News and Highlights
- A group of 11 leading hydrogen and renewable energy companies sent a letter last week to the Biden administration arguing that an hourly matching standard should be implemented as soon as possible under the hydrogen production tax credit scheme put forth in the Inflation Reduction Act (IRA).
- A recent article in the Wall Street Journal highlighted how energy companies such as ExxonMobil, Occidental, and Chevron are busy leasing acreage along the Gulf Coast to explore for geologic structures in which to store carbon dioxide. The article is worth a read if you get the chance.
Debate Around Definition of Additionality and Low-Carbon Hydrogen Begins to Boil
The issue of additionality and what constitutes low-carbon hydrogen isn’t going away. With the U.S. Department of the Treasury (Treasury) currently working through the rules for companies looking to receive the hydrogen production tax credits, also known as 45V, put in place by the IRA, various entities are letting their views be known. Last week, a group of eleven players in the hydrogen and renewable energy space sent a letter to various parts of the Biden administration, including the Internal Revenue Service (IRS), Treasury, White House, and Department of Energy (DOE). In the document, the companies outlined their view that renewable energy should match electrolyzer capacity on an hourly basis as soon as possible. The eleven-company group, which includes First Solar and Nucor, among others, did not rule out annual matching, but suggested that recent research backs the need for a faster phase-in of hourly matching. Notably absent from the list of entities backing this view was any of the major players in the hydrogen space, such as Plug Power, Air Products, Linde, or Air Liquide. We are left to wonder what their view on matching might be, though a recent article suggested that Air Liquide supported a more gradual move away from annual matching.
While the letter to the DOE is interesting, we remain somewhat skeptical that the rules issued by the Treasury will require anything close to hourly matching or require hydrogen plants looking to receive the 45V to build new renewable generation to support their facilities. It seems likely to us that either requirement would likely destroy the current economics of deploying new hydrogen plants at scale, thus derailing a key facet of the Biden administration’s plan to reduce carbon emissions. As a result, we think it likely that a longer phase-in to hourly matching is put forth in the requirements for 45V, with likely loose requirements on additionality, it any at all.
For what it’s worth, we reviewed the document referenced by the letter and found it interesting, if a little mind-bending. It was authored by the MIT Energy Initiative and was aimed at resolving the differing conclusions of two other papers that evaluated annual and hourly matching of renewables to produce hydrogen. At the end of the day, it seems likely to us that the only scheme that can safely call itself a low or no carbon green hydrogen facility will be one that is connected directly to renewable resources that were built specifically for the production facility in question. Any other setup is likely to leave itself open to issues of consuming grid-sourced electricity of fossil origin or driving grid constraints, and perhaps shortages of electricity. Unfortunately, many of the “green” hydrogen projects we are currently tracking would likely suffer from one of these issues, opening the door to various legal and regulatory challenges at levels varying from state and local governments to environmental and consumer advocacy groups. Thus, it seems that unless the Treasury’s rules for 45V are strict and essentially bullet-proof from a carbon-content perspective, the nascent green hydrogen effort in the U.S. could become quickly bogged down in a confusing quagmire around just how effective the IRA’s subsidies for hydrogen production are at achieving climate goals. A set of lax or ambiguous rules opens the doors to serious opposition that may stall green hydrogen projects more effectively than any current cost concerns around appropriately matching renewable generation and consumption at the electrolyzer.
