The Treasury Department has released its final, and expanded, guidance on an Inflation Reduction Act tax credit meant to boost investment in hydrogen, creating a pathway for the credits to be accessed through nuclear energy.
The eleventh-hour rules come just over two weeks before President-elect Donald Trump again takes office. He is expected to try to roll back green tax credits and cancel unspent funding issued during the Biden administration.
The tax credit, known as “45V,” was created through the Democratic-passed Inflation Reduction Act in 2022 with the intention to encourage decarbonization.
Its draft rules were first proposed in December 2023 and were subject to a public comment period. The Treasury Department said on Friday that the agency had received around 30,000 written comments and held several in-person hearings regarding the rules in order to determine the final regulations.
“These rules incorporate helpful feedback from companies planning investments which will drive significant deployment of clean hydrogen to power heavy industry and help create goodpaying jobs,” Deputy Secretary of the Treasury Wally Adeyemo said in a statement.
“The Inflation Reduction Act and Bipartisan Infrastructure Law represent the world’s most ambitious policy support of the clean hydrogen industry,” Adeyemo continued. “Scaling the production of low-carbon fuels like hydrogen will be a big boost to difficult-to-transition sectors of our economy like heavy industry.”
Many critical components from the draft rules have remained untouched, such as the amount of the tax credit.
In its final form, the rule determines that the tax credit is based on the lifecycle greenhouse gas emissions rate for the process used to produce qualifying clean hydrogen. This starts at 60 cents per kilogram of hydrogen if the lifecycle emissions rate is no more than 4 kilograms of carbon dioxide equivalent and no less than 2.5 of carbon dioxide equivalent. The credit, which will be available for 10 years for projects started before 2033, goes as high as $3 per kilogram of hydrogen for projects with a lifecycle emissions rate less than 0.45 kilograms of carbon dioxide equivalent.
The final rules apply to all taxpayers who produce qualifying clean hydrogen, as well as those who produce electricity from certain renewable or zero-emission sources in order to produce hydrogen by splitting water into oxygen and hydrogen. Qualifying clean hydrogen production facilities must have begun construction before Jan. 1, 2033. Taxpayers must also meet certain criteria meant to ensure that the clean energy sources would not have been used without the credits.
The rule has expanded the number of eligible projects by providing additional ways to meet the criteria, such as opening the door for hydrogen projects that use electricity generated from nuclear power plants, also known as pink hydrogen.
Specifically, the final rules allow for credits for electricity produced by nuclear plants at risk of retirement and co-dependent on hydrogen investments. This is applied to up to 200 megawatts per qualifying reactor.
Nuclear energy advocates and producers have long called on the administration to include existing reactors in these guidelines, while critics have sought for the credits to only go toward renewable energy sources like wind and solar.
Another pathway projects can take to claim credits is through carbon capture and storage. The rules detail that electricity from a generator that has added a carbon capture and storage system within a 36-month window before a qualifying hydrogen facility is placed in service can be considered incremental, meaning that it would not have been put into service without the incentive, paving the way for claiming the credit.
The final rules also detail the eligibility for projects with blue hydrogen, which is produced using natural gas and carbon capture technologies, as well as renewable natural gas and coal mine methane. For hydrogen projects that use these alternative energy sources, the final rules primarily detail how taxpayers may calculate lifecycle greenhouse gas emissions in order to claim the credit. Previously, the proposed rules only offered a pathway to the credit for methane for projects using landfill gas.
Additionally, the finalized guidelines require hydrogen production to match with clean power generation every year starting in 2029. By 2030, criteria for the credit will switch to “hourly matching” regardless of when a qualifying facility was put in service. Hourly matching is a controversial industry standard that requires producers to ensure the electricity used to power their hydrogen production comes from clean energy sources within the same hour. This transition to hourly matching was extended by two years compared to the proposed rules.
In line with the proposed guidelines, the final rules also affirm that electricity generated for hydrogen production must be in the same grid region as the hydrogen facility.
The United States currently produces around 10 million metric tons of hydrogen. The Department of Energy has said it aims to produce five times that amount by 2050, reducing nationwide emissions by 10% compared to 2005.
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Some experts have suggested the rules may encourage domestic hydrogen production.
“The hydrogen industry needs offtakers to sign contracts for hydrogen to get off the ground,” Dan Esposito, Energy Innovation senior policy expert, said. “Because most offtakers are interested in buying hydrogen to meet their climate commitments, these rules should give buyers the confidence they need to raise their hand.”