The IRS is weighing to what extent hydrogen made with grid-connected electricity should be equally eligible for the tax credit as hydrogen made exclusively from dedicated renewable power. Grid-connected electricity varies by region, but, measured wholly, the vast majority of power is generated from fossil fuel plants. Indeed, today, 99% of hydrogen made in the United States is produced with unabated fossil fuels, and less than 1% is made with renewables-powered electrolysis. A recent study undergoing peer review by the Zero-Carbon Energy Systems Research and Optimization Laboratory at Princeton University estimated that, absent additionality requirements, grid-connected hydrogen projects could have an emissions rate that is up to five times the threshold that would make a project eligible for even the lowest production credit.

These researchers contend that the only way hydrogen producers using grid power should qualify for the clean hydrogen production credit is if they “match 100% of their electricity consumption on an hourly basis with physically deliverable, ‘additional’ clean generation,” ensuring effective emissions rates equivalent to electrolysis powered exclusively by renewables. This concept, known as “additionality,” ensures that hydrogen is produced from clean energy generated within either new or upgraded facilities.

Several options the IRS may consider include to ensure hydrogen production is produced using clean energy include: the requirement for electrolyzers to sign power purchase agreements (PPAs) with new clean energy projects that come online within a set timeframe; financial tests that quantify the incremental impact of the hydrogen project on the clean energy project’s economics (demonstrating that the project would not be financeable otherwise); or producing evidence of clean generation that would have otherwise been curtailed or at-risk of closure but for new demand from electrolyzers.