New US rules for accessing green hydrogen project incentives have boosted the prospects of Australia’s hydrogen industry and been met with relief by Australian officials.
The Biden administration’s new regulations restrict eligibility for tax credits under the Inflation Reduction Act. To qualify for tax credits, green hydrogen projects now must utilise a renewable energy source from the same power grid region and operational timeframe — a move that is expected to set investment back in the US.
The stringent nature of these requirements has drawn criticism for potentially hindering the progress of green hydrogen projects with the US Chamber of Commerce and renewable energy development groups criticising the new rules for being overly restrictive.
Fortescue’s Andrew Forrest expressed concerns over these rules potentially hindering US green hydrogen developments. Despite appreciating the administration's efforts for clarity, a Fortescue (ASX:FMG) spokesperson highlighted the need to avoid additional barriers in green hydrogen production.
In November Fortescue announced plans to proceed with a US$750 million (A$1.14 billion) investment in energy projects in the US and Australia. This includes the Phoenix Hydrogen Hub in the US, which will feature an 80-megawatt electrolyser and liquefaction plant to produce up to 11,000 tonnes per year of liquid green hydrogen.
Australian hydrogen more favourable
David Wochner from Washington-based law firm K&L Gates said some green hydrogen projects in the US were now likely to fall over, however, this would make other countries such as Australia more favourable.
He notes that the complex regulations and third-party verification requirements of the US could lead to investment redirection to countries with more favourable or less onerous regimes.
“I really do believe there will be non-US energy industry participants who, at least in the hydrogen space, will make the decision to invest elsewhere, to the extent that the elsewhere has a more favourable regime, or perhaps a regime that is less onerous.
“I expect there are rational tax regimes that Australia could look to that actually would incentivise clean hydrogen,” said Wochner.
The new rules have led to relief among Australian officials as they imply a reduced diversion of potential investment from Australia, where the federal government's Hydrogen Headstart program is capped at $2 billion.
A senior Australian government official, under anonymity, told the Australian Financial Review that the new US subsidies might have a lesser impact on Australian green hydrogen investments than initially feared with the IRA subsidies not as widely accessed as first feared.