You’re out of free articles.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Sign In or Create an Account.
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Welcome to Heatmap
Thank you for registering with Heatmap. Climate change is one of the greatest challenges of our lives, a force reshaping our economy, our politics, and our culture. We hope to be your trusted, friendly, and insightful guide to that transformation. Please enjoy your free articles. You can check your profile here .
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Subscribe to get unlimited Access
Hey, you are out of free articles but you are only a few clicks away from full access. Subscribe below and take advantage of our introductory offer.
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Create Your Account
Please Enter Your Password
Forgot your password?
Please enter the email address you use for your account so we can send you a link to reset your password:
The rapid increase in demand for artificial intelligence is creating a seemingly vexing national dilemma: How can we meet the vast energy demands of a breakthrough industry without compromising our energy goals?
If that challenge sounds familiar, that’s because it is. The U.S. has a long history of rising to the electricity demands of innovative new industries. Our energy needs grew far more quickly in the four decades following World War II than what we are facing today. More recently, we have squared off against the energy requirements of new clean technologies that require significant energy to produce — most notably hydrogen.
Courtesy of Rhodium Group
The lesson we have learned time and again is that it is possible to scale technological innovation in a way that also scales energy innovation. Rather than accepting a zero-sum trade-off between innovation and our clean energy goals, we should focus on policies that leverage the growth of AI to scale the growth of clean energy.
At the core of this approach is the concept of additionality: Companies operating massive data centers — often referred to as “hyperscalers” — as well as utilities should have incentives to bring online new, additional clean energy to power new computing needs. That way, we leverage demand in one sector to scale up another. We drive innovation in key sectors that are critical to our nation’s competitiveness, we reward market leaders who are already moving in this direction with a stable, long-term regulatory framework for growth, and we stay on track to meet our nation’s climate commitments.
All of this is possible, but only if we take bold action now.
AI technologies have the potential to significantly boost America’s economic productivity and enhance our national security. AI also has the potential to accelerate the energy transition itself, from optimizing the electricity grid, to improving weather forecasting, to accelerating the discovery of chemicals and material breakthroughs that reduce reliance on fossil fuels. Powering AI, however, is itself incredibly energy intensive. Projections suggest that data centers could consume 9% of U.S. electricity generation by 2030, up from 4% today. Without a national policy response, this surge in energy demand risks increasing our long-term reliance on fossil fuels. By some estimates, around 20 gigawatts of additional natural gas generating capacity will come online by 2030, and coal plant retirements are already being delayed.
Avoiding this outcome will require creative focus on additionality. Hydrogen represents a particularly relevant case study here. It, too, is energy-intensive to produce — a single kilogram of hydrogen requires double the average household’s electricity consumption. And while hydrogen holds great promise to decarbonize parts of our economy, hydrogen is not per se good for our clean energy goals. Indeed, today’s fossil fuel-driven methods of hydrogen production generate more emissions than the entire aviation sector. While we can make zero-emissions hydrogen by using clean electricity to split hydrogen from water, the source of that electricity matters a lot. Similar to data centers, if the power for hydrogen production comes from the existing electricity grid, then ramping up electrolytic production of hydrogen could significantly increase emissions by growing overall energy demand without cleaning the energy mix.
This challenge led to the development of an “additionality” framework for hydrogen. The Inflation Reduction Act offers generous subsidies to hydrogen producers, but to qualify, they must match their electricity consumption with additional (read: newly built) clean energy generation close enough to them that they can actually use it.
This approach, which is being refined in proposed guidance from the U.S. Treasury Department, is designed to make sure that hydrogen’s energy demand becomes a catalyst for investment in new clean electricity generation and decarbonization technologies. Industry leaders are already responding, stating their readiness to build over 50 gigawatts of clean electrolyzer projects because of the long term certainty this framework provides.
While the scale and technology requirements are different, meeting AI’s energy needs presents a similar challenge. Powering data centers from the existing electricity grid mix means that more demand will create more emissions; even when data centers are drawing on clean electricity, if that energy is being diverted from existing sources rather than coming from new, additional clean electricity supply, the result is the same. Amazon’s recent $650 million investment in a data center campus next to an existing nuclear power plant in Pennsylvania illustrates the challenge: While diverting those clean electrons from Pennsylvania homes and businesses to the data center reduces Amazon’s reported emissions, by increasing demand on the grid without building additional clean capacity, it creates a need for new capacity in the region that will likely be met by fossil fuels (while also shifting up to $140 million of additional costs per year onto local customers).
Neither hyperscalers nor utilities should be expected to resolve this complex tension on their own. As with hydrogen, it is in our national interest to find a path forward.
What we need, then, is a national solution to make sure that as we expand our AI capabilities, we bring online new clean energy, as well, strengthening our competitive position in both industries and forestalling the economic and ecological consequences of higher electricity prices and higher carbon emissions.
In short, we should adopt a National AI Additionality Framework.
Under this framework, for any significant data center project, companies would need to show how they are securing new, additional clean power from a zero-emissions generation source. They could do this either by building new “behind-the-meter” clean energy to power their operations directly, or by partnering with a utility to pay a specified rate to secure new grid-connected clean energy coming online.
If companies are unwilling or unable to secure dedicated additional clean energy capacity, they would pay a fee into a clean deployment fund at the Department of Energy that would go toward high-value investments to expand clean electricity capacity. These could range from research and deployment incentives for so-called “clean firm” electricity generation technologies like nuclear and geothermal, to investments in transmission capacity in highly congested areas, to expanding manufacturing capacity for supply-constrained electrical grid equipment like transformers, to cleaning up rural electric cooperatives that serve areas attractive to data centers. Given the variance in grid and transmission issues, the fund would explicitly approach its investment with a regional lens.
Several states operate similar systems: Under Massachusetts’ Renewable Portfolio Standard, utilities are required to provide a certain percentage of electricity they serve from clean energy facilities or pay an “alternative compliance payment” for every megawatt-hour they are short of their obligation. Dollars collected from these payments go toward the development and expansion of clean energy projects and infrastructure in the state. Facing increasing capacity constraints on the PJM grid, Pennsylvania legislators are now exploring a state Baseload Energy Development Fund to provide low-interest grants and loans for new electricity generation facilities.
A national additionality framework should not only challenge the industry to scale innovation in a way that scales clean technology, it must also clear pathways to build clean energy at scale. We should establish a dedicated fast-track approval process to move these clean energy projects through federal, state, and local permitting and siting on an accelerated basis. This will help companies already investing in additional clean energy to move faster and more effectively – and make it more difficult for anyone to hide behind the excuse that building new clean energy capacity is too hard or too slow. Likewise, under this framework, utilities that stand in the way of progress should be held accountable and incentivized to adopt innovative new technologies and business models that enable them to move at historic speed.
For hyperscalers committed to net-zero goals, this national approach provides both an opportunity and a level playing field — an opportunity to deliver on those commitments in a genuine way, and a reliable long-term framework that will reward their investments to make that happen. This approach would also build public trust in corporate climate accountability and diminish the risk that those building data centers in the U.S. stand accused of greenwashing or shifting the cost of development onto ratepayers and communities. The policy clarity of an additionality requirement can also encourage cutting edge artificial intelligence technology to be built here in the United States. Moreover, it is a model that can be extended to address other sectors facing growing energy demand.
The good news is that many industry players are already moving in this direction. A new agreement between Google and a Nevada utility, for example, would allow Google to pay a higher rate for 24/7 clean electricity from a new geothermal project. In the Carolinas, Duke Energy announced its intent to explore a new clean tariff to support carbon-free energy generation for large customers like Google and Microsoft.
A national framework that builds on this progress is critical, though it will not be easy; it will require quick Congressional action, executive leadership, and new models of state and local partnership. But we have a unique opportunity to build a strange bedfellow coalition to get it done – across big tech, climate tech, environmentalists, permitting reform advocates, and those invested in America’s national security and technology leadership. Together, this framework can turn a vexing trade-off into an opportunity. We can ensure that the hundreds of billions of dollars invested in building an industry of the future actually accelerates the energy transition, all while strengthening the U.S.’s position in innovating cutting- edge AI and clean energy technology.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
On the president’s environmental legacy, NYC congestion pricing, and winter weather
Current conditions: Extreme heat in southeastern Australia triggered fire bans • More than 260 flood alerts are in place across England and Wales • A snow emergency is in effect in Washington, D.C., where lawmakers are set to gather today to certify President-elect Donald Trump’s 2024 victory.
More than 60 million people across 30 states are under weather warnings as a winter storm bears down. At least seven states have declared emergencies: Kansas, Missouri, Kentucky, Virginia, West Virginia, Arkansas, and New Jersey. One of the hardest-hit cities is Kansas City, Missouri, which got about a foot of snow. The system – dubbed Winter Storm Blair by the Weather Channel – is moving east now and will bring six to 12 inches of snow, as well as icy conditions, to the mid-Atlantic. The National Weather Service warned that “travelers should anticipate significant disruptions.” After this storm passes, temperatures will continue to plunge well below normal throughout much of the nation. “Should the cold wave evolve to its full potential, maximum temperature departures could plunge 30-40 degrees Fahrenheit below the historical average from the northern Plains and Midwest to the interior Southeast through the first two weeks of January,” said AccuWeather meteorologist Alex Duffus. The forecast prompted Jim Robb, the CEO of the North American Electric Reliability Corp., to put out a warning via YouTube about the potential for power outages. Robb urged everyone within the power system to prepare for the worst. “The actions you take now may very well help us avoid the consequences of events such as we saw in Texas in 2021 and in the mid-Atlantic in 2022,” he said. As of this morning, about 300,000 customers were without power across Missouri, Illinois, Indiana, Kentucky, Virginia, and West Virginia.
The White House today announced that President Biden will move to permanently ban new offshore oil and gas drilling across huge swathes of U.S. coastal waters. “Biden has determined that the environmental and economic risks and harms that would result from drilling in these areas outweigh their limited fossil fuel resource potential,” the administration said. The 625 million acres included in the protections will cover the entire East Coast, the eastern Gulf of Mexico, the Pacific off the coasts of Washington, Oregon, and California, as well as parts of the Northern Bering Sea in Alaska. As Politiconoted, most of those areas are of little interest to the oil and gas industry, but “the eastern part of the Gulf of Mexico is believed to hold large untapped reservoirs of oil.” It will be difficult for the incoming Trump administration to dismantle Biden’s ban, but the fossil fuel industry is likely to challenge it. With this decision, Biden will have conserved more lands and waters than any other U.S. president, the White House added. “President Biden has been a steadfast champion for climate progress from Day One of his administration,” Margie Alt, director of the Climate Action Campaign, said in a statement. “His legacy of conservation and advocacy to protect our climate will leave an indelible mark on the health of our communities and our environment.”
The first congestion pricing scheme in the U.S. officially came into effect on Sunday. Drivers entering lower Manhattan during peak hours will now have to pay $9, which is down from the $15 fee originally proposed. Gov. Kathy Hochul paused the ambitious plan last summer, then hastily reinstated it at the lower rate before the incoming Trump administration could do anything to block it. The program aims to reduce traffic and pollution in New York City, with the Metropolitan Transportation Authority estimating it will cut traffic by 10% and raise money to pay for infrastructure upgrades. Its success – or failure – could help inform other cities that might consider similar moves. A “congestion pricing tracker” is monitoring the new scheme’s effect on commutes in real-time. Here’s a snapshot of the data from the Holland Tunnel yesterday, where commute times seem to have been cut down to about 10 minutes from 30 minutes:
After being re-elected as House speaker on Friday, Mike Johnson made it clear that energy policy would be a top priority for the new Congress. “We have to stop the attacks on liquefied natural gas, pass legislation to eliminate the Green New Deal,” Johnson said. “We’re going to expedite new drilling permits, we’re going to save the jobs of our auto manufacturers, and we’re going to do that by ending the ridiculous EV mandates.” Of course, there is no actual “Green New Deal” to eliminate, nor any EV mandates to end. Those minor details aside, Johnson’s message signalled that the fight over President Biden’s landmark climate and energy policies has only just begun. “It is our duty to restore America’s energy dominance,” Johnson said, “and that’s what we’ll do.”
In case you missed it: The Fish and Wildlife Service on Friday finalized a decision to expand the boundaries of a Georgia wildlife refuge by 22,000 acres. The new boundaries for the Okefenokee National Wildlife Refuge, the largest blackwater swamp in North America, will include some lands that mining company Twin Pines Minerals had hoped to use to mine titanium dioxide. Environmental groups (and the Biden administration) opposed the mine; Interior Secretary Deb Haaland said it “poses an unacceptable risk to the long-term hydrology” of the swamp. In its statement, the FWS called the expansion “minor,” but said it would help “strengthen protection of the hydrological integrity of the swamp, provide habitat for the gopher tortoise, mitigate impacts of wildfires, and provide opportunities for longleaf pine restoration to benefit the red-cockaded woodpecker.”
Thirteen of the world’s busiest oil ports could be badly damaged by rising sea levels as soon as 2070, according to recent scientific analysis.
A vicious climate-political cycle is developing.
When Donald Trump won the 2024 U.S. presidential election, the risk to recent progress on climate policy was immediately obvious: He ran on a promise to increase fossil fuel production, has a long history of denigrating renewable energy, and is hostile to anything with Joe Biden’s name on it, including a raft of policies enacted over the past four years to reduce emissions.
But as unique a character as Trump is, his victory was just one part of an international surge in right-wing populism that has occurred over the past few years, especially in Europe. Right-wing populists focus their appeals on a supposed conflict between ordinary people and what they claim is a corrupt elite; the philosophy is also usually characterized by nativism and a suspicion of international cooperation and integration. All of that comfortably translates into antagonism toward climate action. So if right-wing populists are on the march globally, what are the risks for global climate policy?
The picture is complex — not every populist party puts environmental issues near the center of its agenda. The Alternative for Germany party (also known as AfD) recently gained a high-profile supporter when Elon Musk wrote an op-ed calling it “the last spark of hope” for Germany, citing “cultural integrity” as one of the reasons he supports it. But it was already gaining, even if most Germans find it repellent: In September, it became the first far-right party to win a state election since World War II.
The AfD’s platform (which it has helpfully translated into English) is as full-on denialist as you can find from any major political party; it rejects the idea of anthropogenic climate change and demands an end to German efforts to reduce emissions. “We want to end the perception of CO2 as an exclusively harmful substance and set a stop to Germany’s maverick policy in the reduction of CO2 emissions,” it says.
Meanwhile in the Netherlands, Geert Wilders’ PVV is now the largest party in the governing coalition (though after six months of negotiations following the PVV’s showing in the last election, Wilders agreed to let another coalition partner become prime minister). Its platform promised that the Dutch “Climate Act, the [Paris] climate accord and all other climate measures go straight into the shredder.” Austria’s far-right FPO party placed first in elections in September; it opposes most efforts to combat climate change. (Austria’s Chancellor Karl Nehammer, from the center-right OVP or “People’s Party,” resigned Saturday after coalition talks with FPO broke down.)
In last summer’s parliamentary elections in France, the far-right National Rally pledged a rollback of environmental laws, including “slashing the value-added tax on gas, power and fuel from 20 percent to 5.5 percent; freezing all new wind projects; and easing energy efficiency requirements for homeowners looking to sell their properties,” according to Politico. The party failed to win a plurality in the second round of voting, but it displayed a strength that alarmed many environmentalists. And after last year’s European Parliament elections, far-right parties now control a quarter of the seats in the body, more than ever before.
For these parties, the single most important issue is immigration; their appeal is driven by backlash to influxes of newcomers from Syria and northern African countries, which has contributed to a changing demographic picture. But while environmental policies may be secondary, the issues are hardly unrelated. Versions of “Great Replacement” theory are visible everywhere, the idea that liberal elites are importing non-white immigrants to displace native-born whites and transform the nation. In this telling, green policy is one more way the conspiracy of cultural elites tries to control the lives of the nation’s truest citizens.
Far-right parties often get their strongest support in rural areas, just as Republicans do in the U.S., where farmers protest environmental policies imposed from urban capitals and which they see as the brainchildren of cosmopolitan elites who are either indifferent or actively hostile to their needs. Last spring, farmers staged dramatic protests in France, Germany, Belgium, and other countries, protesting environmental policies they said made it difficult for them to earn a living.
In that way, opposition to climate action fits neatly within the rest of the right-wing populist philosophy and agenda, which usually reject international accords like the Paris Agreement and even the existence of the European Union itself. Repealing climate laws can be a way of striking back at experts and cosmopolitan urbanites, whether it’s Trump rolling back EV subsidies or European rightists attacking the EU’s Green Deal, which among other things obligates the continent to achieve net-zero emissions by 2050.
The far-right populist parties aren’t the only ones pushing back certain kinds of climate action; center-right parties are also playing a part, even if historically they have been far more progressive on climate than the GOP. Consider the European Union’s law requiring that no internal-combustion cars be produced after 2035, which passed in 2022. That law is now under attack from the center-right, especially the European People’s Party, the largest bloc in the European Parliament. The EPP (which includes EU president Ursula von der Leyen among its members) is seeking to have the ban repealed, or at least modified to allow for continued production of plug-in hybrids and ICE cars that run on biofuels.
Nevertheless, far-right parties that want to maximize their power to the point where they can lead governing coalitions have an incentive to moderate their rhetoric on climate. One can see that dynamic in Italian prime minister Georgia Meloni, whose rhetoric on the international stage sounds much more progressive than her party does at home, where it still traffics in climate denial. She has even presented climate as a right-wing issue, saying “The right loves the environment because it loves the land, the identity, the homeland.” This version of environmentalism seeks to combat climate change in order to minimize the numbers of future climate migrants from the Global South, many of whom will wind up seeking refuge in Europe.
However you feel about that motivation, it points to a vicious cycle that could emerge in the future: As global temperatures increase and natural disasters become more frequent, more places become uninhabitable and millions of people become climate refugees. They head north into developed countries, where their presence spurs a right-wing backlash that puts far-right populist parties into power. Those parties then reverse progressive climate policies, making it more difficult to reduce emissions and continuing the cycle.
That might not be our future, and the changes to climate policy advocated by the resurgent populist parties haven’t yet been implemented. It’s also possible that the far right’s political moment could be fleeting. But the next few years will offer plenty of reasons to worry.
Editor’s note: This story has been updated to reflect political developments in Austria.
The Biden administration is hoping they’ll be a starting gun for the industry. The industry may or may not be fully satisfied.
In one of the Biden administration’s final acts to advance decarbonization, and after more than two years of deliberation and heated debate, the Treasury Department issued the final requirements governing eligibility for the clean hydrogen tax credit on Friday.
At up to $3 per kilogram of clean hydrogen produced, this was the most generous subsidy in the 2022 Inflation Reduction Act, and it came with significant risks if the Treasury did not get the rules right. Hydrogen could be an important tool to help decarbonize the economy. But without adequate guardrails, the tax credit could turn it into a shovel that digs the U.S. deeper into a warming hole by paying out billions of dollars to projects that increase emissions rather than reducing them.
In the final guidelines, the Biden administration recognized the severity of this risk. It maintained key safeguards from the rules proposed in 2023, while also making a number of changes, exceptions, and other “flexibilities” — in the preferred parlance of the Treasury Department — that sacrifice rigorous emissions accounting in favor of making the program easier to administer and take advantage of.
For example, it kept a set of requirements for hydrogen made from water and electricity known as the “three pillars.” Broadly, they compel producers to match every hour of their operation with simultaneous clean energy generation, buy this energy from newly built sources, and ensure those sources are in the same general region as the hydrogen plant. Hydrogen production is extremely energy-intensive, and the pillars were designed to ensure that it doesn’t end up causing coal and natural gas plants to run more. But the final rules are less strict than the proposal. For example, the hourly matching requirement doesn’t apply until 2030, and existing nuclear plants count as new zero-emissions energy if they are considered to be at risk of retirement.
Finding a balance between limiting emissions and ensuring that the tax credit unlocks development of this entirely new industry was a monumental challenge. The Treasury Department received more than 30,000 comments on the proposed rule, compared to about 2,000 for the clean electricity tax credit, and just 89 for the electric vehicle tax credit. Senior administration officials told me this may have been the most complicated of all of the provisions in the IRA. In October, the department assured me that the rules would be finished by the end of the year.
Energy experts, environmental groups, and industry are still digesting the rule, and I’ll be looking out for future analyses of the department’s attempt at compromise. But initial reactions have been cautiously optimistic.
On the environmental side, Dan Esposito from the research nonprofit Energy Innovation told me his first impression was that the final rule was “a clear win for the climate” and illustrated “overwhelming, irrefutable evidence” in favor of the three pillars approach, though he did have concerns about a few specific elements that I’ll get to in a moment. Likewise, Conrad Schneider, the U.S. senior director at the Clean Air Task Force, told me that with the exception of a few caveats, “we want to give this final rule a thumbs up.”
Princeton University researcher Jesse Jenkins, a co-host of Heatmap’s Shift Key podcast and a vocal advocate for the three pillars approach, told me by email that, “Overall, Treasury’s final rules represent a reasonable compromise between competing priorities and will provide much-needed certainty and a solid foundation for the growth of a domestic clean hydrogen industry.”
On the industry side, the Fuel Cell and Hydrogen Energy Association put out a somewhat cryptic statement. CEO Frank Wolak applauded the administration for making “significant improvements” but warned that the rules were “still extremely complex” and contain several open-ended parts that will be subject to interpretation by the incoming Trump-Vance administration.
“This issuance of Final Rules closes a long chapter, and now the industry can look forward to conversations with the new Congress and new Administration regarding how federal tax and energy policy can most effectively advance the development of hydrogen in the U.S.,” Wolak said.
Constellation Energy, the country’s biggest supplier of nuclear power, was among the most vocal critics of the proposed rule and had threatened to sue the government if it did not create a pathway for hydrogen plants that are powered by existing nuclear plants to claim the credit. In response to the final rule, CEO and President Joe Dominguez said he was “pleased” that the Treasury changed course on this and that the final rule was “an important step in the right direction.”
The California governor’s office, which had criticized the proposed rule, was also swayed. “The final rules create the certainty needed for developers to invest in and build clean, renewable hydrogen production projects in states like California,” Dee Dee Myers, the director of the Governor’s Office of Business and Economic Development, said in a statement. The state has plans to build a $12.6 billion hub for producing and using clean hydrogen.
Part of the reason the Treasury needed to find a Goldilocks compromise that pleased as many stakeholders as possible was to protect the rule from future lawsuits and lobbying. But not everyone got what they wanted. For example, the energy developer NextEra, pushed the administration to get rid of the hourly matching provision, which though delayed remained essentially untouched. NextEra did not respond to a request for comment.
Companies that fall on the wrong side of the final rules may still decide to challenge them in court. The next Congress could also make revisions to the underlying tax code, or the incoming Trump administration could change the rules to perhaps make them more favorable to hydrogen made from fossil fuels. But all of this would take time — a rule change, for example, would trigger a whole new notice and comment process. Though the one thing I’ve heard over and over is that the industry wants certainty, which the final rule provides, it’s not yet clear whether that will outweigh any remaining gripes.
In the meantime, it's off to the races for the nascent clean hydrogen industry. Between having clarity on the tax credit, the Department of Energy’s $7 billion hydrogen hubs grant program, and additional federal grants to drive down the cost of clean hydrogen, companies now have numerous incentives to start building the hydrogen economy that has received much hype but has yet to prove its viability. The biggest question now is whether producers will find any buyers for their clean hydrogen.
Below is a more extensive accounting of where the Treasury landed in the final rules.
Get our best story in your inbox every day:
On “deliverability,” or the requirement to procure clean energy from the same region, the rules are largely unchanged, although they do allow for some flexibility on regional boundaries.
As I explained above, the Treasury Department also kept the hourly matching requirement, but delayed it by two years until 2030 to give the market more time to set up systems to achieve it — a change Schneider said was “really disappointing” due to the potential emissions consequences. Until then, companies only have to match their operations with clean energy on an annual basis, which is a common practice today. The new deadline is strict, and those that start operations before 2030 will not be grandfathered in — that is, they’ll have to switch to hourly matching once that extended clock runs out. In spite of that, the final rules also ensure that producers won’t be penalized if they are not able to procure clean energy for every single hour their plant operates, an update several groups applauded.
On the requirement to procure clean power from newly built sources, also known as “incrementality,” the department made much bigger changes. It kept an overarching definition that “incremental” generators are those built within three years of the hydrogen plant coming into service, but added three major exceptions:
1. If the hydrogen facility buys power from an existing nuclear plant that’s at risk of retirement.
2. If the hydrogen facility is in a state that has both a robust clean electricity standard and a broad, binding, greenhouse gas cap, such as a cap and trade system. Currently, only California and Washington pass this test.
3. If the hydrogen facility buys power from an existing natural gas or coal plant that has added new carbon capture and storage capacity within three years of the hydrogen project coming into service.
The hydrogen tax credit is so lucrative that environmental groups and energy analysts were concerned it would drive companies like Constellation to start selling all their nuclear power to hydrogen plants instead of to regular energy consumers, which could drive up prices and induce more fossil fuel emissions.
The final rules try to limit this possibility by only allowing existing reactors that are at risk of retirement to qualify. But the definition of “at risk of retirement” is loose. It includes “merchant” nuclear power plants — those that sell at least half their power on the wholesale electricity market rather than to regulated utilities — as well as plants that have just a single reactor, which the rules note have lower or more uncertain revenue and higher operational costs. Looking at the Nuclear Energy Institute’s list of plants, merchant plants make up roughly 40% of the total. All of Constellation Energy’s plants are merchant plants.
There are additional tests — the plant has to have had average annual gross receipts of less than 4.375 cents per kilowatt hour for at least two calendar years between 2017 and 2021. It also has to obtain a minimum 10-year power purchase agreement with the hydrogen company. Beyond that, the reactors that meet this definition are limited to selling no more than 200 megawatts to hydrogen companies, which is roughly 20% for the average reactor.
Esposito, who has closely analyzed the potential emissions consequences of using existing nuclear plants to power hydrogen production, was not convinced by the safeguards. “I don't love the power price look back,” he told me, “because that's not especially indicative of the future — particularly this high load growth future that we're quickly approaching with data centers and everything. It’s very possible power prices could go up from that, and then all of a sudden, the nuclear plants would have been fine without hydrogen.”
As for the 200 megawatt cap, Esposito said it was better than nothing, but he feels “it's kind of an implicit admission that it's not really, truly clean” to produce hydrogen with the energy from these nuclear plants.
Schneider, on the other hand, said the safeguards for nuclear-powered hydrogen projects were adequate. While a lot of plants are theoretically eligible, not all of their electricity will be eligible, he said.
The rules assert that in states that meet the two criteria of a clean electricity standard and a binding cap on emissions, “any increased electricity load is highly unlikely to cause induced grid emissions.”
But in a paper published in February, Energy Innovation explored the potential consequences of this exemption in California. It found that hydrogen projects could have ripple effects on the cap and trade market, pushing up the state’s carbon price and triggering the release of extra carbon emission allowances. “In other words, the California program is more of a ‘soft’ cap than a binding one — the emissions budget ‘expands or contracts in response to price bounds set by the legislature and [California Air Resources Board],’” the report says.
Esposito thinks the exemption is a risk, but that it requires further analysis and he’s not sounding the alarm just yet. He said it could come down to other factors, including how economical hydrogen production in California ends up being.
Producers are also eligible for the tax credit if they make hydrogen the conventional way, by “reforming” natural gas, but capture the emissions released in the process. For this pathway, the Treasury had to clarify several accounting questions.
First, there’s the question of how producers should account for methane leaked into the atmosphere upstream of the hydrogen plant, such as from wells and pipelines. The proposal had suggested using a national average of 0.9%. But researchers found this would wildly underestimate the true warming impact of hydrogen produced from natural gas. It could also underestimate emissions from natural gas producers that have taken steps to reduce methane leakage. “We branded that as one size fits none,” Schneider told me.
The final rules create a path for producers to use more accurate, project-specific methane emissions rates in the future once the Department of Energy updates a lifecycle emissions tool that companies have to use called the “GREET” model. The Environmental Protection Agency recently passed new methane emissions laws that will enable it to collect better data on leakage, which will help the DOE update the model.
Schneider said that’s a step in the right direction, though it will depend on how quickly the GREET model is updated. His bigger concern is if the Trump administration weakens or eliminates the EPA’s methane emissions regulations.
The Treasury also opened up the potential for companies to produce hydrogen from alternative, cleaner sources of methane, like gas captured from wastewater, animal manure, and coal mines. (The original rule included a pathway for using gas captured from landfills.) In reality, hydrogen plants taking this approach are unlikely to use gas directly from these sources, but rather procure certificates that say they have “booked” this cleaner gas and can “claim” the environmental benefits.
Leading up to the final rule, some climate advocates were concerned that this system would give a boost to methane-based hydrogen production over electricity-based production, as it's cheaper to buy renewable natural gas certificates than it is to split water molecules. Existing markets for these credits also often overestimate their benefits — for example, California’s low carbon fuel system gives biogas captured from dairy farms a negative carbon intensity score, even though these projects don’t literally remove carbon from the atmosphere.
The Treasury tried to improve its emissions estimates for each of these alternative methane sources to make them more accurate, but negative carbon intensity scores are still possible.
The department did make one significant change here, however. It specified that companies can’t just buy a little bit of cleaner methane and then average it with regular fossil-based methane — each must be considered separately for determining tax credit eligibility. Jenkins, of Princeton, told me that without this rule, huge amounts of hydrogen made from regular natural gas could qualify.
Producers also won’t be able to take this “book and claim” approach until markets adapt to the Treasury’s reporting requirements, which isn’t expected until at least 2027.