The 45V credits became a cause célèbre in 2023 and a subject of enormous interest, partly due to the high stakes directly linked to the hydrogen industry—it’s a lot of money and a lot of emissions on the table—and partly because its implications surpass hydrogen. The debate muddled together several high-stakes policy questions that are fundamental to the clean energy transition—including what it means to actually be powered by clean energy, global trade of industrial commodities and others.
Hydrogen is potentially set to play a key role in the clean energy transition by replacing fossil fuels in the hardest to clean up sectors like heavy industry and marine shipping. But the first step is ensuring that its production is squeaky clean. By defining how hydrogen is to be produced in the U.S., the 45V rules are therefore a major step on the arc of hydrogen deployment both in the U.S. and globally. By offering the most generous subsidies for clean hydrogen in the world, the U.S. will exert a major pull on global investment and become an incubator of clean hydrogen projects. Its hydrogen production rules will therefore have a defining impact on the emerging global clean hydrogen market.
The blog digs into the guidance toplines and its multidimensional benefits, and outlines some of the broad loopholes that the administration is considering in the final rules that could erode the benefits.
Proposed guidance embraces the “three pillars”, grounded in ironclad evidence.
Treasury grounds itself in a pile of evidence to assert that the three criteria of 1) additionality or “incrementality”, 2) hourly matching, and 3) deliverability are necessary to avoid substantial indirect emissions from hydrogen production in violation of the IRA emissions limits. NRDC agrees with this legal read. Treasury requires:
- Additionality, or “incrementality”, from day 1.
- Hourly matching starting in 2028, without locking in early weaker rules. And
- Solid deliverability requirements from day 1.
Apart from being legally necessary, the proposal is pragmatic and robustly substantiated. Incrementality ensures that hydrogen is produced in lockstep with clean energy deployment and that it does not compromise our number 1 tool to decarbonizing our electric grid—to keep existing clean electricity on the grid as opposed to diverted into hydrogen production. Similarly, the 2028 hourly matching phase-in date is very well substantiated and offers ample time for the necessary tools to scale. Deliverability is necessary to ensure that clean power is generated in the same grid or region where electrolytic hydrogen is being produced. The concept of deliverability is already a basic tenet of many state renewable energy portfolio standards.
Proposed guidance protects against emissions increases and a grim U-TURN on our climate goals.
An overwhelming evidence base has consistently shown that absent the three pillars, hydrogen production would drive hundreds of millions of tons of carbon emissions and a spike in electricity prices. This would violate IRA emissions thresholds and be a grim U-TURN for our clean energy transition.
To prevent those harmful consequences, a resounding chorus of industry groups, policymakers, environmental groups, consumer groups, academics, and environmental justice groups have urged the Biden administration to adopt the three pillars. Weaker rules would allow for textbook greenwashing, where hydrogen projects claim that they are powered by clean energy with some on-paper accounting, while in reality spurring fossil fuel generation on the grid to meet their demand.
The Rhodium Group has already assessed that Treasury’s proposal would help avoid substantial carbon emissions by 2035, and that any backsliding would erode emissions benefits.
Proposed guidance protects against power price increases.
Because electrolyzers are power hungry– a large-scale hydrogen production facility could have similar electricity demand to a medium-sized city—they will add significant demand on the grid. If their demand is poorly managed—i.e., absent the three pillars—they will drive spikes in power prices. This harmful impact has been well documented. Cryptomining also offers a powerful precedent. Like electrolyzers, cryptomining is power hungry. It has increased utility bills by tens to hundreds of millions of dollars for households and businesses in upstate New York and led to costly grid strains in Texas. Some of the largest consumer groups in the U.S.—including in several hydrogen hub states— have urged the Biden administration to require the three pillars citing concerns that poorly managed electrolytic hydrogen production will drive electricity price increases for low- and moderate-income households and businesses. By embracing the three pillars, proposed Treasury guidance includes key protection for consumers, which are ever more necessary to avoid compounding already rising power prices.
Proposed guidance will support robust industry growth.
Despite the unfounded litany of claims from some industry groups, the proposed guidance will support substantial growth of a truly clean hydrogen industry. This is evidenced by the resounding choir of companies that came out in support of the proposal.
