Final Regulations Issued in Final Days of Congress: Clean Hydrogen Production Tax Credit

The Inflation Reduction Act of 2022 introduced the Section 45V clean hydrogen production tax credit to spur domestic hydrogen production. The hydrogen production credit covers qualified hydrogen produced using both electricity and methane. To qualify for the credit, the hydrogen production process must result in lifecycle greenhouse gas ("GHG") emissions of four kilograms or less of carbon dioxide equivalents per kilogram of hydrogen produced. The amount of credit available ranges from 60 cents to $3 per kilogram of qualified hydrogen, with four tiers of credits available. The credit may be claimed up to 10 years after the eligible hydrogen facility is placed into use, and facilities must begin construction before 2033.

The final regulations were released on January 3, 2025. Key aspects include: 

Three Pillars. The prior proposed regulations introduced the concept that energy attributable certificates could be used to support a project's clean hydrogen emissions profile, but must comply with the "three pillars."

• Incrementality/Additionality. The final regulations expand pathways to meeting the incrementality requirement for electrolytic hydrogen to include certain electricity produced from nuclear plants at risk of retirement, electricity generated in states meeting certain green electricity standards and GHG caps (currently, California and Washington), and electricity generated from certain facilities that have added carbon capture and sequestration.
• Temporal Matching. The proposed regulations required that clean hydrogen production must be matched with clean power generation hourly starting in 2028 (and annually before then). The final regulations extend the transition period by two additional years (to 2030, to match EU regulations). 
• Geographic Matching or Deliverability. The final regulations generally retain the proposed regulations' general framework for drawing regional boundaries, with some liberalization to allow taxpayers to import clean energy from other regions under certain circumstances.

Lifecycle Analysis. When calculating lifecycle emissions of methane-based hydrogen, the emissions intensity of each natural gas alternative process must be separately calculated (i.e., blending is not permitted).

Emissions Model. All hydrogen producers are required to use the 45VH2-GREET model, rather than the R&D GREET model or another model, for GHG emissions modeling. However, producers may rely on the version of the 45VH2-GREET model in effect at the time the relevant facility begins construction, even if the model subsequently changes.

In response to approximately 30,000 public comments, the final regulations provide greater certainty and significant flexibility for hydrogen producers. The regulations take effect 60 days after they are entered into the Federal Register, which is scheduled to be on January 10, 2025.