Make Carbon-Free Hydrogen with Nuclear Energy?

Tax Agency Drafts Impractical Rules

Make Carbon-Free Hydrogen with Nuclear Energy?

Congress has established tax benefits to encourage the use of hydrogen as a decarbonization tool. But as usual, the devil is in the details, and the draft regulations as laid out by the Internal Revenue Service would make it very hard for the best source of zero-carbon hydrogen – energy from nuclear reactors – to take advantage of the policy support.

Nuclear reactors have an advantage in making hydrogen. The dominant method now is “reforming” of methane, the main ingredient of natural gas. That molecule is CH4, one carbon atom and four hydrogen atoms, and reforming turns this into two H2 atoms, plus one atom of CO2, carbon dioxide. Burning hydrogen produces nothing but heat and water, H2O, but there’s not much benefit if the work needed to isolate the hydrogen leaves a carbon footprint.

The clean way to make hydrogen is to split water molecules, and that takes energy. One source is electricity, which, if drawn from the grid, also has a carbon footprint.

But the quantity of electricity needed is substantially lower if the water to be split is introduced as high-temperature steam, not liquid water. And while wind and solar can supply carbon-free electricity – depending on the weather – they can’t supply heat. Nuclear reactors make heat on their way to making electricity.

The goal of the subsidies is to push hydrogen production technology along the learning curve, to cut the production price by 80 percent, to less than $1 per kilogram. The Infrastructure Investment and Jobs Act, signed by President Biden in late 2021, recognizes the potential value of nuclear, by specifying that the research hubs for hydrogen will include at least one that will use nuclear energy.

So why do the proposed regulations squeeze out nuclear? The problem is the interplay of two requirements.

One is timing; the Treasury wants quick action to demonstrate making hydrogen, and get industry on a path to cutting carbon emissions at low cost. And the other is known as “incrementality,” or use of new energy. The regulations call for making hydrogen from new energy sources, not simply re-directing existing sources. In this case, the energy has to come from a new source, or an “uprate” of production at an existing reactor, no more than 36 months prior to when hydrogen production starts. Current-generation reactors have been through lots of uprates, but it’s not clear if they can qualify through that route.

It would be easier to use a new reactor, because a plant that is still in the design phase can be more easily re-configured to pull steam to heat the water that will be split. But the IIJA requires the production facilities to go into service between 2028 and 2032. The only advanced reactors that have a good chance to go into service before 2032 are X-energy’s gas-graphite project with Dow in Texas, and the Natrium molten salt reactor in Kemmerer, Wyoming. But both of those are first-of-a-kind advanced models that already have enough innovative bells and whistles attached; they don’t need an additional energy system grafted on to add to their challenges.

Among the alternatives: Allow credit for uprates a few years in the past, or credit for retirements that are avoided. Or allow credit for higher capacity factors – that is for reactors that run extra hours over the course of a year.

At this moment, it is not clear which route to hydrogen production will be a commercial success on the path to using hydrogen as a storage medium, or as a way to reduce the carbon footprint in the manufacture of steel or petrochemicals or even motor fuel. But in trying out a variety of technologies, it is clearly important to include nuclear in the mix.

The deadline to comment on IRS’s draft regulation is February 26th.