The Biden administration on Friday released its proposed regulations for receiving tax credits for producing hydrogen, disappointing some industry groups who say the strict environmental criteria included in the guidelines will stifle development of clean hydrogen projects.

The rules, if adopted, would determine who gets lucrative tax credits provided for hydrogen production under the Inflation Reduction Act. Environmental groups and industry stakeholders had been jockeying to have their concerns heard ahead of the release of the proposed rules.

On Friday, business groups expressed disappointment and said the proposed rules will steer investment in hydrogen to other countries and slow American progress in the field.

"The proposed regulations released today by the Treasury Department...will stunt the growth of a critical industry before it has even begun," said Marty Durbin, president of the U.S. Chamber of Commerce's Global Energy Institute.

"In issuing these regulations, the White House failed to listen to its own experts at the Department of Energy who advocated for the type of flexible and balanced approach necessary to attract investment and stimulate demand for clean hydrogen."

Frank Wolak, president of the Fuel Cell and Hydrogen Energy Association, said the rules ignore Congress' intention when including the credits in the IRA and are instead being used as a "backdoor to regulate use of the electric utility grid."

While not directly criticizing the proposal, Dustin Meyer, senior vice president of Policy, Economics and Regulatory Affairs for the American Petroleum Institute, called on the administration "to finalize a policy that fosters more development and flexibility for hydrogen expansion, not less."

While the administration has focused on electrification as a way to reduce transportation emissions in the light-duty vehicle sector, use of hydrogen is seen as critical in powering heavy-duty vehicles, shipping and industry.

In its announcement about the proposal, the Treasury Department noted that while using hydrogen power can reduce emissions, hydrogen production using conventionally produced electricity can result in "significant climate pollution."

The rules place tight limits sought by environmentalists on the type of power used by producers seeking the hydrogen tax credits, which can be as much as $3 per kilogram of hydrogen produced. These include requiring producers to use power from a clean energy source that began operations within three years of a hydrogen plant going into service, requiring that clean power used by the plants come from the same region as the plant and--starting in 2028--requiring electricity used to produce hydrogen to be generated within the same hour that the electrolyzer claiming the credit is operating. This will likely encourage development and operation of new regional clean energy projects.

"The Clean Hydrogen Production Credit aims to make production of clean hydrogen with minimal climate pollution more economically competitive and accelerate development of the U.S. clean hydrogen industry," the Treasury Department said in Friday's announcement.

Once the proposed rules are published in the Federal Register, the public can comment on them for 60 days.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Steve Cronin, scronin@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com

(END) Dow Jones Newswires

December 22, 2023 15:18 ET (20:18 GMT)