Hydrogen Under a Trump Presidency: Implications for 45V and H2Hubs
I’ve been brought into quite a few calls and asked what a Trump administration means 45V, the H2Hubs, and hydrogen in general. I worked on all of this as the former Director of Analysis at the DOE and have an inside view of how these work in the government. The short version is that most or all of H2hubs funding is safe. 45V funding is probably safe, and it will be more in the courts hands than in the Office of the President. It is actually quite difficult to change a bill once it is in place.
Congressional majority vote to overturn finalized contracts or tax guidance is required, and the republican majority is thin with republican districts getting an outsized amount of both IIJA and IRA H2 credits. Enough republicans will flip to prevent a repeal unless something seriously is going awry.
Here is a basic flow chart of when the outcome of H2Hubs (left of chart) or 45V (right side of chart) can be changed. Note that we are past
On the left side, as of yesterday, five of the seven hubs are awarded and will be fine. On the right side, 45V guidance will come out by year end and is highly likely will pass through congressional review because congress will be focused on other things – like cabinet approvals and putting out a budget under republican control. If it is overly strict, a court challenge will come and it will be overturned.
There are broader implications for a Trump presidency on H2, but 45V and H2Hubs are immediate and important.
Read on for more details!
Process to change an existing bill or contract
There are only a few practical ways a sitting president can alter the implementation of a passed bills with guidance in the register (we’re talking about 45V) or passed bill that has contracts (hubs).
1. Get Congress on board and get a majority vote
2. Deal with how it is implemented through a court challenge
Let’s cover the Congress part, 45V first
Given that over half of IRA funding is in red districts, I don’t see Congress getting behind wholesale repeal of IRA. They will raise it to vote once or several times, and then they won’t have the numbers to bring it to or past the floor.
Once the final guidance for 45V (part of IRA) is in the federal register, it will be quite hard to change. There is some small risk that 45V guidance will be rejected in the congressional review period, but the risk here is low since it’s not in Trump’s crosshairs and the entire federal budget will be under negotiation. More importantly, the inevitable court challenge to a strict 45V will be much easier to achieve than trying to overturn IRA or 45V specifically.
And now H2 Hubs
Hubs are safe from repeal. First, they aren’t IRA, they are IIJA funded. Second, red districts are getting a huge chunk of the $7B dollars and a few defections ends any pull-back attempt.
Once a contract is in place, it can be pulled back by congress. This is just as unlikely as general repeal, unless the hubs are doing something illegal or extremely ill advised. I don’t see this happening because the Office of Clean Energy Demonstrations – the DOE office running H2Hubs—has some talented people specifically in H2hubs. As long as the current H2 project team is in place at OCED, the technical, commercial, and legal issues that could bring a congressional hearing or congressional repeal are very unlikely to happen.
The one risk for H2hubs funding is that projects that don’t reach award by the time a new congress is in. As of yesterday (2024-11-20), the fourth and fifth of the seven selected hubs reached award. The sixth and seventh might squeeze in. If they don’t, one is in red states so it may pass through, the other is in PA/NJ/DE so it might get some congressional oversight (IE it could be in trouble if it doesn’t make it to award within the next several weeks).
What about a court challenge? For H2hubs, this is not an issue. For 45V a court challenge is a huge problem for the H2 industry – it prolongs the investment freeze
Court challenges have been a standard pathways for executive branch guidance and interpretation of laws to be changed. Anyone can challenge a law in the courts, be it a state, a county, a city, a corporation, an NGO, individuals, etc. The challenge usually hits a regional court first and then can be appealed all the way up to the Supreme Court.
Contracts are very rarely challenged in courts, so H2Hubs is highly unlikely to go this route. 45V will go this route if final guidance comes out strict.
When a regulation or law is challenged, it is up to the federal government to defend the interpretation. It’s fair to say that a Trump presidency will not be keen to defend some of the work done on 45V by Biden’s team. In other words, if a 45V challenge comes into place in courts, Trump can push Treasury and DOE to not mount a strong challenge. If this works, the defense would roll over, allowing courts to vacate guidance and decisions made under the Biden administration. They can’t really repeal the bill, but they can say “do it again” and make the departments rework their interpretation. These departments will have some influence from the executive branch, possibly more depending on how many roles can be shifted to appointees. In summary a court challenge to 45V puts reinterpretation back into play under a Trump presidency.
If 45V comes out strict, it will get a court challenge and it will go to court. The DOE was unified in asking for grandfathering for three pillars (new build renewables, hourly matching of renewables and production, and production of the power in the same power region), or eliminating one or some of the pillars (read more below). Biden’s team in the Executive Office of the President (EOP) under Podesta ignored the DOE recommendation and made their own guidance without much commercial reality or merit. Overly strict 45V will be challenged and it will be overturned by the conservative supreme court.
This path is clear after the Chevron Deference overturn, whereby deference for interpretation of a law was given to the agencies who were considered expert. Given that Biden’s team didn’t even listen to the experts (DOE) on the guidance, and how their guidance uses terminology that was not in the original bill and that has never before been in any prior bills, overly strict guidance will be overturned if it makes it to the supreme court.
Strict guidance and an eventual overturn is a very bad thing in the short term – it will continue the freeze on investment into hydrogen projects.
The problem herein is that as long as 45V is being debated and not enacted, no investments can be made. An inevitable court challenge will prolong this industry freeze. This prolongs the issue of stalled guidance and stalled investment that we’ve had under the Biden administration. Hopefully the initial 45V guidance was meant to be a negotiating point and the final guidance becomes more rational – otherwise H2 will continue to move slowly for another year or two.
A hypothetical example of why this matters
Let’s look at a hypothetical project under initial strict 45V that would undergo a court challenge to see why this is an issue. Imagine we are developing a hydrogen project that adheres to strict 45V. In this case, we probably already have some power purchase agreement, otherwise we can’t build the facility. Now let’s say the court challenge comes down two years later and suddenly strict 45V is abandoned. We already have our PPA for strict 45V compliant power. A new entrant could come in with power compliant for relaxed 45V and undercut our prices.
In this scenario, it would be hard to start building a project until we have final clarity. So projects won’t move forward unless they have optionality with power – and that isn’t how projects work. They need power lined up before they can get built, because no one wants to do “if you build it, they will come” for power prices.
In short – strict 45V now would result in further chilling on the industry. This has nothing to do with a Trump presidency. It’s just the reality we get.
A factor that could make 45V repealed or changed by congress - $3/kg for hydrogen made from natural gas
If the courts strip some of the protections meant to prevent reformation hydrogen from getting $3/kg, the first major awardee will be Exxon with ~$20B in tax credits for $10B of hydrogen. This project could be copy-pasted in many parts of the US. The price tag of 45V could be equal to the entire rest of the IRA.
In this case, Congress would intervene.
Summary
H2hubs are safe. 45V will be hard to change. The biggest risk is 45V coming out strict and then industry waiting for the final guidance to be repealed.
