New tax credit paves the way for green hydrogen production in the US

The US House of Representatives approved the ‘Build Back Better’ bill last Friday by 220 to 213 votes. The bill covers a wide range of budget and spending provisions, costing nearly $1.7 trillion that will add $367 billion to the federal deficit over 10 years.

The bill contains a wide variety of tax provisions, most notably a ten-year tax credit worth up to $3 per kilogram of clean hydrogen. The cleaner the hydrogen produced, the greater the tax credit producers receive, a move that could make green H 2 derived from renewable energy cheaper than highly polluting gray hydrogen made from methane.

Green hydrogen is said to cost $2.50-6/kg, compared to $1-2/kg for grey, although the latter will depend on the price of natural gas. So a $3/kg subsidy to green H2 could really rock the US hydrogen market, energy portal Recharge reports.

The House version of the bill states that only hydrogen with life cycle greenhouse gas emissions of less than 0.45 kg of carbon dioxide equivalent (CO₂ e) per kilo of H 2 will be eligible for the full $3 credit, beginning next year.

Those with higher emissions would be eligible for smaller percentages of the clean hydrogen production tax credit rates, as follows:

• 0.45-1.5 kg CO ₂ e per kg H 2 : 33.4% of the full tax credit (ie $1/kg hydrogen)
• 1.5-2.5 kg CO ₂ : 25% ($0.75/kg)
• 2.5-4 kg CO ₂ : 20% ($0.60/kg)
• 4-6 kg CO ₂ : 15% ($0.45/kg)

Projects must begin construction before 2029 to claim the tax credit, while facilities in the 4-6 _kgCO2 /kgH2 category must be commissioned before 2027.

Gray hydrogen produced through SMR typically emits 9 to 12 kg of carbon dioxide per kilo of hydrogen. And because Carbon Capture and Storage (CCS) is said to only be able to capture 70-85% of CO₂ of the SMR process, that would add 1.3-3.6 kg more CO₂ e to the total, making such projects ineligible for the hydrogen tax credit.

Only blue hydrogen produced by autothermal reforming, a more expensive and energy-consuming process that captures up to 98% of CO2 _emissions , you would qualify for the 15% tax credit rate, but only narrowly; But a $3/kg tax credit has room to bring green hydrogen to parity with gray, so if the bill clears the Senate stumbling block, green hydrogen will see the way paved for mass production in the US. .

Source: The Energy Newspaper