NEW ORLEANS - The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued final rules for the section 45V Clean Hydrogen Production Tax Credit, established under the Inflation Reduction Act, with changes aimed at supporting clean hydrogen production. According to Treasury and the IRS, these rules provide clarity, investment certainty, and flexibility to boost the hydrogen industry while adhering to lifecycle greenhouse gas (GHG) emissions standards. As a follow-up later this month, the U.S. Department of Energy intends to issue a user manual for the updated rules.
“Clean hydrogen can play a critical role decarbonizing multiple sectors across our economy, from industry to transportation, from energy storage to much more,” said U.S. Deputy Energy Secretary David M. Turk. “The final rules 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 final rules present both opportunities and considerations for companies in Louisiana’s hydrogen industry. Air Products’ Blue Hydrogen Plant located in Darrow, Ascension Parish, which plans to produce over 750 million standard cubic feet of blue hydrogen per day, has stated it will not be utilizing the 45V Clean Hydrogen Production Tax Credit but will use carbon capture and storage tax credits.
This is because using carbon capture and sequestration (CCS) is not a net zero carbon process. While Air Products will capture around 95% of the carbon emissions from its Blue Hydrogen Plant by preventing CO₂ from entering the atmosphere and storing it deep underground, this process will not be clean enough to meet the final rules which ensure that the most generous tax incentives only go to those hydrogen projects producing zero-carbon energy.
Louisiana has announced its intention to reduce greenhouse gas emissions to net zero by 2050.
Key highlights of the final rules relate to eligibility criteria, wage and apprenticeship standards, energy attribute certificates, incrementality pathways, methane and alternatives, Book-and-Claim systems, and lifecycle GHG analysis.
A production tax credit can be issued for each kilogram of clean hydrogen produced during the taxable year for the first 10 years after the hydrogen generation facility is in service. Producers using various methods such as renewables, nuclear, and methane reforming with carbon capture, can qualify for the credit if lifecycle GHG emissions are ≤4 kg CO₂e per kg of hydrogen. Lower emissions qualify for higher credits. The Section 45V credit equals $3 per kilogram of hydrogen produced, multiplied by the applicable rate which is based on the life cycle greenhouse gas (GHG) emissions rate of the hydrogen produced.
Treasury and the IRS have also established wage and apprenticeship standards. To receive the full credit, projects must meet labor standards that support the creation of good-paying jobs. To qualify for increased credit or deduction amounts of certain clean energy tax incentives, taxpayers need to pay laborers and construction mechanics no less than the applicable prevailing wage rates and, in relation to apprentices, employ from registered apprenticeship programs for a certain number of hours.
The Energy Attribute Certificate rules require temporal matching, deliverability, and incrementality safeguards for electricity used in hydrogen production to prevent induced emissions. Hourly matching for emissions starts in 2030. Temporal matching requires that the electricity is generated in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen. There are also new options for demonstrating incremental electricity generation, including measures for nuclear plants at risk of retirement, state policies, and carbon capture and sequestration.
Using enhanced methane leakage data and updated models, Treasury and the IRS developed new rules addressing lifecycle emissions for hydrogen from natural gas alternatives like renewable natural gas (RNG) and coal mine methane. In addition, the new rules provide guidance for book-and-claim systems for RNG and methane alternatives, with a phased implementation starting in 2027. Book-and-claim is a commonly used accounting methodology that allows a company to make sustainability claims based on sustainable goods that they did not physically possess.
Hydrogen producers will be able to use the version of the 45VH2-GREET model that was available at the start of their project to ensure investment stability.
The new rules reflect feedback from stakeholders and aim to scale clean hydrogen production, support economic development, and position the U.S. as a global leader in clean energy.
“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 U.S. Deputy Secretary of the Treasury Wally Adeyemo. “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.”
