California Continues to Promote Clean Energy Transition Despite Federal Backstepping on Clean Energy and Hydrogen Funding

The first quarter of 2025 has been marked by a turbulent transition between presidential administrations as indicated by regulatory course reversals, and clean energy regulations have been no exception. On January 20, 2025, President Trump issued an executive order entitled Unleashing American Energy, which instructed federal agencies to immediately pause disbursement of funds provided by the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act and to submit a report to the Director of the National Economic Council analyzing its consistency with the order, which included funds set aside for clean energy projects. In the wake of the executive order, there is a widespread sense of uncertainty in the regulatory future of the clean energy industry under the current administration.

Amidst federal backstepping on clean energy, the state of California remains committed to promoting a clean energy transition. California has set ambitious greenhouse gas emissions reduction goals with the overarching goal to shift away from reliance on fossil fuels and towards increased reliance on renewable energy resources. Specifically, California has a goal of cutting greenhouse gas emissions by 48% below 1990 levels by 2030 and 85% below 1990 levels by 2045. Progress towards these decarbonization goals on the state level will require the passage of new laws to incentivize renewable energy projects, encourage research into the viability of cleaner sources of energy, and promote a just transition. One source of energy that has become increasingly prominent is hydrogen, particularly green hydrogen, which is the process by which hydrogen is produced by using renewable energy sources to drive the electrolysis process by which water is broken down into its component parts — hydrogen and oxygen.

Senate Bill (SB) 1420 (Caballero) is a relatively new state law, which Governor Newsom signed into law on September 25, 2024, intended to incentivize green hydrogen projects. The bill was introduced by Senator Anna Caballero during the 2024 Legislative Session. Senator Caballero is currently serving her second term representing the 14th State Senate district, which includes the majority of Merced, Madera, and Fresno Counties. Senator Caballero also serves as the Chair of the Appropriations Committee and a member of the Housing, Public Safety, Insurance, Judiciary, Energy, Utilities, and Communications Committee. SB 1420 aims to incentivize clean hydrogen projects and renewable energy projects by making more qualifying projects eligible for permit streamlining benefits, expedited review under the California Environmental Quality Act (CEQA), and expedited judicial review of CEQA challenges.

The bill adds qualifying hydrogen projects as eligible for centralized permitting by the California Energy Commission (CEC) under its Opt-In Certification Program by expanding the definition of a “facility” to include qualifying hydrogen production or storage and processing facilities.

The bill makes more qualifying hydrogen projects eligible for expedited judicial review of CEQA litigation by expanding the definition of “energy infrastructure project” as defined in the Public Resources Code in two significant ways. First, SB 1420 expands the definition of “energy infrastructure project” by excluding “resources that combust biomass fuels” rather than all “resources that use biomass fuels.” Second, SB 1420 extends the definition of “energy infrastructure project” to include qualifying hydrogen production facilities and associated storage and processing facilities among the projects eligible for expedited review under CEQA. Prior to this bill, all “projects utilizing hydrogen as a fuel” were specifically excluded.

Under SB 1420, to qualify for expedited judicial review or the centralized permitting under the CEC Opt-In Certification Program, the hydrogen production or storage and processing facility must meet the following two criteria: the Facility must “not derive hydrogen from a fossil fuel stock” and the Project must have received funding from a listed funding source. The first requirement reflects the fact that the overall environmental impact of hydrogen as an energy source largely depends on the source of energy that drives its production. Modern technological advancements have led to the development of production processes that utilize renewable resources — instead of fossil fuels — in the hydrogen production process.

The second requirement is that the project must have received funding from one of the following three sources: (1) the state-funded Hydrogen Program under Public Resources Code Section 25664.1; (2) the 2024 climate bond approved by voters in the November 2024 election; or (3) the Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) as awarded by the United States Department of Energy (DOE).

The latter of these funding sources has been in the news and is, as of the date of this article, in jeopardy as the current administration reconsiders funding awarded by the prior administration. In 2022, the federal government passed the Bipartisan Infrastructure Law, which set aside $7 billion in funding for the creation of the Regional Clean Hydrogen Hubs Program (H2Hubs) to be awarded by the DOE. The purpose of the program funding was to encourage the creation of regional clean hydrogen hubs to create a national network that will ultimately lead to the formation of a national hydrogen economy. The California Hydrogen Hub, which proposed various hydrogen projects across the state, was among the projects selected to receive the H2Hubs designation and a $1.2 billion slice of the federal funding. On March 26, 2025, Politico reported that a list circulating within the DOE indicates that the California Hydrogen Hub is among the four H2Hubs that may face funding cuts related to the President’s executive order.

FORWARD LOOKING: PENDING BILLS IN THE 2025 LEGISLATIVE SESSION

AB 35 (Alvarez) would allow for limited CEQA review of an application for a discretionary permit or authorization for a clean hydrogen transportation project, which is defined as “a pipeline project composed of a system that transports hydrogen, and any associated facilities necessary for the system’s operation,” that meets stated criteria in the bill. The limited CEQA review involves completing a clean hydrogen environmental assessment rather than a full environmental impact report or mitigated negative declaration as is typically required by CEQA. The bill would also expedite the review process by requiring that the lead agency make its determination about whether to approve the clean hydrogen environmental assessment and issue the discretionary permit or authorization within 270 days of when the application is deemed complete. AB 35 has becme a two-year bill and will be re-considered by the Legislature in 2026.

SB 88 (Caballero) would require the State Energy Resources Conservation and Development Commission to consider the potential of using biomass to produce low and negative carbon fuels, including hydrogen, in its reports and documents.

SB 714 (Archuletta) would state the intent of the Legislature to enact legislation to establish a Clean Energy Workforce Training Council to analyze the workforce and infrastructure needs as well as the needs of hydrogen and other clean energy technologies and a Zero-Emission Vehicle Workforce Development Pilot Project for use at community colleges. These programs would be under the purview of the Deputy Secretary for Climate within the Labor and Workforce Development Agency. SB 714 has become a two-year bill and will be re-considered by the Legislature in 2026.

Should you have any questions related to the siting and permitting of clean hydrogen projects, California’s energy transition, or the applicability of these new laws, Allen Matkins has a dedicated team actively working on these issues and would be happy to assist.