Decarbonisation Technology - November 2023 Issue

Drive adoption of low - carbon hydrogen as a technically and economically viable decarbonisation mechanism

Clarify economic incentives and provide clear signals to marketplace and capital investors

Avoid double counting of low -c arbon hydrogen across the supply chain

Provide consistent certification and boundaries of low - carbon hydrogen production methods, energy sources , and carbon intensity

Enable a global marketplace and contracting options to bring together makers and consumers

Outline a pathway to bring scalable production of low - carbon hydrogen to the market through effective R&D innovations and efficient investments

Figure 3 Why do we need standards, regulations, and certification?

fuels, a mechanism exists within the LCFS framework to generate credits from low-carbon hydrogen generation. One positive element of this mechanism is that the achievement of credit generation is technology-neutral, such that the marketplace can find the most efficient way to decarbonise a given product and maximise credit generation. The carbon intensity of various production methods is clearly defined within the scheme, either through the use of a Lookup Table method or Tier 2 method, and more than 30 entities are accredited verification bodies to certify adherence, thereby providing transparency within the marketplace. The approach is helping to drive the production of low-carbon hydrogen for use in transportation sectors, either through the use of low-carbon hydrogen in fuel cells or the use of renewable hydrogen for the production of renewable transportation fuels. However, the system has a long way to go to achieve the strategy targets.

Other states within the US and other parts of North America are looking to adopt similar mechanisms to drive hydrogen adoption.

Inflation Reduction Act (IRA) and production credits

To further drive the adoption of low-carbon hydrogen within the US, the Inflation Reduction Act (IRA) of 2022 introduced two new/expanded tax credits on top of the $8 billion in provisions for hydrogen hubs introduced in 2021 with the Infrastructure, Investment, and Jobs Act (IIJA). The Section 45V credit involves a sliding scale to provide Production Tax Credits (PTC) for 10 years or Investment Tax Credits (ITC), both based on the life cycle emissions. The Section 45Q credit takes an existing credit for carbon sequestration and increases the value. Producers can take one of the credits but not both. As shown in Table 1 , producers that can make green hydrogen or highly decarbonised blue hydrogen will get the largest credit. Based on typical emissions, conventional hydrogen production from natural gas without carbon sequestration will not be eligible for the credits. Therefore, the only production methods that will be eligible will be partial or full carbon capture on steam methane reforming using natural gas or renewable gas and electrolysis hydrogen from renewable power. Both of these incentives drive the cost of production for blue and green hydrogen closer to that of

Life cycle emissions ITC percentage

PTC value

(kgCO 2 eq/kg H 2 )

(2022$/kgH 2 )

2.5 to 4.0 1.5 to 2.5 0.45 to 1.5 0 to 0.45

6.0% 7.5% 10% 30%

0.50 0.75 1.00 3.00

Table 1 Life cycle emissions determine the level for Investment Tax Credits (ITC) and Production Tax Credits (PTC) under the Inflation Reduction Act


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