WASHINGTON (Reuters) - The Biden administration said on Friday nuclear power plants will be able to secure lucrative tax credits for production of what it calls clean hydrogen if the credits help prevent reactors from retiring.

The new rules settle one of the last and most contentious issues related to the Inflation Reduction Act, a 2022 law that is intended to fight climate change by subsidizing technologies that slash greenhouse-gas emissions. 

Some environmental groups argue that existing clean energy sources such as nuclear reactors should not qualify for the IRA's clean hydrogen program, which is seen as critical to decarbonizing heavy industry and some vehicles. Using nuclear plants to produce hydrogen siphons clean energy away from the grid that could have been used by other electricity consumers, they say.

"If a nuclear retirement is averted then the additional demand from hydrogen production will not have induced emissions," elsewhere on the grid, the Treasury Department said in a release.

The U.S. Treasury published the final rules on Friday, adjusting a previous hydrogen plan issued in late 2023 to make it more favorable to nuclear power and other industries.

It is uncertain how the incoming administration of President-elect Donald Trump will approach hydrogen production.

Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, said in a statement the industry can now "look forward to conversations with the new Congress and new Administration regarding how federal tax and energy policy can most effectively advance the development of hydrogen."

The new rules say that up to 200 megawatts of a reactor's power-generation capacity can be considered new clean power and collect the credits, if they were otherwise at risk of shutting down due to poor economics. 

"The extensive revisions we've made in this final rule provide the certainty that hydrogen producers need to keep their projects moving forward and make the United States a global leader in truly green hydrogen," said John Podesta, the senior adviser to Biden for international climate policy.

Currently, most hydrogen is produced with fossil fuels at a fraction of the cost of cleaner alternatives.

The new rules also allow natural-gas-fired facilities that produce hydrogen to access the credits if they install equipment to capture and bury their carbon-dioxide emissions.

Treasury said the rules will determine the value of the credits earned by such plants by considering leakage of the powerful greenhouse gas methane during natural gas production, in a forthcoming climate model for hydrogen known as GREET that covers lifecycle emissions.