A leaked draft of Treasury Department rules for hydrogen tax credits in President Joe Biden's climate law is drawing warnings from advocates for the fuel that the proposals may stifle the burgeoning industry before it takes shape.
The rules, which aren't finalized, include measures sought by environmentalists that would require hydrogen-production operations to be powered by wind, solar or other clean-power projects built within the last three years to qualify for a $3-per-kilogram credit, according to people familiar with the draft. Some of the details of the tax guidelines were reported earlier by Politico.
"If true, the Biden Administration's proposed strategy for implementing these provisions will fail to get this new industry off the ground," Jason Grumet, chief executive officer of the Washington-based American Clean Power Association, said in a statement Monday. "It is surprising and disappointing that the administration would propose such a rigid approach that is at odds with decades of learning about new technology deployment."
The Treasury Department, which is expected to make its guidance public by year's end, declined to comment.
The rules governing the hydrogen tax credits have sparked a fierce lobbying battle. The guidance in the Treasury Department draft also calls for hydrogen projects to be supplied with new, clean-power sources operating on the same grid on an annual basis through 2027, then on an hourly basis starting in 2028, the people said.
Hydrogen is seen as a critical fuel for decarbonizing steel, cement and other heavy industries, and the tax credit is viewed as an essential incentive to spur its development.
But environmentalists warn that unless there are strict rules requiring that hydrogen be produced with new clean power sources operating on the same grid and during the same time, that it could drive further demand for fossil-fuel based electricity — and unleash more greenhouse gas emissions.
A main point of contention is now whether — and when — projects should face stronger hourly time-matching requirements, instead of more lenient annual mandates and if there should be any grandfathering for projects that begin construction in the near term.
