45V Hydrogen Tax Credit in the Inflation Reduction Act: Incorporating the Demand for Hydrogen

The potential trade-off between the deployment of electrolyzers and changes in greenhouse gas emissions is a central part of the debate surrounding the 45V hydrogen production tax credit. In the previous installment of this series (click here for the first), I examine studies from the Princeton ZERO Lab and the MIT Energy Initiative (MITEI). While some differences in the details do exist, at the highest level these studies both fixed the demand for hydrogen and let the model determine the emissions and cost impacts of the different approaches for matching hydrogen production to clean electricity generation. Importantly, the models were not able to adjust the size of the electrolyzers in response to the supply and demand for hydrogen.In this issue brief, I’ll look at a study from Evolved Energy Research. In this study, both the supply and demand of hydrogen are modeled, which enables the assessment of the effects of the different policy choices on the deployment of hydrogen. This is important, because one of the central questions in this debate is whether more complicated rules for the tax credit could increase costs to electrolyzers to the extent that the green hydrogen industry never gets off the ground.The Evolved Energy Research study results show that the choice of policy for 45V does in fact make a difference on electrolyzer deployment, particularly in the short term. As the costs for electrolyzers decline, however, the levels of deployment under the different policy approaches converge by 2030. As with all modeling, significant uncertainty exists in technology price trajectories. The results show that the choice of policy can reduce the emissions rate from hydrogen production, even as, in most of the scenarios examined, the emissions rates are higher than the thresholds under which an electrolyzer must remain to qualify for the 45V tax credit. The cost increases from the more stringent requirements range from $0.10/kg H2 to $0.40/kg H2. For comparison, the highest value of the 45V tax credit is $3/kg H2. However, important differences in the policy options for 45V that are being modeled are central to understanding this result. I’ll get into these differences in the following sections.