A leaked draft of high-stakes Treasury Department rules for a production tax credit for hydrogen created in President Joe Biden’s signature climate law is setting off alarms by the industry, which says the requirements put the success of the nascent climate-friendly fuel at risk.
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Published Dec 04, 2023 • 2 minute read
Hydrogen tanks in a storage area at the Constellation Nine Mile Point Nuclear Station in Scriba, New York, US, on Tuesday, May 9, 2023. Constellation Energy has paused its efforts to make hydrogen using nuclear power as the Biden administration considers limiting tax credits. Photographer: Lauren Petracca/Bloomberg Photo by Lauren Petracca /Bloomberg
(Bloomberg) — A leaked draft of high-stakes Treasury Department rules for a production tax credit for hydrogen created in President Joe Biden’s signature climate law is setting off alarms by the industry, which says the requirements put the success of the nascent climate-friendly fuel at risk.
The rules, which have yet to be finalized, include measures sought by environmentalists amid a fierce lobbying battle over which kinds of hydrogen projects will be allowed to receive the $3-per-kilogram credit, according to people familiar with the draft.
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Specifically, the guidance includes a requirement that hydrogen projects have to be powered by new sources of clean electricity, with a three-year “lookback” window allowing renewable energy generation brought online in the past three years to count, the people said.
In addition, the draft rules require hydrogen projects be supplied with new, clean power sources operating on the same grid on an annual basis through 2027 and then on a hourly basis starting in 2028, according to the people.
Hydrogen is seen as a critical fuel for decarbonizing steelmaking, cement production and other heavy industry — and the tax credit is viewed as an essential incentive to spur its development.
But environmentalists warn that a wave of hydrogen production could drive further demand for fossil-based electricity — and unleash more greenhouse gas emissions — if there aren’t mandates requiring the facilities be supplied by new, clean power sources operating on the same grid and during the same time. A main point of contention is now whether — and when — projects should face stronger hourly time-matching requirements, instead of more lenient annual mandates, and if there should be any grandfathering for projects that begin construction in the near term.
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“If true, the Biden Administration’s proposed strategy for implementing these provisions will fail to get this new industry off the ground,” Jason Grumet, chief executive officer of the Washington-based American Clean Power Association, said in a statement Monday. “It is surprising and disappointing that the administration would propose such a rigid approach that is at odds with decades of learning about new technology deployment.”
The Treasury Department, which is expected to make its guidance public by year’s end, declined to comment.
Details of the tax rules were reported earlier by Politico.
—With assistance from Jennifer A. Dlouhy.
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