Clean Energy Industry, Democrats Criticize Biden Admin’s Hydrogen Rules

A 2,500 cubic-meter tank containing liquid hydrogen at Kobe Port Island plant in Kobe, Japan, on Oct. 26, 2020. Etienne Balmer/AFP via Getty Images

Democrats and supporters of clean energy are criticizing a Biden administration proposal for hydrogen power plants that they warn could negatively affect the proliferation of such projects.

At issue are rules proposed by the U.S. Treasury and the Internal Revenue Service on Dec. 22, 2023, regarding the deployment of hydrogen power plants, specifically the eligibility requirements for tax credits, which range from 60 cents to $3 per kilogram of hydrogen.

Using an electrolyzer, hydrogen power plants extract hydrogen from water, which is then used to generate electricity. To make sure that the entire process is “green,” the electricity used in the electrolysis stage must come from a “clean” source such as solar or wind.

To avoid using fossil fuels for electrolysis, the proposed rules require that hydrogen plants procure energy from newly built “clean” sources.

In addition, electrolyzers can only be working at the same time as when clean energy sources such as solar or wind farms are operational. These conditions need to be met for producers to qualify for the tax credit.

From 2028, producers will have to procure electricity for running the hydrogen plant from a clean source on an hourly basis. In such a scenario, the electricity generation of a plant should happen within the same hour that the electrolyzer is operating. This is called “time-matching.”

Until 2028, an “annual matching” system would be in place, under which the annual electricity consumption of a plant must match the annual electricity production. Producers see this as a more lenient system than “time-matching.”

In a Dec. 22, 2023, statement, Jason Grumet, chief executive of the American Clean Power Association, said the rules were a “rushed imposition of the most burdensome restrictions” that don’t take into account the market reality of implementing new technology such as hydrogen power generation.

“Specifically, imposing an hourly matching provision too early for first-wave green hydrogen projects will discourage a significant majority of clean power companies from investing in green hydrogen manufacturing and facilities,” he said.

Democrat senators have also criticized the proposed rules.

Sen. Sherrod Brown (D-Ohio) said he had “serious concerns” about the proposal. The regulations “will slow down and ultimately undermine our country’s ability to produce the clean hydrogen needed to build the energy economy of the future,” he said in a Dec. 22, 2023, statement.

“The proposed rules’ lack of flexibility will cut out Ohio workers and Ohio businesses from creating the energy of the 21st century and hamstring Ohio and the broader Appalachian region’s ability to produce hydrogen.”

Sen. Tom Carper (D-Del.) said that the regulations “may well miss the mark” in terms of developing a clean hydrogen industry in the country.

“When developing the Inflation Reduction Act, we intended for the clean hydrogen incentives to be flexible and technology-neutral. Treasury’s draft guidance does not fully reflect this intent, potentially jeopardizing the clean hydrogen industry’s ability to get off the ground successfully,” he said.

Sen. Sherrod Brown (D-Ohio) speaks at a press conference on the introduction of the Senate ETHICS Act outside of the U.S. Capitol building in Washington on April 18, 2023. Anna Moneymaker/Getty Images

Annual Versus Hourly Matching

The Biden administration proposed the “time-matching” rule even as almost four dozen hydrogen companies urged the government in April 2023 to implement annual matching for tax credits rather than hourly matching.

In a letter to officials from the Treasury and Energy departments, the companies pointed out that “nearly all major industrial processes that would utilize clean hydrogen need a continuous hydrogen stream to run effectively.”

“Generally operating at high temperature, these processes cannot simply shut down whenever renewables are unavailable,” the letter stated.

Solar and wind power, whose energy production depends on climatic conditions, would be unsuitable to ensure the continuous power required for industrial processes.

Hydrogen power generation equipment would have to be idled “during periods of low renewable resource,” the letter stated.

“Wood Mackenzie’s case studies confirm that this idle capital is devastating to the economics of clean hydrogen production, driving a 68 percent cost increase in Texas and a 175 percent increase in Arizona in 2030,” the letter stated.

“These price increases will dramatically reduce customer interest in clean hydrogen, meaning the U.S. clean hydrogen market will face significant challenges.”

An analysis by consultancy group Wood Mackenzie published in Forbes last year estimated that a 250-megawatt electrolyzer plant in Arizona could produce green hydrogen for about $2 per kilogram in 2025 and $1.50 per kilogram in 2030 in an annual-matching scenario when the $3 per kilogram tax credit is included.

However, in an hourly time-matching scenario, the costs would spike to about $4 to $5 per kilogram, the group said.

Moreover, despite being called “clean,” the renewable energy being supplied to hydrogen plants does come at an environmental cost. The deployment of vast solar farms will use numerous nonrecyclable solar panels.

The panels aren’t “clean,” as manufacturing them uses energy that’s usually sourced from nonrenewable sources. It would take several years of operation for these panels to offset the total energy involved in creating them.

Moreover, solar panels contain materials that can be highly toxic to the environment. Some environmentalists are also concerned about the desalination processes undertaken at certain hydrogen plants as this could end up negatively impacting ecosystems in coastal regions.