Proposed Hydrogen Tax Credit Rules a Win for Climate, Industry, Electricity Consumers

WASHINGTON – Today the U.S. Department of Treasury released its proposed guidance for the Inflation Reduction Act (IRA) federal clean hydrogen tax credits, which are expected to amount to several hundreds of billions of dollars in subsidies for the emerging industry. The rules contain strong measures to ensure that electrolytic hydrogen production does not add overwhelming new demand on the power grid and bring extra fossil fuels online at the expense of the climate and U.S. electricity customers. 

Researchers predict the proposed rules will help avoid hundreds of millions of tons of carbon emissions over the next fifteen years and protect against compromising the U.S. clean energy transition. The rules will also protect U.S. households and businesses from potentially increased electricity prices caused by the highly electricity-intensive nature of electrolytic hydrogen production. 

“Today’s proposed rules are a win for the climate, U.S. consumers, and the budding U.S. hydrogen industry,” said Rachel Fakhry, Policy Director for Emerging Technologies at NRDC (Natural Resources Defense Council.) “This will turbocharge the U.S. hydrogen market toward long-term success, position us as the global leader of an emerging industry, protect electricity consumers, expand new clean energy jobs, and deliver on the climate promise of the IRA. Backed by overwhelming evidence that these rules are both very feasible and necessary, Treasury’s proposal will ensure that the clean hydrogen industry grows while actually reducing emissions.” 

The IRA contains the most significant tax credits in the world for clean hydrogen, with the highest level of subsidies designated for electrolytic hydrogen – hydrogen produced by an electricity-powered machine called an electrolyzer. Over the last year, a wide set of groups across supportive industry, consumer advocacy, environmental justice, NGOs, and academia urged the administration and Treasury to adopt strong rules that ensure hundreds of billions of public dollars for clean hydrogen went toward truly clean hydrogen, not hydrogen whose emissions were shifted elsewhere on the grid. 

The rules announced today are also expected to support substantial deployment of electrolytic hydrogen production by the early 2030s, on pace with the Department of Energy’s clean hydrogen goals. They also align with rules passed by the European Union, where the pipeline of hydrogen projects is rapidly increasing after strong rules were finalized this past year. 

“Today’s proposal is a clear signal to the world that the U.S. is committed to advancing a robust clean hydrogen industry with high climate, consumer and public health integrity,” said Fakhry. “These guidelines can activate a global race to the top, whereby the rest of the world will match the ambition and build a global clean hydrogen market on rock solid climate foundations. We cannot settle for anything less.”  

The proposed rules secure strong protections along three tracks to guarantee tax dollars only go to hydrogen produced by verifiably clean power: 

• Additionality from day 1: all hydrogen projects must be powered by newly built clean power sources that are not currently powering homes and businesses. 
• Hourly matching by 2028: hydrogen can only be produced during the same hours as the new clean power sources are generating. Annual matching will be in place until 2028 when hourly will go into effect. Critically, no projects in operation before 2028 will be able to continue with annual matching after that point. 
• Deliverability from day 1: Clean power must be generated in the same grid region where green hydrogen production takes place.  

Treasury's proposal also solicits input on large potential exemptions for existing nuclear and hydropower facilities. If implemented, these carveouts would allow these resources to divert their power from serving households and businesses in favor of hydrogen production, with harmful implications for emissions and power prices  

“Anything less than the climate and consumer protections proposed today would be a giveaway to legacy energy companies eager to hijack hydrogen at the direct expense of the climate and consumers. Broad loopholes would be disastrous for the climate, kneecap our efforts to clean up the power grid, and harm the global potential of the U.S. clean hydrogen industry. Treasury must hold firm and finalize this strong guidance,” said Fakhry. 

NRDC (Natural Resources Defense Council) is an international nonprofit environmental organization with more than 3 million members and online activists. Established in 1970, NRDC uses science, policy, law, and people power to confront the climate crisis, protect public health, and safeguard nature. NRDC has offices in New York City, Washington, D.C., Los Angeles, San Francisco, Chicago, Bozeman, MT, Beijing and Delhi (an office of NRDC India Pvt. Ltd). Visit us at www.nrdc.org and follow us on Twitter @NRDC.