Tax rules proposed by the Biden administration will prevent hydrogen, a fuel that emits only water vapor when burned in engines, from gaining a major role powering the U.S. economy and reducing greenhouse gases, hydrogen advocates say. The rules will determine which manufacturers of “clean” hydrogen are eligible for tax credits. Congress authorized the tax breaks in the Inflation Reduction Act to make tackling the climate crisis appealing to investors. Lawmakers left the details up to the Internal Revenue Service. On Christmas Day, the IRS posted draft rules for qualifying for the tax credits. For hydrogen advocates, it was like receiving Christmas stockings stuffed with coal. “We were shocked,” said Ken Dragoon, former director of hydrogen development for Obsidian Renewables. “The rug was pulled out from under us.” Tax lawyers and accountants likely will pore over the rules for years to come. But there are three proposals – commonly known as the “three pillars” – that are particularly concerning to hydrogen advocates. First, to be considered “clean,” the hydrogen must be made from a renewable energy source, such as a wind or solar project, that went into operation within the past three years. The rule shuts out existing green energy sources, such as nuclear plants and renewable natural gas from dairies. Even Northwest hydropower is not “clean” enough. “It takes the whole hydro system off the table,” Washington Clean Energy Alliance government relations director Dave Warren said.

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