WASHINGTON—Big energy producers are sparring over billions of dollars in subsidies from last year’s climate law, a fight that pits the Biden administration’s goals for economic growth against its efforts to reduce greenhouse-gas emissions.
WASHINGTON—Big energy producers are sparring over billions of dollars in subsidies from last year’s climate law, a fight that pits the Biden administration’s goals for economic growth against its efforts to reduce greenhouse-gas emissions.
The battle is over subsidies to produce clean hydrogen, a potential alternative to oil and natural gas in industries such as steelmaking and trucking where renewable energy and batteries alone aren’t adequate. The administration is weighing how strictly to define what energy sources can be used to make clean hydrogen and still be eligible for some of the most valuable tax credits in the Inflation Reduction Act.
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The battle is over subsidies to produce clean hydrogen, a potential alternative to oil and natural gas in industries such as steelmaking and trucking where renewable energy and batteries alone aren’t adequate. The administration is weighing how strictly to define what energy sources can be used to make clean hydrogen and still be eligible for some of the most valuable tax credits in the Inflation Reduction Act.
NextEra Energy, Constellation Energy and Plug Power say the subsidies should be widely available—even to companies that generate carbon emissions—to spur the growth of a hydrogen industry seen as crucial to limiting climate change in the long run.
The businesses and industry groups have made the argument in advertisements everywhere from the New York Times and digital media outlet Semafor to the streaming service Hulu. They also have made their case in meetings with Biden administration officials, according to people familiar with the matter. Labor unions such as the International Brotherhood of Electrical Workers have sided with them.
Companies such as Air Products & Chemicals, meanwhile, say the money should go to businesses that use only renewable energy, which could mean slower development and fewer new jobs. Environmental groups have made the same argument in newspaper ads; the groups also have appealed to administration officials, a person familiar with the meetings said.
The spat is the latest example of companies in sectors from electric cars to energy fighting over the technical details of clean-energy subsidies that could be worth $1 trillion over a decade.
“The hydrogen rules are make or break,” said Leah Stokes, an associate professor at the University of California, Santa Barbara, focused on energy, environment and climate, who advised Democrats on the climate law and is in favor of tight hydrogen tax-credit rules.
The administration missed an August deadline to write the hydrogen rules. White House officials are considering a range of proposals, including rules that would get stricter over time, a senior administration official said.
Ashley Schapitl, a Treasury spokeswoman, said the agency is trying to make sure the rules strengthen U.S. energy security and address climate change.
The subsidies come atop $7 billion in recently announced federal grants from the 2021 infrastructure law for hydrogen megaprojects across the U.S. to kick-start the industry.
Today, nearly all hydrogen is made by heating natural gas. The method is cheap, but it generates greenhouse-gas emissions. Those can be lowered or eliminated by switching to machines powered by renewable energy that split water into hydrogen and oxygen.
The new tax credit gets more valuable as the production process generates less emissions. The maximum amount for the cleanest hydrogen is $3 per kilogram, roughly enough to make green hydrogen cost competitive with hydrogen made from natural gas.
The heart of the current conflict is in whether companies planning to use fossil-fuel power from electricity grids to make hydrogen would have to buy equivalent renewable energy on an hourly basis or a looser annual standard.
Companies such as NextEra, Plug Power and BP say projects should count as green if they use fossil-fuel grid power but buy renewable-energy credits that match their annual usage. Otherwise, they argue, hydrogen projects won’t be viable in much of the U.S., preventing the job and climate benefits the White House wants.
“If we don’t ever get to having hydrogen available for use, we’ll never solve any problems,” said Emily Fisher, an executive vice president at the Edison Electric Institute, a trade group for utilities.
Constellation, the largest U.S. nuclear-plant operator, is arguing for looser rules allowing existing clean-power projects to be used to make hydrogen. Restrictive rules would halt the company’s plans to invest nearly $1 billion in nuclear-powered hydrogen, a spokesman said. Constellation and others are part of the Fuel Cell & Hydrogen Energy Association, an industry group that has advertised against tight regulations.
Opponents—including Air Products, which has plans for green hydrogen facilities that run on new renewable power in states such as Texas—want stricter rules requiring new clean-energy developments and electricity-matching based on hourly demand. Those rules would likely deny some competitors the tax credits.
The issue is splitting some of the White House’s usual allies. Environmentalists have said in advertisements in outlets including the Washington Post that many energy producers are trying to hijack clean-energy rules to get credit for projects that would increase pollution.
“We cannot afford the hydrogen tax credit to serve as yet another subsidy for the fossil fuel industry,” a group of senators including Sheldon Whitehouse (D., R.I.), Jeff Merkley (D., Ore.) and Elizabeth Warren (D., Mass.) wrote last week to Treasury Secretary Janet Yellen.
A separate group of senators including Maria Cantwell (D., Wash.), Sherrod Brown (D., Ohio) and Joe Manchin (D., W.Va.)—one of the main architects of the climate law—plans to argue for looser rules to spur the industry and allow more regions to have hydrogen projects, according to a draft of a separate letter to Yellen viewed by The Wall Street Journal.
Many analysts expect the government to start with relatively loose rules, then transition to tighter standards such as matching renewable-electricity usage hourly. Europe has proposed starting hourly matching for its hydrogen rules in 2030.
The American Clean Power Association, an industry group, proposed applying a more relaxed standard to projects that begin construction before Jan. 1, 2029.
Opponents say such an approach would mean nearly all projects finished through the early 2030s would get the looser rules because of how long construction takes, risking an increase in emissions.
“If they get it wrong, it’s really big,” said Craig Segall, vice president of policy for environmental group Evergreen Action. “It’s harder to make other [Inflation Reduction Act] errors that are worth 100 million tons of CO2 over time.”
Scott Patterson contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and Richard Rubin at richard.rubin@wsj.com