It is shaping up to be a big year for clean hydrogen in Washington DC



July 27, 2021

Energy Alert

Author(s): Ellen S. Friedman, Ben Reiter

Advancing the production and widespread adaptation and use of blue and green hydrogen is a cornerstone of recent proposed legislation, driving investment in this nascent sector.

What’s the Impact?

  • On the legislative front, the Energy Infrastructure Act includes several programs aimed at accelerating research, development, and deployment of clean hydrogen resources and the Clean H2 Production Act features various tax credits for the production of clean hydrogen
  • Department of the Treasury, Department of Energy, and Federal Energy Regulatory Commission have each released information in support of clean hydrogen activities

In May, the Senate Finance Committee voted in favor of advancing the Clean Energy for America Act as amended to include the Clean H2 Production Act. The Clean H2 Production Act creates a production tax credit (PTC) of up to $3 per kilogram of hydrogen produced in the first 10 years and an investment tax credit (ITC) of up to 30% of the cost of the facilities to support the production of hydrogen using methods that are at least 50% cleaner than traditional hydrogen production methods. The amount of the respective tax credit varies based upon a facility’s ability to capture lifecycle greenhouse gas emissions. Producers capturing 95% or more of emissions are entitled to the full credit, whereas, for example, producers capturing less than 75% are only entitled to 20% of the credit. A hydrogen producer must elect either the PTC or ITC. In the House, the less ambitious Growing Renewable Energy and Efficiency Now (Green) Act would simply extend the existing ITC to hydrogen storage (including hydrolysis and electrolysis).

More recently, in July, the Senate Committee on Energy & Natural Resources passed out of committee—on a bi-partisan basis—the Energy Infrastructure Act, which included several programs aimed at accelerating research, development, and deployment of hydrogen resources. The act finds that “hydrogen plays a critical part in the comprehensive energy portfolio of the United States,” and, among other things, appropriates (i) $8 billion in funding “to support the development of at least 4 regional clean hydrogen hubs”; (ii) $1 billion for projects to improve the efficiency, durability, and cost competitiveness of producing hydrogen from electrolyzers; and (iii) $500 million in grants for development of clean hydrogen manufacturing and recycling technologies. The act also requires the Secretary of the Department of Energy (DOE) to develop a “technologically and economically feasible national strategy and roadmap to facilitate widescale production, processing, delivery, storage, and use of clean hydrogen.”

Separate from these legislative developments, the Treasury Department has provided information on the Biden administration’s proposal for low-carbon hydrogen PTC. The low-carbon hydrogen PTC would provide a per kilogram credit (initially set at $3) for the first six years following a facility’s placed-in-service date. DOE has separately announced a “Hydrogen Shot” that seeks to reduce the cost of clean hydrogen by 80% in the next decade to $1 per kilogram. In support of the Hydrogen Shot, DOE has requested information on viable hydrogen demonstrations. DOE anticipates being appropriated approximately $400 million to support its hydrogen activities for the 2022 fiscal year, which will build on the Department’s 20 plus year effort to pioneer the direct use of hydrogen for power generation. Additionally, late last year, the Federal Energy Regulatory Commission (FERC) issued an order establishing that solid oxide fuel cell systems (like hydrogen) with integrated natural gas reformation equipment could be certified as cogeneration qualifying facilities under the Public Utility Regulatory Policies Act of 1978 and sell their output to utilities at avoided cost rates.

Nixon Peabody is closely tracking these developments in hydrogen policy as they take shape in Washington DC.

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