US blue ammonia projects race to secure both 45Q and 45V credits
Quantum Commodity Intelligence - Blue ammonia projects look set to dominate the low-carbon ammonia space in the US as 45Q subsidies from the One Big Beautiful Bill begin to roll in, while reduced timelines for 45V hydrogen tax breaks force green ammonia companies to reassess projects.
While green ammonia projects in the US stall, development of blue projects could accelerate as companies look to maximise subsidies on offer from 45Q, and also race to enjoy potential credits from 45V while they are available.
45Q remains
The 45Q tax credit will allow greater tax breaks for blue ammonia production in the US, luring both international and domestic firms to invest in potential projects. But while the 45V hydrogen credit still offers significant tax breaks, the shortened timeline has curtailed appetite for green hydrogen and ammonia projects since the new administration came into office in January.
The 45Q tax credit gives qualifying blue ammonia producers a subsidy of $85 for each metric tonne of carbon captured from the production process, and a subsidy of $180/mt for direct air capture of carbon (DAC). The credit is offered to producers that store the carbon in geological formations, oil and gas fields, or reuse the carbon in other products. Controversially, the 45Q credit is also available to producers that use or sell the carbon for enhanced oil recovery (EOR) - extending the life of existing oilfields.
Environment lobbyists say the 45Q credit, and particularly its application in the case of carbon-based EOR, will encourage oil or other energy companies to enter the blue ammonia industry to secure the tax cuts, and potentially produce more fossil fuel.
A number of US energy companies have already partnered with ammonia producers to carry out the carbon capture roles for blue facilities and have invested in the construction of new carbon capture and sequestering infrastructure to secure the tax cuts.
While CO2 emissions from ammonia production being used in carbon-based EOR may not result in a reduction in net emissions, the tax credits on offer look certain to attract investment into blue ammonia projects.
Race for 45V
The 45V subsidy which increases based on the carbon-intensity of a facility's hydrogen and ammonia production process is potentially available to both blue and green ammonia producers, but the upper rate of $3/kg will only apply to green ammonia produced from renewable energy.
In addition, companies looking to acquire the 45V credit, must begin construction on facilities before the end of 2027.
The 45V subsidy allows for tax credits to be given based on the carbon intensity of each individual hydrogen production project as long as the project has a carbon intensity of 4kgCO2e/kgH2 produced. Typical grey hydrogen production carbon intensity is around 10kgCO2e/kgH2 produced using natural gas and a steam methane reformer.
Projects that have a CO2 intensity of 2.50-4kgCO2e/kgH2 produced will receive lower subsidy of support of $0.60/kg, while those in the lower CO2 intensity range of 1.50-2.50/kgCO2e/kgH2 will receive $0.75/kg in subsidies. Hydrogen produced with a 0.45-1.50/kgCO2e/kgH2 CO2 intensity get a $1/kg subsidy, and projects able to produce hydrogen with less than 0.45kgCO2e/kgH2 will receive a full $3/kg.
Although the credits cannot be stacked for the same production facility, companies can split production facilities within a project to claim both the 45Q and 45V credits.
Exxon's example
Oil major Exxon aims to gain both tax credits at its blue ammonia/hydrogen facility in Baytown, Texas. But new shorter timelines for 45V credits appear to have stalled development of the facility, and the company announced a slowdown of the project in August during its Q2 earnings call.
"We're working to determine if the combination of 45Q and a shortened 45V will provide the support needed to catalyse a broader low carbon hydrogen market," said Exxon chief executive Darren Woods.
The company said that it had been disappointed with the shortened timeline for 45V for the "development of the broader market."
But France's Air Liquide, which is a partner in the Baytown project is more upbeat, and has plans to produce four Large Modular Air separation units to obtain the 45V credit.
Despite the shortened timeline for subsidies, Adam Peters, Air Liquide's North America CEO said in late July that 45V credit incentives still remain "very positive" for the low-carbon space, and the company appears unfazed by new construction deadlines that have been announced.
Peters said the new 2028 deadline for project construction "gives a runway of 2.5 years to develop those projects and start construction".
"I think this is going to open the doorway for a number of projects to move forward in the low-carbon space to allow for the development of an ecosystem for hydrogen in the US," Peters said.