Issues
Tackling Barriers in the Energy Transition
Harnessing hydrogen production is essential to America’s energy transition, but supportive policies are crucial. Restrictive guidelines, like those in Section 45V, could hinder the industry’s growth, economic potential, and broader U.S. climate goals.
Section 45V
The Section 45V credit is a legislative measure passed by Congress as part of the Inflation Reduction Act (IRA) of 2022 to foster domestic hydrogen production through a ten-year production tax credit (PTC).
Congress directed the Treasury Department to issue guidance to define “clean hydrogen” for the purposes of claiming the credit. To qualify, the production process or pathway for hydrogen must not exceed 4 kilograms of carbon dioxide equivalent per kilogram of hydrogen. The incentive varies depending on the emissions rate, with the lowest emitting hydrogen qualifying for the maximum credit.
Current Debate
The Treasury Department issued its draft guidance in December of 2023.
Key concerns include that the regulations will make it more expensive and more difficult to produce clean hydrogen in the U.S. These regulations introduce new limitations on credit availability, centered around the "three pillars" requirements: incrementality, temporal matching, and deliverability, which place additional burdens on hydrogen producers.
These proposed conditions have raised concerns regarding their alignment with the original statute's intent and the practical challenges they present for hydrogen production.
Clean Hydrogen at Risk
The proposed regulations threaten hydrogen producers using electricity from existing clean energy sources that may not meet the new criteria.
The additionality requirement favors new power facilities, risking the disqualification of hydrogen production from established low-emission sources. It overlooks long permitting delays and the five-year timeline for new projects to connect to the grid. By the end of 2022, over 2,000 GW of renewable energy and storage were stuck in transmission queues, with clean power projects facing average delays of 14 months due to strained transmission capacity in 2023.
Additionally, the technology for time-matching power with hydrogen production isn't widely available, and most power systems can't support it. These requirements are also costly— one analysis by Wood Mackenzie found that hourly matching could make hydrogen 60 to 175 percent more expensive compared to annual matching.
The U.S. hydrogen industry needs a workable tax credit that advances the clean energy and emissions reduction goals that was championed by the IRA. These tax credits hold the key to driving innovation, decarbonization, and the growth of clean hydrogen.
Fortescue Investment
As an industry leader, Fortescue is committed to expanding hydrogen's role in America’s clean energy future by supplying low-cost green hydrogen to reduce emissions in hard-to-decarbonize sectors.
In the U.S., Fortescue is investing billions in projects that create high-paying jobs and drive a just transition to a clean energy future. We're committed to producing zero-emission green hydrogen from 100% renewable sources and are partnering with the DOE and top universities to explore its role in a clean economy.
