The U.S. Treasury and IRS announced a proposal on Friday to encourage the adoption and advancement of clean hydrogen production through tax credits.

One reason hydrogen is considered a feasible substitute for traditional fuels is that its use for generating electricity or as a fuel results in the production of water vapor, rather than harmful emissions.

According to a statement from the Treasury Department, traditional methods of generating hydrogen often rely on fossil fuels like coal and natural gas, leading to considerable pollution.

There are numerous clean energy methods, such as wind or solar power, that can be used to produce hydrogen – however, these methods tend to be more costly compared to those utilizing fossil fuels.

The Clean Hydrogen Production Credit, according to Treasury officials, aims to reduce the cost of producing clean hydrogen energy and incentivize its usage by companies.

The proposal, supported by the 2022 Inflation Reduction Act, offers a tax incentive of $.60 to $3.00 per kilogram of hydrogen generated to businesses that meet specified employee wage standards. The amount of credit awarded will depend on the level of greenhouse gas emissions and the quantity of fossil fuels utilized in the production process.

The proposed program is expected to provide up to $100 billion in financial assistance to eligible businesses. During an interview with CNBC, Jesse Jenkins, a professor at Princeton University specializing in energy systems, stated that this tax credit is the most generous form of support for renewable energy in the global market.

During the interview, Jenkins warned about the potential consequences if the implementation of hydrogen production is not done properly and companies using polluting methods are given credits. This could ultimately result in an increase in emissions in the United States.

The nuclear power industry has requested the Biden administration to consider granting them credit. A decision on this matter has been deferred and the administration has sought input from the industry.

This report includes information from The Associated Press and Reuters.