How the Democrats' Inflation Reduction Act could benefit Linde's clean hydrogen projects

Published Mon, Aug 15 20224:47 PM EDTUpdated Mon, Aug 15 20225:15 PM EDT

The Inflation Reduction Act's commitment to funding $369 billion in energy and climate change programs is being viewed as a tailwind for the world's industrial gas sector and its efforts to produce clean hydrogen, according to a research note from BMO Capital Markets. The Democrats' legislation could accelerate new projects, lower financing costs, and help companies invest in so-called blue and green hydrogen initiatives, BMO analysts said. Blue hydrogen tries to take the carbon out of the production process. Green hydrogen, the north star, aims to have zero carbon emissions. Gray hydrogen is the most common, low-cost form of production, but the downside is that it produces tons of carbon in the atmosphere. Hydrogen can be used in fuel cells to generate electricity or power and heat, according to the Energy Department (DoE). Use in transportation and utilities are seen as developing applications. Last week, we wrote about how the Inflation Reduction Act, or IRA for short, could impact our auto and drug stocks . Now, we're going to explore how Club holding Linde (LIN) could be a beneficiary of the bill given the industrial gas and engineering giant's years of hydrogen leadership during a time when demand for green hydrogen has increased significantly over the past decade alone. The bill, which passed both chambers of Congress with no Republican votes, is expected to be signed into law by President Joe Biden on Tuesday. Linde's hydrogen leadership Hydrogen plays a central role in advancing the development of clean energy initiatives, because it can be used in many industries that have trouble reducing carbon emissions like steelmaking and ironmaking. While the most abundant element, hydrogen needs to be extracted from resources such as natural gas and coal, according to the DoE. Linde describes hydrogen as a powerful energy-carrier that can be stored and transferred as a liquid or a gas. Part of the IRA's energy provisions is focused on lowering the cost of energy in the U.S. and decarbonizing economic sectors through innovative approaches. Specifically, the bill plans to invest in carbon reduction by providing tax credits to clean energy production projects. U.K.-based Linde could stand to benefit from these tax credits for its efforts in facilitating the transition to low- to zero-carbon energy. Linde's business directly addresses the IRA's climate initiative of decarbonization through its innovative technology portfolio, which helps reduce carbon emissions by using sustainable fuels like blue hydrogen and green hydrogen. Linde is a dominant player in the space because the company is involved in the lifecycle of hydrogen from producing, processing, storing and distributing. The IRA tax credit consists of up to $3 per kilogram (kg) of hydrogen produced over 10 years at a clean production facility. This can help make green hydrogen production cheaper than gray hydrogen in the U.S., and ultimately could make green hydrogen a cost-effective fuel source, providing an outlet for lower costs to reduce emissions. For Linde, this credit would essentially provide revenue to help the company fund its clean hydrogen projects. Bottom line BMO sees these tax credits as a key benefit to Linde given the company's significant hydrogen production assets. The lower cost to produce cleaner hydrogen will drive strong demand for clean hydrogen, which Linde can provide, according to BMO's analysis. We like Linde because it's spearheading the technology needed to advance green hydrogen, making it a dominant player in the industrial gas space. Linde's edge in hydrogen makes it a standout given the strong demand for clean hydrogen technologies in the future. Linde also has a strong balance sheet and a $10 billion share repurchase program through July 31, 2024. With the IRA tax credit, BMO believes Linde could be in an even better financial position to develop new projects and cultivate new partnerships to increase its decarbonization efforts in the years ahead. (Jim Cramer's Charitable Trust is long LIN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

The Linde logo is seen at a company building in Munich-Pullach, Germany.

Michaela Rehle | Reuters