Pa. Legislature Approves $2 Billion in Tax Credits for Natural Gas, Hydrogen

The state Legislature has approved legislation to provide tax credits for companies that use natural gas and hydrogen in their operations for at least 20 years. The legislation is now awaiting the governor’s signature. The Pa. Economic Development for a Growing Economy (PA Edge) credits are aimed at development of a clean hydrogen hub in the state, and continued development of the state’s natural gas industry, along with encouraging milk processing and other manufacturing operations. Among the features of the act, which will cost the state more than $2 billion in subsidies over 20 years is $50 million annually is a Regional Clean Hydrogen Hub Tax Credit that will provide subsidies for using natural gas or clean hydrogen in manufacturing between 2024 and 2043. The legislation provides for a tax credit of 81 cents per kilogram of clean hydrogen purchased from a clean hydrogen hub within the state and used in manufacturing at the project facility and 47 cents per unit of natural gas, purchased and used in manufacturing at the project facility. To qualify for the subsidies, a company must make a capital investment of at least $500 million to construct the facility, make a good faith effort to use the local labor market and create at least 1,200 permanent jobs. The total amount of tax credits awarded may not exceed 50 percent of the capital investment made to construct a facility. “The program operates on a first come, first served basis, so the first taxpayer meeting the requirements of a qualified taxpayer may receive up to $50 million in tax credits each year,” the Senate fiscal note indicates. The bill also increases the current tax credit for using natural gas to make petrochemicals or fertilizer from $26.6 million to $56.6 million a year. “The term ‘regional clean hydrogen hub’ means a network of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity,” the note states. The federal infrastructure bill approved last year includes $7 billion in start-up money for at least four hydrogen hubs around the country, one of which is expected to be in the Appalachian region. Hydrogen has been getting a lot of attention as a clean fuel of the future that could be used to decarbonize heavy industry, long-haul trucking, and in other areas. It can be produced with water through electrolysis from renewable energy as “green” hydrogen, or with natural gas using carbon capture and underground storage as so-called “blue” hydrogen. Blue hydrogen has been the focus in this region because of the abundant natural gas supply, favorable geography for underground carbon storage, and nearby heavy industry looking to decarbonize. Groups from several states, including Pennsylvania, West Virginia, and Ohio, are planning to apply for funding, with concept papers due next week. Environmental groups were critical of the tax credits because they would subsidize natural gas, a fossil fuel that emits climate-warming methane. “More subsidies for the fracking and petrochemical industries will continue to deliver disappointing economic results along with huge environmental risks,” said Patrick McDonnell, president of PennFuture and the former state Department of Environmental Protection secretary. “While hydrogen technology may have a role in addressing climate pollution, its production need not come at the expense of Pennsylvania’s environment, climate, or the health of surrounding communities.”