The recent release of the Biden administration’s first-ever national clean hydrogen strategy and roadmap aims to “leverage all our nation’s energy resources” to increase domestic clean hydrogen production by a whopping 400% in less than 30 years. However, uncertainty remains over related policies that would incentivize largescale investments in the burgeoning sector, making the path to a clean economy more perplexing and challenging than ever.
Indeed, the roadmap explicitly identifies “the clean hydrogen production tax credit, passed as part of the Inflation Reduction Act” (IRA) as a means to “bring down costs of production and accelerate economies of scale, making the threshold hydrogen price within reach for more applications.” And yet, inexplicably, hydrogen critics are right now pressuring the Department of Treasury to issue strict limitations on this very tax credit that, if implemented, would render many applications inaccessible.
Concerns over eligibility for the IRA’s clean hydrogen tax credit has led key players in the energy transition to scale-back the very investments the tax credit was meant to incentivize. Just last month, for instance, Constellation Energy said it may have no choice but to walk away from its historic $1 billion project to produce urgently needed clean hydrogen.
Seen as the “Swiss Army knife” of decarbonization, hydrogen can be produced domestically from a wide array of clean energy resources, like nuclear power, to support our net-zero transition, energy independence, and economic security. In fact, the Biden Administration is counting on hydrogen to meet its power sector carbon reduction goals, according to newly proposed rules from the U.S. Environmental Protection Agency.
When produced at scale, clean hydrogen can be used to make next-generation energy for otherwise hard-to-decarbonize industries like aviation, long haul transportation, steelmaking, and agriculture.
But here is the rub: with the technologies available today, clean hydrogen remains too expensive for many U.S. energy developers and industrial end-users to add to their pipelines, costing about five times as much to produce from renewables than fossil fuels.
The Clean Hydrogen Production Tax Credit included in section 45V of the IRA seemed poised to close this cost gap, incentivizing historic largescale investments by as much as $3 per kilogram of hydrogen produced.
Fast forward to today, however, and the outlook has shifted significantly, as a small but vocal group of hydrogen critics ramps up a well-coordinated pressure campaign on the Biden administration to effectively rewrite the IRA and hinder the role hydrogen can play in meeting economy-wide decarbonization goals. Notably, these critics are pressuring Treasury to insert “additionality” restrictions that would require clean electricity used for hydrogen production to come only from new clean generation sources, effectively rendering existing avenues for scaling clean hydrogen production—including nuclear facilities—ineligible for the credits.
Nowhere in the IRA did Congress include such restrictions, and it’s hard to believe that in authorizing the 45V credit for the next 10 years, Congress intended to restrict clean hydrogen producers from retrofitting and maximizing existing power generation facilities, especially given the two-terawatt backlog of new power generation projects currently sitting in grid interconnection queues. But that’s precisely what an additionality requirement would do, forcing clean hydrogen producers to wait years for these new facilities to connect to the grid.
The goal with 45V has always been ramping up clean hydrogen production in the U.S. to meet decarbonization targets. As such, clean hydrogen producers should be afforded the opportunity to scale capacity in a way that recognizes the operational and economic constraints of upscaling any new technology or industry.
Congress and the Biden Administration are counting on the 45V credit to enable clean hydrogen to rapidly reach a production capacity of 10 million metric tons (MMT) by 2030 and 50 MMT by 2050. These projections are being used to inform other proposed regulations like the previously mentioned EPA carbon emission standards for gas-fired plants, which specifically call out clean hydrogen as a solution for industry to meet the proposed standard.
What clean hydrogen producers need now is the certainty that the 45V credit will actually be workable. It must be implemented in a way that makes investment economically feasible at this early stage and creates a pathway to achieve economies of scale to help decarbonize hard-to-abate industries and, ultimately, help the U.S. achieve its net-zero goals.
Benton Arnett is director of markets and policy at the Nuclear Energy Institute.
