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2024

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US hydrogen production tax credit in danger of becoming ‘yet another fossil fuel subsidy’: Friends of the Earth

Author:

Hydrogeninsight


 

Environmental group warns of ‘subsidised greenwashing’ if Treasury waters down proposed guidelines

 

Big Oil and other polluters are leading a “massive lobbying campaign” against the US Treasury’s proposed clean hydrogen production tax credit guidelines, centred on “greenwashing” hydrogen produced from renewables and natural gas”, says a new report entitled The Hydrogen Hustle by Friends of the Earth.

 

The US government released proposed guidelines back in December to ensure that companies receiving the V45 tax credit of up to $3/kg of H2 do not increase overall greenhouse gas emissions by taking renewable electricity from the grid that would have to be replaced with fossil-fuel power.

 

These include similar measures on the “three pillars” of additionality, time matching and geographic correlation enacted by the EU.

 

But the guidelines have since come under attack from a broad range of companies — including oil majors, electrolyser manufacturers, power utilities and green hydrogen producers —and under the spotlight again this week as the US government hosts a three-day public hearing into the proposed V45 rules.

 

“If Big Oil and other polluters get their way, then the hydrogen will become yet another fossil-fuel cash grab,” said the report’s author, Sarah Lutz, a climate campaigner at Friends of the Earth. “It is more important than ever for the Biden Administration to stand firm with a strong, science-driven approach.”

 

She writes that without hourly matching to ensure that only renewable energy is used to produce green hydrogen, grid emissions could reach 40kg of carbon-dioxide-equivalent (CO2e) per kilogram of hydrogen — ten times higher than the upper threshold allowed to qualify for the tax credits.

 

Calls by Shell to delay the hourly matching indefinitely and by BP and utility NextEra to waive the rule for “first-mover” hydrogen projects that start production by 2028 would be “disastrous”, the report says.

 

And proposals by the HyVelocity Hub, led by ExxonMobil and Chevron, to delay additionality requirements until 2032, leading to existing renewables being diverted to H2 production, requiring replacement on the grid by fossil-fuel power would allow subsides for “clean” hydrogen that would actually increase emissions by up to 20kgCO2e/kgH2 — five times more than the maximum CO2e level allowed.

 

The Friends of the Earth report also takes issue with the proposed 45V GREET model that would assess lifecycle emissions from clean H2 projects, arguing that it drastically underestimates upstream methane leakage — leading to Big Oil companies campaigning to lock in the use of the model for at least ten years.

 

“This would allow dirty energy projects to claim a full decade of subsidies even if the agency later updates its modelling to reflect the latest science,” the report says.

 

Section 45V of the 2022 Inflation Reduction Act (IRA) itself, which was the legislation introducing the production tax credits, actually says lifecycle emissions will be determined by the GREET model “or a successor model (as determined by the Secretary [of the Treasury]”.

 

Fossil-fuel companies, and others, argue that the GREET rules should be locked in because it is a big risk for a project to go ahead that could have its subsidies withdrawn from one year to the next if the emissions-calculation model changes.

 

But Friends of the Earth says that if hydrogen producers “are found to not actually be achieving statutory emissions requirements, then they should simply cease to qualify”.

 

“Continuing to subsidise producers after they have been proven to fail emissions requirements would be a ridiculous policy from both a climate and fiscal responsibility perspective,” Lutz writes.

 

She also argues that some of the Regional Clean Hydrogen Hubs that have been provisionally granted up to $1bn each from the US government — most of which want to involve blue hydrogen made from fossil gas with carbon capture — are “attempting to use these projects as hostages to get the Biden Administration to weaken the hydrogen tax credits”.

 

In short, they were selected under a “much weaker and non-binding [emissions] standard” by the Department of Energy and should not therefore be allowed to argue their way out of meeting the 45V emissions requirements.

 

Indeed, some of the hubs — as well as state governors supporting the projects — are arguing that they would not be economically viable under the current proposed guidelines.

 

But Lutz writes: “The Clean Hydrogen Hubs are not worth doing if they cannot actually produce clean hydrogen, and they are certainly not worth violating the statutory emissions requirements established in IRA for the 45V tax credit.”

 

She continues: “It is telling that the loudest voices in opposition to the 45V draft rule continually point to their ­financial stake in weak hydrogen standards.

 

“While the guidance has been met with fierce resistance from polluters, that should be a sign to stand firm rather than backslide. Weak implementation of the hydrogen tax credit is not a misstep we can afford.

 

“Without a strong science-driven standard, hydrogen will rapidly become a taxpayer-subsidised greenwashing activity.”

 

Source:Hydrogeninsight

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