US Treasury Department Regulations to Safeguard Taxpayers and Climate with Clean Hydrogen Production
Key Ideas
  • New US Treasury Department regulations align with a study's recommendations to prevent potential misuse of tax credits by hydrogen producers.
  • The study suggests safeguards to limit distortions related to the types of feedstocks used and the calculation of carbon intensity scores.
  • Researchers emphasize the importance of anticipating and addressing potential distortions in environmental policy design.
  • The study underscores the risk of subsidizing technologies that may not remain 'clean' once tax credits expire, suggesting provisions to reclaim credits if practices revert to polluting.
A new study published in IOP Publishing’s journal Environmental Research: Energy sheds light on the potential impact of new safeguards adopted by the US Treasury Department regarding hydrogen production. Without these safeguards, hydrogen producers could exploit tax credits by blending fossil natural gas with alternative methane feedstocks, resulting in extra taxpayer costs and excess emissions. However, the final regulations aim to prevent such misuse by prohibiting blending and setting technical safeguards. The study, conducted by researchers from the University of Notre Dame, Princeton University, and the University of Pennsylvania, examined the Clean Hydrogen Production Tax Credit and Clean Electricity Production Tax Credit established under the 2022 Inflation Reduction Act. It emphasizes the importance of defining 'clean' energy accurately and the necessity of thorough lifecycle analysis in environmental policy design. The researchers' analysis highlights the risks associated with certain feedstocks and the calculation of carbon intensity scores. It recommends measures such as prohibiting feedstock blending, assigning negative carbon intensity scores only to activities that remove carbon, and requiring baseline scenarios for deep climate action. The study's findings have influenced the Treasury Department's regulations, ensuring that hydrogen producers consider methane capture and flare scenarios. The study also extends its recommendations to clean electricity tax credits, emphasizing the need for policymakers to anticipate and prevent potential distortions in policy implementation. The research underscores the need for meticulous policy design to avoid subsidizing technologies that may not uphold 'clean' standards post-tax credit expiration. The authors advocate for provisions to revoke tax credits if facilities transition to more environmentally harmful practices. Overall, the study urges policymakers to implement safeguards and anticipate potential distortions in environmental policy to ensure effective and sustainable use of tax credits.
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