US Treasury’s 45V Regulation Sparks Hydrogen Industry Concerns

The US Treasury Department is set to issue new regulations concerning hydrogen incentives, specifically related to the Inflation Reduction Act (IRA). However, the draft regulation released in December has sparked widespread dissatisfaction within the hydrogen industry. This regulation, which aims to govern expanded tax credits in Section 45V of the IRA, has faced criticism from various stakeholders, including those involved in “green” hydrogen projects that utilize electrolysis powered by renewable sources like wind or solar energy.

The key point of contention is the requirement for makers of green hydrogen to source all their energy directly from renewable projects to qualify for the full $3 per kg. credit. This stipulation would pose significant challenges for projects sourcing power from the public grid. Critics argue that this requirement could hinder the economic viability of many projects currently in the planning stages.

Furthermore, environmental groups like the Sierra Club have called for additional requirements, such as the financing and construction of proprietary renewable energy installations, which could further complicate the development of green hydrogen projects.

The proposed guidance would also impact projects producing “blue” hydrogen, which is currently produced using natural gas. This method accounts for approximately 95% of US hydrogen production. For example, the ARCH-2 Hydrogen Hub in West Virginia, which plans to utilize natural gas from the Appalachia region as a feedstock, could face significant challenges under the new guidance.

Similarly, ExxonMobil’s plans to develop a clean hydrogen hub in Baytown, Texas, using natural gas as both the feedstock and power source, could be at risk. Despite plans to capture and store 98% of emissions, the Baytown project may not qualify for the maximum credit under the new regulations. Mark Klewpatinond, Global Business Manager for Hydrogen at Exxon Mobil, expressed concerns that without differentiation for natural gas production, the Baytown project might not proceed.

Interestingly, both the ARCH-2 and the Gulf Coast Hydrogen Hub, including the Baytown project, were selected by the Biden Energy Department to receive federal grants to kickstart the US clean hydrogen industry. However, the current regulatory uncertainty highlights the challenges facing the industry due to inconsistent federal policies.

In response to the backlash, the Treasury Department has announced that the upcoming guidance update will be an interim measure. The department will consider feedback from stakeholders before finalizing the regulation. This approach indicates a willingness to address concerns and refine the regulations to better support the growth of the US hydrogen industry.