On Friday local time, the Biden administration released a proposal for how the hydrogen energy industry can obtain billions of dollars in tax credits, hoping to promote the development of renewable energy and its technology in the United States. But clean energy companies have warned that strict subsidy standards could kill a key industry.
The U.S. Treasury Department said in the 128-page proposal that the size of the tax credit available to U.S. clean hydrogen producers depends on the life cycle greenhouse gas (GHG) emissions of each project, with subsidies ranging from 60 cents to $3 per kilogram of clean hydrogen produced by companies for 10 years.
White House climate adviser John Podesta told the media: "The clean hydrogen tax credit is an important part of our strategy to unlock private investment in various industries, build a clean energy economy, and address the climate crisis."
Officials say the new hydrogen subsidy proposal is the best way to boost the industry without increasing emissions, and it was introduced in coordination with the Environmental Protection Agency and the Department of Energy.
Hydrogen has long been a dream for clean energy advocates. Hydrogen produces energy, and the only by-product is water. Climate change has made hydrogen a favorite among oil companies, steelmakers, airlines and other industries under pressure to reduce emissions.
And the tax credits are significant, potentially covering more than half of the cost of a typical green hydrogen project. It will define a new industry because clean hydrogen is too expensive to produce without subsidies.
In order to obtain relevant tax subsidies, the U.S. government requires that the clean energy used in hydrogen production operations must come from new clean power projects built within the past three years.
However, the Biden administration still has not given a final answer as to how much subsidies hydrogen produced by electrolysis of nuclear power and some renewable energy sources can receive. It only said that it will solicit feedback from relevant power generation companies in the next two months.
This uncertainty has attracted the attention of nuclear power producers. Three of the seven clean hydrogen centers supported by billions of dollars in funding from the U.S. Department of Energy use nuclear energy to produce hydrogen. But building new nuclear power plants is expensive and fraught with delays.
Democratic Senator Manchin commented that for a government that wants to reduce emissions and combat climate change, it makes no sense to suppress the hydrogen market before it has even begun.
Business groups including the U.S. Chamber of Commerce have also blasted the new hydrogen subsidy rules, saying they will slow down the creation of a hydrogen economy.
Companies including NextEra Energy, BP and Constellation Energy have warned that restrictive rules on tax credits could lead to project cancellations and hinder the growth of the nascent industry.
Frank Wolak, CEO of the American Fuel Cell and Hydrogen Energy Association, said in a statement: "These proposed regulations and requirements will unnecessarily hinder investment and technology development in the U.S. hydrogen energy industry."
However, renewable energy proponents and many environmental groups say tight limits are necessary to ensure hydrogen production does not inadvertently lead to increased use of fossil fuels.
Separately, a key point in the conflict is that producers must prove hourly that the electricity used by their electrolysers comes from new renewable energy projects. The U.S. Treasury Department requires companies to implement such programs starting in 2028, which is earlier than many companies and industry groups hope.
Currently producers only need to demonstrate annually that the source of their electricity is clean, but this could result in electrolysis facilities being powered by fossil fuels when no additional clean energy is available in the area.
Sen. Brown, D-Ohio, said on Friday he was very concerned the rules would harm the U.S.'s ability to produce clean hydrogen. “We wrote the Inflation Cut Act to lower energy costs in Ohio and unlock the capacity for clean energy production across the Midwest, and these tax credit rules undermine that clear goal.”
However, this hydrogen energy subsidy proposal is not a final rule. It will undergo 60 days of comments and public hearings, and companies will also have the opportunity to express their opinions.