The US government is apparently edging towards a compromise position on its clean hydrogen production rules — due to be unveiled this month — which will define the steps that producers must take to qualify for tax credits of up to $3/kg.
Environmentalists have called for the US Treasury to include “additionality” — for the power used in green H2 production to come from new renewables projects — as one of the key criteria for the new regulations, while the industry has been lobbying to allow hydrogen powered by existing renewables projects.
Activists argue that additionality is needed to ensure that green electricity currently being used by the grid is not diverted to hydrogen production, as that clean energy will probably replaced by fossil-fuel power plants, thus driving up overall greenhouse gas emissions. The hydrogen industry argues that taking green electrons from the grid to produce H2 is no different to clean electricity being used to power electric vehicles or heat pumps, so additionality rules would “unfairly single out and burden the development of clean hydrogen”.
While the rules around additionality — and related matters such as temporal matching and geographical correlation (see panel below) — are still being debated, the government appears to be leaning towards a compromise position of phasing in strict rules over time.
“We’re very optimistic that we can get this right and strike the right balance,” said John Podesta, White House senior adviser for clean energy innovation, according to Bloomberg.
Podesta, who has been described as President Joe Biden's point man on clean hydrogen, has further signalled that the Treasury’s rules would “create the cost reductions that we need for electrolysers, but do it in a way that puts us on a path to having the highest standards for green hydrogen going forward during the course of this decade”.
An anonymous senior official was also reported to have confirmed that this would mean a phase-in of rules over time.
A similar compromise position was adopted in the EU's Delegated Acts, which defined green hydrogen and its derivatives as made using electricity from renewable energy assets installed within 36 months of the electrolyser.
The Delegated Acts also require geographical correlation — for the clean energy to be produced and used in the same electricity bidding zone — and monthly matching of production and renewables generation up to 2030, when the two must take place within the same one-hour period.
Research house Bloomberg New Energy Finance told Hydrogen Insight this week that the US has even fewer incentives than the EU to green its grid, necessitating additionality rules to prevent increased grid emissions.
However, some industry associations have criticised the EU’s Delegated Acts as increasing the cost of green hydrogen — and therefore making it harder for potential offtakers to commit to volumes. Companies have been lobbying against similar rules in the US, with some Democratic senators joining the calls against these extra hurdles to development.
Additionality has been attacked in particular by nuclear power plant operator Constellation, since requirements to use zero-carbon generators installed within a couple years of the electrolyser would disadvantage nuclear reactors, which can take up to a decade and several billion dollars to build.
However, other lobby groups are already accepting a compromise position.
The American Clean Power Association (ACP) has suggested similar rules around geographical correlation and additionality to those in the EU, but calls for renewable power generation and hydrogen production matched within the same year up to the end of 2028, with hourly matching brought in from 2029.
While the 45V tax credit expires in 2033, there is also room for future administrations to extend it fully or partially — as has taken place with wind and solar tax credits over the past three decades. As such, the rules decided today could have lingering consequences beyond the next ten years.
“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.
“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".