Hydrogen law, regulations & strategy in USA

Hydrogen regulation in the US is dealt with at two main levels – US-wide federal regulation and individual state level, which differ greatly. For the purposes here, we focus on the federal level announcements.

Whilst the vast majority of US hydrogen production of more than 10 mt is made from fossil fuel, 1  even in a “low-case” scenario with lower policy support, North America’s hydrogen capacity is estimated to reach more than 24 mtpa by 2030. 2  This, combined with recent investments, could enable the US to have a significant proportion of the market (estimated worth of $110 billion) and create over 5,000 jobs per year through to 2050. 3   To put this into context, in 2022, the total revenue of the United States’ oil and gas industry came to around $333 billion (which was significantly more than the average of 2010-2021). 4

The US is well placed to produce hydrogen using steam methane reformation combined with carbon capture, usage, and storage (“CCUS”), thereby taking advantage of the storage capacity estimated as being 3,000 metric gigatons of greenhouse gas emissions or about 600 years’ worth of current US emissions. 5  However, as of December 2023, there were 15 operational CCUS storage facilities in the US, which have a capacity to capture 0.4% of the nation’s total emissions. Whilst there are a further 121 CCUS projects in construction, this would only bring that figure up to 3%. 6  For green hydrogen, despite having abundant wind and solar resources, the projected capacity if all projects were completed in the US would stand at 0.72 million metric tons. 7

To achieve the level of hydrogen generation and deployment required to match ambitions, further harmonisation and cross-state cooperation are needed. For example, the majority of hydrogen activity currently in the US is still used at, or near to, where it is produced. 8  If hydrogen is to be transported across state borders, state cooperation will be needed to ensure that the appropriate infrastructure is in place and that regulation of hydrogen transport between states is not mismatched. This has been a key issue to address for the past four years, with Bakken Energy and Mitsubishi Power Americas having announced in 2021 the intention to acquire and redevelop a synthetic natural gas plant in North Dakota into a blue hydrogen production facility, connecting the hub by pipeline to other hubs throughout the US. The project is set to be completed in 2027. 9

Over the course of the last two years, the US hydrogen economy has been expanding. In October 2023, the US Department of Energy announced a $7 billion injection to launch seven Regional Clean Hydrogen Hubs (H2Hubs) across 16 states. The aim is to provide a national network of clean hydrogen producers, consumers and connective infrastructure, with three million metric tons of hydrogen produced annually. 10

Low-carbon hydrogen will be especially useful for hard-to-electrify sectors such as: aviation, shipping and steel manufacturing – all of which are known major polluters. 11

Transport accounts for 28% of total US greenhouse gas emissions, the single largest contributor. 12  The US is among the leading countries in moving towards broad commercialisation of fuel cells and hydrogen energy in transport. The US has the second biggest market for fuel cell electric vehicles (“FCEV”) with more than 15,000 FCEVs on the road in 2022/2023, and an FCEV stock increase of 20% in 2022. 13  This recently expanded, with Amazon replacing its electric-operated forklifts (lead acid or lithium-ion battery) for fuel cell-powered ones, with Plug Power providing 17,000 across North America.

The state of California is leading the way in hydrogen mobility. As of September 2024, the majority of FCEVs on the road in the US are located in the state, along with 66 hydrogen fuel cell buses. 14  In 2021, California ranked alongside industry leaders Japan, South Korea, and Germany in terms of the deployment of hydrogen fuelling infrastructure.

In 2023, the Department of Energy announced the National Clean Hydrogen Strategy and Roadmap. This has three main objectives: to target key high-impact uses for green hydrogen, reduce the cost of clean hydrogen and to build regional clean hydrogen hubs. This is linked to the Infrastructure Investment and Jobs Act, where the production goal of 50 million metric tons of hydrogen by 2050 is set out. 15

In relation to hydrogen with carbon management, the Fiscal Year 2024 Budget proposed that $85 million is requested for research, development, advancing technologies and to reduce emissions. There is a specific focus on hydrogen-fuelled turbines, fuel cells and producing clean hydrogen through gasification. 16  The budget also calls for an $11 billion investment in clean energy research development and demonstration (“RD&D”), which could rise to $17 billion with help from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act (“IRA”). 17 

As of 2024, the global green hydrogen market exceeds $6.49 billion and is expected to grow at a compound annual growth rate of 31% from 2024-2032. By 2030, the global green hydrogen demand is set to be 150 GW. These continual increases and developments are due to countries and businesses preparing for a net zero future, increasing strictness in emission regulation and the demand for cleaner energy alternatives. These are enabled by technology advancements (more efficient electrolysers), government funding and private investments. 18

The 2022 Inflation Reduction Act (the “IRA”) includes several programmes intended to support the development of demand sectors for clean hydrogen. These include, amongst others:

• tax credits in the form of investment tax credits (ITCs) and production tax credits (PTCs) for both hydrogen and carbon capture technologies (as discussed further under Main Development 1);
• the Advance Industrial Facilities Deployment Programme – a $5.8 billion programme under the Office of Clean Energy Demonstration (“OCED”) whereby demonstration projects will receive financial support to reduce emissions from energy-intensive hard-to-abate industries, such as iron, steel, cement and chemical production, and includes retrofit facilities;
• $2 billion of grants and loans through to 2031 for auto manufacturing facilities to manufacture clean vehicles, including fuel cell electric vehicles;
• $7,500 of consumer credit for the purchase of qualified new clean vehicles, including hydrogen fuel cell vehicles;
• a tax credit for producing sustainable aviation fuels (“SAF”), which can include hydrogen feedstock in the production process and applies to each gallon of SAF sold or used in a qualified fuel mixture between 31 December 2022 and 1 January 2025 – the Department of the Treasury and the IRS recently issued Notice 2024-37 containing additional guidance and safe harbours for the new SAF credits and providing additional methods for calculating the lifecycle greenhouse gas emission; and
• $1 billion grant to replace existing non-zero-emission heavy-duty vehicles with zero-emission vehicles, support zero-emission vehicle infrastructure, and to train and develop workers – eligible fuelling infrastructure includes fuelling infrastructure for new hydrogen fuel cell vehicles.

The IRA introduced the Clean Hydrogen Production Tax Credit (45V), which provides a 10-year incentive for clean hydrogen of up to $3 per kg. This tax credit looks to incentivise both producers and consumers to transition to cost-effective lower-carbon fuels, with the level of the credit linked to the carbon intensity of the hydrogen (up to 4 kilograms of carbon dioxide-equivalent per kilogram of hydrogen produced (kg CO2e/kg H₂)).

Hydrogen with life-cycle emissions lower than this upper limit will be considered “qualified hydrogen”. Life-cycle emissions will be considered on a “well-to-gate” basis, including upstream emissions associated with feedstock growth, extraction, processing, and delivery. Credits can be claimed for qualified hydrogen produced after 31 December 2022 for a 10-year period, provided that construction of the relevant facility begins before 1 January 2033.

For hydrogen produced using electricity, it will be important that plants connected to the grid are able to evidence that the power used is produced from clean energy sources. The proposed guidance includes the use of energy attribute certificates (“EACs”) as means of demonstrating that electricity purchased is generated from low-emitting sources, provided that the EAC meets the following requirements:

• Additionality:  the energy demand on the grid required for the electrolysis is met by an additional source of clean energy capacity, meaning that the extra demand does not lead to more fossil power being required.
• Locational:  the additional clean energy capacity should be matched geographically to the electrolysis plant.
• Temporal: the clean energy being produced should be matched temporally to the use for the production of hydrogen to allow for as close to real-time verification that electrolysis is occurring when clean energy is being generated.

Having said this, the credit is in fact technology-neutral, meaning that hydrogen made from natural gas can also receive funding. However, this will be dependent on whether the life-cycle emissions are within the maximum threshold of 4kg CO2e/kg H₂ after the relevant facility captures its CO₂ emissions.

As well as the 45V tax credit, the IRA also implemented a number of other tax benefits to drive the expansion of hydrogen production and use. These include:

• the Advanced Energy Project Credit (48C), which extends the 30% investment tax credit, making hydrogen manufacturing projects such as fuel cells, electrolysers and infrastructure eligible for funding;
• the Carbon Capture and Sequestration Tax Credit (45Q PTC), which increases the tax credit for storing carbon dioxide captured up to $60 for utilisation and $85 for storage. It should be noted, however, that this credit cannot be claimed in conjunction with the 45V tax credit; and
• the Energy Storage Credit (48 ITC), which makes hydrogen storage eligible for a 30% investment tax credit under the energy investment tax credit.

Whilst multiple state agencies have overlapping authority to regulate hydrogen depending on its application, there has until recently been no comprehensive hydrogen strategy for the United States. In 2023, the US National Clean Hydrogen Strategy and Roadmap (the “Strategy and Roadmap”) was published, setting goals for large-scale hydrogen implementation for 2030, 2040 and 2050. 19

The Strategy and Roadmap has been developed in response to both the Infrastructure Investment and Jobs Act (Public Law 117-58), known as the “Bipartisan Infrastructure Law” and aims to reduce greenhouse gas emissions in the US by 50%, enabling a 100% carbon pollution-free electricity system by 2050.

The Strategy and Roadmap includes “guiding principles” which are to inform the development of clean hydrogen production, transport, delivery, storage and use. These principles include:

enable deep decarbonisation through strategic, high-impact uses (which links to the first of the three key strategies, set out below);

• catalyse innovation and investment;
• foster Diversity, Equity, Inclusion & Accessibility;
• advance Energy and Environmental Justice;
• grow quality jobs;
• spur domestic manufacturing and robust supply chains;
• enable affordability and versatility in the energy system; and
• approach clean hydrogen development and deployment holistically to cultivate sustainable best practices and not compete with other decarbonisation technologies.

The Strategy and Roadmap prioritises the following key strategies to ensure clean hydrogen is developed and adopted effectively:

• Target Strategic, high-impact uses: these uses include (a) industrial applications, such as chemicals, steel production and industrial heat, (b) transportation, focusing on medium- and heavy-duty vehicles, maritime, aviation, rail, and (c) power sector applications, including grid services, backup power and long-duration energy storage.
• Reduce the cost of clean hydrogen: this strategic objective aims to prioritise cost reductions throughout the value chain with production costs to be $2 per kg by 2026 and $1 per kg by 2030. The aim for storage costs is $9 per kWh by 2030 and for delivery and dispensing costs to be $2 per kg by 2030.
• Focus on regional networks: regional networks will enable large-scale clean hydrogen production close to hydrogen users. The focus of this strategic objective is to enable the development and sharing of a critical mass of infrastructure, including through the development of the hydrogen hubs (discussed below).

Linked to the first strategic aim, the Strategy and Roadmap also states that future work will enable the development of injection standards for blending hydrogen into natural gas pipelines used in high-temperature heat applications. To achieve this, opportunities to repurpose natural gas infrastructure for hydrogen as well as assessing where the deployment of new infrastructure will be necessary to enable the use of high concentrations of blends.

As set out under the Bipartisan Infrastructure Law, the Strategy and Roadmap details how the US Department of Energy (“DOE”) is required, in consultation with the Environmental Protection Agency, to develop a standard for the carbon intensity of clean hydrogen as a point of reference for hydrogen programmes and to update this standard every five years. The standard is part of the second strategic aim and, therefore, must support clean hydrogen production from low carbon energy sources. The standard must also define the term “clean hydrogen” to mean hydrogen produced with a carbon intensity equal to or less than 2kg CO2e/kg H₂; and consider technological and economic feasibility. The initial standard was set at 4kg CO2e/kg H₂.

The Bipartisan Infrastructure Law allocated $8 billion to develop regional clean hydrogen “hubs”, in order to create a network of clean hydrogen producers near potential consumers. In October 2023, of the 79 applicants that submitted concept papers, seven hubs were announced, including:

• the Appalachian Hydrogen Hub: Appalachian Regional Clean Hydrogen Hub (ARCH2) (West Virginia, Ohio, Pennsylvania) –  this hydrogen hub is looking to utilise low-cost natural gas to produce hydrogen and store the associated carbon emissions. The hub is to connect to hydrogen pipelines as well as multiple hydrogen fuelling stations, and CO2 storage. It is to receive funding of up to $925 million.
• California Hydrogen Hub: Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) (California) –  this hub will produce hydrogen exclusively from renewable energy and biomass and has committed to requiring Project Labour Agreements for all projects connected to the hub, which will expand opportunities for disadvantaged communities. It is to receive funding of up to $1.2 billion.
• Gulf Coast Hydrogen Hub: HyVelocity H2Hub (Texas) – this hub looks to produce hydrogen from both natural gas with carbon capture and from renewable sources using electrolysis. As part of the project, the Gulf Coast Hydrogen Hub plans to develop salt cavern hydrogen storage, an open access hydrogen pipeline, and multiple hydrogen refuelling stations. It is to receive funding of up to$1.2 billion.
• Heartland Hydrogen Hub (Minnesota, North Dakota and South Dakota) – this hub is also planning to use solely renewable energy for the production of hydrogen and will be constructing open access storage and pipeline infrastructure. The Heartland Hydrogen Hub has committed to create an education consortium to oversee career development, workforce training, apprenticeship programmes, and STEM education and is to contract with businesses owned by women, minorities, disabled veterans, disadvantaged communities, or LGBTQ persons. It is to receive funding of up to $925 million.
• Mid-Atlantic Hydrogen Hub: Mid-Atlantic Clean Hydrogen Hub (MACH2) (Pennsylvania, Delaware, New Jersey) — this hub will repurpose historic oil infrastructure and use existing rights-of-way, developing hydrogen production facilities from renewable and nuclear electricity. This hydrogen hub is anticipated to create 20,800 jobs—14,400 in construction jobs and 6,400 permanent jobs. It is to receive funding of up to $750 million.
• Midwest Hydrogen Hub: Midwest Alliance for Clean Hydrogen (MachH2) (Illinois, Indiana, and Michigan) – this hub is located in an important industrial and transportation corridor, meaning it will play a key role in delivering hydrogen for the production of steel and glass as well as for power generation, refining and heavy-duty transportation. This hub will produce hydrogen using renewable energy as well as natural gas and nuclear energy. It is to receive funding of up to $1 billion.
• Pacific Northwest Hydrogen Hub (PNW H2) (Washington, Oregon and Montana) – the Pacific Northwest Hydrogen Hub is proposing to produce clean hydrogen exclusively via electrolysis and aims to remove approximately  1.7 million metric tons per year of CO2 emissions through a transition to clean hydrogen across hard-to-decarbonise sectors. It is to receive funding of up to $1 billion.

The Programme will be split into various phases:

• the first phase will last between 12 and 18 months and projects will receive up to $20 million of funding, with a 50 percent minimum cost matching requirement;
• in the second phase, the DoE will analyse the projects and negotiate with the developers to determine if each project is technologically and commercially viable (including demonstrating viable plans for end-use and connective infrastructure). If the DoE deems that a project is viable, it will release up to 15% of the funding for that hub;
• the third phase, which is estimated to take 2 to 4 years, will be when the engineering design is developed, and the related contractual and construction arrangements are put in place. At this point, the DoE will issue the remaining funding to the hubs.

As well as demonstrating financial and technical viability, developers will be required to complete a National Environmental Policy Act review and a community benefits plan before funding is released.