A showdown over standards that must be met to count hydrogen as clean is pitting hydrogen producers against environmental groups and some renewable energy generators.

At issue is the ability to claim federal tax credits for producing clean hydrogen. The tax credits are in section 45V and 48 of the US tax code.

Environmental groups want the electricity used to make hydrogen to come from new renewable power plants — a concept referred to as “additionality” — in the same geographic area as the hydrogen plant and for hourly matching of the renewable power generation with the hydrogen production.

Hydrogen producers argue that the need for hydrogen plants to operate around the clock to be economic and the intermittent nature of renewable power generation make hourly matching untenable.

The European Union addressed the same issues in February. It will require monthly matching through 2029 and hourly matching starting in 2030, although individual countries are free to move to hourly matching as early as July 2027.

The European Union also addressed how to determine whether the renewable electricity comes from a new power plant and imposed complicated geographic restrictions.

The EU standards will apply to any hydrogen imported for use in EU countries.

The European Union has set a goal of producing 10 million tons a year of clean hydrogen domestically and importing another 10 million tons a year by 2030 to replace fossil fuels in hard-to-decarbonize industries and the transportation sector.

It also aims to reduce greenhouse gas emissions by at least 55% compared to 1990 levels by 2030. Such emissions were down 34% through the end of 2022.

The Inflation Reduction Act authorized tax credits for US hydrogen producers under a sliding scale depending on the carbon intensity of the hydrogen production process. The lifecycle greenhouse gas emissions must be less than four kilograms of carbon dioxide equivalent for each one kilogram of hydrogen produced to qualify for any tax credit, and they must be less than 0.45 kilograms per kilogram of hydrogen to claim the maximum tax credit of $3 per kilogram of hydrogen. The tax credits may be claimed for 10 years on the hydrogen sold or used. (For more details, see “Hydrogen Tax Credits” in the October 2022 NewsWire.)

Internal analyses by the US Department of Energy suggest that the electricity used to produce hydrogen made via electrolysis could come from nuclear, landfill gas, solar or wind power plants to claim tax credits at the full rate.

Release of the European standards was delayed by a debate about whether nuclear electricity should count as renewable electricity.

The EU said on February 13 when hydrogen made from sources other than biomass will count as made from renewable electricity. Hydrogen from biomass already qualifies as clean.

Member countries have four months to object before the standards take effect.

Under the EU standards, hydrogen will count as made from renewable electricity in four situations.

One is where the hydrogen plant generates its own renewable electricity or is connected directly to a renewable power plant. If the renewable power plant is also connected to the grid, then the hydrogen producer must show by use of a smart meter that it did not use any grid electricity. The renewable electricity must be from a new power plant that started operation no more than 36 months before the hydrogen plant started producing hydrogen.

Alternatively, a hydrogen producer using grid electricity may be able to show that the hydrogen plant is in the same “bidding zone” or equivalent concept in another country where renewable power accounted for more than 90% of the total electricity the previous calendar year. Once a bidding zone passes the 90% threshold, then it will be assumed to remain at this level for at least the next five years. Bidding zones in Europe are generally whole countries. The equivalent concept in the US may be a regional transmission organization or RTO.

The hydrogen producer would also have to show that the hydrogen plant does not run more than a maximum number of hours “in relation to the proportion of renewable electricity in the bidding zone.” The proportion of renewable electricity in a zone is calculated by multiplying the total hours in a year by a fraction. The fraction is the share of renewable electricity as a percentage of total electricity load in the bidding zone where the hydrogen plant is located.

Alternatively, a hydrogen producer using grid electricity may be able to show the hydrogen plant is in a bidding zone where the emission intensity of the grid is below 18 grams of carbon dioxide equivalent per megajoule of hydrogen energy. There are 1,055 megajoules in one mmBtu. However, three other conditions must be met. A hydrogen producer using this method will also have to show it has power purchase agreements with renewable power generators for the electricity it uses and satisfy geographic and time-of-use limitations described below. Once the carbon intensity goal is satisfied, then it will be assumed to have been met in each of the next five calendar years.

Finally, renewable electricity is assumed to have been used to make hydrogen if the electricity complies with additionality, time-of-use and geographic restrictions.

The electricity must come from a renewable power plant that started operation within 36 months before the hydrogen plant. The power plant must not have received support in the form of operating aid or investment aid. Some types of aid are allowed, but this may create challenges for US hydrogen producers planning to supply hydrogen to the European market.

The hydrogen producer must show that the hydrogen was produced in the same calendar month as the renewable electricity (or that the renewable energy comes from a storage asset “located behind the same network connection point as the electrolyzer” charged — not discharged — during the same month as the hydrogen is produced). Monthly matching will apply through 2029. Starting in 2030, the EU will move to hourly matching. Individual countries are free to move to hourly matching as early as July 2027.

The hourly matching is considered satisfied if the spot price for electricity in the day-ahead market in the bidding zone is no higher than €20 per megawatt hour or less than 36% of the price for an allowance to emit one ton of CO2 equivalent.

The geographic requirement is satisfied if the hydrogen plant and electrolyzer are in the same bidding zone, or the power plant is offshore and interconnected with the bidding zone where the hydrogen plant is located, or the power plant is in an interconnected bidding zone where the spot electricity prices for the relevant time period in the day-ahead market are equal to or higher than in the bidding zone where the hydrogen plant is located.

Meanwhile, guidance on the same issues in the United States is being worked on both by the hydrogen office in the US Department of Energy, which asked for comments on the issues last October as part of its clean hydrogen production standard, called CHPS, and by the US Treasury. Treasury officials have not said yet when to expect the guidance. The Treasury has received 204 comment letters to date on the subject.

A letter submitted on February 23 by a number of environmental groups, several renewable energy generators and M-RETS, EnergyTag, Electricity Maps and FlexiDAO — four entities that provide data that can be used for hourly matching — argued that “any regional or national registry who would like to can implement hourly matching tools at scale in less than 12 to 18 months, compared to the no less than 24 months scaling timelines for large-scale electrolyzer deployment.”

A separate issue in play at DOE and the US Treasury is whether hydrogen tax credits can be claimed for producing hydrogen where hydrogen is an intermediate chemical step toward production of a different end product, such as ammonia, methanol or e-fuel. In some cases, hydrogen is produced as a discrete step before conversion to a different end product. In others, it is part of a gas stream that is converted directly to methanol. It can be removed from the gas stream and then converted, but this requires a more expensive process leading to the same end result.

Hydrogen producers argue that hydrogen needs to be converted into something else, such as ammonia or methanol, to transport it and, without such conversion, there is no such thing as a hydrogen economy.