High-stakes Treasury Department guidance for claiming hydrogen production tax credits under President Joe Biden's climate law has drawn the ire of Senator Joe Manchin, who said the "horrible" rules will make it too hard to qualify.
The rules, which Manchin said are expected to be issued next week, have been the subject of intense lobbying and deliberations across the Biden administration amid a fight over what sources of power can fuel the energy-intensive hydrogen production process.
"We are fighting it," the West Virginia Democrat said in an interview Wednesday at the U.S. Capitol in Washington. Manchin helped craft the hydrogen tax credit provisions of the climate law. "It doesn't do anything the bill does. They basically made it 10 times more stringent for hydrogen."
The Treasury Department is required by law to consider the lifecycle greenhouse gas emissions that result from the production of clean hydrogen, including direct and significant indirect emissions under the Clean Air Act, according to a person familiar with the matter. Ignoring those emissions would subsidize hydrogen production that exceeds the statutory emissions thresholds, said the person, who wasn't authorized to speak on the record.
An administration official said the credit is vital for the U.S. to lead the clean hydrogen industry, create good jobs, lower costs and enable emissions reductions in hard-to-reach sectors like heavy-duty transportation and industry.
Hydrogen is seen as a critical fuel for decarbonizing steel, cement and other heavy industries, and the tax credit is viewed as an essential incentive to spur its development. But environmentalists warn that unless there are strict rules requiring hydrogen to be produced with new clean-power sources operating on the same grid and during the same time, it could drive further demand for fossil-fuel based electricity — and unleash more greenhouse gas emissions.
The forthcoming guidance is expected to adhere pretty strictly to the so-called three pillars — new clean supply, hourly matching and deliverability — sought by some in the environmental community and industry, with limited exceptions, according to a person familiar with the matter.
A previously leaked draft of the rules included requirements sought by some environmentalists that would limit the $3-per-kilogram credit to hydrogen-production operations powered by wind, solar or other clean-power projects built within the last three years, according to people familiar with the plan.
The guidance in the Treasury Department draft also calls for hydrogen projects to be supplied with new, clean-power sources operating on the same grid on an annual basis through 2027, then on an hourly basis starting in 2028, the people said.
Manchin, who provided the pivotal vote supporting the Inflation Reduction Act, has since clashed frequently with the Biden administration over its implementation. An advocate of his home state's abundant natural gas industry, Manchin has opposed the inclusion of environmental guardrails in order to access the credit.
"I'm in meetings right now making sure they know what's going at them if they go down this crazy road," Manchin said. "People are going to be damaged. They are going to be held up in courts."
