The US Treasury’s guidance for clean hydrogen producers to claim the top $3/kg rate of the H2 production tax credit could be even stricter than EU regulations, based on details of a leaked draft reported in Politico and Bloomberg.

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The 45V tax credit, which was originally unveiled as part of the Inflation Reduction Act, is split into four rates based on emissions intensity (see table), which were initially assumed to be technology-agnostic.

45V tax credits tiered by emissions intensity

Emissions intensity (kgCO2e/kgH2) Maximum tax credit ($/kgH2)
0-0.45
$3.00
0.45-1.5
$1.00
1.5-2.5
$0.75
2.5-4
$0.60

Source: US Department of Energy

But the guidelines for calculating lifecycle emissions in order to access the top rate, which have been delayed for months amid furious debate, are now set to include all three of the most controversial rules around the usage of zero-carbon electricity: additionality, geographical correlation, and hourly matching (see panel below).

Like in the EU’s Delegated Acts, hydrogen projects in the US will have to source power input from clean energy assets on the same regional grid, installed within three years of H2 production.

However, while the EU allows matching of renewable power to electrolyser operation within a calendar month up to 2030, at which point the two must take place in a one-hour window, the Treasury has reportedly set annual matching up to 2027 and hourly matching from 2028 onwards — making the rules stricter than in Europe.

Environmental groups and analysts have argued that without these rules in place, a boom in green hydrogen projects drawing electricity from the grid will mean an indirect increase in emissions, as fossil fuel-fired power plants burn extra coal or gas to replace renewable energy being diverted to electrolysers.

Prospective hydrogen producers, on the other hand, have pointed out that complying with these rules will increase the cost of H2 production by reducing the number of hours an electrolyser can be operational and limiting the sources of energy they can purchase power from.

These industry voices have also lamented that no other climate technology that draws power from the grid, such as electric cars, is regulated by a similar set of rules, effectively putting H2 at a massive disadvantage.

Jason Grumet, CEO of the American Clean Power Association, told Politico that if the leaked regulations end up being the final rules, they “will fail to get this new industry off the ground”.

He added: “Absent a meaningful number of first movers, a new industry will not develop. It is surprising and disappointing that the Administration would propose such a rigid approach that is at odds with decades of learning about new technology deployment.”

Proponents of nuclear hydrogen such as Constellation, which operates the largest fleet in the US, have also strongly criticised additionality, as it would cut out so-called “pink” hydrogen from accessing the top rate of the tax credit since new reactors can take years, if not decades, to build.

Much of the delay on the Treasury’s guidance has been due to pushback on the three rules from politicians within the Democratic party, sources familiar with the matter have told Hydrogen Insight.

Some Democrat senators, including Joe Manchin and IRA co-author Tom Carper, have publicly argued that these restrictions were not contained in the IRA, and therefore represent legal overreach by unelected officials.

One source has told Hydrogen Insight that the final guidelines will be published next week.

Additionality, time-matching and geographic correlation

“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.

“Time-matching", or "temporal correlation”, 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.

"Geographic correlation" refers to how close the hydrogen-producing electrolyser is to the source of renewable energy it uses. 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.

All three rules would prevent fossil-powered grid electricity being used directly or indirectly to produce "green hydrogen".