Hydrogen Production Tax Credit – Where Are We Now?

October 26, 2023

The news about the Regional Hydrogen Hubs (H2Hubs) Program awards was welcomed as a launching pad for hydrogen scale-up across the entire U.S. economy, but that is only ratcheting up anticipation even higher for the long-awaited Clean Hydrogen Production Tax Credit (Section 45V) guidance.

The 45V credit was designed to reduce the cost of clean hydrogen production over a ten-year period. Hydrogen stakeholders across the country are debating how the credit guidance should measure the carbon intensity of grid-connected electrolyzers, breaking the issue down into three concepts: deliverability; time matching; and additionality.

While there are more voices in the conversation since Hydrogen Forward first detailed the 45V debate in April, the credit’s importance remains the same: Treasury’s guidance will ultimately shape the price competitiveness of clean hydrogen, the extent to which the tax credit can be fully leveraged, and therefore the ultimate pace of industry growth and associated climate benefits in the coming years.

Final Guidance is Delayed

The Department of the Treasury and the Internal Revenue Service (IRS) are still working to develop guidance on 45V credit implementation – more than two months past the deadline of August 16th set in the Inflation Reduction Act (IRA). Final guidance is now expected to be released by the end of 2023.

This delay is attributed to continued debates around measuring the carbon intensity of clean hydrogen produced from grid-connected electrolyzers. Regardless of the reason for the delay, its impact is less certainty in the U.S. hydrogen market and project delays that will only be addressed once more information about the tax credit is available.

Growing Support for a Flexible, Workable Credit

Over the last several months, a growing number of hydrogen stakeholders have emphasized the importance of a flexible, workable credit, with one aide to Sen. Tom Carper (D-DE) expressing concern that “if you put so many hurdles in front of [industries], they never take off.”

A flexible credit would enable efficient rollout of clean hydrogen technologies and fulfill the IRA’s intent to accelerate technology development in support of national decarbonization. Alternatively, strict guidance would render the credit essentially unusable by severely limiting qualifying technologies and stifling industry growth. Academics at UC Irvine, Rice University’s Baker Institute, and the University of Texas largely agree that a restrictive  credit would result in increased costs, fewer jobs or limited job growth, and poor market development that would hinder U.S. competitiveness in the global hydrogen industry.

Labor organizations have also made their positions on the issue clear, with the North America’s Building Trades UnionsLaborers’ International Union of North AmericaUnited AssociationUnited Brotherhood of Carpenters and Joiners of America, and the International Brotherhood of Electrical Workers all sending letters to the Administration, arguing that restrictive guidance threatens both industry competitiveness and good-paying American jobs.

Even hub awardees have voiced the need for flexible, supportive policy: California hub, the Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES), said in a comment to the IRS docket that “it is critical that pathways for market liftoff not single out and overburden one technology or resource with onerous geographic, time matching, and ‘additionality’ requirements.”

What Comes Next?

As the industry waits for final guidance, planned projects like the Northern California Power Agency’s hydrogen conversion of its Lodi Energy Center remain in limbo until 45V eligibility (or lack thereof) is determined. Similar uncertainty is impacting H2Hub awardees in current negotiations with DOE, with financial projections for hub projects missing the critical element of whether the incentive can be applied.

Workable policy will be critical to realizing industry goals of developing a national clean hydrogen industry to decarbonize across sectors. The sooner such workable policy guidance is provided, the faster we can all share the economic and climate benefits that hydrogen has to offer.

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