U.S. considers phased hydrogen tax-credit plan

A top climate advisor to President Joe Biden signaled the administration could phase in some requirements for a valuable new hydrogen tax credit in a bid to nurture a nascent industry critical to decarbonizing industrial operations.

"We're very optimistic that we can get this right and strike the right balance," said John Podesta, White House senior adviser for clean energy innovation, as the Treasury Department drafts guidance for claiming the full credit worth up to $3 per kilogram of green hydrogen. 

The goal, he said, "is to get the industry going" and "to create the cost reductions that we need for electrolyzers, but do it in a way that puts us on a path to having the highest standards for green hydrogen going forward during the course of this decade."

Angel Garcia/Bloomberg

Podesta's comments send the clearest signal yet that the administration is seeking to find some middle ground between would-be developers who say a flexible approach is critical to driving tens of billions of dollars in potential investments and environmentalists who want qualifying hydrogen production to be tied to new, additional renewable power supplies, generated at the same time and on the same power grids. 

Because electrolyzers that extract hydrogen from water require so much power to operate, some environmental advocates argue strict limits are vital to ensure surging hydrogen production doesn't drive demand for fossil-based electricity and unleash more greenhouse gas emissions, ultimately undermining U.S. climate goals.

The government is expected to deliver its verdict in coming weeks by issuing formal guidance on the credit created by last year's climate law. The policy debate has inspired a frenzy of lobbying by environmental activists, energy companies and manufacturers.

The administration is focused on developing a workable approach that will put clean molecules into the system and meet demand, said a senior Democratic policymaker who asked not to be named discussing the matter. Standards that ramp up the environmental performance of hydrogen production over time would allow the industry to meet initial demand and scale up while providing a clear trajectory for growth, the policymaker said.

Administration officials have encouraged some advocacy groups to put forward possible compromise plans that could help bridge the gap between industry and environmentalists, according to people familiar with the matter who asked not to be named discussing private conversations. 

Both the American Clean Power Association and the Energy Futures Initiative advanced blueprints in recent months that would give more flexibility to first-mover green hydrogen ventures and impose strict hourly requirements for clean power on projects developed years from now. 

— With assistance from Ari Natter