Headwinds sink Air Products/Yara blue hydrogen project

In late June, Air Products cancelled its massive blue hydrogen / blue ammonia Louisiana Clean Energy Complex (LCEC) planned for Ascension Parish, Louisiana. The decision is a huge win for taxpayers, who could have been on the hook for billions of dollars in subsidies, as well as Louisiana communities, which would have borne the environmental cost of such a facility.

The cancellation highlights the uncertain financial prospects of many announced U.S. projects that rely on carbon capture and storage (CCS). To be viable, these projects now need four things:

1. Cheap natural gas,
2. Generous production-side subsidies such as 45Q,
3. Firm long-term offtake contracts for most of the production output, and
4. Demand-side incentives (e.g., Japan's contracts for difference scheme or the European Union’s carbon border adjustment mechanism) or laws requiring use of "low-carbon" products.

The LCEC (also called the Darrow Project) was announced in 2021 and planned to use natural gas to produce about 600,000 metric tons (t) of hydrogen per year, a portion of which would be converted to ammonia. Air Products said it would capture 95% of the carbon dioxide (CO2) emissions from the hydrogen production process, totaling approximately 5 million tonnes per annum (MTPA). The captured CO2 would be transported by pipeline to a sequestration site under Lake Maurepas, about 40 miles away. There was a huge public outcry about the plan to store CO2 under the lake and strong resistance from affected communities concerned about dangers associated with the pipeline.

The hype around blue hydrogen exploded in 2022, with the passage of the Inflation Reduction Act (IRA) and the allocation of $7 billion in funding to regional Hydrogen Hubs. At the time, the driving force behind fossil fuel-based hydrogen project announcements had been the low price of natural gas. The IRA increased the value of the 45Q federal tax credit for carbon capture and created the 45V credit for hydrogen production, providing key financial incentives for costly projects. Companies were ready to take advantage of cheap fracked gas and chase federal subsidy dollars. 

Initially, low natural gas prices and generous 45Q credits seemed sufficient to make projects financially viable.

Air Products was an early mover in project development and planned to be first to market with a low-carbon product that could command a premium price. When the company announced the project in 2021, it estimated the cost at $4.5 billion and said it would self-finance the construction. Two years later, after the passage of the IRA, Air Products increased its cost projection to $7 billion. The company CEO, Saifi Ghasemi, declared investors would see double-digit returns on the strength of expected demand for blue hydrogen and ammonia. 

In contrast to other companies’ approaches, Air Products was one of the few to keep the entire carbon management chain under its control. The company’s approach was an attempt to cut project development risks. It was supposed to provide certainty regarding the commercial availability of CO2 storage sites, ease complex permitting problems, and speed pipeline construction.

In 2024, the price tag of Air Products’ low-carbon projects was huge and growing, with $15 billion slated for investment in eight blue or green hydrogen projects. The LCEC accounted for $8 billion of that planned outlay. Concerns about overinvestment in the low carbon sector prompted a group of activist investors to wage a proxy fight that culminated in the replacement of the CEO and members of the board. The new leadership sought to pull the company back to its industrial gas production roots. As part of this retrenchment, Air Products’ new leaders looked to cap the company’s risks at LCEC; a key part of the effort was focusing on creation of long-term contracts for the facility’s planned production. This strategy was consistent with announcements from other companies planning blue hydrogen / blue ammonia projects that were also finding project financing complicated in the face of weak demand. 

By 2025, cheap natural gas and generous production subsidies were no longer enough to get a project to move ahead. Guaranteed offtake stability was a new hurdle to be crossed.

Shortly after emphasizing the need for offtake contracts for LCEC product, company leaders announced a plan to “derisk” the project by cleaving off the carbon management and ammonia production components. By December of 2025, Air Products reported it was exploring a partnership with Yara International for the project that was then estimated to cost as much as $9 billion. 

Under the terms of that agreement, Yara would purchase 80% of the low-carbon hydrogen produced at the facility and operate the onsite ammonia production. Air Products would focus on the production of hydrogen with carbon capture and would qualify for 45Q subsidies as the owner of the capture equipment. An unidentified third party would be responsible for CO2 offtake and disposal.

Yara indicated its final decision would be dictated by the EU’s Carbon Border Adjustment Mechanism (CBAM) rules related to low-carbon ammonia imports for fertilizer use, saying the project would not be profitable enough to merit investment without CBAM in place. In early 2026, to provide financial relief to farmers facing high fertilizer prices, the European Commission (EC) announced it was planning to suspend CBAM for ammonia, effectively making imported blue ammonia far more expensive than domestically produced grey. Yara and other hydrogen and ammonia importers petitioned the European Commission to not issue a suspension of CBAM for ammonia, stating that doing so would increase uncertainty for importers and chill investment decisions. In the face of strong pressure from industry, the EC announced in March that it would not implement the CBAM suspension. Despite this favorable decision, Yara ultimately determined it would not move forward with the LCEC agreement.

Yara’s sustained effort to lobby for favorable EU import terms shows a shift in demand-side incentives from nice-to-have to necessary. 

Importers are looking for subsidies that bridge the cost between more expensive low-carbon, and cheaper conventional products. For instance, in the EU, Yara aimed to ensure the CBAM rules would be favorable and secure. Yara leadership even suggested end-users be required to purchase a certain amount of low-carbon ammonia in order to guarantee a market. Alternatively, Japan has funded a contracts-for-difference scheme for approved imports. 

Financial considerations for these massive projects are forcing proponents to rethink their approaches. What seemed an easy one-two punch in 2022, with a pathway to billions of dollars in 45Q credits, is now a complicated collection of subsidies to offset a lack of demand for expensive reduced-carbon product. Even large, well-financed players like Air Products and Yara couldn’t make it work.

In the U.S., reliance on 45Q subsidies risks putting project plans in jeopardy. This generous credit currently allows corporations to claim $85 per metric ton of CO2 captured and managed at a facility such as the LCEC. The potential value of the credit, which is also transferrable, can total billions of dollars over the 12 years of project eligibility. The Trump administration ended or revised other Section 45 clean energy credits during the 2025 budget reconciliation process. Though the 45Q credit was retained and its value increased for CO2 utilization, there was a clear signal to industry that the tax credit approach to subsidies is unreliable. 

Reliance on the 45Q subsidy is the biggest risk for CCS-dependent projects in the U.S. Without 45Q, these projects would not be able to move forward because blue hydrogen and ammonia are simply too expensive to produce. Demand-side incentives and cheap natural gas cannot make up a shortfall if 45Q was eliminated. And buyers will not create long-term offtake contracts for a low-carbon product if the price tag is too high. If 45Q is eliminated, capped, or curtailed, project cancellations will follow.