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Few aspects of Biden’s climate law have spurred more controversy than the “three pillars” — a set of rules proposed by the Treasury Department for how to claim a lucrative new tax credit for producing clean hydrogen. Now, it appears, the pillars may be poised to fall.
The Treasury has been under immense pressure from Congress, energy companies, and even leaders at the Department of Energy to relax the rules since before it even published the proposal in December. The pillars, criteria designed to prevent the program from subsidizing projects that increase U.S. greenhouse gas emissions rather than reduce them, are too expensive and complicated to comply with, detractors argue, and would sink the prospects for a domestic clean hydrogen industry.
But lately, the campaign to dismantle the pillars has gotten both more forceful and more threatening. There’s the politically challenging hurdle that leaders of another federally-funded hydrogen program — the regional clean hydrogen hubs — have spoken out against the rules, arguing they threaten investment in hub projects and therefore job creation and economic development around the country. Then there’s the recent Supreme Court decision to overturn the precedent known as Chevron deference, which weakened agencies’ ability to defend their own rules and thereby emboldens any aggrieved parties to sue the Treasury if it keeps the pillars in place. Last week, 13 Democratic Senators, 11 of whom hail from states involved in the hubs, sent a letter calling on Treasury Secretary Janet Yellen to dramatically revise the rules or risk having them challenged in court.
The consequences of losing the three pillars can only be guessed at using models, which are built on assumptions and can’t predict the future with certainty. But proponents say the stakes couldn’t be higher. In their view, the pillars don’t just prevent carbon emissions. They mitigate the risks of rising electricity costs for everyday Americans. And without them, one of the most generous energy credits the government offers could become incredibly easy to claim, ballooning the federal budget.
The clean hydrogen tax credit was created by the Inflation Reduction Act, and offers up to $3 per kilogram of hydrogen produced, with the top dollar amount reserved for fuel that is essentially zero-emissions. The hope was that this would be enough to bring down the cost of hydrogen made from electricity to parity with hydrogen made from natural gas. If made cleanly, hydrogen could help decarbonize other carbon-intensive industries, like steelmaking and shipping.
At first, excitement for the tax credit ran high and companies quickly began making plans for new factories. Announcements of new hydrogen production capacity more than tripled from 2 million tons per year in 2021 to 7.7 million by the end of the following year, with another 6 million announced in 2023, according to the energy consulting firm Wood Mackenzie.
Then, after the Treasury’s proposal dropped last December, everything stopped. Under the three pillars, hydrogen companies that get electricity from the grid, which is still largely powered by fossil fuels, would be required to buy clean energy credits with specific attributes in order to mitigate their emissions and render their hydrogen “clean.” The credits must come from power plants located in the same region as the hydrogen production — the first pillar — that were built no more than 3 years before the hydrogen plant — the second pillar — and be purchased for every hour the plant is operating — the third pillar.
The three provisions work together to ensure that new clean power plants are brought online to meet hydrogen’s energy demand. But finding clean energy credits with these features is not easy — there aren’t many systems in place to do this yet. The Treasury took more than a year to publish its initial proposal, and leading up to it, companies lobbied aggressively for a more lenient version. There was so much money on the line that some businesses flooded the public with ads in newspapers and on streaming and podcast services delivering a cryptic warning that “additionality” — the requirement to buy energy from new power plants — was threatening to “set America back.”
Until businesses have clarity on whether the three pillars will stay or go, the industry is on ice. Several previously announced projects have been delayed. Few companies have reached offtake agreements, even provisional ones, for their hydrogen. Almost none have received a final investment decision or started construction.
“They’re losing advantage over other parts of the world,” Hector Arreola, a principal analyst for hydrogen and emerging technologies at Wood Mackenzie, told me. Momentum to develop hydrogen projects has started to shift back to Europe, which has already finalized its own definition of what constitutes clean hydrogen, he said.
It’s hard to imagine a path forward for the Treasury to keep the three pillars intact. Last week’s letter outlined the current state of play in stark terms. “Without significant changes to the draft guidance,” it said, “one of the most powerful job creation and emission reduction tools in the IRA will likely be hamstrung by future court challenges, congressional opposition, and unfulfilled private sector investment.”
Indeed, at least one company, Constellation Energy, has already suggested it would draw on the loss of Chevron deference to sue the agency if it didn’t remove the second pillar — the requirement to buy clean energy credits from recently-built power plants. (Constellation owns a fleet of nuclear power plants and is developing hydrogen projects powered by them.) In comments to the Treasury, Constellation wrote that the requirements for purchasing clean electricity “have no basis” in the law.
“People can always sue today to challenge regulations,” Keith Martin, a renewable energy tax lawyer at the firm Norton Rose Fulbright, told me. “It’s just that the odds of success have increased.” The Supreme Court’s ruling undermines regulatory agencies’ authority to interpret federal statute.
Another hydrogen company that has been fighting the three pillars, Plug Power, has already claimed victory: It put out a press release last month declaring that it anticipates receiving the tax credit, despite the fact that the rules are still not final and its projects would likely not qualify under Treasury’s proposal. The CEO, Andy Marsh, told a hydrogen trade publication that he’s “certain” the rules will be loosened. (Plug Power didn’t respond to a request for clarification by publish time.)
In their letter, the 13 Democratic senators propose that hydrogen producers should be able to purchase clean energy from existing power plants that are already supplying the grid if they are located in a state that has a clean energy standard, or as long as the power plant doesn’t reallocate more than 10% of its power to hydrogen production. They recommend losing the hourly matching requirement altogether and replacing it with annual or monthly matching, depending on when plants start construction. The senators also suggest allowing projects built in areas with “insufficient clean energy sources,” meaning places with suboptimal sun, wind, water, or geothermal energy, to source their power from farther outside the region.
Beth Deane, the chief legal officer for Electric Hydrogen, a company that has historically supported the three pillars, told me in an interview she thought these proposals represented a good compromise. “Bottom-line, the effectiveness of green hydrogen as a decarbonization tool is being artificially held back,” she said later in an email. “We need to give up perfection on both sides of the three-pillar debate and find the ‘good enough’ solution that lets early mover projects move forward with less stringent requirements.”
But other proponents told me the letter carves out so many loopholes that the pillars would remain in name only. Rachel Fakhry, the policy director for emerging technologies at the Natural Resources Defense Council, told me the letter was “outrageous” and “a giveaway buffet.” Daniel Esposito, a manager in the electricity program at the think tank Energy Innovation, told me he can’t imagine any scenario where these exceptions don’t result in an emissions boost rather than a reduction.
That’s because the electrolyzers used to produce clean hydrogen consume a lot of power and are expected to cause fossil fuel plants — which are more flexible than renewables — to run more often and stay open longer than they otherwise would. Without a requirement to buy power from new clean sources and a prescription to match operations with clean energy throughout the day, there will be no demand signals to bring (often more expensive) clean resources onto the grid that can, for example, produce power at night when solar panels aren’t generating. Power system models from Energy Innovation, Princeton University researchers, the Rhodium Group, and the Electric Power Research Institute have all found that there could be significant emissions consequences if the three pillars were relaxed in ways suggested in the letter.
“This effectively unlocks more than 10 million metric tons of dirty electrolytic hydrogen,” Esposito said, based on some back-of-the-envelope estimates. That would cost something like $30 billion per year. Put another way, he said, every $300 paid out by this program could subsidize one ton of CO2 emissions. Put a third way, he added, it could set the U.S. back two to three percentage points on its commitment under the Paris Agreement to reduce emissions 50% to 52% by 2030 — and we’re already off track.
The authors of the letter say they’re “confident” these fears are overblown. They cite a competing analysis published last year by the consulting firm Energy and Environmental Economics and paid for by the trade group the American Council on Renewable Energy, which found that requiring companies to match their operations with clean energy on an hourly basis, rather than an annual basis, does not ensure lower greenhouse gas emissions. They also cite research by an energy modeling group at Carnegie Mellon and North Carolina State University, which found that the difference in cumulative emissions between scenarios with less stringent requirements and the full three pillars comes out to less than 1% by 2039.
Paulina Jaramillo, a professor of engineering and public policy at Carnegie Mellon who worked on that research, told me the three pillars add a level of regulatory complexity to hydrogen production that is not worth the cost in terms of the emissions savings. In general, she said, she saw no need for the rules, and that the Treasury should subsidize electrolytic hydrogen regardless of where the electricity comes from. “We need to deploy this infrastructure,” Jaramillo told me. “We need to deploy it now so it’s available later.”
The other camp of researchers disputed Jaramillo’s group’s findings, chalking them up to a series of differences in assumptions and approach. They also call the industry’s bluff on the claim that the three pillars are too hard and expensive to comply with. Esposito pointed out that a small group of hydrogen companies has already told the Treasury that if the rules were finalized as-is, they planned to build enough capacity to produce more than 6 million tons of hydrogen per year.
Fakhry argued that we are already seeing the risks of losing the three pillars play out in real time as power-hungry industries like bitcoin mining and artificial intelligence grow. Bitcoin mines have driven up emissions and energy costs around the country. Utilities in Pennsylvania are sounding the alarm that an Amazon data center seeking to divert power from an existing nuclear power plant could shift up to $140 million in costs to other electricity customers. As I wrote in Heatmap last year, this debate is not just about hydrogen — think of all the other energy-intensive industries that will have to electrify before we can reach net zero.
Plenty of stakeholders still believe that the Treasury can find a middle ground by making the three pillars more flexible. The American Clean Power Association, which represents a wide range of energy companies, has proposed loosening the hourly matching aspect for projects that start construction before 2028. Fakhry acknowledged the need for flexibility, but her recommendations are much more narrow than the senators’. For example, she would allow hydrogen producers to buy power from existing nuclear plants, but only if they are at risk of retirement and the purchase would help keep them open. Esposito said Energy Innovation would support power procurement from existing clean resources that are curtailed, meaning they produce power that currently goes unutilized.
Both Fakry and Esposito also downplayed the threat of lawsuits, arguing that Treasury did exactly what it was instructed to do by the law. The IRA specifically says that hydrogen emissions should be calculated per a section of the Clean Air Act that says any accounting should include “significant indirect emissions.” Treasury has interpreted this to include the induced emissions caused by a hydrogen plant, and received letters of support from the Environmental Protection Agency and Department of Energy backing this interpretation.
However, as Martin, the tax lawyer, told me, by overturning Chevron deference, the Supreme Court has just given “677 federal district court judges greater latitude to substitute their own judgment for subject matter experts at the federal agencies.”
Asked for comment on the Senators’ letter, a Treasury spokesperson told me the agency is still considering the many thousands of comments the agency received on the proposed rules. “The Biden Administration is committed to ensuring that progress continues and that the IRA’s investments continue to create good-paying jobs, lower energy costs, and strengthen energy security.”
Even if Yellen heeds the Senators’ advice, the department may not be able to avoid a lawsuit. “We will use every tool available to us — including the courts — to either defend a strong final rule or challenge an unlawful one that reflects the asks in the letter,” Fakhry told me.
There’s also a realpolitik argument here that the industry might want this all to be over more than it wants to kill the three pillars. “The number one thing people want is business certainty,” Esposito told me. “I don’t think people want this to drag on for another two years.”
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Even as Iran retaliated against U.S. airstrikes, prices have stayed calm.
Oil prices have stayed stable so far following the U.S. strikes on Iranian nuclear facilities over the weekend, and President Donald Trump wants to keep it that way.
In two consecutive posts on Truth Social Monday morning, the president wrote “To The Department of Energy: DRILL, BABY, DRILL!!! And I mean NOW!!!” and “EVERYONE, KEEP OIL PRICES DOWN. I’M WATCHING! YOU’RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON’T DO IT!”
While Iran, of course, does not yet have an actual nuclear weapon, it does have a kind of “nuclear option” to retaliate: closing off the Strait of Hormuz, which separates the oil-rich countries like Qatar, Bahrain, Kuwait, and Iraq (and Iran’s own largest ports) from the Indian Ocean, and by extension all of global shipping. Iran’s parliament approved closing off the strait, but any real effort to do so would have to come from Iran’s most senior leadership, which has not so far seemed inclined to torpedo its own economy.
Markets, at least so far, do not see much more risk today than they did before the U.S. airstrikes. West Texas Intermediate oil price benchmark sat at just over $74 a barrel Monday morning, up substantially from its low of just over $57 in early May, but up only mildly from its $68 a barrel level on June 12, the day before Israel began bombing Iran. Prices are basically flat since Friday, even after Iran said it had launched a strike on an American base in Qatar.
“Multiple oil tankers crossing the Strait of Hormuz this morning, both in and outbound,” Bloomberg’s Javier Blas wrote on X Monday morning. “No[t] even a hint of disruption. Oil loading across multiple ports in the Persian Gulf appears normal. If anything, export rates over the last week are higher than earlier in June.”
As Greg Brew, an analyst at the Eurasia Group, told me, “The Hormuz risk is generally overstated. The Iranian threats are mostly rhetoric and meant for domestic political consumption. Hardliners in particular will use threats to close the strait as a means of letting off steam following the U.S. bombing of Fordow.”
“In reality,” he went on, “Iran faces a massive disparity in forces in the Gulf. A move to close Hormuz would be near suicidal as it would expand the scope of the war, drag in the Gulf states as well as the U.S., and imperil Iran’'s own energy exports at a time when the regime will need every financial and economic lifeline it can get.”
Inasmuch as oil prices have moved in the past few weeks, it’s been in response to the perceived increased risk of some kind of cataclysm to the world oil trade — even if the actual chances of the strait being entirely closed to tanker traffic remains low.
“Prices remain elevated on account of the regional risk, and are likely to remain in the $70s or low $80s until we see a pathway toward broader de-escalation,” Brew said.
For the American oil industry, however, a more nervous market might be a more profitable one.
Aniket Shah, an analyst at Jefferies, wrote a note to clients over the weekend attributing the increase since May to “rising tensions around the Strait of Hormuz, which channels ~20% of global oil shipments.”
“While the US imports less Middle Eastern oil than in past decades, global price shocks still drive up domestic fuel and transport costs,” he wrote.
In the months running up to the recent oil price increase, American drillers were facing an unpleasant combination of tariffs, increased production overseas (encouraged by Trump), and low prices at home, which wrecked their capital planning. Some domestic oil and gas drillers like Matador in April and Diamondback in May told their investors they planned to decrease their planned capital expenditures; over the past two months, drillers have been slowly but steadily taking rigs offline, according to the widely watched Baker Hughes rig count.
Conflict in the Middle East could therefore provide some relief (at least for the oil and gas industry) at home. “U.S. producers are among the winners here,” Brew told me. “A few months of higher prices will offer a nice hedge for shale drillers and ease their plans to reduce expenditure and output for the year.”
But higher profits for oil drillers will not necessarily translate into increased production, as Trump has commanded. “Since this is all based on risk premium and does not reflect a change in fundamentals, shale drillers are likely to deliver the gains to shareholders rather than pumping the money back into production,” Brew explained. “An overall drop in U.S. onshore output in 2025 is probably still in the cards.”
In that scenario, oil company profits would rise while production would fall year-over-year. And that would likely mean an even more infuriated Trump, who has also recently reignited his campaign to push Federal Reserve Chair Jerome Powell to cut interest rates, citing several months of low inflation.
“Elevated oil prices risk stalling recent disinflation trends and complicates the Fed’s path to rate cuts,” Shah wrote.
Even if the strait remains open, if oil prices don’t fall, expect more Truths.
On record-breaking temperatures, oil prices, and Tesla Robotaxis
Current conditions: Wildfires are raging on the Greek island of Chios • Forecasters are monitoring a low-pressure system in the Atlantic that could become a tropical storm sometime today • Residents in eastern North Dakota are cleaning up after tornadoes ripped through the area over the weekend, killing at least three people.
A dangerous heat wave moves from the Midwest toward the East Coast this week, and is expected to challenge long-standing heat records. In many places, temperatures could hit 100 degrees Fahrenheit and feel even warmer when humidity is factored in. “High overnight temperatures will create a lack of overnight cooling, significantly increasing the danger,” according to the National Weather Service. Extreme heat warnings and advisories are in effect from Maine through the Carolinas, across the Ohio Valley and down into southern states like Mississippi and Louisiana. “It’s basically everywhere east of the Rockies,” National Weather Service meteorologist Mark Gehring told The Associated Press. “That is unusual, to have this massive area of high dew points and heat.”
AccuWeather
Regional grid operator PJM Interconnection, which covers 13 states, issued an energy emergency alert for today. The alert urges power transmission and generation owners to delay any planned maintenance so that no grid sources are out of commission as temperatures soar. A heat wave of this nature is rare this early in the summer. The last time temperatures hit 100 degrees in June in New York City, for example, was in 1995, according to AccuWeather. Heat waves are becoming more frequent and more intense as the climate warms. Here’s a look at how these events have changed over the past 60 years or so:
Oil markets are jittery this morning after Iran’s parliament endorsed a measure to block the Strait of Hormuz in response to U.S. strikes on Iranian nuclear facilities. About 20% of the world’s oil and liquified natural gas shipments travel through the shipping route, and as The Wall Street Journalexplains, the supplies “dictate prices paid by U.S. drivers and air travelers.” Oil prices rose to five-month highs this morning on the news. Tehran has long threatened to close the strait, but such a move is seen as unlikely because it would disrupt Iran’s own energy exports, which are its “sole global energy revenue stream,” one analyst told the Journal.
A handful of climate-related provisions in the GOP’s reconciliation bill are in limbo after the Senate parliamentarian advised that the policies violated the “Byrd Rule,” i.e. were deemed extraneous to budgetary matters, and thus were subject to a 60-vote threshold instead of the simple majority allowed for reconciliation. The provisions include:
The Senate Finance Committee is set to meet with the parliamentarian today.
In case you missed it: The Supreme Court on Friday gave the green light for fuel producers to challenge a Clean Air Act waiver issued by the EPA that lets California set tougher vehicle emissions standards than those at the federal level. A lower court rejected the lawsuit from Diamond Alternative Energy and other challengers last year, but as Justice Brett Kavanaugh wrote for the majority, California’s ambitious Zero-Emission Vehicle Program is hurting fuel producers, so they have standing to sue. The vote was 7 to 2, with Justices Sonia Sotomayor and Ketanji Brown Jackson dissenting.
As Heatmap’s Katie Brigham has explained, if the EPA waiver is eliminated, Tesla could take a big financial hit. That’s because the zero-emissions vehicle program lets automakers earn credits based on the number and type of ZEVs they produce, and since Tesla is a pure-play EV company, it has always generated more credits than it needs. “The sale of all regulatory credits combined earned the company a total of $595 million in the first quarter [of 2025] on a net income of just $409 million,” Brigham reported. “That is, they represented its entire margin of profitability. On the whole, credits represented 38% of Tesla’s net income last year.”
Tesla launched its Robotaxi service in Austin, Texas, over the weekend. A small number of rides were doled out to hand-picked influencers and retail investors, and a Tesla employee sat in the front passenger seat of each autonomous Model Y to monitor safety. The rollout was “uncharacteristically low-key,” Bloombergreported, but CEO Elon Musk said the company is being “super paranoid about safety.” San Francisco, Los Angeles, and San Antonio are rumored to be the next cities slated for Robotaxi service. “Tesla is still behind Waymo, by several years,” wrote Jameson Dow at Electrek. “But Waymo has also not been scaling particularly quickly, and certainly both are slower than a lot of techno-optimists would have liked. So we’ll have to see which tortoise wins this race.” The stakes are pretty high: Investment management firm ARK Invest projected that Robotaxis could bring in $951 billion for Tesla by 2029 and make up 90% of the company’s earnings.
A new report from energy think tank Ember concludes that in the world’s sunniest cities, it’s now possible (and economically viable) to get at least 90% of the way to constant solar electricity output for every hour of the day, 365 days a year.
A conversation with Mary King, a vice president handling venture strategy at Aligned Capital
Today’s conversation is with Mary King, a vice president handling venture strategy at Aligned Capital, which has invested in developers like Summit Ridge and Brightnight. I reached out to Mary as a part of the broader range of conversations I’ve had with industry professionals since it has become clear Republicans in Congress will be taking a chainsaw to the Inflation Reduction Act. I wanted to ask her about investment philosophies in this trying time and how the landscape for putting capital into renewable energy has shifted. But Mary’s quite open with her view: these technologies aren’t going anywhere.
The following conversation has been lightly edited and abridged for clarity.
How do you approach working in this field given all the macro uncertainties?
It’s a really fair question. One, macro uncertainties aside, when you look at the levelized cost of energy report Lazard releases it is clear that there are forms of clean energy that are by far the cheapest to deploy. There are all kinds of reasons to do decarbonizing projects that aren’t clean energy generation: storage, resiliency, energy efficiency – this is massively cost saving. Like, a lot of the methane industry [exists] because there’s value in not leaking methane. There’s all sorts of stuff you can do that you don’t need policy incentives for.
That said, the policy questions are unavoidable. You can’t really ignore them and I don’t want to say they don’t matter to the industry – they do. It’s just, my belief in this being an investable asset class and incredibly important from a humanity perspective is unwavering. That’s the perspective I’ve been taking. This maybe isn’t going to be the most fun market, investing in decarbonizing things, but the sense of purpose and the belief in the underlying drivers of the industry outweigh that.
With respect to clean energy development, and the investment class working in development, how have things changed since January and the introduction of these bills that would pare back the IRA?
Both investors and companies are worried. There’s a lot more political and policy engagement. We’re seeing a lot of firms and organizations getting involved. I think companies are really trying to find ways to structure around the incentives. Companies and developers, I think everybody is trying to – for lack of a better term – future-proof themselves against the worst eventuality.
One of the things I’ve been personally thinking about is that the way developers generally make money is, you have a financier that’s going to buy a project from them, and the financier is going to have a certain investment rate of return, or IRR. So ITC [investment tax credit] or no ITC, that IRR is going to be the same. And the developer captures the difference.
My guess – and I’m not incredibly confident yet – but I think the industry just focuses on being less ITC dependent. Finding the projects that are juicier regardless of the ITC.
The other thing is that as drafts come out for what we’re expecting to see, it’s gone from bad to terrible to a little bit better. We’ll see what else happens as we see other iterations.
How are you evaluating companies and projects differently today, compared to how you were maybe before it was clear the IRA would be targeted?
Let’s say that we’re looking at a project developer and they have a series of projects. Right now we’re thinking about a few things. First, what assets are these? It’s not all ITC and PTC. A lot of it is other credits. Going through and asking, how at risk are these credits? And then, once we know how at risk those credits are we apply it at a project level.
This also raises a question of whether you’re going to be able to find as many projects. Is there going to be as much demand if you’re not able to get to an IRR? Is the industry going to pay that?
What gives you optimism in this moment?
I’ll just look at the levelized cost of energy and looking at the unsubsidized tables say these are the projects that make sense and will still get built. Utility-scale solar? Really attractive. Some of these next-gen geothermal projects, I think those are going to be cost effective.
The other thing is that the cost of battery storage is just declining so rapidly and it’s continuing to decline. We are as a country expected to compare the current price of these technologies in perpetuity to the current price of oil and gas, which is challenging and where the technologies have not changed materially. So we’re not going to see the cost decline we’re going to see in renewables.