Exxon has advocated for hydrogen produced from natural gas to qualify for U.S. tax credits under the Inflation Reduction Act (IRA). This push comes after Exxon signed an agreement to sell low-carbon hydrogen to JERA Co., Japan’s largest power provider. Under the agreement, JERA will consider purchasing 500,000 tons of ammonia annually, half of which will be produced from Exxon’s proposed low-carbon hydrogen project in Baytown, Texas. The project involves converting hydrogen into ammonia for transportation and storage, which can then be cleanly burned to generate electricity.

Exxon asserts that there is significant demand for low-carbon hydrogen and ammonia, but the success of the Baytown project hinges on the expansion of the IRA tax credit to include hydrogen derived from natural gas. While hydrogen is considered essential for decarbonizing heavy industrial processes, recent guidance from the Biden administration suggests that only “green” hydrogen, produced via water electrolysis, will qualify for IRA subsidies, excluding “blue” hydrogen generated from natural gas even if emissions are captured.

Exxon emphasizes that tax credits are crucial for achieving financial returns of over 10% on major projects like the Baytown facility. The company argues that producers of lower carbon-intensity hydrogen should receive credit regardless of the production method. The Baytown project, slated for startup in 2028, aims to be the world’s largest low-carbon hydrogen production plant, producing 900,000 tons of hydrogen from natural gas while using carbon capture technology to mitigate emissions, along with over 1 million tons of ammonia.