Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
The Inflation Reduction Act (IRA) provides tax credits to encourage green hydrogen production. We analyze a model in which hydrogen produced using electricity replaces natural gas. The electricity is procured from dedicated renewables or from the grid with and without procuring clean electricity credits (offsetting). Optimal hydrogen subsidies are positive if the unpriced externality from natural gas is larger than the unpriced externality from electricity. With optimally differentiated subsidies, offsetting increases welfare. With undifferentiated subsidies, offsetting can decrease welfare, unless restricted to regions with higher unpriced electricity externalities. Short-run parameterization shows that the IRA’s subsidy of $3/kg-H2 is rationalized (i) by hydrogen production from dedicated renewables if the social cost of carbon (SCC) is $500 or (ii) by hydrogen production from the (relatively clean and carbon-priced) grid in California with renewables offsetting electricity in the (relatively dirty and non-carbon-priced) grid in parts of the East if the SCC is $185.