In the US, the Biden administration has gone on to identify green hydrogen as one of the necessary elements when it comes to decarbonizing heavy industries. But the overly held debates on tax credit qualifications have gone on to put crucial investments on hold. There are federal tax credits that happen to be potentially offering almost $3 per kg of produced green hydrogen and are under scrutiny with the introductory guidelines considered as too strict by the players in the industry.
Apparently, industry as well as environmentalists who go on to debate these rules with Environmental Defense Funds Fred Krupp stressing the requirement for stricter guidelines so as to attract green projects that are in all their might very genuine. Businesses go on to advocate for much more relaxed rules initially so as to help this very new sector and also drive down the expenditure by way of large-scale operations.
It is well to be noted that the federal government has gone on to allocate $8 billion so as to establish regional hydrogen hubs, thereby aiming to connect producers to the customers. But hub leaders are feeling uneasy, advocating when it comes to the revised guidance since the current confusions are threatening to have their adverse impact on job creation as well as potential investments.
The Treasury Department is indeed looking for feedback; however, it has not offered any sort of a timeline as far as resolution is concerned. This kind of a catch-22 situation goes beyond the US, affecting many companies.
There happens to be one more case scenario that is being played out that involves tax credits. With a million-dollar plan that looks pretty ambitious to come up with clean hydrogen within the Pacific Northwest, there are significant hurdles that can be seen. The basic issue remains that green hydrogen happens to be pretty costly as compared to the natural gas-derived contemporary. There is indeed a need to scale up the production so as to decrease the cost; however, the point is that this will not happen till the time tax rules get finalized.
Issues in Tax Credit Execution
The treasury department’s strict needs when it comes to hydrogen tax credits have added more intricacy as far as the implementation process is concerned. The credit, which amounts to $3 per kg for hydrogen, happens to be bound by a very hard framework called the three pillars that, by the way, aim to make sure of hydrogen production’s environmental integrity. These three pillars are-
- Hydrogen has to be created by way of using new clear sources.
- The production has to be in sync with the electricity generation times.
- Stringent carbon intensity needs have to be attained.
There are environmental advocates who often argue that maintenance of such standards is indeed very important when it comes to attracting green products. There are industry proponents who, on the other hand, argue for a more flexible approach, specifically and most importantly in the early stages of sector development.
The ongoing debate goes on to reflect quite a deep-seated variation when it comes to prioritizing urgent industrial progress as against sustaining environmental controls that are long-term. The treasury department has already pledged to consider the varied range of comments it has gone on to get but has not given a fixed timeline in terms of pinning these critical rules. As there are deliberations that continue, the broader hydrogen sector happens to be in a limbo with many billions in prospective investments still unsure.
Impact of policy that’s delayed
It doesn’t come as a surprise that the effects of delayed policy when it comes to the hydrogen sector are quite prominent, leading to a dent in the investment decisions and, at the same time, derailing the decarbonization efforts of the US. Frank Wolak, Fuel Cell and Hydrogen Energy Association CEO, has already expressed the sector’s frustration, thereby noting that the delayed investments are indeed leading to a possibility of decreased commitment. The dearth of a definitive policy in place affects the competitiveness of the nation and also risks giving away the position to the international counterparts who, by the way, happen to be moving much faster when it comes to setting clear guidelines. Germany, for example, has gone on to implement policies as well as investments that are meaningful, thereby positioning itself to the front of the hydrogen economy.
It is well to be noted that the broader implications happen to go beyond the economic effects, hence undermining the environmental advantages that are associated with green hydrogen.
In the absence of guidelines that are clear, projects that are meant to harness renewable energy sources happen to stay in a state of developmental uncertainty.
The fact is that the relaxation of guidelines pertaining to treasury could potentially bring in a very transformative phase when it comes to the hydrogen sector. Through fostering initial investments and also enabling the economies of scale, regulatory easing indeed has the strength to prominently lower the green hydrogen expense. So as to leverage the federal support effectively as well as shape the trajectory of the US hydrogen market, strategic infra investments, tech innovations that are ongoing, and, of course, a skilled workforce hold the key.