US Government Unveils Guidelines for Hydrogen Tax Credit: A Deep Dive

The long-anticipated proposed rules on clean hydrogen production have been unveiled by the US government, delineating the criteria for developers to qualify for the hydrogen tax credit of up to $3 per kilogram. These guidelines, resembling the previously leaked draft, introduce measures such as additionality, hourly matching, and geographical correlation, mirroring steps taken by the EU to ensure green hydrogen is not indirectly produced using fossil-fuel-fired power.

For green hydrogen projects in the US to be eligible, the power input must originate from renewable assets on the same regional grid installed within three years of hydrogen production initiation. Unlike the EU, the US Treasury proposes stricter rules, with annual matching required until 2027 and hourly matching from 2028 onwards. This ensures a more stringent alignment between renewable power and electrolyzer operation.

Key Components of the Proposed Guidelines:

  • Additionality: The green hydrogen must be produced from new renewable projects, avoiding the use of existing clean electricity facilities to maintain decarbonization efforts.
  • Time-matching (Temporal Correlation): Producers must prove the hourly, weekly, monthly, or annual usage of 100% renewable energy to ascertain the reliance on grid electricity during periods of low renewable availability.
  • Geographic Correlation: Electrolyzers should be in proximity to the source of renewable energy, preventing scenarios where, for instance, solar panels in California power an electrolyzer in Texas through renewable energy credits.
  • These rules collectively aim to prevent fossil-powered grid electricity from being used directly or indirectly in green hydrogen production, ensuring a genuinely clean process.

John Podesta, Senior Advisor to the US President for Clean Energy Innovation and Implementation, emphasized the importance of the hydrogen tax credit in building a clean hydrogen industry critical for emissions reduction in challenging sectors like heavy industry and transportation.

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Despite the significance of these regulations, there is opposition from hydrogen producers and some Democratic politicians. Concerns include potential cost increases for green hydrogen, operational limitations on electrolyzers, and claims of discrimination compared to other clean-energy solutions exempt from similar restrictions. Senator Joe Manchin criticized the regulations, stating they were “horrible” and vowed to challenge them.

A public consultation on these proposals will follow, culminating in a public hearing on March 25, 2024. The finalization date for the guidelines remains uncertain.

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