The state of New Mexico has released a “stakeholder discussion draft” of a bill that would offer tax breaks as an incentive for developing hydrogen infrastructure.

The bill, known as the Hydrogen Hub Act, will be introduced during the state’s 2022 legislative session, which runs from Jan. 18 to Feb. 17. Comments on the discussion draft will be accepted through 5 p.m. on Dec. 12 and may be sent to hydrogen.feedback@state.nm.us.

As proposed, the bill would set a carbon intensity limit for hydrogen that qualifies under the act. The carbon intensity limit would start at 9 kilograms of CO₂ equivalent per kilogram of hydrogen produced and decrease every two years: to 7 kg of CO₂ equivalent in 2024; 5 kg in 2026; and 3 kg in 2028.

The bill would offer a variety of tax incentives. An entity with an interest in a qualified hydrogen electric generating plant or a hydrogen production facility would be able to claim a state tax credit for up to 5% of the costs for developing and building the facility.

Companies would be able to deduct from their gross receipts some or all their revenue from equipment or construction services used to build hydrogen infrastructure. That would include pipelines, hydrogen production facilities, hydrogen electric generating plants, or hydrogen fueling stations.

A gross receipts deduction would also be available for revenue from selling hydrogen.

The tax incentives would not be available for hydrogen made from fresh water.

The New Mexico Environment Department sent out the draft bill via email this month. A one-page overview accompanying the bill said hydrogen could be part of the state’s clean energy portfolio, along with solar, wind and geothermal energy.

In particular, hydrogen can reduce emissions from the industrial and transportation sectors, including cement manufacturing, petroleum refining, and aviation, the overview said.

“The Act will drive technological innovation, create clean energy jobs, and diversify our economy — all while accelerating New Mexico’s efforts to reach net-zero carbon emissions by no later than 2050,” the overview stated.

The Hydrogen Hub Act would help New Mexico jump-start a clean hydrogen economy, according to a release from Gov. Michelle Lujan Grisham’s office. The release was issued this month in response to the signing of the federal Infrastructure Investment and Jobs Act. It noted that the bill includes $8 billion for clean hydrogen hubs across the U.S.

Environmental groups are criticizing New Mexico’s proposed Hydrogen Hub Act.

Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center, said the bill’s carbon-intensity “guardrails,” which would determine eligibility for tax breaks, are weak and would condone hydrogen production from fossil gas.

In addition, he said, the guardrails exclude upstream emissions from the oil and gas production process.

Hydrogen can be produced from methane, releasing hydrogen, carbon monoxide and CO₂ in the process. In some cases, the CO₂ may be captured and stored. Hydrogen can also come from the electrolysis of water, in which hydrogen and oxygen are produced.

Schlenker-Goodrich said there’s nothing in the bill to target hydrogen to hard-to-decarbonize industrial sectors. Instead, the bill tries to push hydrogen into end-uses where it can’t compete with other energy sources, he said.

“The draft Hydrogen Hub Act is nothing more than a move to provide the fossil fuels industry with yet more subsidies, paid for by taxpayers, that benefits politically well-connected fossil fuel CEOs and investors,” Schlenker-Goodrich told NetZero Insider.

The Western Environmental Law Center and a long list of other groups sent a letter last month to Lujan Grisham and lawmakers expressing concern that the state’s focus on a hydrogen hub would “prove a counterproductive distraction from urgently needed climate action.”

The letter urges the state to create a comprehensive climate policy framework and then determine whether hydrogen fits into it.

“In New Mexico, we need statutory carbon emissions limits, methane emissions standards, transportation emissions standards, state investment to power a transition to 100% electric vehicles, and support for New Mexican families who are making their homes more safe, resilient and efficient,” the letter said.