US climate bill includes massive, game-changing green hydrogen incentives
The US Inflation Reduction Act is poised to kickstart a global hydrogen revolution. Among the bill's many climate-focused provisions are tax credits that will make American green hydrogen the cheapest H2 in the world, as low as US$0.73 per kilogram (2.2 lb).
Dirty "gray" hydrogen, produced using coal and/or natural gas, currently retails for around US$1-$2 per kilogram, according to KPMG. From the same report, "green" hydrogen – produced with zero emissions using renewable energy, water and electrolyzers – costs between $2.50-$6.
The USA's new Inflation Reduction Act squeaked past the Senate in a tiebreaker vote on the weekend, and will soon be passed by the House. It's a $739-billion shadow of the US$3.5-trillion Build Back Better act originally proposed by Democrats in 2021, but it still marshals more than $360 billion toward clean energy – the largest such investment in American history.
And tucked away in its arcane text is a tax credit of up to $0.60 per kg for green hydrogen – defined as hydrogen that can be proven to create less than 0.45 kg (1 lb) of lifecycle CO2e emissions per kg of hydrogen, as verified by a third party, for projects that begin construction before 2033. This 60-cent subsidy gets a 500% bonus multiplier if the laborers and mechanics employed in the construction of any new facilities are paid "wages not less than the prevailing rates [for such work] in the locality in which such facility is located."
This results in a $3 per kilogram tax credit for green hydrogen, scaling back dramatically for "blue" hydrogen. According to this excellent explanation by Recharge News, the cheapest green hydrogen in the United States at the moment is from the Northwest, where it's produced at $3.73 per kg. Factor in a three-dollar subsidy, and you're looking at $0.73 per kg green hydrogen.
As we've written before, getting a kg of green hydrogen down to $1 would have revolutionary effects. As recently as last year, the US Hydrogen Council didn't dare to project it'd hit that figure until 2050, and then only in the best-case scenario. Now, thanks to this historic bill, we're looking at 73-cent hydrogen for the foreseeable future, or until the legislation is torpedoed by some subsequent Republican administration.
It'll immediately become cheaper for any current hydrogen buyer to seek out green than gray or blue, upending the current hydrogen landscape and drawing massive investment money into the US to take advantages of the global opportunities this move will create.
A crazy-cheap green hydrogen price will also stick a heavy thumb on the scale for a range of other decarbonization projects relying on hydrogen. As Recharge News points out, "green steel" produced using hydrogen is projected to become cost-competitive with dirty coke-fired steel at a green H2 price of $1.53 a kg. At less than half that price, you're looking at green steel now that's cheaper than the dirty stuff. The green premium becomes a green incentive. Any project relying on green hydrogen can now re-work its numbers with some extremely friendly new figures.
And it's now crystal clear that any other country that wants to be a major player in green hydrogen will now need to step up to the plate with its own equally bold incentives, or be priced out of the market.
A hefty stone has been cast into the pond, folks, and its ripples could be felt for decades to come. The strongest possible message has been sent out to the green hydrogen market. It'll be fascinating to see what big moves come out of this legislation in the coming months.