Hydrogen hype (and hostility)

The Biden administration's big bet on boosting hydrogen fuel is riding on the rollout of a new Inflation Reduction Act tax credit, Jael writes.

Why it matters: Industry says the tax credit — expected as soon as this summer — could lead U.S. hydrogen production to blossom.

• Depending on how it's shaped, the tax credit could be a political win, foster a nascent low-carbon tech sector, and offer Biden fresh evidence of job creation tied to his climate policies.
• But it could also become a new Mountain Valley Pipeline moment, whereby Biden's efforts to implement his signature climate law wind up colliding with fossil-free activists.
• That's because some charge that the credit could be a lifeline to fossil fuels if it's too widely available. "There's a lot on the table here," said Patrick Drupp, Sierra Club's director of climate policy.

The details: The IRA created a tax credit for producing and investing in hydrogen, known in D.C. colloquially by its tax jargon name: 45V.

• Hydrogen is a fuel that produces no carbon emissions when burned in a fuel cell made from water via a highly technical electrolyzer process.
• Companies will be able to claim up to $3 per kilogram of "clean hydrogen" they produce if they're able to meet certain labor standards.
• Qualifying "clean hydrogen" must produce no more than 4 kilograms of Co2 per kilogram. It can rely on a number of energy sources, including renewables and fossil-based energy with carbon capture and underground storage.
• The tax credit will help substantially drive down hydrogen economies of scale, according to an industry roadmap from the Energy Department released this week.

Between the lines: Environmentalists are urging the administration to set strict guardrails for what kinds of sites qualify for the full tax credit.

• Activists want qualifying hydrogen facilities to rely on new carbon-free energy sources created to power the production process, so that any jump in energy use doesn't drain existing renewable power sources.
• They're also seeking geographic and time-based limitations for when hydrogen-making can qualify, to avoid potentially stressing existing renewables and/or drawing from otherwise unused fossil power.

• Without these restrictions, advocates say, the credit could wind up increasing U.S. carbon emissions.

The other side: Industry representatives have sent a flurry of letters to the Treasury Department over the past few months urging the administration to avoid adopting these requirements, claiming that they'll deter hydrogen's growth.

• Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, told Axios the law was clear in calling for a "high degree of adoption," and a "really, really simple" implementation process for the credit.
• Of the climate advocates' requests, Wolak said: "[They're] three weak legs on a stool."

Our thought bubble: The fight over the IRA hydrogen production tax credit reminds us of the debate over cryptocurrency's climate impacts.

• As with crypto, there is a clear case to make that new hydrogen production could hypothetically bring renewable sources online — but unfettered energy consumption can also slow the pace of an energy transition.

What's next: The IRA gave Treasury a year from its enactment to issue "regulations or other guidance" carrying out the hydrogen tax credit.

• Given the IRA's passage last August, we'll be watching for a potential rollout this summer.