Trump’s election to President of the United States of America is highly likely to affect the hydrogen-industry’s prospects; I expect clear winners and losers.
I will start with the biggest question of all: Will the tax credits created or augmented by the Inflation Reduction Act of 2022 (IRA 2022) go away?
I think, not; allow me to explain my reasoning: Although conservatives decry the outsized impact of those tax credits because of the disproportionate advantages they bring to industries that may not (in their opinion) deserve them, Trump may face strong opposition to the removal of tax credits that are a major boon to many rural areas in conservative-run states. Please note, there is a non-trivial difference between talking about removing tax credits to gain political advantage during an election and passing the legislation that would end them. The former is easy, the latter requires either bipartisan, or full-fledged support from all conservative members of Congress. Further, the parts of the IRA that conservatives are most keen to remove deal with pollution standards, the EV tax credits Trump is “planning to kill”, and requirements to reduce carbon dioxide emissions, such as forcing coal-fired plants to capture 90% of their carbon emissions, rather than the 45Q and 45V tax credits themselves. Conservatives may want to put an end to the EPA, but I do not expect as strong of a push to end government environmental spending, despite Trump’s own statements to the contrary.
All the above said, I prefer not to make predictions (especially when they are based on a binary choice), I prefer to give advice in preparation for potential results.
Companies in these and other related industries need to pay close attention to what Trump says in the coming weeks and months. The election is over, he has won, therefore he no longer needs support from the most dogmatic conservative voters; what he says going forward matters.
Carbon dioxide has limited, almost no, value outside of the tax credits. Companies that intend to rely on 45Q or 45V tax credits to make money are in serious trouble if the US government cancels those credits and therefore should be concerned about the impact of Trump’s upcoming decisions (despite my above prediction).
There are two broad groups to consider: companies that rely on electrolysis to produce hydrogen (using green sources of electricity), and companies that produce hydrogen by other means (for example, using natural gas). By my calculations, the former group can barely compete with the latter group, even with the credits. Without the credits, the difference will become even more stark. (Reminder: a 45Q tax credit is worth about half of a 45V tax credit on a levelized dollar per kilogram of hydrogen produced basis. Under normal circumstances, electrolysis companies would earn 45V credits, hence why a cancellation would hurt them so dearly.)
As a result, while not all companies will shelve their electrolysis projects, should the tax credits go away, most will be under pressure from their financiers to do so. It was already going to be difficult for those companies to produce hydrogen at competitive commercial prices, with the benefits of the huge downward price pressure from 45V credits. Without those credits (and especially if the government puts a stop to other green electricity credits) electrolysis-based hydrogen will cost multiple dollars per kilogram more than its counterparts.
Therefore, if the incoming Trump administration makes good on his promise to rescind all unspent funds under the “misnamed” Inflation Reduction Act of 2022, and specifically the 45Q and 45V credits, it will put a serious dent in the future of the hydrogen economy. There should be few, or no electrolysis projects greenlit, without the aid of 45V credits, and while hydrogen production by other means can certainly still occur, that production is unlikely to be capturing carbon dioxide as part of its business plan.
There is another possibility that deserves examination in this context: The Trump administration may ease the restrictive environmental safeguards limiting which technologies can earn 45V credits. I consider this to be a subcategory of cancellation in terms of impact, meaning it is still a headwind for electrolysis projects. Companies that produce hydrogen from natural gas using a steam-methane reformer that includes carbon capture will typically produce hydrogen for less than $3 per kg, the value of the 45V credit. If those companies receive the tax credit, they will produce hydrogen for less than free. Those projects, and similar technologies, will crowd everything else out. I am in favor of this change. I do not agree with any argument that suggests we should give preferential treatment to one form of zero-emission hydrogen over another.
I am still bearish on the future of electrolysis, compared to other hydrogen production means, even if Trump’s administration allows 45V credits to persist. With or without the credits, other hydrogen production options are currently cheaper, and I am unaware of any reason that fact would change. Without tax credits, I think there is no near-term future for electrolysis in the US.
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