Last Friday, the US House of Representatives approved a new ten-year tax credit for the production of clean hydrogen.
The tax credit is part of President Joe Biden’s Build Back Better bill and will be worth as much as $3 per kilogram of so-called ‘clean hydrogen’.
The exact amount of the tax credit will depend on how clean the hydrogen produced is, which is a move aimed at encouraging the production of green hydrogen derived from renewables by making it cheaper than its grey counterpart.
Grey hydrogen is made from unabated methane and the production process results in high amounts of pollution.
Currently, the cleaner green hydrogen is up to six times more expensive than the grey variety, with costs ranging from $2.50 to $6 per kilogram, whereas grey hydrogen comes down to about $1-2 per kilogram.
Thus, a $3 per kilo subsidy could genuinely make a difference on the US hydrogen market.
In order to qualify for the full tax credit amount, the House version of the bill required the produced H2 to have lifecycle greenhouse gas (GHG) emissions of under 0.45kg of CO2 equivalent (COe) per kilogram of hydrogen.
Those with higher levels of GHG emissions will be eligible for smaller percentages of the tax credit rate and only projects that have started construction before 2029 will be able to apply for it.
However, those facilities with a GHG emission ratio of 4-6kg CO2/kgH2 (the highest possible in order to qualify for the clean hydrogen tax credit), will be expected to be placed into service before 2027 to be eligible.
What about blue hydrogen?
Blue hydrogen production will be eligible for the hydrogen tax credit on condition that it uses autothermal reforming – a process that captures up to 98% of CO2 emissions.
However, this process is also very energy-intensive, and therefore much more expensive.
So clearly, the bill favors green hydrogen production with the intention of bringing its costs down to under $2/kg by 2026.