This newsletter has at least two types of readers: Huge nerds who know more about these things than I do and will laugh at my dumb “hydrogen rainbow” jokes, and sane people who have not used up a huge chunk of their precious brain space worrying about what makes “blue” hydrogen different from “gray” hydrogen, etc.

Hello, Empire of Dirt fam, and a very happy Twelve Days of New York Climate Nerd Christmas to you. It’s the fifth day — and today, I bring you a federal-level present: Recently-released rules from the US Treasury Department on what counts as “clean” hydrogen.

For a piece of tax policy most people have never heard of, this one’s pretty important. Hydrogen is a burnable fuel that can be either very dirty or very clean, depending on how you make it — and depending on how we write the rules for clean-tech hydrogen incentives, the US could greenwash a whole lot of fossil fuel use, or it could usher in a transformative era of clean energy in hard-to-decarbonize industries.

Hydrogen doesn’t produce climate pollution when you burn it. But it takes a lot of energy to produce, and it’s difficult to store. It is a lighter-than-air gas, and it loves to escape from storage containers and pipelines. To make things more complicated: Metal containers used to store hydrogen can become more brittle and prone to leakage.

For this, and for other reasons — including high costs — hydrogen isn’t a great choice for solving some of the biggest and most basic greenhouse gas emissions problems: heating homes and buildings, or driving people and stuff from one place to another.

But there are other industries and processes that require high heat, must operate in remote locations, or are otherwise very hard to electrify. Think steelmaking. Aviation. Trans-oceanic shipping. Hydrogen could be a game-changer for the effort to decarbonize in those realms.

But that can only happen if we get the rules right. And according to some prominent climate nerds, we’re moving in the right direction. The rules for a clean hydrogen tax credit program created by last year’s Inflation Reduction Act are in process, and recently, we got a look at how they’re shaping up.

Taste the hydrogen rainbow

There are different ways to make hydrogen, and all of them are pretty energy-intensive. The industry uses a color-coding scheme to describe the different methods of production.

One way is to take methane — basically, natural gas — and separate it into hydrogen fuel and carbon dioxide through a process called “steam reforming.”

If you capture the waste carbon dioxide and store it somehow so it doesn’t escape into the atmosphere as a climate pollutant, then what you have is “blue hydrogen.” If you just let that climate pollution fly, it’s called “gray hydrogen.”

There’s also “green hydrogen,” which is made by splitting, or “electrolyzing,” water molecules using vast amounts of electricity sourced from renewable power — either solar or wind.

The other main hydrogen colors are pink hydrogen — made by electrolysis using zero-carbon nuclear energy — and brown or black hydrogen, the dirtiest form, which is made from coal.

As you can imagine, green hydrogen is pretty clean. Requiring hydrogen to be made from renewable or nuclear energy in order to qualify for “clean” tax credits seems like a no-brainer.

But it’s not that simple. Renewable energy pours into the grid and is mingled with energy from other sources. And renewable energy is a valuable resource on the grid: It is needed not just to create new zero-carbon fuels like hydrogen, but to power cars and homes, and to replace and eventually get rid of dirty fossil-fueled electrical power plants. If hydrogen makers simply plug into the grid, buy credits for renewable energy, and claim that their product is “green,” they may just be using electricity that would otherwise have gone toward electrifying other dirty sources of power. They might not actually be helping.

The solution to this, according to the new proposed federal rules released on December 22, is to require hydrogen makers to source electricity from new clean power sources, and to time-match them for when those sources are actually producing power — when the wind is blowing, or when the sun is shining, for wind and solar.

To qualify for clean tax credits, hydrogen production and renewable energy will also have to be geographically matched — so, for instance, a hydrogen producer in coal-heavy Wyoming can’t just buy renewable energy credits from a solar farm in New York and say their product is clean.

The rules aren’t final yet — but so far, climate advocates are relieved that in their draft form, they look rigorous enough to be actually helpful to the broader task of decarbonizing energy use and the electrical grid.

I’m not an expert in hydrogen policy, but I’m going to turn you over to someone who is: Jesse Jenkins, a Princeton professor who is part of a team tracking the impacts of federal climate policy.

Check out this recent article Jenkins wrote for Canary Media, which is a great newish digital news outlet devoted to climate and energy news. In it, he writes that the Treasury’s proposed hydrogen framework “aligns with the best available evidence, protects consumers and the climate, and sets the right foundation for robust and durable growth of the U.S. clean hydrogen sector.”

Jenkins argues that too-lax clean hydrogen incentives will end up not just greenwashing dirty hydrogen production, but also jacking up the cost of electricity for US households.

“If hydrogen producers aren’t required to bring online new clean supply to meet their demand, they’ll also wind up driving up electricity prices for American consumers, just as cryptocurrency mines have been shown to do. Without the three pillars, the deployment of 5 gigawatts of electrolysis capacity in California would cause local wholesale electricity prices to rise by 8 percent, according to a peer-reviewed study from my research group,” he writes.

The rules as they stand are only a proposal, and they’re open to public comment. 2024 is shaping up to be very interesting on the climate front for a lot of reasons — and hydrogen is a big one.

On the fifth day of Christmas, the Treasury gave to me:
🎶🎺CLEAN HYDROGEN🎺🎶
Coal country dollars
Local energy grants
Climate banking guidance
And a cap-and-invest study