The Biden administration has unveiled long-awaited final rules for a tax credit aimed at supporting producers of cleaner hydrogen. This initiative is part of efforts to reduce planet-warming emissions and transition away from fossil fuels in sectors like long-haul transportation and industrial manufacturing.
Hydrogen production is crucial for sectors that emit significant greenhouse gases but are challenging to electrify. While most hydrogen is currently derived from natural gas, cleaner methods involve splitting water using renewable energy sources like solar, wind, nuclear, or geothermal power.
The new rules offer a tiered system where firms producing hydrogen through water splitting can qualify for a $3 per kilogram credit. Additionally, firms using natural gas with emissions capture technology or alternative sources like wastewater, animal manure, and landfill gas may also be eligible for credits.
The credit is based on the lifecycle emissions of the hydrogen production process, rather than the production method. It is part of the Inflation Reduction Act and has garnered bipartisan support.
Environmental groups have cautiously welcomed the rules, acknowledging their potential to support clean hydrogen projects. However, concerns remain about loopholes that could benefit producers of dirty hydrogen.
The rules aim to incentivize the production of clean hydrogen to replace unabated fossil fuels in hard-to-decarbonize sectors like aviation, marine shipping, and steel production. This move is seen as beneficial for the climate by promoting lower carbon emissions.
Industry experts emphasize the importance of accurately tracking emissions to ensure the effectiveness of the tax credit. The Fuel Cell & Hydrogen Energy Association, representing various stakeholders in the hydrogen sector, expresses relief that the rules are now finalized.
The industry awaits to see if the tax credit will drive investments and propel the clean hydrogen sector forward. The ultimate goal is to create a sustainable fuel source that mitigates climate change impacts and reduces reliance on fossil fuels.
