Biden Announces Tax Incentives For Clean Hydrogen

Last Friday, the Biden Administration announced the rules for tax credit for clean hydrogen production. It is a tiered system and gives credit of up to $3 per kilogram (the greater the lifecycle emissions, the lower the credit amount). Lifecycle emissions analyses, accounts for both direct and significant indirect emissions, ensuring all production methods meet environmental benchmarks.

To qualify for the Clean Hydrogen Production Tax Credit, hydrogen production must emit no more than 4 kilograms of carbon dioxide equivalents (CO₂e) per kilogram of hydrogen. It is estimated that billions of dollars will be channeled to cleaner producers of hydrogen.

So, why is hydrogen production being incentivised when it emits greenhouse gases? 

Some industries are more challenging than others to decarbonise. For example, transportation and industrial manufacturing are not yet in a position to move to electrification and therefore, alternatives are necessary. Plus not all hydrogen is created equally. Hydrogen produced by extracting natural gas contributes significant emissions. However, there are alternative ways to produce hydrogen , for instance it can be made by splitting water with solar, wind, or nuclear energy. The tiered credit system recognises these discrepancies.. 

The tax incentives were initially proposed in 2022 (45V Hydrogen Production Tax Credit) and have now extended to firms that use natural gas if they use technology to capture and sequester the emissions. 

Angela Anderson, director of industrial innovation and carbon removal at Washington, DC-based World Resources Institute, said, “Hydrogen’s ability to maximise pollution reduction depends on how it is produced, and this rule will incentivise industrial companies to choose cleaner methods of production”.

Environmental Groups, such as Earthjustice, have been hesitant to congratulate, as there are some worries over loopholes, however, it is widely recognised that this will certainly go some way to reduce emissions. 

Conrad Schneider, senior director at the Clean Air Task Force, an advocacy group, said “We have a number of industry sectors that are hard to decarbonise, aviation, marine shipping, steel production, that are currently using fossil fuels. Having a tax incentive like this for the production of clean hydrogen will create a fuel that replaces those unabated fossil fuels and helps the climate.”

Ultimately, the emissions landscape of America is going to depend on how Trump proceeds following his inauguration on the 20th January.