U.S. Set to Issue Guidance on Hydrogen Subsidies Post-COP28

U.S. energy advisor John Podesta has confirmed that guidance for securing hydrogen subsidies, embedded in last year’s Inflation Reduction Act (IRA), will be released sometime after the COP28 climate conference in Dubai. The awaited guidance from the U.S. Treasury Department is expected to provide clarity to the industry on eligibility for billions of dollars in subsidies. The Biden administration, keen on promoting green hydrogen to decarbonize industries, has subsidies of $3 per kilogram embedded in the IRA.

The guidance has been eagerly anticipated as the administration deliberates on whether to restrict incentives to hydrogen producers using new, rather than existing, clean energy sources. The aim is to prevent any inadvertent rise in emissions. Hydrogen is a critical fuel for the Biden administration in efforts to clean up hard-to-decarbonize industries like aluminum and cement.

Podesta mentioned that the guidance is anticipated before the end of the year but not during the COP28 summit held from November 30 to December 12. The subsidies aim to stimulate the green h2 industry, making it economically viable. A major consideration in the guidance is whether to limit perks to hydrogen producers using new clean energy sources, a proposal backed by environmental groups and some hydrogen companies.

Environmental concerns include the potential of tax credits leading to increased emissions by raising overall power demand fed by fossil power. However, industry groups argue that overly strict subsidy programs could render some projects uneconomical and hinder the administration’s goals for green hydrogen. The disagreement extends even within federal agencies, with differing opinions between the Treasury and the Department of Energy on the subsidy’s design.

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A preliminary draft of the guidance reportedly includes the “additionality” provision, excluding existing power sources, while considering special treatment for nuclear and hydro. It also requires hydrogen electrolyzers to run simultaneously with renewable energy to ensure fossil fuel electricity isn’t used in hydrogen production.

Apart from the IRA subsidies, the Department of Energy has designated seven proposed regional “hydrogen hubs” receiving $7 billion to demonstrate and scale up clean hydrogen. The inclusion of existing nuclear plants in three proposed hubs raises questions about the economic feasibility if these reactors are excluded from IRA subsidies.

Marty Durbin, president of the U.S. Chamber of Commerce’s Global Energy Institute, emphasized the long-term benefits of enabling faster production, even with looser rules. However, Claire Behar, chief commercial officer for HyStor Energy, a green hydrogen company, preferred stricter rules, emphasizing the importance of getting it right for decarbonization.

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