How New U.S. Hydrogen Tax Incentives Are Expected To Boost Investment


Clean hydrogen and hydrogen-related investments are a relatively new phenomenon in the United States. Over the past year, the Biden administration and Congress have offered new, expanded tax credits and other incentives to boost hydrogen investment. In August 2020, the Biden administration released its Clean Energy for Biden plan, which emphasized hydrogen development and offered a host of new energy tax incentives. At the same time, a group of Senate Democrats released a special report explaining the need to develop hydrogen infrastructure and recommending the creation of a production tax credit for clean hydrogen and hydrogen carriers (for example, ammonia) produced in the United States.

In March 2021, the Biden administration introduced the US Jobs Plan. Among its components were numerous proposals to extend tax credits for clean energy and to make certain credits eligible for direct payment. In May 2021, the Treasury Department released the “Green Book,” which deals in more detail with tax incentives for hydrogen. The Green Paper proposes a new six-year production tax credit (CTP) for the production of low-carbon hydrogen in qualified facilities whose construction begins before 2026, where the end use of hydrogen is at low levels. energy, industrial, chemical or transport purposes. purposes. The credit would initially be $ 3 per kilogram for 2022-2024 and then decrease to $ 2 for 2025-2027, subject to an annual adjustment for inflation. This credit will also be eligible for a cash payment option instead of the credit. Low carbon hydrogen refers to hydrogen produced from nuclear power or renewable energies or using natural gas where the carbon by-product is captured and sequestered. Other Green Paper proposals include: (i) extending the carbon sequestration credit under Section 45Q of the Internal Revenue Code of 1986, as amended (the “Code”) for capture and disposal. geologically “difficult to reduce carbon monoxide capture industrial sectors such as cement production, iron and steel, hydrogen production and petroleum refining”; (ii) expansion of the tax credit to ‘Investment (ITC) of Article 48 of the Code to include the storage of hydrogen for conversion to energy; (iii) the expansion of section 48C of the ITC Advanced Energy Code to provide a credit of 30 % for manufacturing solar fuel cells and energy storage systems; and (iv) expanding PTC and ITC for wind and solar projects.

Separately, various Congress proposals are under consideration. The Clean Energy for America Act, referred to Senate plenary on May 26, 2021, would create a new hydrogen PTC of up to $ 3 / kilogram produced, with the credit amount based on a comparison of greenhouse gas emissions produced. over the life cycle with those produced. in a hydrogen plant using steam methane reforming. This would allow investors to claim credits for blue and green hydrogen, as the credit is based on a life cycle analysis of total greenhouse gas emissions. Alternatively, a taxpayer could claim an ITC of between 6% and 30% to invest in hydrogen equipment, again based on a determination of life cycle emissions.

In addition to the above, the Growing Renewable Energy and Efficiency Now (GREEN) Act of 2021, like the Biden administration’s proposals, would expand the PTC and ITC to include incentives for hydrogen storage in more hydrogen production. Other bills pending in Congress, in particular the Energy Sector Innovation Credit Act and the Energy Storage Tax Incentive and Deployment Act, would expand the PTC and ITC to qualify hydrogen production and storage technologies. . Similar bills are under consideration at the state level.

We expect hydrogen investments in the United States to accelerate with these proposed new incentives, although those investments still lag behind Asia and the European Union. The PTC and ITC (and other tax credits) have played a central role in investments in wind and solar energy, and we expect the same for investments in hydrogen in the near future. President Biden’s goal of making the electricity sector carbon-free by 2035 will depend on these investments. To fully realize increased investments in hydrogen, Congress needs to expand: (i) ITC to stand-alone hydrogen production and storage; and (ii) the PTC for the autonomous production of clean or low carbon hydrogen on the basis of a reduction in life cycle greenhouse gas emissions. Depending on the investor’s profile and the cost and production lifecycle of a production facility, ITC or PTC may be useful.

Congress and President Biden recognize the critical role clean energy will play in shaping the energy sector in the years to come. Hydrogen production and storage appear to be a priority, and new tax incentives – ideally those with no fixed and short expiration dates – should be well suited to boost these investments and make the United States a major player in the industry. the field of hydrogen.

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