Think Like A Climate Investor #1

IRA offers $100+ billion incentives for clean hydrogen, but to who?

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📖 read time - 3 min

In our Think Like A Climate Investor series, our community identifies questions with significant financial & environmental implications. Why? A good investor looks for leverage points to better model possible futures. Participate in the information discovery process by voting and commenting on this week’s critical question:

❓The IRA’s Section 45V offers $100+ billion in tax credits for “clean hydrogen” made from low/no carbon energy, but thanks to the new law’s unintentionally contradictory fine print, it’s up to the IRS to define exactly which renewables can be used. This guidance, expected from the IRS any day now, will determine which projects get money. Climate orgs stipulate 3 things are necessary to ensure that clean hydrogen is actually clean - 1️⃣ additionality, 2️⃣ hourly matching, and 3️⃣ deliverability. Deliverability is likely to be adopted but will the IRS adopt the heavily debated additionality and/or hourly matching in its upcoming guidance❓

Why this matters

1️⃣ The billion dollar word is additionality.

• ✅ If adopted, the guidance may be a boon for new renewables projects because to receive the lucrative tax credit, only new (additional) renewable energy could be used to make clean hydrogen.

• ❌ If not adopted, some existing renewable energy assets can be used to produce clean hydrogen. This is favorable for existing utilities and generators that own nuclear plants, solar farms, etc. Climate orgs fear that these projects may end up generating more carbon than they’re saving because this may draw away clean energy already needed by the grid. Industry believes this is an acceptable tradeoff to kickstart a clean hydrogen market.

2️⃣ Hourly matching requires clean hydrogen production to sync its consumption of clean power by the hour (right now it’s annual).

• ✅ If adopted, industry sentiment is that companies may suffer the tracking expenses, which could deter development of low carbon hydrogen projects. However, it’ll ensure that fossil fuels aren’t used at night to fuel 24/7 hydrogen production.

• ❌ If not adopted, climate orgs theorize that the new, supposedly cleaner production process won’t actually be cleaner compared to traditional fossil fuel methods.

3️⃣ Deliverability requires hydrogen producers to use clean power more or less on the grids that they’re connected to. Most are in agreement that this makes sense.

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Doing your own research? Check out these deep-dives

• Heatmap: The Nuclear Hydrogen Conundrum

• Volts: A conversation with Rachel Fakhry of NRDC

• Canary Media: The great ‘green’ hydrogen battle

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