Interpreting the suggested guidelines for Section 45V Clean Hydrogen Production Tax Credit in the Inflation Reduction Act

Introduction to clean energy Incentives

The Inflation Reduction Act (IRA) aims to boost private-sector investment in clean energy by offering incentives for low-carbon fuels such as hydrogen. In December 2023, the U.S. Department of Treasury and the Internal Revenue Service (IRS) introduced guidance for two key incentives: the Clean Hydrogen Production Tax Credit (Section 45V) and the Energy Credit (Section 48).

Overview of Section 45V Hydrogen Credit

Under the IRA, Section 45V provides tax credits for hydrogen with life-cycle greenhouse gas (GHG) emissions below 4 kg CO2 equivalent per 1 kg of hydrogen produced (referred to as “qualified hydrogen”). Taxpayers are eligible to claim the Section 45V credit for qualified hydrogen produced after December 31, 2022, for a period of 10 years following the facility’s in-service date, as long as construction commenced before January 1, 2033. Facilities meeting prevailing wage and apprenticeship (PWA) requirements can receive credits up to five times the baseline amount. The maximum tax credit is $3 per kg of hydrogen for hydrogen with less than 0.45 kg CO2 equivalent per 1 kg of produced hydrogen that also satisfies the PWA conditions.

Calculating Life-Cycle GHG Emissions

The system boundary used to determine life-cycle GHG emissions considers upstream emissions related to feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. Taxpayers can determine the emissions rate of hydrogen production using the 45VH2-GREET model or the provisional emissions rate (PER) process. The proposed guidance also addresses hydrogen production through electricity, requiring the use of energy attribute certificates (EACs) to verify electricity sourced from low-emission sources. Qualified EACs must meet criteria for incrementality, temporal matching, and deliverability. Additionally, the guidance touches on hydrogen production pathways involving renewable natural gas (RNG) or captured fugitive methane.

Public Comments and Recommendations

The International Council on Clean Transportation (ICCT) has submitted public comments on the proposed 45V tax credit guidance, suggesting potential enhancements. For more details on ICCT’s recommendations, click here.

Read More of this Story at – 2024-03-29 04:02:25

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