Without a doubt, after the release of the Inflation Reduction Act, the US market is now looking to be one of, if not the hottest market for hydrogen investment.

The US is already one of the biggest users of “dirty” hydrogen in industrial processes such as refining currently, and the incentives suites should also propel the US to the top of the table of clean hydrogen producers in the next few years.

There is not much to dislike in these tax credits incentives: simple, technology-neutral and market-focused. While its effectiveness will also lie on the execution, this Inflation Reduction Act will set an example and have broad consequences globally, pressuring other regions to accelerate their plans and make bolder decisions, as already seen from Europe’s recent vote on its Renewable Energy Directive.

The US recently passed Inflation Reduction Act 2022 included a landmark tax-credit system, which will provide concrete long-term financial support to hydrogen businesses and aims to grow its clean hydrogen sector significantly as a result.

The relatively simple support mechanism marks the first official market incentive for not only the US hydrogen sector, but globally, and, compared to current expected values, is projected to spur a sixfold increase in investment in the sector from 2025, propelling the US into first place globally in terms of expenditure on hydrogen in the coming ten years.

The US has until recently lagged its European counterparts in terms of the maturity of its hydrogen policies and regulations.

While the EU has struggled to show leadership and commit to specific hydrogen-related regulations, the US has swiftly adopted a certification system for tax credits that has been widely approved by the hydrogen industry as it seeks a path through the energy transition.

This includes rules on the lifecycle assessment (LCA) of carbon dioxide emitted per kilogram of hydrogen produced. It is the first time globally that an LCA could be used to qualify hydrogen for incentives — a step forward for the US clean hydrogen sector and for the global hydrogen economy.

Looking closer at the numbers, while the maximum level of US credits at $3/kg of hydrogen may sound a lot, it still provides plenty of challenges for electrolyser facilities and developers.

Firstly, meeting the 0.45kg of CO2/kg of hydrogen ceiling to receive this maximum credit could be challenging even for renewable hydrogen and especially for hydrogen produced using solar photovoltaics (PV).

Secondly, only in rare cases at specific sites will the tax credits lift the business case of renewable hydrogen by bringing its cost down to equal or below that of grey hydrogen in the US.

This is especially true more than ever, given that inflation and supply chains are increasing the cost of renewable energy facilities and of electrolyser facilities alike.

A “technology-neutral” approach opens the door to other technologies such as methane pyrolysis, waste-to-hydrogen or even reforming renewable gas with carbon capture, allowing competition in the market. And there is, of course, an option to apply investment tax credits, and many possible stacking options to further reduce the investment required for these facilities.

In terms of value chain, there are incentives and credits to take care of manufacturing equipment, for clean fuels, zero-emission vehicles, clean-energy production, energy storage. All of this means that you can receive incentives across the hydrogen value chains for multiples demand segments, such as heavy industries, transportation and power generation. There will be plenty of opportunities on the demand side to decarbonise existing usage of hydrogen in industries, but also to new usage such as transportation, power generation, and even as energy export.

While the Inflation Reduction Act marks a significant ramp-up in fiscal support for the US hydrogen sector, the government has previously committed $9.5bn to hydrogen through the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Bill. This legislation has put the US in the top three countries globally in terms of dedicated governmental support for hydrogen.

The US currently sits in second place when it comes to clean hydrogen production capacity from announced projects, and is the location for the world’s second-largest announced green hydrogen complex, Hydrogen City.

While not all announced hydrogen projects in the US may end up being realised, there is no doubt that established energy and industrial corporations in the US have extensive plans to participate into the burgeoning hydrogen economy. This includes upstream oil majors such as Chevron and ExxonMobil as well as industrial and manufacturing enterprises such as Air Products, CF Industries, OCI, Cummins and GE.

And at least for now, they will have the government supporting their plans.

Minh Khoi Le is head of hydrogen research at analyst Rystad Energy.