Scientists Gunther Glenk, Philip Holler, and Stefan Reichelstein from the University of Mannheim have studied how the calculation of CO₂ emissions affects investments in the production of electrolytic hydrogen.
Governments around the world are linking hydrogen subsidy programs to the product’s calculated CO₂ intensity. Under the Inflation Reduction Act, the U.S. grants producers a tax credit of up to $3 per kilogram of hydrogen. The amount is based on production emissions. Using the Inflation Reduction Act as a case study, the researchers investigated whether strict accounting rules deter companies from investing.
Strict rules lower returns
The study refutes the widespread assumption that strict CO₂ accounting rules would deter investment. According to the study, whenelectricity generation and hydrogen production are balanced on an hourly basis, electrolyzers achieve internal rates of return between 8 and 15 percent. However, the hydrogen produced in this way does not automatically result in low emissions. If hydrogen prices rise, operators increasingly use electricity from the general grid for electrolysis. As a result, the average CO₂ intensity rises to the level of blue hydrogen, which is produced from natural gas with CO₂ capture.
Less stringent regulations—with annual rather than hourly compliance checks — increase returns to as much as 23 percent. This figure exceeds the market-standard returns for renewable energy plants. In this case, the CO₂ intensity of the hydrogen can rise to the level of gray hydrogen. For plant operators and planners, the study thus provides guidance on the sizing and operational management of electrolysis plants under various regulatory frameworks.
EU Discusses Postponing Hourly Settlement
Gunther Glenk, an assistant professor at the Mannheim Institute for Sustainable Energy Studies, puts the findings into perspective: According to the study, strict regulations generally do not deter investment, but they do not guarantee clean hydrogen. Philip Holler, a doctoral candidate at the same institute, adds that accounting rules determine whether funding programs contribute to industrial decarbonization.
The EU currently has rules in place stipulating that, through 2030, a monthly balance between electricity generation and hydrogen production is sufficient. After that, an hourly balance is to be required. Discussions are currently underway to postpone this stricter requirement in order to ensure the economic viability of the facilities. Stefan Reichelstein, holder of the endowed chair in General Business Administration at the University of Mannheim, points out that the results calibrated for the U.S. can be applied to Europe. Strict CO₂ accounting rules have led to lower-emission hydrogen production and are already providing sufficient investment incentives, particularly in regions with a high supply of renewable energy.
