The Inflation Reduction Act and the Future of Green Hydrogen

October 4, 2023

Luke Wentlent, Ph.D., Principal R&D Engineer and Jack Brouwer, Ph.D. Professor of Mechanical and Aerospace Engineering at UC Irvine

The passing of the Inflation Reduction Act (IRA), and especially the new 45V tax credit for hydrogen production, demonstrates the United States’s commitment to combatting climate change. With billions of dollars at stake, we’ve seen a great deal of disagreement about how the credit should be implemented. Plug’s principal R&D engineer, Dr. Luke Wentlent, sat down with Dr. Jack Brouwer, a professor of mechanical and aerospace engineering at the University of California Irvine sat down to discuss the topic. Below is an excerpt for their conversation edited for length and clarity. If you’d like to listen to the full conversation, go here.

Luke Wentlent and Jack Brouwer

What is the hydrogen production tax credit in the Inflation Reduction Act (IRA)?

The 45V credit for hydrogen was created to provide support for low carbon and low emission hydrogen production. The government provided $3 per kilogram for those technologies that could achieve very low carbon intensity, and they provided $1 per kilogram of support for those that had somewhat lower carbon intensity.

What’s the intent behind the tax credit?

The fact is, we need to support solar, wind, nuclear, and other zero-carbon technologies with other technologies like batteries or other energy storage and much has been invested in those technologies. But hydrogen fuel cells and electrolyzers can do things that none of these other technologies can do to achieve zero emissions economy-wide. If we don’t invest in them, we can’t decarbonize and de-pollute everything. Just as policies in California –and all around the US and the world, for that matter– provided the incentive for solar, wind, batteries and electric vehicles, we need incentives to drive the market for hydrogen and related technologies.

Why is hydrogen important now?

We’ve invested far more in sun, wind, and batteries than we have in hydrogen. But we didn’t really need hydrogen in the early years because we only had small amounts of sun and wind power generation. We didn’t need to store a lot or for a long time. We didn’t need to get that sun and wind power into things like ships and applications that are challenging to power with renewable energy. Now that we’re starting to do those things, we must invest in the initial implementation and scale-up of that technology.

Let’s talk about some of those hard-to-decarbonize industries.  What else can hydrogen accomplish?

Hydrogen has very special features that are required by some industry applications. Take steel or ammonia production. You need the reducing gas feature. You need a chemical that can react with the iron ore to make iron. You need H2 to make NH3, which is the ammonia for fertilizer and other applications. You have other difficult applications in industry that require things like high-temperature heat. It’s difficult to generate these high temperatures with electricity. Hydrogen fuel can accomplish these temperatures at a lower cost than electricity.

What’s more, hydrogen also provides long-duration storage. Batteries are good for short-duration storage. That’s why we use our cell phones and everything, but we have to charge them every night. Once you have the storage that you need, hydrogen becomes more efficient and a cheaper way to store power for a long time.

When do you see us achieving the scale needed for green hydrogen?

The scale-up must begin today. As a matter of fact, I thought it should have begun much sooner than this, but we had administrations that weren’t adopting a hydrogen policy until this one. Now investments must happen immediately. This is why I think the hydrogen production tax credit (PTC) should be implemented next year. We need to start funding the production of clean hydrogen now.

We still must build up the manufacturing base. We need to build up the infrastructure that’s going to transport the hydrogen and the infrastructure to use the hydrogen. You need not only to produce it, but you also need to move it around, and then you need to put it to use. All this infrastructure takes a while to build. By 2030 or 2035 we should have low-cost hydrogen for some applications already there.

Then it’s going to start to have massive investment, not from the government, but from industry, because they’re going to demand this zero-emission, now low-cost fuel. Then some of the applications are going to take a little bit longer because they need hydrogen to get even cheaper than we’re going to be able to do in 2035. You can see how it just builds on itself after the initial investment of the PTC.

There’s a lot of discussion about potential rules and regulations around the PTC. I think an additionality, an hourly time matching, and a regionality requirement that companies would have to meet in order to be eligible for the it. What’s your take on that?

It is a good idea to be concerned about where the primary energy is coming from. When we make renewable hydrogen via electrolysis, we would like it to be made from solar, wind or nuclear power that have zero carbon emissions. Those are the only kinds of things that are going to qualify for the $3 tax credit.

We can make sure that’s the case through lots of different mechanisms. One of them is to use already curtailed electricity that exists in California or in many jurisdictions, or solar and wind power that’s available at negative prices in markets that have built a lot of sun and wind power. They built this without any additionality constraint and incentives put a value on the produced electricity, which made it cost-effective. As a result, people adopted even more than they thought.

The same will happen with hydrogen. Without an additionality constraint, without forcing hydrogen to use a new sun resource or a new wind resource, you’ll see a demand on the market that will put new solar and new wind out there anyway.

In California, the grid is already getting cleaner at every hour of the day. As that continues to happen, there’s no need to add time stamping to make sure that happens. We’re already under a constraint to be 100% renewable by 2045. That is assisted by investing in hydrogen because it offers another vector for using that sun and wind power and producing the hydrogen from the sun and wind power at certain hours and using it at other hours.

What’s the final constraint? It’s regionality. This means that you want to make sure that if you produce a unit of sun and wind energy in a certain place, that there’s a way that you could deliver that to the end user. Again, hydrogen doesn’t impede that. It helps it.