The U.S. Department of Treasury and Internal Revenue Service on Jan. 3 released final rules for the Section 45V Clean Hydrogen Production Tax Credit established by the Inflation Reduction Act. The regulations, in part, address the production of hydrogen from biogas and renewable natural gas (RNG) feedstocks.&nbsp;According to Treasury, the final rules clarify how producers of hydrogen, including those using electricity from various sources, natural gas with carbon capture, RNG, and coal mine methane can determine eligibility for the credit.&nbsp;For methane-based hydrogen, the final regulations released Jan. 3 provide rules for determining eligibility of hydrogen produced using methane reforming technologies, including with carbon capture and sequestration (so-called “blue” hydrogen”), as well as the use of natural gas alternatives such as RNG or coal mine methane.&nbsp;For hydrogen production using natural gas alternatives, the final regulations provide rules on how to calculate lifecycle GHG emissions and claim the credit for alternatives sourced from a wider range of biogas and fugitive methane than the proposed rules allowed – including wastewater, animal manure, and landfill gas – and for coal mine methane.&nbsp;In consideration of comments and with extensive consultation with expert agencies, the final rules provide clarity on the 45V lifecycle GHG emissions determination for those sources, including taking into account emissions in counterfactual scenarios. The final rules take a sound and administrable approach to determining appropriate alternative fates which are used to determine lifecycle emissions according to parameters in 45VH2-GREET.&nbsp;The final rules do not include the “first productive use” requirement that was included in the proposed rules, in part because Treasury and IRS determined that such a rule would have administrative and compliance challenges. Rather, the likelihood that a source would otherwise be productively used is taken into account in assessing the alternative fate of that source.&nbsp;The final rules aim to enhance development of “book-and-claim” systems for natural gas alternatives such as RNG or coal mine methane by detailing the information that such systems will need to provide. Because these systems will take time to develop, taxpayers will be able to begin using book and claim systems in 2027, upon determination of the Secretary of the Treasury that a system meets the requirements set out in these regulations.&nbsp;The final rules will enable investment certainty by allowing all types of hydrogen producers the option of using the version of the 45VH2-GREET model that was the most recent when the facility began construction for the duration of the credit. This is in consideration of comments that the prospect of potential changes to the model over time reduces investment certainty.Treasury and IRS developed the final rules after consideration of roughly 30,000 public comments and many months of intensive collaboration between Treasury, IRS, and expert agencies including the U.S. Department of Energy and the U.S. EPA. In the coming weeks, the Department of Energy will release an updated version of the 45VH2-GREET model that producers will use to calculate the section 45V tax credit.&nbsp;The value of the 45V credit is up to $3.00 per kilogram, depending on the carbon intensity (CI) of the hydrogen produced, and can be claimed for up to 10 years. The credit provides a varying four-tier incentive depending on the CI of the hydrogen production process that ranges from $3.00 to 60 cents per kilogram.To qualify for the full credit, projects must meet prevailing wage and apprenticeship standards. For projects that do not meet these requirements, the credit ranges from 12 cents to 60 cents per kilogram. Treasury and the IRS in June 2024 <a href="https://biomassmagazine.com/articles/treasury-irs-issue-final-rules-on-wage-and-apprenticeship-standards-for-ira-tax-credits-including-45z-clean-fuels-credit">released final rules</a> implementing the wage and apprenticeship standard provisions of clean energy tax credits created by the IRA, including the 45V credit.&nbsp;The American Biogas Council has welcomed release of the Section 45V final rules. “We are grateful to the Treasury Department for its diligence in creating these rules, which will incentivize the production of more renewable hydrogen, an important source of domestic clean energy for America,” said Patrick Serfass, executive director of the ABC.“The new rules recognize the value of renewable natural gas (RNG) as a renewable feedstock for making clean hydrogen,” he added. “The final rules address key issues within the Department’s prior proposal, including removing the first productive use penalty, which effectively treated existing sources of RNG like conventional natural gas. Today’s action more closely aligns with industry standards. &nbsp;Other adjustments made by Treasury ensure barriers to hydrogen production are limited, while preserving integrity of carbon intensity scoring, tracking and certification.“By harnessing energy from organic material that would otherwise be wasted, biogas and RNG producers simultaneously reduce methane emissions while creating renewable energy. There are currently about 2,400 biogas projects in operation in America today, compared to a potential 20,000. These new rules will support increased production of RNG and biogas to make clean hydrogen which will allow our industry to expand their work to recycle waste in this way.“We look forward to working with the new Congress and the Trump administration on preserving these valuable tax incentives,” Serfass continued.&nbsp;&nbsp;The Fuel Cell Hydrogen Energy Association stressed the complexity of the final regulations. “After years of strategic engagement and persistent advocacy, the issuance of this Final Rule now affords project developers the basis for evaluating opportunities to scale clean hydrogen deployments,” said Frank Wolak, president and CEO of the FCHEA.&nbsp;“The administration made significant improvements and considered industry feedback in several instances when crafting this final rule compared to the initial proposal, including the delayed implementation of hourly matched accounting for electrolytic hydrogen, support for more sources of renewable natural gas (RNG), removal of the first productive use requirement for RNG, among other changes,” he added.“However, this rule is still extremely complex and will require intense evaluation by project developers to understand all the nuances and how they will apply to their specific facilities. There are also multiple areas where implementation and timing will be up to the incoming Trump-Vance Administration.“This issuance of Final Rules closes a long chapter, and now the industry can look forward to conversations with the new Congress and new Administration regarding how federal tax and energy policy can most effectively advance the development of hydrogen in the U.S.,” Wolak added.A full copy of the final regulations is available on the Federal Register <a href="https://public-inspection.federalregister.gov/2024-31513.pdf">website</a>.

2025-01-04 - Treasury, IRS release final regulations for 45V Clean Hydrogen Production Tax Credit (Biomass Magazine)

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Treasury and the IRS on Jan. 3 released final rules for the Section 45V Clean Hydrogen Production Tax Credit established by the IRA. The regulations, in part, address the production of hydrogen from biogas and RNG feedstocks. 

Treasury, IRS release final regulations for 45V Clean Hydrogen Production Tax Credit

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