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Clean energy journalism for a cooler tomorrow

The power used to make green hydrogen must be tracked down to the hour

Big fossil incumbents claim that hourly accounting for hydrogen tax credits is too complicated — but plenty of startups and nonprofits are already doing it today.
By Jeff St. John

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A graphic showing illustrations of hydrogen molecules. Inside one of the molecules is a blue-tinted photo of clocks.
(Binh Nguyen/Canary Media)

Canary Media’s Down to the Wire column tackles the more complicated challenges of decarbonizing our energy systems.

This is the last of a three-part Down to the Wire series on how the federal government should design rules for the hydrogen tax credit under the Inflation Reduction Act. Read part one and part two.

Ben Gerber, CEO of the Midwest Renewable Energy Tracking System, has no doubt that the U.S. government could structure its multibillion-dollar hydrogen tax-credit regime in a way that reduces carbon emissions rather than increases them.

That’s because his nonprofit, which manages renewable energy certificates that companies use to verify that they’re buying clean energy, has already been doing the work that could help make it happen.

Since 2019, the Midwest Renewable Energy Tracking System has been providing a way to track and validate renewable energy certificates not just on an annual basis — the system that’s been used for more than a decade — but down to the hour that the clean energy is produced. Those hourly time stamps are critical pieces of data for companies such as Google, Microsoft and others that are aiming to use 24/7 carbon-free energy, which means matching the clean energy they buy to the energy they consume every hour of every day.

But hourly tracking isn’t just a way for corporate buyers to enter the next phase of climate-conscious energy purchasing, Gerber says. It’s also an invaluable tool for ensuring that tens of billions of dollars in federal hydrogen production tax credits are given to hydrogen producers that aren’t making climate change worse.

The Inflation Reduction Act’s Section 45V hydrogen production tax credits, which offer up to $3 per kilogram for hydrogen produced with low or no carbon emissions, are a very rich incentive that turns ongoing projects that were borderline economic to very profitable,” Gerber said. And it’s very clear from a statutory standpoint that the goal is to reduce carbon emissions.”

That’s why the Midwest Renewable Energy Tracking System (M-RETS) signed on to a letter that calls for the Biden administration to require hourly matching for hydrogen projects to be eligible to earn tax credits for low-carbon production, meaning that the clean energy that powers the hydrogen-production process must be produced in the same hour it’s used. (The letter also calls for requiring additionality” and deliverability”; you can find detailed explanations of those terms in part one of this series.)

The February letter, spearheaded by the Natural Resources Defense Council, was also signed by other environmental groups, developers of clean-energy and hydrogen projects, and other companies and consortiums working on the technology and methodologies for granular energy certification. Those in the latter category include Electricity Maps, a Danish company that’s tracking electricity emissions in Europe, North America and other parts of the world; EnergyTag, a consortium that’s created the world’s first proposed standard for granular certificates” for tracking time, location and emissions values for energy trading; and FlexiDAO, a European software provider working with companies including Google and Microsoft to collect and track data for their 24/7 clean energy” initiatives.

Hourly matching, additionality and deliverability are the foundation of efforts to move the world from overly simplistic annual averaging of clean-energy purchases to a system that can match when clean energy is needed to when it’s actually available. Corporate clean-energy buyers such as Google and Microsoft, international carbon-accounting entities such as the GHG Protocol, and government agencies in Europe and the U.S. are all working on hourly clean-energy accounting in pursuit of this goal.

Now, after years of work, the structures to measure and verify these clean-energy attributes have moved from pilot projects to real-world implementation. M-RETS has more than 120 million hourly renewable energy certificates in its tracking system, collecting data from grid operators that serve the U.S. West, Great Plains and Midwest regions. And last month, PJM — the country’s biggest grid operator, serving a region stretching from the mid-Atlantic coast to Chicago — started offering hourly time-stamped energy certificates across its 13-state market.

All of this work contradicts claims made by companies including BP, NextEra Energy, Plug Power and others with large-scale hydrogen ambitions that hourly matching, additionality and deliverability are too complicated and onerous to be part of the government’s hydrogen tax-credit regime.

We’ve seen some comments, not so detailed, that basically say this is a pipe dream, that it’s not possible,” Killian Daly, executive director at EnergyTag, said of critiques of the policies advocated in the February NRDC letter. That’s not true.”

M-RETS is the biggest tracking platform in the world, not to mention the U.S., and they already offer hourly tracking across their systems,” all on a budget of about $1.5 million a year, he said. They can [start tracking] in places where they’re not currently active, as long as they have the hourly data.”

The big question is whether the U.S. Treasury Department and the Internal Revenue Service, which are in charge of writing the rules for how the hydrogen tax credit is administered, will require that companies disclose and use this hourly tracking data to back up their claims of low-carbon hydrogen production.

Right now, it’s far from clear how the agencies will navigate the conflicting demands from industry players on this front. Nor is it clear whether and how the federal government will require the utilities that control the underlying data, some of which may be fundamentally opposed to hydrogen tax credits, to disclose it to third-party tracking platforms.

Some big corporate players say hourly matching isn’t feasible, but experts disagree

Hundreds of industry participants of all stripes filed public comments with the IRS on the hydrogen tax-credit issue. The mixed bag of viewpoints expressed in the comments makes clear just how challenging it could be for the federal government to craft rules that embed hourly matching into its clean-hydrogen accounting methodology.

Oil and gas companies, many of which are now directly involved with the production of hydrogen from fossil gas, insist that hourly accounting would place undue cost and complexity burdens on a nascent industry.

While a small number of balancing authorities are beginning to provide less than annual granular marginal emission rates, there are many that do not,” the American Fuel & Petrochemical Manufacturers trade group wrote in its comments to the IRS. Without complete approved datasets available[,] calculating the emissions associated with the production of hydrogen becomes guesswork and is not scientific in nature.”

Valero, a major oil refining company, stated in its comments, The burden of tracking, operating and auditing data based on an hourly analysis is infeasible and disincentivizes the development [of] low carbon hydrogen projects.” The statement went on to cite the complexities of auditing the data in ways that producers and regulators could agree on.

But proponents of stricter rules for hydrogen tax credits say arguments like these ignore the rapid progress being made in the field of hourly clean-energy accounting. It’s true that not every renewable energy certificate registry in the U.S. has set up hourly energy tracking, Daly said. But to enable it for a U.S. registry would typically take 12 to, maximum, 18 months,” he said. We know that because we know that M-RETS and PJM have done this before.”

That’s faster than the two years at minimum that it will take to get large-scale hydrogen electrolysis projects up and running, said Daly, who formerly served as energy strategy manager for hydrogen giant Air Liquide. That company’s 20-megawatt electrolyzer system in Canada is one of the largest green-hydrogen production facilities currently operating in the world, and yet it accounts for less than one-tenth of 1 percent of the world’s total hydrogen production today, he noted.

There is an impression out there that hourly tracking won’t be ready for years and that electrolyzers are ready to start tomorrow,” he said. It’s the other way around.” 

Plug Power, a fuel-cell company that’s planning to build hydrogen electrolysis facilities across the U.S., is aligned with the oil industry in calling for annual clean energy accounting, not hourly. The company suggested in its comments to the IRS that the Inflation Reduction Act doesn’t give the Treasury Department the authority to impose more stringent time or location accounting rules.

But Rachel Fakhry, who leads the hydrogen and energy innovation portfolio at the Natural Resources Defense Council, disputed this. The text provides the Treasury the broad regulatory authority to implement a system,” she contends. We are convinced after significant legal analysis that this is doable.” (Listen to Fakhry discuss hydrogen tax credits with Canary Media Editor-at-Large David Roberts on the Volts podcast.)

The federal government’s existing structures for measuring the carbon impacts of hydrogen can be adapted to include hourly matching and deliverability, she added. The Inflation Reduction Act requires the use of the GREET model (Greenhouse gases, Regulated Emissions, and Energy use in Technologies), developed by the Department of Energy’s Argonne National Laboratory, to quantify the greenhouse gas emissions associated with hydrogen production.

Right now the model is designed to use average grid emissions figures to calculate the carbon impacts of hydrogen electrolysis, rather than tracking contractual energy deliveries. But I don’t know of any reason why GREET could not be revamped to account for [renewable energy certificates] or other boundary conditions,” including hourly clean-energy matching, Fakhry said.

Getting the necessary data might not be easy

All of these potential solutions for matching clean energy to hydrogen production on an hourly basis rely on a key ingredient, however: the data to track the time and location of clean energy as it’s generated and consumed.

Today, this data resides with vertically integrated utilities and independent power producers that own and operate power plants. It’s also provided to the independent system operators and regional transmission organizations that manage energy markets on transmission grids that provide electricity to about two-thirds of the U.S. population.

In regions served by independent system operators and regional transmission organizations, accessing data should be relatively straightforward, EnergyTag’s Daly said. PJM has already made hourly energy-tracking data available. M-RETS has enabled hourly energy-data tracking in the territories of Midcontinent Independent System Operator and the Southwest Power Pool, which cover a vast swath of the middle of the country.

The basic ingredients are hourly production and consumption data, and some unique identifiers in the middle to make sure nobody’s doing it twice,” Daly said — meaning a way to prevent companies that trade renewable energy certificates from double-counting” their environmental benefits.

The energy-tracking systems serving New England, New York and Texas are set up such that only one registry can track the environmental attributes” of power plants. If hourly tracking is not offered by these registries, M-RETs (or other third-party providers) can track in places where they’re not currently active, as long as they have the hourly data.”

But other parts of the country aren’t organized into regional transmission organizations and independent system operators, including much of the Intermountain West, as well as the Southeastern U.S. In those regions, utilities control the underlying data needed for hourly energy accounting. M-RETS CEO Gerber said his nonprofit could conduct similar hourly tracking in those regions since utilities can report the data to us.”

It’s not clear whether the utilities in these regions — including Florida Power & Light, the subsidiary of NextEra, an opponent of hourly tracking for hydrogen tax credits — would be required to cooperate, however.

Daly said that federal rules for the hydrogen tax credit could compel utilities to make this data available if they want to provide electricity to hydrogen producers. If there’s an hourly requirement in law, any utility or supplier that wants to be part of these markets has to develop hourly tariffs, has to get hourly data in place; otherwise, they’re not going to be set up to do business in this new space.”

But NextEra and other utilities might push back against such rules. The Edison Electric Institute, a trade group for investor-owned utilities in the U.S., noted in its comments to the IRS that requiring hourly matching would disadvantage producers in parts of the country that lack the wind and sun resources for rapid clean-energy growth.

Ongoing developments at the federal level could push the availability of hourly energy data nationwide, however. The Clean Energy Buyers Association, a trade group that includes most of the country’s biggest corporate clean-energy purchasers including Amazon, Disney, Google, Meta, Microsoft, Salesforce and Walmart, noted in its comments to the IRS that the infrastructure law passed by Congress in 2021 calls for the Department of Energy to develop a publicly available dashboard detailing the [greenhouse gas] emissions data of every megawatt-hour of electricity generated and harmonize the data it collects with data from the Environmental Protection Agency and other federal agencies.”

Pulling together this nationwide data set and using it to confirm the carbon impact of hydrogen could send more powerful, targeted market signals that better align the expansion of clean hydrogen production with systemic grid decarbonization,” CEBA wrote. Failing to do so, on the other hand, invites diminished confidence that hydrogen will be clean and weakens the potential of market signal impacts.”

On the other hand, the lack of a clear nationwide structure for hourly matching today could be a barrier to putting rules in place. In a March report, research firm Rhodium Group summarized its findings indicating that annual clean-energy matching for hydrogen will likely cause increased carbon emissions compared to an hourly framework. But it also states that “[h]ydrogen projects will likely have difficulty securing financing if developers need to meet an hourly matching requirement with no common framework for compliance.”

Learning from Europe’s example

Backers of hourly tracking highlight another proof point for its practicality: Europe’s embrace of the method to ensure its huge hydrogen plans don’t end up increasing carbon emissions.

Up until a few weeks ago, this was in doubt. In their comments to the IRS filed late last year, the Edison Electric Institute, Plug Power, NextEra and other opponents of hourly matching noted that the European Commission appeared to be backing away from rules that would require green-hydrogen producers to match their production with clean power, arguing that that was an indication that similar rules wouldn’t work in the U.S.

But in February, the European Commission changed course and issued a renewable hydrogen directive that is centered around hourly matching, additionality and deliverability.

The fact that those three pillars are there and have survived is a good thing. This was not a given three months ago,” Daly said. 

Europe’s new clean-hydrogen rules could provide a model for U.S. policymakers of one way to design ambitious regulations — by gradually phasing in stricter requirements. For example, the rules won’t require hourly matching of clean electricity supply with hydrogen production until 2030. But projects built before that year won’t be allowed to continue operating under looser annual matching after the deadline passes. Instead, they’ll have to adapt to the more stringent hourly matching regime from 2030 onward.

That’s really important” because these electrolyzers, once built, will be around for decades,” Daly said.

Meanwhile, deliverability rules will require both hydrogen production and the clean power serving it to be connected to the same grid-bidding zone, roughly corresponding to national borders across most of Europe.

As for additionality, Europe’s new rules will require most clean hydrogen producers that start production in 2028 or after to have energy-purchase agreements with sources of renewable energy that have been built no more than three years before the hydrogen facility is built, he said. Hydrogen facilities built before 2028 won’t be subject to additionality rules for their first 10 years of production but will then have requirements phased in, he said.

Daly stressed that the transition periods aren’t as strict as many European environmental groups had hoped for. But given that it will take years for new hydrogen production to be built, the vast majority of hydrogen will be produced with hourly matching” under the new rules, he said.

Those rules will help ensure that Europe can meet its REPowerEU goal to produce 10 million metric tons of renewable hydrogen per year by 2030 and import another 10 million from outside the European Union, all without increasing emissions or causing electricity shortages, Daly noted. Hitting that scale will require an estimated 500 terawatt-hours of annual electricity generation, or about 14 percent of total EU electricity consumption forecast for 2030.

Strict rules will be even more important for the U.S., he added. Europe’s greenhouse gas policy structures are much more stringent than those in the U.S., with mandated limits and financial penalties for companies that fail to hit targets. In the U.S., by contrast, there are no federal carbon taxes to penalize companies for increasing emissions. The Inflation Reduction Act is almost entirely structured around financial rewards for companies that invest in clean technologies.

There’s potentially so much money going into hydrogen [that] if you give people a lot of money to do the wrong thing,” investments could quickly start driving carbon emissions in the wrong direction, Daly said. 

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.