Trump’s tax bill poses existential threat to US green hydrogen industry

Hello and welcome to Energy Source, coming to you from New York.

Europe has fallen too far behind in battery technology and will not be able to develop an entirely autonomous industry, warned the chair of French miner Eramet and the chief executive of Umicore, a specialist in the production and recycling of battery materials. In an interview with my colleague Camilla Hodgson, they suggested that instead of trying to catch up with Asian counterparts, European companies should partner with Chinese groups.

Developing an independent clean energy industry has also been a challenge in the US, and it faces an uncertain future as Donald Trump’s flagship tax and spending legislation plans to cut tax credits for the sector.

In today’s Energy Source, we take a look at how Trump’s tax bill could threaten the nascent green hydrogen industry that heavily relies on government subsidies to make its projects financially viable.

Thanks for reading — Alexandra

The US green hydrogen industry is on the brink

Former US president Joe Biden’s flagship climate policy, the Inflation Reduction Act, is on track to be gutted by the Republican-controlled Congress after the House of Representatives passed Donald Trump’s tax bill by a single vote last week. 

The bill included the termination of a plan to provide a $3 per kilogramme tax credit, known as 45V, for green hydrogen production. The industry faces an existential threat if the Senate passes the House’s bill as very few projects could survive without the lucrative credit.

Green hydrogen, a fuel produced using renewable energy, is crucial for steel and other heavy industries to decarbonise. Wood Mackenzie estimates that if the 45V tax credit is terminated at the start of next year, 95 per cent of the green hydrogen projects that have been announced are at risk, potentially forcing developers to determine whether to accelerate, postpone or cancel their projects.

“There are a lot of [green hydrogen] projects that don’t make financial sense without the tax credits,” said Aaron Bergman, a fellow at Resources for the Future. “There were already a lot of challenges in the hydrogen industry . . . but the repeal of the tax credits would certainly make things much worse.”

The industry has already struggled with weak demand due to the high cost of the fuel and policy uncertainty. Now it may be on the brink, threatening the US’s leadership in the global green fuels market.

George Keil, vice-president of Americas hydrogen strategy at Aecom, an infrastructure consulting group, said at least a dozen green hydrogen projects have been cancelled this year across the US, including some that are a part of Department of Energy-funded hydrogen hubs. 

“We have clients that cancelled projects in the US and I believe that is a direct correlation between the market and the 45V [tax credit],” Keil said.

Air Products, one of the world’s largest hydrogen developers, cancelled three projects this year, resulting in a $3.1bn writedown. The cancelled projects included a green hydrogen facility in New York that was killed because it was ineligible for the 45V tax credit. 

Australia’s Fortescue said earlier this year it was reassessing its timelines for its green hydrogen projects, including a facility in Arizona.

But some industry insiders are optimistic that the Senate will be more flexible, as lobbying efforts are ongoing.

“We’re optimistic that the Senate bill will take a very different approach,” said Jeremy Harrell, chief executive of ClearPath, a clean energy organisation. 

Traci Kraus, executive director of government relations at Cummins, which manufactures equipment for the green hydrogen industry, said the company had had some “great conversations” with policymakers. 

“Republican senators understand that this is not just about clean energy but it’s also about energy security and independence and US competitiveness so that does make me optimistic,” Kraus said. 

But even with the tax credit, the economics of many green hydrogen projects are already complicated. Thomas Koch Blank, managing director at the Rocky Mountain Institute, a clean energy think-tank, said that green hydrogen was “already at a premium” and without the 45V tax credits “the premium becomes higher”.

BloombergNEF estimated in a report published last year that without subsidies or carbon prices, hydrogen produced by renewable energy would not be as cost competitive as grey hydrogen, which is produced from natural gas, even by 2050. 

The average levelised cost of green hydrogen ranges between $3.74 to $11.70 per kilogramme, compared with grey hydrogen that costs from $1.11 to $2.35 per kilogramme, according to BloombergNEF.  

The high cost of the fuel has been challenging for both small and large developers. Plug Power, one of the largest US hydrogen fuel and equipment manufacturers, once aimed to produce 500 tonnes of green hydrogen in North America per day by 2025, but is currently only producing about 40 tonnes per day.

In its most recent quarter, the group’s equipment sales and related infrastructure accounted for nearly 50 per cent of total revenue, while its fuel delivery segment was only 22 per cent. The cost of delivering that fuel was nearly double the revenue the unit generated in the quarter.  

“I think the original goal of becoming a leading producer and seller of clean hydrogen is over,” said Tom Curran, an analyst at Seaport Global.

Many companies have already invested millions of dollars in projects that could be at risk if the subsidies are terminated. 

“If the 45V tax credit was cut off prematurely, it is fundamentally unfair to projects like [ours] that have already invested hundreds of millions of dollars in project development capital,” said Lee Beck, senior vice-president of global policy and commercial strategy at HIF Global, an e-fuels company that is developing an e-methanol plant in Matagorda County, Texas.

Asked whether HIF Global would cancel the Matagorda project if 45V was terminated, Beck said the company would have to “go back to the drawing board”.

HIF Global warned in 2022 that without tax credits the project would be “uneconomic and could not be constructed” in a letter to the Internal Revenue Service. (Alexandra White)

Job moves

• Chesapeake Utilities Corporation has appointed Abhijit Bhatwadekar as chief information officer.

• Solar Alliance Energy named Jawad Chugtai as chief financial officer, replacing Christina Wu, who resigned from the position.

• Copper 360 has appointed Graham Briggs as its new chief executive. He will replace Shirley Hayes on June 1.

Power Points

• Chinese billionaire Li Zhenguo has stepped back from day-to-day management of solar group Longi, as the sector is hit with falling profits and weak demand.

• The US Supreme Court rejected an appeal from Native American groups who opposed Rio Tinto’s new copper mine in Arizona.

• Greenland’s business minister warned that it would look to China for help exploiting its minerals if US and European mining companies don’t invest in the Arctic territory.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.