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Energy companies have launched a lobbying blitz in Washington over pending rules they say will make or break the case for tens of billions of dollars’ worth of investment in hydrogen fuel.
The production of green hydrogen — achieved by splitting water molecules with clean electricity — received generous subsidies in last year’s landmark US climate law. The Treasury department next month is due to issue tax guidelines that determine which types of hydrogen projects will qualify.
But with renewable energy still supplying only a fraction of the nation’s power grid, companies are pushing for an approach that allows for some hydrogen made from electricity generated by fossil fuels.
The debate comes down to how hydrogen makers prove the power they buy is “clean”. The Treasury’s most stringent proposal involves certifying that every hour of hydrogen production is powered by a zero-carbon energy source, essentially requiring its use around the clock.
Industry lobbyists say this would force hydrogen plants to shut down when clean electricity is not available. Instead, they want the Treasury to use an “annual matching” system that allows producers to purchase credits for renewable electricity in amounts equal to their yearly energy consumption.
Such a scheme would make investment in US hydrogen more attractive, they say, enabling companies to effectively store up green power generated at times of surplus — for example when the midday sun passes over solar farms — for use later.
“The question based on how the regulations are written [is], ‘Will we continue to accelerate in the United States or put more emphasis in Europe?’” said Andy Marsh, chief executive of Plug Power, who signed an industry letter this week urging the Biden administration to take a “pragmatic approach” with the Treasury guidance.
Hydrogen, which emits no carbon dioxide when burnt, is considered a critical fuel for cleaning up heavy industries such as steelmaking and trucking. However, 95 per cent of US hydrogen is produced with natural gas in a process that creates large amounts of CO?.
US energy secretary Jennifer Granholm has hailed clean hydrogen as an alternative to conventional production and outlined a strategy to slash its costs by 80 per cent by 2030. The subsidies in last year’s Inflation Reduction Act amount to $3 per kilogramme.
Opinions are mixed over the hourly or annual accounting approach. A Princeton University study found that unless hydrogen production was fired by clean energy on an hourly basis and from newly built renewable projects located nearby, the process could have higher emissions rates than hydrogen produced from fossil fuels.
“Our business is based on the need to decarbonise,” said Raffi Garabedian, chief executive of Electric Hydrogen, a manufacturer of hydrogen electrolysis systems. “If we’re doing things, building things, and taking advantage of the incentives that are provided without actually decarbonising, that would be a travesty.”
But some investors say the hourly standard would kill the viability of many clean hydrogen projects, which rely on electricity from the grid and would have to shut down during hours of the day when renewable power such as wind and solar is not available.
Roughly $11bn has been committed to US green hydrogen projects through to the end of the decade, according to estimates from Rystad Energy. The energy consultancy found that announcements in green hydrogen capacity have increased 53 per cent since the IRA’s passage. A study commissioned by Plug Power found that projected investment would fall by two-thirds by 2035 if rules were too stringent.
“Right now is probably one of the riskiest moments in hydrogen development if you decide to invest in a project and the framework comes in a way that is not going to benefit that route you chose,” said Marina Domingues, Rystad’s lead hydrogen analyst.
Phil Musser, vice-president of government affairs at NextEra Energy, the US’s largest clean energy developer, said the Treasury guidance would be a “make or break” moment for green hydrogen in the country. Under more lenient regulations, the company expects a $70bn market for green hydrogen by 2025 and plans to invest $20bn in the US sector.
Big oil groups have also joined the lobbying effort, with BP and Woodside Energy among fossil fuel companies that recently wrote to the government to “act prudently” in its guidance. The Edison Electric Institute, which represents utility companies, and the American Clean Power Association have called for the Treasury to apply less stringent time matching rules in the short term, similar to the approach taken in the EU.
Requiring projects to meet hourly matching rules would “martyr” the sector before it had a chance to flourish, said Shannon Angielski, president of the Clean Hydrogen Future Coalition, whose board includes members from BP, Chevron, ExxonMobil and Shell.
Hydrogen developers have taken their argument to John Podesta, the White House official in charge of implementing the IRA, and won the support of Joe Manchin, the fossil-fuel friendly Democratic senator who helped push the IRA through Congress last year.
“Treasury is focused on providing clarity to businesses as soon as possible and ensuring this incentive advances the goals of increasing energy security and combating climate change,” the department said.
Threats to ditch investment mark a change in tone from a clean energy sector that has rushed to capitalise on the subsidies in the IRA, committing more than $200bn to new manufacturing projects since the bill passed last year.
The Treasury guidance “will greatly dictate where the level of interest is and how much of that investment goes towards the US versus other parts of the of the global economy”, said Adam Peters, head of North America at Air Liquide, the French industrial gas company.
Additional reporting by Derek Brower in New York
