Hydrogen Subsidy Worth Billions Includes Strict Environmental Safeguards

(Bloomberg) -- Billions of dollars in hydrogen-industry subsidies from President Joe Biden’s signature climate law will come with stringent environmental safeguards, raising concerns that strict rules will stifle production of the nascent climate-friendly fuel. 

Under the proposed rules laid out Friday, the new clean-hydrogen tax credit won’t benefit existing nuclear power plants, which is a blow to reactor owners such as Constellation Energy Corp. that lobbied for inclusion. Administration officials, however, said that could change when the guidelines are finalized.

The hydrogen credit, which provides as much as $3-per-kilogram of production, is meant to spur a domestic industry for the clean-burning fuel, which is seen as a critical for decarbonizing steel, cement and heavy transportation. But the guidance, which is still in draft form and subject to revisions following a 60-day public comment period, has been the subject of intense lobbying in Washington over what kinds of projects will qualify. 

Biden administration officials said they opted to reserve the credit for hydrogen produced using renewable power brought online within the last three years and generated at the same time and on the same power grids as the gas itself.

The Treasury Department’s proposal “will help build the clean hydrogen industry while including important environmental safeguards,”  said John Podesta, Biden’s senior adviser for clean energy.

Senator Joe Manchin, a West Virginia Democrat who has opposed attaching strict environmental rules to the tax credits, blasted the rules, saying they’d hobble the hydrogen industry before it ever gets up and running. 

“Make no mistake, obstructing hydrogen development in our country is the short-sighted goal of the far-left advocacy groups who lobbied the Administration for these restrictions because they oppose all energy sources other than solar and wind,” Manchin said in a statement.  “For an Administration that wants to reduce emissions and fight climate change, it makes no sense to kneecap the hydrogen market before it can even begin.”

Shares of FuelCell Energy Inc. intially fell when the reules were released, then rose as much as 3.2%. Plug Power Inc. dropped as much as 4%. Constellation Energy fell 3.6%. 

The Treasury Department proposal includes a requirement starting in 2028 that hydrogen can only be produced within the same hours as new clean power is generated. It has drawn opposition from the American Clean Power Association, which counts hydrogen- project developers NextEra Energy Inc. and AES Corp. as members. The so called hourly matching requirement could create a price premium of 20% to 150%, making green hydrogen uneconomic for most applications, according to a survey conducted by the Washington-based trade group.

The draft rules “will fall woefully short in achieving the Administration’s decarbonization objectives” and “are counter Congress’ intent,” said Andy Marsh, chief executive officer of hydrogen company Plug Power.

Other groups that slammed the administrations guidance ranged from the Fuel Cell & Hydrogen Energy Association to the U.S. Chamber of Commerce. But the guidelines drew praise from project developers and domestic electrolyzer manufacturers like Hy Stor Energy and Electric Hydrogen Co. 

“Strong proposed standards will be a sprint to success for the U.S. electrolytic hydrogen market, accelerate the build-out of domestic clean hydrogen infrastructure, and enable substantial industry growth,” the companies wrote in a Dec. 20 letter that was also signed by hydrogen supplier Air Products and Chemicals Inc. and others. “Weaker rules would result in highly subsidized hydrogen projects that drive large greenhouse gas emissions increases and electricity price spikes that would engender public backlash and stymie our industry’s growth.” 

The Natural Resources Defense Council trumpeted the proposed rules, which they said would amount to several hundreds of billions of dollars in subsidies. 

“Treasury’s proposal will ensure that the clean hydrogen industry grows while actually reducing emissions,” said Rachel Fakhry, a policy director with the Washington-based environmental group. “We cannot settle for anything less.”  

(Adds statement from Senator Joe Manchin and stock-market reaction.)

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