THP-E269: LEAKED Hydrogen Production Tax Credits Report. Should Hydrogen Investors Be Worried?

Paul Rodden • Season: 2023 • Episode: 269

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Welcome to The Hydrogen Podcast!

In episode 269, New Mexico looks to solve the electrolytic hydrogen issue I’ve been talking about for over a year now. And a bombshell of a leaked Treasury Department report talks, hydrogen tax credits, and the three pillars are playing a big part. Should this be a concern to clean hydrogen investors? I’ll go over all of this and give my thoughts on today’s hydrogen podcast.

Thank you for listening and I hope you enjoy the podcast. Please feel free to email me at with any questions. Also, if you wouldn’t mind subscribing to my podcast using your preferred platform… I would greatly appreciate it.

Paul Rodden



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New Mexico looks to solve the electrolytic hydrogen issue I’ve been talking about for over a year now. And a bombshell of a leaked Treasury Department report talks, hydrogen tax credits, and the three pillars are playing a big part. Should this be a concern to clean hydrogen investors? I’ll go over all of this and give my thoughts on today’s hydrogen podcast. So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where is capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast. First up today, on December 5, and a press release, Governor Lujan Grisham announces $500 million in a commitment to build new mexico strategic water supply. At the 2023 UN Climate Change Conference, Governor Michelle Lujan Grisham announced a first of its kind strategic water supply to increase drought resilience and advanced clean energy production and storage. The strategic water supply will support the nation’s transition to renewable energy by providing resources for water intensive processes around creating green hydrogen storing energy produced by wind and solar and manufacturing, electric vehicles, microchips solar panels and wind turbines for example. In a quote from Governor Lujan Grisham In arid states like ours, every drop counts, a warming climate throws that fact into sharper relief every day. This is an innovation and action we’re leveraging the private sectors innovation to strengthen our climate resiliency and protect our precious freshwater resources. Through a $500 million investment. New Mexico will purchase treated, brackish and treated produced water to build a strategic water supply and early 2024. The New Mexico environmental department will issue guidance and seek proposals from companies interested in pursuing a contract. This contracting model used in other industries like health care for manufacturing vaccines, is known as an advanced market commitment. Advanced market commitments reduce the risk of private sector investment and spur first movers to build otherwise costly infrastructure. Companies that are awarded an advanced market commitment contract can secure private capital to build and operate water treatment facilities with the assurance of the state of New Mexico will purchase the water. New Mexico sits atop substantial aquifers of brackish saltwater, which can’t be used for human or agricultural consumption without treatment. Brackish water supplies are separate from freshwater resources underground. Estimates indicate that there may be up to 4 billion acre feet of brackish water underneath New Mexico, a 25 million gallon per day brackish water treatment plant could produce up to 27,900 acre feet of potable water a year. For comparison, this would cover approximately 70% of the annual consumptive water use and Albuquerque area, which is roughly 40,000 acre feet. In addition, over 2 billion barrels of produced water were generated by oil and gas operations, and 2022, of which 1.2 billion barrels are simply injected into deep wells for permanent disposal in New Mexico. Diverting just 2% of the produced water disposed of an injection wells to make hydrogen could result in enough energy to fully power one and a half million homes annually. Governor Lujan Grisham will seek the $500 million in non general fund dollars. This includes 250 million to be appropriated in the upcoming legislative session, and 250 million in the 2025 legislative session. This funding is secured through revenues from severance taxes collected in oil, gas and other natural resources that are severed from the ground. Strategically locating brackish and produced water treatment facilities around the state can offset demand for fresh water. In the future. The development of science based regulatory standards may allow for expanded uses of treated water from the strategic water supply. The governor made the announcement at the US Chamber of Commerce event titled business leadership on the global stocktake catalyzing investment while prioritizing adjust transition. Okay, so this announcement has much bigger implications than you may realize. Now, if you’ve been listening to the show for a while, you will have heard me talk about the problems I have with electrolytic hydrogen projects being announced in arid climates. As someone who grew up in a desert environment. Freshwater is the most critical resource these areas have. And so When these hydrogen projects get announced, I get nervous about where they think they’re going to be getting the water for these projects. But in talking with James Kenney, who’s the Cabinet Secretary for the environmental department for New Mexico, this has been on their minds as well. As you know, New Mexico is looking to develop a robust hydrogen economy outside of the IRA hub funding to do this water is needed. And in an area where water resources are scarce. My thought has always been that if the produced water from oil and gas wells is cleaned, that can be a perfect feedstock for electrolytic hydrogen in these regions, and New Mexico agrees and I would venture to bet that other Arid nations with large oil and gas reserves have the same opportunity. And that’s an opportunity that I hope they look into and take advantage of. Next in an article in Bloomberg on December 5. Ari Natter writes hydrogen industry raises alarm over a leaked US Tax Credit rules. A leaked draft of Treasury Department rules for hydrogen tax credits and President Joe Biden’s climate law is drawing warnings from advocates for the fuel, that they may stifle the burgeoning industry before it takes shape. The rules which aren’t finalized include measures sought by environmentalists that would require hydrogen production operations to be powered by wind, solar or other clean power projects built within the last three years to qualify for the $3 per kilogram tax credit. according to people familiar with the draft. Some of the details of the tax guidelines reported earlier to Politico. In a quote from Jason Grumet, Chief Executive Officer of the Washington based American clean power Association. If true, the Biden administration’s proposed strategy for implementing these provisions will fail to get this new industry off the ground. 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. The rules governing the hydrogen tax credits as sparked a fierce lobbying debate. The guidance in the Treasury Department draft also calls for hydrogen projects be supplied with new clean power sources operating on the same grid on an annual basis through 2027. Then on an hourly basis, starting in 2028. Hydrogen is seen as a critical fuel for decarbonizing steel, cement and other heavy industries and the tax credit is viewed as an essential incentive to spur its development. But environmentalists warn that unless there are strict rules, requiring that hydrogen be produced with new clean power sources operating on the same grid, and during the same time that it could drive further demand for hydrocarbon based electricity and unleash more greenhouse gas emissions. 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 shouldn’t be any grandfathering for projects that begin construction in the near term. Okay, so this report hit like a blunt instrument when it was leaked a couple of days ago. And the first thing I need to say is this Relax, we need to remember that this is not the official report and is subject to change. We also need to remember that this isn’t a big surprise. The three pillars have always been a real possibility, and their adoption by the Treasury Department was expected in some form. Now, to me, I see some good arguments that can be made for additionality and regionality in some circumstances, and many regions grids are already taxed and struggle to meet the growing energy demand to further burden them with electrolytic hydrogen generation doesn’t make much sense. So I get wanting to ensure that hydrogen growth doesn’t interfere with the current grid load. But at the same time, there are hydrogen generation models that won’t tax the grid, such as natural hydrogen, blue hydrogen, or nuclear electrolytic hydrogen, these opportunities shouldn’t be regarded the same way as the renewable source options. But again, all of this is speculation as the report is not official, and will most likely change in some regard. So to those of you holding off on investment or capital deployment for these projects. Also keep in mind that these tax credits will be on a scale. So that means up to $3 a kilogram gives some leeway into just how much of a break these projects will receive. Meaning that even after the report becomes official, it still may be a bit hazy, determining just how much credit these projects will receive. So again, for now, relax. This is just the beginning with great things still to come. Alright, that’s it for me, everyone. If you have a second, I would really appreciate it if you could leave a good review on whatever platform it is that you listen to Apple podcast, Spotify, Google, YouTube, whatever it is, that would be a tremendous help to the show. And as always, if you ever have any feedback, you’re welcome to email me directly at So until next time, keep your eyes up and honor one another. Hey, this is Paul. I hope you liked this podcast. If you did and want to hear more, I’d appreciate it if you would either subscribe to this channel on YouTube, or connect with your favorite platform through my website at Thanks for listening. I very much appreciate it. Have a great day.