Illustration: Gabriella Turrisi/Axios
The Biden administration finalized long-awaited rules on Friday on a hydrogen production tax credit that loosens some requirements on project developers while maintaining core environmental guardrails.
Why it matters: The Treasury Department's 45V tax credit, established by the IRA, is the biggest federal incentive to jump-start large-scale U.S. production of hydrogen.
- Industry advocates, backed by the Energy Department, see hydrogen as crucial to slashing emissions from heavy-duty trucking, steel, chemicals, shipping and other sectors that heavily depend on fossil fuels.
Yes, but: The incoming Trump administration could rewrite the rules or scrap the DOE's $8 billion hydrogen hub program.
- Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, said his trade group will hold conversations on "multiple areas where implementation and timing will be up to the incoming Trump-Vance administration."
The big picture: The final rules included more flexibility for hydrogen producers using electricity to produce hydrogen from water (known as "green" hydrogen).
- The final guidance includes "significant changes and flexibilities that address several key issues to help grow the industry and move projects forward," the Treasury Department said in a news release.
What they're saying: The flexibility is "not perfect," but it "maintains key protections that minimize dangerous air and climate pollution," Erik Kamrath, a hydrogen advocate at NRDC, said in a statement.
- Wolak said the administration "made significant improvements" but that the guidance is "still extremely complex and will require intense evaluation by project developers" to determine if their projects qualify.
Zoom in: Treasury's final guidance allows hydrogen developers until 2030 — an extra two years compared with proposed guidance — to meet requirements to match their production with low-carbon electricity on an hourly basis.
- Nuclear reactors at risk of closing and dependent on hydrogen investment can qualify up to 200 megawatts per reactor. (The proposed guidance effectively ruled out nuclear by requiring new sources of power.)
- Hydrogen drawing from electricity generated in California and Washington can qualify because those states' GHG emissions caps and clean electricity or renewable portfolio standards prevent significant induced emissions from hydrogen production.
- Hydrogen using power from a plant that has recently added carbon capture and sequestration can also qualify.
Between the lines: For hydrogen sourced from natural gas, the rules allow more sources of renewable natural gas: from wastewater treatment, animal manure, and coal mine methane in addition to landfill gas.
- DOE also plans to update its upstream methane emissions modeling so producers can report their own verified emissions rates for their specific supply chain instead of defaulting to the national average.
Context: The final guidance — arriving more than two years after IRA passage — comes after a surprisingly heated lobbying campaign.
- Treasury's proposed guidance in December 2022 largely sided with environmental groups like NRDC and EDF that argued that hydrogen production could cause power grid emissions to spike.
- The debate split Democrats: Lawmakers representing hydrogen hubs called for more flexible guidance, while several dozen others wanted the stricter environmental standards.
- Sen. Shelley Moore Capito, the Environment and Public Works Committee's incoming chair, echoed the GOP view by calling for a total removal of the environmental restrictions.
What's next: One area to watch will be the upcoming revision to the DOE's modeling on upstream methane emissions.
Our thought bubble: Trump and Republicans, while pledging to roll back some IRA credits this year, could spare 45V and even expand eligibility by knocking down environmental barriers.
- Uncertainty in the hydrogen world is likely to persist as the industry has confronted project cancellations and underwhelming demand.
