Today, the U.S. Dept. of the Treasury and IRS released final rules for the section 45V Clean Hydrogen Production Tax Credit established by the Inflation Reduction Act. The final rules address several key issues to help grow the industry and move projects forward, while adhering to the law’s emissions requirements for qualifying clean hydrogen.
The final rules announced today clarify how producers of hydrogen, including those using electricity from various sources, natural gas with carbon capture, renewable natural gas, and coal mine methane can determine eligibility for the credit. To qualify for the full credit, projects must also meet prevailing wage and apprenticeship standards, continuing the Biden-Harris Administration’s commitment to put workers at the center of the clean energy economy and ensure clean energy jobs are good-paying jobs.
“These rules incorporate helpful feedback from companies planning investments which will drive significant deployment of clean hydrogen to power heavy industry and help create good-paying jobs,” said Wally Adeyemo, Treasury secretary. “The Inflation Reduction Act and Bipartisan Infrastructure Law represent the world’s most ambitious policy support of the clean hydrogen industry. Scaling the production of low-carbon fuels like hydrogen will be a big boost to difficult-to-transition sectors of our economy like heavy industry.”
The final rules arrive after consideration of roughly 30,000 public comments and months of collaboration between Treasury, IRS, the Department of Energy and the Environmental Protection Agency. In the coming weeks, the Department of Energy will release an updated version of the 45VH2-GREET model that producers will use to calculate the section 45V tax credit.
“Clean hydrogen can play a critical role decarbonizing multiple sectors across our economy, from industry to transportation, from energy storage to much more,” said Deputy Energy Secretary David M. Turk. “The final rules announced today set us on a path to accelerate deployment of clean hydrogen, including at the Department of Energy’s Clean Hydrogen Hubs, leading to new economic opportunities all across the country.”
The rules provide more investment certainty for hydrogen production through both electricity and methane, while meeting the law’s lifecycle emissions standards. The tax credit’s value is based on the lifecycle greenhouse gas (GHG) emissions of hydrogen production. To qualify as clean hydrogen under the statute, the lifecycle GHG emissions of the hydrogen production process must be no greater than 4 kg of carbon dioxide equivalents (CO2e) per kilogram of hydrogen produced.
Qualifying clean hydrogen falls into four credit tiers, with hydrogen produced with the lowest GHG emissions receiving the largest credit. Calculation of the lifecycle GHG analysis for the tax credit requires consideration of direct and significant indirect emissions.
“Over the past two years, our administration has listened to stakeholders across the hydrogen industry, states, advocates, and others,” said John Podesta, senior advisor to the president for International Climate Policy. “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.”
Electrolytic hydrogen
For hydrogen production using electricity (green hydrogen using renewables and pink hydrogen using nuclear), the final rules incorporate safeguards help ensure that electricity consumption for hydrogen meets the statutory lifecycle GHG emissions standards, including that the lifecycle assessment takes into account both direct and significant indirect emissions from hydrogen production. As the final regulations explain, without those safeguards, that additional load on the grid from hydrogen production will result in induced emissions.
However, the final rules differ from the proposed rules in several respects. The final rules define electricity generation as incremental if the generator begins commercial operations within 36 months of the hydrogen facility being placed in service, or to the extent a plant increases its capacity within that period. The final rules provide additional pathways for demonstrating incrementality.
Electricity generated in states with robust GHG emissions caps paired with clean electricity standards or renewable portfolio standards meeting the criteria set forth in the final rules will be considered incremental, given that, together, those policies can prevent significant induced emissions from hydrogen production. Treasury determined that Washington and California’s policies currently meet these criteria. Additional states could meet the criteria in the future if they adopt robust policies that meet the criteria.
Electricity from a generator that has added carbon capture and sequestration measures within a 36-month window before the hydrogen facility is placed in service will be considered incremental.
The final rules maintain the proposed requirement that an energy source matches the electricity produced in the same hour as a hydrogen facility uses electricity to produce hydrogen. This can be verifed through the EPA’s Energy Attribute Certificate program. Hourly matching will be required on all qualified facilities starting in 2030.
Once hourly matching is required, the final rules allow hydrogen producers to determine electricity-related lifecycle emissions on an hour-by-hour basis as long as the annual emissions of the hydrogen production process are under section 45V’s limit of 4 kg of CO2e per kilogram of hydrogen produced.
“Clarity is critical, and this release is an important step forward for the clean hydrogen industry,” said Jacob Susman, CEO of clean hydrogen developer Ambient Fuels. “The time for debate over the rules has passed. Now it’s time to unite behind this guidance so we can get to work deploying projects, scaling up clean hydrogen production, and decarbonizing our most carbon-intensive sectors such as chemicals, ammonia, mobility and other heavy industries. With this guidance in place, we can focus on what matters most: Driving down emissions and building a cleaner, more sustainable future.”
News item from the U.S. Dept. of the Treasury
