US hydrogen credit ruling allows developers to move forward
Final tax credit guidelines from the Biden administration reward cleaner hydrogen projects regardless of technology but President Trump's spending review hangs over energy infrastructure buildout.
February 12 - On January 3, the administration of former President Joe Biden introduced a tiered system to distribute production tax credits (PTCs) for clean hydrogen producers, regardless of whether they use renewable energy, nuclear or natural gas with carbon capture.
"Green" hydrogen is produced using renewable energy and electrolyzers, which turn electricity into hydrogen through the process of electrolysis. Most hydrogen supplied to date has been "grey" hydrogen produced from gas-based steam methane reforming, while "blue" hydrogen is produced from gas and carbon capture technologies which lower the carbon footprint.
The cost of green hydrogen is currently far higher than the cost of grey hydrogen and the PTCs aim to accelerate wider deployment of clean hydrogen technology and drive down costs. The Biden administration aimed to reduce the cost of clean hydrogen to $1/kg by 2031, compared with estimates of around $5/kg in 2022.
CHART: US estimated clean hydrogen demand at threshold prices
The 45V rules mean green hydrogen projects using clean power from plants built within 36 months of the hydrogen facility becoming operational qualify for a full tax credit of $3.00 per kilogram (kg) of hydrogen.
The requirement to source clean power from newly constructed plants aims to ensure green hydrogen projects do not hamper efforts firmly underway to decarbonize wider electricity supply. For hydrogen projects, it could mean higher costs than sourcing power from older renewable energy facilities or the grid.
To meet this requirement, hydrogen plants could also source power from nuclear plants at risk of retirement, up to 200 MW per reactor, or from existing renewable energy generation in states that meet strict clean electricity standards and emissions caps. Only Washington and California currently meet these criteria.
The clean energy sector is digesting fresh market uncertainty following President Donald Trump's flurry of executive orders last month, but for hydrogen developers, the 45V guidance is a crucial step forward. Many developers had paused projects until the final rules were published.
'The Treasury's final guidance on 45V is a step forward in providing clarity for the hydrogen industry to move ahead with planned projects,' said Sachin Nijhawan, CEO of thyssenkrupp nucera, an electrolyzer manufacturer.
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Green fuel developer HIF Global told Reuters Events that it expects that its planned green hydrogen plant in Matagorda County, Texas will qualify for the full credit. The $6 billion facility would produce 1.4 million tons per year of e-methanol by combining CO2 captured from the atmosphere with green hydrogen from wind power.
"This final rule allows us to take the necessary next steps to work toward [Final Investment Decision] on our eFuels facility in Matagorda County,' Lee Beck, SVP Global Policy & Commercial Strategy at HIF Global, said.
'Having a regulatory framework in place is preferable to not having rules; in that state of uncertainty, a project cannot move forward."
Technology agnostic
The final 45V rules are less strict than an earlier version which only provided tax credits to the cleanest forms of hydrogen production.
The final guidance is technology agnostic, allocating tax credits based on a sliding scale tied to the emissions associated with the production of hydrogen. Producers of blue hydrogen using natural gas and carbon capture can qualify for some credits, providing that their emissions remain under 4 kg of CO2e per kg of hydrogen produced.
Although green hydrogen 'stands to benefit significantly under 45V ... the rules create a structured framework for clean hydrogen production, aimed at supporting developers across all pathways,' Nijhawan told Reuters Events.
The guidance drew mixed responses from stakeholders. The American Clean Power Association said that 45V contains 'unnecessarily stringent requirements' that could derail projects, including "burdensome time matching standards" that require simultaneous production of clean electricity and hydrogen. The Fuel Cell and Hydrogen Energy Association said the rules are 'extremely complex.'
The American Petroleum Institute, a fossil-fuel industry association, celebrated the rules as a 'clear step forward' and said it would work with the new administration to continue advancing policies that are 'technology neutral.'
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The 45V compliance criteria would require stringent monitoring to ensure low emissions along the natural gas supply chain. It is unclear whether the Trump administration will seek to strictly regulate and monitor methane emissions.
Earthjustice, an environmental group, said that the guidance largely supports the production of clean hydrogen but includes loopholes that could allow 'dirty' hydrogen producers to receive tax credits if not monitored appropriately.
According to S&P Global Commodity Insights, about a dozen large-scale clean hydrogen projects had secured capital by end-2024 and 'the vast majority of that pending capacity is for hydrogen produced with carbon capture technology,' which suggests that many blue hydrogen projects do not require federal aid to get going.
Trump disrupts
Since taking office on January 20, President Trump has issued a string of presidential decrees to boost fossil fuel output and upend some of Biden's clean energy policies. This included a freeze on spending on federal loans and funds pending a review, including $7 billion earmarked for seven regional hydrogen hubs.
The Biden administration last year started allocating funds to the hubs, which aim to kickstart regional hydrogen infrastructure across the U.S.
It is unclear whether the Trump administration will look to modify the 45V rules.
'The hydrogen industry is more focused on the freeze of federal monies that has caused them to stop working on hydrogen hub projects," said Conrad Schneider, a senior director at the Clean Air Task Force (CATF).
"Until it is clarified that the freeze does not apply to them, the tax credits are kind of moot,' Schneider added.
Further changes to the 45V rules would add fresh uncertainty to the industry, warned CATF attorney Veronica Saltzman.
'The best and most likely thing the Trump administration can do is to just leave things alone,' Saltzman said.
Despite the uncertainty caused by Trump's funding freeze, in the long run Trump's pro-business policies will likely lead to deregulation that would favor the hydrogen industry, Andy Marsh, CEO of Plug Power, a green hydrogen developer and electrolyzer manufacturer, told Reuters Events.
There is strong demand for all types of hydrogen and the "Trump administration policy of energy dominance is actually good for the industry because part of that dominance is being able to provide green fuels as well as blue fuels,' Marsh said.
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