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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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Paradise, California, is snatching up high-risk properties to create a defensive perimeter and prevent the town from burning again.
The 2018 Camp Fire was the deadliest wildfire in California’s history, wiping out 90% of the structures in the mountain town of Paradise and killing at least 85 people in a matter of hours. Investigations afterward found that Paradise’s town planners had ignored warnings of the fire risk to its residents and forgone common-sense preparations that would have saved lives. In the years since, the Camp Fire has consequently become a cautionary tale for similar communities in high-risk wildfire areas — places like Chinese Camp, a small historic landmark in the Sierra Nevada foothills that dramatically burned to the ground last week as part of the nearly 14,000-acre TCU September Lightning Complex.
More recently, Paradise has also become a model for how a town can rebuild wisely after a wildfire. At least some of that is due to the work of Dan Efseaff, the director of the Paradise Recreation and Park District, who has launched a program to identify and acquire some of the highest-risk, hardest-to-access properties in the Camp Fire burn scar. Though he has a limited total operating budget of around $5.5 million and relies heavily on the charity of local property owners (he’s currently in the process of applying for a $15 million grant with a $5 million match for the program) Efseaff has nevertheless managed to build the beginning of a defensible buffer of managed parkland around Paradise that could potentially buy the town time in the case of a future wildfire.
In order to better understand how communities can build back smarter after — or, ideally, before — a catastrophic fire, I spoke with Efseaff about his work in Paradise and how other communities might be able to replicate it. Our conversation has been lightly edited and condensed for clarity.
Do you live in Paradise? Were you there during the Camp Fire?
I actually live in Chico. We’ve lived here since the mid-‘90s, but I have a long connection to Paradise; I’ve worked for the district since 2017. I’m also a sea kayak instructor and during the Camp Fire, I was in South Carolina for a training. I was away from the phone until I got back at the end of the day and saw it blowing up with everything.
I have triplet daughters who were attending Butte College at the time, and they needed to be evacuated. There was a lot of uncertainty that day. But it gave me some perspective, because I couldn’t get back for two days. It gave me a chance to think, “Okay, what’s our response going to be?” Looking two days out, it was like: That would have been payroll, let’s get people together, and then let’s figure out what we’re going to do two weeks and two months from now.
It also got my mind thinking about what we would have done going backwards. If you’d had two weeks to prepare, you would have gotten your go-bag together, you’d have come up with your evacuation route — that type of thing. But when you run the movie backwards on what you would have done differently if you had two years or two decades, it would include prepping the landscape, making some safer community defensible space. That’s what got me started.
Was it your idea to buy up the high-risk properties in the burn scar?
I would say I adapted it. Everyone wants to say it was their idea, but I’ll tell you where it came from: Pre-fire, the thinking was that it would make sense for the town to have a perimeter trail from a recreation standpoint. But I was also trying to pitch it as a good idea from a fuel standpoint, so that if there was a wildfire, you could respond to it. Certainly, the idea took on a whole other dimension after the Camp Fire.
I’m a restoration ecologist, so I’ve done a lot of river floodplain work. There are a lot of analogies there. The trend has been to give nature a little bit more room: You’re not going to stop a flood, but you can minimize damage to human infrastructure. Putting levees too close to the river makes them more prone to failing and puts people at risk — but if you can set the levee back a little bit, it gives the flood waters room to go through. That’s why I thought we need a little bit of a buffer in Paradise and some protection around the community. We need a transition between an area that is going to burn, and that we can let burn, but not in a way that is catastrophic.
How hard has it been to find willing sellers? Do most people in the area want to rebuild — or need to because of their mortgages?
Ironically, the biggest challenge for us is finding adequate funding. A lot of the property we have so far has been donated to us. It’s probably upwards of — oh, let’s see, at least half a dozen properties have been donated, probably close to 200 acres at this point.
We are applying for some federal grants right now, and we’ll see how that goes. What’s evolved quite a bit on this in recent years, though, is that — because we’ve done some modeling — instead of thinking of the buffer as areas that are managed uniformly around the community, we’re much more strategic. These fire events are wind-driven, and there are only a couple of directions where the wind blows sufficiently long enough and powerful enough for the other conditions to fall into play. That’s not to say other events couldn’t happen, but we’re going after the most likely events that would cause catastrophic fires, and that would be from the Diablo winds, or north winds, that come through our area. That was what happened in the Camp Fire scenario, and another one our models caught what sure looked a lot like the [2024] Park Fire.
One thing that I want to make clear is that some people think, “Oh, this is a fire break. It’s devoid of vegetation.” No, what we’re talking about is a well-managed habitat. These are shaded fuel breaks. You maintain the big trees, you get rid of the ladder fuels, and you get rid of the dead wood that’s on the ground. We have good examples with our partners, like the Butte Fire Safe Council, on how this works, and it looks like it helped protect the community of Cohasset during the Park Fire. They did some work on some strips there, and the fire essentially dropped to the ground before it came to Paradise Lake. You didn’t have an aerial tanker dropping retardant, you didn’t have a $2-million-per-day fire crew out there doing work. It was modest work done early and in the right place that actually changed the behavior of the fire.
Tell me a little more about the modeling you’ve been doing.
We looked at fire pathways with a group called XyloPlan out of the Bay Area. The concept is that you simulate a series of ignitions with certain wind conditions, terrain, and vegetation. The model looked very much like a Camp Fire scenario; it followed the same pathway, going towards the community in a little gulch that channeled high winds. You need to interrupt that pathway — and that doesn’t necessarily mean creating an area devoid of vegetation, but if you have these areas where the fire behavior changes and drops down to the ground, then it slows the travel. I found this hard to believe, but in the modeling results, in a scenario like the Camp Fire, it could buy you up to eight hours. With modern California firefighting, you could empty out the community in a systematic way in that time. You could have a vigorous fire response. You could have aircraft potentially ready. It’s a game-changing situation, rather than the 30 minutes Paradise had when the Camp Fire started.
How does this work when you’re dealing with private property owners, though? How do you convince them to move or donate their land?
We’re a Park and Recreation District so we don’t have regulatory authority. We are just trying to run with a good idea with the properties that we have so far — those from willing donors mostly, but there have been a couple of sales. If we’re unable to get federal funding or state support, though, I ultimately think this idea will still have to be here — whether it’s five, 10, 15, or 50 years from now. We have to manage this area in a comprehensive way.
Private property rights are very important, and we don’t want to impinge on that. And yet, what a person does on their property has a huge impact on the 30,000 people who may be downwind of them. It’s an unusual situation: In a hurricane, if you have a hurricane-rated roof and your neighbor doesn’t, and theirs blows off, you feel sorry for your neighbor but it’s probably not going to harm your property much. In a wildfire, what your neighbor has done with the wood, or how they treat vegetation, has a significant impact on your home and whether your family is going to survive. It’s a fundamentally different kind of event than some of the other disasters we look at.
Do you have any advice for community leaders who might want to consider creating buffer zones or something similar to what you’re doing in Paradise?
Start today. You have to think about these things with some urgency, but they’re not something people think about until it happens. Paradise, for many decades, did not have a single escaped wildfire make it into the community. Then, overnight, the community is essentially wiped out. But in so many places, these events are foreseeable; we’re just not wired to think about them or prepare for them.
Buffers around communities make a lot of sense, even from a road network standpoint. Even from a trash pickup standpoint. You don’t think about this, but if your community is really strung out, making it a little more thoughtfully laid out also makes it more economically viable to provide services to people. Some things we look for now are long roads that don’t have any connections — that were one-way in and no way out. I don’t think [the traffic jams and deaths in] Paradise would have happened with what we know now, but I kind of think [authorities] did know better beforehand. It just wasn’t economically viable at the time; they didn’t think it was a big deal, but they built the roads anyway. We can be doing a lot of things smarter.
A war of attrition is now turning in opponents’ favor.
A solar developer’s defeat in Massachusetts last week reveals just how much stronger project opponents are on the battlefield after the de facto repeal of the Inflation Reduction Act.
Last week, solar developer PureSky pulled five projects under development around the western Massachusetts town of Shutesbury. PureSky’s facilities had been in the works for years and would together represent what the developer has claimed would be one of the state’s largest solar projects thus far. In a statement, the company laid blame on “broader policy and regulatory headwinds,” including the state’s existing renewables incentives not keeping pace with rising costs and “federal policy updates,” which PureSky said were “making it harder to finance projects like those proposed near Shutesbury.”
But tucked in its press release was an admission from the company’s vice president of development Derek Moretz: this was also about the town, which had enacted a bylaw significantly restricting solar development that the company was until recently fighting vigorously in court.
“There are very few areas in the Commonwealth that are feasible to reach its clean energy goals,” Moretz stated. “We respect the Town’s conservation go als, but it is clear that systemic reforms are needed for Massachusetts to source its own energy.”
This stems from a story that probably sounds familiar: after proposing the projects, PureSky began reckoning with a burgeoning opposition campaign centered around nature conservation. Led by a fresh opposition group, Smart Solar Shutesbury, activists successfully pushed the town to drastically curtail development in 2023, pointing to the amount of forest acreage that would potentially be cleared in order to construct the projects. The town had previously not permitted facilities larger than 15 acres, but the fresh change went further, essentially banning battery storage and solar projects in most areas.
When this first happened, the state Attorney General’s office actually had PureSky’s back, challenging the legality of the bylaw that would block construction. And PureSky filed a lawsuit that was, until recently, ongoing with no signs of stopping. But last week, shortly after the Treasury Department unveiled its rules for implementing Trump’s new tax and spending law, which basically repealed the Inflation Reduction Act, PureSky settled with the town and dropped the lawsuit – and the projects went away along with the court fight.
What does this tell us? Well, things out in the country must be getting quite bleak for solar developers in areas with strident and locked-in opposition that could be costly to fight. Where before project developers might have been able to stomach the struggle, money talks – and the dollars are starting to tell executives to lay down their arms.
The picture gets worse on the macro level: On Monday, the Solar Energy Industries Association released a report declaring that federal policy changes brought about by phasing out federal tax incentives would put the U.S. at risk of losing upwards of 55 gigawatts of solar project development by 2030, representing a loss of more than 20 percent of the project pipeline.
But the trade group said most of that total – 44 gigawatts – was linked specifically to the Trump administration’s decision to halt federal permitting for renewable energy facilities, a decision that may impact generation out west but has little-to-know bearing on most large solar projects because those are almost always on private land.
Heatmap Pro can tell us how much is at stake here. To give you a sense of perspective, across the U.S., over 81 gigawatts worth of renewable energy projects are being contested right now, with non-Western states – the Northeast, South and Midwest – making up almost 60% of that potential capacity.
If historical trends hold, you’d expect a staggering 49% of those projects to be canceled. That would be on top of the totals SEIA suggests could be at risk from new Trump permitting policies.
I suspect the rate of cancellations in the face of project opposition will increase. And if this policy landscape is helping activists kill projects in blue states in desperate need of power, like Massachusetts, then the future may be more difficult to swallow than we can imagine at the moment.
And more on the week’s most important conflicts around renewables.
1. Wells County, Indiana – One of the nation’s most at-risk solar projects may now be prompting a full on moratorium.
2. Clark County, Ohio – Another Ohio county has significantly restricted renewable energy development, this time with big political implications.
3. Daviess County, Kentucky – NextEra’s having some problems getting past this county’s setbacks.
4. Columbia County, Georgia – Sometimes the wealthy will just say no to a solar farm.
5. Ottawa County, Michigan – A proposed battery storage facility in the Mitten State looks like it is about to test the state’s new permitting primacy law.