Trump puts clean hydrogen hopefuls back on defense after tax credit debate

Prospective hydrogen developers waited more than two years to determine whether they would be eligible for lucrative US tax credits. Now, the nascent industry's top trade group is fixated on a new source of uncertainty: US President Donald Trump.

"Our industry is a bit unique in that over the past month, we've had two factors to assess," Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, said in an interview.

One factor was the long-awaited release of guidance on Jan. 3 for the 2022 Inflation Reduction Act's Section 45V hydrogen production tax credit program. The Biden administration's deliberation over the rules had been closely watched by companies including Air Products & Chemicals, ExxonMobil and Constellation Energy, which had tied major investment decisions to the outcome.

The other factor was "whatever the Trump administration might do," Wolak said. "And so when we talk about getting feedback from members, everything is still a little bit jumbled."

On Jan. 20, Trump ordered a pause on the disbursement of funds from the IRA and bipartisan infrastructure law in an effort to "[terminate] the Green New Deal."

The executive order does not appear to impact Section 45V or other IRA tax credits. But the move calls into question up to $9.5 billion in hydrogen grant funding, along with federal loans to hydrogen producers including Plug Power and Wabash Valley Resources.

Many of those grant and loan contracts have already been finalized, which would make them safe from a legal standing, according to lawyers with Bracewell and Norton Rose Fulbright. Nevertheless, Trump has repeatedly criticized controls on presidential impoundment, indicating he plans to target obligated funds in addition to conditional deals.

Unlike offshore wind or electric vehicles, "green" and "blue" hydrogen have generally been supported by lawmakers of both parties. Blue hydrogen is produced using natural gas and carbon capture technology, and many of its investors are fossil fuel companies. Green hydrogen is made with zero-emission electricity.

The government's hydrogen budget is also relatively small compared to other subsidy programs on the line.

"There are a lot of reasons to say 'eh, I've got bigger fish to fry,'" Wolak said.

But reacting to Trump's first week of actions, he said, "It didn't stand out as exciting and positive. There's a lot of defensive homework to be done. Nothing came out as, 'Oh, don't have to worry about that.'"

Hydrogen matures

The whiplash in Washington comes amid a relative slowdown in enthusiasm for hydrogen, particularly large electrolysis projects in the US. In November 2024, Air Products canceled a $4 billion green hydrogen project in Texas amid pressure from activist investors to take fewer risks on capital spending. Other projects appear to have gone dormant, including the Mississippi green hydrogen hub, which recently canceled its electrolyzer reservation.

Industry watchers initially expected Section 45V's tiered structure to favor green hydrogen over blue. But alternative tax credits available only to blue producers, along with tougher requirements than expected for Section 45V, have so far had a reverse impact.

As of late 2024, only about a dozen large-scale clean hydrogen projects in the US had committed capital, according to S&P Global Commodity Insights' Hydrogen Production Asset Database. The vast majority of that pending capacity is for hydrogen produced with carbon capture technology.

As for green hydrogen, "these things are very early stage, and they're moving forward more rapidly in parts of the world where natural gas prices are high," Pavel Molchanov, investment strategy analyst at Raymond James, said in an interview. "So if people a few years ago maybe had excessive expectations for green hydrogen in the US, then yes, those expectations have not been achieved. But this was always going to be a marathon rather than a sprint."

Novel end uses for hydrogen, including power generation and transportation, are also shaping up slowly. Even still, today's global hydrogen market is about 100 million metric tons per year, Molchanov said. Almost all of that hydrogen is derived from fossil fuels without carbon capture.

"So we're not worried about having a lack of hydrogen demand," Molchanov said. "We need hydrogen for refining and steel mills and fertilizer. It's a question of, will it continue to be fossil or will it be a clean variety?"

Developer dropouts are not necessarily a bad sign for the clean hydrogen market, according to Brian Murphy, senior analyst of hydrogen and low-carbon gas with Commodity Insights.

Today, the US has the operating capacity to produce just over 300,000 metric tons of clean hydrogen per year, according to Commodity Insights' database. Another 15.4 million metric tons of annual production capacity is in the pipeline. "We expect about 30% of this capacity to commission by 2030," Murphy said.

A cause for concern would be "a major slowdown in project development globally" or multiple projects getting canceled past the "final investment decision" stage, Murphy said. But Commodity Insights' hydrogen analysts have yet to observe this, the analyst added.

What's next

The Biden administration's final hydrogen rules received mixed reviews from industry. The American Petroleum Institute and the Nuclear Energy Institute applauded the US Treasury Department for making accommodations for nuclear-powered and gas-derived hydrogen. But renewable groups like American Clean Power Association expressed disappointment in the guidance's rules around electricity sourcing, which they considered unrealistic.

"The outcome of 45V is incomplete and imperfect," Wolak said. "And how the industry reacts to that, how they assemble the pieces, is still unfolding, but it is still a less optimal picture from the standpoint of building the connected pieces of the US industry."

Meanwhile, the energy industry is anxiously watching Congress as the first Trump administration's tax cuts are set to expire. House Speaker Mike Johnson has vowed to go after some of Biden's clean energy spending, but with "a scalpel" rather than "a sledgehammer."

"This is my appeal," Wolak said. "Before you look at the reconciliation, go into your districts, talk to your people, ask about hydrogen, look at what you've got, take a pause and then make an informed decision ... but don't make knee-jerk reactions about things that are already benefiting your districts."

Assuming the IRA's Section 45V tax credits are preserved, however, Wolak said he would welcome an invitation from the Trump administration to discuss tweaks to the guidance.

"If we can have intelligent conversations about things that they feel are important and that can be done within the framework of guidance without offending other pieces, we would clearly give them opinions," Wolak said.