Hydrogen tax credit rules deal nuclear industry a blow

Lauren Petracca/Bloomberg

The nation's fleet of nuclear reactors won't be able to tap into a climate law tax credit poised to provide billions of dollars to spur the production of clean hydrogen, dealing a blow to operators struggling in the face of competition from cheap natural gas and renewables. 

While a carve-out for the nuclear industry could be added in the future, the initial proposed rules made public by the US Treasury Department on Friday only allow hydrogen projects powered by clean energy sources brought online in the last three years to qualify for a tax credit of as much as $3-per-kilogram. That's bad news for nuclear operators such as Constellation Energy Corp., which has a nearly $1 billion plan to produce hydrogen from nuclear power and has lobbied the Biden administration to allow the power source to count in the lucrative tax credit. 

"The proposed rule flies in the face of Congress' clear intent to use America's nuclear energy to produce hydrogen," Constellation said in a statement. "If finalized, America will surrender hydrogen and deep decarbonization leadership to China and Europe, both of which have policies that smartly utilize their existing nuclear plants to make hydrogen and speed decarbonization." 

Nuclear backers also noted that three out of seven so-called hydrogen hubs, which received a collective $7 billion from the Biden administration in October, would be at least partially powered by nuclear energy from project partners including Exelon Corp., Xcel Energy Inc. and Constellation.

Senior administration officials told reporters Thursday that an exception for nuclear power to receive the credits is being considered for when the rules are finalized, but they needed more information first. Among the ideas: allow upgraded or relicensed plants to count, or a requirement that utilities document how producing hydrogen would help them avoid shutting plants.

The Treasury Department will accept public comment for 60 days and could make changes before finalizing the plan.