Why IRA hydrogen tax credit is lightning rod for controversy

One of the most generous tax credits in Biden’s landmark climate bill, the Inflation Reduction Act, is the production tax credit for making hydrogen, which is worth as much as $100 billion.

When hydrogen is used in a fuel cell to generate electricity, water is the only by-product. Generating energy from hydrogen this way does not create carbon dioxide, one of the primary greenhouse gases that causes global warming. Also, hydrogen is a vehicle for storing energy over long periods of time.

Hydrogen is already produced at scale for use in making fertilizer and in the petrochemical industry. But more recently, hydrogen is being seen as a way to decarbonize industries like maritime shipping, long-haul trucking, steel-making, industrial heating, and aerospace. Also, its capacity as an effective way of storing energy makes it attractive for renewable energy sources, like wind and solar, which are inherently intermittent — wind turbines make energy when the wind blows, and solar panels make energy when the sun shines.

However, the only way hydrogen can be a viable solution for reducing carbon emissions is if it can be produced without releasing greenhouse gas emissions. By and large, that’s not the case today.

The proposed tax credit, 45V, is meant to turbocharge the production of low-emissions hydrogen. It’s now up to the Treasury to figure out how to implement it — and that’s the tricky part. The debate centers around how best to write rules that make sure that the hydrogen produced is actually clean so that it can be used as a climate-mitigation tool.

“The IRA’s section 45V production tax credit is the most generous clean hydrogen subsidy in the world,” Jesse Jenkins, professor of macro-scale energy systems at Princeton University, told CNBC.

“But without proper implementation, 45V could backfire, wasting a tremendous opportunity for the United States to become a global leader in new clean industries and causing a significant increase in domestic emissions that imperil U.S. climate goals.”

The adjudication of the hydrogen tax credit has become about more than just the hydrogen tax credit, too. It could also set important precedents for how the government decides electricity used from the grid is really “clean.”

“The hydrogen debate is at its surface level about defining clean hydrogen production, but more fundamentally it’s about what an individual actor needs to do to credibly claim that their electricity consumption is clean,” Wilson Ricks, who works in Jenkins’ Zero-carbon Energy systems Research and Optimization research lab at Princeton, told CNBC.

“Hydrogen is the first time…