Treasury Publishes Final Regulations for Hydrogen Tax Credit
The updated regulations regarding the hydrogen tax credit feature safeguards initially proposed in December 2023, along with enhanced flexibility, as indicated by the Treasury Department.
The Treasury Department issued final guidance on Friday that outlines the criteria facilities must fulfill to qualify for the hydrogen tax credit established by the Inflation Reduction Act (IRA).
According to the department, the final rules maintain the safeguards suggested in December 2023 while introducing flexibility to allow hydrogen produced from natural gas with carbon capture, renewable natural gas, and coal mine methane to be eligible for the tax credit of up to $3 per kilogram.
“The extensive revisions we’ve incorporated into this final rule provide the assurance that hydrogen producers need to advance their projects and position the United States as a leader in genuinely green hydrogen,” stated John Podesta, Senior Advisor to President Joe Biden for International Climate Policy.
The final guidelines broaden the definition of incremental electricity generation to encompass nuclear reactors at risk of retirement that are linked to hydrogen investment, permitting up to 200 megawatts per reactor.
The Treasury recognized that some nuclear reactors face retirement risks due to economic circumstances, noting that preventing these retirements would ensure “the additional demand from hydrogen production will not lead to induced emissions.”
Additional modifications in the final rules include recognizing electricity generated in states with stringent emissions caps, such as Washington and California, as incremental. The department indicated that additional states might qualify if they implement robust policies that meet the established criteria.
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Under the final regulations, electricity generated from power plants that have implemented carbon capture and sequestration within 36 months before the hydrogen facility’s commencement will also be regarded as incremental.
The department has kept its proposed mandate that a plant’s electricity generation occurs within the same hour as hydrogen production.
“The final regulations extend the transition period for the annual matching rule by an additional two years compared to the proposed rules, with hourly matching required starting in 2030 for all facilities,” it noted.
The lifecycle greenhouse gas emissions must not exceed 4 kilograms of carbon dioxide equivalents for every kilogram of hydrogen produced to qualify as clean hydrogen, as outlined in the guidance.
The credit will be divided into four tiers, with the highest credit awarded for hydrogen produced with the least greenhouse gas emissions. Project developers must comply with prevailing wage and apprenticeship standards to qualify for the full tax credit.
Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, remarked that the Treasury has made “significant improvements,” but the guidance remains “extremely complex.”
“This rule is still extremely complex and will require in-depth evaluation by project developers to grasp all the nuances and how they will apply to their specific facilities,” Wolak stated.
“There are also numerous areas where implementation and timing will rely on the incoming Trump-Vance Administration,” he added.
Conrad Schneider, Senior Director at the Clean Air Task Force (CATF), commended the Biden administration for its initiatives to promote clean hydrogen production.
“Hydrogen is a crucial feedstock for fertilizer production, petroleum refining, and other sectors essential to our modern economy and has significant potential for decarbonizing hard-to-abate sectors, such as marine shipping, steel production, and aviation,” he asserted.
Schneider stressed the importance of decarbonizing hydrogen production throughout the supply chain, highlighting that most hydrogen production currently relies on highly polluting fossil fuel energy.
Nonetheless, Schneider expressed concerns over the Treasury’s decision to push the hourly matching requirement from 2028 to 2030, cautioning that this might result in an uptick in emissions in the short term.
Marty Durbin, president of the U.S. Chamber’s Global Energy Institute, stated that the rules “fell short.”
“While the rule offers some additional flexibility we sought, particularly in acknowledging the significance of natural gas as a foundational aspect of a hydrogen economy, we believe it will still leave billions of dollars’ worth of announced projects uncertain,” he concluded.
