The U.S. Treasury Dept. released highly anticipated regulations related to award of federal tax credits designed to spur investment in and development of more clean hydrogen production facilities across the country.
The final “45V” Internal Revenue Service rules, which will guide use of provisions in the 2022 Inflation Reduction Act to allow owners and developers of “clean” hydrogen facilities to claim production tax credits, make several concessions to industry that were not included in the proposed version released in December 2023.
Treasury said the changes were made to make it easier for hydrogen producers to use a variety of different electricity sources—including coal mine methane, as well as oil and gas processed at carbon capture and sequestration facilities.
“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 Treasury Secretary Wally Adeyemo in a statement.
But hydrogen produced using renewable power sources has generated considerable interest across a wide swath of entities, from government leaders, industry and environmental groups.
Environmental advocates note that not all types of hydrogen are created equal in decarbonization potential.
“For hydrogen to have a constructive role in the clean energy transition, it must be cleanly produced," says Julie McNamara, senior analyst for the Climate and Energy Program at the Union of Concerned Scientists. "Differentiating between hydrogen that looks clean versus truly is clean requires accurately and transparently accounting for all the emissions associated with the hydrogen production process."
Hydrogen considered “clean” or green is produced using renewable sources like wind and solar and costs between $4 and $5 per kilogram produced, compared to conventional hydrogen that costs about $1/kg, according to the World Resources Institute. Under the 45V credits, hydrogen project developers that release the lowest levels of greenhouse gas emissions can claim the highest deductions: for clean hydrogen—up to $3/kg.
“Clean hydrogen can play a critical role decarbonizing multiple sectors across our economy, from industry to transportation, from energy storage to much more,” said Deputy Energy Secretary David M. Turk in a statement. The finalized 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.”
But environmental groups warn that if projects are not built with carbon reduction as the primary goalpost, the rules could lead to a significant net increase in greenhouse gas emissions. They argue that hydrogen produced using energy sources that prolong fossil fuel dominance will negate significant environmental benefits.
To achieve its potential, hydrogen production “must be decarbonized across the supply chain, 99% of which currently uses highly polluting fossil-fuel-based production,” said Conrad Schneider, U.S. senior director of the non-partisan Clean Air Task Force, in a statement.
Industry: More Flexibility, More Projects
Industry groups largely praised the final rules, contending they provide more hydrogen project flexibility.
Treasury's 45V guidance “marks a meaningful step forward, encouraging innovation while driving progress on emissions," said Dustin Meyer, American Petroleum Institute senior vice president of policy, economics and regulatory affairs. The framework will allow natural gas producers that adopt carbon capture to limit carbon emissions “to compete more fairly in new markets and meet growing demand for affordable, reliable, lower-carbon energy,” he said.
Lisa Jacobson, president of the Business Council for Sustainable Energy, said the 45V rules will enable more investments in the hydrogen industry. “The rule provides clarity and flexibility in several areas but will also require continued engagement with the Trump Administration and Congress on a number of critical open implementation issues,” she said in a statement.
The final rules are expected to be published in the Federal Register on Jan. 10.
