Biden Pushes Strict Climate-Subsidy Rules Despite Energy Producers’ Warnings
Proposed criteria would determine who gets generous tax credits for producing hydrogen.
By
Amrith Ramkumar
and
Richard Rubin
Updated Dec. 22, 2023, 10:17 am ET
Hydrogen production is seen as a viable fossil-fuel replacement for heavy industry, unlike many other renewable-energy sources. PHOTO: BRETT COOMER/HOUSTON CHRONICLE/GETTY IMAGES
WASHINGTON—The Biden administration on Friday proposed tough new rules for a valuable climate subsidy, siding with environmental groups despite warnings from some of the nation’s biggest energy companies that strict limits could stifle a critical industry.
The proposed criteria would determine who gets generous tax credits for producing hydrogen, one of the few
viable replacements for fossil fuels in heavy industries such as steelmaking and shipping, where renewable electricity and batteries aren’t sufficient.
Companies including
NextEra Energy,
BP and
Constellation Energy had warned that
restrictive rules for the tax credit could cause project cancellations and prevent the nascent industry from taking off.
“These proposed regulations and requirements will unnecessarily hold back our domestic industry, driving investment, manufacturing and technology leadership overseas,” Frank Wolak, chief executive of the Fuel Cell & Hydrogen Energy Association, said in a statement. The industry group’s members include
Exxon Mobil and
Plug Power, a maker of fuel cells that
hopes to become a leading green hydrogen supplier.
The rules proposed Friday govern how companies seeking to claim the tax credit must purchase electricity that is needed to make hydrogen. Environmental groups, academics and some companies said looser rules for those purchases would lead to higher emissions.
“It’s especially important to get these rules right,” said Deputy Treasury Secretary Wally Adeyemo, noting that some projects under Friday’s regulations would get the tax breaks into the 2040s.
Companies such as
Air Products and Chemicals also pushed for tighter standards. Air Products and power company AES plan to develop new wind and solar energy to make hydrogen in a
$4 billion Texas project that would meet the criteria proposed Friday.
Deputy Treasury Secretary Wally Adeyemo said fine points of the subsidy rules are especially important because some projects would get the tax breaks into the 2040s. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS
The long-awaited rules have been some of the most contentious regulations stemming from
last year’s Inflation Reduction Act. The tax credit is significant, potentially covering more than half of a typical green hydrogen project’s cost. And it will define a new industry because clean hydrogen is too expensive to produce today without subsidies.
The U.S. hopes to increase clean hydrogen production to 50 million metric tons a year by midcentury, from less than 1 million currently, to meet its climate goals.
The hydrogen tax-credit rules are the latest example of companies clashing over some $1 trillion in subsidies for everything from electric cars to solar panels. The tax credits are pitting the administration’s climate goals against its efforts
to create domestic manufacturing jobs and boost the economy.
Nearly all hydrogen today is made by heating natural gas. The method is cheap, but it generates greenhouse-gas emissions. Those can be lowered or eliminated by switching to machines powered by renewable energy that split water into
so-called green hydrogen and oxygen.
The new tax credit gets more valuable as the production process generates less emissions. The maximum amount for the cleanest hydrogen is $3 per kilogram, roughly enough to make green hydrogen cost-competitive with hydrogen made from natural gas.
The tax credit comes on top of
several billion dollars in federal funding for hydrogen megaprojects across the country and other subsidies to spur demand for clean hydrogen and lower the cost of electrolyzers, the devices that split water.
Companies and environmental groups conducted a
monthslong lobbying and advertising campaign, aiming to sway administration officials in advance of Friday’s announcement. The crux of the conflict is over whether companies planning to use fossil-fuel power from electricity grids to make hydrogen would have to buy equivalent renewable energy on an hourly basis, or on a looser annual standard, to qualify for the tax credit.
The rules proposed Friday by the Treasury Department would make companies match their electricity use every hour starting in 2028, earlier than many companies and industry groups wanted.
“The rushed imposition of the most burdensome restrictions fails to acknowledge the market realities of new technology deployment,” Jason Grumet, CEO of the American Clean Power Association, a renewable-energy industry group, said in a statement.
Companies say the requirement and a provision that new power facilities be used for hydrogen production will constrain development and limit where projects can be located. They would also prevent projects that make hydrogen using existing nuclear power plants from getting the maximum subsidy.
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Labor unions and lawmakers such as Sen. Joe Manchin (D., W.VA.), a key author of the Inflation Reduction Act, also called for the administration to enact looser rules, saying that would help the hydrogen industry take off and create jobs.
Manchin said Friday that the administration’s proposed rules kneecap the industry and violate the law.
Sen. Sherrod Brown (D., Ohio), one of the most vulnerable Democrats running for re-election next year, said Friday that he had serious concerns that the rules will hurt the country’s ability to produce clean hydrogen.
“We wrote the Inflation Reduction Act to lower energy costs for Ohioans and unleash innovation in clean energy production in Appalachia and across the Midwest—and these rules undermine that clear goal,” he said.
The new criteria are the best way to boost the industry without increasing emissions as the law intended, senior administration officials said. They were developed with the Environmental Protection Agency and Energy Department.
Companies say that higher emissions might be a necessary sacrifice to get the jobs and long-term climate benefits the administration wants through hydrogen production.
The administration missed an August deadline for hydrogen rules and was racing to issue a proposal before the end of the year. Now, companies and environmental groups will have 60 days to respond with fresh comments before the government sets final rules.
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