The Infrastructure Investment and Jobs Act
On November 15, 2021, the Infrastructure Investment and Jobs Act, Also known as the bipartisan infrastructure law (BIL), was signed into law by President Biden. This legislation introduces several provisions that will have a defining impact on the hydrogen industry.
The legislation authorizes a total of $9.5 billion in funding dedicated to advancing clean hydrogen. This funding allocation includes:
- $8 billion for the development of at least four large-scale Regional Clean Hydrogen Hubs.
- $1 billion for research and development focused on Clean Hydrogen Electrolysis
- $500 million designated for Clean Hydrogen Manufacturing and Recycling initiatives.
Additionally, the BIL directed the government to establish a clean hydrogen research and development program as well as a national hydrogen roadmap and strategy to guide the advancement of clean hydrogen technologies across sectors in accordance with decarbonization goals. The first version of that roadmap (to be updated every three years as required by BIL) was published in June 2023.
Clean Hydrogen Definition
In addition to allocating funding for diverse renewable hydrogen programs, the Infrastructure Act introduced a minimum statutory definition of clean hydrogen. The legislation established a threshold of a maximum carbon intensity of 2 kg of CO2 per kg of hydrogen produced at the site of production in order to qualify as clean hydrogen. As long as hydrogen from any source meets the specified standard, it can be considered clean.
A carbon intensity ratio of 2 kg CO2 per 1 kg of H2 (or 2:1) represents approximately one-fifth of the carbon intensity associated with hydrogen production from natural gas through steam methane reforming (SMR). SMR-derived hydrogen typically has a carbon intensity of around 9.3kgCO2e/kgH2.
Given the technology neutrality of the standard, achieving a 2:1 carbon intensity is feasible by utilizing fossil fuels combined with carbon capture and sequestration (CCS), commonly referred to as ‘blue hydrogen.’ Alternatively, renewable hydrogen produced through electrolyzers powered by wind or solar energy easily achieves the 2:1 carbon intensity benchmark.
Following consultation with the EPA as well as approximately 120 stakeholders via public comment collected in Autumn 2022, the Department of Energy released guidance for a Clean Hydrogen Production Standard (CHPS). Accounting for multiple requirements within the BIL provision as well as incentives in the Inflation Reduction Act, the CHPS established a target of less than or equal to 4.0 kgCO2e/kgH2 for lifecycle (i.e., “well-to-gate”) greenhouse emissions while maintaining a target of less than or equal to 2.0 kgCO2e/kgH2 at the site of production.
Regional Clean Hydrogen Hubs
The Infrastructure Act mandates the establishment of four regional clean hydrogen hubs defined as networks “of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity.” These hubs will emphasize feedstock diversity, with at least one hub each utilizing renewable energy, nuclear energy, and fossil fuels respectively. They will also exhibit end-use diversity by facilitating electric power generation, industrial applications, residential and commercial heating, and transportation.
Full applications were due in April 2023, and decisions regarding hubs chosen will likely resolve during the second half of 2023. The Department of Energy has allocated $8 billion for this initiative, which will be disbursed as grants to support the development of the hydrogen hubs.
Clean Hydrogen Research and Development
In addition to its primary goal of advancing crosscutting research and development to demonstrate and commercialize the use of clean hydrogen in the transportation, industrial, utility, residential and commercial sectors, the Clean Hydrogen Research and Development Program, outlined in BIL Section 40313, aims to demonstrate a standard of clean hydrogen in those sectors by 2040., Partnering with the private sector to carry out the program, the Secretary will conduct activities to support and further:
- the establishment of a series of technology cost goals oriented toward achieving the standard of clean hydrogen production;
- the production of clean hydrogen from a diverse range of energy sources, including fossil fuels with carbon capture, utilization, and sequestration, hydrogen-carrier fuels, renewable energy sources such as biomass, nuclear energy, and any other methods the Secretary finds appropriate;
- the deployment of clean hydrogen for electric power generation in residential, commercial, and industrial sectors;
- the use of clean hydrogen in industrial applications, including cement, process heat, chemical feedstocks, and steelmaking;
- the utilization of clean hydrogen as a fuel source for residential and commercial hot water and comfort heating requirements;
- the safety and efficient delivery of hydrogen and hydrogen-carrier fuels, including retrofitting the existing natural gas transportation infrastructure system; and
- advanced technologies encompassing light vehicles, heavy transport, rail systems, aircraft, and maritime operations.
Specific research projects are not explicitly listed in the Infrastructure Act. Instead, the legislation is explicit that the Secretary of Energy must collaborate directly with industry and private sector actors as well as other relevant stakeholders to further develop the specifics of the research and development program. At the time of writing this brief, there is not yet a Department of Energy website for this program.
Clean Hydrogen Electrolysis Research and Development
The Infrastructure Act includes a designated budget of $1 billion to support the utilization of electrolyzers in hydrogen production. This allocation will be used to create a research, development, demonstration, commercialization, and deployment program for commercialization purposes to enhance the efficiency, expand the durability, and lower the cost of generating clean hydrogen through electrolyzers. The ultimate objective of this program is to achieve hydrogen production costs of $2/kg or less by the year 2026.
Under the Act’s provisions, the Secretary of Energy is directed to allocate funds for demonstration projects and provide grants to eligible entities. The determination of eligibility will be made by the Secretary. Demonstration projects are expected to produce clean hydrogen through electrolysis while validating information on the efficiency, durability, cost, and feasibility of commercial deployment.. Grants will be awarded competitively based on the extent to which they contribute to the overall goal of the program, which is the attainment of sub-$2/kg hydrogen production costs.
As of the report’s publication, the specific details of the grant criteria are not available. Nevertheless, organizations that are currently in the planning phase of renewable hydrogen pilot projects are advised to closely monitor this program to determine if they can potentially benefit from this funding opportunity.
Clean Hydrogen Manufacturing Recycling
In addition, the Infrastructure Act allocated $500 million in grant funding specifically for the Clean Hydrogen Manufacturing Recycling Program, designed to advance new equipment manufacturing techniques and technologies within production, processing, delivery, storage, and use. The program also supports initiatives related to reuse and recycling. Eligible uses include:
- enhancing the effectiveness and cost-efficiency of reclaiming raw materials from components and systems used in clean hydrogen technology;
- minimizing the environmental impact of recovery and disposal processes associated with clean hydrogen technology;
- confronting any barriers to the research, development, demonstration, and commercialization of disassembly and recycling technologies and processes;
- exploring alternative materials, designs, and manufacturing processes, and other aspects of clean hydrogen technologies;
- advancing alternative resource recovery processes that enable efficient, cost-effective, and environmentally responsible disassembly of clean hydrogen technologies; and
- formulating strategies to promote consumer acceptance and participation in fuel cell recycling initiatives.
Grants are more likely to be awarded to hydrogen producers if they enhance manufacturing efficiency and cost-effectiveness, promote domestic supply chains, integrate nonhazardous alternative materials for components and devices, establish partnerships with tribal organizations, and operate in economically disadvantaged areas within the primary natural gas-producing regions of the United States.
National Clean Hydrogen Strategy and Roadmap
In June 2023, the first report setting forth the “U.S. National Clean Hydrogen Strategy and Roadmap” was published. Launching an all-of-government approach, the U.S. National Clean Hydrogen Strategy and Roadmap offers an overview of the current state of hydrogen production, transportation, storage, and utilization in the United States. It also evaluates the potential for hydrogen to contribute to national decarbonization objectives across various sectors in the next three decades. The Strategy and Roadmap comprises three sections:
- the overarching long-term national strategy for the United States to achieve its climate goals,
- the three primary strategies (target strategic, high-impact uses for clean hydrogen, reduce the cost of clean hydrogen, and focus on regional networks) and the challenges to realizing the benefits of hydrogen in the United States; and
- the set of actions that can support and develop the industry in the near, mid, and long-term, alongside guiding principles and metrics to measure progress.
The Strategy and Roadmap is a guide for federal agencies, state, local, and tribal governments, businesses, and the nonprofit sector. According to Secretary Jennifer Granholm, the Strategy and Roadmap outlines how this new clean hydrogen economy will create 100,000 well paying jobs by the end of the decade and support the United States in removing 10% of its carbon pollution by 2050.
Inflation Reduction Act
The Inflation Reduction Act (IRA) was signed into law on August 16, 2022 by President Biden and provides support for several renewable energy and climate-related opportunities.
Along with extending the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) for ten years, applying the PTC and ITC to standalone battery energy storage systems as well as wind and solar, subsidizing the nuclear power industry, offering new incentives for electric vehicles, and more, the IRA created a new clean hydrogen credit.
Clean Hydrogen Credit
The Inflation Reduction Act introduced the “45V Hydrogen Production Tax Credit”, a technology-neutral 10-year production tax credit for clean hydrogen.
This credit, outlined in Section 45V of the IRA, is not limited to a specific technology, allowing both renewable (green) hydrogen facilities and SMR with CCS (blue) hydrogen facilities to qualify, as long as they adhere to carbon intensity standards. To be eligible, projects must be operational before 2033.
The credit system is divided into four tiers, determined by the lifecycle carbon intensity of the production facility, measured in kg of CO2 equivalent (CO2e) per kg of H2. A maximum carbon intensity of 4 kg CO2e / kg H2 is allowed to qualify for the credit. To assess the well-to-gate lifecycle greenhouse gas emissions, the evaluation will rely on the GREET model, developed by Argonne National Laboratory.
The base credit is $0.60 per kg of hydrogen produced.
The four tiers are:
Less than 0.45 kg • <0.45 kg CO2e / kg H2 – 100% of $0.60 credit = $0.60/kg H2
0.45 to 1.5 kg • 0.45–1.5 kg CO2e / kg H2 – 33.4% of $0.60 credit = $0.20/kg H2
1.5 to 2.5 kg • 1.5–2.5 kg CO2e / kg H2 – 25% of $0.60 credit = $0.15/kg H2
2.5 to 4 kg • 2.5–4 kg CO2e / kg H2 – 20% of $0.60 credit = $0.12/kg H2
Labor Requirements and Increased Credit Amount
The clean hydrogen production credit also offers an expanded base case multiplication of five, with a maximum tax credit of $3 per kg hydrogen produced, if either construction on said projects begins prior to the “Act Beginning Construction Deadline” or if labor requirements are met.
The Act Beginning Construction Deadline should be no later than 60 days after the Secretary of Labor issues guidance on the labor requirements. The Secretary is expected to release these regulations no later than August 16, 2023.
The labor requirements include two conditions pertaining to a prevailing wage and apprenticeship hours.
The prevailing wage requirement mandates that laborers and mechanics, including subcontractors, involved in the construction, alterations, or repair of the facility must be compensated with wages that are at least equivalent to the prevailing rates for similar work in that particular area.
The apprenticeship requirement is a condition created to ensure new professionals enter the industry. In relation to the apprenticeship requirement, the minimum percentage of apprenticeship hours varies depending on the project start date. The requirement mandates that apprentice hours must account for at least 10% of total labor hours for projects begun before January 1, 2023; at least 12.5% for projects begun in 2023; and at least 15% for projects begun after January 1, 2024.
If these requirements are met, and the 5x multiplier is applied, the four credit tiers are:
Less than 0.45 kg • <0.45 kg CO2e / kg H2 – 100% of $3.00 credit = $3.00/kg H2
0.45 to 1.45 kg • 0.45–1.5 kg CO2e / kg H2 – 33.4% of $3.00 credit = $1.00/kg H2
1.5 to 2.5 kg • 1.5–2.5 kg CO2e / kg H2 – 25% of $3.00 credit = $0.75/kg H2
2.5 to 4 kg • 2.5–4 kg CO2e / kg H2 – 20% of $3.00 credit = $0.60/kg H2
The $3.00/kg clean hydrogen tax credit will make many renewable hydrogen projects cost-competitive with traditional SMR hydrogen. In certain instances, renewable hydrogen will be cheaper to produce than hydrogen produced through SMR methods.