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On one side, climate hawks insist that given the potential scale of the energy-guzzling industry, hydrogen producers should be required to use new, nearby sources of clean electricity at the same time as production takes place, instead of tapping power already on the grid that may or may not be carbon-free. Democratic senators like Sheldon Whitehouse (D-RI) and Jeff Merkley (D-OR) have taken up this fight, calling on the Treasury Department to adopt robust standards proposed by environmental advocates.

Some hydrogen producers are already complying with those conditions. For instance, a $4 billion mega-project in North Texas, which expects to begin operation in 2027, is building out wind and solar resources projected to total 1.4 gigawatts—more energy than is consumed by the city of Austin. Air Products, an industrial gas producer and developer of the Texas project, is among several hydrogen producers backing the stricter rules.

But other industry groups are pushing to allow their facilities to be powered by existing energy sources on the grid, while remaining eligible for the green hydrogen production credit. They claim that producers will struggle to procure new clean electricity in states where they have now won lucrative subsidies, hobbling the nascent industry.