USA specifically promotes hydrogen market with tax credits

01/09/2024

Source: Energy & Management Powernews

In the USA, the Biden administration is driving forward the industrial transformation of the energy industry with the Inflation Reduction Act (IRA).

Targeted incentives are intended to boost the national hydrogen market in the USA. Proposed regulations for the "Clean Hydrogen Production Credit", which are embedded in the IRA, serve this purpose. The proposals published on December 22, 2023 by the US Department of the Treasury and the Internal Revenue Service (IRS) now provide guidance. The concept is based on four technology-neutral credit levels, the amount depending, among other things, on the emission rate of the respective hydrogen production process. The current proposals are open for comment for 60 days before the final rules are issued.

Goal: Promote a clean hydrogen industry

While clean hydrogen holds significant potential to reduce emissions across a range of sectors and applications, conventional hydrogen production typically results in significant climate pollution, according to the US Treasury Department. The Clean Hydrogen Production Credit aims to make the production of clean hydrogen with minimal climate impact more economically competitive and accelerate the development of the clean hydrogen industry in the U.S.

"The announcement will drive unprecedented investment in a new U.S.-led industry as we seek to lead and advance the global transition to clean energy," said U.S. Secretary of Energy Jennifer M. Granholm. "Hydrogen has the potential to clean up America's manufacturing sector, advance the transportation sector, and strengthen our energy security - all while creating good-paying jobs and new economic opportunities for communities across America."

Four credit tiers for clean H2 production

Under the IRA, the proposals will establish a Clean Hydrogen Production Credit with four technology-neutral credit tiers, depending on the lifecycle emissions of the hydrogen production process. For hydrogen production facilities that meet prevailing wage and training requirements, the amount of the credit ranges from $0.60 per kilogram (kg) to $3 per kg of hydrogen produced.

The law requires that lifecycle greenhouse gas emissions be determined using the latest GREET model. For those projects that begin construction before 2033, the tax credit will be available for ten years from the date a hydrogen production facility is placed in service, so credits for some facilities will extend well into the 2040s.

The U.S. Treasury Department's proposed rules describe how Energy Attribute Certificates (EACs) can be used to demonstrate the purchase of clean electricity. Criteria for defining "clean electricity" have not yet been finalized. For example, it is currently envisaged - not yet conclusively - that the clean electricity must come from the same region as the hydrogen producer. Furthermore, the deliverable energy is to be gradually converted to hourly generation (by 2028). This means that the requested generation of green electricity must take place in the same hour in which the electrolyzer applying for the credit is in operation.

Author: Silvia Rausch-Becker