U.S. Treasury Department released long-awaited details on December 22 regarding the 45V federal tax credits designed for U.S. hydrogen facility developers.
These tax credits come with stringent conditions—meeting low carbon emissions standards and adhering to prevailing wage and registered apprenticeship rules. The unveiled rules, already leaked and somewhat controversial, include provisions related to fuel sourcing, carbon emissions tracking, and the vital intersection of technology and regulation.
The central goal of these tax credits is to incentivize the production of clean hydrogen with significantly reduced carbon emissions. Under the 2022 Inflation Reduction Act, hydrogen producers must limit emissions to 4 kg of carbon dioxide equivalent for every kilogram of hydrogen to qualify for these credits—less than half of the current 9 kg of CO2e typically generated. This ambitious reduction is set to push the boundaries of technology and innovation in hydrogen production.
The potential impact of these tax credits cannot be overstated. Clean hydrogen producers meeting the stringent requirements stand to gain substantial financial support, ranging from $0.60 to $3 per kg of hydrogen produced. This support becomes crucial for developers aiming to compete with the dominant production of “gray” hydrogen from natural gas, which costs about $1 to $2 per kg.
The Treasury has proposed a compromise, termed a “transition,” allowing developers to gain allowable credits through annual matching rather than hourly tracking. The phased approach aims to address concerns from both industry and environmental groups, offering a middle ground until hourly tracking systems become more widely available by 2028.
Industry reactions to the proposed rules vary. Some advocate for more flexibility, citing potential discouragement for clean power companies with an early imposition of hourly matching. The American Clean Power Association sees the proposed timeline as a fundamental obstacle, urging more flexibility for the nascent green hydrogen projects. On the other hand, proponents of hourly matching, including Rachel Fakhry of the Natural Resources Defense Council, emphasize the need to get the system right for hydrogen to fulfill its potential as a climate solution.
