Green Hydrogen Production Tax Credit

Background: In the United States, hydrogen has been used for decades in high volumes for to produce fertilizer, methanol, and various specialty chemicals, and also to refine products derived from oil and to process foods. Frequently described as “gray hydrogen”, the vast majority of this hydrogen is produced using fossil fuels which generate significant carbon dioxide emissions. Substituting green hydrogen derived from renewable electricity can be a mechanism to decarbonize many sectors of the economy. In addition, there is accelerating market demand for green hydrogen for long-duration energy storage to decarbonize the power sector, and as a transportation fuel for zero-emissions trucking. Overall, green hydrogen offers the opportunity to eliminate substantial carbon dioxide emissions while simultaneously creating new American jobs in renewable energy and equipment manufacturing.

Green hydrogen is generated with an electrolyzer, using water and electricity obtained from zero-emissions energy sources. Using an electrolyzer, surplus renewable electricity can be converted to hydrogen, storing dispatchable energy with zero greenhouse gas emissions. However, with few incentives for decarbonizing, electrolyzer production volumes remain low and the pace of efficiency gains is limited. Current estimates put the price of gray hydrogen production at ~$1/kg, while green hydrogen is ~$4/kg, a significant price disadvantage.

Currently there is no federal incentive for green hydrogen, and several states have put in place only limited incentives. President Biden’s clean energy pledge promised to ensure “the market can access green hydrogen at the same cost as conventional hydrogen within a decade.” Congress has also expressed interest in low-carbon or green hydrogen. This technology is ripe for inclusion in upcoming climate and energy legislation.

A recent Boston Consulting Group analysis calculated that a federal $3/kg incentive for producing green hydrogen could expand the market to $58B-68B in revenue by 2050, triggering $1.5T-2T of investment. This policy would would dramatically accelerate electrolyzer production and technical innovation, driving down the price of green hydrogen at a similar rate as has been demonstrated in solar panels and batteries over the past decade. The incentive would create 0.9-2.3 million jobs over that period, while abating 110-160 million tons of CO2 per year.

Policy Recommendation: In order to provide parity for green hydrogen with gray hydrogen, Congress should pass legislation to incentivize the production of green hydrogen. This policy should:

  • Provide a $3/kg production tax credit modeled on the current credit to materially unlock access to green hydrogen;
  • Incentivize consumer flexibility through a variety of applications such as dispatchable electricity generation, transportation fuel, or industrial uses;
  • Allow for the use of existing renewable energy incentives by related parties; and
  • After several years at the full $3/kg value, the credit should phase down as innovation and production scale, and costs are lowered.

Creating the new green hydrogen market in the US would enhance America’s leadership position in innovation and cost-competitive clean technology, with further potential for exports to the global green hydrogen market that is seeing increasing momentum. We request Congress include a $3/kg PTC for green hydrogen in upcoming climate and energy legislation to ensure that this technology can reach maturation and help the United States achieve its climate commitments.