Accounting
America’s hydrogen-fueled future stalls over tax credits
Agnes Lopez/Bloomberg
Two years after President Joe Biden’s landmark climate law promised to kick-start green hydrogen production with generous tax credits, companies still don’t know who will qualify.
Billions of dollars in investments sit on the sidelines as a result.
The Biden administration sees green hydrogen as a critical component of the energy transition, a way to clean up heavy industries that can’t easily run on electricity. But the nascent hydrogen economy has been paralyzed waiting for final rules on a key tax credit, which will provide up to $3 for every kilogram of the fuel produced.
Hydrogen companies considered the initial guidelines issued by the Treasury Department late last year too strict and warned that many of their planned plants wouldn’t qualify for the full incentive. Developers have since been left in limbo as they await adjustments before the final rules are approved.
Hy Stor Energy, for example, plans to produce hydrogen in Mississippi using on-site wind and geothermal energy and be operational in 2027.
“Our project has multiple gigawatts of renewables and is holding off billions of dollars in investment,” said chief commercial officer Claire Behar. “That is just one project. If you multiply it by 10 to 20 projects, it’s a massive investment that’s being stalled.”
The delay isn’t simply a case of slow-moving bureaucracy. Industry and environmentalists have engaged in a months-long lobbying fight over the rules, with the federal government trying to strike a balance. But the lack of progress could impede the nation’s decarbonization efforts.
“People in the industry are very frustrated,” said Frank Wolak, chief executive officer of the Fuel Cell and Hydrogen Energy Association. “The longer people defer investments, the less committed they are.”
Almost all hydrogen produced today is stripped from natural gas in a process that gives off carbon dioxide. But there are cleaner ways to make the fuel, such as capturing the CO2 or splitting the hydrogen from water using renewable electricity. Those cleaner methods are the focus of the Inflation Reduction Act tax credit. The size of the credit available to each project rests on three so-called pillars: ensuring hydrogen is produced using new clean energy sources rather than existing ones, aligning hydrogen production with electricity generation times and adhering to stringent carbon intensity requirements.
Without strict rules on each, environmentalists argue, hydrogen production plants risk driving up greenhouse gas emissions rather than cutting them.
“The first draft in December was an excellent framework that will attract the truly green projects,” said Fred Krupp, president of the Environmental Defense Fund. “Whatever happens, it’s critical that Treasury uphold this framework and not add exemptions that would water down the emissions integrity.”
Companies counter they need looser rules, at least at first, to get the industry off the ground.
In addition to the tax credits, the federal government has set aside $8 billion to create a series of hydrogen hubs that would match producers of the fuel with customers using it. But leaders of the regional hubs are so worried about the current tax credit guidance that they sent the Treasury Department a
“Unfortunately, these investments and jobs will not fully materialize unless Treasury’s guidance is significantly revised,” they wrote.
The Treasury Department says it is carefully considering all the many comments it has received as it drafts the final rules, but officials haven’t given any timeline for finishing the work. “Finalizing rules that will help scale the clean hydrogen industry while implementing the environmental safeguards established in the law remains a top priority for Treasury,” a department spokesperson said in an email.
Finding the right balance has been hard. John Podesta, Biden’s senior adviser for international climate policy, called the IRA’s hydrogen incentives “the most complex of the credits, technically and legally” at an event this week celebrating the second anniversary of the law’s passage. He acknowledged the mixed reaction the government’s preliminary guidelines received. “Some people loved it,” Podesta said. “Some people didn’t.”
Even if new guidelines are published now, companies might wait until after the election to see if they need to comply with them, according to Martin Tengler, an analyst at BloombergNEF. Donald Trump has promised to target the IRA if he retakes the White House in November, but his attitude toward hydrogen is unclear.
Policy uncertainty is not confined to the US. German company Thyssenkrupp Nucera in
“Progress on the regulatory side is recognizable, but at the same time not yet sufficient to accelerate investment momentum again,” Thyssenkrupp Chief Executive Officer Werner Ponikwar said in a statement. “The result is further delays to new projects on the customer side.”
Rival Siemens Energy AG has invested €30 million to produce electrolyzer stacks in Berlin together with industrial gas company Air Liquide.
“In the short term, we do observe delays in the release of funding commitments due to regulatory uncertainties, for example in the US and in Europe,” Chief Financial Officer Maria Ferraro said in an analyst call in May. Long-term prospects for the business, however, remain intact, she added.
Some in the industry expect the Treasury Department to soften its rules — although that hasn’t happened yet. Andy Marsh, CEO of Plug Power Inc., said he expects new guidance soon.
“We won’t be surprised if there’s some announcement after the Democratic convention and a further announcement after the election,” he said during the company’s earnings call last week. “I think it’s really clear that the regulations on the three pillars are going to become much looser.”
Carbon-free green hydrogen remains far more expensive than hydrogen from natural gas, and until that changes, companies have little incentive to start using it as a fuel. But costs won’t come down until the wave of planned green hydrogen plants start opening, Tengler said. And they won’t move forward until the federal government finalizes its tax rules.
“The only way green hydrogen becomes cheaper is by building projects, but with these early projects stalled, the industry is being choked before it’s even born,” Tengler said.
House Republicans narrowly
The legislation now heads to the Senate where lawmakers are looking to make their own stamp on the bill. The core of the package — an extension of the president’s 2017 first-term tax cuts — is likely to stay, but the senators could make some changes to a slew of new tax and spending measures that touch many aspects of the economy.
Here’s a rundown of the House bill’s main provisions impacting people and businesses:
$40,000 SALT limit
The limit on
The bill also separately creates a new limit on the value of itemized deductions for those in the top 37% tax bracket that partly erodes the value of the new SALT cap.
Tips, overtime and autos
Tips and overtime pay would be exempt from income tax through 2028, the end of Trump’s second term, fulfilling — at least for four years — his
Medicaid
The bill would accelerate new Medicaid work requirements to December 2026 from 2029 in a gesture to satisfy ultraconservatives who wanted more spending cuts.
The December 2026 deadline would fall just one month after midterm elections, with Democrats eager to criticize Republicans for
Food stamps
The bill aims to save $300 billion by forcing states to pay more into the Supplemental Nutrition Assistance Program. It would also apply work requirements for longer. Beneficiaries must work through age 64, up from 54 under current law.
Interest expensing
Private equity and other heavily indebted business sectors won a major fight in the tax bill on interest expensing. The bill adds depreciation and amortization when determining the tax deductibility of a company’s debt payments. The maximum amount any company can get in such tax write-offs is calculated as a percentage of earnings. That’s why using EBITDA – which is typically bigger than EBIT — in this process would generate heftier tax deductions.
University endowment tax
Some private universities would face a
The provision would create a tiered system of taxation so that colleges and universities that meet a threshold based on the number of students would pay more. Under Trump’s 2017 tax law, some colleges with the most well-funded endowments currently pay a 1.4% tax on their net investment income. The levy would rise to as high as 21% on institutions with the largest endowments based on their student population.
The provision is a major escalation in Trump’s fight with Harvard and other elite colleges and universities, which he has sought to strong-arm into making curriculum and cultural changes that he favors. Harvard, Yale, Stanford, Princeton and MIT would face the
Private foundation tax
Private foundations also would face an
Sports teams
The bill would limit write-offs for professional football, basketball, baseball, hockey and soccer franchises that claim deductions connected to the team’s intangible assets, including copyright, patents or designs.
Electric vehicles
A popular consumer tax credit of up to $7,500 for the purchase of an electric vehicle would be fully eliminated by the end of 2026, and only manufacturers that have sold fewer than 200,000 electric vehicles by the end of this year would be eligible to receive it in 2026. Tax incentives for the purchase of commercial electric vehicles and used electric vehicles would also be repealed.
Renewable tax credits
The legislation would cut hundreds of billions of dollars in spending by
It would also hasten more stringent restrictions that would disqualify any project deemed to benefit China from receiving credits. Those limits, which some analysts have said could render the credits useless for many projects, would kick in next year.
The legislation would also extend through 2031 tax credits for the production of biofuels.
Bonus for elderly
Americans 65 and older who don’t itemize their taxes would get a $4,000 bonus added to their standard deduction through 2028. That benefit would phase out for individuals making more than $75,000 and couples making more than $150,000. It would be retroactive to the beginning of this year.
Trump had campaigned on ending taxes on Social Security benefits, but that proposal would have run afoul of a special procedure Republicans are using to push through the tax-law changes without any Democratic votes. The higher standard deduction is an alternative way of targeting a benefit to the elderly but doesn’t fully offset Social Security taxes paid by many seniors.
Targeting immigrants
Immigrants would face a new 3.5% tax on
Factory incentives
The bill does not include Trump’s call for a lower corporate tax rate for domestic producers. Instead, it allows 100% depreciation for any new “qualified production property,” like a factory, if construction begins during Trump’s term — beginning on Jan. 20 and before Jan. 1, 2029, and becomes operational before 2033. That would be a major incentive for new facilities as Trump
Child tax credit
The maximum child tax credit would rise to $2,500 from $2,000 through 2028 and then drop to $2,000 in subsequent years.
Trump Accounts
The bill would create new tax-exempt investment accounts to benefit children, dubbed Trump Accounts. An earlier version of the bill called them
Pass-through deduction
Owners of pass-through businesses would be allowed to exclude 23% of their business income when calculating their taxes, a 3-percentage-point increase from the current rate. The increase is a win for pass-through firms — partnerships, sole proprietorships and S corporations — which make up the vast majority of businesses in the US.
Research and development
The bill would temporarily reinstate a tax deduction for research and development, a top priority for manufacturers and the tech industry. The deduction will last through the end of 2029.
Oil, gas and coal
The bill would raise billions by mandating the Interior Department hold at least 30 oil and gas lease sales over 15 years in the Gulf of Mexico, which Trump ordered to be renamed to the Gulf of America. It would withdraw Biden-era restrictions on development in Alaska’s Arctic National Wildlife Refuge. The measure would also mandate at least six offshore lease sales in Alaska’s Cook Inlet region over six years. The legislation would also require Interior to offer at least four million acres of coal resources for lease in the West within 90 days of enactment.
Radio spectrum
The legislation would restore the Federal Communications Commission’s ability for the next decade to
New spending
The bill would allocate $150 billion for the military and $175 billion for immigration and border security.
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