Green energy is a good idea but the tax breaks for it may lead to a worst option.

The promise of a powerful new fuel that can be used to run such things as steel mills or heavy construction equipment without any greenhouse gas emissions was a major selling point in the climate package President Biden signed over the summer. But now, as tens of billions of taxpayer dollars are poised to start flowing toward “green hydrogen” technology, environmentalists, scientists and some clean tech firms fear the subsidies could boost a fuel with a very different profile. They are fighting an intense lobbying effort by some of the world’s biggest energy firms to make those lucrative tax credits from the Inflation Reduction Act available even to companies that are using fossil fuels to produce the hydrogen, releasing what some scholars warn could be an enormous amount of greenhouse gas in the process. The dispute underscores the considerable challenges involved with implementing the Inflation Reduction Act, which included hundreds of billions of dollars to speed the transition toward a greener economy. Several of the provisions are geared toward accelerating production of next-generation clean technologies. But deep disagreements exist over how quickly some of them can be brought into the mainstream and how aggressively the federal government should demand quick climate benefits.

There are a lot of subsidies going for many different aspects of “green” energy.

Tensions are also emerging around subsidies for capturing and storing carbon, as well as those for next-generation nuclear power plants and development of sustainable aviation fuels. The corporate resistance to requiring all green hydrogen be made with clean energy has alarmed major environmental groups and several developers of the new fuel. They warn the less restrictive rules sought byindustry groups representing companies such as BP, NextEra and ExxonMobil from the IRS threaten to undermine the integrity of the fledgling green hydrogen industry and the new climate law. “We are talking about a massive subsidy, where more than $100 billion could be spent,” said Rachel Fakhry, who leads hydrogen work at the Natural Resources Defense Council. “We could wind up with government spending it on something that actually increases emissions. Imagine the consequences of tons of added emissions heavily subsidized by a climate bill. That is an awful story.”

These worries are shared by other groups.

The worries, shared by the Clean Air Task Force, the Environmental Defense Fund and the Union of Concerned Scientists, are grounded in a study from a team of scientists at Princeton University. It concludes the looser accounting guidelines influential industry players are seeking would enable them to make the energy-intensive fuel without adding enough new clean power to local electricity grids to produce it. The result, the scientists found, is that it would be backfilled by large amounts of dirtier energy. At the core of the dispute is the question of whether the lucrative hydrogen subsidies should be conditioned on the fuel being produced entirely with renewable power, confirmed by hourly tracking of the electrons flowing from the grid to the projects. The companies arguing for less strict requirements say flexibility in how production is powered is essential to nourishing the fragile industry, which needs to get up and running quickly to produce the most climate benefits. The tax credit, said Rebecca J. Kujawa, president and CEO of NextEra Energy Resources, “has the ability to unlock decarbonization in a way our country has not seen before. This is almost as big as something like the Federal Highway Act that created the interstates in the 1950s.” “The only way we can do it is if green hydrogen is affordable and ultimately is adopted and scaled as an industry,” Kujawa said. “The economic viability is incredibly important.”

Hydrogen fuel has been around but it the making of it that is new.

Hydrogen fuel itself is not new, but the technology to make it without any emissions is. Current production methods generally combine large amounts of natural gas with high-temperature steam. The newer technologies that qualify for new subsidies create the fuel differently, using electrolyzers powered by large amounts of solar, wind, geothermal or even nuclear energy. Making the fuel this way can be carbon-free, but it requires even more energy than the traditional approach. That is why a large coalition of green hydrogen boosters say it is essential that companies not be allowed to produce it using anything other than renewables. “The worst thing would be if, five years from now, all the studies show this tax credit drove up emissions,” said Paul Wilkins, a vice president at Electric Hydrogen, a firm that sells electrolyzers and joined other clean tech companies and the environmental groups in lobbying the IRS for strict rules. “That would be bad for the industry and bad for the durability of this technology.”

The looser rules are the problem.

The looser rules several companies are advocating would allow for far less vigilant tracking of the electricity used to run the electrolyzers, giving no assurance each new hydrogen plant connected to the grid is accompanied by enough renewable energy to power it, according to the Princeton study. Instead, developers would purchase credits to offset any emissions they create. The problem, said Wilson Ricks, the lead author of the Princeton study, is that companies using those credits would still be using large amounts of power derived from gas or coal that otherwise would not need to be burned. “Given the level of hydrogen production we are expecting,” he said, “this could create tens to hundreds of millions of tons of additional greenhouse gas emissions.” NextEra is arguing against those findings by circulating a report from the consulting firm Wood Mackenzie. That report, commissioned for a client Wood MacKenzie declined to identify, argued that allowing the electrolyzers to run around-the-clock, even at times of day when renewable energy is unavailable, would substantially bring down the cost of the hydrogen. It suggests there is enough renewable energy on the grid or coming to it in large parts of the country to power the electrolyzers without added emissions. Stricter requirements, the firm warns, would leave green hydrogen plants unable to operate at times solar panels and wind turbines are not generating adequate power, or force developers to invest in costly batteries. “In order for clean hydrogen to be used as a climate mitigation solution, what is needed is early deployments to be cost-competitive,” said Shannon Angielski, president of the Clean Hydrogen Future Coalition, which includes large fossil fuel companies as well as green energy firms.

Treasury officials did not comment.

Treasury Department officials declined to comment on when the green hydrogen tax credit rules may be complete. But as the administration wrangles with these thorny issues, debate rages among companies about what is and is not practical. Several of the comments filed with Treasury, for example, argue hourly tracking of the source of electricity powering hydrogen plants would be prohibitively expensive. The Princeton scientists found otherwise. “The cost is not significant,” Ricks said. “It would be unlikely to constrain the growth of this industry.”

This sounds like no good deed goes unpunished.

Green Energy and tax breaks
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