 days to comment. And comment, they have.

What they're saying: Nuclear, hydro and some clean energy companies say the guidance's requirement for new clean power leaves them out in the cold.

  • "The proposed rule flies in the face of Congress' clear intent to use America's nuclear energy to produce hydrogen," said nuclear operator Constellation Energy, which has a $900 million nuclear hydrogen project under development.
  • Andy Marsh, CEO of green hydrogen company Plug Power, echoed that frustration, saying that the requirement for new clean power has nothing to do with what Congress intended and it doesn't "have a legal leg to stand on."

Zoom in: Some industry players took issue with the hourly matching requirement of the guidance.

  • The Clean Hydrogen Future Coalition, a group of utilities, energy, and oil companies, said the matching should be monthly, not hourly.
  • Norton Rose Fulbright lawyer Keith Martin says he doesn't see how green hydrogen projects will gain traction in the U.S. until we get a clearer picture of how hourly matching and its software will synch up.

Yes, but: Some liked what they saw in the guidance. Specifically, companies already selling into Europe's own three pillar-based hydrogen market.

  • Air Products "applauds the Administration's strong three pillar hydrogen tax credit proposed rules," said the company, one of the largest hydrogen producers.
  • Startups selling next-gen electrolyzers also cheered. Chad Mason, the CEO of electrolyzer maker Advanced Ionics, says the guidance is "essential for ensuring that hydrogen is clean."
  • The CEO of electrolyzer startup Verdagy, Marty Neese, notes the guidance will provide "much-needed market certainty and will dramatically accelerate" the market.

What's next: After the comment period, all eyes will be on whether the Treasury will tweak the rules to include clauses for nuclear and other interests.

  • If the rules stay as written, certain hydrogen projects that don't qualify for the full credit may be delayed or abandoned.
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