States Charting the Course on ‘Green’ Hydrogen

June 16, 2023

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by Arianna Skibell (Politico's Power Switch) ... An upswell of state-led legislation aimed at boosting and regulating the fuel source could help shape the trajectory of President Joe Biden’s climate plans, write David Iaconangelo, Heather Richards and Zach Bright.

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Few green hydrogen projects exist, and many new developers want to use energy from the grid, which is not always carbon-free — threatening to erase hydrogen’s climate benefits.

On the ground: State action on hydrogen comes at a pivotal period of implementation for Biden’s climate and infrastructure laws. These include efforts to develop hydrogen that is at least greenish — produced with only a minimal amount of carbon output.

The Energy Department, for example, is preparing to award up to $7 billion for the nation’s first hubs of low-carbon hydrogen production, storage, transport and consumption — and states from Mississippi and North Dakota to Hawaii and Washington are angling for a share of the bounty.

In North Dakota, Republicans are spending millions on research into storing hydrogen (along with fossil fuels) in underground salt caverns. Democrats in Washington state, meanwhile, passed a law to speed up clean energy projects, including hydrogen made from carbon-free electricity and water.

Colorado blazes the trail: Perhaps the most groundbreaking state action is in Colorado, where Democratic Gov. Jared Polis signed a tax credit for companies that use hydrogen. The move — intended to spur the nascent industry — was paired with strict emission limits and offset requirements to ensure that hydrogen is actually “green.”

The Treasury Department is considering what requirements it will tie to federal green hydrogen tax credits. In a recent letter to several federal agencies, more than 130 lawmakers from 35 states and Puerto Rico urged the agency to adopt Colorado’s approach. READ MORE

States and clean energy: 3 issues to watch (E&E News Energywire)
Renewable group shifts position, shakes up hydrogen debate (E&E News Energywire)
3 issues to watch with the big US bet on ‘clean’ hydrogen (E&E News Energywire)

Excerpt from E&E News Energywire: The 2021 bipartisan infrastructure law contained $8 billion for hydrogen hubs, which would be the nation’s first major demonstrations of low-carbon hydrogen production, transport, storage and consumption. All of those elements must be located in a single region for a potential hub. The first announcements from DOE this fall could see up to $7 billion awarded from the $8 billion total.

The competition for a share of the funding has piqued bipartisan interest from state legislators.

Democratic-controlled Hawaii and Republican-run Mississippi both passed resolutions pledging their state’s backing for coalitions that have filed applications to DOE for a share of the hydrogen hub funds, for instance.

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Other state lawmakers tried to make it easier for hydrogen developers to store the fuel or receive permits for new production facilities — even if their state doesn’t win infrastructure law funds.

In North Dakota, Republicans appropriated $11.3 million for state-led research into the possibility of storing hydrogen and fossil fuels in two underground salt caverns.

Legislators in deep-blue Washington, meanwhile, enacted a law to streamline siting and permitting for clean energy projects, including production of “green” hydrogen made from renewable electricity and water.

Perhaps the most groundbreaking state law for hydrogen was enacted in Colorado.

Signed on May 22 by Gov. Jared Polis (D), H.B. 23-1281 creates a tax credit for companies that consume low-carbon hydrogen — specifically, industries considered hard to decarbonize, such as ammonia- and steel-making or long-distance trucking.

A $1 tax credit is available to companies that buy and use hydrogen that is made by releasing up to 0.45 kilogram of CO2 equivalent for every kilogram of hydrogen. That credit falls to 33 cents for hydrogen with a CO2 content of up to 1.5 kilograms.

Those limits are based on the strictest limits contained in the Inflation Reduction Act, which makes tax credits available for hydrogen production.

The Colorado law also lays out an unprecedented series of emissions accounting rules for “clean” hydrogen, jumping into the forefront of a national policy debate.

Across the United States, prospective producers of “green” hydrogen want to be able to use electricity from the grid to make their fuel, rather than drawing the power directly from new wind or solar facilities.

Emissions modelers and environmentalists say that could effectively erase the “green” credibility of that style of hydrogen, by spiking emissions from the grid.

If hydrogen producers are using grid power, those groups argue, the companies should have to help finance new renewable capacity located nearby on the same regional grid, then match their electricity consumption to the hourly levels of power generation from those wind or solar facilities.

Producers should have to incorporate that complex series of offsets when they count and report their greenhouse gas emissions, emissions modelers and environmentalists say.

Those requirements were instituted in Colorado’s law, making it the first state to do so.

The Treasury Department is also weighing similar requirements. The department is drawing up guidance for the Inflation Reduction Act’s federal tax credits for clean hydrogen.

One major environmental group, the Natural Resources Defense Council, urged the Treasury Department to follow Colorado’s lead.

Colorado’s requirements for clean hydrogen created a “nation-leading standard” that made the law “the first major example of clean hydrogen policy” in the United States, Pete Budden, a climate and clean energy advocate at the NRDC, wrote in a May 18 blog post.

“Hopefully, Treasury, the Department of Energy and the White House are also paying close attention,” he wrote.

Trade groups representing renewable developers and investor-owned utilities have opposed those tight emissions requirements, however, arguing that they will stifle the growth of a low-carbon hydrogen industry.

“Our view as an industry is that these limitations constrain the development of hydrogen,” said Wolak of the Fuel Cell and Hydrogen Energy Association.

Colorado’s emissions-accounting requirements for clean hydrogen will apply in 2028 for companies that consume the fuel — or after 200 megawatts of electrolyzers have been deployed in the state. Electrolyzers are the machinery used to extract hydrogen from water using electricity.

Investor-owned utilities will also have to abide by the requirements when they produce hydrogen, although other hydrogen producers located in Colorado could claim the federal tax credit for making the fuel.

“It is important that clean hydrogen production uses clean electricity, from renewables or other zero carbon generation, in order to contribute towards the pollution reduction goals of our state,” Polis, Colorado’s governor, said in a signing statement.

But Polis also cautioned against the idea that Colorado’s strict requirements should be immediately adopted by the Treasury Department as a standard for federal tax credits.

Colorado’s requirements “should not immediately be created nationwide for access to federal production tax credits, but should be phased in over time as the economics becomes more favorable,” he added in the statement.

In an interview, the executive director of the Colorado Energy Office, Will Toor, explained the governor’s statement as a recognition of the state’s strong wind and solar resources.

“The economics [in Colorado], I think, are much more favorable than they would be in many places around the country,” said Toor. READ MORE

Excerpt from E&E News Energywire: One of the nation’s largest renewable trade groups unveiled revised recommendations Thursday on how “green” hydrogen emissions should be counted under the Inflation Reduction Act, highlighting the challenge facing the Biden administration as it prepares tax guidance that could determine the greenhouse gas footprint of the fuel.

The American Clean Power Association (ACP) is an influential voice in the hydrogen debate, considering its size and number of members with a potential stake in the industry’s future. In December, it submitted initial comments to the Treasury Department about coming guidance for accessing lucrative Inflation Reduction Act tax credits for clean hydrogen.

The group’s revised plan Thursday made concessions to environmentalists on some issues but reignited disputes over others, while alienating nuclear and fuel cell advocates.

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ACP, whose ranks include prominent energy companies with plans to scale out green hydrogen production, originally defended the use of grid power in its December comments to Treasury. At the time, the group said relying on the grid to make hydrogen could keep down costs and help grow a new clean industry.

But in its adjusted recommendations, the group changed its stance and embraced portions of a plan being pushed by environmentalists for limiting grid emissions.

However, its stance differed from environmentalists in saying hydrogen developers should not have to abide by an “hourly matching” requirement for most of the decade. Under hourly matching, which environmentalists are backing, developers would have to match their hourly consumption of grid power with the hourly power generation from a new renewable facility.

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ACP, whose ranks include prominent energy companies with plans to scale out green hydrogen production, originally defended the use of grid power in its December comments to Treasury. At the time, the group said relying on the grid to make hydrogen could keep down costs and help grow a new clean industry.

But in its adjusted recommendations, the group changed its stance and embraced portions of a plan being pushed by environmentalists for limiting grid emissions.

However, its stance differed from environmentalists in saying hydrogen developers should not have to abide by an “hourly matching” requirement for most of the decade. Under hourly matching, which environmentalists are backing, developers would have to match their hourly consumption of grid power with the hourly power generation from a new renewable facility.

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Under the group’s proposal, hydrogen developers could only use grid power if they were also financing new sources of clean power generation — a concept known as “additionality.” That new clean power would also have to be located in the same grid area as where the hydrogen production was occurring or in a neighboring one with strong transmission links.

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ACP’s new position drew fire from various energy industries.

Nuclear power advocates took aim at the additionality requirement, saying that requiring developers to bring new sources of clean power generation online would likely prevent existing nuclear plants from taking part in the hydrogen sector. Without additionality, advocates hope that existing nuclear plants could participate in power deals with hydrogen developers seeking to counter their grid power use.

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One previous study authored by Ricks (Wilson Ricks, a Princeton University researcher) found that without strict requirements on producers, making green hydrogen could be worse for the climate than making conventional “grey” hydrogen from natural gas. READ MORE