The IRS has issued final clean hydrogen tax credit rules that balance the contentious and complicated matter well enough that industry and environmental advocates alike can find something positive in the details.
But the Jan. 3 announcement — more than two years in the making — landed less than three weeks before the inauguration of a president whose policies and priorities may reshuffle the landscape for the U.S. clean hydrogen industry.
The Fuel Cell and Hydrogen Energy Association hailed policy changes incorporated in the final rules but described its issuance as a milestone rather than the destination in an “extremely complex” matter.
“There are also multiple areas where implementation and timing will be up to the incoming Trump-Vance administration,” CEO Frank Wolak said in a prepared statement.
The section 45V Clean Hydrogen Production Tax Credit was authorized in the Inflation Reduction Act, which was signed into law in August 2022. The proposed guidance for 45V was not issued until late December 2023. Final guidance took an additional year to land, as 30,000 public comments were submitted, and multiple federal agencies collaborated intensively.
Building up a clean hydrogen industry in the United States was among President Biden’s signature initiatives, but progress was slow during the two-year wait for the final rules and the key clarifications they provide on what qualifies as “clean.”
Producers will need to wait a few more weeks for the Department of Energy to issue its updated 45VH2-GREET model so they can calculate the section 45V tax credit. (GREET is the Greenhouse gases, Regulated Emissions and Energy Use in Technologies life cycle analysis suite developed by the Department of Energy’s Argonne National Laboratory.)
Hydrogen holds promise as a fuel that does not generate carbon emissions, but it is expensive to produce. The Biden administration’s push is to lower the price of producing clean hydrogen while also lowering carbon emissions associated with its production.
Environmental advocates pressed for tight rules on the emissions-free energy used to generate clean hydrogen and industry representatives pressed for looser controls that would help make green hydrogen more economical.
In their Jan. 3 news release, the U.S. Department of the Treasury and Internal Revenue Service promise clarity, safeguards and flexibility in the rules, which drill down to grid regions, hourly accounting, upstream methane leakage, carbon sequestration, fugitive methane use and temporal matching of electricity generation and hydrogen production.
The guidance stretches 379 pages. Wolak noted that it is extremely complex, “and will require intense evaluation by project developers to understand all the nuances and how they will apply to their specific facilities.”
It is scheduled to be published Jan. 10 in the Federal Register.
John Podesta, senior adviser to the president for international climate policy, said in the news release: “The extensive revisions we’ve made in [these] final rules provide the certainty that hydrogen producers need to keep their projects moving forward and make the United States a global leader in truly green hydrogen.”
Wolak said the final rules are not the final word: “This issuance of final rules closes a long chapter, and now the industry can look forward to conversations with the new Congress and new administration regarding how federal tax and energy policy can most effectively advance the development of hydrogen in the U.S.”
Other organizations had mixed reactions, but most had something good to say about the rules, even if they also offered some criticism.
Clean Air Task Force senior U.S. director Conrad Schneider said: “We appreciate Treasury moving toward better hydrogen policy in its final rule for clean hydrogen production. … We hoped to see stricter guardrails around the use of existing clean electricity to make hydrogen, but we are glad the final guidance includes criteria for determining the incrementality of existing clean electricity, especially existing nuclear energy, that accounts for the unique circumstances of each plant. We are, however, disappointed in Treasury’s decision to push hourly matching from 2028 to 2030, and we worry that this could cause at least some increase in emissions in the short term.”
Constellation Energy Corp., the nation’s largest nuclear reactor operator, applauded a change from the tentative rules that will allow existing nuclear plants to claim tax credits for powering clean hydrogen production. But the company stopped short of any commitment. “Constellation is carefully reviewing the impact of the final rules as well as newly proposed electric transmission charges on the feasibility of its proposed clean hydrogen project at the LaSalle Clean Energy Center and Constellation’s role in the MachH2 Hub,” the company stated in a news release.
CEO Joe Dominguez added: “While any incrementality limit is incompatible with the conclusion that clean hydrogen customers should be able to use reliable nuclear energy from America’s fleet of plants, the final rule is an important step in the right direction.”
Investment firm Jefferies said Jan. 3 that it does not expect operators of existing U.S. nuclear plants to pursue the clean hydrogen market because data center contracts are more lucrative and less risky.
Business Council for Sustainable Energy President Lisa Jacobson said: “The release of the final rules will allow project developers and investors to better assess credit eligibility and open investment opportunities in the U.S. 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.”
The Environmental Defense Fund said 45V presents an opportunity to reduce pollution while building new markets. “Clean hydrogen can help clean up parts of the economy that are hard to decarbonize any other way, but only if we do it right,” said Beth Trask, EDF vice president for global energy transition. “Proper implementation of the production tax credit could help catalyze private investment, lower costs and drive global demand for American-made hydrogen. But risks remain that public incentives for clean hydrogen could go toward fossil fuel-based projects that offer no real climate benefit and undermine the integrity of the U.S. hydrogen market.”
The National Resources Defense Council took a similar stance. “The final guidance is an important step towards a truly clean hydrogen industry. The rule provides much needed certainty for the industry and positions U.S. producers to be competitive in the global market,” NRDC hydrogen advocate Erik Kamrath said. “The extra flexibilities granted to the green hydrogen industry are not perfect from a climate perspective. But the rule maintains key protections that minimize dangerous air and climate pollution from electrolytic hydrogen production while also protecting U.S. taxpayers and electricity consumers.”
Earthjustice was less complimentary. “The Biden administration’s tax guidance supports clean hydrogen projects that by and large do not worsen climate and health-harming pollution, but more protections are needed,” legislative director for climate and energy Chris Espinosa said. “The administration included several significant loopholes for dirty hydrogen producers to enjoy the benefits of this important climate program.”
CNX Resources, an independent company extracting natural gas from shale in the Appalachian basin, said the 45V rules do not work for its purposes: “The Department of Treasury’s recognition of captured waste coal mine methane (CMM) as a feedstock for hydrogen production is validation of its inherent environmental and economic benefits and an important step in continuing to monetize the value of this unique asset. However, we believe that the final 45V implementation rules are overly restrictive across a range of feedstocks and do not currently appear to create sufficient economic incentives for the company to expand its CMM capture operations for hydrogen end use.”
