Paul Rodden • Season: 2023 • Episode: 274
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In episode 274, Should the new US hydrogen three pillar regulations mimic other historical energy and environmental incentives? I’ll go over this question on today’s hydrogen podcast.
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Transcript:
Should the new US hydrogen three pillar regulations mimic other historical energy and environmental incentives? I’ll go over this question 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’s 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.
In an article in forbes.com, Daniel Esposito and energy innovation write hydrogen isn’t electric vehicles treating it the same under 45 V tax credit would be a mistake. The United States Treasury Department will reportedly issue draft rules this week for the inflation reduction act 45 V tax credit to incentivize clean hydrogen production. Leaked details suggest they will require electrolyzers, which split water into hydrogen and oxygen using electricity to use clean power to earn subsidy. This requirement using clean power not hydrocarbons has been controversial, to say the least.
Some hydrogen proponents say adopting such rules would create a double standard by singling out the clean hydrogen sectors use of electricity from the power grid. This argument cites electric vehicles as a technology that receives federal support without restrictions on electricity use, arguing that applying restrictions to electrolyzers would arbitrarily defy Congress’s intent. This refrain is echoed in some hydrogen policies secs jumpstarting the electric vehicle market never tied policy support to using clean energy.
So electrolyzers should get the same lenience but electrolyzers are entirely unrelated to electric vehicles. For example, using what they call dirty power to make hydrogen generally increases emissions even after replacing hydrocarbons downstream, whereas charging an electric vehicle always reduces emissions compared to driving on gasoline. This means electrolyzer incentives must mandate clean power usage to prevent, quote, clean hydrogen from worsening the climate change it’s intended to prevent. Today, hydrogen is mostly made by splitting it from fossil gas in a process responsible for one to 2% of us climate pollution. Electrolyzers can eliminate these emissions and spur truly green hydrogen industry development capable of displacing hydrocarbon gas which is used in the production of fertilizers, steel chemicals and aviation and marine shipping fuels.
The IRAs 45 V tax credit was designed to stimulate this clean hydrogen production. Congress tasked Treasury with writing guidance for earning the credits requiring their value be tied to hydrogen producers upstream and production emissions. For electrolyzers getting 45 V depends on where they get their power and how that affects the broader electricity system. After a lengthy process, Treasury is alleged to sooner release rules requiring electrolyzers to source their electricity from new deliverable hourly match clean energy resources or the three pillars in order to access the most lucrative credit tier of $3 per kilogram of hydrogen. stakeholders including research firms, academics, NGOs, state and federal legislators consumer and environmental justice advocates and industry players agree these pillars are necessary guardrails for ensuring electrolyzers produce truly clean hydrogen and are positioned for long term growth. Differences in technology efficiencies, policy mechanisms and policy requirements mean electrolyzers must face separate rules than electric vehicles, and many hydrogen stakeholders understand this as necessary for the industry’s success.
An electric 2023 Hyundai ionic six charged exclusively with coal powered electricity would emit less climate pollution per mile than today’s average US light duty vehicle and just slightly more than the most fuel efficient gasoline car. While coal is generally dirtier than gasoline. large power plants are more efficient at converting fuel into electricity and capturing pollution than individual vehicles rudimentary internal combustion engines, this gives electric vehicles an advantage over gasoline counterparts. By contrast, electrolyzers running on hydrocarbon gas will produce hydrogen that is two to four times as emissions intensive as the hydrogen we make today.
In this case, a hydrogen powered 2023 Toyota Morai wouldn’t ever be as efficient As a new Honda Accord, and could be twice as polluting as today’s average gasoline car, but electrolyzer technology improvements won’t save the day. Even the most efficient electrolyzer, using electricity from the most efficient natural gas power plant would emit more climate pollution than it would prevent and most hydrogen end uses. Weak 45 V rules would also complicate cleaning up the power grid, prolonging electrolyzers emissions problems. Our federal electric vehicle incentives cut the cost of manufacturing and buying new cars. electric vehicle owners must then pay market rates to charge and drive them. This makes electric vehicles cheaper for consumers without awarding excessive driving.
As well, electric vehicles are more climate friendly than their gasoline counterparts, each mile driven still contributes pollution. If Congress designed 45 V to merely pay down the cost of electrolyzer equipment, there would be no need for projects to meet the three pillars. They would default to running only when electricity is very cheap and therefore clean in order to make hydrogen at a low enough price to sell. Instead, the tax credit pays per kilogram of hydrogen produced absent restrictions electrolyzers would still be able to turn a profit while using much more expensive and much dirtier electricity, meaning hydrogen would no longer be clean. To put the market distortion into perspective. 45 V amounts to a subsidy of roughly $7.20 per gallon of gasoline if the hydrogen powered a fuel cell vehicle, clearly rich enough to incentivize wasteful, polluting behavior.
The choice to make 45 V A production subsidy therefore requires safeguards to ensure public money only supports truly clean hydrogen production. When Congress created 45 v it recognized the challenge at hand, it wanted to encourage hydrogen production, but at understood electrolyzers extreme energy appetite meant unchecked subsidies could do more harm than good. Fortunately, Congress took the right approach in solving the problem explicitly tying the tax credits value to hydrogens upstream and production emissions. The interaction of electricity systems and electrolyzers is highly complex. For this reason, Congress didn’t mandate the precise approach that Treasury must use to measure emissions instead, defining the goal of limiting subsidies to low carbon hydrogen production. The three pillars give Treasury a framework for meeting this obligation. The Ira rightly does not include a lifecycle emissions test for its electric vehicle incentives. It also doesn’t condition its support of batteries and heat pumps on where they get their electricity, as the tax credits reward the purchase rather than the use of these technologies.
Congress made these choices intentionally, Treasury is merely trying to satisfy the IRAS requirements. The three pillars meet the moment while giving developers much more flexibility than a stricter interpretation of the law, such as requiring electrolyzers to draw power from new co located off grid clean energy projects, removing or weakening one or more pillars would mean Treasury abandoning its legislative mandate. Electric vehicles unquestionably slashed climate pollution and the IRA supports making them cheaper for customers to purchase. But electrolyzers could help or harm the climate depending on how they’re operated. And since the IRA subsidizes their operations, guardrails are necessary to achieve a positive outcome. In short, treasuries, adoption of the three pillars for 45 v would not represent a double standard, because that implies unfair treatment between groups.
Instead, such rules are necessary to account for substantial technological and legislative differences. The goal of establishing a false equivalence between electrolyzers and other clean energy technologies comes from a desire to maximize near term hydrogen production, but rejecting guardrails causing electrolyzers to unleash a carbon bomb and hype consumer electricity bills would risk tarnishing hydrogens reputation and pulling back policy support. It would also grow in industry dependent on perpetual subsidies for survival. Fortunately, many industry players understand what’s needed to lay the foundation for sustainable long term success.
Hydrogen developers like Air Products electric hydrogen, HyStor energy and synergetic along with coalition’s like the green hydrogen catapult know they can comply with the three pillars from day one. Renewable developers like and intersect power are confident they can build clean energy to support the growing electrolyzer base. The European Union is showing it works adopting rules to meet the three pillars in June and experiencing an increase in electrolyzer investment thereafter.
Okay, so a lot to unpack here, but with me getting close to hitting my time, I’ll just pick a couple of points that I believe need to be addressed. There are several statements in this piece pointing to the clean nature of battery EVs. Sure if you consider all of the environmental atrocities battery development as sunk costs, not figured into the carbon intensity equation, BEVs are very clean vehicles, Pump those numbers back into the equation. And it’s a very different story, especially for vehicles like the Hummer EV both the Rivian truck and SUV, the Ford lightning and so on. Couple that with a very high barrier of entry cost and the BEV market doesn’t look quite as appealing.
Point being that may not be the best comparison to make when discussing instead of programs currently available with the 45 V tax credits. And so with that being said, and now that we know the regulations have been out and released, is anyone really surprised that the three pillars have been fully embraced by the Treasury? I’m not, even though that doesn’t mean I agree with the three pillars necessarily. None of what’s been released looks like it will affect current developments, at least not in a meaningful way. And I say that because if we look at upstream hydrogen development subsidies, does the thermalyttic technology area need to rely on these incentives? Well, not necessarily, their price point is already low enough, even with CCUS to begin scaling the industry.
And that still doesn’t account for the fact that they can still be granted some fraction of the full $3 per kilogram incentives, with shorter lead times easier access to feedstock and lower energy requirements. Blue hydrogen has a faster path to getting started. But that’s the point and also why so many of these hubs here in the US have some sort of provision for both green and blue technologies, blue to start the transition and green to make it flourish. But Daniel Esposito did get this point right, that the industry ultimately does not want to rely on incentives.
All right. 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 info@thehydrogenpodcast.com. 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 www.thehydrogenpodcast.com. Thanks for listening. I very much appreciate it. Have a great day.
