Treasury Sets Out Proposed Rules for Transformative Clean Hydrogen Incentives
The Treasury Department and IRS today filled in important blanks on what stands to be the most consequential policy supporting the deployment of clean hydrogen in U.S. history. With its December 22 Notice of Public Rulemaking (NPRM), Treasury and IRS have proposed guidance for claiming the 45V Clean Hydrogen Production Tax Credit established under last year’s Inflation Reduction Act. The move is part of the administration’s broader efforts to support hydrogen and other technologies that will enable the U.S. to cut emissions from so-called hardest-to-abate sectors of the economy, including heavy industry and long-haul transportation.
The Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL) feature the world’s most ambitious policies to support the growth of our nation’s clean hydrogen industry and have already created a robust pipeline of planned clean hydrogen projects. The § 45V tax credit provides a tax credit of up to $3 per kilogram of hydrogen to projects with low lifecycle greenhouse gas emissions, and accompanies other hydrogen programs such as the Department of Energy’s Regional Clean Hydrogen Hubs Program, which is investing $7 billion to catalyze nearly $50 billion in hydrogen investments across 7 selected Hubs.
By proposing a comprehensive set of rules for taxpayers to claim the § 45V credit, today’s guidance provides much-needed certainty to existing and aspiring hydrogen producers, including by proposing definitions of key terms and describing how these producers should calculate a project’s lifecycle greenhouse gas emissions using 45VH2-GREET, a version of the Department of Energy’s well-established R&D GREET model, that is specifically tailored for hydrogen producers seeking this tax credit. It also proposes procedures for producers to petition for a provisional emission rate (PER) if their production processes are not already included in the 45VH2-GREET model.
Electrolytic Hydrogen
Notably, the NPRM also proposes rules regarding hydrogen production via electrolysis to ensure that the electricity used is below the maximum emissions intensity in the statute. The guidance proposes requirements for hydrogen producers to use energy attribute certificates (EACs) with certain characteristics to assess and document their qualification for a tier of the tax credit. Specifically, the guidance proposes that EACs must represent electricity generation that is:
- Time-matched to the period during which the electrolyzer is operating—beginning on an annual basis, and later transitioning to an hourly basis as tracking systems improve;
- Deliverable to the electrolyzer—by being located in the same grid region as described in the NPRM and in GREET documentation, and based on the Department of Energy’s 2023 National Transmission Needs Study; and
- Incremental to existing generation—such as from new clean power plants.
These three requirements are consistent with the lifecycle emissions accounting required by the law. Without each of these three requirements, there is a strong likelihood that hydrogen production would result in increased grid emissions and would exceed the maximum emissions intensity permitted to qualify for the credit.
The IRA and BIL are already driving significant investment in clean hydrogen production in the United States, and today’s NPRM will continue that trend while ensuring that credited hydrogen is truly low emitting. Clean hydrogen that is produced using time-matched, deliverable, and incremental clean electricity will be an invaluable tool in decarbonizing the full economy in line with President Biden’s goal to achieve net-zero emissions by 2050.
Clean Hydrogen from Diverse Pathways
The Department of the Treasury, through today’s NPRM and in concert with DOE’s release of 45VH2-GREET, is also proposing rules for hydrogen produced from various pathways including steam methane reforming and autothermal reforming with carbon capture and sequestration (CCS). The additional guidance proposed in today’s NPRM will give hydrogen producers the certainty they need to plan new transformative investments in cleanhydrogen projects using diverse resources across the nation.
In addition, today’s guidance also provides initial clarity—alongside a request for comments—on hydrogen production using renewable natural gas (RNG). Following the comment period, the Department of Treasury and the Internal Revenue Service anticipate providing additional rules for producers seeking to rely on RNG certificates (and other parameters) to enable their projects to qualify.
The Notice of Proposed Rulemaking published today represents a major step forward in achieving the Administration’s clean energy goals while creating new, good-paying jobs, driving the growth of an emerging industry, and positioning the United States as a leader in one of the key energy technologies of the future. The increased availability of cost-competitive clean hydrogen enabled by this credit will catalyze both industrial growth and deep decarbonization by permitting a wide range of hydrogen projects to move forward while maintaining important environmental safeguards.
To learn more about how the Biden-Harris Administration is investing in the energy technologies of the future and building a clean energy economy that works for all Americans, visit www.invest.gov. To learn more about the guidance provided in the Notice of Proposed Rulemaking, watch the recorded webinar below, which was jointly hosted by the Department of Treasury, the Department of Energy, and the White House on December 22nd.
