Mixed Reactions to Final 45V Hydrogen Tax Credit Guidelines Unveiled!

What’s the Buzz?

• The U.S. Treasury Department has just rolled out the final rule for the 45V clean hydrogen production tax credit, stirring up a whirlwind of reactions from industry giants and environmental advocates alike.

• After the initial guidance released back in December 2023 stalled clean hydrogen development across the nation, industry leaders have been clamoring for updates that would allow a broader range of projects to tap into this lucrative tax credit.

• While the final rule introduces some “notable improvements” over the original proposal, critics from the Fuel Cell and Hydrogen Energy Association argue that the guidelines are still “incredibly convoluted.” FCHEA’s President and CEO, Frank Wolak, expressed hope for collaboration with the incoming administration to fine-tune the rule.

Insights that Matter:

The recent announcement marked what Wolak described as a “long chapter” for the hydrogen sector. However, the split reactions to the final rule leave us on the edge of our seats, especially knowing that it could be altered once the new administration takes office.

“The final 45V rule doesn’t hit the mark,” declared Marty Durbin, president of the U.S. Chamber’s Global Energy Institute. “Though it offers some of the flexibility we’ve been vying for, we fear it may still keep billions of dollars of planned projects hanging in the balance. The incoming Administration has a golden opportunity to tweak the 45V rules, ensuring we attract the investments needed to elevate the hydrogen economy and position the U.S. at the forefront of clean manufacturing.”

Yet, not everyone shares this sentiment. Some industry insiders are optimistic that the new rules may finally ignite the hydrogen sector after a prolonged slump.

“This newfound clarity may pave the way for numerous stalled projects to finally move ahead, unlocking billions in investments nationwide,” stated Kim Hedegaard, CEO of Topsoe’s Power-to-X, who is eyeing a $400 million electrolyzer manufacturing facility in Chesterfield, Virginia.

Beth Deane, chief legal officer for Electric Hydrogen (EH2), noted that there are currently three to five hydrogen projects poised to launch once the final guidance is in place. Initially in favor of the original guidance, EH2 later aligned with industry peers advocating for necessary revisions. Their internal assessments showed that only a handful of projects would be feasible before 2027, and moving forward without hourly offsets would minimally impact emissions.

Deane believes the best course for the industry is to maintain the integrity of Friday’s final rule as is.

“We think it’s more effective to keep the rule as is and rely on future legislative or administrative actions for refinements that can truly unleash the full potential of the hydrogen sector and secure American manufacturing jobs,” she asserted.

The final rule maintains the “three pillars” that initially turned the industry sour on the December proposal. Manufacturers of hydrogen produced via electrolyzers are still required to offset their energy use with carbon-free energy attribute certificates on an hourly basis. Electricity must be generated in the same region as the hydrogen production and come from assets that began operations within 36 months of the hydrogen facility going live.

The Inflation Reduction Act limits the 45V credit to facilities creating no more than 4 kilograms of CO2 per kilogram of hydrogen, but the latest release did not clarify the rules governing this emissions assessment.

On a brighter note, the final rule introduces several new exemptions, including one for electricity generated by at-risk nuclear power plants and another for states meeting certain renewable portfolio standards, with Washington and California currently leading the pack. More states could join if they adopt stricter energy standards.

Electricity from generators equipped with carbon capture and sequestration could also qualify under the new rule if the CCS system is operational within 36 months of a new hydrogen facility. Notably, manufacturers producing hydrogen from methane gas are no longer required to prove that their facility represents the first productive use of that methane.

However, the guidelines regarding methane use in hydrogen production have drawn fire from several environmental groups. Erik Kamrath, a hydrogen advocate at the Natural Resources Defense Council, cautioned, “The rule fails to ensure protections against the climate risks associated with methane, a powerful greenhouse gas linked to blue hydrogen production. Policymakers need to continue addressing methane concerns as new data becomes available.”

Despite its imperfections, the final rule maintains essential emissions protections while offering additional leeway for electrolytic hydrogen manufacturers, according to Kamrath.

The final rule also extends the deadline to comply with the hourly accounting standard by two years, pushing it to 2030. This gives hydrogen manufacturers the potential to calculate their emissions hourly, allowing them to claim the 45V tax credit for some, though not all, of the hydrogen produced if they can’t secure energy attribute credits during certain times of the year.