In recent years, the United States has gained increased attention for its potential alternatives to fossil fuels. Several projects to produce green hydrogen, produced by splitting water into hydrogen and oxygen using renewable electricity, are already underway.

For example, the H2 SilverSTARS project will produce hydrogen from renewable natural gas to fuel 17 electric buses for the SunLine Transit Agency in California. In the same state, Los Angeles recently unveiled an ambitious plan to convert the city’s largest gas-fired power plant to green hydrogen. Its ultimate goal is to completely convert all its gas plants to hydrogen.

In addition to these projects, many big companies such as ZeroAvia, FuelCell Energy, and Plug Power are investing in research and development of green hydrogen production technologies. There is a growing interest in the potential of green hydrogen to help decarbonise the US energy system.

However, there are also several challenges to be addressed in scaling up green hydrogen production in the United States, including the need for cost reductions, infrastructure development, and policy support. Enter the Inflation Reduction Act (IRA), which aims to spend around $369 billion to support a wide range of green technologies.

One of the most exciting aspects of the IRA is its very generous set of tax credits. For the first ten years of operation, the IRA allows clean hydrogen and renewable electricity plants to receive production tax credits of up to 2.6 cents per kWh and $3 per kg of hydrogen, respectively.

This is excellent news for producers of green hydrogen. Not only do they qualify for both tax credits, but for the first five years of operation, the hydrogen tax credit is “direct pay,” which means that clean hydrogen producers can claim a tax refund equal to the value of their tax credits. Green hydrogen producers with no tax burden can even sell their tax credits to a buyer who owes taxes, making it potentially even more lucrative.

News of the IRA has caused a stir in Europe. Some hydrogen producers predict the subsidies will make the US highly competitive and could even usurp Europe as the world leader in green hydrogen production. If the EU can’t offer extra incentives, many might simply opt to produce their hydrogen for cheaper in the US.

It’s not all positive news, however. Despite the generous subsidies, green hydrogen still cannot compete with the current production cost of hydrogen made from natural gas, which currently stands at around $1 per kg. Not only that, the fuel cost of green hydrogen is higher than diesel. With energy conversion losses of around 30% and battery electric vehicles being 1.4 to 2.5 times more efficient than hydrogen fuel cell vehicles, green hydrogen still has an uphill climb ahead.