November 28, 2022

A Few Certain Things – Taxes, Hydrogen, Natural Gas, and Climate Change?

Posted on November 28, 2022 by Donald C. Bluedorn II

On November 3, 2022, Pennsylvania Governor Wolf signed House Bill 1059, which amends the Commonwealth’s Tax Reform Code and, among other things, establishes the Pennsylvania Economic Development for a Growing Economy (“PA EDGE”) program, consisting of tax credits for four economic areas.

Much of the publicity around the bill has focused on the tax credits available to promote a “hydrogen hub” and the use of hydrogen-based technologies  Indeed, the bill provides for tax credits up to $50 million per year, or a total of $1 billion over a 20-year period.

In explaining his support for House Bill 1059, Governor Wolf started by noting his belief in the importance of the role of hydrogen in addressing the effects of climate change.  “In its most recent report, the Intergovernmental Panel on Climate Change notes that ‘hydrogen is a promising energy carrier for a decarbonized world,’ and highlights hydrogen’s potential to ‘provide low-carbon heat for industrial processes or be utilized for direct reduction of iron ore.’”

The Governor then went on to note his belief that the use of hydrogen must be tied responsibly to the reduction of emissions and the consideration of Environmental Justice. 

That said, I recognize that in order for hydrogen to play a meaningful role in reducing emissions, we must ensure that hydrogen used is truly “clean” through stringent emissions standards. We must also commit to strong and equitable community protections to prevent impacts to already overburdened communities and to guide benefits to communities that need them.

Perhaps the most controversial provisions of the bill, or at least those that drew the most attention in much of the press, were the provisions that also authorized a tax credit for the use of natural gas in the manufacturing of petrochemicals or fertilizers. In explaining his support for these provisions, the Governor highlighted his belief that these were stop-gap measures to help build a bridge to the future.

Relatedly, [the bill] also authorizes a tax credit based on the use of natural gas. This provision was included as a short-term fail-safe in the event that a manufacturing facility is constructed and clean hydrogen is not initially available. While I do not believe that it would be possible for a project facility that has been funded as part of a DOE regional clean hydrogen hub to utilize natural gas instead of hydrogen for a significant duration of time, the bill requires a company applying for the credit to sign a commitment letter stating the date by which it will begin to purchase clean hydrogen. It is my expectation that this period of time would not exceed a year or two.

In addition to its focus on hydrogen technology, House Bill 1059 also provides tax credits for Pennsylvania milk processing, biomedical manufacturing and research, and semiconductor manufacturing.  In his statement, the Governor expressly recognized the need for even more support of semiconductor manufacturing in the Commonwealth.  “This program is a first step to help chip manufacturers and their suppliers build new facilities in Pennsylvania, but we need to continue to invest in order to make Pennsylvania a leader in this industry.”

Founding Father Benjamin Franklin reportedly wrote that “in this world nothing can be said for certain, except death and taxes.”  With the benefit of 21st Century hindsight, perhaps we can add hydrogen, natural gas, and climate change to the list . . . ?