Researchers from the University of Texas at Austin have published a study calling for U.S. hydrogen tax credit guidelines to be based on regional, supply-chain-specific assessments rather than national averages, ensuring that tax credits support genuinely low-carbon hydrogen production projects.
The study, published in Nature, analyzes the environmental impact of blue hydrogen production in the U.S., focusing on two major shale basins: the Marcellus and Permian. The study emphasizes the importance of geospatial variation when calculating life-cycle greenhouse gas (GHG) emissions, a key factor for eligibility under the U.S. Inflation Reduction Act (IRA) tax credits for clean hydrogen production.
Blue hydrogen is produced by reforming natural gas (steam methane reforming – SMR) combined with carbon capture and sequestration (CCS). However, life-cycle GHG emissions vary significantly depending on the natural gas source.
The study finds a stark difference between hydrogen produced from the Marcellus and Permian basins, with life-cycle emissions of 3.3 kg CO₂ equivalent per kg hydrogen (kgCO₂e/kg H₂) from the Marcellus, and more than twice that, 7.4 kgCO₂e/kg H₂, from the Permian basin.
Under the IRA’s 45V Production Tax Credit (PTC), the tax incentive for clean hydrogen production is tied to emissions intensity, with projects requiring less than 4 kgCO₂e/kg H₂ to qualify for maximum credits.
Only blue hydrogen projects in low-methane leakage areas like the Marcellus basin are likely to qualify. Permian-based projects, due to higher upstream methane emissions and lower energy conversion efficiency, are less likely to meet these standards without significant changes.
Electrification of natural gas infrastructure is more common in the Marcellus Basin, resulting in lower emissions from natural gas processing and transmission. In contrast, the Permian Basin relies more on gas-powered infrastructure, contributing to higher emissions.
The energy required to extract and process natural gas from the Permian Basin is 2.5 times that required in the Marcellus. This is partly due to the Permian’s co-production of crude oil, which lowers the efficiency of natural gas extraction for hydrogen production.
The efficiency of carbon capture is critical to reducing emissions. High capture rates (96.2%) could reduce emissions, but even with optimized carbon capture, Permian gas still results in emissions of 6.9 kgCO₂e/kg H₂. Only Marcellus-sourced hydrogen with high carbon capture efficiency would qualify for the full tax credits under the IRA.
If carbon capture rates fall below 90%, neither basin’s hydrogen production would meet the thresholds for significant tax credits.
Nationally averaged estimates for emissions, like those used by the GREET model, are considered inadequate by the study. Basin-specific data must be used to accurately assess emissions, the researchers say.
