US steelmakers to benefit from hydrogen credit: study

Steel Insights Bureau

To produce shipping fuel, fertilizer, and steel, tax credits under the Inflation Reduction Act (IRA) can make hydrogen-based production competitive with – and even cheaper than –fossil-based production methods, says a study by sustainability think tank RMI.

Under IRA, which promotes transition to a green economy and domestic manufacturing, a $3 production tax credit for each kilogram of green hydrogen produced will be provided.

This means the cost of US-made green hydrogen can be cut to $1 per kilogram or below, when other incentives and credits are used.

The tax credit can help bring critical technology to scale and create a vibrant economy of hydrogen production, purchase, and use, all while addressing one of our most challenging climate goals: slashing emissions from heavy industry.

“Clean hydrogen is necessary if we are going to decarbonize some of the most carbon-intensive sectors like steelmaking, shipping, aviation, trucking, fertilizer production and chemical manufacturing. Just as we’ve seen with wind and solar, a tax incentive for low-carbon hydrogen can spur development of a low-cost, clean energy source,” RMI says in a new report.

Importance of tax credit

The credit could immediately cut the cost of producing low-carbon hydrogen and make it competitive with carbon-intensive hydrogen production, like with unabated natural gas.

The tax credit can pay out as much as $3 per kilogram of clean hydrogen produced over ten years, awarding projects developed as late as January 1, 2033.

In addition, the direct pay nature of this tax credit enables industries to apply without “tax equity” — a provision that should help alleviate constraints in the tax equity market and remove a barrier for many producers.

Tax credit to make green steel cost competitive

Clean hydrogen production is already happening across the world. Industries are moving quickly to scale and use this technology. Thanks to a significant down payment on clean technologies of the future in the Inflation Reduction Act, US production of clean hydrogen will now receive a substantial tax credit that could unleash a torrent of production by making clean production competitive with current fossil production.