The Clean Hydrogen Production Tax Credit (Section 45V), established by the Inflation Reduction Act (IRA), offers a new 10-year incentive of up to $3.00 per kilogram for clean hydrogen production. The U.S. Department of Treasury issued a notice of proposed rulemaking in December 2023, mapping out how producers can qualify for the credit. With the comment period officially closed, various groups have expressed concerns regarding the proposed guidance and urged the administration to make necessary changes to the final guidance to ensure the U.S. domestic hydrogen industry has the tools it needs to successfully grow.

What They’re Saying:

While the comments submitted represent a vast array of perspectives and backgrounds, there is alignment that Treasury’s draft rules for the 45V tax credit are, as written, unworkable.

While the Inflation Reduction Act (IRA) introduced carbon intensity-based credits for hydrogen, Treasury’s proposed regulations hinge heavily on an unfavorable “three-pillar” approach, adding costly mandates for grid-connected electrolytic hydrogen. Additionally, existing nuclear and hydropower facilities are excluded from accessing the credit, hindering the growth of the clean hydrogen industry.

Stakeholders – including the selected Regional Clean Hydrogen Hubs (H2Hubs), labor unions, think tanks, trade groups, government entities and tribes – shared their collective dismay at the inclusion of stringent requirements in the draft guidance, as these new constraints could threaten hydrogen investment, postpone technological advancement, and impede efforts to lower costs and tackle climate issues. A selection of these comments is below:

• “It is important that the final regulation not disadvantage any type of clean hydrogen production by limiting it exclusively to new sources, and ensure the credit remains flexible and technology neutral.” – Joint Regional H2Hubs
• “Our ability to fully maximize the national and regional hydrogen opportunity is severely jeopardized by some of the contemplated implementation specifics of the 45V hydrogen production tax credit program which are overly restrictive.” – Allegheny Conference on Community Development, the Allegheny/Fayette Central Labor Council, AFL-CIO, and the Pittsburgh Regional Building & Construction Trades Council
• “Unfortunately, we must voice our strong opposition to the Incrementality provision of this Rule, which, while designed to implement the hydrogen tax credit of Section 45V of the Inflation Reduction Act (IRA), imposes unfounded restrictions that contravene the letter and intent of this law.” – United Association of Plumbers and Pipe Fitters
• “Indeed, we have already seen some of our largest employers begin to back away from investment in this technology as they view the further requirements set out in this guidance as being completely unworkable in practice.” – Utility Workers Union of America
• “The current eligibility requirements set out in the NOPR would significantly undercut the ability of nuclear energy to meaningfully contribute to the clean hydrogen market, which clearly negates the intent of both the IRA and IIJA clean hydrogen programs.” – Nuclear Hydrogen Initiative
• “NHA specifically requests that Treasury and IRS issue a Final Rule that does not discriminate between new and existing carbon-free resources. The only differentiating factor would be the lifecycle emissions factor analyzed in the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (“GREET”) model.” – National Hydropower Association
• “However, the 45V guidance, as it currently stands, would jeopardize the viability of the H2Hubs program mandated by BIL before these hubs even begin construction.” – Third Way
• “None of the suggested “three pillars” helps to achieve decarbonized hydrogen production and end-use in jurisdictions that already have a legal framework in place to achieve carbon neutrality by date-certain. On the other hand, application of such restrictions will add market uncertainty and inefficiency that will significantly harm and slow progress toward meeting decarbonization goals.” – Stationary Fuel Cell Collaborative of the National Fuel Cell Research Center at the University of California Irvine
• “However, if the tax credits are enacted as written it will be much more difficult if not impossible for the MHA Nation to realize an opportunity to produce hydrogen.” – U.S. Hidatsa and Arikara (MHA) Nation

There’s also a consensus around the need for adaptability in how the 45VH2-GREET model accounts for upstream emissions within the natural gas production pathway. Several comment letters highlight the inflexibility of so-called “background data” in the form of a national upstream emissions average, the inclusion of which threatens to hinder emissions reduction efforts and clean hydrogen development. To address this, many are recommending allowing modification of input data, such as the facility-level carbon intensity of natural gas, to encourage investment in emission-reduction technologies.

• “NABTU recommends that Treasury maintain the foundational congressional intent of this tax credit and allow for the full tax credit to be accessed by hydrogen producers when they can certify their carbon intensity regardless of their feedstock. The Department should create a way forward for lower carbon intensity production pathways either not contemplated by the GREET Model or by the guidance itself to access this tax credit and to prove their emissions rates upstream.” – North America’s Building Trades Unions
• “However, the current regulations require that all producers use natural gas’s national average carbon intensity, eliminating incentives for investments made to lower upstream emissions through technology like pipeline monitoring systems. Taxpayers who invest in lower GHG natural gas feedstocks should be provided a corresponding benefit under 45V for these verifiable emissions reductions.” – Parkersburg-Marietta Building & Construction Trades Council, AFL-CIO
• “A failure to recognize the lower CI of the natural gas used to produce hydrogen will discourage investment and will dampen the efforts to reduce fugitive methane emissions that are critical to cleaning up the natural gas supply chain.” – U.S. Chamber of Commerce
• “Concerns about the economic feasibility of clean hydrogen projects previously understood to be eligible for the Section 45V credit (based on the language of Section 45V and the existing GREET model) has substantially delayed the deployment of clean hydrogen projects – including proposed projects for winning applicants under the DOE’s Regional Clean Hydrogen Hub program.” – Cummins and Accelera by Cummins
• “However, proposed regulations require that producers use a national-average when accounting for the carbon intensity of natural gas, which eliminates any incentive to reduce midstream and upstream emissions through efforts to electrify facilities, to reduce venting and flaring, and to invest in cutting-edge advanced methane detection technology.” – International Union of Operating Engineers
• “[A]s currently drafted, the 45VH2-GREET model would exclude key low carbon intensity sources for H2 production which have already been vetted and assessed by rigorous scientific review. This application of 45VH2-GREET would disincentivize the productive use of emissions abatement technologies that capture and utilize various fugitive methane sources such as coal mine methane (CMM) and accelerate the deployment of Carbon Capture and Sequestration (CCS) technology.” – Gov. Josh Shapiro (D)
• “The ability of clean hydrogen producers using low carbon intensity natural gas as a feedstock to accurately account for the well-to-gate carbon intensity of natural gas production improves the accuracy of 45V Credit emission accounting and provides incentives to natural gas producers to reduce fugitive methane emissions and natural gas flaring. Therefore, clean hydrogen producers using low carbon intensity natural gas as a feedstock blue hydrogen producers should have the option within the 45VGREET model to input the verified carbon intensity of natural gas feedstock as foreground rather than background data.” – Fuel Cell and Hydrogen Energy Association

The Bottom Line:

The unified call for flexibility and technological neutrality in the final rules underscores a collective will to propel the hydrogen industry forward. Recognizing that these regulations will not only shape the trajectory of the U.S. clean hydrogen sector but also have far-reaching implications for economy-wide decarbonization, it is imperative for all stakeholders to actively engage ahead of the rule’s finalization.

Organizations have voiced their perspectives and concerns via comments, and more will likely to come from the March 25, 2024 hearing hosted by the Internal Revenue Service (IRS) and Treasury.

Following the hearing later this month, it will be up to this administration to address the concerns brought forward by hydrogen’s diverse stakeholders and offer thoughtful solutions. Greater flexibility and workability in these rules will position the United States to become a global leader in clean hydrogen, driving sustainable growth and advancing towards a cleaner energy future.