Andy Vesey is the North America CEO of Fortescue Future Industries.
The Biden Administration has made it clear it wants to achieve a clean energy future and boosting domestic hydrogen production is key to making that happen. However, in spite of bipartisan support for greater hydrogen investment, proposed guidance released in December by the U.S. Treasury Department has endangered the nascent green hydrogen industry, before it’s even had a chance to really begin.
The department’s draft rules for the 45V clean hydrogen tax credit will slow things to a crawl, doing the opposite of what the Inflation Reduction Act intended, which was to encourage domestic hydrogen production.
Instead of eliminating barriers to production, the current 45V draft would restrict the types of clean energy that can be used, where it can be used, and even when it can be used through the so-called three pillars — temporal matching, additionality and deliverability.
A cornerstone of the rule, temporal matching, demands electricity used by projects will need to be made in the same hour in which it is used to produce hydrogen. This restriction alone could increase the cost of making hydrogen by up to 175%, according to analysis by Wood Mackenzie.
Another key piece, called additionality, will require clean hydrogen to only use new sources of renewable power, even if surplus sources already exist and are readily available. Not only would this requirement add costs, but the time alone to bring these new, clean generation sources online can be as long as five years, pushing back the quick development of hydrogen projects.
The reaction from industry — those of us who will actually produce and use green hydrogen to decarbonize a wide array of industries and sectors — has been swift and nearly unanimous: these draft regulations will stifle growth, not foster it.
The IRA’s ambition to drive hydrogen production in the U.S. has been shared by commitments across various federal agencies, like the Department of Energy, which set a goal in 2021 to reduce the cost of clean hydrogen production to $1 per one kilogram in one decade and create 100,000 new direct and indirect jobs in hydrogen by 2030.
The DOE has argued for rules that are workable for the hydrogen industry. But, despite those calls, as well as clear bipartisan support to get hydrogen right from the start, the proposed guidance could hamstring those hydrogen initiatives by effectively raising the cost of producing hydrogen and delaying projects by years.
Today, the current draft guidelines threaten to disrupt thousands of potential clean energy jobs and benefits to frontline communities, including the administration’s own H2Hubs – like the Pacific Northwest Hub, of which our Centralia Green Hydrogen Facility in Washington state is a part.
Under the current guidelines, most of the designated regional clean hydrogen production hubs, which are slated to receive $7 billion in funding from the DOE, would struggle to comply, putting the success of a bipartisan Administration-backed program in jeopardy. The seven hydrogen hubs are anticipated to generate $40 billion in private investment in clean hydrogen and support up to 334,280 direct jobs in the U.S. The hubs are also expected to deliver significant emissions reductions, with the White House estimating they could reduce 25 million metric tons of carbon dioxide from end-uses annually.
Hope is not lost. The concerns presented by the eligibility requirements for 45V are both substantial and material — and will be presented at a three day public hearing in Washington D.C. at the end of March.
Fortescue is confident there will be a market for green hydrogen in the U.S. It’s why we’ve committed to proceed with a project in Arizona and establish offices in Colorado and soon Michigan. But 45V could make things a lot more challenging. Under current 45V guidelines, our Phoenix Hydrogen Hub, which will produce up to 11,000 tons per year of liquid hydrogen, would become prohibitively expensive, with costs in a facility of that size estimated to increase by over 140%.
It puts us — and other green hydrogen producers — at a disadvantage before we even begin.
By addressing the overly restrictive guidance for the 45V tax credit, the U.S. government can ensure that hydrogen production incentives truly accelerate the transition to a low-carbon economy. A workable hydrogen tax credit is not just a policy mechanism; it is a pivotal step towards a sustainable future.
