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Hydrogen, Additionality, & Joe Manchin

The IRS is working on rules to implement the Section 45V tax credit for green hydrogen. Lots of people want to help it do its job.

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CleanTechnica readers instinctively flinch when the subject of hydrogen comes up. We know in many cases it is just a stalking horse for fossil fuel companies who want to sell more coal or methane gas. Hydrogen made from methane or coal has no environmental benefits. None. The conversion process emits far more carbon emissions than the hydrogen can ever possibly offset. My colleague Michael Barnard is particularly negative about the promise of a hydrogen economy.

Later this month, the Biden administration will publish the rules that will implement federal tax credits for hydrogen production contained in section 45V of the Inflation Reduction Act. The “clean hydrogen” credit requires that certain emission targets be met in order for companies to qualify. It is up to the Treasury Department, via the IRS, to decide exactly how projects will qualify for the credit.

The 45V tax credit is set by the IRA at $3 for each kilogram of hydrogen produced, provided the process emits 95% less carbon dioxide than hydrogen produced by reforming natural gas or coal. Currently it costs about $5 to make a kilogram of hydrogen by electrolysis. The price of hydrogen made by reforming methane gas is about $1 per kilogram. The hope is that the cost of green hydrogen will come down as electrolysis is scaled up so that eventually it will be competitive with the cheaper, dirtier variety.

Hydrogen & Additionality

When the IRA was enacted a year ago, lawmakers indicated that hydrogen producers planning to use grid power could calculate their emissions by using an Energy Department emissions calculator. That tool takes into account how many clean energy and fossil fuel plants were already part of an existing grid and how many emissions the hydrogen plant would produce as a result.

According to E&E News, environmentalists are concerned that diverting existing clean electricity to make hydrogen will cause emissions to increase by forcing grid operators to draw more heavily on thermal generators to make up the difference.

“We’re talking several 100 millions of metric tons of carbon emissions over the lifetime of the credits with weak rules,” said Rachel Fakhry, policy director for emerging technologies at the Natural Resources Defense Council. “That is half of what the U.S. currently emits in one single year of carbon emissions from its power plants.”

That’s why environmentalists and even some in the energy industry have coalesced around a new requirement known as “additionality.” That provision would require hydrogen producers to not just use clean energy, but new clean energy generation added to the grid.

The administration says it is considering the provision carefully. “It’s a really important consideration, and it’s something that I know we’re weighing,” Energy Secretary Jennifer Granholm said of additionality in June. The idea is supported by the American Clean Power Association but opposed by the nuclear power industry, which sees itself being shut out of the market for electricity to power electrolyzers by the upcoming rules.

A Labyrinth Of Rules

One thing most people can agree on is that more rules lead to more expenses. If green hydrogen is the answer to lowering carbon emissions, at least partially, the more complex the regulatory compliance process, the more money will be spent on meeting the rules, leaving less available for actual production.

According to Ascent, a global business consultancy, 50% of respondents to a Risk Management Association survey said they spend 6 to 10% of their revenue on compliance costs. Large firms report the average cost of compliance is approximately $10,000 per employee. Some may quibble over those numbers, but compliance clearly has costs and they are not trivial.

One idea put forward it that the rules include regional requirements on renewable energy credits. This would ensure that hydrogen producers are buying credits from renewables close to their production sites, rather than from cheaper alternatives across the country that have no direct impact on the project’s emission profile.

Another restriction being discussed is requiring hydrogen producers to only turn on their electrolyzers when renewable energy projects are actually generating electricity on the grid, thereby matching the production of hydrogen with clean energy generation.

Joe Manchin Is Livid

Senator Joe Manchin of West Virginia is infuriated by all this “additionality” nonsense. He believes the Biden administration has been playing fast and loose with the plain language of the Inflation Reduction Act from the moment it was signed into law last August.

Manchin, of course, is vital to Democrats controlling the Senate. He will be facing a challenge from West Virginia governor Jim Justice next year, so he doesn’t want to alienate voters in his state. That’s one reason why he has been a passionate supporter of the Mountain Valley pipeline that will transport methane gas through West Virginia to Virginia — assuming opponents don’t succeed in blocking it.

Manchin has been clear where he stands on the additionality debate and what it means for hydrogen producers. “The additionality and all that? That is crazy,” he told E&E News and promised he would take action against Biden if the provision is included in the rules being promulgated by the IRS.

Both he and others in the hydrogen industry believe that an additionality requirement would place unfair restrictions on a budding industry, because it would require producers to fund new clean energy generation. That is easier said than done as interconnection queues, lack of transmission infrastructure, and local opposition delay renewable energy projects for years.

An aide to Delaware senator Tom Carper said it is critical that new hydrogen production creates as few emissions as possible but that Treasury must also consider the ramifications of imposing strict guidelines on an industry that is just getting organized. “We have seen this with other industries that if you put so many hurdles in front of them, they never take off,” the aide said.

He also said Senator Carper has long seen nuclear as a critical partner to hydrogen production and it was a clear intention of the IRA nuclear power plants be able to qualify for the Section 45V credit when the language of the IRA was being created.

Pros & Cons Of Additionality

Is “additionality” a good idea? Proponents are rightly concerned that making green hydrogen could decrease the supply of renewable energy available to all Americans, and yet no other industry is subject to such additionality requirements.

When Google wants to power a data center with renewable energy, it doesn’t just tap into the local grid. It works with a renewable energy developer to build a wind or solar farm to supply it. Usually, those installations also contribute part of their output to the local grid, so everyone benefits. But the green hydrogen industry doesn’t want to do that. So far as we know, they intend to simply tap into available supplies of renewable energy without helping to add to that supply.

Peter Gish, who has been deeply involved in wind power for the past 25 years, is a co-founder of Ortus Climate Mitigation, a company that promotes renewable energy development throughout the world. Some of the wind farms he has helped bring to fruition are located in Ukraine and Morocco.

In an email, he said, “Prior to 24 February 2022, I was not convinced that ‘green’ hydrogen would play an important role in the energy mix during our lifetimes. After the invasion of Ukraine by Russia (I was building a wind farm in Odessa at the time) I did an about face. I gained in conviction, as did many, that the reign of fossil fuels must come to an end, one way or another.”

He and his partners predict the LCOE from the projects they are currently pursuing will be 2 cents/kWh — without any subsidies. They expect that electricity will be used to power local desalinization, electrolysis, Haber-Bosch, and similar industrial processes.

“If we consider the ‘real’ cost of gas and coal — detrimental environmental impacts, economic chaos, geo-political instability, and climate related disasters — then suddenly land based ‘green’ hydrogen production starts to look like a viable alternative to entrenched fossil fuels. This is possible because of the massive scale of wind and solar installations being developed (20 GW in our case alone) with the corresponding economies of scale that come with such projects,” he said.

The Takeaway

Politics is a messy business, one that often involves compromises that some find offensive. For instance, there is no rational reason why electricity from nuclear power plants should be part of the green hydrogen discussion, except that the nuclear power industry has strong support in Congress.

Hydrogen advocates have a point when they say requiring them to provide for their own renewable energy needs will cause delays. The Federal Energy Regulatory Commission has just issued new rules designed to lower the amount of time it takes to get renewable energy projects connected to the grid but America needs thousands of miles of new transmission lines to make the renewable energy revolution a reality. Those assets are years away from completion.

Other countries, especially in Europe, already have access to green hydrogen, but in the US the vast majority (nearly 99%) of the hydrogen available comes from reforming natural gas. It is vital to America’s push to lower its carbon emissions to make green hydrogen in abundance. All the tugging and hauling over the rules the IRS will issue shortly to implement the Section 45V tax credit will undoubtedly displease lots of people.

Politics is about muddling through and picking a path through a mine field of objectors, opponents, and curmudgeons who just dislike new ideas in general. They say the best compromise is the one that makes no one completely happy. That is certainly what is likely to happen in this case.

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Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new."


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