BP and Fortescue add to growing industry criticism of proposed US hydrogen production tax credit rules
The two companies, both involved in DOE-funded H2 Hubs, warn that the regulations could increase project costs beyond financial viability
Oil major BP and mining giant Fortescue have both this week joined a growing chorus of companies dissatisfied with the US government’s guidelines for the clean hydrogen production tax credit of up to $3/kg.
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“A lot of developers, us included, have actually looked at our portfolio and said, ‘Man, I don't know if we can actually make this work anymore,’” Tomeka McLeod, vice-president of hydrogen and carbon capture for BP America, said at the CERAWeek conference in Houston.
BP is a partner in the Midwest Alliance for Clean Hydrogen (MachH2), which had been selected for a $1bn grant from the US Department of Energy as part of the Regional Clean Hydrogen Hubs (H2 Hubs) programme, with the company’s Whiting refinery in the state of Indiana set to use volumes of low-carbon H2 produced there.
However, MachH2 has warned in a letter to the Treasury that its success hinges on nuclear-powered hydrogen production, which would be excluded from the tax credits if additionality rules were implemented.
“What came out in December was, I’m sure to anybody who's working in the green hydrogen space, it’s the worst Christmas gift any of us have ever gotten. It was definitely the most restrictive; it was more restrictive than the EU, which I think was a big surprise,” she said.
Europe’s own Delegated Acts defining renewable hydrogen were subject to strong industry criticism, with many developers at the time of their passage warning that investment could migrate to regions with less-strict regulations.
Often, these companies would highlight the US and the clean hydrogen production tax credit created by the 2022 Inflation Reduction Act, which only focused on carbon intensity with no rules around what would count as “zero-carbon” power input.
However, unlike the US, the EU’s Delegated Acts have hourly matching kicking in from 2030, while also including grandfathering provisions for projects that start operating before 2028, which exempt them from additionality.
BP had, in its own correspondence with the US Treasury, argued for additionality to be extended from three to five years and for grandfathering clauses for early-mover projects, including a four-year exemption from hourly matching for projects that had started construction on or before 1 January 2028.
The oil major also argued that the guidelines should change the methodology by which upstream methane emissions for blue hydrogen are calculated, which currently do not differentiate between different natural gas sites.
Fortescue
Meanwhile, Fortescue — which is part of the Pacific Northwest Hydrogen Hub, also earmarked for up to $1bn — has also voiced concerns that the Treasury’s rules could make project development financially unviable.
“It puts us — and other green hydrogen producers — at a disadvantage before we even begin,” he explained.
Vesey also cited Wood Mackenzie figures that estimated a 175% increase in the cost of producing hydrogen if production has to be matched on an hourly basis with renewable electricity generation, while noting that the development of new renewables could take as long as five years.
Other industry critics of the guidelines for the 45V include green hydrogen technology firm Plug Power, industrial gases firm Air Liquide, engineering giant Cummins, automotive manufacturers General Motors and Hyundai, chemicals producer OCI, oil major ExxonMobil, and nuclear power plant operator Constellation, as well as all seven of the Regional Clean Hydrogen Hubs.
The Treasury guidance has also seen fierce criticism from both Republican and Democratic politicians, who have argued that the extra strings attached on power supply were not included in the Inflation Reduction Act they passed.
A public hearing on these draft guidelines is scheduled to begin on 25 March.
(Copyright)Proposed US guidelines on green hydrogen production
The US Treasury's proposed guidelines on green hydrogen production, published in December, call for three requirements or "pillars" that will ensure H2 is truly green and will not lead to increased emissions: additionality, temporality, and deliverability.
“Additionality” means that the green hydrogen would have to produced from new renewables projects, so that they do not utilise existing clean electricity facilities that would otherwise help decarbonise the power grid.
For this pillar, the Treasury wants hydrogen producers to source their power from zero-carbon projects built within three years of the H2 project.
“Temporality” relates to how frequently producers would have to prove that their electrolysers have been powered by 100% renewable energy — usually hourly, weekly, monthly or annually — and therefore to what extent they can use grid electricity at times when the wind isn't blowing and the sun isn't shining, and then send the same anount of renewable energy back to the grid at a later date.
Here, the Treasury is calling for renewable power to matched on an annual basis up to 2028, and then hourly from then on.
"Deliverability" — or geographic correlation — relates to how physically close the hydrogen-producing electrolysers are to the source of renewable energy they use. Distances can be set to ensure that an electrolyser in, say, Texas, is not powered by solar panels in California through renewable energy credits, which in practice could mean that green power is sent to a grid that doesn't need it, with the electricity actually used by the electrolyser coming from fossil-fuel power plants.
The US Treasury wants green hydrogen projects to be within the same regional grid as the renewable energy projects powering them.