Biden Administration Launches Hydrogen Tax Credit to Propel Industry Forward

The Biden administration has unveiled its highly anticipated plan for allocating significant tax credits to hydrogen producers. 

This initiative aims to foster an industry perceived as a potentially cleaner alternative to fossil fuel-based power. 

Outlined within the proposal, part of the Democrats’ Inflation Reduction Act enacted last year, is a tiered system designed to prioritize cleaner energy projects for more substantial credits, while still providing meaningful incentives to those employing fossil fuel-based methods in hydrogen production. 

Administration estimates project that these hydrogen production credits will generate $140 billion in revenue, create 700,000 jobs by 2030, and contribute to the production of 50 million metric tons of hydrogen by 2050 in the United States.

Hydrogen is being developed around the world as an energy source for sectors of the economy like that which emit massive greenhouse gasses, yet are difficult to electrify, such as long-haul transportation and industrial manufacturing.

It can be made by splitting water with solar, wind, nuclear or geothermal electricity yielding little if any planet-warming greenhouse gasses.

Most hydrogen today is not made this way and does contribute to climate change because it is made from natural gas. 

Hydrogen Production Landscape: 10 Million Metric Tons in the U.S. Annually

Currently, the United States produces approximately 10 million metric tons of hydrogen annually, with a primary focus on applications in petroleum refining and ammonia production.

As outlined in the administration’s proposal, companies engaged in the production of cleaner hydrogen, meeting stipulated wage and apprenticeship criteria, could qualify for a substantial incentive of $3 per kilogram of hydrogen. 

Conversely, firms utilizing fossil fuels in hydrogen production would receive a lesser incentive.

The credit amount varies from $0.60 to $3 per kilogram, contingent on the entire lifecycle emissions. 

A key concern addressed in the proposal pertains to the electricity demands of electrolyzer hydrogen production, aiming to prevent an increase in coal or natural gas-fired power plant utilization. 

Producers are required to document their electricity consumption using “energy attribute certificates,” influencing the credits they are eligible for.