The U.S. Department of the Treasury released long-awaited regulations related to the awarding of federal tax credits designed to spur investment and development of cleaner hydrogen production facilities across the country.
The Internal Revenue Service’s “45V” final rules, which will guide the use of provisions of the Inflation Reduction Act of 2022 to allow owners and developers of “clean” hydrogen facilities to claim credits taxes on production, make several concessions to industry that were not included in the proposed version published in December 2023.
The Treasury said the changes were made to make it easier for hydrogen producers to use a variety of different electricity sources, including methane from coal mines, as well as oil and gas processed at carbon capture and sequestration facilities.
“These rules incorporate useful feedback from companies planning investments that will drive significant deployment of clean hydrogen to power heavy industry and help create good-paying jobs,” US Deputy Treasury Secretary Wally Adeyemo said in a statement
But hydrogen produced from renewable energy sources has generated considerable interest from a wide range of entities, from government leaders, industry and environmental groups.
Environmental advocates point out that not all types of hydrogen are created equal in decarbonization potential.
“For hydrogen to play a constructive role in the clean energy transition, it must be produced cleanly,” says Julie McNamara, senior analyst at the Climate and Energy Program at the Union of Concerned Scientists. “Differentiating between hydrogen that looks clean and is actually clean requires accurately and transparently accounting for all emissions associated with the hydrogen production process.”
Hydrogen considered “clean” or green is produced from renewable sources such as wind and solar and costs between $4 and $5 per kilogram produced, compared to conventional carbon that costs around $1 per kg, according to the World Resources Institute. With the 45V credits, developers of hydrogen projects 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 in decarbonizing multiple sectors of 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 “put us on a path to accelerate the deployment of clean hydrogen, including at the Department of Energy’s clean hydrogen centers, leading to new economic opportunities across the country.”
But environmental groups warn that if projects are not built with carbon reduction as a primary goal, the rules could lead to a significant net increase in greenhouse gas emissions. They argue that hydrogen produced with energy sources that prolong the dominance of fossil fuels will negate significant environmental benefits.
To reach its potential, hydrogen production “needs to decarbonize the entire supply chain, 99% of which currently uses highly polluting fossil fuel-based production,” said Conrad Schneider, senior director nord -American of the nonpartisan Clean Air Task Force, in a statement.
Industry: More Flexibility, More Projects
Industry groups largely praised the final rules, saying they provide more flexibility to the hydrogen project.
The Treasury’s 45V guidance “marks a significant step forward, encouraging innovation while driving progress on emissions,” said Dustin Meyer, senior vice president for policy, economics and regulatory affairs at the American Petroleum Institute. The framework will limit natural gas producers who adopt carbon capture. carbon emissions “to compete more fairly in new markets and meet the growing demand for affordable, reliable and lower-carbon energy,” he said.
Lisa Jacobson, president of the Business Council for Sustainable Energy, said the 45V rules will allow more investment 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,” he said in a statement.
The final rules are expected to be published in Federal RegisterR January 10
