Hydrogen production and use has become increasingly more attractive in the industrial sector, especially in the face of a global push for cleaner energy and incentivized crediting. The most common form of hydrogen production today is “gray hydrogen,” or more specifically, hydrogen that has been created from natural gas or methane through steam methane reformation (SMR). However, the Inflation Reduction Act (IRA) of 2022 has provided further incentives to the 45Q from gray hydrogen to other forms, such as green or blue. In addition, the California Low Carbon Fuel Standard (LCFS) program has credit generation opportunities for hydrogen as a transportation fuel in California that can be combined with federal tax incentives. Blue hydrogen specifically has additional LCFS credit generation opportunities when associated with carbon capture. Not only can blue hydrogen create credit and federal tax incentives, but it also can assist petroleum companies in achieving climate goals.
Q: What is blue hydrogen?
Blue hydrogen is similar to that of gray hydrogen as it is created through steam methane reformation of natural gas. However, instead of emissions being released to the atmosphere, blue hydrogen production is paired with carbon capture and storage (CCS). CCS is the process of capturing carbon dioxide and injecting it into a deep underground geologic formation. Thus, less greenhouse gas emissions are emitted that would otherwise be released to the atmosphere.
Q: What is the 45Q, and what are its incentives?
45Q is a tax credit for carbon sequestration, having an intent to incentivize the deployment of carbon capture. In 2022, the Inflation Reduction Act introduced large updates to the 45Q making it both more accessible and valuable as qualifying thresholds were lowered, and tax credit values were increased. A good summary of these provisions can be found on the Clean Air Task Force’s website.
Q: What about green hydrogen?
Green hydrogen is produced from renewable energy through electrolysis. Producing only hydrogen and water, green hydrogen becomes the cleanest option. While key to the energy transition, renewable power generation is costly and electrolysis is not yet widely commercialized.
Q: What does the future of hydrogen look like?
Hydrogen is an extremely abundant and versatile element and has many applications. It can be used in the transportation sector through hydrogen-powered fuel cell electric vehicles (FCEVs), as energy in buildings, and in power generation. In California specifically, there are several hydrogen vehicle fueling stations being funded by the Clean Transportation Program with an intent to expand. This year, several investments have been made by major oil and gas companies nationwide to support and help create blue and green hydrogen.
If you would like to learn more about our services in this area, please contact Madison Crawford at mcrawford@algcorp.com, or Irra Core at icore@algcorp.com.