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However even tasks that do supply fossil gasoline from the least leak-prone areas and seize excessive percentages of their carbon dioxide emissions could also be hard-pressed to entry essentially the most profitable tiers of the 45V tax credit score.
In line with an evaluation by suppose tank RMI, even steam methane reforming crops that seize 90 % of the carbon dioxide they emit and supply fossil gasoline with very low upstream methane leakage charges of 0.2 % would emit greater than 2 kilograms of carbon dioxide equal for each kilogram of hydrogen they produce. That stage of emissions would restrict them to receiving solely one-quarter of the very best credit score, or 75 cents per kilogram of hydrogen. (Canary Media is an unbiased affiliate of RMI.)
However the 45V credit score isn’t the one subsidy blue-hydrogen tasks can entry. The Inflation Discount Act additionally boosted an present credit score for carbon-capture tasks, often called 45Q, that provides as much as $85 per metric ton of carbon captured from point-source emitters, together with steam methane reformers.
Tasks can’t declare each 45V and 45Q credit, forcing hydrogen producers to decide on one or the opposite. However the 45Q tax credit score doesn’t require steam methane reformers to measure the emissions-intensity of the hydrogen they produce, solely the tons of carbon they seize, making it far easier to implement.
A rising variety of trade analysts are predicting that blue-hydrogen producers will search the 45Q tax credit score as a substitute of enterprise the unsure emissions accounting essential to assert 45V.
And people producers wouldn’t essentially be barred from promoting the hydrogen they produce as “clear.” The Bipartisan Infrastructure Regulation ordered DOE to develop a Clear Hydrogen Manufacturing Customary to information the definition of unpolluted hydrogen. Below that definition, any hydrogen produced with 4 kilograms or much less of carbon dioxide equal per kilogram of hydrogen is taken into account clear — a goal that steam methane reformers may attain with out attaining the very best charges of carbon seize and utilizing fossil gasoline from areas with increased methane leakage charges.
The issue of “renewable pure gasoline” for hydrogen manufacturing
However there’s one other means for blue-hydrogen producers to cut back their on-paper carbon emissions-intensity to a low sufficient stage to attain the very best tier of the 45V tax credit score, Rote stated.
One of the crucial regarding loopholes entails utilizing credit for “renewable pure gasoline” — methane captured from rotting natural materials in landfills, livestock farm manure lagoons or different sources, also referred to as biomethane — as a technique of “erasing” the real-world carbon emissions brought on by changing fossil gasoline into hydrogen and carbon dioxide.
This type of emissions accounting is allowed by California’s Low Carbon Gasoline Customary, essentially the most extensively used renewable gas normal within the nation. Below the state’s present guidelines, methane captured from livestock manure lagoons and burned for vitality is counted not simply as carbon-neutral, however carbon-negative in its global-warming impacts. What’s extra, the state’s normal provides livestock farms far higher carbon-negative scores than different sources of RNG, comparable to landfills, meals waste and wastewater remedy crops.
Environmental teams have decried this apply for years, calling it a perverse incentive for the state’s highly effective dairy trade to develop dangerous factory-farming practices. They argue that methane from livestock operations ought to as a substitute be regulated as a global-warming risk by penalizing operators that fail to restrict emissions — not rewarded as a monetizable useful resource that fossil gas suppliers should purchase to offset their carbon emissions.
For the reason that creation of the 45V tax credit score, these teams, and a few lawmakers in Congress, have urged the Biden administration to ban related “book-and-claim” accounting strategies, which permit hydrogen producers to signal contracts with RNG manufacturing in one other a part of the nation to offset the fossil gasoline they’re utilizing to make hydrogen, from eligibility for the subsidies. Failing to take action, they warned, may permit house owners of polluting steam methane reformers to assert that they really emit much less carbon than inexperienced hydrogen tasks utilizing carbon-free electrical energy.
Treasury’s steering does include some provisions for RNG for use to make hydrogen that may earn 45V tax credit. However the steering additionally lays out some necessary guardrails towards the type of accounting that California’s Low Carbon Gasoline Customary program permits, stated Julie McNamara, senior vitality analyst with the Union of Involved Scientists.
First, the steering solely explicitly permits one specific use of RNG, she stated: utilizing RNG that’s instantly transported from landfills to hydrogen manufacturing websites. Different strategies of utilizing it could be permitted later, however solely after additional examine.
The steering additionally explicitly bars present fossil-gas-fueled hydrogen manufacturing from claiming that it has undergone a “facility modification” that may permit it to assert the tax credit score just by switching from typical fossil gasoline to RNG, she stated. That would stop present steam methane reformers from merely switching to utilizing RNG to win the tax credit score, though it could permit newly constructed amenities designed to make use of RNG.
However Treasury’s steering does state that it’ll search public touch upon proposals that would permit broader use of RNG for hydrogen manufacturing, she stated. It additionally lays out plans to search out methods to make use of “fugitive methane,” such because the methane that escapes from coal mines to pollute the environment, if it may be captured and put to make use of for hydrogen manufacturing as a substitute.
The Union of Involved Scientists and different environmental teams are urging the Treasury Division to tread rigorously in crafting these guidelines. They argue towards permitting blue-hydrogen producers to make use of the most typical RNG emissions accounting strategies to justify incomes 45V tax credit — notably people who contain unfavorable carbon-intensity scores like people who livestock manure methane now receives beneath California’s Low Carbon Gasoline Customary.
“In case you rely it as something lower than zero, you’re ‘trueing up’ polluting from one other present supply,” she defined. For instance, a steam methane reformer operator may proceed to make use of fossil gasoline for many of its hydrogen manufacturing however increase it with some negative-carbon-intensity RNG that, on paper, counterbalances the real-world carbon emissions that proceed to pour out of its facility, she stated.
Wolak famous that the Gasoline Cell and Hydrogen Power Affiliation has joined a variety of different hydrogen trade teams in advocating for guidelines that may permit blue-hydrogen producers to make use of RNG in ways in which align with present RNG monitoring and verification techniques.
“We might not wish to see limitations to the usage of RNG that would in any other case actually help in producing low-carbon and reduced-carbon hydrogen, and set limitations that may have an unintended consequence of limiting the quantity of hydrogen that may be produced,” he stated.
However the Treasury Division’s steering does observe that it considers present RNG monitoring and verification techniques to have “restricted capabilities” that may should be addressed earlier than they may very well be tailored to be used for claiming the 45V tax credit.
Its checklist of flaws consists of the truth that present techniques “don’t clearly distinguish between inputs” or “confirm or require verification of underlying practices claimed by RNG manufacturing sources,” offering little or no underlying knowledge with which to check claims of emissions-intensity of RNG sources.
That would give the Biden administration a robust foundation for barring these strategies from getting used for 45V accounting strategies, McNamara stated. It additionally has the authority to require hydrogen producers to make use of solely RNG that’s instantly delivered to them, quite than utilizing “book-and-claim” processes.
These sorts of steps might be important if the Treasury Division desires to keep away from the prospect of immediately’s soiled hydrogen producers signing contracts with dairy farms and different sources of RNG that permit them to earn the highest tier of 45V tax credit for hydrogen they proceed to make from fossil gasoline, Rote stated.
“For the decrease tax-credit tiers, the variations between 45V and 45Q should not that totally different,” she stated — about 10 to 20 cents extra per kilogram of hydrogen for 45V than for the 45Q tax credit for the quantity of carbon captured for the equal quantity of hydrogen manufacturing. “So in these circumstances, it’s doubtless {that a} producer may go for 45Q.”
“However it’s actually important for the highest tax-credit tier of $3 per kilogram,” she stated. “If there’s a pathway for these producers to obtain the complete 45V credit score — for instance by mixing with RNG — that’s the place you see the stress to go after the highest tier.”
Sara Gersen, a senior legal professional within the Clear Power Program at nonprofit group Earthjustice, agreed that “the prospect of a facility with the ability to generate these very, very beneficiant tax credit for grey hydrogen with a smattering of biomethane within the feedstock is kind of problematic.”
The Treasury Division may keep away from that final result, she stated. “One of many main issues we’re going to be asking for is to make sure that no biomethane useful resource is handled as a carbon-negative useful resource,” she stated. “If we have been to deal with biomethane from swine and cow manure the identical means we deal with biomethane from landfills, this wouldn’t be an problem.”
“I’ve some optimism that Treasury goes to learn our feedback rigorously and implement guidelines that keep away from that final result,” she added. “They’re making an attempt to incentivize innovation,” not assist corporations “create soiled hydrogen and greenwash it.”
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