The Biden administration prioritized the development of clean hydrogen as a cornerstone of its strategy to achieve net-zero carbon emissions by 2050. This commitment is exemplified by the establishment of the Regional Clean Hydrogen Hubs (H2Hubs) program as part of the Biden administration’s National Clean Hydrogen Strategy and Roadmap to accelerate production, processing, delivery, storage, and use of clean hydrogen across the United States.

However, the transition to a new administration under President-elect Donald Trump, who has publicly supported expanding domestic production and export of fossil fuels, raises questions about the future of this initiative. The incoming administration has the opportunity to preserve and potentially advance the success of the H2Hub program by easing the requirements for accessing the Section 45V tax credits. Such adjustments could enhance the program's viability and align it with the new administration's overall economic and energy objectives.

Genesis and Objectives of the H2Hubs Program

In November 2021, President Biden signed the Bipartisan Infrastructure Law, allocating $8 billion to fund a Regional Clean Hydrogen Hubs program (H2Hubs). These hubs are designed to form a national network that supports the production, storage, and use of clean hydrogen as a large-scale clean energy carrier, thereby contributing to the decarbonization of various sectors, including transportation and industry. The overarching goals of the H2Hubs program include:

• Decarbonization: Reducing greenhouse gas emissions across multiple sectors to mitigate climate change.
• Energy Security: Diversifying the energy portfolio to enhance national security and reduce dependence on fossil fuels.
• Economic Development: Stimulating job creation and economic growth through investments in clean energy infrastructure.

The 2022 Inflation Reduction Act (IRA) added two provisions to further subsidize clean hydrogen production. The first was a new hydrogen production tax credit added to the Internal Revenue Code the as Section 45V. The second was an increase in the Section 45Q tax credit already available for carbon sequestration which is used to make “blue” hydrogen.

Implementation and Progress

Moving at a record pace, by October 2023, the Department of Energy (DOE) announced selections for seven regional H2Hubs and collectively awarded up to $7 billion in funding. These hubs are located across 16 states (both red and blue) to leverage regional resources and capabilities. The other $1 billion was earmarked for demand-side support to assure prospective users they would be able to secure long-term commitments for low-cost hydrogen.

The anticipated benefits from these supply and demand side incentives are substantial:

• Emission Reductions: The H2Hubs are projected to eliminate 25 million metric tons of carbon dioxide emissions annually, equivalent to the emissions from over 5.5 million gasoline-powered cars.
• Economic Impact: The initiative represents one of the largest investments in clean manufacturing and construction and permanent job creation in U.S. history, with the potential to catalyze significant private sector investment.

In July 2024, the DOE’s Office of Clean Energy Demonstrations (OCED) began finalizing awards to the H2Hubs, starting with funding to begin work on Phase 1 planning, development, and design activities around site selection, technology deployment, community benefits and engagement, labor partnerships, and workforce training. The first three awards were made to the California Hydrogen Hub (ARCHES), the Appalachian Hydrogen Hub (ARCH2), and the Pacific Northwest Hydrogen Hub (PNWH2) Energy. The last week of November, awards were made to the Midwest Hydrogen Hub and the Gulf Coast Hydrogen Hub.

These five awards committed more than $5 billion of the $7 billion to be allocated to the seven H2Hubs. Award negotiations are still ongoing for the Heartland Hydrogen Hub and the Mid-Atlantic Hydrogen Hub.

Challenges to Implementation: Delays in Section 45V Tax Credit Regulations

Broad availability of the Section 45V clean hydrogen production tax credit is critical to the economic viability and success of the H2Hub program. The Section 45V tax credit offers a tiered incentive structure, providing up to $3 per kilogram of qualified clean hydrogen produced over a 10-year period. The exact amount to be credited annually will depend on the lifecycle greenhouse gas emissions of the production process.

The credit is designed to promote alignment of economic incentives with environmental objectives by favoring the production of hydrogen with minimal carbon footprints. However, the potential effectiveness of this tax credit has been hampered by delays in implementing regulations by the Treasury Department and the Internal Revenue Service. The proposed regulations were first released Dec. 22, 2023, four months after the statutory deadline. They would impose stringent environmental criteria to qualify for the maximum credits: additionality, deliverability/regionality and time matching.

The proposal prompted more than 30,000 public comments through the February 2024 deadline, and extensive lobbying has continued since then. Proponents voiced support for the proposed high environmental standards for hydrogen production that would be required to maximize economic benefits.

Opponents, in turn, complained that the three-pillar approach had not been authorized by Congress (paralleling the direction charted by the Supreme Court a few months later in Loper Bright). On a more fundamental practical level Sen. Tom Carper, who wrote the text for Section 45V in the IRA, asserted that the proposal did not reflect the congressional intent for the clean hydrogen incentives to be flexible and technology-neutral, “potentially jeopardizing the clean hydrogen industry’s ability to get off the ground successfully.”

All seven of the H2Hubs concurred, noting, among other things, that by precluding the use of existing energy sources for hydrogen production, the additionality requirement will undermine the economic viability of their projects and hinder the development of the nascent hydrogen industry. They collectively urged revisions to facilitate broader participation and ensure the economic feasibility of their projects.

The two-year plus delay in promulgating definitive guidance on the Section 45V tax credit has slowed momentum and cast uncertainty over the program's future, affecting the financial planning and execution of the projects. This financial uncertainty has prompted four partners to drop out and three projects to be scrapped from the Appalachian Hydrogen Hub, and others to pull out of the Heartland and Pacific Northwest hubs.

While it remains to be seen whether the Treasury Department will meet its promise to issue final Section 45V clean hydrogen tax credit regulations by year-end, even if it does, it is far from clear whether the current administration can strike the right balance between economic viability and environmental goals that is critical to the success of the H2Hubs program. 

Potential Impact of the Incoming Trump Administration

President Trump’s election introduces additional uncertainty regarding future support for the H2Hubs program. President Trump has expressed intentions to roll back clean energy initiatives, including those established under the IRA, which provides substantial funding for low-emission technologies like hydrogen. Presidents have a variety of tools available to scale back and potentially cut off the H2Hub program, including executive orders, the Congressional Review Act, budget reconciliation, and agency action led by new cabinet members. 

It is notable that key Republican legislative and administration players in the new administration have voiced support for easing section 45V requirements. Sen. Shelley Moore Capito (R-W.Va.), the incoming chair of the Senate Environment and Public Works Committee (EPW), has been a strong advocate for hydrogen hub development. She played a pivotal role in the establishment of the Appalachian Hydrogen Hub (ARCH2) in West Virginia, which has been selected by the DOE to receive up to $925 million in federal support.

As ranking member of the EPW during the Biden administration, Sen. Capito has actively urged the Treasury Department to reconsider stringent requirements proposed for the Section 45V tax credit. In a letter to Treasury Secretary Janet Yellen, she expressed concerns that the proposed guidance would impose burdensome conditions, potentially jeopardizing the viability of future energy projects across the country. She emphasized that the 45V credit is technology-neutral and accessible to project sponsors regardless of their particular hydrogen production pathway, as long as they meet certain carbon emissivity requirements.

Additionally, former North Dakota Gov. Doug Burgum, who is being nominated to serve as Interior Secretary in the Trump administration and head a new energy council, was pivotal in forming and has been an ardent supporter of the Heartland Hydrogen Hub, which will focus on production of blue hydrogen, using natural gas as a fuel source.

Other legislators on both sides of the aisle have advocated for more flexible criteria to expand the availability of clean hydrogen production tax credits. Before the election, in August 2024, 12 House Republicans asked Mike Johnson not to target IRA clean energy tax credits if the GOP maintained or expanded its House majority. 

Just after the election, 12 house Democrats wrote to Yellen and IRS commissioner Daniel Werfel urging that a “more measured approach to implementing 45V would enable rapid scaling of clean hydrogen production while leveraging existing clean energy resources.” They asked the agencies to reconsider the proposed 45V guidance and adopt “a more nuanced, regionally flexible approach” to the incrementality requirements; recognize the value of existing clean energy resources, such as hydropower and nuclear, in hydrogen production; and allow for more gradual implementation of stricter standards.

Some of the factors that may influence the new administration's approach to Section 45V and the H2Hub program include:

1. Bipartisan Support and Economic Considerations: Many hydrogen hub projects are situated in Republican-majority states and have garnered bipartisan support due to their potential for job creation and economic development. Dismantling these projects could face political resistance from local stakeholders who recognize the economic benefits.
2. Potential Legal and Administrative Constraints: The DOE has already committed significant funding to various hydrogen hubs. Rescinding these commitments could present legal and logistical challenges, making it difficult for the new administration to withdraw support without encountering obstacles.
3. Industry Momentum and Market Forces: The clean hydrogen industry has gained considerable momentum, with substantial investments from the private sector. Oil and gas companies are project partners in virtually all the H2Hubs. Market dynamics, including the declining costs of renewable energy and technological advancements, may continue to drive the hydrogen economy forward, irrespective of federal policy shifts.
4. International Competitiveness and Trade Considerations: Scaling back support for the hydrogen economy could affect the United States' competitiveness in the global clean energy market. Other countries are investing heavily in hydrogen technologies, and a reduction in domestic support could result in the U.S. losing its competitive edge, affecting trade balances and international economic standing.
5. Public Opinion and Environmental Advocacy: Growing public awareness and concern about climate change have led to increased support for clean energy initiatives. Environmental advocacy groups and public opinion may exert pressure on the administration to maintain or even enhance support for programs like the H2Hubs, making it politically challenging to implement rollbacks.
6. Technological Advancements and Cost Reductions: Ongoing technological innovations and decreasing costs associated with hydrogen production and use make it a more viable and attractive energy source. These advancements could encourage the administration to support the hydrogen economy as a means to achieve energy independence and economic growth.
7. Alignment With Broader Energy Strategy: Integrating hydrogen into the national energy portfolio can enhance energy security by diversifying energy sources. The administration might consider the strategic advantages of supporting hydrogen as part of a comprehensive approach to national energy policy. 
8. Potential for Regulatory Reforms: The administration could pursue regulatory reforms that streamline permitting processes and reduce bureaucratic hurdles for hydrogen projects, thereby facilitating their development without necessarily providing direct financial support.
9. State-Level Initiatives and Autonomy: Individual states have the authority to pursue their own clean energy policies and may continue to support hydrogen projects regardless of federal actions. State-level commitments can sustain momentum for the hydrogen economy and potentially influence federal policy through demonstrated success.
10. Economic Diversification in Energy-Producing Regions: Supporting hydrogen initiatives can provide economic diversification opportunities for regions traditionally dependent on fossil fuels, aiding in a just transition for workers and communities affected by shifts in the energy sector.
11. Potential for Public-Private Partnerships: Encouraging collaboration among government entities and private companies can leverage additional resources and expertise, enhancing the effectiveness and reach of hydrogen programs. Public-private investments in clean energy have been made in all 50 states in the two years after the IRA was enacted.
12. Alignment With National Security Objectives: Developing a robust domestic hydrogen industry can reduce reliance on foreign energy sources, aligning with national security goals by promoting energy independence.
13. Environmental and Health Benefits: Advancing hydrogen technologies contributes to reducing air pollutants, leading to improved public health outcomes and decreased healthcare costs, and potential mitigation of climate risk, which can be compelling arguments for continued support.
14. Adaptation to Market Realities: Recognizing the irreversible trends toward clean energy adoption globally, the administration might find it pragmatic to support hydrogen initiatives to ensure the U.S. remains competitive and does not fall behind in emerging markets.
15. Influence of Financial Markets: Federal support for hydrogen could attract investment, while withdrawal might deter it, influencing the administration's decisions. Supportive government policies will influence the availability of capital and investor confidence, and collectively serve as a strong inducement for the success and scalability of a domestic hydrogen market.

Takeaways

While the incoming Trump administration may seek to reduce funding for clean energy programs, the existing bipartisan support, established funding commitments, and market momentum suggest that the H2Hubs program could persist. The interplay between federal policy and these factors will ultimately determine the trajectory of the U.S.’s clean hydrogen initiatives.