US Hydrogen Policy at a crossroads

Transparency and consistency on blue hydrogen prices is particularly important as one of the largest producers and consumers of hydrogen looks set to fundamentally weaken its hydrogen policy.  

While the United States Senate continues to debate amendments and none of the changes are certain, the tax and spending plans in President Trump’s “One Big Beautiful Bill” (OBBB) look set to increase support for blue hydrogen while effectively killing off much needed support for green hydrogen.  

The 2022 Inflation Reduction Act introduced production tax credits (PTCs) of up to $3/kg for green and blue projects, with the highest credits for projects that can achieve the lowest emissions. It took the US Treasury several years to clarify the eligibility requirements, which created uncertainty and frustrated developers. While the rules are now clear, it now seems likely that the OBBB will bring forward the deadline for projects to qualify for the credits, requiring construction to begin by 1 January 2026 compared with the previous deadline of 1 January 2033. Only a few well-advanced projects will qualify. A broad coalition of more than 250 industry associations, trade unions and companies have urged the Senate to preserve the credit with a commence construction date no earlier than 31 December 2029. Unfortunately, this appeal appears to be falling on deaf ears.  

Meanwhile, it appears that the OBBB will loosen the 45Q tax credits for carbon sequestration that offer an alternative form of support for blue hydrogen projects. The 45Q credits offer $60 to $180/tonne of sequestered carbon, subject to some wage and apprenticeship requirements. The 45Q tax credit currently differentiates between uses of the captured carbon, with companies using it for enhanced oil recovery receiving less money. The latest Senate language does away with this distinction, making all carbon capture projects eligible for the same incentives.  

Combined, this is a disastrous outcome, especially when the emission reduction credentials of some of the largest blue hydrogen projects are highly dubious at best (see IEEFA’s Blue Hydrogen’s carbon capture boondoggle). As IEEFA note: “the 45Q credit can best be described as a carbon dioxide production credit, encouraging companies to produce and then capture/store CO2”.  

So much for a level playing field! If these changes are implemented, it is clear that green hydrogen projects will be pushed out of the market by highly subsidized blue hydrogen.  

As many commentators have pointed out, if the US Government wants to significantly reduce spending, an obvious candidate would to be remove the massive subsidies made available to (highly profitable) fossil fuel producers. The oil and gas industry enjoys nearly a dozen tax breaks, including incentives for domestic production and write-offs for foreign production. The total cost of these subsidies are disputed. The Fossil Fuel Subsidy Tracker estimates direct subsidies of $14 billion per annum (in 2022). The IMF take a wider perspective, estimating fossil fuel subsidies of $757 billion in 2022. This includes $3 billion in explicit subsidies and $754 billion in implicit subsidies (including so-called “negative externalities” like health impacts and environmental degradation borne by society at large rather than producers). According to the U.S. Energy Information Administration, in fiscal year 2016 (FY 2016), the federal government’s tax revenues from natural gas and petroleum exceeded its subsidies by $1.1 billion. By FY 2022, subsidies exceeded tax revenue by $2.1 billion—a net loss for the government.  

As Michael Ross has commented: “Everybody agrees fossil fuel subsidies are wasteful, stupid and moving things in the wrong direction”. Regrettably, the latest changes to US hydrogen policy look set to make a bad situation even worse.