The US state of Illinois has passed an act which creates a $1/kg tax credit for end-users of “zero-carbon” hydrogen in 2026 and 2027.
This is the second state-level incentive in the US for using clean H2 after Colorado — with similarly strict criteria.
The state government defines zero-carbon hydrogen as produced from “electrolysis of water using electricity generated by emissions-free energy sources”, with companies applying for the tax credit required to prove the type of power generation used to produce H2 during each hour of production.
Hourly matching, which the US Treasury is currently considering including in its requirements for the national-level $3/kg clean hydrogen production tax credit, is controversial among green hydrogen producers.
Since the intermittency of renewable electricity means that electrolysers will need to be ramped down or switched off during periods of low generation, reducing the number of hours spent making H2 will increase its levelised cost.
However, while Illinois states that it will assess how to increase the proportion of green hydrogen produced through qualified renewable resources such as wind, solar, geothermal and hydropower, the act does not appear to rule out the use of nuclear electricity to make so-called “pink” hydrogen.
Illinois currently generates around half of its electricity from 11 nuclear reactors across six sites, and the state’s general assembly in May voted to lift a moratorium on newbuild atomic power plants.
To qualify for Illinois tax credit, the H2 used must also be eligible to receive 100% of the $3/kg clean hydrogen production tax credit. This means the hydrogen’s production must have a maximum emissions intensity of up to 0.45kgCO2e/kgH2 and meet wage and apprenticeship requirements.
Illinois also rules out awarding the $1/kg tax credit for use in domestic heating or cooking, blending into the gas network or vehicles that are not classed as heavy-duty (
ie, Class 7 or 8).
The state also says it will not award the tax credit if the H2 is burned for electricity generation, except as an emissions reduction strategy if allowed by the United States Environmental Protection Agency (EPA).
The EPA has proposed co-firing hydrogen as a route for fossil-fuel-fired power plants to reduce emissions, which would require a blend of 30% H2 by volume in 2032 ramping up to 96% in 2038.
The Illinois tax credit will also last only two years. By April 2028, the Illinois Environmental Protection Agency will publish a report analysing the actual reduction in greenhouse gas emissions and other pollutants as a result of incentivising clean H2 use.
And the state has also budgeted $10m per year for the tax credit, with priority given to companies participating in or using electricity or H2 produced from the Regional Clean Hydrogen Hubs — a federal Department of Energy-run programme thatwill put $7bn towards six to ten hubs.
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