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How a tax break meant to curb climate change could make things worse

The promise of a powerful new fuel that could be used to run things like steel mills or heavy construction equipment without any greenhouse gas emissions was a major selling point in the climate package President Biden signed this summer.

But with tens of billions of taxpayers’ money poised to flow into “green hydrogen” technology, environmentalists, scientists and some cleantech companies fear the subsidies could encourage a fuel with a very different profile.

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They’re battling intense lobbying by some of the world’s largest energy companies to make those lucrative tax breaks from the Inflation Reduction Act available even to companies that use fossil fuels to produce hydrogen, releasing a huge amount of money some scholars say. of greenhouse gas in the process.

The dispute underscores the significant challenges associated with implementing the Inflation Reduction Act, which encompassed hundreds of billions of dollars to accelerate the transition to a greener economy. Several provisions aim to accelerate the production of next-generation clean technologies. But there are deep disagreements about how quickly some of them can be brought into the mainstream and how aggressively the federal government should demand rapid climate benefits.

Tensions are also emerging around subsidies for carbon capture and storage, as well as those for next-generation nuclear power plants and the development of sustainable jet fuels.

Industry’s resistance to requiring that all green hydrogen be made with clean energy has alarmed major environmental groups and several developers of the new fuel. They warn that the less restrictive regulations being pursued by industry groups representing companies like BP, NextEra and ExxonMobil from the IRS threaten to undermine the integrity of the fledgling green hydrogen industry and the new climate law.

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“We’re talking about a huge grant, which could be over $100 billion,” said Rachel Fakhry, who leads hydrogen work at the Natural Resources Defense Council. “We could end up with government spending on something that actually increases emissions. Imagine the consequences of tons of extra emissions being heavily subsidized by a climate bill. That’s a terrible story.”

The concerns, shared by the Clean Air Task Force, the Environmental Defense Fund and the Union of Concerned Scientists, are based on a study by a team of scientists at Princeton University. It concludes that the looser accounting guidelines sought by influential industry players would allow them to make the energy-intensive fuel without adding enough new clean power to local power grids to produce it. The result, the scientists found, is that it would be filled up by large amounts of dirtier energy.

At the heart of the dispute is whether the lucrative hydrogen subsidies should be conditional on the fuel being produced entirely from renewable energy, confirmed by hourly tracking of electrons flowing from the grid to the projects. The companies advocating for less stringent requirements say flexibility in how production is driven is essential to feed fragile industry, which needs to move quickly to reap the most climate benefits.

The tax credit, said Rebecca J. Kujawa, president and CEO of NextEra Energy Resources, “has the ability to unlock decarbonization in a way our country hasn’t seen before. This is almost as big as something like the Federal Highway Act.” covering the highways in the 1950s.”

“The only way we can do this is if green hydrogen is affordable and eventually adopted and scaled up as an industry,” Kujawa said. “Economic viability is incredibly important.”

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Hydrogen as a fuel is not new in itself, but the technology to make it emission-free is. Current production methods generally combine large quantities of natural gas with high temperature steam.

The newer technologies eligible for new subsidies create the fuel in a different way, using electrolysers powered by large amounts of solar, wind, geothermal or even nuclear energy. Making the fuel this way can be carbon-free, but it requires even more energy than the traditional approach. That’s why a grand coalition of green hydrogen drivers says it’s essential that companies shouldn’t be allowed to produce it using anything other than renewable energy sources.

“The worst would be if in five years all the studies show that this tax credit is driving up emissions,” said Paul Wilkins, vice president at Electric Hydrogen, a company that sells electrolysers and joins other cleantech companies and the environmental organization. groups lobbying the IRS for strict rules. “That would be bad for the industry and bad for the sustainability of this technology.”

The looser rules advocated by several companies would allow much less scrutiny of the electricity used to run the electrolysers, leaving no guarantee that every new hydrogen plant connected to the grid will be accompanied by sufficient renewable energy to power it, the Princeton study said. Instead, developers would buy credits to offset any emissions they cause. The problem, said Wilson Ricks, the lead author of the Princeton study, is that companies using those credits are still using large amounts of power derived from gas or coal that would otherwise not have to be burned.

“Given the level of hydrogen production we expect,” he said, “this could lead to tens to hundreds of millions of tons of additional greenhouse gas emissions.”

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NextEra argues against those findings by circulating a report from the consultancy Wood Mackenzie. That report, commissioned by a customer Wood MacKenzie declined to identify, argued that it would significantly reduce the cost of hydrogen if the electrolyzers were run around the clock, even at times of day when renewable energy is not available. It suggests that there is enough renewable energy on the grid or on the way in large parts of the country to power the electrolysers without additional emissions. Stricter requirements, the company warns, would prevent green hydrogen plants from operating at times when solar panels and wind turbines do not generate enough power, or force developers to invest in expensive batteries.

“Ensuring clean hydrogen is used as a solution to climate change mitigation requires early implementations to be cost-competitive,” said Shannon Angielski, president of the Clean Hydrogen Future Coalition, which includes major fossil fuel and green companies alike . energy companies.

Treasury Department officials declined to comment on when the green hydrogen tax credit rules will be complete. But as the administration wrestles with these thorny issues, a debate rages between companies over what is and isn’t practical. For example, several of the comments submitted to the Treasury Department claim that keeping track of the source of electricity that powers hydrogen plants by the hour would be prohibitively expensive.

The Princeton scientists thought otherwise.

“The cost is not significant,” Ricks said. “This is unlikely to hinder the growth of this industry.”

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