US political volatility puts hydrogen industry expansion at risk
U.S. political volatility will help set the scene for the hydrogen industry over the next few years, both in and out of the United States.
The energy transition, and the place that hydrogen will take in the new energy landscape, will require long-term, harmonized agreements across the world, but short-term political goals and growing polarization could leave ambitious subsidy programs in the dust.
Multinational accords aimed at designing a common framework for a global clean hydrogen economy were signed at COP28 by dozens of countries, including the United States, and further government support will be essential to give the industry a competitive edge in the first few years.
However, legislative paralysis in Washington and the 2024 election in November may hobble the country’s central clean energy support program, the Inflation Reduction Act (IRA), leaving companies scrambling to redraw expansion plans.
“The inability to take legislation and implement it is really problematic for the United States,” says CEO of Plug Power Andy Marsh.
The IRA, signed into law in August 2022, is estimated to be worth around $369 billion in clean energy and climate priorities and aims to reduce greenhouse gas (GHG) emissions by about 40% below 2005 levels by 2030.
The money for the hydrogen industry will be distributed over the next 10 years in the form of the Section 45V Tax Credit for the Production of Clean Hydrogen (PTC), which will provide up to $3 per kilo of hydrogen, depending on CO2 emissions during its production.
The IRA also offers a similarly scaled investment tax credit (ITC) up to 30% for new facilities while an Energy Storage Credit adds a new provision for energy storage, including hydrogen, through to 2025.
The Clean Hydrogen Production Credit’s values, per kilogram of carbon dioxide produced
(Click to enlarge)
Source: Fuel Cell and Hydrogen Energy Association
The size of the program has shaped companies’ strategies in and out of the United States, and prompted the European Union to forge ahead with its own Green Deal Industrial Plan.
In June, the European Parliament called the “new paradigm” of the IRA “a radical departure from the politics of the Trump era”.
Meanwhile, the money has yet to start flowing to where it’s needed most.
“When you look at it, how much money has come out from the IRA for the hydrogen PTC? None,” says Marsh.
Decisions must also be made on the so-called ‘Three Pillars’ of additionality, time matching, and regionality, in order to define what can be considered clean hydrogen. Until that is decided, it will be impossible to offer tax credits based on calculated emissions.
Marsh is skeptical that this process will be handled in a way that will benefit the hydrogen industry, claiming overly-strict definitions will “crush” the industry.
“If you look at the White House and the DOE, you find a lot of smart people, but there are not a lot of folks who have actually ever built anything involved in thinking through this implementation.”
Setting in stone
While frustration is growing amongst those running clean hydrogen companies, investors are also starting to question U.S. support in the current political landscape.
Hy24, a joint venture between European investment house Ardian and clean hydrogen financier FiveT Hydrogen, has invested in projects in Australia, the Middle East, and across Europe, but has not yet turned to the United States.
“We have not put capital at work in the US so far and one of the key reasons is due to the lack of clarity in how the hydrogen piece of the IRA will actually be applied,” says Hy24 Chief Investment Officer Amir Sharifi.
“The IRA in principle is amazing due to its simplicity ... But in practice, it comes down to the nitty gritty of how the U.S. plans to define ‘clean hydrogen’ projects. The longer it takes for the definition to be finalized, the greater the exponential loss of momentum the U.S. clean hydrogen sector will face.”
The largest threat to the IRA’s continuation could be the re-election of Donald Trump.
The former President has been dismissive of climate science and has little time for ‘clean’ technologies over traditional fossil fuel industries. Many in the hydrogen industry are concerned that, if the rules and capital of the IRA are not set in stone, a second Trump presidency may overturn the IRA completely.
These concerns have added a new urgency for fully applying the IRA as soon as possible, say advocates.
“We, along with other NGOs in our community, are working hard right now to put the systems in place that will lock in better practices that can withstand shifts in politics,” says Associate Vice President of Energy Transition at the Environmental Defense Fund Beth Trask.
Like Barack Obama’s Affordable Care Act, which faced extreme resistance during its creation but has been difficult to repeal now that money has begun to flow to the people who need it, the IRA will be hard to overturn if it is already up and running.
“(We need to) lock in clear, strong guidance that that moves us in the right direction for hydrogen, and then hydrogen producers can plan for that. I believe that if we set the bar right now, then that can withstand political change,” says Trask.
By Paul Day