The Biden administration on Thursday unveiled strict climate standards that companies must meet to qualify for a lucrative new tax credit intended to help establish clean hydrogen as a major zero-emissions fuel source.
Overview of the Tax Credit Rules
The guidelines, released by the Treasury Department, define eligibility for the production tax credit created by the landmark climate law Democrats passed last year. Under the Inflation Reduction Act, clean hydrogen producers can get up to $3 per kilogram in credits — estimated to be worth as much as $36 billion in subsidies over a decade — but only if they meet the climate standards. 
To qualify, clean hydrogen must be produced with processes that reduce emissions by at least 75% compared to most methods now in use. The hydrogen must also be used in “hard-to-decarbonize” applications like steelmaking and heavy transportation that are tricky to electrify. And the tax credit contains strong labor standards, including requirements for apprenticeship programs and prevailing wages. 
|Tax Credit Summary
|Up to $3 per kg of clean hydrogen produced
|Total Program Value
|Estimated $36 billion over 10 years
The regulations aim to maximize emissions cuts while encouraging clean hydrogen growth in industries that lack good zero-carbon alternatives. But they have already sparked backlash from moderate Democrats and segments of industry who warn the rules are overly restrictive. 
Reactions from Stakeholders
The new tax credit rules have drawn mixed reactions from clean energy advocates, industry groups, and lawmakers.
Environmental organizations largely praised them as appropriately strong climate guardrails for a subsidy that could shape energy infrastructure for decades. Groups like the Union of Concerned Scientists lauded the focus on hard-to-decarbonize sectors and the high emissions standard. 
But hydrogen trade associations and fossil fuel firms that aim to produce clean hydrogen argued the regulations are too limiting. Some warned the rules could stall the nascent US industry before it gets off the ground. An executive at Plug Power called the proposal “disappointing” for excluding hydrogen made with nuclear power. 
In Congress, moderate Democrats led by Senator Joe Manchin blasted the emissions threshold and use restrictions as a “kneecap” of hydrogen energy growth. Manchin vowed to fight the administration rules and potentially seek legislation overriding them. The clashes foreshadow battles over clean energy policy between the White House and some in Manchin’s centrist faction. 
Outlook for Hydrogen Industry Growth
Industry analysts say the new tax credit has the potential to spur large-scale clean hydrogen development — but only for projects that can meet the stringent emissions and usage standards. Fulfilling the regulations will requireuse of more advanced production methods beyond the fossil fuel-based systemsdominating today. 
Most experts do not expect an immediate boom in qualified clean hydrogen investments, especially while economic uncertainty weighs on energy projects. But the regulations provide a regulatory roadmap for developers planning investments that could benefit from the credit over the next decade. And the prospect of sizable subsidies should accelerate research into production methods like electrolysis that hit the 75% threshold. 
With continued technological improvements and cost declines in electrolysis, analysts foresee fast growth in emissions-compliant hydrogen later in the 2020s. So while a clash over the rules may be brewing today, the administration’s strict tax credit could ultimately help scale up production of deeply decarbonized hydrogen essential for net-zero emissions by 2050. 
Overall the regulations try to balance spurring urgent emissions cuts while laying groundwork for clean hydrogen to make inroads into hard-to-electrify sectors. Yet striking that balance has proved controversial. With Manchin and moderate Democrats signaling plans to fight the policy, the clean hydrogen tax credit rules may face revisions before projects can access the lucrative subsidies. The administration now must defend strict standards aimed at maximizing climate benefits from potential US hydrogen growth. 
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