When the U.S. Treasury Department finalized rules for the Inflation Reduction Act’s 45V Clean Hydrogen Production Tax Credit earlier this month, it ended a contentious two and a half year debate that included consideration of some 30,000 public comments. The rules provide a long-anticipated path to build a new domestic clean hydrogen industry, with investment and jobs ready to sprout across the country.
However, this bright future depends on a wide range of stakeholders — including renewable, nuclear, and fossil fuel companies, environmental organizations, and policymakers — accepting the compromise that these new rules represent. Acting on temptations to relitigate old battles in a new administration and Congress is far more likely to keep the industry stagnant than satisfy anyone’s wish list.
Hydrogen has traditionally been produced from methane, for use in oil refining and fertilizer. The 45V tax credit is essential to deploy new technologies that can clean up this dirty production process, such as by capturing its emissions or instead splitting hydrogen from water using renewable-powered electrolysis.
At scale, clean hydrogen holds the potential to reduce emissions from the trickiest sectors of our economy, such as steel, chemicals, and aviation fuel.
Congress required the tax credit to pay out for hydrogen produced in a low-emissions manner. The ensuing debate centered on how to define “low-emissions” — and in particular, how to account for the climate pollution caused by the electricity used to split hydrogen from water.
Some stakeholders wanted looser guidelines that would make more hydrogen production projects financially viable. However, overwhelming research shows that such an approach would entail subsidizing hydrogen that is actually far dirtier than how we make it today — with no clear path to eventually clean it up.
Other stakeholders wanted strict guidelines that ensure only truly clean hydrogen would receive the top-tier subsidy, in adherence with the legislation. Perhaps counterintuitively, such regulations would also train the industry for continued success after the tax credit sunsets.
Ultimately, Treasury’s final rules mostly maintained the protections in last year’s draft rules. It made significant concessions that will allow some dirty hydrogen projects to receive subsidies, but in doing so, it brought more parties into the fold. While no one is thrilled, Treasury managed to walk an extremely fraught tightrope. Most groups across all interest areas — including the American Petroleum Institute, Constellation, Earthjustice, the California hydrogen hub, and hydrogen companies like Ambient Fuels and Novo Hydrogen — are on board, even if sometimes begrudgingly so.
Of course, the change in administration and the GOP’s control of both chambers of Congress presents an attractive opportunity to go back to the drawing board to secure concessions in either direction. In fact, organizational statements released since 45V was finalized often include explicit or thinly veiled indications of such desires.
However, any one faction coming back for more is a surefire way to create chaos. If the industry is to succeed, it’s in everyone’s collective interest to get out of their own way. They have the chance to capitalize on this unlikely union, choosing to shore up the alliance rather than break the truce.
There are three reasons for industry, lawmakers, government officials, and NGOs to stay the course on Treasury’s final rules.
First, the rules provide desperately needed business certainty, which is crucial because investors need regulatory clarity to greenlight projects. As the debate dragged on throughout 2024, a clear plea arose from groups that often disagree: the need for Treasury to just make a decision — any decision — so the industry could begin putting steel in the ground.
Rewriting or relitigating these rules could tack on several more years of uncertainty — years in which investors’ interest may dry up and other countries’ progress will have stamped out any chance of U.S. leadership on clean hydrogen.
Second, the rules help attract offtakers. After business certainty, the biggest challenge facing the nascent industry is finding buyers for the product. Outside of narrow existing markets, hydrogen’s only value-add relative to what it’s replacing stems from reducing emissions from processes currently served by fossil fuels.
These final rules provide offtakers with reasonable assurance that they’ll be getting a high-integrity, low-emissions product — that is, one worth buying. Weakening the rules would further muddy the water between clean and dirty hydrogen, harming the whole industry’s reputation and viability.
Last, the rules make a wide range of projects financially viable while limiting taxpayer spending to those that have a pathway to continued operations after the credit expires. Companies’ 45V statements indicate they can move forward with projects, owing to Treasury’s concessions that remove key investment risks with relatively limited climate impact.
Yet the rules wisely lock out a large share of projects that would be forever dependent on subsidies and whose profits would have come at the cost of worsening consumer energy bills, tax expenditures, and climate pollution. The result: efficient and effective federal spending that ensures today’s public support will yield far larger returns down the road.
Given everything, it’s remarkable we got to this point at all. There are countless ways that Treasury could have designed rules that would have guaranteed litigation from at least one party, but their attempt at compromise seems to have avoided it so far.
All that remains is for its long-warring participants to choose unity in furtherance of a shared vision over disrupting this precarious equilibrium. It’s rare to be on the cusp of igniting a new industry. Let’s not squander the opportunity we’ve worked so hard to make possible.
Dan Esposito is the manager of Energy Innovation’s Fuels & Chemicals program. The opinions represented in this contributed article are solely those of the author, and do not reflect the views of Latitude Media or any of its staff.
