Gov. Josh Shapiro announces an environmental monitoring collaboration with CNX Resources Corporation on November 2 in Claysville (Photo by Commonwealth Media Services)
It was late in the afternoon last October when CNX Resources Corporation lobbyist Brian Aiello emailed Pennsylvania Gov. Josh Shapiro’s office with a request.
“Your assistance in advocating for this in DC … is critical,” he wrote, before laying out the southwestern Pennsylvania-based natural gas company’s plan.
The plan, Aiello explained, is to capture methane from coal mines — found at those both active and abandoned, released from underground seams during and long after the extraction process — and sell it to Pennsylvania hydrogen producers.
The plan’s success, Aiello wrote, hinges on its ability to get funding through a long-awaited tax credit carved out of President Joe Biden’s landmark 2022 Inflation Reduction Act, which allocated $369 billion to accelerate the nation’s clean energy transition. Hanging in the balance is an ambitious $1.5 billion hydrogen production facility for sustainable aviation fuels at Pittsburgh’s airport, which CNX announced this month with a warning: The project would come to fruition only if it secures those tax credits.
“Currently, we are capturing coal mine methane at a mine in Virginia … but have significant opportunity to also capture these emissions and utilize them across Pennsylvania,” Aiello wrote to the governor’s office in October. “We are eager to invest in PA in a big way along these lines,” he added.
Emails obtained by Capital & Main show the administration was receptive to the request. A little over a week later, Hossain Akbar, Shapiro’s secretary of policy and planning, forwarded the lobbyist’s message to the governor’s federal affairs representative, Michael Block, who he referred to as “the Governor’s voice and ears in DC.”
“Brian is a friend and VP at CNX,” Akbar wrote of the gas industry lobbyist. “Will let you two take it from here.”
The request came in the final weeks of deliberation on a collaboration that Aiello and Shapiro’s office were planning to announce in November 2023. The partnership, in which CNX agreed to a series of voluntary measures designed to improve and assess its impact on the environment, was held up as a successful case of coalition-building amid a divided government.
Yet it quickly proved controversial when environmentalists described the partnership as little more than a PR stunt on behalf of CNX, which operates hundreds of wells across the state. CNX has long had a prickly relationship with environmental groups; among other violations, it was fined $200,000 by state regulators in 2022 for fracking fluid spills. Its CEO, Nick Deiuliis, has repeatedly minimized the threat of climate change and mocked the Paris Climate Accords as a “debacle.”
At the time of the request, the U.S. Treasury Department was finalizing a proposed rule, known as 45V, that would govern a tax credit intended to jumpstart the hydrogen industry. The rule — thus far debated over several hearings after drawing more than 30,000 public comments — has the potential to jumpstart a new energy sector that climate advocates hope can be truly clean.
But the proposed rule leaves unanswered questions about using fossil fuel to produce hydrogen as part of the clean energy transition. While energy-agnostic, the tax credit will be doled out to hydrogen producers at tiered rates based on the emissions they generate, with the lowest-emitting producers receiving the most and their higher-emitting counterparts substantially less.
“The top tier of the tax credit is extremely lucrative,” said Julie McNamara, deputy policy director with the Climate & Energy program at the Union of Concerned Scientists. “It’s not linear. The top tier is very high. And once you get below that, it drops off.”
In theory, the tax credits would subsidize the production of so-called green hydrogen, which is produced with renewable energy and made via electrolysis, in which water molecules are split. But fossil fuel companies that are interested in using methane to produce so-called blue or gray hydrogen want those tax credits as well. Without them, projects such as the planned hydrogen hub at Pittsburgh International Airport would likely not make financial sense.
Producers like CNX are now pushing to make sure those tax credits arrive, McNamara said. And, new documents show, so is the Shapiro administration.
After the October 2023 email exchange, both CNX and the Commonwealth of Pennsylvania urged the Treasury Department to ensure that the tax credits would be available to incentivize methane-based hydrogen production. If they get what they want, advocates warn, the future of green hydrogen could be derailed, and the nation’s transition from fossil fuels slowed.
Betting big on hydrogen
The Biden administration is betting big on hydrogen as environmentalists and energy experts alike debate the role the fledgling energy source will play in a decarbonized future. The Intergovernmental Panel on Climate Change (IPCC) is adamant that reducing fossil fuel use is essential to limiting global heating, which has already caused temperatures to increase, storms to become more intense and the world’s oceans to rise.
The exact pathway to slowing global warming is a point of contention, however. Many environmentalists agree that green hydrogen, made with water molecules in a production process that’s powered by renewables such as solar and wind, could offer a clean path forward for hard-to-abate sectors, such as the steel and cement industries, seen as economically essential but difficult to make climate-friendly.
Climate advocates fear that offering tax credits to those who produce blue and gray hydrogen would offer a lifeline to the fossil fuel industry.
The federal tax credit has been driving much of the debate about the country’s energy future. The Inflation Reduction Act funding for the 10-year tax incentive is bountiful, and producers from all corners of the energy sector are making their case for getting a slice of it. Who gets the most — and who is most likely to succeed — could determine the success of the renewable energy transition.
“The gas industry sees this as a big opportunity,” McNamara said.
Exactly how much of an opportunity it will turn out to be will come down to a formula designed to model the emissions of a single kilogram of hydrogen across its lifecycle — from the raw material that goes into it to the point at which that hydrogen is actually produced. The formula is derived from the widely used Greenhouse Gases, Regulated Emissions, and Energy use in Technologies model, known as GREET.
A hydrogen producer looking to qualify for the credit will be assessed for their emissions intensity using the formula. As the Treasury Department has currently drafted the rule, the cleanest producers will get the most money — by a longshot.
Fossil fuel companies want to make sure the methane they sell will help blue and gray hydrogen producers qualify for the highest tax credit tier through a process called “emissions avoidance accounting,” or “negative carbon accounting.” This is essentially an offset in which methane that would otherwise get released into the atmosphere — leaked from sources such as agriculture and coal mines — is given a negative emissions value when sold and burned for productive use, such as producing hydrogen.
The logic is based on the argument that when methane is burned, it becomes a far less potent greenhouse gas and overall atmospheric emissions are reduced. When blended into hydrogen and plugged into the GREET model, the negative value of such methane could be enough to lower a fossil fuel hydrogen producer’s overall emissions score so much that it qualifies for the highest tier of the tax credit. That would make coal mine methane lucrative for hydrogen producers.
“It’s substantially more expensive to produce hydrogen from truly clean, green, 100% clean electricity,” said Danny Cullenward, climate economist and senior fellow with the Kleinman Center for Energy Policy at the University of Pennsylvania. Hence, the need for a subsidy. “If we give [the highest tax credit] to conventional gas producers, there’s a risk that they will outcompete the green producers,” he said.
While the original version of the GREET model that guides tax credits allows for negative carbon accounting, the Treasury Department is creating its own version for 45V, and has yet to determine how it will treat captured methane that would otherwise be spewed into the atmosphere.
Methane is a climate menace — around 80 times more potent in the atmosphere than carbon dioxide over a 20-year timeframe — and one way to limit its impact on the atmosphere is to burn it, emitting carbon dioxide in its place. Still a greenhouse gas, carbon dioxide is considered the lesser of two evils for its lower potency in the atmosphere in the short term.
In a 26-page public comment filed to the Treasury Department, Brent Bobsein, CNX’s vice president of sustainable development, laid out the stakes: “Methane emissions reduction plays a key role in our national strategy to meet climate goals.”
CNX argues that selling and burning methane is a climate solution — coal mines are responsible for 8% of total planet-warming methane emissions in the U.S. Capturing it would turn it into a fuel that CNX deems to be “low carbon.” In the past, the company has called itself “carbon-negative” for this activity, a claim oil and gas analysts dispute. Nonetheless, “absent a government subsidy,” Bobsein wrote, coal mine methane projects are “often uneconomical.”
McNamara shares that view, but fears subsidizing projects that aren’t economical on their own will, “at best, lead to stranded assets.”
Capital & Main sent Aiello, the CNX lobbyist, a list of questions about the tax credit and the firm’s goals. The following day, the company published a blog post disputing the reporter’s credibility and dismissed Capital & Main as an organization “known for its deeply biased coverage of the U.S. oil and natural gas industry.”
Aiello also responded privately with a statement: “By capturing and utilizing waste mine methane for clean hydrogen production, we can mitigate a significant climate threat that currently lacks incentives,” he wrote. “Our goals are simple: help clean up the environment by reducing methane emissions while creating jobs and opportunity in some of the most disadvantaged regions of the nation in the process.”
Aiello urged as much in an email to Shapiro’s office on Oct. 18, but with a more specific vision. “Let GREET be GREET,” Aiello wrote in a bulleted talking point to a staffer. “No new restrictions … no adjustments to negative carbon accounting per the current model.”
The Shapiro administration made the same case to the Treasury Department in a Feb. 26 memo. “As currently drafted, the 45VH2-GREET model would exclude key low carbon intensity sources for H2 production,” the governor wrote, and “disincentivize the productive use of emissions abatement technologies … such as coal mine methane.”
“These emissions abatement technologies should not be artificially excluded,” Shapiro wrote.
Sean O’Leary, senior researcher at the nonprofit environmental think tank the Ohio River Valley Institute, expressed alarm.
“The governor’s letter is distressing in that its recommendations read like a warmed over repetition of industry lobbying goals,” he told Capital & Main. “The measures would perpetuate reliance on coal and gas-fired power plants and erect economic barriers to the development of genuinely clean hydrogen.”
Capital & Main sent Gov. Shapiro’s office a list of questions, and received a statement from spokesperson Manuel Bonder in response: “We know the successful development of clean hydrogen is key to Pennsylvania’s energy future,” he said. “Allowing 45V to be implemented in a way that offers sufficient flexibility to grow and not stifle the emergence of a hydrogen economy is critically important.”
O’Leary’s own ballpark calculations project CNX’s proposal would earn the company billions in federal subsidies, without making meaningful emissions reductions, while risking reinvigorating the coal industry — all from a tax credit designed to help decarbonize the economy.
“This is a lifeline for coal mines,” O’Leary said. “The only way to get rid of coal mine methane is to close coal mines.”
The Ohio River Valley Institute is not alone in questioning Shapiro’s support for fossil fuel-based hydrogen. At the beginning of his term in 2023, a group of environmentalists sent him a letter urging him to reject blue hydrogen as a “false climate solution.”
The governor chairs a public-private partnership called Team Pennsylvania, which unsuccessfully vied for a different set of federal dollars for blue hydrogen and includes representatives from Mitsubishi Power and the coal mining company CONSOL, and which has given Shapiro tickets to sporting events, including the 2023 Super Bowl in Arizona.
Grassroots environmentalists also question whether Shapiro has indirectly accepted money from the fossil fuel industry through the Democratic Governors Association (DGA), a political organization that gave Shapiro more than $7 million in 2022, the year he was elected, campaign finance filings show. That same year, CNX contributed $75,000 to the DGA.
“Who gives a self-policing agreement to a climate-denying gas company?” said Rabbi Michael Pollack, executive director of March on Harrisburg, an anti-corruption advocacy organization. “I mean, that’s really something, especially [from] a governor who calls himself a climate reformer.”
Among other donations, in September, CNX donated $5,000 to West Virginia’s Sen. Joe Manchin, a chief architect of the Inflation Reduction Act who has since vowed to dismantle its “radical climate agenda.”
Two months later, Manchin co-signed a letter to the Treasury Department, along with Pennsylvania Democratic Sens. Bob Casey and John Fetterman, urging it to use the “well-established GREET model” and allow for “carbon-negative gas credits” in its final rule. CNX cited the letter in its comment to the Treasury Department, arguing that the agency would be overstepping its authority were it not to keep the current model in place.
As the environmental and energy communities alike await a final ruling, Cullenward, the climate economist, worries what will happen after the subsidy runs out. Should the Treasury Department accept CNX’s proposal for coal mine methane, he said, the company will be back in 10 years, hand out, saying, “another subsidy, please.”
