One of the nation’s largest renewable trade groups unveiled revised recommendations Thursday on how “green” hydrogen emissions should be counted under the Inflation Reduction Act, highlighting the challenge facing the Biden administration as it prepares tax guidance that could determine the greenhouse gas footprint of the fuel.
The American Clean Power Association (ACP) is an influential voice in the hydrogen debate, considering its size and number of members with a potential stake in the industry’s future. In December, it submitted initial comments to the Treasury Department about coming guidance for accessing lucrative Inflation Reduction Act tax credits for clean hydrogen.
The group’s revised plan Thursday made concessions to environmentalists on some issues but reignited disputes over others, while alienating nuclear and fuel cell advocates.
Green hydrogen typically refers to a zero-emissions process where the fuel is extracted from water using renewable electricity. But experts say whether hydrogen is actually low-carbon could hinge partly on where and how developers source their power.
Rather than build new solar or wind facilities and use those sites’ electricity to make hydrogen, some prospective developers want to use grid power that may rely on fossil fuels. They say they still should be eligible for tax credits if they counter the fossil fuel use by reaching power purchase agreements or other deals that benefit renewable power operators around the United States.
However, environmentalists and some university researchers say that access to Inflation Reduction Act credits should come with strict stipulations to minimize grid emissions, which they fear could balloon due to green hydrogen production.
ACP, whose ranks include prominent energy companies with plans to scale out green hydrogen production, originally defended the use of grid power in its December comments to Treasury. At the time, the group said relying on the grid to make hydrogen could keep down costs and help grow a new clean industry.
But in its adjusted recommendations, the group changed its stance and embraced portions of a plan being pushed by environmentalists for limiting grid emissions.
However, its stance differed from environmentalists in saying hydrogen developers should not have to abide by an “hourly matching” requirement for most of the decade. Under hourly matching, which environmentalists are backing, developers would have to match their hourly consumption of grid power with the hourly power generation from a new renewable facility.
The group said projects that begin construction in 2029 should be subject to hourly matching, as well as any project placed in service after 2032. Under the plan, projects that started construction before 2029 would also benefit from a ten-year “grandfather” policy, meaning they would not have to comply with hourly matching until 2039.
ACP’s leaders said the revised recommendations offer a “sweet spot” that would balance emissions concerns with the need to entice developers.
“What we are proposing today is a pretty considerable step from where we were in December,” said Jason Grumet, the group’s CEO, during a press call.
The plan strikes “a balance that inspires a new clean domestic industry while ensuring near- and long-term climate benefits,” Grumet said.
Under the group’s proposal, hydrogen developers could only use grid power if they were also financing new sources of clean power generation — a concept known as “additionality.” That new clean power would also have to be located in the same grid area as where the hydrogen production was occurring or in a neighboring one with strong transmission links.
Criticism erupts
In its plan, ACP split with other major energy trade groups that have called for far greater flexibility for hydrogen developers.
Those groups include oil and gas majors like Shell PLC, the American Council on Renewable Energy, the U.S. Chamber of Commerce’s Global Energy Institute and the Edison Electric Institute, which represents investor-owned utilities.
EEI has said hourly matching requirements could “dramatically increase the price of the hydrogen produced” and “severely limit” the fuel’s adoption, for instance.
ACP’s new position drew fire from various energy industries.
Nuclear power advocates took aim at the additionality requirement, saying that requiring developers to bring new sources of clean power generation online would likely prevent existing nuclear plants from taking part in the hydrogen sector. Without additionality, advocates hope that existing nuclear plants could participate in power deals with hydrogen developers seeking to counter their grid power use.
“As the largest producer of carbon-free energy in the U.S., removing existing nuclear energy from qualifying for the Clean Hydrogen Production Tax Credit would eliminate one of our most valuable assets for decarbonizing hard-to-abate sectors,” said John Kotek, senior vice president of policy development and public affairs at the Nuclear Energy Institute, in an email.
Similarly, the Fuel Cell and Hydrogen Energy Association is “concerned that the positions described by the American Clean Power Association, particularly on additionality, will chill development of the essential first generation of clean-hydrogen facilities,” said Frank Wolak, the group’s CEO, in a statement.
Environmentalists, however, praised ACP’s support for additionality.
“It’s a major shift,” said Rachel Fakhry, a senior advocate for the Natural Resources Defense Council.
But she said the hourly matching requirements — such as the 2032 phase-in date and the ten-year “grandfather” system — are far too lax.
Some studies have shown that hourly matching requirements could be possible for many green hydrogen producers to meet right away, while still profiting handsomely, said Fakhry.
“Hourly matching will pencil out from day one,” said Fakhry, adding that “there’s no technical or economic reason” to wait.
The wait could cause grid emissions to spike because of green hydrogen production, she said. “The whole system [of requirements] just crumbles, in terms of its effectiveness in preventing emissions increases.”
Wilson Ricks, a Princeton University researcher who has co-authored studies on the emissions impact of green hydrogen, agreed.
“[O]n the phase-in to hourly matching, they strongly miss the mark,” he said of the new proposal.
One previous study authored by Ricks found that without strict requirements on producers, making green hydrogen could be worse for the climate than making conventional “grey” hydrogen from natural gas.
“Applying lax standards to an industry that has already successfully scaled would be throwing away the emissions benefits of this subsidy without gaining any societal benefits in return,” he added.
A ‘careening debate’
Grumet said the bulk of hydrogen production would occur during years when the more stringent hourly matching requirements would take effect.
He added that the requirements his group are seeking for hydrogen developers would come at a higher financial cost — although one that is worth it to maintain the fuel’s climate credibility.
“These guardrails are not inconsequential. They will raise the cost of green hydrogen production and will constrict the early market entry,” said Grumet. He and ACP maintain that the cost of electrolyzers will become cheaper mostly through increased scale.
But he added that the requirements are necessary to instill “confidence in this industry” and to calm a “careening debate” over what Treasury should do in its upcoming guidance.
“We’re trying to find a sweet spot … so that the industry has a shot at getting off the ground,” he added.
