The U.S. Department of Treasury with the Internal Revenue Service (IRS), has released finalized rules for the initiative 45V Clean Hydrogen Production Tax Credit that the Inflation Reduction Act established. The final rules include major updates and flexibilities that address key challenges to assist in growing the clean hydrogen industry and move projects forward while keeping to the law's emissions standards for qualifying clean hydrogen. 

With the new updates, the final rules give clarity, investment certainty, and flexibility, which will help private market firms, asset managers, and impact investors with projects that are planned under the initiative of the U.S. Department of Energy's Regional Clean Hydrogen Hub. 

Let’s explore the final rules for the Clean Hydrogen Production Tax Credit in detail. 

About the Clean Hydrogen Production Tax Credit

The Clean Hydrogen Production Tax Credit is a U.S. incentive initiative that is designed to promote the production of clean hydrogen, which is crucial for the greenhouse gas emissions reduction in the country. Under the initiative, the hydrogen producers can earn up to $3 per kilogram of hydrogen, according to how much carbon dioxide equivalent (CO2e) is emitted and other factors. The credit is available for hydrogen that is produced after December 31, 2022, and it can be claimed for over 10 years as long as production starts its construction before January 1, 2033. 

The U.S. Deputy Secretary of Treasury Wally Adeyamo said, “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.”

Key aspects of the final rules of Tax Credit

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  The final rule highlights that only the projects that use zero-carbon energy sources can receive the most tax incentives, and for qualifying as “clean hydrogen”, the production process must not exceed 4 kilograms of CO2 equivalents per kilo of hydrogen produced which includes both direct and indirect emissions.

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  The rule is based on four credit tiers (Tier 1,2,3,4) based on GHG emissions, with those producing hydrogen with the lowest emission receiving the highest credit and the highest emissions receiving the lowest incentive.

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  Taxpayers using Energy Attribute Certificates (EACs) must meet matching criteria, where new clean energy must occur in the same area and at the same hour as hydrogen production. In addition, the requirement for hourly matching of clean energy generation with clean hydrogen production is extended to January 1, 2030. 

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  The rules for Tax Credit clarify eligibility for hydrogen from methane reforming, renewable natural gas (RNG), and coal mine methane, with upstream methane leakage rates initially based on the national values but may require further scrutiny. 

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  The final rules for Tax Credits are developed after reviewing 30,000 comments from stakeholders, businesses, and the public. A lot of flexibility is introduced in these standards to enable companies to make adjustments while upholding fundamental values and core principles.

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