Tackling the Cost of Clean Hydrogen under the Bipartisan Infrastructure Law and the Inflation Reduction Act

[This is the third post in our Hydrogen Blog Series. Read the first post here and the second post here]

One of the biggest hurdles for clean hydrogen is high costs.  The Department of Energy graph below says it all.  Today, a kilogram of hydrogen produced by electrolysis costs around $5 to $7.  When compared to the estimated $1 to $2 per kilogram for conventionally produced hydrogen with carbon capture and storage, it’s easy to see why most industries likely won’t adopt hydrogen produced via electrolysis until it becomes much cheaper.

The federal government has enacted a slew of policies meant to lower the cost of clean hydrogen and address other market pressures.  Those policies invest significantly in developing clean hydrogen at scale.

  • The Bipartisan Infrastructure Law (“BIL”) appropriated $1 billion for a Clean Hydrogen Electrolysis program, $500 million for clean hydrogen manufacturing and recycling research and development, and $8 billion for a Regional Clean Hydrogen Hubs program. The Hydrogen Hubs program is especially interesting.  $7 billion of the $8 billion appropriated amount will go to establishing between 6 and 10 regional “networks of hydrogen producers, consumers, and local connective infrastructure to accelerate the use of hydrogen as a clean energy carrier that can deliver or store tremendous amounts of energy,” according to DOE.  We’ll take up Hydrogen Hubs in our next post.
  • The Inflation Reduction Act (“IRA”) established the Hydrogen Production Tax Credit to further incentivize clean hydrogen projects. The credit provides up to $3 per kilogram of “qualified clean hydrogen,” which the Act defines as “hydrogen which is produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.”  The full $3 credit is available for hydrogen whose lifecycle emissions fall below 0.45 kilograms CO2e per kg of hydrogen. We expect IRS to issue guidance on the credit later this year.
  • The IRA also indirectly encourages hydrogen’s growth in other provisions and programs, including (1) grants and loans for automakers to make clean vehicles, (2) the tax credit for sustainable aviation fuel, which could be produced using hydrogen; (3) grants to reduce emissions at ports, which could include using hydrogen to reduce maritime emissions; and (4) grants for heavy-duty clean vehicles.
  • The Department of Energy has released a draft Clean Hydrogen Strategy and Roadmap last year. The Roadmap outlines how the Department will coordinate its various hydrogen incentive programs, including its “Hydrogen Shot,” with the goal of cutting “the cost of clean hydrogen by 80 percent to $1 per 1 kilogram of hydrogen in 1 decade.”
  • The Departments of Energy, Transportation, and Housing and Urban Development and EPA released the National Blueprint for Transportation Decarbonization, which identifies hydrogen as a critical component of efforts to decarbonize the transportation sector.

The federal government is beginning to roll out many of those critical programs.  The Department of Energy will soon release $750 million in BIL funding for hydrogen projects in the Clean Hydrogen Electrolysis Program and for Clean Hydrogen Manufacturing and Recycling research and development:

Topic 1: Low Cost, High-Throughput Electrolyzer Manufacturing: Research, development, and demonstration (RD&D) that accelerates manufacturing innovations, so that electrolyzer stack manufacturers can achieve greater economies of scale.

Topic 2: Electrolyzer Component and Supply Chain Development: Research and development (R&D) of advanced components critical to accelerate the commercialization of electrolyzers.

Topic 3: Advanced Electrolyzer Technology and Component Development: R&D that develops materials, components, and designs that are at lower technology readiness levels (TRL) but show promise in achieving long-term cost, performance, and lifetime goals in next generation of electrolyzer technologies.

Topic 4: Fuel Cell Membrane Electrode Assembly and Stack Manufacturing and Automation: RD&D that accelerates fuel cell manufacturing innovation and scale-up by enabling diverse fuel cell manufacturer and supplier teams to flexibly address their greatest scale-up challenges and achieve economies of scale in medium- and heavy-duty vehicle (MDV/HDV) and cross-cutting applications.

Topic 5: Fuel Cell Supply Chain Development: R&D to address critical deficiencies in the domestic supply chain for MDV/HDV fuel cell materials and components.

Topic 6: Recovery and Recycling Consortium: Establish a single, broad-based nonprofit- or university-led consortium of industry, academia, and national labs to address a range of recovery, recycling, refurbishment, and reuse challenges for fuel cell and electrolyzer stacks and components.

The deadlines for this funding round are approaching.  Concept papers were due on April 19, 2023, and full applications, on July 19, 2023.

These federal programs show that the Administration is aligned in backing clean hydrogen as a key decarbonization solution.  In the next post, we’ll take a closer look at developments in the Hydrogen Hubs program.

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