A year and a day ago, the Inflation Reduction Act entered into force, setting out a clean hydrogen production tax credit of up to $3/kg and a deadline for regulations or other guidance on lifecycle greenhouse gas emissions to be issued “not later than [one] year after the date of enactment”.
But 16 August 2023 came and went with no word from the US Treasury on whether it will put in place requirements for additionality, geographical correlation, and temporal matching (see panel below) — and if so, when those rules will kick in.
However, these measures, similar to the criteria for renewable hydrogen set out in the EU’s delegated acts, have been strongly opposed by potential H2 producers.
They argue that they will bump up the cost of making the molecule by requiring extra investment in new zero-carbon power generators and limiting the amount of time an electrolyser can be switched on.
The criteria have also been criticised by some Democratic senators as overly restrictive to the take-off of green hydrogen as an industry.
Environmental advocacy groups on the other hand have called for these rules in order to prevent a situation in which electrolysers draw renewable electricity off the grid that would otherwise be used directly, leading to extra fossil fuel-fired power generation to meet demand and ultimately increasing emissions.
Earlier this month, senior government officials suggested that a compromise position — in which additionality and other rules would be gradually phased in over time — would be taken in the final guidance.
Industry and government insiders reportedly anticipate that even if the Treasury releases an initial set of guidelines imminently, this may not be the full suite of rules, which could be delayed to late autumn.
Regardless of what stance the Treasury ends up taking on additionality and other principles, the lack of clear guidance means that projects seeking to access the highest rate of the tax credit are likely to continue to wait and see before taking final investment decision.
“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 exist to prevent fossil-powered grid electricity being used directly or indirectly to produce "green hydrogen".
