Make clean hydrogen tax credits work

Earlier this month, while wildfires raged in Canada, emitting significant carbon and particulate matter that blanketed much of our Eastern Seaboard in apocalyptic-looking smog, the U.S. Department of Energy took an important step forward in its continuing efforts to mitigate such climate disasters by significantly reducing carbon dioxide emissions.

The department announced a plan to increase domestic clean hydrogen production by 400% in 20 years, from 10 million metric tons in 2030 to 50 million metric tons by 2050, which would cut nearly 10% of the United States’ planet-warming emissions by the same date.

As Energy Secretary Jennifer Granholm rightly noted, clean hydrogen is “the Swiss army knife of zero-carbon technologies. If we get it right, it can do just about everything . . . it could decarbonize some of our hardest to abate sectors, like heavy industry and transportation. It could also generate clean, dispatchable electricity and provide options for long-duration energy storage.”

Hydrogen is what’s called an energy-dense fuel, making it capable of powering and decarbonizing heavy industries that today largely rely on energy-dense fossil fuels to make modern life possible.

Energy density affects the volume of fuel required to store a certain amount of energy. The more energy-dense a fuel, the less weight required to store it. This becomes particularly important in applications where storage space is limited, like on airplanes, which are today powered by jet fuel, resulting in significant CO2 emissions. And, unlike natural gas or other fossil fuels, hydrogen does not release any CO2 when combusted.

Getting hydrogen right is the hard part, especially as Department of Treasury officials consider policies that, if implemented, will make it impossible to produce this fuel sustainably at the speed and scale necessary to meet the DOE’s 2050 production targets and support the Biden administration’s long-term goal of achieving net-zero emissions that same year.

Notably, Treasury is considering severe limitations to the world’s highest-ever clean hydrogen production tax credit, passed last year by Congress in the Inflation Reduction Act. The credit provides up to $3 per kilogram of hydrogen produced from the same wide range of “abundant energy resources” called for in DOE’s new road map, “including renewables, nuclear, fossil, waste, and other carbon-based resources . . . ”

This inherent flexibility is necessary to encourage large-scale investment and innovation in the United States’ burgeoning clean hydrogen sector. There is mounting concern, however, that Treasury’s guidance will be too strict, making many existing domestic avenues for clean hydrogen production ineligible for the tax credit.

Specifically, Treasury might require clean electricity used for hydrogen production to come only from new (i.e., additional) clean generation sources, like solar and wind. But that comes with challenges — mainly cost. Clean hydrogen produced from these renewables costs around $5-6 per kilogram, whereas hydrogen produced from natural gas costs $1.50 per kilogram. By harnessing carbon capture and storage technologies, we can remove from the atmosphere the CO2 produced by that process and safely sequester it deep underground in geological rock formations.

Ultimately, the goal is to produce clean hydrogen exclusively from renewables, but first we need to bring down the cost. There’s no reason to think we can’t do that — but we absolutely cannot do it in time to enable the large-scale, rapid production of clean hydrogen required to meet 2050 targets.

If Treasury’s guidance does not reflect the flexibility intended by Congress, clean hydrogen will still be too expensive to produce, even with the tax credit, effectively stifling the industry’s growth.