The U.S. Department of the Treasury today issued its long-awaited proposed regulations for the Section 45V Hydrogen Production Tax Credit (PTC), an important first step to decarbonizing the critical industrial feedstock and zero-carbon fuel. The PTC was passed into law as part of the 2022 Inflation Reduction Act (IRA).
“The Treasury Department’s new 45V guidance is an excellent step toward developing a credible clean hydrogen market in the United States. Hydrogen serves as an important feedstock for fertilizer production, petroleum refining, and other sectors vital to our modern economy and will likely play a critical role in decarbonizing hard-to-abate sectors, such as marine shipping, steel production, and aviation,” said Emily Kent, U.S. Director, Zero-Carbon Fuels at CATF. “For that to happen, hydrogen production—99% of which currently uses unabated, fossil-based methods—must be decarbonized. Effective implementation of 45V and the proposed regulations issued today are a critical step toward that monumental task of deploying truly clean methods of hydrogen production.”
The 45V Hydrogen PTC will help meet this challenge by bridging the cost difference between conventional hydrogen production and low-emission production methods, ultimately reducing long-term clean hydrogen production costs by accelerating the industry along its learning curve. The credit is tiered and becomes more lucrative for progressively cleaner hydrogen, providing as much as $3.00 per kilogram (kg) of hydrogen produced if the carbon intensity is less than 0.45 kg of carbon dioxide equivalent (CO2e) per kg of hydrogen. According to CATF analysis, this would allow certain regions with cheap, plentiful, zero-carbon electricity to produce hydrogen almost for free as capital costs decrease.
Kent continued: “Given the enormous potential that hydrogen holds in decarbonizing specific sectors of our economy and the high-paying incentives at stake, we commend Treasury for establishing strong initial guidance that follows the clear requirements in section 45V to strictly incentivize truly clean hydrogen production. CATF looks forward to closely reviewing the details of Treasury’s initial guidance and encourages Treasury to pursue strong guidance in the final rulemaking.”
Below are a few additional details within Treasury’s proposed regulations that will be important to ensure 45V only advances truly clean hydrogen deployment.
Section 45V explicitly requires that Treasury account for significant indirect greenhouse gas emissions when calculating lifecycle emissions. As CATF and NRDC explained in a letter to Treasury, section 45V defines “lifecycle greenhouse gas emissions” by reference to section 211(o)(1)(H) of the Clean Air Act, which defines it as “the aggregate quantity of greenhouse gas emissions (including direct emissions and significant indirect emissions).” To avoid these “significant indirect emissions,” CATF has advocated that the electricity used for hydrogen production must come from new clean power that is not already serving the grid (‘new supply’ or ‘incrementality’), be matched with generation from new clean power on an hourly basis (‘hourly-matching’), and be physically deliverable to the site (‘deliverability’).
These “Three Pillars” help ensure that hydrogen production does not inadvertently increase high-emitting electricity generation, which would go against the plain language of 45V by increasing economy-wide emissions. Strong and strict guidance in line with the Three Pillars –which is supported by industry and implementable today – will limit indirect emissions and be vital to creating a credible market for truly clean hydrogen in the U.S. The new proposed Treasury guidance requires incrementality and deliverability from Day 1 and hourly-matching beginning in 2028.
Treasury’s proposed regulation also appropriately does not allow biomethane used to produce hydrogen to count as “negative emissions” in the 45V carbon intensity calculations. In addition, it does not allow book and claim systems for biogas credits in the accounting for 45V. These requirements ensure that 45V only incentivizes truly clean hydrogen deployment.
About Clean Air Task Force
Clean Air Task Force (CATF) is a global nonprofit organization working to safeguard against the worst impacts of climate change by catalyzing the rapid development and deployment of low-carbon energy and other climate-protecting technologies. With 25 years of internationally recognized expertise on climate policy and a fierce commitment to exploring all potential solutions, CATF is a pragmatic, non-ideological advocacy group with the bold ideas needed to address climate change. CATF has offices in Boston, Washington D.C., and Brussels, with staff working virtually around the world. Visit catf.us and follow @cleanaircatf.