PA Environment Digest Blog: US DOE, Treasury Release Proposed Regulations Implementing Clean Hydrogen Production Credit Setting A Sliding Scale For Credits

On December 22, the U.S. Department of the Treasury and Internal Revenue Service released proposed regulations on the Clean Hydrogen Production Credit established by the federal Inflation Reduction Act.

While clean hydrogen holds considerable potential to reduce emissions across a range of sectors and applications, conventional hydrogen production typically results in significant climate pollution.

The Clean Hydrogen Production Credit aims to make production of clean hydrogen with minimal climate pollution more economically competitive and accelerate development of the U.S. clean hydrogen industry.

The proposed regulations advance those goals and will support the development of a robust U.S. clean hydrogen industry that creates good-paying jobs, while also reducing carbon emissions.

The Treasury Department’s Notice of Proposed Rulemaking (NPRM) provides definitions of key terms in the statute, including lifecycle greenhouse gas emissions, qualified clean hydrogen, and qualified clean hydrogen production facility.

The safeguards outlined in the proposed rules are critical to preventing the credit from subsidizing hydrogen production with higher lifecycle greenhouse gas emissions than allowed by the statute.

The IRA establishes a Clean Hydrogen Production Credit with four technology-neutral credit tiers based on the emissions rate of a hydrogen production process.

For hydrogen production facilities meeting prevailing wage and registered apprenticeship requirements, the amount of the credit ranges from $.60 per kilogram (kg) of hydrogen produced to $3 per kg of hydrogen, depending on the lifecycle emissions of the hydrogen production.

The proposed rules detail eligibility requirements for hydrogen production from landfill gas in certain circumstances.

Treasury and IRS anticipate finalizing rules in which additional hydrogen production pathways using renewable natural gas (RNG) and fugitive methane, such as coal mine or coal bed methane, qualify and are seeking public comment on conditions for qualification while adhering to the standards in the statute.

The NPRM will be open for public comment for 60 days once it is published in the Federal Register, and Treasury and the IRS will carefully consider comments before issuing final rules.

Click Here for the complete announcement and supporting analysis.

PA Hydrogen Hubs

On October 13, the US Department of Energy awarded two hydrogen hub projects that include Pennsylvania-- a natural gas-based Appalachian Hub in Western PA, West Virginia and Ohio and a Mid-Atlantic Hub in eastern PA, Delaware and New Jersey based on the use of renewable and nuclear energy to make the hydrogen. Read more here.

On December 15, CNX Resources announced it has ended coordination with the Adams Fork "clean ammonia" project in Mingo County, West Virginia and is evaluating several viable alternative sites in southern West Virginia for clean hydrogen projects.

CNX cited an inability to reach final commercial terms with project developers and delays and increasing uncertainty over implementation rules guiding the use of the 45V hydrogen production tax credit provisions of the federal Inflation Reduction Act (IRA). Read more here.

Reaction

On December 22, the Pittsburgh Business Times reported “Matt Smith, chief growth officer of the Allegheny Conference on Community Development, told the Business Times on Friday that he was disappointed by the lack of flexibility to allow natural gas, hydroelectricity and nuclear to be used.”

[Note: The proposed regulations actually propose a sliding scale depending on how clean the source energy is that is used to produce the hydrogen.]

The Marcellus Shale Gas Industry Coalition posted a statement on December 21 saying in part--

“The guidance could negatively impact projects that utilize blue hydrogen and thereby directly impact Pennsylvania’s ability to lead in this new area of American energy production. With many ways to produce hydrogen, natural gas remains the most efficient and is critical to expanding hydrogen’s role in our energy future.”

[The position of the shale gas industry in Pennsylvania on any issue can be summarized in their own words-- “Any legislation or regulation that seeks to further restrict the development, transportation or use of natural gas will harm our economy, undermine personal property rights, weaken national security and reverse the significant environmental progress enabled by this clean abundant energy source.”

[Shale gas industry supporter Sen. Gene Yaw (R-Lycoming) has also called efforts to reduce the public health and environmental impacts of gas development “stupid.” Read more here.]

The Pittsburgh Business Times also quoted Emily Kent from the Clean Air Task Force as saying, “Given the enormous potential that hydrogen holds in decarbonizing specific sectors of our economy and the high-paying incentives at stake, we comment Treasury for establishing strong initial guidance that follows the clear requirements in section 45V to strictly incentivize truly clean hydrogen production.”

EarthJustice released a statement applauding the proposed hydrogen tax credit justice saying--

“Producing hydrogen by splitting apart water molecules uses a tremendous amount of energy, and the benefits of hydrogen are negated when that energy does not come from new renewable energy that is delivered alongside hydrogen production. The draft guidance avoids wasting billions of tax dollars on subsidies for dirty hydrogen production projects that would spike climate and health-harming pollution.” Read more here.

NewsClips:

-- AP: Hydrogen Tax Credit Rules Give Most Credits To Projects With Clean Energy Sources; Meaningful Credits Still Going To Fossil Fuel-based Projects

-- Reuters: US Unveils Clean Hydrogen Plan, Nuclear Power Role Uncertain

-- Bloomberg: Hydrogen Tax Credits Worth Billions Includes Strict Environmental Safeguards

-- Bloomberg: Hydrogen Tax Credit Rules Deal Nuclear Industry A Blow

-- NYT: Proposed Hydrogen Tax Credit Rules Helps Prevent Building A New Hydrogen Industry That Inadvertently Makes Climate Change Worse

-- WESA: With Potential US Steel Sale, A Reckoning Is Coming For The Way Steel Is Made In Mon Valley

-- Post-Gazette: Clairton Coke [Coal] Workers Quiet Amid Uncertainty of US Steel Sale

-- Pittsburgh Business Times: Shapiro Meets With US Steel, Nippon Steel Officials On Pending Sale

-- Sen. Bob Casey: Proposed Hydrogen Tax Credit Rule May Cut PA Workers, Businesses Out Of Equation

-- PennLive: Fetterman Says He Will Use ‘Whatever Tools Are In The Box’ To Stop Japanese Acquisition Of US Steel

-- Pittsburgh Business Times: Proposed Federal Guidance On Hydrogen Tax Credits Seem To Leave Out Natural Gas, Nuclear Energy [The primary sources of energy for PA’s 2 proposed Hydrogen Hubs]