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The American oil industry has allied with the green energy lobby to ask Republican senators not to axe Joe Biden-era tax credits for clean hydrogen, warning their repeal would enable China to dominate the emerging sector.
The American Petroleum Institute, Business Council for Sustainable Energy and chemical giant DuPont are among dozens of organisations who wrote to senior Republicans in the Senate on Thursday asking for the retention of a $3-per-kg tax credit for clean hydrogen production.
The incentive, which is known as 45V, is one of the tax breaks contained in former president Biden’s Inflation Reduction Act, which the Republican-controlled House of Representatives voted to terminate by the end of the year.
Republicans are seeking to phase out tens of billions of dollars of tax breaks for clean energy projects as they target savings to help pay for sweeping tax cuts promised by President Donald Trump.
But the proposal to axe the hydrogen tax credit has alarmed the oil, gas and chemical industries, who have welcomed Trump’s embrace of fossil fuels but have invested significant funds to develop clean hydrogen projects in the US.
ExxonMobil, which plans to build a multibillion-dollar low-carbon hydrogen facility at its refinery in Baytown, Texas, told the Financial Times this year the project depended on government incentives.
The letter to Senate majority leader John Thune and Mike Crapo, chair of the Senate finance committee, warns that axing 45V would “drive tens of billions of dollars in planned private sector investments out of the United States and into other countries”.
“Failing to act now by preserving 45V means ceding the future of hydrogen to China. While the United States debates its commitment, China is executing a sweeping and co-ordinated strategy to dominate the global hydrogen supply chain,” said the letter.
“In 2020 China held less than 10 per cent of global manufacturing capacity for hydrogen production technology, but it now holds more than 60 per cent of the industry,” said the letter. “If the United States pulls back on 45V, it risks repeating the path of other industries — where China captured global leadership while America stood still.”
The letter urges the Republican senators to retain the 45V tax credit through at least the end of 2029, warning that anything less puts “billions in committed investments” and “thousands of jobs” at risk.
Wood Mackenzie estimates that if the 45V tax credit is terminated, 95 per cent of the green hydrogen projects that have been announced will be at risk.
Many developers may be forced to cancel their projects if the tax credit is axed since most projects are not financially viable without it. The industry is still in its early stages, keeping costs high and making subsidies essential to bridge the gap.
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Air Products, on of the world’s largest hydrogen developers, cancelled a green hydrogen facility in New York this year because it was ineligible for the 45V tax credit. HIF Global, an e-fuels company that is developing an e-methanol plant in Matagorda County, Texas, warned in 2022 that the project would be “uneconomic and could not be constructed” without tax credits.
Even with subsidies, the cost of the green fuel is much higher than grey hydrogen — a fuel produced from natural gas — causing weak demand.
BloombergNEF estimated that the average levelised cost of green hydrogen ranged between $3.74 and $11.70 per kg, compared with grey hydrogen, which is produced from natural gas, that costs from $1.11 to $2.35 per kg.
