Industry thought leaders indicate that the changes in the final rules for the 45V tax credits are positive, but they will not reduce dependence on polluting fossil fuels.
The U.S. Department of the Treasury and Internal Revenue Service (IRS) released final rules for the section 45V Clean Hydrogen Production Tax Credit established by the Inflation Reduction Act (IRA).
The final rules include changes that address several key issues that Treasury and IRA say will “help grow the industry and move projects forward, while adhering to the law’s emissions requirements for qualifying clean hydrogen”.
The final rules intend to clarify how producers of hydrogen can determine eligibility for the credit.
Like the production tax credit within the IRA, projects must also meet prevailing wage and apprenticeship standards.
“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,” said U.S. Deputy Energy Secretary David M. Turk.
Treasury and IRS developed the final rules after consideration of roughly 30,000 public comments and collaboration between Treasury, IRS and agencies including the Department of Energy and the Environmental Protection Agency.
In the final rules Treasury relaxed some of its initial conditions. For example, in early guidance, companies that developed clean hydrogen using electrolyzers had a deadline of 2028 to run the electrolyzers during the same hours that wind and solar facilities were in operation. In the final rules this is extended to 2030.
Industry thought leaders have indicated that, while the changes are positive, stricter guidance would reduce dependence on polluting fossil fuels.
Wood Mackenzie analysis, published in February 2024, concluded that the proposed guidelines “make economics, adoption and deployment challenging for green hydrogen”.
“The core of the guidance remains the same,” said Hector Arreola, Wood Mackenzie’s principal analyst for hydrogen and emerging technologies. “If a low-carbon hydrogen project was commercially viable before these revisions, it will still be commercially viable. And if it was not viable, the two extra years are not going to make much difference. Good projects are still good, and bad projects are still bad.”
Abbe Ramanan, group project director at Clean Energy Group, a non-profit that for two decades has worked toward effective climate and clean energy strategies, believes the 45V guidance doesn’t go far enough. “Without stricter guardrails in place, increased hydrogen production will perpetuate fossil fuel dependence and exacerbate climate change and local pollution.”
Overall, the value of the tax credit is based on the lifecycle greenhouse gas (GHG) emissions of hydrogen production. To qualify as clean hydrogen under the final rules, the lifecycle GHG emissions of the hydrogen production process must be no greater than 4 kilograms of carbon dioxide equivalents (CO2e) per kilogram of hydrogen produced.
The Department of Energy indicates that, in the coming weeks, it will release an updated version of the 45VH2-GREET model that producers will use to calculate the section 45V tax credit.
