Biden administration adds exemptions into new climate rules for hydrogen energy 

The Biden administration on Friday finalized fairly strict climate rules for the nascent hydrogen energy industry — but the rules contain new flexibilities that are expected to make them less stringent than the administration’s original proposal.

The final rule issued by the Treasury Department on Friday determines which facilities can qualify for lucrative tax credits for hydrogen energy.

The tax credits are seen as an important piece of the Biden administration’s climate agenda since hydrogen power could be an important tool to lower carbon emissions from industries like aviation, steel and cement — whose emissions are particularly difficult to eliminate. 

The tax credits are key for making hydrogen from low- or no-emitting sources economically viable.

White House Climate Adviser John Podesta said in a written statement that the changes “provide the certainty that hydrogen producers need to keep their projects moving forward and make the United States a global leader in truly green hydrogen.”

Hydrogen energy can be made by either using electricity to separate the hydrogen out of water molecules in an electrolyzer or through a reaction between methane and steam. 

Use of the hydrogen energy itself does not create any planet-warming emissions, but the process of making it with steam or generating the electricity to power the electrolyzer can produce emissions.

Because electrolyzers use up so much electricity, the Biden administration said in a proposed guidance earlier this year that to qualify for the credit, hydrogen produced this way needed to meet certain standards.

Particularly, it required this type of hydrogen to be paired with an additional new energy source to provide that power and that this power be produced within the same hour and in the same region that the hydrogen energy is produced. 

Friday’s final regulation largely maintains these safeguards — but also adds some industry-friendly carve-outs. 

This includes a new provision that allows existing nuclear plants that may have been in danger of retiring without powering hydrogen energy to count as a new power source as well as a delay in the hourly-matching requirement.

It also says that electrolytic hydrogen projects in California and Washington do not need to be built with an additional power source because those states already have strict emission caps for the power sector.

The standards for methane-based hydrogen, which is made from sources including fossil gas and biogas, are also changed in the final rule. 

Dan Esposito, electricity manager at the energy and climate think tank Energy Innovation, described the changes for methane-based hydrogen as a “mixed bag.”

“There are some elements that are quite strong and aligned with experts’ recommendations in the climate space, and then there’s a couple details that leave the door open for a lot of emissions,” he said. 

Esposito also expressed concerns about the exemptions for nuclear and state policies, saying they are “real problems,” but he added that the rules overall are positive and these provisions “do not poison the program.”

“While the final rule will subsidize some dirty hydrogen projects, on the whole it represents a win for climate,” Esposito told The Hill. 

Industry praised the changes as necessary to get the emerging industry off the ground. 

Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association said in a written statement that the administration “made significant improvements … compared to the initial proposal.”

“There are also multiple areas where implementation and timing will be up to the incoming Trump-Vance Administration,” he added. “This issuance of Final Rules closes a long chapter, and now the industry can look forward to conversations with the new Congress and new Administration regarding how federal tax and energy policy can most effectively advance the development of hydrogen in the US.”

The future of the tax credits and guidance surrounding them is still somewhat uncertain given the change in administration. 

Republicans have indicated they want to repeal some, but not all, of the energy tax credits that are part of the Democrats’ 2022 climate, tax and health care bill. Hydrogen energy is likely to be spared a complete repeal, but it’s not clear whether any changes will be made.

— Updated at 12:35 p.m.