Manchin and Capito: W.Va. hydrogen projects at risk due to tax credit restrictions

CHARLESTON – The effort to kickstart a new hydrogen production industry in West Virginia and across the nation could be much harder to do under proposed rules for a tax credit meant to incentivize the new industry.

Last week, the U.S. Department of Treasury released guidance for the Clean Hydrogen Production Credit – known as the 45V hydrogen tax credit. The credit, included in the $737 billion Inflation Reduction Act, provides up to $3 per kilogram of hydrogen produced for projects that begin prior to 2033.

“The Biden-Harris Administration is driving American innovation in emerging industries to create good-paying jobs, strengthen U.S. energy security, and help the U.S. clear hurdles in our clean energy transition,” said U.S. Secretary of the Treasury Janet L. Yellen in a statement Friday. “Incentives in the Inflation Reduction Act are helping to scale production of low-carbon fuels like hydrogen and cut emissions from heavy industry, a difficult-to-transition sector of our economy.”

Hydrogen is a fuel that can be used to decarbonize manufacturing processes, such as steel and metals production, and heavy transportation. Hydrogen also can be used as a long-term fuel cell to store energy for future use. The byproduct of hydrogen is water.

There are several ways to produce hydrogen. The blue hydrogen process uses natural gas coupled with carbon capture and sequestration to capture greenhouse emissions from the blue hydrogen process and storing the emissions underground. The green hydrogen process uses renewable energy, such as wind and solar power, to extract the hydrogen.

While supporters of the 45V tax credit claim it was designed to encourage a broad range of hydrogen project projects, the Treasury Department guidance appears to lean towards green hydrogen projects. The credit encourages companies wishing to produce hydrogen to do so through renewable energy sources. While it also encourages the use of electrolyzers to extract hydrogen from water, those electrolyzers could only operate during the same hours of wind and solar power generators.

“Clean hydrogen production, with appropriate end uses, has important potential, but without critical guardrails, hydrogen could actually increase climate emissions and air pollution and derail our clean energy progress,” said Patrick Drupp, director of climate policy for the Sierra Club. “With this new guidance, we can see the Biden administration is making the right choices for ensuring only truly clean hydrogen is eligible for the highest credit, enabling heavy industry to decarbonize without rewarding dirty hydrogen production.”

U.S. Sen. Joe Manchin, D-W.Va., was one of the principal negotiators behind the Inflation Reduction Act. In a statement Friday, Manchin said the administration of President Joe Biden was kneecapping the intent of the 45V tax credit and playing to a far left constituency.

“This Administration cannot keep itself from violating the Inflation Reduction Act in their relentless pursuit of their radical climate agenda,” Manchin said. “Today’s proposed rules on the IRA’s hydrogen production tax credit will only make it more difficult to jumpstart the hydrogen market, which will be a critical part of our secure energy future.

“Make no mistake, obstructing hydrogen development in our country is the short-sighted goal of the far-left advocacy groups who lobbied the Administration for these restrictions because they oppose all energy sources other than solar and wind — and even the renewables industries have said these restrictions are a bad idea,” Manchin continued. “For an Administration that wants to reduce emissions and fight climate change, it makes no sense to kneecap the hydrogen market before it can even begin.”

In October, Biden announced the creation of seven regional hydrogen hubs, including an Appalachian Hydrogen Hub located mostly in West Virginia with additional locations in Southeastern Ohio and Western Pennsylvania. The hub will consist of linked assets, or production nodes between the three states spread across hundreds of miles.

According to administration officials, the Appalachian Hydrogen Hub will create 18,000 construction jobs and 3,000 permanent jobs. The hub will partner with the Appalachian Regional Clean Hydrogen Hub, or ARCH2, which includes more than 40 partnering companies in the natural gas, energy and manufacturing sectors, West Virginia University and Marshall University, local transit authorities and the federal National Energy Technology Laboratory.

The $1.2 trillion Infrastructure Investment and Jobs Act — negotiated in 2021 by Manchin and Sen. Shelley Moore Capito, R-W.Va., — included $9.5 billion in funding for hydrogen research. Manchin and Capito inserted specific language in the infrastructure investment and Jobs Act requiring a hub in Appalachia.

Capito, who did not support Manchin’s Inflation Reduction Act, put the blame both on poorly worded language in the IRA and the Biden administration for screwing up the 45V hydrogen tax credit.

“Whether language in the Democrats’ so-called Inflation Reduction Act or poor implementation by the Biden administration is to blame, there is no doubt that the 45V guidance released last week will make it harder to grow hydrogen production and utilization in West Virginia and around the country,” Capito said in a statement Tuesday evening.

There are also several proposed hydrogen projects in the works in West Virginia, including at the Omnis Fuel Technologies project on the site of the Pleasants Power Plant near St. Marys and the Fidelis New Energy Mountaineer GigaSystem project near Point Pleasant.

“Hydrogen has the potential to be the new horsepower of our country and will strengthen our energy security so we are less dependent on foreign adversaries, and crucially, it can be produced carbon-free,” Manchin said. “Adding onerous new restrictions for the hydrogen tax credit is particularly hypocritical when this administration has bent, broken, and ignored the law again and again to make it easier to access electric vehicle tax credits.

“Today’s proposed rule doesn’t just violate the law — it makes absolutely no sense, and I will continue to fight this Administration’s manipulation of the IRA,” Manchin continued.