A political quagmire is holding up 45V

It’s been nearly nine months since the Treasury Department released proposed guidance for the clean hydrogen production credit outlined in the Inflation Reduction Act. But the swell of industry opposition that the guidance unleashed remains — as does uncertainty and tension over the timing and structure of the final rules.

To a certain extent, the fate of 45V hinges on the outcome of the November elections, which could certainly impact when final guidance is released. But perhaps more significant to the ultimate shape of the rules is the recent Supreme Court decision overturning the Chevron doctrine, a move that many believe has made it impossible for Treasury to finalize the most controversial elements of the guidance: the so-called “three pillars” of additionality, deliverability, and hourly matching.

When it comes to timing, there’s general consensus that the long delay is harming the nascent domestic green hydrogen industry before it’s had a chance to get off the ground. Many developers have already reported that they’re pumping the brakes on certain projects and looking outside the U.S. for new development prospects.

Nonetheless, no one expects final guidance in the immediate term. Instead, many developers are operating under the assumption that final rules won’t come until after the presidential election, likely in the coming lame-duck session. 

However, now that courts are no longer required to defer to agency interpretations of laws, there’s a chance that some sort of 45V update could come sooner — in the form of a Treasury decision to shave off at least one of the three pillars from its proposal.

Election impacts

In the weeks and months following the release of the guidance, many developers argued that the proposed three pillars would create both technical and financial challenges that would seriously hamper the growth of the domestic hydrogen industry. Others, however, both anticipated and have embraced the stringent rules. 

The guidance as currently proposed will inevitably face some legal challenges from the industry, said Jason Munster, a hydrogen consultant who led the commercial analysis of 45V for the Department of Energy. For that reason, a Kamala Harris win in November could mean the administration has leeway to delay the final rules a little further while they work to make them lawsuit-proof, he added, though likely not past December.

Lawsuits will almost surely be centered around the three pillars, particularly the requirements that electrolyzers be powered by clean energy generated within the same hour it's used (hourly matching), and that all electricity must come from generation that comes online within 36 months of the hydrogen facility (additionality).

Courts are likely to look for precedent to back up these elements of the regulation, Munster said, and won’t be able to find any.

“The original guidance made no reference to three pillars, and there’s no history of any other guidance that references three pillars,” Munster said. The IRA text defines “qualified clean hydrogen” as “produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than four kilograms of [carbon dioxide equivalent] per kilogram of hydrogen.”

The groundwork for lawsuits challenging the guidance, which many expect will ultimately end up before the Supreme Court, is already underway in D.C., Munster said.

“Within days or weeks of the rules being finalized, lawyers will put final touches on responses and then file cases,” he said, though he added that lawsuits could potentially be avoided if the final guidance includes something like grandfathering for early projects. Without changes, however, the likely lawsuits would mean another few years before the industry has firm guidance.

BloombergNEF hydrogen analyst Payal Kaur said that while Chevron may not impact the timeline of the final rules, the decision makes it easier for eventual lawsuits to prevail. In part as a result, Treasury may make some type of announcement on 45V in the nearer-term, Kaur said, pointing to comments made by Plug Power president and CEO Andy Marsh during the company’s earnings call in early August.

“We won’t be surprised if there’s some announcement after the Democratic convention,” Marsh said. “I think you’ll see relaxation associated with additionality,” he added. Post-election, he expects the hourly matching pillar to face scrutiny.

Another hydrogen developer told Latitude Media they’re also expecting Treasury to walk back the three pillars to some extent. They added that their conversations with the Department of Energy have supported that expectation. As one DOE official reportedly told the developer: “The additionality pillar is definitely dead.”

Unifying forces

The Chevron repeal may have another unexpected effect, though, in reopening opportunity for cooperation within the industry and its adjacent stakeholders. The potential loosening of the three pillars, the developer said, could ultimately bring both sides of the debate to the negotiating table.

“Some amount of negotiation might take place between enviros who may be dug in [on additionality and hourly matching] and industry participants,” they said. “And we’ll all collectively suggest to Treasury that they put out guidance that looks a certain way, and we’ll all go back to continuing to execute.”

But those negotiations don’t seem to be happening yet, despite seemingly broad consensus that the three pillars are now on unstable ground. That’s in part because the clean energy industry broadly is currently caught up in the whirlwind of increasing power demand, the developer added, which has taken some of the focus off of hydrogen.

The trade group American Clean Power, for example, which was involved in 45V conversations with the Biden administration, isn't as “out in front of this” as they were meant to be. And conversations that could bring about some consensus in the wake of Loper Bright, if they’re happening at all, haven’t spread to the industry at large.

As the developer put it: “My phone’s not ringing off the hook.”