The Gulf Coast is home to numerous clean hydrogen projects awaiting a crucial decision from the Biden administration regarding calculating greenhouse gas emissions in this rapidly growing industry.
The Internal Revenue Service (IRS) determines the eligibility criteria for a tax credit included in the Inflation Reduction Act of the previous year.
This tax credit could save have a worth of billions in the coming years.
Environmentalists and technology firms are urging officials to consider the amount of carbon dioxide captured and stored underground by facilities and the emissions from using natural gas to produce “blue hydrogen.”
The main concern revolves around methane, which leaks into the atmosphere when drilling for natural gas and transportation through pipelines.
Methane has a warming effect on the climate that is 25 times greater than carbon dioxide.
Environmentalists urge the IRS to establish a higher standard requiring blue hydrogen producers to source gas from suppliers that can demonstrate minimal methane leakage.
David McCabe, a senior Clean Air Task Force scientist, emphasized the importance of accounting for upstream methane, the primary source of greenhouse gas emissions in blue hydrogen production.
He highlighted the limitations of equipment-based inventories, such as those used by the Environmental Protection Agency (EPA), which tend to underestimate the wide variations between regions and operators significantly.
The IRS is expected to decide in August, a critical moment for the clean hydrogen sector.
Introducing new tax credits and $7 billion in federal funding for hydrogen hub development across the country has sparked a wave of project announcements in the Gulf Coast and other regions.
However, companies and investors have hesitated to begin construction due to uncertainties surrounding the demand for clean hydrogen and the IRS’s regulatory framework for tax credits.
The IRS is also considering how to account for greenhouse gas emissions in producing “green hydrogen,” which is generated by passing a significant amount of electricity through water—an approach that has been utilized in NASA spacecraft for many years.
Environmentalists are urging the IRS to establish regulations that prevent hydrogen producers using electricity from the grid from offsetting emissions from coal and gas power plants by using renewable energy credits.
Instead, they advocate for these producers to source their electricity from wind and solar farms directly.
Rachel Fakhry, the policy director at the Natural Resources Defense Council, emphasized that electrolysis, the process used to produce hydrogen from water, is highly dependent on electricity.
Even a small portion of fossil fuel-generated electricity would result in significant emissions. Fakhry highlighted that using water in hydrogen production does not automatically qualify it as “clean.”
The IRS is deliberating on how to account for greenhouse gas emissions in the production of green hydrogen, while environmentalists are urging the IRS to mandate that hydrogen producers source electricity directly from renewable energy sources rather than offset emissions from fossil fuel-based power plants.
Their concern is that even the slightest reliance on fossil fuel-generated electricity can lead to substantial emissions, undermining the claim that hydrogen production is environmentally friendly.