United States: International Green Hydrogen Report 2023

The US Department of Energy (DOE) considers "clean hydrogen" (as defined in the Legal framework overview below) an important part of the Biden administration's goal to achieve 100% clean electricity by 2035 and total carbon neutrality by 2050.

Specifically, the DOE believes that clean hydrogen can help decarbonize sectors such as transportation, manufacturing, and chemical industries that would otherwise find it difficult to rely on green energy. The DOE has established a Hydrogen Program, led by the Office of Energy Efficiency and Renewable Energy (EERE) and the Hydrogen and Fuel Cell Technologies Office (HFTO), to regulate and assist the development of all aspects of the burgeoning hydrogen economy. If the Hydrogen Program is fully realized, the DOE estimates that the hydrogen industry would generate US$140 billion in revenue and create 700,000 new jobs by 2030 and reduce CO2 emissions by 16% by 2050.

The US has provided substantial funding for hydrogen development in recent years. In 2021, the Bipartisan Infrastructure Law invested US$9.5 billion in "clean hydrogen" with US$8 billion going towards developing regional hydrogen hubs ("H2Hubs"), US$1 billion marked for investment in reducing costs of hydrogen produced by electrolysis, and US$500 million to support the manufacturing of clean hydrogen equipment.

In August, 2022, the US passed the Inflation Reduction Act ("IRA") and created production tax credits ("PTC's") for "qualified clean hydrogen." The credits last until 2032 and are worth as much as US$3/kg (with inflation adjustments in future years) for hydrogen produced with less than 0.45kg of CO2 emissions per kg of hydrogen. Lower rates are also available for production emitting up to 4 kg of CO2e per 1 kg of hydrogen. Additionally, hydrogen production facilities using on-site renewable energy can also claim the PTC's available for renewable energy production (up to 2.6 cents/kWh with inflation adjustments in future years). The IRA also includes several other funding mechanisms that can apply to clean hydrogen projects, including loans and grants for the manufacture of hydrogen fuel cell vehicles, tax credits for clean hydrogen aviation fuels, tax credits for energy storage projects, and grants for projects designed to reduce emissions at American ports.

Legal framework overview

Like most other countries, the legal framework for clean hydrogen in the US is developing in real time as the industry grows.

The definition of "clean hydrogen" is not yet settled. The Bipartisan Infrastructure Act defined "clean hydrogen" as hydrogen produced with resulting carbon emissions at the site of production equal to or less than 2kg per kg of hydrogen. Conversely, the IRA defines "qualified clean hydrogen" as hydrogen produced through a "process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen." In September, 2022, the DOE released draft guidance for a Clean Hydrogen Production Standard (CHPS) that proposes adopting the IRA definition, reasoning that the higher threshold allows for greater flexibility to reduce emissions up and down the supply chain and that a stricter requirement would slow the development of the nascent clean hydrogen industry. However, the DOE also notes that this CHPS would only be guidance and would not be binding.

In addition to the DOE and its subagencies (EERE and HFTO), several other agencies have actual or potential authority to regulate hydrogen. However, while recent activity has begun to flesh out regulations, the DOE has noted that these efforts have not been closely coordinated and thus gaps within the framework are unclear.

Environmental

The Environmental Protection Agency (EPA) has authority to regulate all substances having an impact on human health and the environment, which includes hydrogen under the EPA's Mandatory Greenhouse Gas Reporting Program. However, other sources of authority for the EPA primarily relate to hydrogen produced as a byproduct of fossil fuel regulation and therefore may need to be expanded to capture all clean hydrogen production.

Transportation

The transport of hydrogen via pipelines is regulated by the Pipeline and Hazardous Materials Safety Administration (PHMSA), a subagency of the Department of Transportation. PHMSA has promulgated safety standards for "pipeline facilities and the transportation of gas," among other regulations. However, the existing regulations were created for natural gas and may need to be updated to account for risks unique to transporting hydrogen.

Storage

The Occupational Health and Safety Administration (OSHA) has issued regulations concerning gas and liquid hydrogen storage touching on safety, location and design of facilities, electrical systems, maintenance, etc.

State Regulations

In addition to the federal framework, developers and investors should be aware of any state-level regulations and funding opportunities that exist. With a nation as large and diverse as the United States, and with many important policies being governed at the state level, it should be expected that incentives and programs for green hydrogen – together with the attendant opportunities for commercial participants –will vary widely across states. At the moment, California and Texas are among the states with the most well-developed hydrogen regulatory networks and offer their own incentives for green hydrogen projects. While most other states have very few laws regulating hydrogen specifically, they will likely develop these regulations as clean hydrogen projects become more common.

Funding & Support schemes

As mentioned above, the IRA provides a PTC of up to US$3/kg of hydrogen produced. Because these credits are available until 2032, only projects starting in 2023 will benefit from the full ten years of credits. In order to qualify for the full amount of the credit ($3/kg of hydrogen), projects must, in addition to meeting the emissions requirement above, satisfy prevailing wage and apprenticeship requirements set by the Secretary of the Treasury. These PTC's are transferrable starting in 2023 (subject to various requirements and limitations), opening up the clean hydrogen market to new investors.

The DOE has the authority to distribute the US$9.5 billion allocated to clean hydrogen projects under the Bipartisan Infrastructure Law, including the US$8 billion earmarked for H2Hubs. DOE issued its Funding Opportunity Announcement (FOA) for H2Hubs on September 22, 2022. Initial concept papers were due November 7, 2022 and final applications are due April 7, 2023. DOE plans to distribute between US$6 and US$7 billion (in increments of US$400 million-US$1.25 billion) of the H2Hubs appropriations for 6-10 hubs. Projects must produce at least 50-100 tons of hydrogen per day and the Bipartisan Infrastructure Law requires DOE to select at least one project that produces clean hydrogen through fossil fuels, one that does so utilizing renewable energy, and one that does so using nuclear energy. These funds will be distributed through cooperative agreements with DOE under which both DOE and the recipients share responsibility for the direction of the projects.

In addition to the H2Hubs FOA, on December 23, 2022, DOE issued a Notice of Intent (NOI) to issue an FOA for US$750 million in support of the "Hydrogen Shot." Launched June 7 2021, the Hydrogen Shot aims to eliminate the gap between the cost of hydrogen produced by natural gas (US$1/kg) and hydrogen produced by renewable energy (over US$5/kg) by reducing the cost of green hydrogen to US$1/kg by 2031.

According to the NOI, DOE is looking to fund the following to further this goal:

1. R&D of hydrogen carriers with a focus on reducing costs and improving performance over current hydrogen gas/liquid transportation systems.
2. Development of onboard storage systems for liquid hydrogen to improve viability of hydrogen fuel cells in medium and heavy duty vehicles.
3. Development of liquid hydrogen fueling stations for heavy duty vehicles with a focus on increasing the flow rate for quicker fueling.
4. Development of membrane electrode assemblies to reduce costs and improve durability and performance of fuel cells to be used in heavy and medium duty vehicles.

Up-coming evolution

DOE, in collaboration with other government agencies, released its draft National Clean Hydrogen Strategy and Roadmap in September 2022. The draft Roadmap calls for 10 million metric tonnes (MMT) of clean hydrogen per year by 2030, 20 MMT per year by 2040, and 50 MMT per year by 2050.

The three strategies described by the Roadmap to achieve these goals are:

1. Strategy 1: Targeting initial deployment of clean hydrogen in sectors where limited alternatives for decarbonization exist, such as industrial sectors, heavy duty transportation, and long term energy storage.
2. Strategy 2: Reduce the cost of clean Hydrogen through the Hydrogen Shot program discussed above. Through this program, DOE plans to spark private investment and resolve inefficiencies and vulnerabilities throughout the supply chain.
3. Strategy 3: Investing in regional hydrogen hubs through the H2Hubs program discussed above. Regional hubs will connect producers with end users in close proximity and allow rapid upscaling in important markets. Offshore wind facilities and ports are identified as examples of potential centers around which to base H2Hubs.

Some recent examples

In December 2022, Air Products and Chemicals and AES Corp. announced plans to develop a green hydrogen plant in Texas with the capacity to produce over 220 tons of hydrogen per day. The project will include 1.4 GW of wind and solar generation capacity on site and is estimated to cost US$4 billion.

On December 14 2022, Florida Power & Light Co, a subsidiary of NextEra Energy Inc., broke ground on the Cavendish NextGen Hydrogen Hub, a solar powered electrolysis project capable of producing approximately 11 tons of hydrogen per day. This project is expected to be operational at the end of 2023 and, if all goes well, NextEra plans to invest further in green hydrogen facilities.

On January 5 2023, DOE announced that it had received 79 initial concept applications for H2Hubs projects. Of these 79, 33 were encouraged to submit full applications by the April 7 2023 deadline (although the 46 applicants who were "discouraged" may still submit full applications). DOE expects to select the recipients of H2Hubs funds in Fall 2023.

Originally published by Bird & Bird.

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