Environmental justice groups ask feds to resist weakening rules on clean hydrogen tax credit 

Environmental justice groups ask feds to resist weakening rules on clean hydrogen tax credit 

Almost 50 environmental justice groups on Tuesday sent a letter to leaders of the federally-funded Midwestern hydrogen hub, imploring them not to try to loosen requirements for tax incentives for hydrogen produced with clean energy.  

The U.S. Treasury in December published draft rules saying that to receive lucrative 45V tax credits for producing clean hydrogen, the energy used must not be diverted from the grid, but be “additional” energy created specifically to power the electrolysis process used to produce pure hydrogen from water. 

Environmental advocates are largely pleased with Treasury’s draft rules, which also say clean energy must be generated around the same time and near where it is used for hydrogen production, to reap incentives. But organizations are worried that industry groups are lobbying to weaken the draft rules, which are open for public comment through Feb. 26. 

The Midwest Alliance for Clean Hydrogen (MachH2), a coalition of industry and research groups that won up to $1 billion in Department of Energy hydrogen hub funding, has proposed to produce much “pink hydrogen” powered by nuclear energy from Illinois. Critics say this, as well as “green hydrogen” produced with solar and wind, could divert zero-emissions power from other users and hence prolong the lives of fossil-fuel-fired generators that fill the gaps. 

“If MachH2 imperils the achievement of our states’ climate goals, harms the health of our communities, and causes electricity price spikes that disproportionality impact low- and moderate-income households, it will face stiff opposition from our coalition and from communities that will bear the brunt of harmful, and avoidable, pollution,” says the letter from 47 organizations, including We the People of Detroit, Interfaith Power & Light, North Dakota Native Vote, StraightUp Solar, the Sierra Club, Eco-Justice Collaborative and Illinois People’s Action. 

MachH2 declined to comment for this story. 

Three pillars 

The environmental and justice groups praised the draft 45V rules for including “three pillars” the groups see as crucial to making sure “clean hydrogen” is truly clean. Those pillars mean clean hydrogen production tax credits will only be awarded if new clean energy is used to power the projects, and the clean energy can actually be delivered to the site of the electrolysis around the time it is needed. The draft rules say that to be considered “additional,” the energy source must have been built within 36 months before the hydrogen production goes online. 

Accounting known as hourly matching, which can be verified with Environmental Attribute Certificates, ensures that hydrogen production isn’t removing clean energy from the grid that could be used by consumers at times of high demand.

A 2023 study by researchers at Princeton University’s Center for Energy and the Environment modeled the emissions impact that hydrogen production by electrolysis would have in the western U.S., and found that all three “pillars” would be necessary to ensure overall emissions don’t exceed fossil fuel generation. 

The environmental justice organizations’ letter notes that the EPA has supported the Treasury department’s decision that induced emissions on the grid — caused by replacing electricity diverted for hydrogen production — should be counted as indirect emissions of hydrogen.  

“Backsliding on Treasury’s proposed rule… would lead to significant emissions increases from hydrogen production, in violation of 45V’s statutory requirements,” said the organizations’ letter. “It would also directly harm communities that are home to some of our states’ dirtiest power plants, which would run more to replace the zero-carbon energy diverted to hydrogen production.” 

Lauren Piette, a senior associate attorney in the clean energy program for Earthjustice, said, “The important thing now is to make sure Treasury holds the line against pressure to weaken the rules.” 

Treasury asked for comment on possible exemptions to the additionality requirement, including the possibility that existing nuclear and hydroelectric plants could receive the tax credit, or that existing plants could get the tax credit if it helps them avoid retirement. Advocates have called these possible changes in the rules “loopholes.” An analysis by the Rhodium Group found these exemptions would generally increase greenhouse gas emissions, compared to modeling under the rules without exemptions. 

“Treasury needs to reject the loopholes industry is demanding, which would create enormous subsidies for dirty hydrogen, lock in more fossil fuel production and use, and increase dangerous health and climate-harming pollution,” Piette said. “Especially damaging would be any loopholes to the incrementality requirement, which are based on industry’s speculative claims about retirement risk, curtailment, and modeling. Such loopholes would reward the hydrogen industry for siphoning critical zero-carbon energy from the grid, creating a massive power demand that would be filled by our dirtiest power plants – the ones that should be retiring, not ramping up.”

The letter charges that if the three pillars aren’t mandates for receiving tax incentives, the electricity diverted from the grid to hydrogen production will cause consumers’ energy bills to spike. They point to cryptocurrency mining as an example of how this phenomenon has played out. 

“Cryptomining, which is subject to minimal constraints and requirements, has increased utility bills by tens to hundreds of millions of dollars for households and businesses in upstate New York and led to costly grid strains in Texas,” the letter says. 

Industry arguments 

BP’s Whiting oil refinery in Northwest Indiana is a focal point of the proposed Midwest hydrogen hub, as the company plans to ramp up hydrogen production at the site and provide it to regional users. BP asked the Treasury department to allow hydrogen made from existing generation to receive tax credits. 

“We encourage the IRS and Treasury to adopt flexible criteria on ‘additionality’ especially at this nascent stage,” said BP America’s comment to the IRS. “Strict additionality rules requiring electrolytic hydrogen to be powered by new renewable energy is not practical, especially in the early years, and will severely limit development of hydrogen projects.” 

BP and other members also argued against the requirement for hourly matching of renewable energy generation to use in hydrogen production, arguing instead for yearly matching. The draft rules currently allow for yearly matching until 2028, then hourly matching becomes mandatory. 

“Stringent requirements such as hourly zero-emission matching have the potential to devastate the economics of clean hydrogen production,” said BP’s comment. “Moreover, such restrictive requirements are likely not practical or feasible in these early stages. If a green hydrogen production facility can only produce during hours when wind and solar are available, the low utilization rate will dramatically increase the price of the hydrogen produced.” 

Bloom Energy Corporation, which manufactures electrolyzers, also said that adequate technology does not exist to timestamp energy generation and use in order to ensure that clean energy is generated when it is needed for hydrogen production. 

“Since electrolyzers will comprise a very small percentage of the overall EAC-qualifying energy produced for many years to come, there is ample time for those state, regional and voluntary bodies to work through their stakeholder processes and make any changes as needed to adjust those systems so as to avoid unintended outcomes,” said Bloom Energy in its comment, referring to Environmental Attribute Certificates.

The Princeton study noted that hourly matching can add considerable costs to hydrogen production, but said the 45V tax credit would be lucrative enough to compensate for those costs while driving the market development of better hourly matching mechanisms.  

Constellation Energy, owner of Illinois’s nuclear plants, also supported a mandate for hourly matching.  

“Setting an expectation of hourly matched clean energy will provide a market signal for the clean energy investments needed to further drive decarbonization in the power sector,” said the nuclear company’s comment. 

But Constellation is asking for exemptions to additionality, asking the government to decide that hydrogen made with behind-the-meter generation from existing plants qualifies for tax credits. The MachH2 hydrogen hub proposal calls for an electrolyzer on the site of Constellation’s LaSalle nuclear plant in Illinois, which could provide behind-the-meter electricity. But this electricity would still represent clean power that otherwise could have been sent to the grid, critics say. 

Constellation also argued against adding carbon emissions related to the nuclear supply chain when calculating hydrogen’s lifecycle greenhouse gas emissions. 

“Measuring carbon content for nuclear fuel is not typically done by the mining, enrichment, fabrication and transport vendors in the nuclear fuel supply chain, and it would be extremely cumbersome, costly, and labor intensive to impose these requirements on said vendors,” Constellation said.

An EJ platform for hydrogen 

The letter to MachH2 comes as grassroots groups and environmental organizations are increasingly organizing around still murky but well-funded plans for hydrogen to be used in everything from power generation to steelmaking to transportation, including as part of the seven federally-funded hubs. 

On February 1, the national collaborative Just Solutions Collective released an Environmental Justice Platform on hydrogen, demanding strict limits on the type of hydrogen production and use that is incentivized as part of a clean energy shift. 

The organization says hydrogen production from natural gas, and hydrogen produced with power from the grid, should be “ruled out” since “fossil fuel-based hydrogen fails to reduce greenhouse gas emissions,” by many estimates. They also demanded strict safety protocols around new hydrogen development, strident protections for water resources, protections around chemicals added to hydrogen fuels, and transparency in all hydrogen-related projects. 

Just Solutions leaders hope their platform influences policymakers and also helps community groups more effectively weigh in on plans for expanding hydrogen, including as the U.S. Department of Energy invests $7 billion in the seven hydrogen hubs nationwide. 

“The framework is meant to be a resource for climate and environmental justice advocates so they can advance clean energy technology that meaningfully addresses the climate crisis and to stop false solutions from taking root in our communities,” Just Solutions senior fellow and strategist Sylvia Chi said in a January webinar. 

Environmental justice organizations in other parts of the country have also opposed hydrogen hub plans. Last summer Indigenous, environmental justice, and youth groups urged the Biden administration not to fund a hydrogen hub based in Colorado, New Mexico, Utah and Wyoming, and that proposal was not among the seven selected.   

“DOE is saying a lot of the right things, but there is widespread concern that environmental justice is going to be set off to the side and figured out later, after contracts are signed and projects are approved,” said Piette. “We have yet to hear a clear answer on whether communities will be able to say no to a Hub project. DOE needs to give its own guidance teeth and hold Hubs accountable to local communities, especially those already experiencing cumulative burdens of decades of fossil fuel pollution.”

Excess energy

The Institute for Energy and Environmental Research (IEER) produced a report released in January commissioned by the Just Solutions Collective.

The report points to a pilot program in New York state where the Nine Mile nuclear plant is powering hydrogen production. While the nuclear power is zero emissions, it displaces energy from the grid that, when replaced by New York’s natural gas-heavy energy mix, increases overall greenhouse gas emissions. 

IEER argues that the ideal place for zero-emissions-produced hydrogen is in areas like California and Texas where there’s often much more wind or solar power available than the grid can handle. These renewables are regularly curtailed, or kept off the grid, simply going to waste. A possible exemption to the additionality requirement for tax credits that Treasury has floated includes existing generation during times that renewables would be curtailed. 

The IEER report estimates that curtailed renewables at current levels could produce 34,000 tons of hydrogen annually in California, and 150,000 tons in Texas. And the availability of renewables in those and other states is only expected to increase. 

The environmental justice organizations’ letter similarly says that in the Midwest, MachH2 could successfully procure new renewables to power green hydrogen production. 

“The MachH2 hub is one of the best situated in the country, able to take advantage of excellent wind and solar resources in the Midwest,” the letter says. “With the anticipated buildout of new renewable energy in this region, the projects funded by the hub will have no difficulty procuring cost-competitive, new, hourly-matched power from the proposed deliverability zone to claim the 45V tax credit.”

Environmental justice groups ask feds to resist weakening rules on clean hydrogen tax credit  is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.

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