45V emissions calculation rules could jeopardise blue hydrogen projects, associations warn

US trade associations have warned current Inflation Reduction Act (IRA) clean hydrogen production tax credit (PTC) rules could jeopardise blue hydrogen projects due to upstream emission assumptions.

The proposed 45V PTC’s GREET model for calculating hydrogen production emissions currently assesses upstream methane emissions in blue hydrogen production pathways as “background data.”

However, in a letter to Treasury officials, associations have warned the data cannot be altered by a producer, even if they have “verifiable upstream emissions rates” that would “more accurately represent the project’s carbon intensity.”

Clean Air Task Force (CATF), the Fuel Cell & Hydrogen Energy Association (FCHEA), the Appalachian Regional Clean Hydrogen Hub (ARCH2), US Chamber of Commerce, Open Hydrogen Initiative and National Association of Manufacturers, warn the current assessment model represents a “missed opportunity” that would have a “significant impact on the development and growth of clean hydrogen.”

“If the proposed regulation is finalised as written, clean hydrogen producers will have inaccurate lifecycle greenhouse gas (GHG) emissions calculations, which will disincentivise the reduction of upstream emissions – exactly the opposite of the intent of the original legislation,” the letter reads.

They warned maintaining upstream emissions as background data put major projects in “jeopardy,” which could result in less clean hydrogen produced and fewer jobs.

The 45VH2-GREET covers steam methane reforming (SMR) and autothermal reforming (ATR) of natural gas with CCS; SMR and ATR of landfill gas with CCS; coal gasification with CCS; biomass gasification with CCS; low-temperature electrolysis; and high-temperature electrolysis.

It will be used to inform the tiered structure of the 45V PTC, which if socio-economic criteria is met, hydrogen produced with 2.5-4kg of CO2e/kg can gain $0.60/kg; $0.75 for hydrogen with 1.5-2.5kg CO2e/kg; $1 for hydrogen with 0.45-1.5kg CO2e/kg; and $3 for hydrogen with 0-0.45kg CO2e/kg.

However, a report by the Department of Energy (DOE) released at the beginning of December (2023) suggested that most blue hydrogen would not meet the emissions criteria to be eligible for even the lowest tier of 45V tax credits.

DOE modelling for SMR estimated a lifecycle emissions intensity of 4.6kgCO2e/kg of hydrogen based on a 96.2% CO2 capture rate. ATR was estimated at 5.7kgCO2e/kg of hydrogen at a 94.5% CO2 capture rate.

The associations recommend the Treasury moves upstream emissions to “foreground data” using the EPA Greenhouse Gas Reporting Program (GHGRP) Subpart W.

Pertaining to the reporting petroleum and natural gas systems GHG emissions, the Subpart w rules mandate certain facilities report their GHG emissions.

Covering sources across production, processing, transmission, storage and distribution, the rules require facilities to report the total emissions of CO2, methane, nitrous oxide and other GHGs.

The letter said, “Without the ability to input lower emissions intensity, developers who would qualify for a higher value credit based on the actual carbon intensity of their operations would instead receive a lower value credit – based entirely on a pre-set number that does not represent their real-world emissions.”

The concerns are caveated by the fact blue hydrogen producers can apply for other tax credits under the IRA. The 45Q credit which incentivises the capture and permanent storage of CO2, with credits up to $85/tonne of CO2 permanently stored and $60/tonne of CO2 used in industry.

However, a recent study by Environmental Defense Fund (EDF) found blue hydrogen pathways could actually increase near-term warming by up to 50% compared to fossil fuels if hydrogen and upstream methane emissions are high.

Read more: Current lifecycle assessments ‘mask’ hydrogen’s near-term warming impact

The associations said 45V can be a “powerful incentive” for clean hydrogen producers to source “differentiated or certified” natural gas that has a lower carbon intensity than the Treasury’s national average.

But they warned under the proposed draft, there is “little incentive” for developers to invest in additional GHG reductions upstream.

The Treasury and IRS are set to hold a public hearing next Monday to Wednesday (March 25-27) on the proposed 45V guidance which will conclude its public feedback period before the rules are finalised.

Analysis: Why blue hydrogen prevailed in the battle for the 2020s

After all the peaks and troughs of interest in hydrogen as a potential climate solution over recent decades, the 2020s have delivered a sharper focus on the energy carrier’s potential.

With a growing number of national strategies, billions-of-dollars’ worth of subsidies are now being thrown at boosting production, and increasingly stringent carbon policies are encouraging hydrogen’s uptake.

And while much of that energy, momentum and money has gone into green hydrogen, to the delight of some and the dismay of others, blue hydrogen’s role continues to endure as economies attempt to drive towards a green-tinted future.

But blue hydrogen remains contentious. Proponents say it significantly reduces carbon emissions compared with unabated production, while critics argue it extends the life of oil and gas systems. But one way or another it is a production pathway that is now getting serious attention.

Debates surrounding blue hydrogen are multifaceted – reflecting the challenges and uncertainties in the global energy transition. Aside from the potential emissions benefits, the conversations range from economic viability to technological readiness.

But as challenges stack up against green hydrogen and the need to rapidly decarbonise increases, the case for blue is becoming more compelling to a number of large players…

Click here to keep reading.

About the author
Related Posts
Loading feed...
Please wait...