In May, Pennsylvania-based CNX Energy and KeyState Energy announced their intention to manufacture low-carbon hydrogen and sustainable aviation fuel derived from methane at Pittsburgh International Airport. However, there’s a catch. CNX stipulated that the project would go forward only if the federal government “enables a pathway for ultra-low carbon intensity fugitive coal mine methane (CMM) under the 45V Hydrogen Production Tax Credit”.
“Enables a pathway” is a euphemism for relaxing the emission reduction standard for a tax credit that offers subsidies of up to $3 per kilogram of hydrogen. In the case of the Pittsburgh Airport project, the requested change would result in a subsidy that might otherwise be worth $40.8 million annually increasing to five times that amount – $204 million.
But that’s just one project. The rule changes requested by CNX would open the door for many other blue hydrogen projects to gain access to the much larger subsidy. A former CNX partner TransGas is also pursuing a coal mine methane-hydrogen project in Mingo County, WV. If these cases proliferate – and the immensity of the incentive suggests they would – the cost to taxpayers would run into the many billions of dollars annually. The incentive value of coal mine methane would be so great that it could change the economics of coal mining by making it financially sensible for mines to sell coal at much lower prices and in larger volumes simply in order to produce more methane and capture the associated subsidies.
The consequences could include a perpetuation and expansion of coal-fired power generation, not just in the U.S. but in other countries such as India and China. A crippling blow would be struck to the U.S. green hydrogen industry. And the combination of increased coal-fired power generation and the vitiation of green hydrogen development would likely result in a net increase rather than a decrease in carbon emissions.
Projects like the one at Pittsburgh airport would also require the long term storage of carbon dioxide onsite or its transportation by specially constructed pipelines to other storage locations in the region. These practices pose many unknowns, including environmental risks to communities in our region where regulators and the companies they regulate have little experience with the relevant technologies.
What CNX is requesting
CNX wants the Treasury Department to adopt an interpretation of the GREET model for measuring lifecycle greenhouse gas emissions that would accord captured coal mine methane (CMM) a negative CO2 intensity value. Such a move would be consistent with how the GREET model, which was developed at Argonne National Laboratory, has been applied previously. However, when the administration considered how the GREET model should be adapted for the purpose of implementing the Inflation Reduction Act, it correctly determined that the provision that allowed CMM to carry a net negative CO2 value would have to be amended to assure that qualifying emission reductions are incremental and that the tax credit would not inadvertently create an incentive for producers to generate new carbon emissions just for the purpose of capturing them and claiming the credit.
How negative CO2 value CMM could play havoc with hydrogen and coal economics
As traditionally interpreted, the GREET model accords captured CMM a negative carbon intensity value on the grounds that it is a byproduct of coal mining that would otherwise be vented into the atmosphere. Because the IRA’s 45V tax credit offers different subsidy levels depending on the carbon intensity of the hydrogen production process, negative intensity CMM could be blended with conventionally sourced methane, which has a positive carbon intensity, to produce much lower carbon blue hydrogen that would qualify for the maximum clean hydrogen subsidy of $3/kg.
However, the Treasury Department’s 45V interpretation of the GREET model does not accord CMM a negative carbon intensity because it takes a more expansive view of production lifecycles. And the mining process from which CMM is derived is highly carbon intensive to the point that hydrogen made from it would fail to qualify for any 45V subsidy.
But if CNX were to get its way and CMM were accorded a negative carbon intensity score for the purpose of the 45V tax credit, conventional methane could be blended with CMM at a ratio of a little over 3:1 and still qualify for the maximum $3/kg credit rather than the $.60/kg for which blue hydrogen made from conventionally produced methane might otherwise qualify.
The impact in real dollars
The Buchanan mine in SW Virginia, where CNX currently captures methane, produced enough methane in 2021 to manufacture just under 134,000 metric tons of hydrogen. But if that amount of CMM were blended with conventionally sourced methane, just over 562,000 tons of hydrogen could be produced. And if the coal mine methane’s negative carbon value were used to offset the conventionally sourced methane’s positive carbon value, the resulting hydrogen could qualify for the maximum 45V subsidy. If the Buchanan mine’s methane were captured and used in this way, the total value of the subsidy would be just short of $1.7 billion dollars annually. Meanwhile, if CMM were not blended, the subsidy for hydrogen produced solely with conventionally sourced methane would only come to $257 million or about one-seventh as much.
That’s a scandalous windfall, but the potentially bigger problem is that a coal mine that typically has coal sales of about $350 million annually would suddenly have a new revenue stream worth roughly five times its existing sales - an opportunity so great that it would make financial sense for the mine to sell coal at a much-reduced price if not give it away solely in order to produce CMM for the purpose of claiming the tax subsidy.
Methane, which under the original GREET model was accorded a negative carbon intensity score only because it was considered to be an incidental byproduct that would otherwise be vented into the atmosphere, would instead become the mine’s principal product. This, of course, undercuts the rationale for treating CMM as carbon negative in the first place.
Meanwhile, the price of coal on global markets would tumble, providing a financial boost for coal-fired power generation, which otherwise can no longer compete with natural gas and renewables. Finally, development of green hydrogen in the U.S. would be hampered and possibly crushed by competition from CMM-supplemented blue hydrogen.
The results would be greater, not fewer, carbon emissions, a huge windfall for CNX and coal mines, and a correspondingly huge bill for taxpayers. Pretty much a nightmare scenario.