How the Inflation Reduction Act is Rewarding Carbon Capture and Hydrogen Initiatives

How the Inflation Reduction Act is Rewarding Carbon Capture and Hydrogen Initiatives

Sep 26, 2022 | Clean Energy, Energy Transition

The world has reached an inflection point in its efforts to meet net-zero targets for greenhouse gas emissions. As a result, clean energy technologies and government incentives for producing alternative fuels are emerging as a promising pathway to a global energy transition.

The Inflation Reduction Act (IRA) is a significant piece of legislation that can greatly impact the trajectory of clean energy projects in the U.S. over the coming decades. Signed into law in August 2022, the bill includes roughly $370 billion for clean energy projects and climate-related programs aimed at accelerating the decarbonization of the energy industry.

Two particular markets in which the IRA can spur new investments are hydrogen and carbon capture, utilization, and storage (CCUS).

Boosting CCUS incentives

Among the many notable provisions in the IRA is the increased availability of 45Q tax credits for domestic CCUS projects. The bill also extends the commence-construction deadline on 45Q-eligible projects from 2026 to 2033.

Additionally, the IRA provides new ways for companies to monetize credits—45C, 45E, 45Q, 45Y, 45U, 45V, and 45X—by receiving direct cash payments in the form of tax refunds organizations can also sell or transfer credits to third parties.

A Shell media representative recently told TIME, “We see the Inflation Reduction Act’s carbon capture-related provisions as key to developing projects that will help reduce emission in critical industrial sectors.”

These measures and others will broaden the range of facilities that qualify for credits and open up new opportunities for CCUS deployment in carbon-intensive domains such as refining, power generation, steel, and cement.

Accelerating the adoption of clean hydrogen

The hydrogen economy also stands to benefit from the IRA.

Today, more than 95% of all consumed hydrogen is “gray,” meaning it’s produced via steam methane reforming or autothermal reforming of natural gas, with no carbon abatement.

The IRA introduces several new incentives for producing “clean hydrogen,” defined as any hydrogen generated via processes where life cycle greenhouse gas emissions do not exceed 4 kilograms of CO2 equivalent per kilogram of hydrogen.

Credits are available on a graduated scale—with the base amount set at $0.60 per kilogram of clean hydrogen. According to the World Economic Forum, a maximum of $3 per kilogram may be available for projects if the hydrogen’s life cycle carbon intensity remains below 0.45 kilograms of CO2 equivalent per kilogram.

These new provisions will incentivize investments in developing “blue” and “green” hydrogen infrastructure. Both will be needed to satisfy hydrogen demand over the next three decades.

Virtually all hydrogen produced today is consumed in industrial applications, primarily in chemical and fertilizer plants. However, this is expected to change as more sectors—from power generation to mobility and transportation—evaluate hydrogen’s use as a replacement for traditional fossil fuels.

The International Renewable Energy Agency (IRENA) estimates that hydrogen and its derivatives (such as e-methanol, e-ammonia, and other e-fuels) could represent as much as 12% of total worldwide energy consumption by 2050.

Looking forward

Ultimately, the impact that the Inflation Reduction Act will have on the U.S. energy landscape in the coming years remains to be seen. We are hopeful that new policy enacted by way of the IRA and other measures will spur energy innovation and fast-track much-needed infrastructure projects.

As a leader in alternative fuels, Audubon Engineering Company provides a portfolio of capabilities that span the entire clean energy value chain. Our team is committed to helping clients utilize provisions in the Inflation Reduction Act to improve project economics and achieve decarbonization at scale. As a full-service EPC provider, we develop and execute energy transition strategies that meet sustainability goals while maximizing operational performance and long-term profitability.

About the Author: Dave Beck

Dave Beck | Audubon CompaniesDave Beck is a managing partner at Audubon Engineering Company. He has over 20 years of executive management and business development experience in the oil and gas industry. With expertise in international and domestic operations, midstream gas processing, midstream services, and LNG/GL recovery, Dave leads the company’s midstream initiatives. He earned dual Bachelor of Science degrees in Chemical Engineering and Biochemistry from Texas Tech University.

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