Inflation Reduction Act impacts on the economics of clean hydrogen and liquid fuels

The Inflation Reduction Act (IRA) provides unprecedented incentives for deploying low-carbon hydrogen and liquid fuels, among other low greenhouse gas (GHG) emissions technologies. To better understand the prospective competitiveness of clean fuels under the IRA in the early 2030s, we extend our recently published lifecycle carbon and cost assessments of multiple fuel production pathways to examine the impacts of IRA provisions on costs of producing hydrogen and Fischer-Tropsch liquids made from natural gas, electricity, or net-carbon-neutral biomass. With IRA credits, hydrogen produced by electrolysis using carbon-free electricity (green H2) and methane reforming with carbon capture and storage (CCS) (blue H2) are cost-competitive with the carbon-intensive benchmark (gray H2). Biomass-derived H2 with or without CCS, however, is not. The IRA credit for clean fuels (45Z), currently stipulated to end in 2027, would need to be extended, or similar policy support be provided by other measures, for clean liquid fuels to be competitive with petroleum-derived fuels. Levelized IRA subsidies per unit of CO2 mitigated for all hydrogen and liquid fuel production pathways, except electricity-derived liquid fuels, are within or below U.S. federal government estimates of the Social Cost of Carbon (SCC) for 2030 – 2040