News and Highlights
- Press reports indicate that the U.S. Treasury Department is hard at work forming the tax framework for the hydrogen tax credits created by the Inflation Reduction Act. However, the rules aren’t complete and certain requirements have the potential to upend some proposed clean hydrogen projects.
- Plug Power announced that it will be part of three projects in Finland totaling 2.2-gigawatts (GW) of green hydrogen production.
Green Project News and Announcements
Though we don’t track hydrogen projects outside of North America, U.S. green hydrogen company Plug Power announced yesterday that it will be involved in three projects in Finland that will utilize up to 2.2 GW of the company’s proton exchange membrane electrolyzers. Hydrogen produced at the three locations will be used locally or exported, both in liquid form and as green ammonia. One of the primary end users will be a steel plant located near Kristinestad, Finland, while pipelines to Western Europe are expected to transport the hydrogen not used locally or exported by ship. The project announcement doesn’t specifically address new electric power generation, but cites Finland’s abundant wind, hydroelectric, and nuclear generation capabilities.
Inflation Reduction Act Tax Credits Up in the Air?
We have long discussed the lack of additionality requirements currently in place in the U.S. hydrogen strategy, but the issue hasn’t gone away. Just for reference, the concept of additionality is relatively well developed in Europe and basically requires clean hydrogen projects to generally utilize newly installed renewable or low-carbon generation. However, there has been little discussion of additionality in the U.S. Department of Energy’s (DOE) hydrogen strategy, and it was also absent in the Inflation Reduction Act’s (IRA) rules on clean hydrogen tax credits. That may change though, as the Treasury Department is currently reviewing how clean hydrogen tax credits, known as 45V, will be determined by the Internal Revenue Service (IRS). According to media reports, feedback from environmental groups seems to imply that additionality should be applied and that existing generation use to produce clean hydrogen would not qualify for favorable tax treatment as low-carbon hydrogen.
While we have no way of knowing what the tax credit rules will look like at the end of the day, we wouldn’t be surprised to see the U.S. regulatory scheme to ultimately mirror that of Europe. This could be a relatively large problem for some U.S. projects that look to utilize existing renewable, hydroelectric, or nuclear generations. That said, vacuuming electrons off the domestic power grid for hydrogen production is likely to only drive local shortages of power and end up creating opposition to hydrogen production in the future. Developing rules that require additional generation in most cases is probably the best solution in the long-term, though we are surprised that it may take the IRS tax credit rules to drive this practice forward.
