The American Public Power Association recently joined the U.S. Chamber of Commerce and nine other groups in expressing concern about the proposed rules for the Internal Revenue Code Section 45V clean hydrogen tax credit.
The Feb. 26 letter notes that the credit is intended to not only spur rapid growth and deployment of domestic clean hydrogen production facilities, but “ultimately to provide supply-side incentives necessary to stimulate demand for end-use sectors to purchase and consume that clean hydrogen in order to achieve the Biden-Harris Administration’s economy-wide emissions reductions goals.”
Background
The Inflation Reduction Act of 2022 added section 45V, a tax credit for production of clean hydrogen (the “45V Credit”), to incentivize the rapid growth and deployment of clean hydrogen production in the U.S.
The 45V Credit provides a 10-year production tax credit for clean hydrogen that is produced at a qualified clean hydrogen production facility.
In order to qualify for the 45V Credit, the hydrogen must be produced through a process (i) with a lifecycle greenhouse gas emissions rate of not more than four kilograms of carbon dioxide equivalent (“CO2e”)/kilogram of hydrogen, (ii) produced (A) in the United States (or a United States territory), (B) in the ordinary course of a trade or business of the taxpayer, and (C) for sale or use, and (iii) the production and sale or use of such hydrogen is verified by an unrelated third party.
Section 45V also requires that lifecycle GHG emissions only include emissions through the point of production (i.e., well-to-gate), as determined under the most recent Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model.
Depending on the lifecycle GHG emissions rate as determined under the GREET model, the amount of the 45V Credit varies -- the lower the GHG emissions, the higher the credit. In addition, if the qualified clean hydrogen facility meets the prevailing wage and apprenticeship requirements, the full value of the credit is multiplied by five. With wage and apprenticeship requirements met, the value of the credit ranges from $0.60 to $3.00 per kilogram of clean hydrogen produced.
“Clean hydrogen has emerged as an important solution for decarbonizing many hard-to-abate sectors, such as heavy-duty transportation, chemical and industrial processing, ammonia production, steel manufacturing, and more,” the letter noted.
Groups Voice Concerns
The groups said they recognize the efforts of the U.S. Department of Treasury and the IRS in coordination with the U.S. Department of Energy, to accelerate investments in and advance clean hydrogen production.
“However, the Proposed Regulations, if finalized, would deter and, in some cases, halt investment and deployment of clean hydrogen as they are unduly burdensome, suffer from significant legal vulnerabilities, and generate uncertainty regarding a project’s eligibility for the 45V Credit,” the groups argued.
“Further, Treasury and the IRS exceeded their statutory authority in implementing the three pillars in the Proposed Regulations because section 45V does not mention the three pillars or authorize Treasury to impose restrictions that require a hydrogen producer meet the three pillars to claim the 45V Credit,” the letter said.
APPA and the other groups included in their letter a set of recommendations for what should be included in the final regulations.
Among other things, the groups recommended that the final regulations:
- Align the final regulations to further support the Biden-Harris Administration’s goals of accelerating economy-wide decarbonization by maximizing production and affordability of clean hydrogen and to be more supportive of current and future offtake arrangements and technologies;
- Align the final regulations with the statutory language and congressional intent of the 45V Credit to support the production of clean hydrogen through all current and future feedstocks and technologies and revise associated requirements on the use of energy attribute certificates (i.e., (1) incrementality, (2) temporal matching, and (3) deliverability)
- Adopt provisions that recognize the full lifecycle benefits of renewable natural gas and natural gas.
- Design and administer the 45VH2-GREET model in a manner that maximizes the incentive to reduce GHG gas emissions, the core goal of the 45V Credit and other clean energy provisions enacted under the IRA.
Other groups signing on to the letter were the Allegheny Conference on Community Development and its affiliate the Greater Pittsburgh Chamber of Commerce, Associated Builders and Contractors, ConservAmerica, Electric Power Supply Association, The Fertilizer Institute, Fuel Cell and Hydrogen Energy Association, National Hydropower Association, and The Truck and Engine Manufacturers Association.
