The Fight to Define Green Hydrogen, With Billions of Dollars at Stake
“ NextEra and BP argue for looser rules on tax credits for hydrogen production.”
The Fight to Define Green Hydrogen, With Billions of Dollars at Stake
NextEra and BP argue for looser rules on tax credits for hydrogen production
Most proposed clean hydrogen projects use machines called electrolyzers that split water into hydrogen and oxygen. PHOTO: ADAM GLANZMAN/BLOOMBERG NEWS
By Amrith RamkumarFollow and Katherine BluntFollow
Feb. 12, 2023 at 5:30 am ET
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Some of the world’s biggest companies are fighting over what qualifies as green energy. At stake are tax credits worth billions of dollars under the new U.S. climate law for one of the most-hyped clean-energy technologies.
Industry leaders such as BP PLC BP 2.78%increase; green up pointing triangle and NextEra Energy Inc. are arguing against renewable-energy companies including Vestas Wind SystemsA/S and Intersect Power LLC over tax credits for hydrogen, a fuel that when made from renewable energy could reduce carbon emissions from transportation and other industrial sectors by replacing oil and gas.
The battle is about what types of hydrogen should be classified as “clean” and receive tax credits. The incentives are seen as vital to making clean hydrogen cost competitive with hydrogen made from natural gas, which can be several times cheaper but emits carbon in the production process.
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Businesses large and small are repositioning themselves to try to capture some of the tidal wave of government cash from the new law dubbed the Inflation Reduction Act, signed into law last year. The rules defining eligibility for hydrogen tax credits, now being written by the Internal Revenue Service and Treasury Department, are some of the most contentious because they could affect project investment decisions and the development of a new industry.
“The decisions the IRS and Treasury make on this will absolutely shift billions of dollars moving forward,” said Danny Cullenward, policy director at CarbonPlan, a nonprofit that analyzes climate solutions. “The big risk is throwing out massive subsidies that don’t do anything.” His main concern is loose criteria that spark interest in the tax credits or increase emissions without boosting the core technology to make hydrogen.
The Treasury Department is working to finalize its rules and standards to implement the law in the coming months. A spokeswoman said the agency is working with stakeholders and partners including the Energy Department to make sure the hydrogen rules help energy security and fight climate change.
Most proposed clean hydrogen projects use machines called electrolyzers that split water into hydrogen and oxygen. When electrolyzers run on electricity produced from renewable sources, that hydrogen is considered clean or green.
The issue is that electrolyzers currently consume huge amounts of energy to make a small amount of hydrogen. Many energy companies and upstarts such as Plug Power Inc. PLUG 0.00%increase; green up pointing triangle have proposed making hydrogen using power drawn from the electricity grid—some of which is generated using fossil fuels—and buying renewable-energy certificates, or RECs, tied to green-power projects elsewhere to still qualify that hydrogen as clean.
Clean-energy firms such as Vestas and Intersect, as well as environmentalists, have argued in recent comments to the IRS that those companies should have to effectively prove they are using green power by matching their hydrogen plant’s electricity consumption to renewable-power generation on an hourly basis and making sure the green project is located in the same region.
Not doing so means that some hydrogen plants tied to the electricity grid wouldn’t in fact be green, some companies argue, and could at times be more carbon-intensive than conventional hydrogen made from natural gas, given that some regions remain reliant on coal to generate electricity.
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“There’s a lot of self-serving behavior being driven by the availability of a really juicy subsidy,” Raffi Garabedian, chief executive of Electric Hydrogen, said in an interview. His firm is backed by Amazon.com Inc., Honeywell International Inc. and Rio Tinto PLC and works to make more efficient electrolyzers to lower the cost of green hydrogen.
Electric Hydrogen has pushed for the tighter rules alongside renewable-energy firms such as Vestas and Intersect. Mr. Garabedian is the former chief technology officer of solar panel maker First Solar Inc.
The tighter rules might mean proposed hydrogen facilities would have to shut down for parts of the day when the wind isn’t blowing or sun isn’t shining, potentially making such projects less viable.
NextEra NEE 2.01%increase; green up pointing triangle, the owner of Florida Power & Light and one of the world’s biggest renewable energy developers, as well as energy stalwarts including BP and Shell PLC, are pushing for a much looser time period such as monthly or annual matching. They say such concessions are needed to kick-start the industry until technology improves and costs come down.
Rebecca Kujawa, chief executive of NextEra Energy Resources, the company’s renewable development unit, said an hourly matching requirement would make clean hydrogen substantially more expensive to produce and constrain the number of customers willing to buy it.
Florida Power & Light’s owner, a renewable energy developer, says concessions are needed to get the hydrogen industry off the ground.PHOTO: JAMES JACKMAN FOR THE WALL STREET JOURNAL
“If you end up having an uneconomic green hydrogen product relative to alternatives, there will be no market adoption,” she said. “It’s truly an industry that is either waiting to get off the ground or will be dead on arrival, depending on what the Treasury ultimately determines.”
The cheapest hydrogen made from natural gas costs about $1.50 per kilogram to produce, while green hydrogen costs roughly $5 or more. The proposed tax credit is up to $3 per kilogram, depending on the carbon emissions associated with the hydrogen production.
NextEra last summer said it plans to reduce greenhouse-gas emissions to near zero by 2045 without using carbon offsets or RECs that some other businesses use to neutralize their environmental footprints. The company is planning to build large solar projects and run power plants on hydrogen.
Ms. Kujawa said the company sees a path to producing hydrogen for power generation without using RECs but that they are needed in the near term to develop a market for industrial customers looking to use hydrogen for other means.
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Some of the renewable-energy firms arguing for the tighter standards could benefit from them because they have planned projects that would be connected to on-site green energy without using the grid.
Some analysts and industry executives such as Sheldon Kimber, Intersect Power’s CEO, said a phased approach that tightens the restrictions over time could be a realistic compromise.
Looser time-matching requirements could still be effective if the government requires RECs to be tied to new renewable facilities in the same region as the hydrogen plants, some analysts said.
“It’s a danger if they are actually not adding new, truly green power,” said Mark Jacobson, a professor of civil and environmental engineering at Stanford University.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and Katherine Blunt at katherine.blunt@wsj.com