A ten-year tax credit for hydrogen production was approved by the US House of Representatives on Friday as part of President Joe Biden’s Build Back Better bill.

The credit is not law yet as the bill still needs to be debated and voted on by the Senate, which is likely to happen in December.

The credit is worth $3/kg of hydrogen produced—a dollar-for-dollar reduction on the tax owed on the fuel. It is neutral on what form of technology is used to produce the hydrogen—meaning developers of both green and blue projects can qualify as long as they meet the carbon intensity requirements. 

Hydrogen producers will receive 100pc of the tax credit if the lifecycle greenhouse gas emissions rate of their fuel is less than 0.45kg CO₂e per kg of hydrogen.

$3/kg – Value of full production tax credit

A sliding scale with four categories of carbon intensity means producers will receive decreasing amounts of the tax credit the more carbon intense their hydrogen production is.

In the lowest bracket, producers will receive 15pc of the tax credit if the lifecycle greenhouse gas emissions rate of their fuel is 4-6kg of CO₂e per kg of hydrogen.

Projects must begin construction before 2029 to claim the credit, while facilities in the 4-6kg CO₂ per kg of hydrogen category must be operational before 2027.

The credit is based on a lifecycle analysis of total greenhouse gas emissions. The bill says that, a year after it is passed into law, the US energy secretary must issue regulations determining how the lifecycle greenhouse gas emissions of clean hydrogen are assessed and verified.

Depending on how well they tackle upstream methane emissions, it is possible that some blue hydrogen projects in the US may not qualify. Blue hydrogen produced via the more expensive autothermal reforming method—which also produces lower emissions—is more likely to do so.

“Together with the bipartisan infrastructure law, it makes the most significant investment in our fight against the climate crisis ever by creating jobs that build a clean energy future for our children and grandchildren,” said President Joe Biden, welcoming the progress of the bill.

The US infrastructure bill—passed earlier this month—calls for $8bn in appropriation from fiscal years 2022 to 2026 for four clean hydrogen hubs. It also includes $1bn for research and development into the demonstration, commercialisation and deployment of clean hydrogen. The goal is to improve the efficiency of green hydrogen production, reducing costs to less than $2/kg by 2026.

In June, the Biden administration issued a new goal of slashing the cost of clean hydrogen by 80pc, to $1/kg, within a decade.

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Author: Tom Young