Sector-specific strategies to increase green hydrogen adoption

Abstract

Clean hydrogen may be vital for decarbonization as it could represent a low-carbon fuel substitute for hard-to-decarbonize sectors. Yet the prohibitively high upfront cost of green hydrogen hampers widespread adoption. To address this, the U.S. government offers up to $3/kg for clean hydrogen production through the Inflation Reduction Act. The tax credits provide direct subsidies designed to make green hydrogen more cost-competitive than gas alternatives from the supplier's perspective, missing the consumer perspective. Using California as a case study, we assess whether alternative tax credit designs incorporating the willingness-to-pay for specific hydrogen end use sectors leads to more cost-effective decarbonization outcomes, by first simulating the hydrogen cost and then the resulting hydrogen consumption under different policy scenarios. In this study, we find existing tax credit designs can successfully lead to economically viable green hydrogen utilization, displacing grey hydrogen and natural gas, but sustaining green hydrogen consumption beyond 2032 may require extending the duration of IRA tax credits or alternative policy support beyond 2032. We find an alternative tax credit allocation method that prioritizes specific demand sectors based on their willingness-to-pay could increase green hydrogen adoption (kg) by 4.6 %, while reducing 7.3 % more GHG emissions at nearly half (49.8 %) the cost to the public.