BP and Fortescue add to growing industry criticism of proposed US hydrogen production tax credit rules

Oil major BP and mining giant Fortescue have both this week joined a growing chorus of companies dissatisfied with the US government’s guidelines for the clean hydrogen production tax credit of up to $3/kg.

These draft rules would ensure that renewable electricity used in H₂ production is not replaced on the grid by additional fossil-fuel power, but the guidelines’ three “pillars” of additionality, deliverability and temporality (see panel below) are also likely to drive up costs.

“A lot of developers, us included, have actually looked at our portfolio and said, ‘Man, I don’t know if we can actually make this work anymore,’” Tomeka McLeod, vice-president of hydrogen and carbon capture for BP America, said at the CERAWeek conference in Houston.

BP is a partner in the Midwest Alliance for Clean Hydrogen (MachH2), which had been selected for a $1bn grant from the US Department of Energy as part of the Regional Clean Hydrogen Hubs (H2 Hubs) programme, with the company’s Whiting refinery in the state of Indiana set to use volumes of low-carbon H2 produced there.

However, MachH2 has warned in a letter to the Treasury that its success hinges on nuclear-powered hydrogen production, which would be excluded from the tax credits if additionality rules were implemented.

“What came out in December was, I’m sure to anybody who’s working in the green hydrogen space, it’s the worst Christmas gift any of us have ever gotten. It was definitely the most restrictive; it was more restrictive than the EU, which I think was a big surprise,” she said.

Europe’s own Delegated Acts defining renewable hydrogen were subject to strong industry criticism, with many developers at the time of their passage warning that investment could migrate to regions with less-strict regulations.

Often, these companies would highlight the US and the clean hydrogen production tax credit created by the 2022 Inflation Reduction Act, which only focused on carbon intensity with no rules around what would count as “zero-carbon” power input.

However, unlike the US, the EU’s Delegated Acts have hourly matching kicking in from 2030, while also including grandfathering provisions for projects that start operating before 2028, which exempt them from additionality.

BP had, in its own correspondence with the US Treasury, argued for additionality to be extended from three to five years and for grandfathering clauses for early-mover projects, including a four-year exemption from hourly matching for projects that had started construction on or before 1 January 2028.

The oil major also argued that the guidelines should change the methodology by which upstream methane emissions for blue hydrogen are calculated, which currently do not differentiate between different natural gas sites.

Fortescue

Meanwhile, Fortescue — which is part of the Pacific Northwest Hydrogen Hub, also earmarked for up to $1bn — has also voiced concerns that the Treasury’s rules could make project development financially unviable.

Andy Vesey, Fortescue’s chief executive for its North American energy business, wrote in an article for Utility Dive that while the company would still go ahead with its 80MW Phoenix Hydrogen Hub project in Arizona, costs would likely increase by 140%.

“It puts us — and other green hydrogen producers — at a disadvantage before we even begin,” he explained.

Vesey also cited Wood Mackenzie figures that estimated a 175% increase in the cost of producing hydrogen if production has to be matched on an hourly basis with renewable electricity generation, while noting that the development of new renewables could take as long as five years.

Other industry critics of the guidelines for the 45V include green hydrogen technology firm Plug Power, industrial gases firm Air Liquide, engineering giant Cummins, automotive manufacturers General Motors and Hyundai, chemicals producer OCI, oil major ExxonMobil, and nuclear power plant operator Constellation, as well as all seven of the Regional Clean Hydrogen Hubs.

The Treasury guidance has also seen fierce criticism from both Republican and Democratic politicians, who have argued that the extra strings attached on power supply were not included in the Inflation Reduction Act they passed.

However, some companies, including industrial gases firm Air Products and project developer CWP, as well as multiple non-profits such as the Natural Resources Defense Council and the Union of Concerned Scientists have come out in favour of the US adopting extra criteria on power supply to ensure green hydrogen is truly “clean”.

A public hearing on these draft guidelines is scheduled to begin on 25 March.