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Implementing the new rules could mean reshaping the entire U.S. energy system.
The most generous, lucrative, and all-around lavish subsidy in President Joe Biden’s climate law, the Inflation Reduction Act, is the new tax credit for clean hydrogen production. Under the policy, a company can get a bounty of up to $3 for each kilogram of hydrogen made with clean electricity that it produces and sells. There are few legal limits to what a company can earn.
So it figures, then, that this subsidy has been the subject of maybe the most acrimonious, dramatic, hair-tearing fight over the law so far, one that saw snoozy lobbyists and power plant operators take out Spotify spots and full-page New York Times ads in order to make their point.
On Friday, the first phase of that battle ended — and the side supported by most environmental groups claimed a provisional victory. The Biden administration proposed strict rules governing the tax credit, designed to ensure that only zero-carbon electricity meeting rigorous standards can be used to make subsidized hydrogen. The rules, which some industry groups allege could stunt the field in its infancy, will have far-reaching consequences not only for hydrogen itself, but for how America’s power grid prepares for an age of abundant, zero-carbon electricity. It will create a system for organizing clean electricity that could soon determine how companies, consumers, and the federal government buy and sell that electricity — even when it has nothing to do with hydrogen.
But all of that is in the future. Now, to get the highest value of the tax credit, companies must — like other subsidies in the law — demonstrate that they paid a prevailing wage and took advantage of local apprenticeship programs.
They also must demonstrate that they used clean, zero-carbon electricity to power their electrolyzers, the energy-hungry machines that pull hydrogen out of water or other molecules. And defining clean electricity has proven to be an enormous challenge. However the Biden administration chose to define it, someone was going to be left out — or let in.
Consider just one hypothetical. Pretend you own a fancy new electrolyzer. If you buy power for it from a wind farm that’s already hooked up to the grid, then another power plant will have to replace the electrons that you’re now using. That marginal electricity will probably have to come from a coal or natural gas power plant, meaning that it will need to burn extra fuel, meaning it will release extra carbon pollution. Does that mean that the electricity that you bought is actually clean? And if not, do you still get the tax credit?
Earlier this year, climate groups proposed that any clean electricity used to make hydrogen had to meet three requirements: It had to come from a truly new source of power on the grid; it had to generate power at the same time that it was used; and it had to be produced on essentially the same grid where it was used. The Biden administration largely adopted those requirements in Friday’s proposal. On a briefing call with reporters ahead of the rule's release, Deputy Secretary of the Treasury Wally Adeyemo was effusive about the new rule’s benefits. “We’ve developed a structure that will drive innovation and create good-paying jobs in this emerging industry while strengthening our energy security and reducing emissions in hard-to-transition sectors of the economy,” he said.
Not everyone feels that way. Senator Joe Manchin, who provided a key vote for the IRA, told Bloomberg that the draft is “horrible” and promised that “we are fighting it.”
“It doesn’t do anything the bill does. They basically made it 10 times more stringent for hydrogen,” he said. The trade group for the nuclear industry has also expressed its “disappointment,” arguing, more or less correctly, that the proposal “effectively eliminates all existing clean energy from qualifying” for the credit.
But debate about the proposal has not quite run on green vs. industry lines. Air Products, the world’s largest hydrogen producer, has backed the administration’s approach, as have half a dozen other hydrogen companies. So has Synergetic, a hydrogen developer that recently left the trade group the American Clean Power Association to protest its laxer stance. “Consumer groups are behind these rules, and environmental justice has also come out to express support,” Rachel Fakhry, a policy director at the Natural Resource Defense Council, told me.
The excessive focus on the hydrogen tax credit has been, in one sense, surprising. If you care most about cutting carbon pollution in the near-term, the hydrogen tax credit is unlikely to be the most important part of the IRA. Other policies — such as the clean electricity tax credit, which could add vast amounts of new wind and solar to the grid, or new subsidies for electric vehicles — will likely reduce greenhouse gas pollution by far more in the next decade.
But a clean hydrogen industry could soon be crucial to the climate fight. Hydrogen could eventually be used to fuel medium- and heavy-duty trucks, which are responsible for roughly a quarter of the country’s transportation emissions.
It could also decarbonize the production of steel, chemicals, and fertilizer, all of which require fossil fuels today. These are a looming climate problem: By the middle of this decade, heavy industry will pollute the climate more than any other sector of the American economy, according to the Rhodium Group, an independent research firm.
Yet this does not explain why the hydrogen tax credit attracted so much attention. It became a big fight, in short, because it stood the biggest chance of backfiring. Because the tax credit is so generous, incentivizing hydrogen companies to use more and more power, it risked gobbling up too much electricity and distorting the country’s power markets. In the disaster-movie scenario, the tax credit could wind up like the federal government’s ethanol subsidies, which have cost billions while doing nothing to help the climate.
The hydrogen tax credit “has been the most challenging piece of policy that we’ve had to contend with,” John Podesta, the White House adviser in charge of implementing the IRA, told me on the sidelines of COP28 in Dubai earlier this month.
He described the administration as balancing between two extremes. On the one hand, overly strict rules could cause companies to invest more in so-called “blue hydrogen,” which is produced by separating natural gas and capturing the resulting carbon. Yet overly loose rules could cause emissions to balloon and power prices to soar.
“We could kind of blow it in either direction, I think,” he said.
This hasn’t always been seen as a problem. Since the IRA passed last year, the clean hydrogen tax credit has stood out for its extreme generosity, which goes far beyond what is contemplated by other tax credits in the law.
Once the Treasury Department decides that a hydrogen project qualifies for the tax credit, for instance, then that project can receive credits for the next 10 years. For five of those years, it can even get that money as a direct payment from the government, rather than as a tax cut. What’s more, projects can qualify for the tax credit as long as they begin construction by 2033. That means the tax credit will still be used well into the 2040s, even if Congress does not extend it.
Almost no other policy in the law spends federal dollars so lavishly or directly. Manchin, who negotiated the final text of the IRA with Senate Majority Leader Chuck Schumer, has long championed the hydrogen industry and seen it as a way to use fossil-fuel assets, such as pipelines, in the energy transition.
Soon after the IRA passed, however, climate advocates realized that this generosity could pose risks to the rest of the law. In the summer of 2022, Wilson Ricks, an engineering Ph.D. student at Princeton, was interning for the Department of Energy, studying how to measure the climate impact of hydrogen produced by electrolysis.
Ricks had already concluded that the “lifecycle” of the electricity used to make hydrogen mattered: If electricity from a nuclear power plant was sent to an electrolyzer instead of the power grid, thereby forcing a natural-gas plant to turn on and send power to the grid instead, then so-called “clean hydrogen” could actually result in more climate pollution than the traditional approach of using natural gas to make hydrogen.
Then the IRA passed, and “potentially hundreds of billions of dollars hinged on that question,” he told me. In January, Ricks and his colleagues at Princeton’s ZERO Lab published a study urging the Biden administration to adopt stringent guidelines for the tax credit. Without hourly matching, they concluded, the subsidy could wreak havoc in the country’s electricity markets.
Ricks wasn’t the only expert suddenly worried about what a giant new hydrogen subsidy could do to electricity markets. Nearly a year earlier, Taylor Sloane, an energy developer for the utility and power company AES, virtually predicted the hydrogen fight in a Medium post.
“The reason it matters that we get these rules right is that we don’t want to have an environmental backlash against green hydrogen in a few years demonstrating how it actually increases emissions,” he wrote. “Getting the rules right from the start will ensure more stable long-term growth of green hydrogen.”
Ultimately, the administration decided that nearly all clean electricity used to produce hydrogen must meet three requirements — largely inherited from the climate groups’ proposals. They also mirror hydrogen regulations already adopted in the European Union.
First, the electricity must come from a relatively new source of zero-carbon power, such as a wind or nuclear plant: You can’t use electrons that once would have powered homes or cars to power an electrolyzer.
Second, the electricity must be produced at roughly the same time that it is used to make hydrogen: You can’t buy cheap solar power at noon and claim that you’re using it to make hydrogen at midnight.
Finally, the electricity must have been made on the same power grid that the electrolyzer itself is using: You can’t buy wind power in Iowa and claim that you’re using it to make hydrogen in Massachusetts.
Today, no power company in the country has a way of certifying that its electricity meets all three requirements of the new hydrogen rule — and none has any way of selling it, either. So the rules also require local power grids to set up and sell “energy attribute certificates,” or EACs, which certify that a given kilowatt-hour of electricity was produced on a certain grid, at a certain time, and using a certain source of clean energy.
Utilities and grid managers have until 2028 to launch this new system; until then, hydrogen companies can keep using the existing system of renewable energy credits, or RECs, which certify only that zero-carbon electricity was generated during a certain year.
Although this new system of EACs may sound like so much bureaucratic legerdemain, it could eventually become more important than the hydrogen tax credit itself, because it could all but reshape how the country’s electricity systems work.
Right now, even though the availability of clean energy rises and falls throughout the day — solar panels make more power at noon than at midnight, for instance — there is no way to buy or sell claims to that power. By creating a systematic way to describe and sell an hour of clean electricity, EACs could actually create a market for 24/7 clean electricity.
The existence of that system could alter corporate sustainability pledges, climate-friendly government orders, and even how companies measure their own progress toward meeting their Paris Agreement goals. Even though hundreds of American companies say that they buy their electricity from zero-carbon sources, only Google, Microsoft, and a few other companies have committed to buying 24/7 clean electricity.
“I know the administration faced absurd amounts of pressure given how lucrative this is,” Ricks told me. “But it seems like they pretty much held firm and went with the science.”
That said, the proposal kicks two issues down the road. It asks companies whether it should allow any exceptions to the general rule requiring that clean electricity come from clean sources. Some nuclear power plant operators, for instance, have argued that electricity from a nuclear plant should count toward the credit if the plant would otherwise be slated to shut down.
That decision could shape other administration priorities. Two of the government’s seven proposed “hydrogen hubs,” new industrial facilities funded by the bipartisan infrastructure law, are planning to use nuclear power to generate clean hydrogen. Under the current rules, these hubs may not qualify for the generous hydrogen tax credit, even though they could still earn billions in other subsidies.
The proposal also asks for advice about how to count so-called renewable natural gas, which is captured methane released from cows or landfills. Some environmentalists worry that the rules for this technology, if poorly drafted, could allow companies to engage in aggressive carbon accounting that does not align with reality. But so far, the Biden administration seems to have little appetite for that approach.
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Rob and Jesse go deep on the electricity machine.
Last week, more than 50 million people across mainland Spain and Portugal suffered a blackout that lasted more than 10 hours and shuttered stores, halted trains, and dealt more than $1 billion in economic damage. At least eight deaths have been attributed to the power outage.
Almost immediately, some commentators blamed the blackout on the large share of renewables on the Iberian peninsula’s power grid. Are they right? How does the number of big, heavy, spinning objects on the grid affect grid operators’ ability to keep the lights on?
On this week’s episode of Shift Key, Jesse and Rob dive into what may have caused the Iberian blackout — as well as how grid operators manage supply and demand, voltage and frequency, and renewables and thermal resources, and operate the continent-spanning machine that is the power grid. Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Robinson Meyer: So a number of people started saying, oh, this was actually caused because there wasn’t enough inertia on the grid — that Spain kind of flew too close to the sun, let’s say, and had too many instantaneous resources that are metered by inverters and not by these large mechanical generators attached to its grid. Some issue happened and it wasn’t able to maintain the frequency of its grid as needed. How likely do you think that is?
Jesse Jenkins: So I don’t think it’s plausible as the precipitating event, the initial thing that started to drive the grid towards collapse. I would say it did contribute once the Iberian grid disconnected from France.
So let me break that down: When Spain and Portugal are connected to the rest of the continental European grid, there’s an enormous amount of inertia in that system because it doesn’t actually matter what’s going on just in Spain. They’re connected to this continen- scale grid, and so as the frequency drops there, it drops a little bit in France, and it drops a little bit in Latvia and all the generators across Europe are contributing to that balance. So there was a surplus of inertia across Europe at the time.
Once the system in Iberia disconnected from France, though, now it’s operating on its own as an actual island, and there it has very little inertia because the system operator only scheduled a couple thousand megawatts of conventional thermal units of gas power plants and nuclear. And so it had a very high penetration on the peninsula of non-inertia-based resources like solar and wind. And so whatever is happening up to that point, once the grid disconnected, it certainly lacked enough inertia to recover at that point from the kind of cascading events. But it doesn’t seem like a lack of inertia contributed to the initial precipitating event.
Something — we don’t know what yet — caused two generators to simultaneously disconnect. And we know that we’ve observed oscillation in the frequency, meaning something happened to disturb the frequency in Spain before all this happened. And we don’t know exactly what that disturbance was.
There could have been a lot of different things. It could have been a sudden surge of wind or solar generation. That’s possible. It could have been something going wrong with the control system that manages the automatic response to changes in frequency — they were measuring the wrong thing, and they started to speed up or slow down, or something went wrong. That happened in the past, in the case of a generator in Florida that turned on and tried to synchronize with the grid and got its controls wrong, and that causes caused oscillations of the frequency that propagated all through the Eastern Interconnection — as far away as North Dakota, which is like 2,000 miles away, you know? So these things happen. Sometimes thermal generators screw up.
Music for Shift Key is by Adam Kromelow.
Then again, there are reasons why he’d want to focus on existing generation.
Just how big is the data center boom, really? How much is electricity demand going to expand over the coming decades? Business plans, government policy, and alarming environmental forecasts are all based on the idea that we’re on an unrelenting ride upwards in terms of electricity use, especially from data centers used to power artificial intelligence.
It’s one reason why the new Trump administration declared in the first days of its return to power that the country was in an “energy emergency,” and hasbeen used as a justification for its attempted revival of the coal industry.
But one mildly dissenting voice came from a perhaps-unexpected corner: the power industry.
Constellation Energy’s Chief Executive Officer Joseph Dominguez spent a portion of the company’s quarterly earnings call Tuesday throwing lukewarm water on the most aggressive load growth projections, even as the company looks to profit from increased demand for the power that its over 30,000-megawatt, largely nuclear fleet serves.
Dominguez told his audience of investors and analysts that utilities and their power customers have been telling Constellation that “the same data center need is being considered in multiple jurisdictions across the United States at the same time, just like fishing. If you’re a fisherman, you put a bunch of lines in the water to try to catch fish, and the data center developers are doing exactly the same thing.”
This means that different electricity markets or utility territories could report the same future data center demand, when ultimately the developer will pick just one site.
Tallying the demand growth projections from a few large power markets — namely MISO, which largely serves the Midwest; PJM, which largely serves the East Coast; and ERCOT, the Texas energy market — which together “account for less than half” of U.S. power demand, Dominguez said, Constellation finds that they project “notably higher” demand growth than many third-party consultants and analysts foresee for the country as a whole.
“It’s hard not to conclude that the headlines are inflated,” Dominguez said. He further claimed that Constellation had “done the math,” and that “if Nvidia were able to double its output and every single chip went to ERCOT, it still wouldn’t be enough chips to support some of the load forecasts.”
He argued that utilities tend to overstate load growth — an observation backed up by research from the Rocky Mountain Institute. “We get it,” he said. “Utilities have to plan to ensure that the system is reliable.” That frequently means erring on the side of having more generation and transmission to serve future demand as opposed to being caught short.
Dominguez is hardly the first voice to call into question load growth forecasts. Energy industry consultant Jonathan Koomey told Heatmap more than a year ago that “everyone needs to calm the heck down” about AI-driven load growth. Data center developers, chipmakers, and AI companies would likely find efficiencies to get more computing power out of less electric power, he predicted, similar to how the original data center buildout avoided catastrophic predictions of imminent power shortages and spiking electricity prices in the early 2000s.
Since then, demand growth projections have done nothing but rise. But even just a few weeks ago, Peter Freed, Meta’s former director of energy strategy, told Heatmap’s Shift Key podcast, “It is simultaneously true that I think this is going to be a really large demand driver and that we have bubble-like characteristics in terms of the amount of stuff that people are trying to get done.”
Now, to be clear, Dominguez has a reason to talk down expectations of future demand growth — and with it the expectation that there needs to be massive investment in new power plants. Constellation owns and operates a fleet of nuclear power plants, and is bringing on a gas-heavy fleet with its planned acquisition of Calpine.
Dominguez also said that new natural gas and renewables were likely to prove expensive to build.
“The cost of new entry, whether that be for combined cycle machines or solar with storage, has gone up substantially, as has the time to build and site these assets,” Dominguez said. “Now, at the end of the day, in a tightening market, we compete with the cost of new entry.”
This is halfway consistent with what other big players in the energy industry have been saying. John Ketchum, the chief executive of NextEra, which has a large renewables development business,has been telling anyone who will listen that the way to meet urgent load growth is with renewables and batteries, as they can be built cheaper and faster than natural gas, let alone nuclear.
Dominguez’s take, however, is that it’s all quite expensive and lengthy considering the likely level of need.
“When I listen to some of the comments on these calls, I just have to tell you, folks, I think the load is being overstated. We need to pump the brakes here.”
On defending wind, Russian gas, and NREL layoffs
Current conditions: A state of emergency is in effect in Manitoba, Canada, due to multiple wildfires • 17 million people in the south-central U.S. are at risk of severe storms on Tuesday • The Interior Department has reportedly suspended air quality monitoring for National Parks, including California’s Joshua Tree, where the AQI today is moderate.
Attorneys general from 17 Democratic states and Washington, D.C., filed a lawsuit on Monday challenging President Trump’s executive order pausing approvals, permits, and loans for onshore and offshore wind projects. The lawsuit argues that Trump exceeds his authority with the indefinite pause, which threatens “thousands of good-paying jobs and billions in investments, and … is delaying our transition away from the fossil fuels that harm our health and our planet,” in the words of New York Attorney General Letitia James, who is leading the coalition.
In a response to the lawsuit, a White House spokesperson told The Associated Press that “the American people voted for the president to restore America’s energy dominance, and Americans in blue states should not have to pay the price of the Democrats’ radical climate agenda.” As my colleague Emily Pontecorvo has written, however, state climate goals “become nearly impossible if no additional [wind] projects are able to get through the permitting process until at least 2029,” with New York state’s especially in jeopardy after the administration ordered the halt of construction on the fully permitted Empire Wind project south of Long Island.
The European Union plans to announce on Tuesday a 2027 deadline for companies to end any remaining energy contracts with Russia, the Financial Times reported Monday. Though the EU’s use of Russian oil and coal virtually ended with sanctions after the invasion of Ukraine in 2022, Europe still bought 49.5 billion cubic meters of Russian gas through pipelines in 2024, and another 24.2 billion transported on ships as liquified natural gas, per Rystad Energy (though some of that LNG was resold). Another way of looking at it: “The EU purchased a total of [$26 billion] in Russian energy in 2024, exceeding its military assistance to Ukraine last year,” Bloomberg writes, with imports accounting for about 19% of the bloc’s total gas purchases.
The proposed measures will need to be approved by a majority of EU member states and the European Parliament before they can be adopted, according to FT. Without Russian LNG, Europe is expected to turn to the U.S. to meet its energy needs.
Share of European Union gas demand met by Russian supply, 2001-2024
IEA
More than 100 employees at the National Renewable Energy Laboratory lost their jobs in a round of layoffs on Monday, Mother Jones reports. The cuts included non-probationary employees, or those who’ve worked at the Department of Energy division for over two years.
Though NREL has more than 3,000 employees on staff, sources who spoke with Mother Jones described the cuts as “rather haphazard and unorganized,” while others stressed that “if I am suddenly the only person on my team, I can’t handle that work.” The layoffs also notably come after President Trump’s “skinny” budget proposed $15 billion in cuts to Infrastructure Investment and Jobs Act funding. The White House Office of Management and Budget has said that the budget aims to reorient the Department of Energy’s funding away from “unreliable renewable energy” and “toward research and development of technologies that could produce an abundance of domestic fossil energy and critical minerals, innovative concepts for nuclear reactors and advanced nuclear fuels, and technologies that promote firm baseload power.”
The Federal Emergency Management Agency plans to end door-to-door survivor outreach in disaster areas for the upcoming hurricane and wildfire seasons, Wired reported Monday, based on a FEMA memo dated May 2. Previously, the agency would canvass disaster survivors to inform them about how to register for federal aid, a policy that one emergency management coordinator told Wired was critical given how many survivors don’t get adequate information about recovery resources otherwise. Instead, FEMA’s memo said the agency will “focus survivor outreach and assistance registration capabilities in more targeted venues.”
Last year, Republicans on the Oversight Committee singled out FEMA’s outreach program over alleged “widespread discrimination against individuals displaying Trump campaign signs on their property” in the wake of Hurricane Milton. The White House’s budget has also cited FEMA for supposedly “skipping over homes when providing aid.” But the Trump administration has also sought to pare back the agency aggressively: Earlier this year, it denied a request for federal aid from Arkansas’ Republican Governor and former White House Press Secretary Sarah Huckabee Sanders after severe tornadoes that left more than 40 people in the region dead, arguing the disaster was not “beyond the capabilities of the state, affected local governments, and voluntary agencies” to address.
Kevork Djansezian/Getty Images
The Los Angeles Dodgers have faced calls from activists and fans to end their sponsorship deal with Phillips 66’s 76 gas station brand — but the partnership might face a natural end due to the Olympics coming to L.A. in 2028, Legal Planet reports. Dodger Stadium will be an official Olympic venue during the summer games, and its 76 gas ads will violate the Olympic Charter prohibiting “commercial installations and advertising signs … in the stadia, venues or other sports grounds.”
The Dodgers are under mounting pressure to drop the Phillips 66 partnership even earlier. There are 76 gasoline ads “plastered throughout the ballpark, from the visiting team’s bullpen to the ribbon board screens lining the stands … Even the on-deck circles on the field, where batters prepare to hit, are orange-and-blue 76 logos,” the Los Angeles Times’ Sammy Roth wrote last year in a column calling for the team to break up with the oil company. As of November, the Houston-based energy company was facing six counts of violating the U.S. Clean Water Act by illegally discharging 790,000 gallons of wastewater from its Carson refinery into the L.A. County sewer system. “The lead up to the 2028 Olympic games period would seem to be a natural time for the Dodgers to reset a marquee sponsor for years to come — and to do so on their own terms — or else be forced to by Olympic rules,” Legal Planet writes.
“C’mon Ford, c’mon GM, c’mon Chrysler, let’s roll again/Build something useful that people need, build us a safe way for us to be/Build us something that won’t kill our kids, that runs real clean, that runs real clean.” —Lyrics to Neil Young’s new single “Let’s Roll Again.”