WASHINGTON—The White House is gearing up to inject a gusher of cash into hydrogen production, an undeveloped sector that it is betting will play a pivotal role in the country’s shift away from fossil fuels.

The Biden administration on Friday plans to announce $7 billion in grants for seven regional hubs to produce clean hydrogen, a potential substitute for oil and gas in shipping, steelmaking and chemical production, senior administration officials said.

Created by the 2021 infrastructure law, the grant program is designed to kick-start the production of clean hydrogen in the U.S. and is a key component of the administration’s climate and economic strategy. It dovetails with upcoming rules on how energy producers can qualify for billions of dollars in tax credits, which are intended to make the cost of clean hydrogen production competitive with hydrogen made from natural gas.

The grants will be awarded to regional hubs, which include state and local partners as well as hydrogen suppliers, industrial buyers and energy infrastructure companies that will contribute funding to supplement the government grants. The Energy Department is also in talks with companies including Occidental Petroleum for $1.2 billion in similar grant funding for projects aiming to remove carbon from the atmosphere.

Most hydrogen today is made by heating natural gas. It is a cheap process but generates greenhouse gas emissions, which can be reduced by capturing the produced carbon. Another method uses machines that split water to make so-called green hydrogen, and could generate no emissions when made from completely clean power.

The latter method is often called the holy grail of climate technologies because it could carry clean electricity around the world and reduce emissions for heavy emitters that have few other solutions. But it is still far more expensive to produce and isn’t yet widely available.

To spark production, last year’s climate law created a tax credit of up to $3 per kilogram for companies that gets more lucrative as the production process generates less emissions. Many companies are lobbying the administration for looser rules that would let projects using fossil-fuel power to make hydrogen receive tax credits. Environmentalists say the move would risk increasing carbon emissions.

The Biden administration’s hydrogen grants and tax credits are among the richest subsidies in the infrastructure law and climate law known as the Inflation Reduction Act. Among the regions selected for hub funding is Appalachia, which was championed by Sen. Joe Manchin (D., W.Va.), one of the main architects of the climate law and chairman of the Senate’s energy and natural resources committee.

The Appalachia hub includes West Virginia, Ohio and Pennsylvania, a swing state in next year’s election and a key region for transitioning fossil-fuel infrastructure and workers to clean energy. The goal is to eventually connect the hubs into a national network.

President Biden and Energy Secretary Jennifer Granholm plan to announce the awards Friday during a stop at a marine terminal in Philadelphia that is part of a Mid-Atlantic regional hub selected for funding, according to administration officials.

Also selected for funding were a hub in California; one called a “heartland" hub in Minnesota and the Dakotas; one based in Texas that serves Gulf Coast states; a Pacific Northwest hub; and a hub serving Midwestern states including Michigan, Illinois and Indiana.

Some of the companies involved in the hubs include Exxon Mobil, Chevron, chemical giant DuPont, natural gas producer EQT, pipeline operator Enbridge and hydrogen producers Air Products and Chemicals, Air Liquide and Plug Power. The companies and partners are expected to invest more than $40 billion across the hubs, the officials said.

The Energy Department also plans to award some $1 billion in incentives for industrial hydrogen buyers to encourage them to purchase from the hub projects.

Some of the projects receiving hub funding plan to make hydrogen using natural gas, and then capture the carbon, an approach favored by big fossil-fuel companies, such as Exxon and Chevron.

The projects will take many years to develop. Following Friday’s announcement, the companies and states will negotiate with the Energy Department and have to meet certain conditions before receiving grants.