When the Inflation Reduction Act (IRA) was passed into law in August 2022, it earned near-unanimous acclaim from longtime supporters of renewable energy and decarbonization efforts. Industry types also approved of the bill’s focus on incentives to fuel new developments. One of its most ambitious elements was creation of the 45V production tax credit (PTC) for clean hydrogen, a central part of the Biden administration’s efforts to build a clean-energy economy. But while the PTC may have a significant impact on the U.S. energy landscape over the long run, the December 2023 rollout of the proposed rulemaking has generated no small amount of criticism. In today’s RBN blog, we’ll lay out some of the changes that some say should be included in the final rulemaking to help the clean-hydrogen economy make a quick break from the starting gate instead of getting left at the back of the pack.
The proposed rules around the 45V tax credit immediately set off a firestorm of criticism from those who viewed them as too restrictive, too likely to stunt the industry’s long-term growth, too far from Congress’s intent, and too focused on incentivizing green hydrogen — which is produced by running water through renewables-powered electrolyzers — at the expense of other methods. Those concerns have not died down, as evidenced by ExxonMobil’s recent statement that its planned blue hydrogen project in Baytown, TX, may no longer be economically viable without revisions to the rule.
As we described in Part 1 of this series, the proposed rulemaking would severely limit how much of the tax credit is available to many hydrogen production facilities. For example, a blue hydrogen project — one in which hydrogen is produced through the auto thermal reforming (ATR) or steam methane reforming (SMR) of natural gas, with the resulting emissions mitigated by carbon capture — can qualify for the credit if it has sufficiently high carbon-capture rates. However, the proposed regulations likely limit it to the less lucrative bottom two tiers of the credit (left two columns in Figure 1 below) due to a “locked” upstream natural gas feedstock emissions factor. By severely reducing the amount of credit available to blue hydrogen, which makes up the vast majority of the announced production we track in our weekly Hydrogen Billboard, it challenges the projects’ economics and likely knocks out a significant chunk of planned new hydrogen production capacity — a potential killer for the idea of a flourishing consumer hydrogen market.
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