San Antonio Express-News (Sunday)
Gulf Coast projects hang on IRS decision
WASHINGTON — The numerous clean hydrogen projects under development along the Gulf Coast await a critical decision by the Biden administration on how to count the burgeoning industry’s greenhouse gas emissions.
The Internal Revenue Service is in the midst of deciding how companies qualify for a tax credit included in last year’s Inflation Reduction Act that could potentially be worth tens of billions of dollars in the years ahead. Environmentalists and some technology firms are pushing officials to consider not just how much carbon dioxide facilities are capturing and storing underground but emissions from the natural gas they use to make so-called blue hydrogen.
At issue is the gas, or methane, that leaks into the atmosphere during natural gas drilling and as it moves through pipelines, causing a warming effect on the climate 25 times that of carbon dioxide. Estimates on how much gas escapes each year vary wildly, with discrepancies among operators and regions, and environmentalists are pushing the IRS to set a higher standard that would force bluehydrogen producers to buy gas from producers that can prove only a minimal amount of methane escaped into the atmosphere.
“Upstream methane will be the largest source of greenhouse gas emissions for blue hydrogen so you have to account for it,” said David
McCabe, a senior scientist at the Clean Air Task Force, at an event in Washington last week. “Top-down measurement studies by flying or driving around have shown equipment-based inventories like EPA’s significantly under estimate the huge variations between regions and operators.”
An IRS decision is expected in August and comes at a precarious moment for the cleanhydrogen sector.
The new tax credits and $7 billion in federal funding for the development of a series of hydrogen hubs around the country have prompted a wave
of project announcements along the Gulf Coast and other regions. But at the same time, companies and investors have largely held off beginning construction, amid questions about the demand there is for clean hydrogen and how the IRS sets the rules around the tax credits.
Frank Wolak, president of the trade group Fuel Cell and Hydrogen Energy Association, said a stricter standard on emissions was likely to delay clean hydrogen’s development by “two to three years.”
“I would like to think the Biden administration understands
the broad goals of the IRS are to expand the hydrogen industry and not get hung up in details,” he said. “We need flexibility in a measured way.”
Modeling by the Department of Energy, which the IRS is expected to use, predicts a 1 percent leakage rate for natural gas — far below the 2.3 percent leak rate scientists found in a study published in the journal Science in 2018.
Were the IRS to apply that higher estimate, it would mean many companies producing hydrogen from gas would only qualify for a small portion of the tax credit, which ranges in value from 60 cents to $3 per kilogram, depending on the carbon intensity of the hydrogen. Last year, the United
States produced 10 billion kilograms of standard hydrogen, customers for which the Biden administration is hoping will switch to clean hydrogen.
Oil and gas companies are pressing ahead to reduce methane emissions, replacing outof-date valves and other equipment while increasing monitoring for leaks, said Emily Hague, director of The Environmental Partnership, an oil industry-funded group.
“Reducing methane emissions is a top priority for our industry,” she said in an email.
The IRS also is weighing how to count greenhouse gas emissions from so-called green hydrogen, which is produced by running large amounts of electricity through water — a technology employed on NASA spacecraft for decades. Environmentalists are urging the IRS to prevent hydrogen producers that use electricity from the power grid to offset the emissions from running coal and gas plants with renewable energy credits, forcing them to source their electricity directly from wind and solar farms.
“Electrolysis is an electricity-hungry process. Even small shares of fossil fuel electricity would drive a lot of emissions,” said Rachel Fakhry, policy director at the Natural Resources Defense Council. “Producing hydrogen with water doesn’t necessarily make it clean.”