Could newly announced public consultation on US hydrogen tax credits delay their roll-out?
Treasury Department now seeks comments on proposed emissions value request process
Stay ahead on hydrogen with our free newsletter
Details of the US hydrogen tax credit
The $433bn Inflation Reduction Act of 2022 creates a tax credit that would pay clean hydrogen producers up to $3 per kilogram (adjusted for inflation).
The size of the tax credits available to US clean hydrogen producers depends on the lifecycle greenhouse gas (GHG) emissions of each project, with a sliding scale depending on lifecycle emissions — measured in carbon dioxide-equivalent (CO2e) — of the H2 produced, including upstream methane emissions.
Hydrogen manufactured with less than 0.45kg of lifecycle CO2e emissions per kg of H2 would receive 100% of the credit, followed by 33.4% for 0.45-1.5kgCO2e/kgH2, 25% for 1.5-2.5kg and 20% for 2.5-4kg.
The lifecycle emissions would have to be verified “by an unrelated third party”, and only projects that start construction before 2033 would qualify.
The PER clause in the NPRM document provides no detail about how the government would determine the provisional emissions rate — which seems to have led the Treasury Department to launch a public consultation on this process.
Developers and members of the public now have until 13 May to comment on the new PER proposals.
This means that it is highly unlikely that the controversial 45V regulations will be finalised until after this new consultation ends and is analysed by government officials — suggesting that regulations are unlikely to be finalised until June at the earliest.
The new proposal put out for consultation by the Treasury Department and its Internal Revenue Service states that 45V applicants seeking a PER “must first complete a front-end engineering and design (FEED) study or similar indicia [ie, indications] of project maturity, as determined by the DOE [Department of Energy], and then request an emissions value from the DOE.
“The term ‘emissions value’ means the DOE’s analytical assessment of the lifecycle GHG emissions rate of a hydrogen production facility’s hydrogen production process.”
This is particularly pertinent for “producers whose hydrogen production pathways are not included in the 45VH2-GREET model” — and would, in turn, help the DOE to update its GREET (Greenhouse gases, Regulated Emissions, and Energy use in Technologies] model accordingly, the consultation document states.
The GREET model has also proved to be controversial among developers because it is due to be updated annually or can be replaced by a similar system as determined by the Energy Secretary of the day, meaning that projects that qualify for one tax credit bracket in one year might not qualify for that same tax bracket the following year — adding a layer of uncertainty that is unhelpful for calculating future income and securing loans.
In addition to sending the FEED study to the DOE, those applying for their PER would also have to complete an Emissions Value Request Application form, containing the option to include “any additional information that may be beneficial to the DOE in completing a lifecycle GHG analysis of the hydrogen production pathway for which the applicant is requesting an emissions value”.
Applicants would first have to state their intention to request an emissions value by email to the DOE, which would then send the applicant an email with a link to a secure folder to which they would upload the application.
The Treasury is now requesting comments on this process, including whether additional procedures need to be implemented or whether additional information should be collected or considered for each emissions value request application.
(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.