How Treasury’s New Hydrogen Rule Could Undermine EPA Emissions Goals

As part of its latest crackdown on emissions from coal and natural gas power plants, the U.S. Environmental Protection Agency (EPA) said it would avoid negatively impacting grid reliability and increasing electricity costs to consumers by requiring “ambitious reductions in carbon pollution based on proven and cost-effective control technologies that can be applied directly to power plants.” One technology solution the agency suggests as most applicable to natural gas-fired plants is the application of what it refers to as “low-GHG hydrogen,” with the “GHG” referring to the greenhouse gas footprint of the energy source that produces the hydrogen.

“Installation of controls such as CCS for coal and gas plants, and low-GHG hydrogen co-firing for gas plants are more cost-effective for power plants that operate at greater capacity, more frequently, or over longer time periods,” the EPA’s release reads. “The proposed standards and guidelines take this into account by establishing standards for different subcategories of power plants according to unit characteristics such as their capacity, their intended length of operation, and/or their frequency of operation.”

But a draft proposed regulation from the U.S. Treasury Department (USDOT) governing the implementation of the 45V tax credits included in last year’s Inflation Reduction Act (IRA) seems poised to undermine the stated goals of the EPA rule. Critics of the USDOT proposal point out that the inclusion of so-called “additionality” requirements threaten to cause significant delays in the scaling up of low-GHG hydrogen availability, which would inevitably result in the premature closing of a high number of natural gas plants that would be unable to meet the new emissions limits when they kick into effect starting in 2030.

In a May 4 letter sent to the Treasury Department, members of the Fuel Cell and Hydrogen Energies Association (FCHEA) point out that the U.S. has seen a high degree of financial interest in investing in new hydrogen projects since the passage of the IRA last August. But the group adds that that level of interest could be curtailed with the inclusion of an additionality requirement.

“The concept of additionality suggests that hydrogen producers can recognize clean electricity and feedstocks used in their processes only if it is derived from new projects,” FCHEA says. “To do so would significantly stifle the clean hydrogen market by adding unreasonable costs and delays for clean hydrogen producers, running counter to the IRA and undermining its economic, jobs, and environmental benefits.”

FCHEA goes onto point out that “timelines for clean hydrogen scale up and siting are not the same as the timelines for new solar, wind or biogas installations, let alone nuclear and hydropower facilities, and to link their implementation negates the independent path clean hydrogen needs to complement these other resources in the drive to decarbonize. This approach defeats the goal of additionality by delaying the clean hydrogen roll out, which is much farther behind than deployment of renewables.”

But proponents of an additionality requirement appear to have the ear of the Biden administration. In a recent blog on the matter, the National Resources Defense Council (NRDC) contends that the case for additionality is “ironclad,” citing reports from Princeton and MIT as proof points.

Of course, activists from NRDC and academics from Princeton and MIT, expert though they may be, will not be among those who plan to risk billions in investments in new low-GHG hydrogen projects, as the members of FCHEA will be. Those risk-takers urge USDOT to adopt a rule that is as simple as possible and that also recognizes the realities that exist in the power generation space today.

One such reality is the fact that limitations in existing transmission infrastructure are already creating extensive delays in the ability to interconnect new wind and solar installations into the grid. FCHEA says that forcing the building of even more big renewable projects through an additionality requirement would only exacerbate that existing problem, given that large new transmission projects take the better part of a decade and more to complete.

In its letter, FCHEA points to a recent analysis by Lawrence Berkeley National Laboratory which found that “only 14% of projects requesting interconnection between 2000 and 2017 reached commercial operations by 2022. Limiting hydrogen producers to procure EACs/PPAs solely from new renewable projects will not alleviate the interconnect bottleneck. Instead of the narrow focus on additionality, all proponents of more clean resources should direct unified attention to reducing barriers to access.”

That would seem to be a sensible recommendation coming from a group of companies with collective plans to invest billions in the low-GHG hydrogen space in the coming years. But, as we see too often where policymaking related to this energy transition is concerned, recommendations that seem to make the most common sense tend to end up on the cutting room floor at the end of the day.