The U.S. Department of the Treasury issued final rules this week for the section 45V Clean Hydrogen Production Tax Credit.
The final rules for the clean hydrogen tax credit, established by the Inflation Reduction Act, include significant changes that seek to help grow the industry and move projects forward. Further, the rules seek to provide clarity, investment certainty.
Specifically, the final rules clarify how producers of hydrogen, including those using electricity from various sources, natural gas with carbon capture, renewable natural gas (RNG), and coal mine methane can determine eligibility for the credit.
“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,” U.S. Deputy Secretary of the Treasury Wally Adeyemo said. “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.”
Treasury, along with the Internal Revenue Service, developed the final rules after consideration of roughly 30,000 public comments and many months of collaboration between Treasury, IRS, and expert agencies.
“Clean hydrogen can play a critical role decarbonizing multiple sectors across our economy, from industry to transportation, from energy storage to much more,” U.S. Deputy Energy Secretary David Turk said. “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 enable pathways for hydrogen produced using both electricity and methane, providing investment certainty while ensuring that clean hydrogen production meets emissions standards.
“Over the past two years, our administration has listened to stakeholders across the hydrogen industry, states, advocates, and others,” John Podesta, senior advisor to the president for international climate policy, said. “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.”
Further, the final rules aim to enhance the accuracy of upstream methane leakage rates used in determining the credit value. For hydrogen production using natural gas alternatives, the final regulations also provide rules on how to calculate lifecycle GHG emissions and claim the credit for alternatives sourced from a wider range of biogas and fugitive methane.
In addition, the final rules provide clarity on the 45V lifecycle GHG emissions determination for those sources. Also, the final rules do not include the “first productive use” requirement that was included in the proposed rules. Treasury and IRS determined that such a rule would have administrative and compliance challenges.
Additionally, the final rules aim to enhance development of “book-and-claim” systems for natural gas alternatives such as RNG or coal mine methane by detailing the information that such systems will need to provide.
Finally, the rules will enable investment certainty by allowing all types of hydrogen producers the option of using the version of the 45VH2-GREET model that was the most recent when the facility began construction for the duration of the credit. This is in consideration of comments that the prospect of potential changes to the model over time reduces investment certainty.