Pennsylvania Gov. Tom Wolf, a Democrat in the second-largest U.S. natural gas-producing state, approved an act boosting tax credits for natural gas use by billions over decades. 

Act 108, enacted from House Bill (HB) 1059 and dubbed the Pennsylvania Economic Development for a Growing Economy (PA EDGE), amends the Keystone State’s tax code to bring tax credits for natural gas use from more than $26.6 million to $56.6 million.

Companies that have invested a minimum of $400 million into an in-state fertilizer, natural gas liquids or petrochemical project could be eligible to receive the credit at a rate of 47 cents/Mcf of purchased dry gas by filing an application to the state’s Department of Revenue by March 1, once the tax credits come into play in 2023. 

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But that’s not all that the act does. 

Under Subarticle D, PA EDGE also supplies tax credits to companies purchasing hydrogen from a Pennsylvania-based clean hydrogen hub, as designated by the U.S. Department of Energy (DOE), with up to 81 cents/kilogram of hydrogen purchased in a fiscal year. 

In order to qualify, a purchaser must have made a minimum investment of $500 million to construct a project facility in Pennsylvania, and must have also created a minimum of 1,200 new jobs and permanent jobs. 

Each fiscal year through 2049, the Pennsylvania Department of Revenue would set aside $50 million in available tax credits for hydrogen purchased from an in-state hydrogen hub. 

The legislation states that companies may not be awarded more than 50% of the capital investment made to construct a facility in Pennsylvania. It also would require that each October, the Department of Revenue should create a report summarizing the effectiveness of the tax credits in boosting Pennsylvania’s economy. 

The state’s House and Senate sent HB 1059 to Wolf’s desk at the end of October, which he signed last week. The governor also issued a letter clarifying that he “supported the tax credit under Subarticle D, which will help attract a regional hydrogen hub in Pennsylvania.”

The governor expressed how bringing a hydrogen hub to the state would help to achieve Pennsylvania’s statewide climate goals of reducing greenhouse gas emissions by 26% by 2025 and by 80% by 2050 as compared with 2005 levels. 

“That said,” Wolf wrote in a letter to the commonwealth’s General Assembly, “I recognize that in order for hydrogen to play a meaningful role in reducing emissions, we must ensure that the hydrogen used is truly ‘clean’ through stringent emissions standards.” 

Wolf noted that the tax credits for the hydrogen hub also initiate tax credits for the use of natural gas at the hydrogen hub.

Under the PA EDGE legislation, a company that purchases hydrogen from a hub could also be eligible to receive a credit of up to 47 cents/Mcf of natural gas purchased from a Pennsylvanian hydrogen hub. 

“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,” Wolf noted.

“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,” Wolf said. 

According to the Infrastructure Investment and Jobs Act of 2021, under which the hydrogen hub program was enacted, at least one hub must demonstrate hydrogen production from nuclear energy, at least one should use renewable energy to generate green hydrogen and at least one hub must produce blue hydrogen from a fossil fuel

In May, Wolf announced the Commonwealth would seek a portion of federal funding from the DOE’s $8 billion hydrogen hub program. 

Major players have already expressed interest in bringing hydrogen to the Appalachian region

Earlier this year, supermajors Equinor ASA and Shell plc announced they were seeking to collaborate with the United States Steel Corp. in advancing CCUS and hydrogen production projects across the Appalachian Basin

Boosting Local Natural Gas Use

Meanwhile, eligible manufacturing projects seeking tax credits solely for their use of Pennsylvania natural gas also should demonstrate the use of carbon capture, utilization and sequestration (CCUS), or a similar technology, at the facility “to the extent it is cost effective and feasible” at the discretion of the company applying for the credit, according to the PA EDGE legislation. 

Each fiscal year through 2049, up to two eligible companies can each receive up to about $6.6 million in tax credits. The remaining available tax credits would be made available to a company that has made an investment of more than $1 billion in order to construct and operate a qualifying project in the state.

Pennsylvania legislators noted the benefits of the bill’s predecessor, the Local Resource Manufacturing Tax Credit (LRMTC), which offered more than $26.6 million to incentivize Pennsylvania companies to use Pennsylvania-sourced dry natural gas in production. 

According to Pennsylvania Senate Republicans, the LRMTC brought in Houston-based Nacero Inc. to construct a $6 billion manufacturing facility at the site of a former Pennsylvania coal mine to produce gasoline from natural gas and renewable natural gas (RNG), rather than crude oil.

The project, according to Nacero, is estimated to avoid about 25 million tons/year of carbon emissions by providing vehicle fleets with Nacero Blue Gasoline, which is RNG produced from natural gas using CCUS.