Washington — The Biden administration has unveiled its proposal for allocating tax credits to hydrogen producers in an effort to accelerate the growth of a cleaner alternative to fossil fuels. This move comes as part of Democrats' Inflation Reduction Act, passed last year.

Under the proposed tiered system, hydrogen producers that prioritize cleaner energy sources will receive the most credits. However, even those using fossil fuels will still be eligible for smaller, yet meaningful, credits. This approach aims to incentivize the transition to cleaner hydrogen production methods.

The United States is leading the way with the most generous tax credit system for hydrogen production globally, according to Jesse Jenkins, a professor at Princeton University. The administration estimates that by 2030, these credits will generate $140 billion in revenue and create up to 700,000 jobs. Additionally, the plan aims to increase hydrogen production to 50 million metric tons by 2050.

While hydrogen is being hailed as a potential solution for certain industries that emit large amounts of greenhouse gases, such as steel, cement, and plastics manufacturing, the infrastructure for delivering clean hydrogen remains a challenge. The current transportation systems rely on liquid fuels, and the delivery system for hydrogen is yet to be established.

At present, hydrogen production in the United States primarily relies on natural gas, making it a contributor to climate change. However, the proposed tax credits encourage the production of cleaner hydrogen by awarding a higher incentive of $3 per kilogram to firms that employ cleaner production methods, including the use of renewable energy sources.

One key concern addressed in the proposal is the significant electricity consumption required for electrolyzer hydrogen production. To prevent increased reliance on coal or natural gas-fired power plants, the guidance calls for hydrogen producers to document and verify their electricity usage through "energy attribute certificates," which will determine their eligibility for credits.

The Biden administration's proposal has received mixed reactions. Environmental advocacy groups like the Natural Resources Defense Council and the Clean Air Task Force have welcomed the plan as a positive step towards creating a credible clean hydrogen market in the United States. However, the U.S. Chamber of Commerce has expressed concerns that the proposal could hinder industry growth, advocating for more flexibility during the public comment process.

The American Petroleum Institute has urged the administration to allow for greater flexibility in expanding hydrogen production. The Fuel Cell & Hydrogen Energy Association, representing various stakeholders in the hydrogen industry, emphasized the importance of providing adequate time for the industry to meet the requirements for top-tier credits.

Industry leaders, such as Chuck Schmitt, president of SSAB Americas, a supplier of steel plates, have applauded the proposal for supporting decarbonization efforts and driving innovation within the steel sector.

As the proposal enters the public comment phase, stakeholders from different sectors will have the opportunity to voice their opinions and shape the final version of the tax credit system. The Biden administration remains committed to developing a robust hydrogen industry that will have a significant impact in reducing greenhouse gas emissions and aiding the transition to a cleaner future.