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Federal Tax

Proposed Clean Hydrogen Production Credit Guardrails Elicits Mixed Reaction

Tim Shaw  

· 5 minute read

Tim Shaw  

· 5 minute read

A set of criteria put forth by the Treasury Department for determining which tier of the clean hydrogen production tax credit a taxpayer qualifies drew both support and criticism from companies and organizations testifying at a public rulemaking hearing March 25.

Nearly 100 presenters are scheduled to comment in-person and telephonically over the course of a three-day hearing on proposed regs implementing the Code Sec. 45V credit under the Inflation Reduction Act that provides between $.60 to $3 per kilogram of produced hydrogen. There are four credit rate tiers depending on the amount of emissions attributable to a taxpayer’s hydrogen production process.

The proposed regs, released last December, provide that energy attribute certificates (EACs) will be used to gauge which credit tier a taxpayer qualifies for. Three “pillars” comprise the criteria for awarding EACs and serve to encourage companies to cut down on emissions during production. These are:

  • Incrementality – met if the electricity generating facility has a commercial operations date no more than three years before the hydrogen production facility was placed in service.
  • Deliverability – met if electricity is generated by a source that is in the same region as the relevant hydrogen production facility. Regions are based on the Department of Energy’s 2023 National transmission Needs Study.
  • Time matching (or temporal matching) – met if electricity is generated in the same hour that the taxpayer’s hydrogen production facility uses electricity to produce hydrogen. Treasury acknowledges that hourly tracking systems are not yet “broadly available,” and thus a transition rule is in place until January 1, 2028.

Eric Guter of Air Products was in favor of the three pillars, saying that “[f]or hydrogen to truly be clean, all three pillars of be implemented together. Without one, the system falls apart.” He added that the phase-in period should not be extended beyond December 31, 2027.

“Any deviation from the three pillars will set us on a perilous path” that would slow down, “rather than accelerate, decarbonization,” which would “also unfairly disadvantage compliant projects,” said Guter.

Claire Behar of Hy Stor Energy LP agreed that the three pillars should be present in the final regs to prevent tax breaks from being awarded to projects that do not reduce emissions.

Tim Sasseen of Ballard Power Systems Inc., however, commented that the three pillars “stand in the way” of bipartisan support for clean hydrogen and “forms a cage that restricts our energy policy.” According to Sasseen, few topics on energy can bridge differing ideologies like hydrogen does, and that the proposed regs present a “plan for perpetual monitoring of energy systems with an inherent assumption that we may never achieve full decarbonization.”

Don Boyajian of Plug Power suggested final regs include grandfathering exemptions to the three pillars to apply to projects that began construction prior to the publication date. In general, Boyajian recommended, “hydrogen producers should be able to rely upon the regulatory framework in place at the time of the facilities beginning construction date.”


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