The Biden administration’s push to build a “clean” hydrogen industry is entering a critical phase, as multiple federal agencies ready plans in the coming months that could determine the sector’s trajectory for years — and its resulting impact on the climate.
Much of the industry — and Biden’s Democratic allies on Capitol Hill — are frustrated by the Treasury Department’s delay in finalizing guidance for clean hydrogen tax credits, known as 45V for its place in the tax code. The Department of Energy also has not doled out the majority of $7 billion allocated for seven hydrogen hubs from the bipartisan infrastructure law, frustrating awardees who were told last fall that they would see funding by spring 2024.
What’s at stake is the buildout of a nascent sector that experts say is one of the few options to decarbonize some of America’s highest-emitting industries such as aviation, long-haul trucking, steel and concrete. Clean hydrogen refers to fuel made with low-carbon energy like renewables, or with natural gas tied to carbon capture. Today, 99 percent of hydrogen is made from fossil fuels.
Also looming over the industry’s future is the potential return to the White House of former President Donald Trump, who has been critical of hydrogen on his campaign website. While much of the industry’s funding was outlined in the 2021 bipartisan infrastructure law and the Inflation Reduction Act, a Trump administration could influence how much money the Department of Energy spends on clean hydrogen projects. A Republican sweep of Congress could also put existing programs in jeopardy.
A potential Kamala Harris presidency, meanwhile, would push forward the same Biden administration policies, industry observers say. The Harris campaign did not respond to request for comment, but according to Mona Dajani, global co-chair of Energy Infrastructure & Hydrogen at Baker Botts, Harris would “open the floodgates” for clean hydrogen and low-carbon projects if elected.
“I think there’s definitely going to be a major uptick in this space for sure because there would be more certainty, and that’s what everyone wants,” said Dajani.
As the Biden administration tries to push money out the door, here are three issues to watch with clean hydrogen before the election:
Where is the final tax guidance?
The Treasury Department has provided few clues on the timing of final tax guidance for 45V — which is considered critical for projects and the hubs. Draft guidance was released in late December with endorsements from more than a dozen hydrogen companies and clean energy groups.
The administration’s regulatory agenda released in July did not set a timeline for the final rules beyond saying Treasury is still “reviewing comments.” A Treasury official who was granted anonymity to speak freely about the tax credits said that no date had been set to release the final guidance.
In the meantime, industry backers say the delay is creating backups in purchase orders and inventory for many hydrogen companies.
“The longer this takes, the more people sit on the sidelines. They defer investments. They hold back,” said Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, which represents more than 100 companies and organizations.
Biden has called for the production of 10 million metric tons of clean hydrogen annually by 2030.
Much of the debate over Treasury’s looming rules has centered on how to assess whether clean hydrogen actually is low emissions.
Critics say the draft rules don’t accommodate states such as California with large amounts of clean electricity already on the grid, for example.
Multiple letters have been flying around Capitol Hill on 45V this summer, including one from 13 Democratic senators who were instrumental in writing hydrogen rules in the IRA. They penned a letter to Treasury Secretary Yellen blasting Treasury’s pace, calling on tax rules to be finalized by Aug. 16. Further delays would have economic ramifications, they said.
The lawmakers said the draft 45V guidance was “overly stringent” because it largely followed the “three pillars” concept — which has its roots in a blueprint backed by environmental groups for making hydrogen with little to no greenhouse gas emissions.
The three pillars call for restrictions on the type, location and timing of energy that can be used to produce hydrogen. For example, the concept calls for “additionality,” which would require hydrogen producers to use new low-carbon generation so that producers are not siphoning existing clean power from other users.
“As the primary congressional authors of the 45V credit, we are discouraged that the proposed guidance is inconsistent with the intent and requirements of the Inflation Reduction Act (IRA),” the senators wrote.
Others like Frank Lomax, the managing partner of Headwaters Solutions, a New York-based supplier of hydrogen plant equipment, said he supported the tax credit rules and what they could do to grow the sector. Air Products, the world’s largest producer of the electrolyzers — water-splitting gadgets that make hydrogen — also maintains that it “strongly supports” 45V and the three pillar concept.
Beth Trask, vice president for global energy transition for the environmental group Environmental Defense Fund, said the drawn-out debates and ongoing wait for 45V have become a distraction.
As a result, she said, lawmakers and companies are losing sight of other problems that the hydrogen industry has yet to address — such as methane leaks — that are also critical to making sure production of the fuel doesn’t actually increase planet-warming emissions.
“In 5 years … these battles about 45V will be a long-distance memory,” she said. “We have to keep [molecules] in the pipes. If we allow them to leak, we contribute to climate change.”
Trask said potential leaks of methane, a potent greenhouse gas, could be a significant problem when using natural gas and carbon capture to make so-called “blue” hydrogen. Hydrogen producers need ways to measure small-to-moderate methane leaks from pipelines and transport vehicles, she said. Leaks of hydrogen, which also have a warming effect, are problematic as well, according to Trask.
Technology to measure many hydrogen leaks doesn’t exist on the commercial market, which creates challenges for reducing emissions and public safety, Trask said.
Next steps for the hubs
Three of DOE’s seven planned hydrogen hubs have reached a final cooperative agreement with the department: the ARCHES hub of California, the ARCH2 hub in Appalachia and the Pacific Northwest Hydrogen Association (PNWH2), which spans Oregon, Washington and Montana. The agreements allow DOE to start distributing infrastructure law money.
The California and Pacific Northwest hubs officially launched in July after lengthy negotiation processes that became a point of frustration for their leaders.
ARCHES CEO Angelina Galetiva said that after the hub was selected in October, DOE officials told her that contract negotiations could take three months.
“That was wishful thinking,” she said. “My constructive criticism for DOE … is expectation management.”
Prior to DOE finalizing ARCHES’ agreement, Galetiva said the process had generated 4,000 pages of paperwork.
When asked about the pace of negotiations, DOE said in an emailed statement that “negotiations for each H2Hub vary based on the size and complexity and are not finalized until awards are made.”
DOE explained that the hub negotiation process involved many steps, including working to finalize individual site selections, technology deployment timelines, community benefits plans and the terms of union partnerships.
The department did not provide a timeline for when the remaining four regional hubs would be finalized.
Hubs with contracts have entered into “Phase 1,” where they make key planning decisions about construction of projects.
ARCHES’ contract with DOE will catalyze 37 major hydrogen projects focused on decarbonizing the state’s ports, grid power and heavy-duty transportation across the state.
“We expect to significantly staff up after this contract,” said Galetiva, who started her full-time role as CEO in the spring. She noted that some regional hubs have little or no full time staff in place.
For example, Chris Green started his role as Pacific Northwest Hydrogen Association hub’s only full-time employee less than a month ago. The hub, which was officially launched on July 25, aims to produce “green” hydrogen made from renewables.
The leaders of the two West Coast hubs said they are planning to collaborate and connect producers across their two regions.
Green said his hub has strong support from states, tribes and local communities. Members of the Cowlitz Indian Tribe and Chehalis Tribe sit on the PNWH2 board, for example. According to Green, the momentum to build the hub is strong enough that it would survive even if administration support pulled back.
“If tomorrow the money dried up from the feds, we’d still be pushing … at least in Washington state … to get hydrogen moving,” said Green. However, reaching PNWH2’s ultimate goal of eliminating all fossil fuels from the region’s electricity generation by 2045, Green added, can only be achieved with DOE’s support.
The Appalachian hub — which is expected to span parts of West Virginia, Ohio and Pennsylvania — reached a final agreement with DOE on Thursday. The hub received an initial award of $30 million with the cooperative agreement promising up to $925 million. DOE said that the hub’s 11 proposed production sites could make more than 1,500 metric tons of clean hydrogen per day and reduce carbon dioxide emissions equivalent to the annual emissions of more than 2 million gasoline-powered cars.
But the ARCH2 hub has faced pushback, putting it under renewed scrutiny as dollars are distributed by DOE.
Advocates and leaders of ARCH2 released a document on its website in May, following criticism from the Ohio River Valley Institute and others that the hub might incentivize more natural gas production in the area. The hub said it has followed DOE’s protocols for clean hydrogen.
The hub plans to produce “blue” hydrogen using gas and carbon capture. The infrastructure law instructed that at least one hub produce this form of hydrogen, which has sparked controversy.
Critics say blue hydrogen is experimental and could entrench reliance on fossil fuels and lead to increasing methane emissions because of leaks from gas infrastructure.
“It’s hard to tell how much of this [pushback] are local concerns over gas development … or whether this is circulating around as part of a national conversation that [people] just don’t want blue hydrogen,” said Wolak.
He said he didn’t think that local opposition could slow down or jeopardize the final agreements with DOE for any of the regional hubs. Transparency and community engagement were “baked into” DOE’s design of the hub program, he said.
“My understanding is that the [hydrogen] hubs will reach their contracts this summer,” said Wolak. “Once that happens, the amount of activity you’ll see should not be understated.”
The post-Chevron landscape
The Supreme Court decision overturning the Chevron doctrine earlier this year could have wide-ranging implications for hydrogen production, according to legal experts. Because of the ruling, courts can no longer defer to agencies’ expertise when interpreting vague laws.
Wolak of the hydrogen industry association said the most immediate impact could be on 45V.
“If you look at the 45V debate, it’s all about Treasury trying to interpret, at an agency level, what was intended by Congress when writing the [Inflation Reduction Act],” said Wolak. “Our industry is saying that the ‘three pillars’ were not included in the law.”
Some legal scholars think that the Treasury Department, in anticipation of litigation, may be taking more time to revise 45V rules so that they stand up better in court.
“The IRS, like all agencies, will be thinking hard about whether they want to adopt new or creative legal interpretations,” wrote Jody Freeman, a professor at Harvard Law. School, in an email. “And [they] will likely try to ground any rules they issue in as much economic data and other fact-based analysis to maximize their prospects of getting any deference.”
One of the issues Treasury must interpret from the law is whether some companies should be able to get exemptions from 45V’s requirements.
For example, according the Natural Resources Defense Council, some companies are lobbying Treasury to include an exemption to the additionality requirement so that five to 10 percent of existing clean energy on the grid can be used for hydrogen production.
The diverted electricity would most likely be back-filled with energy from fossil fuels, according to NRDC. If the Treasury Department has such an exemption in its final guidance, it could lead to the release of an additional 1.5 billion metric tons of greenhouse gas emissions over the next 10 years compared with what would occur with the full additionality requirement in place, NRDC said.
Kristin Hickman, a professor at the University of Minnesota Law School, said she had doubts that Treasury will be able to fully shield the agency from legal challenges after the Chevron ruling. “There will be an uptick in litigation,” she said.
E&E News previously reported that months before the Supreme Court decision, industry players seemed poised to bring litigation that would challenge Biden’s 45V rules after it is finalized and implemented. If there are lawsuits against final 45V guidance, all eyes will be on the lower courts, said Hickman.
Hickman said companies should “wait and see” how the courts decide in response to any 45V litigation, cautioning against any assumptions that the Chevron ruling ultimately will be in the industry’s favor.
Still, Andy Marsh, the CEO of Plug Power, a New York-based hydrogen giant, said he was hopeful the administration would bend to pressure and roll back the rules.
“Chevron is going to be the downfall of the three pillars … in no way do they reflect congressional intent,” said Marsh. “These were concepts put there by purists.”
