ExxonMobil presses case for hydrogen IRA tax credit following ammonia accord with JERA

(Bloomberg) – Exxon Mobil Corp. pressed the case for hydrogen produced from natural gas to receive U.S. tax credits under the Inflation Reduction Act after signing an accord to sell the low-carbon fuel to JERA Co., Japan’s biggest power provider.

JERA will consider buying 500,000 tons a year, or half the ammonia produced from Exxon’s proposed low-carbon hydrogen project in Baytown, Texas, the companies said in a statement. Hydrogen can be converted into ammonia for shipping and storage, then burned cleanly to produce electricity.

The nonbinding agreement demonstrates “significant” demand for low-carbon hydrogen and ammonia, Dan Ammann, president of Exxon Low Carbon Solutions, said in an interview. But for the Baytown project to get up and running, the Biden administration needs to widen the IRA’s tax credit to include hydrogen produced from natural gas, he said.

Hydrogen, which produces water and oxygen when burned, is seen as an essential way of decarbonizing heavy industrial processes that are difficult to electrify. The IRA grants subsidies to the fuel, but recent guidance from the Biden administration suggests only “green” hydrogen, produced from the electrolysis of water, will qualify, not “blue” hydrogen produced from natural gas even if the emissions are captured.

Exxon has stepped up its low-carbon efforts since the pandemic but will only build big projects — such as the one in Baytown — if the projects achieve financial returns of more than 10%, the company has said. Tax credits are key to making those returns and Exxon has said the Baytown project won’t go ahead without them.

“If you’re able to produce lower carbon-intensity hydrogen then you should get credit for that regardless of the means of production,” Ammann said. The tax credit regime “needs to fall into place alongside all the progress we’re making on the supply side and the progress we’re making now on the demand.”

The Baytown project would be the world’s largest low-carbon hydrogen production plant and is aiming for startup in 2028. If it goes ahead it will produce 900,000 tons of hydrogen from natural gas, using carbon capture to remove the emissions, and more than 1 millions tons of ammonia.