Treasury Is Poised To Make Or Break The IRA's Clean Hydrogen Commitments... and It's Running (Very) Behind
One of RDP’s founding principles is that passing good legislation rarely sets in stone a trajectory to progress–implementation matters. And implementation is neither straightforward nor solely a matter of competence. Each presidential administration is called upon to make countless decisions characterized by ideological discretion and who has the ear of which executive branch official.
That’s the proper backdrop for consideration of the ongoing legacy of Biden’s considerable 2021-22 legislative agenda. In today’s newsletter we go deep on a specific and telling example.
The Inflation Reduction Act of 2022 (IRA) set a clear goal for the Treasury Department: Release implementation guidance on the hydrogen tax credit (the “45V Tax credit”), which could provide up to $100 billion in incentives, by August 2023.
This guidance will be crucial, because if implemented well, the tax credit has the potential to make hydrogen a clean energy win—truly clean hydrogen could help reduce greenhouse gas emissions in hard-to-decarbonize industries and store energy in fuel cells.
However, the notoriously slow Janet Yellen-led Treasury Department failed to meet the August target. The fact that Treasury continues to dither even three months past the deadline is a serious cause for concern.
“Clean” Hydrogen”: Climate Solution or Greenwashing Gambit?
To be fair, it’s a delicate task to create the right framework to shape a hydrogen industry that actually supports climate crucial climate action, especially when the stakes are this high. Ideally, the term “clean hydrogen”—greenhouse gas emission-reducing hydrogen—should refer only to hydrogen produced through electrolysis of water, powered by new renewable energy sources. Unfortunately, less than 1% of hydrogen produced today meets this definition.
The very low share of truly clean (or “green”) hydrogen currently being produced highlights the importance of providing stringent standards to determine the legitimacy of industry claims that their hydrogen is “clean” enough to qualify for the 45V tax credit. Strict standards could push producers to change their practices, cleaning up the industry. Loose standards, on the other hand, could be easy money for corporate players to pocket while entrenching production practices that do not get the job done.
The 45V credit is particularly important given a series of recent setbacks for advocates and proponents of green hydrogen.
For one thing, the Inflation Reduction Act of 2022 (IRA) already enshrined a loose standard for “clean” hydrogen, thanks to industry lobbying. The IRA’s definition allows the production of “clean” hydrogen to emit up to four kilograms of CO2e per kilogram of hydrogen produced—a substantial amount of pollution that is four times more than the rate of one kilo environmental justice groups advocated for. (There are many other concerning weaknesses in the IRA’s definition of “clean” hydrogen, which have been deftly expounded on by environmental justice groups, as we review in our Hydrogen Industry Agenda report.)
What’s more, this month, the Energy Department announced that it had selected seven proposed Hydrogen Hubs to enter negotiations for $7 billion in federal funding. As our statement on the announcement noted, a majority of the projects DOE selected propose producing hydrogen from fossil fuels, rather than renewable sources, and do not represent “green hydrogen” production.
Corporate Whining Distracts from the Real Issue: Even “Clean” Hydrogen Won’t Necessarily Reduce Emissions, Without Strong Guidance
Corporations have complained that stringent 45V standards would throttle the US’s clean hydrogen industry before it gets off the ground. But these misleading industry claims frame the issue inaccurately. In reality, without rigorous guidance to help determine how hydrogen is produced, hydrogen used as a fuel could very easily increase overall emissions.
The reason is simple: since hydrogen does not exist as a pure substance in nature, it is best understood as an energy carrier rather than an energy source. Thus, hydrogen production is reliant on energy obtained from the energy grid, and so is only as “clean” as the methods used to produce it. Green hydrogen is the only type of hydrogen production currently in practice that has the potential to reduce rather than increase GHG emissions. It is produced through electrolysis of water, where the electrolysis process is powered by renewable energy sources like wind and solar power. (Hydrogen produced through electrolysis using electricity from the grid would have a very large greenhouse gas footprint, because most of the electricity produced in the U.S. today comes from burning fossil fuels.)
However, ensuring that hydrogen produced through electrolysis is actually powered by renewable energy sources is a tall order because most electrolysis facilities do not have their own wind and solar arrays on-site and are instead powered by grid energy. To address this complexity, Treasury’s forthcoming guidance must include stringent definitions of three core concepts: time matching, deliverability, and additionality. Treasury’s interpretation of these concepts will be critical in ensuring that the term “clean hydrogen” actually refers to emissions-reducing hydrogen (i.e., green hydrogen demonstrably produced in ways powered by additional sources of renewable energy) rather than being used to greenwash the continued production of fossil-fuel powered hydrogen, which is overwhelmingly the main method of hydrogen production today.
Industry concerns about stringent guidelines throttling projects are not only inaccurate, they are also overblown.Researchers have calculated that the definitions Treasury is currently considering would still enable clean hydrogen to out-compete fossil fuel-powered hydrogen on the market, as all forms of hydrogen are extremely energy-intensive to produce.
By tying eligibility for the tax credit to production of low-emissions forms of hydrogen, Treasury could effectively increase the share of green hydrogen being produced. Any other decision would amount to greenwashing and likely exacerbate the already dire climate crisis.
With Solid EU Standards Going Into Effect, Treasury’s Guidance Can Propel a Race to the Top…. Or to the Bottom.
The European Union recently set a standard for clean hydrogen production, requiring that clean hydrogen comes from additional renewable energy powered electrolysis. Environmental advocates have stressed that the EU guidelines are far from perfect—they come with a delayed roll-out that misses an opportunity to shape the hydrogen industry early on, and still allow several kg of CO2e per kg of hydrogen—but they do represent a more stringent standard that US-based companies are lobbying against.
The US now has a clear opportunity to issue similar guidelines, and create a race to the top, where hydrogen producers on both sides of the Atlantic compete to produce truly green hydrogen, as efficiently as possible.
Unfortunately, the US could also very easily birth an alternative race to the bottom. Lax guidelines from Treasury would likely attract companies from the EU market that don’t want to invest in the development of greener technology to come to the US, instead.
As the EU and US both look to encourage the growth of so-called “clean” hydrogen, it is crucial to uphold standards that encourage competition in the direction of reducing emissions and producing hydrogen for narrow, appropriate use-cases, rather than creating a corporate free-for-all that allows companies to seek maximum profits while peddling false climate solutions to the public.
We Need Strict Standards and Proactive Enforcement. The Alternative Would Be Disastrous.
Treasury, along with other federal agencies and departments charged with regulating the emerging hydrogen industry, must withstand industry misrepresentations of the stakes of clean hydrogen standards, and follow the insights of scientists and climate justice advocates who have shown that hydrogen can only contribute to meeting climate goals if production is subject to strict standards, for a very narrow set of use-cases.
Further, once stringent guidance is released, regulatory agencies must establish reliable ways to hold hydrogen producers to their commitments, in order to receive tax credits. Careless enforcement of standards, which we see too much across federal government agencies, would render them useless.
As we have previously advocated, it is crucial for the Biden administration to call out corporate greed and abuses as they occur, and to make it clear to voters and constituents that they plan to live up to their mandate of protecting us from destructive profit-seeking at the cost of the health of people and the planet. This kind of stance is particularly crucial when it comes to meeting climate goals—the stakes could not be higher. It is no time to give into corporations crying wolf and pretending they won’t go after hundreds of billions of dollars in incentives just because their profit margins may get a tiny bit slimmer, especially not when the regulations at hand will literally determine whether hydrogen is part of a transition away from fossil fuels, or a deadly commitment to prolonging their use.
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"Renewable hydrogen" is a good term that avoids the ambiguity in "clean hydrogen" that rightfully seeds skepticism as it is more or less a spoiled term due to green washing. Excellent post!