Policy Brief

Understanding the proposed guidance for the Inflation Reduction Act’s Section 45V Clean Hydrogen Production Tax Credit

To encourage private-sector investment in clean energy, the Inflation Reduction Act (IRA) contains incentives for low-carbon fuels, including hydrogen. In December 2023, the U.S. Department of Treasury and the Internal Revenue Service (IRS) released guidance for two such incentives, the Clean Hydrogen Production Tax Credit under Section 45V and the Energy Credit under Section 48.

This brief explains the IRA framework of the Section 45V hydrogen credit and then details important aspects of the proposed guidance, which is still provisional and subject to further revision. In the IRA, the Section 45V credits are for hydrogen with life-cycle greenhouse gas (GHG) emissions below 4 kg CO2 equivalent per 1 kg of hydrogen produced (“qualified hydrogen”). Taxpayers can claim the Section 45V credit for qualified hydrogen produced after December 31, 2022 for a 10-year period following the facility’s in service date, provided the construction began before January 1, 2033. Facilities meeting the prevailing wage and apprenticeship (PWA) requirements will receive five times the baseline credit. The maximum tax credit is $3 per kg hydrogen, for hydrogen with less than 0.45 kg CO2 equivalent per 1 kg of produced hydrogen that also meets the PWA requirements.

The system boundary used for determining the life-cycle GHG emissions is well-to-gate, which includes upstream emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. The taxpayer may obtain the emissions rate of hydrogen production through the latest 45VH2-GREET model or the provisional emissions rate (PER) process. For hydrogen produced using electricity, the proposed guidance includes the use of energy attribute certificates (EACs) to document the electricity purchased from minimal-emitting sources. For an EAC to be qualified, it must meet the requirements for incrementally, temporal matching, and deliverability. The proposed guidance also provides a small amount of information about hydrogen production pathways using renewable natural gas (RNG) or captured fugitive methane.

ICCT’s public comments on the proposed 45V tax credit guidance, which include suggested improvements, can be found here.

Alternative fuels
GHG emissions
United States