Paul Rodden • Season: 2024 • Episode: 361
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Episode 361, In this episode, Paul explores the potential for capturing methane from mining operations as a way to fuel hydrogen production and support the hydrogen economy. He examines how methane capture could not only curb emissions but also repurpose waste gas for industrial hydrogen use, advancing both decarbonization and energy resilience goals in sectors like mining.
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Transcript:
Forbes discusses the future of energy tax credits. What we know so far, what we can expect and where methane leaks from mining operations can add to the hydrogen economy. I’ll go over 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.
In an article in Forbes, Marie Sapirie writes energy tax credit changes begin to line up for 2025. Marie writes Reports of the coming Great Tax Debate of 2025 may be somewhat exaggerated. Political wrangling is to be expected, but will Congress really hold extensive hearings and try to build something like a consensus over how to deal with the expiration of certain Tax Cuts and Jobs Act provisions? One can only hope.
Whatever happens between now and December 2025, the jockeying for new tax measures has already begun.
This week’s topic is a bipartisan measure that has its origins in the Inflation Reduction Act, rather than the TCJA. The Methane Reduction and Economic Growth Act now has sponsors in both the House and Senate, which might give it an edge in legislative negotiations.
The bill proposes adding to the section 45Q credit for carbon sequestration a provision allowing a credit for capturing qualified methane from mining activities. Senate Finance Committee member Mark R. Warner, D-Va., and Sen. Shelley Moore Capito, R-W.Va., introduced the Senate version, and the companion bill in the House was sponsored by Ways and Means Committee members Carol D. Miller, R-W.Va., and Terri A. Sewell, D-Ala.
The bill would add new subsection 45Q(f)(10), which would define qualified methane as methane captured from mining activities by capture equipment. Mining activities include those in underground, abandoned, or closed mines, as well as surface mines. The methane captured must meet the requirement that it “would otherwise be released into the atmosphere as an industrial emission of greenhouse gas or lead to such release” and be measured at the source of capture and verified at the point of injection into a pipeline or utilization.
Taxpayers seeking the credit would have to inject the methane into a pipeline that complies with specific federal regulations and “instrumental leak monitoring and other preventive and mitigative measures,” or inject it into a gathering system that feeds a pipeline. Alternatively, the methane can be used to produce heat, either for industrial use or to heat a structure “in a manner that does not involve more than a de minimis release of methane into the atmosphere.”
To qualify for the proposed credit, the methane capture must occur at a qualified facility that was originally placed in service after February 8, 2018. Construction of the facility must begin before January 1, 2033. The methane capture equipment construction must also begin before 2033.
The facility qualifies only if the taxpayer captures at least 2,500 metric tons of methane during the tax year at the facility. Methane qualifies if it is captured during the 12-year period beginning on the date the capture equipment was originally placed in service.
The bill builds on rules that apply to existing natural gas pipelines, particularly in requiring compliance with leak monitoring. But Treasury might need to write guidance for provisions like what constitutes a “de minimis release of methane,” or at least make it clear that such terms refer to existing guidance outside the tax law.
Capturing mine methane wasn’t part of the discussion in the run-up to the IRA. But there is plenty of mine methane to capture, as most of it isn’t being captured now. The Biden administration’s November 2021 U.S. Methane Emissions Reduction Action Plan stated that “abandoned coal mines are a significant source of methane emissions that are estimated to be producing 237,000 metric tons of methane (5.9 MMT CO2e) on an annual basis.”
But the action plan didn’t mention including methane capture equipment in section 45Q, although it touted carbon capture and sequestration. In addition to abandoned mines, active underground coal mines contribute the largest share of coal mine methane emissions, according to a 2023 report from the Environmental Protection Agency.
Mine methane has multiple potential uses, one of which could be hydrogen production. The IRA’s section 45V hydrogen credit sparked more interest in coal mine methane because one pathway to hydrogen production is steam methane reforming, but the proposed hydrogen regulations (REG-117631-23) punted on the question of when fugitive sources of methane can be used in the production of hydrogen.
The preamble explained that future rules for fugitive methane “would be logically consistent with but not identical to the incrementality, temporal matching, and deliverability requirements for electricity derived” energy attribute certificates, and would be designed to reflect the ways in which demand for fugitive methane can affect life cycle greenhouse gas emissions. In designing the rules, Treasury also promised to think about the differences between electricity and methane, including “the different sources of emissions, markets, available tracking and verification methods, and potential for perverse incentives.” Fugitive methane will have to be certified.
Treasury is also trying to figure out what to do with mine methane in the proposed regulations for the technology-neutral clean energy credits in sections 45Y and 48E (REG-119283-23). “Fugitive methane presents a range of complex issues,” the preamble observed.
One issue is tracking and verification. The preamble acknowledged that the existing systems “have limited capabilities for tracking and verifying” renewable natural gas pathways, especially in the production process before the methane has been reformed to renewable natural gas. The application of the first productive use rule to fugitive methane and biogas that was floated in the preamble was unpopular with the industry, as evidenced by the comment letters.
Productive use will likely be defined as any valuable application of the methane, including providing heat or being upgraded to renewable natural gas. But the preamble suggests that Treasury might be unwilling to budge much. It noted that the proposal would limit emissions associated with the diversion of biogas, renewable natural gas, or fugitive methane from other preexisting productive uses.
The Tax Law Center at New York University recently submitted a supplemental comment letter addressing whether the first productive use rule is permissible following the Supreme Court’s decision in Loper Bright Enterprises Inc. v. Raimondo, 144 S. Ct. 2244 (2024). The definition of life cycle greenhouse gas emissions, which includes “direct emissions and significant indirect emissions,” requires the emissions rate of a combustion and gasification facility to account for the full fuel life cycle, the center argued. It wrote:
“To the extent the administrative record or Treasury’s own factfinding indicate that a first productive use rule is necessary to account for significant direct or indirect emissions, the final regulations would be at risk of running counter to the statutory requirement to account for significant direct or indirect emissions and the [Administrative Procedure Act] without adequate responses to such evidence.”
The comment letter encouraged Treasury to continue to study whether the diversion of methane from existing uses results in significant indirect emissions, noting that other commentators have said that it may have “significant emissions impacts.”
Others have argued that including the first productive use rule in the final regs would violate Loper Bright. Mine methane capture may have an edge over other technologies even if the first productive use rule is included, because capture technology hasn’t been widely adopted yet.
Proponents of the Methane Reduction and Economic Growth Act hope that having a bill in both the House and Senate will help advance it during the 2025 tax debate.
“The economic impacts and job creation from methane capture are well documented, and the scale of the methane that could be captured is robust,” said Michael Moore of the Waste Gas Capture Initiative. Sources of mine methane could have a long lifespan, as indicated by abandoned mines that have emitted methane for up to 100 years, Moore said.
Capturing that gas and putting it to productive use in industrial processes or in heating buildings would mitigate those emissions, as well as those of currently operational mines, where methane is required to be vented for safety. Newer projects have capture equipment for safety purposes, but less than 2 percent capture and use the methane, according to the Waste Gas Capture Initiative.
The potential for jobs in areas where the energy transition has had the greatest negative impact is a selling point for legislators. Writing in The Hill last November, Miller argued that using mine methane emissions as an energy source would support jobs that sustain rural America, as well as “keep our mines open long into the future, and when paired with coal or natural gas-powered hydrogen, will result in a tangible win for energy security, clean air, and the American economy.”
Okay, so let’s take a look at methane leak capture for mining operations from a hydrogen perspective and why, as an industry, we need to look to it as a way to advance the hydrogen economy. So by capturing the methane from the mines, we’re not only preventing a potent greenhouse gas from escaping, but we’re also creating this valuable resource for hydrogen production. Now methane can be converted, as we all know, into hydrogen through.
Processes like Steam methane reforming. Now it’s technically blue hydrogen due to the carbon capture and storage, but it is a win by turning waste gas into clean, usable energy. But let’s also look at the mining companies themselves. This captured methane could fuel the production of hydrogen to power their own operations, which will help them decarbonize in house. Now think about it, using hydrogen fuel cells for trucks or equipment on site could make mining operations greener and more sustainable. That’s the kind of shift the hydrogen community is wanting to see, and the equipment to do so is currently available, and ultimately, by repurposing this waste methane mine operators increase energy resilience, especially in remote locations. Hydrogen derived from this process supports both energy needs and environmental goals, aligning the hydrogens promise to build a clean energy future.
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 podcasts, 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.
