Biden's Dilemma: How Do You Define 'Green' Hydrogen?

December 23, 2022

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by David Iaconangelo (Politico Pro) The Treasury Department is expected to release a framework that could determine whether renewable hydrogen is a successful climate tool or a high-emitting fuel. -- The Treasury Department is weighing new requirements for “green” hydrogen producers, creating schisms among energy groups about how to ensure the fuel is a low-carbon resource.

Green hydrogen production involves extracting the fuel from water molecules using renewable electricity in a process that doesn't emit carbon. The climate law sought to encourage that by offering tax credits to hydrogen producers that manage to zero out their carbon emissions, rather than just paring them back.

Yet some prospective producers of hydrogen want to bend the definition of "green,” say analysts. Instead of building their own wind or solar facilities and drawing power directly from those projects on-site, some producers hope to use grid electricity — including electricity from coal or gas — while buying renewable energy certificates or other offsets so hydrogen can qualify as clean under the law.

Now, Treasury is expected to release guidance that could set conditions for hydrogen developers hoping to use offsets while claiming clean hydrogen tax credits. READ MORE

Without guidance, Inflation Reduction Act tax credit may do more harm than good (Princeton University)

Excerpt from Princeton University: Consequently, by modeling the grid-scale impact of electrolysis, the ZERO Lab identified three key implementation guidelines for the tax credit that would require grid-based hydrogen producers using electrolysis to procure clean energy in a way that moves the nation toward, rather than away from, its emissions targets. With these procurement guidelines in place, the researchers found a way to enable grid-based electrolysis with minimal carbon pollution.

Their work was recently published in Environmental Research Letters. They also submitted comments to the U.S. Department of the Treasury and the Internal Revenue Service to provide decision-making support on how to implement the hydrogen production tax credit created under section 45V of the Inflation Reduction Act.

Pitfalls of grid-based electricity

Wilson Ricks, the paper’s first author and a graduate student in mechanical and aerospace engineering at Princeton, pointed out the obstacles to using electricity to generate hydrogen. Currently, fossil fuel and coal plants still supply much of the electricity for the U.S. electrical grid. And since there is no way to track individual electricity flows through the grid from generator to consumer, any grid-connected hydrogen producer would indirectly generate large amounts of carbon emissions simply by increasing the overall energy demand. This is especially true because the tax credit pays hydrogen producers based on the amount of hydrogen they produce, encouraging them to operate close to 24/7.

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That leaves hydrogen producers who want to qualify for the full tax credit with two options: either they must supply their own carbon-free electricity without connecting to the grid by co-locating resources like solar farms alongside their electrolyzer, which poses many spatial and logistical constraints, or they can connect to the grid and find some way to demonstrate that they are using carbon-free electricity from clean sources.

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In the paper, though, the researchers argued that the current accounting method does not fully consider the scope of emissions embodied in grid users’ energy consumption.

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However, they found that they could minimize the emissions impact of grid-based hydrogen production by enforcing additional guidelines for clean energy procurement alongside the tax credit.

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Three guidelines for a better tax credit

First, the current accounting approach only requires producers to procure energy on an annual basis, but the researchers argued that hydrogen producers should be required to procure clean energy on an hourly basis to match their consumption during that hour, which better accounts for daily variations in grid emissions.

Overall grid emissions are generally lowest during the daytime, when resources like solar farms supply a stream of clean energy, and are higher at night, when fossil fuel and coal generators supply more of the grid’s electricity.

Consequently, a hydrogen producer using electrolysis, incentivized to operate at all hours of the day, would likely rely on fossil fuels for extended periods of time. By requiring producers to procure clean energy on an hourly basis, an approach being explored by companies like Google and Microsoft as well as the U.S. government, they would be more accountable for the energy sources they use at any given time.

Second, the researchers specified that to qualify for the tax credit, hydrogen producers must procure electricity from newly built clean resources beyond those required to meet state-mandated clean energy goals. If hydrogen producers only procured renewable energy from preexisting sources, which would be possible under the existing paradigm, they would increase the overall demand for energy without contributing to new projects that expand the clean energy supply. In many cases, that would spur fossil fuel and coal generators to supply the deficit.

Lastly, the team found that procured clean energy must be from sources close enough to the producer to be deliverable. Because of transmission bottlenecks in the grid, electricity is limited in the distance it can practically travel. As a result, the researchers found that allowing the procurement of far-away clean energy resources, which is possible with today’s accounting approaches, did nothing to limit system-wide carbon emissions.

Ricks explained that even if a producer claims to pay for electricity from a non-local source, their overall demand might be met by a nearby fossil fuel or coal plant due to transmission constraints between the clean generator and the electrolysis facility. By implementing a deliverability requirement, hydrogen producers would be required to procure clean energy from sources within a practical distance.

When the researchers implemented these three requirements alongside the tax credit, they found that grid-based hydrogen producers would have a comparable impact on grid emissions as hydrogen producers who supply their own clean electricity without connecting to the grid.

Even with the requirements in place, there are still some circumstances in which adding hydrogen demand leads to higher grid emissions. That is because demand from electrolysis may compete for the best renewable energy sites, and as those sites get used up, fossil generators may become more competitive. However, Jenkins noted that the same issue applies to clean hydrogen producers who do not connect to the grid.

“Given the incentives created by the production tax credit to deploy electrolysis, there is no real way to ensure zero consequential emissions in all cases,” Jenkins said. “But we can ensure the lowest consequential emissions of the procurement strategies we explored and comparable outcomes to an off-grid electrolysis facility powered exclusively by clean electricity.”

When the researchers removed any of the three requirements, though, system-wide emissions shot up. Without the proposed guidelines, the tax credit would ultimately subsidize a production process that would increase emissions, which Ricks said could be a disaster for the credibility of the nascent clean hydrogen sector and overall decarbonization policy.

Fortunately, the team concluded that the cost of implementing these requirements and tracking hourly energy usage would amount to around $1 per kilogram of hydrogen. Meanwhile, with the tax credit and current sale price of hydrogen, producers could bring in $4 per kilogram of hydrogen, assuming they qualify for the full tax credit.

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The article, Minimizing emissions from grid-based hydrogen production in the United States, was published Dec. 19 in Environmental Research Letters. Princeton University’s Low-Carbon Technology Consortium supported the work, which was funded by Google, GE and ClearPath. READ MORE