Experts say the green hydrogen industry could soar worldwide thanks to federal tax incentives in the game-changing Inflation Reduction Act signed by President Joe Biden on Aug. 16, with the country’s largest hydrogen fuel-cell producer saying it will invest $1 billion in constructing new plants next year.

“Everyone wants green hydrogen. Now there is a path that makes it competitive,” says Andrew Marsh, CEO of Latham, N.Y.- based Plug Power. He says the fuel produced from renewable power sources will be cost-competitive “across all sorts of applications” with gray hydrogen produced from non carbon-captured fossil fuels and even natural gas-derived blue hydrogen that includes carbon-capture.

The $3 per kilogram production tax credit in the law will put green hydrogen on par with gray hydrogen, which accounts for 26% of global greenhouse gas emissions, Marsh says. S&P Global noted that 10 million tons of gray hydrogen are used every year in the U.S. mainly for oil refining and chemicals production

Green hydrogen now typically costs between $2.50/kg and $6/kg to produce, with gray hydrogen costing from $1/kg to $2/kg to manufacture, say experts.

The tax credit in the law now take the cost of green hydrogen “off the table,” Marsh says. The 10-year tax credit insures the subsidy will be around for the long term, he says.

Green hydrogen producers will be able to combine tax credits for renewable power generation facilities with production tax credits and investment tax credits for clean hydrogen production and storage.

The law says green hydrogen projects could receive renewable energy tax credits valued at $30/MWh in addition to the hydrogen ones, but blue hydrogen projects would be ineligible for hydrogen tax credits if they already receive federal tax credits for carbon capture and storage. .

Plug Power expects a boom for its U.S. businesses in green hydrogen and in manufacture of electrolyzers that separate molecules in water using clean power to create it—noting that its European electrolyzer orders exceeded projections for this year by 50%.

The company signed an agreement on Aug. 4 with New Fortress Energy to build a 120-MW industrial-scale green hydrogen plant near Beaumont, Texas, which will initially produce 50 tons per day of green hydrogen but will be scalable to 500 MW with additional infrastructure. The plant will serve industrial customers along the Gulf Coast.

“We expect the company to aggressively book new business and build out a comprehensive green hydrogen network in the U.S.,” Colin Rusch, an analyst with Oppenheimer and Co., said in a note to investors.

Marsh expects the company to book 200 MW of electrolyzers in the next 18 months for use in data centers, what he told analysts is a 40-fold increase over last year.

The price of green hydrogen would have to fall below $1.53 per kilogram for green steel to become cost-competitive with steel made using fossil fuels, says industrty publication Recharge, adding that a price below $1 per kilogram, however, could immediately stimulate demand for green steel and possibly in other industry sectors such as cement and glassmaking.

In an analysis published Aug. 16, Shearman & Sterling attorneys said the clean energy provisions in the law support reduced carbon sources of energy regardless of the technology. “They are source agnostic, which is welcome news for various industries within the U.S. that have been planning to invest in hydrogen and carbon sequestration technologies,” they said.

The base tax credit is $0.60/kg of clean hydrogen but increases to $3/kg when the carbon intensity reaches a certain level and when the green hydrogen project "complies with prevailing wages and apprenticeship requirements,” said the firm's analysis. It called the credit, which also can be taken as a direct payment, “truly revolutionary for the emerging green hydrogen industry.”

The incentive could reduce the cost of green hydrogen production to as low as $0.73/kg in the northwest U.S. and likely halve the cost of production in much of the U.S., the attorneys say.

“This positions the U.S. as the most competitive places in the world to develop green hydrogen projects,” the Shearman & Sterling analysis says. Because the climate-change law also will spur other countries to develop subsidies to support projects, it "should be viewed as a significant boost to the development of a worldwide hydrogen economy,” the attorney say.

Key provisions in the law for hydrogen set the tax credit on a sliding scale depending on lifecycle emissions measured in carbon dioxide equivalent. Green hydrogen must be manufactured with less than 0.45 kg of lifecycle CO2 equivalent emissions per kg of hydrogen to receive 100% of the credit.

The wage requirement in the law multiplies the size of the credit by a factor of five. The owner is required to make sure that no less than the applicable percentage of total labor hours for a project’s construction is provided by certified apprentices.

Eligible plant owners can take either the production tax credit or the investment tax credit for hydrogen produced after Dec. 31, 2022 and for new projects begun by Jan. 1, 2033.