We want to highlight the timely release of the final Section 45V Clean Hydrogen Production Tax Credit regulations, issued on January 3, 2025. These long-awaited rules bring much-needed clarity and investment certainty to the hydrogen industry. With significant changes and flexibility, the regulations address key issues to help grow the industry and move projects forward.
Background
The Section 45V Clean Hydrogen Production Tax Credit was introduced under the Inflation Reduction Act (IRA) of 2022. This tax credit aims to incentivize the production of clean hydrogen by providing financial benefits to producers who meet specific environmental standards. The regulations address hydrogen production using various electricity sources, including renewables (“green” hydrogen) and nuclear (“pink” hydrogen), with specific rules for lifecycle greenhouse gas emissions and incrementality requirements. The credit is designed to reduce greenhouse gas emissions, encourage energy diversification, and promote domestic clean energy production[1].
Key Dates
- August 2022: The Inflation Reduction Act was signed into law, establishing the Section 45V Clean Hydrogen Production Tax Credit.
- December 2023: The IRS released proposed regulations for the Section 45V tax credit, outlining definitions, eligibility criteria, and guidelines for calculating and claiming the credit[1].
- January 3, 2025: The IRS and the Department of the Treasury issued the final regulations for the Section 45V tax credit. These final rules incorporated feedback from public comments and provided significant changes and the flexibility to address key issues and help grow the industry[1].
- January 10, 2025: The final regulations are set to be published in the Federal Register and will take effect on this date[1]. IRS advised taxpayers to look out for future updates to the 45VH2-GREET (Greenhouse gases, Regulated Emissions, and Energy use in Technologies) model will enhance accuracy and incorporate project-specific data.
These regulations provide clarity and investment certainty for hydrogen producers, ensuring that projects can move forward while adhering to emissions requirements
Eligibility and Compliance
The final rules clarify that hydrogen producers can claim a credit of up to $3 per kilogram of clean hydrogen. Eligible hydrogen production methods include using electricity from various sources, natural gas with carbon capture, renewable natural gas (RNG), and coal mine methane. This broadens the scope of eligible production methods, encouraging diverse clean hydrogen production pathways.
Prevailing Wage and Apprenticeship Standards
To qualify for the full credit, projects must meet prevailing wage and apprenticeship standards. This ensures that workers involved in clean hydrogen projects are paid prevailing wages and have access to training opportunities. This was in the proposed regulations and continues to be part of the overall IRA credits for the bonus credits.
Incrementality Requirement
Hydrogen production facilities must demonstrate that the electricity they use comes from sources that would not have been deployed otherwise. This requirement ensures that the clean hydrogen production leads to real, additional capacity and genuine reductions in greenhouse gas emissions. It prevents the credit from being claimed for hydrogen produced using existing electricity capacity that would have been used regardless.
Inclusion of Nuclear Power
Nuclear power is now an eligible source for the credit, with a cap of 200 megawatt-hours per operating hour per reactor. This inclusion recognizes the low-carbon nature of nuclear energy and its potential to contribute to clean hydrogen production. It also provides a pathway for existing nuclear plants to participate in the clean hydrogen economy.
Carbon Capture and Sequestration (CCS)
Electricity from generators that implement CCS technologies within 36 months before the hydrogen facility’s commissioning can qualify for the credit. This provision supports the integration of CCS technologies in hydrogen production, helping to reduce the carbon footprint of hydrogen produced from natural gas and other fossil fuels.
Flexibility and Investment Certainty
The final rules provide significant changes and the flexibility to address key issues, helping to grow the industry and move projects forward while adhering to emissions requirements. These changes include clarifications on eligibility, compliance, and the calculation of lifecycle greenhouse gas emissions. The goal is to provide clarity and certainty for investors and project developers, encouraging investment in clean hydrogen projects.
If you have questions or want to discuss, please don’t hesitate to reach out to CFO Services.
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