A new tax credit for hydrogen helps out nuclear energy
The Biden administration finalized rules meant to boost domestic production of hydrogen fuel through a new tax credit, a move that might also keep struggling nuclear power plants on line for longer.
The highly anticipated guidelines stipulate what kinds of hydrogen projects can qualify for the tax credit. Hydrogen combustion releases water vapor instead of greenhouse gas emissions, which is why the Biden administration sees it as a more sustainable alternative to fossil fuels. But it takes energy to produce hydrogen, and where that energy ought to come from has been contentious.
After a lot of political wrangling, the Biden administration ultimately loosened the rules to include hydrogen made with the help of some existing nuclear power plants. Specifically, nuclear reactors at risk of shuttering because of financial reasons might be able to benefit from the tax credit.
“The final rule is an important step in the right direction,” Joe Dominguez, president and CEO of the largest nuclear power plant operator in the US, Constellation, said in a press statement. “The final rule allows a significant portion of the existing merchant nuclear fleet to earn credits for hydrogen production.”
The tax credit, called 45V, was established through the Inflation Reduction Act and is worth up to $3 per kilogram of hydrogen production. To qualify, companies have to meet strict requirements to limit pollution.
That’s because whether hydrogen can be considered a clean fuel depends on how it’s made. Today, 95 percent of hydrogen produced in the US is made using gas in a process called steam-methane reforming. Methane is an even more potent greenhouse gas than carbon dioxide. And steam-methane reforming also produces carbon emissions.
The more climate-friendly alternative is to create hydrogen through electrolysis, splitting water into oxygen and hydrogen using electricity. The electricity would have to come from carbon pollution-free sources like solar and wind farms — or nuclear reactors, of course.
But all the recent hype over hydrogen has sparked concerns that the burgeoning industry might use up too much of America’s still-limited carbon-free electricity supply. The worry is that power grids might try to meet rising electricity demand using gas and coal-fired plants, leading to higher greenhouse gas emissions.
To ease those concerns, the Biden administration proposed rules for the hydrogen tax credit more than a year ago that require companies to get electricity from new sources of clean energy. The hope was that, by doing so, the hydrogen industry might help add more renewable energy to the power grid rather than siphoning off limited resources.
It’s a lot harder to build new nuclear power plants than new solar and wind farms, however. The proposal subsequently faced backlash from the nuclear energy companies saying they wouldn’t be able to benefit from the hydrogen tax credit as a result.
After receiving more than 30,000 comments on the proposal, the Biden administration loosened its guidelines. The Department of the Treasury and Internal Revenue Service released the final rules on Friday. They carve out scenarios in which an existing nuclear power plant at risk of retirement can benefit from the tax credit if it’s used to produce hydrogen and meets certain financial tests.
Constellation opposed any requirements that hydrogen production use electricity from newly built sources in order to qualify for the tax credit. The company is involved in plans to build a major hub for hydrogen production in Illinois, a project awarded funding from the Bipartisan Infrastructure Law.
The final rules also ease requirements for renewable energy and make it easier for developers to qualify for the tax credit in states that already have tough clean electricity standards. There are also new carveouts for hydrogen produced with methane that wafts out of landfills, farms, wastewater facilities, or coal mines that might otherwise escape into the atmosphere. In addition, companies can take advantage of the tax credit if hydrogen is made with electricity from a fossil fuel power plant that installs technology to capture its carbon dioxide emissions.
“The extensive revisions we’ve made in this final rule provide the certainty that hydrogen producers need to keep their projects moving forward and make the United States a global leader in truly green hydrogen,” John Podesta, senior adviser to the president for international climate policy, said in a press release.
Most of America’s nuclear power plants were built in the 1970s or ’80s, and the average age of a nuclear reactor in the US is 42 years old. Construction of the first all-new nuclear reactor in the US in decades finished in 2023 — seven years past its original deadline and $17 billion over budget. Next-generation nuclear reactors are smaller and modular, which is supposed to make them easier and more affordable to build. But those designs aren’t expected to become commercially viable until the 2030s.
The nuclear energy industry has also seen a boom of interest over the past year from tech companies in need of more carbon-free energy for AI data centers. Microsoft inked a deal with Constellation to help restart a retired reactor at Three Mile Island, while Google and Amazon announced plans to support the development of advanced small modular reactors.