The Treasury Department’s proposed tax rules for “clean” hydrogen have sparked an internal dispute in the Biden administration.
The Department of Energy is pushing Treasury to relax the rules to give the industry time to embark on a massive expansion, according to three people familiar with the discussions.
DOE officials are concerned that the tax guidance proposed in December will hamstring their department’s hydrogen initiatives, including a $7 billion program to create regional hydrogen production hubs, said the people who have worked directly with DOE staffers on hydrogen policy.
The hydrogen credit — officially referred to as 45V — is a major part of the Biden administration’s climate agenda, which views the fuel as a clean source to decarbonize sectors of the economy such as heavy industry. The credit, which was created by the 2022 Inflation Reduction Act, will directly impact how much hydrogen the U.S. produces and the financial bottom line for many companies.
The department has been publicly supportive of the existing draft guidance. But DOE officials pushed for Treasury to adopt less stringent guidance before it was issued in December, said the three people, all of whom were granted anonymity to speak freely about the credit. Two of the people said DOE officials have continued to press for different rules in 2024.
One of the proposed rules — known as “additionality” — would require hydrogen made from electricity to use verified new low-carbon energy sources like solar farms.
“Their starting point is any form of additionality will limit the amount of available hydrogen, which in turn reduces the possibility of a hydrogen economy actually starting,” said one of the people familiar with DOE’s hydrogen discussions.
Now, the administration is working to finalize its tax guidance after a comment window closed Monday. The more relaxed rules that DOE advocated for, according to the three people granted anonymity, would make it easier to produce hydrogen with tax breaks in the U.S.
Environmentalists say strict rules that consider additionality are critical to ensure hydrogen is a low-carbon climate solution. The administration had received more than 29,000 comments on the proposal as of Wednesday.
Treasury did not respond to requests for comment for this story.
“Treasury’s proposed rules reflect months of interagency policy work and advice, including from the Department of Energy, to ensure that the United States can unlock significant opportunities for domestic hydrogen,” DOE said in a statement in response to questions for this story.
DOE did not directly address whether it is seeking changes to the hydrogen tax guidance.
The department has tasked the EFI Foundation, a think tank run by former Obama administration Energy Secretary Ernest Moniz, with developing a program to ensure the clean hydrogen that is produced by the hubs is actually purchased on the market, also known as “offtake.”
David Crane, DOE undersecretary for infrastructure, recently downplayed the influence of the department’s stance on proposed clean hydrogen tax credit guidance, considering it’s coming from Treasury.
“I’m told when a rule goes from draft to final, what the DOE thinks doesn’t matter anymore,” he told reporters last week. “I’m just out there working with hubs and working on offtake and things like that.”
A person familiar with DOE’s hydrogen position said the department is opposed to hourly matching rules, which require hydrogen to be made in the same hour as clean electricity is generated starting in 2028.
“If the goal is to launch a hydrogen economy as quickly as possible, hourly matching will inhibit that,” said the person.
Another person who was granted anonymity said DOE has pushed for grandfathering, which would allow some of the first hydrogen projects to not have to meet stricter tax rules to receive subsidies.
In a December white…
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