31 Energy Policy

31.1 Green hydrogen regulation

St.John

The draft guidance in question will not be final, and the Treasury Department has declined to comment on it. But as described in news reports, it would propose restrictions that would meet or even exceed those set by the European Union last year to require that the power used to make green hydrogen must be tracked on an hour-to-hour basis to the zero-carbon resources that generated it. What’s more, it would require that those zero-carbon resources must be newly built specifically to serve hydrogen production facilities, rather than being drawn from existing generation whose power is diverted from other uses.

If these provisions make it into the final version, ​“We would consider that to be a monumental win for climate, for consumers and for the hydrogen industry itself,” said Dan Esposito, senior policy analyst with decarbonization think tank Energy Innovation.

Bloomberg cited unnamed people with knowledge of Treasury’s plans who said that the draft guidance would require hydrogen projects to be supplied with new clean-power sources operating on the same grid, as measured on an annual basis through 2027, then switching to being measured on an hourly basis starting in 2028, with no allowance for projects operational before then to continue to use annual accounting after that time.

And Politico reported that the draft guidance would require electrolyzers to use carbon-free electricity from resources built no earlier than three years prior, to ensure that the gigawatt-scale demands of hydrogen production are supplied by new carbon-free resources rather than using clean power already available on the grid.

If these leaked requirements do end up in Treasury’s draft guidance, which is expected to be formally released as early as next week, it would represent a victory for proponents of the so-called ​ “three pillars” framework for maximizing the decarbonization potential of green hydrogen production, which is predicated on hourly matching, deliverability, and additionality of clean electricity supplies.

Without those three requirements in place, companies could earn federal tax credits for hydrogen production that could actually increase overall carbon emissions compared to doing nothing at all, or could even create double the emissions of producing hydrogen with fossil fuels, according to some studies.

The Inflation Reduction Act’s 45V tax credit offers tiers of incentives for hydrogen produced with low carbon emissions, including methods that use electricity to convert water into hydrogen via electrolyzers — so-called ​“green” hydrogen. The tiers are based on carbon-emission levels; producers seeking the most lucrative $3-per-kilogram tax credit must emit no more than 0.45 kilograms of carbon dioxide per kilogram of hydrogen produced. That’s far less than the roughly 10 kilograms of carbon dioxide that’s emitted per kilogram of ​“gray hydrogen” produced from fossil gas.

According to industry estimates, green hydrogen currently costs $5–$6 per kilogram, compared to $1–$1.50 for hydrogen produced via gas. The $3-per-kilogram top-tier credit is seen as vital to making green hydrogen cost-competitive with fossil-gas hydrogen.

The methods now used to measure the carbon-intensity of electricity purchased by companies, as set in international standards such as the Greenhouse Gas Protocol, fail to differentiate between clean energy procured on an average annual basis and the actual electricity being generated and consumed from hour to hour.

St. John (2023) ‘Green’ hydrogen debate heats up ahead of tax-credit decision