Treasury Requests Additional Feedback For Obtaining A Provisional Emissions Rate To Claim The Section 45V Clean Hydrogen Production Tax Credit - Tax Authorities

At the end of last year, Treasury and the IRS issued controversial proposed regulations to implement the new section 45V clean hydrogen production tax credit enacted in the Inflation Reduction Act (the "Proposed Regulations").¹ Hydrogen producers and members of Congress have criticized the proposed regulations, which may be vulnerable to legal challenges. On April 11, Treasury and IRS issued a supplemental notice of proposed rulemaking (the "Notice") requesting feedback about the process by which producers would obtain a provisional emissions rate (PER) to claim the section 45V credit.²

Section 45V expressly ties the amount of the credit to the lifecycle greenhouse gas (GHG) emissions of the qualified hydrogen that is produced. The lower the GHG emissions, the higher the credit. The statute requires the producer to measure the GHG emissions using the GREET Model. The Department of Energy's (DOE) updated 45VH2-GREET Model limits testing the qualified hydrogen's lifecycle GHG emissions to eight pathways.³ Producers who use a feedstock or other hydrogen production technology that is not a currently recognized pathway under the GREET model can petition DOE to obtain a PER.⁴

The Proposed Regulations allow a taxpayer to request a PER for a project after a front-end engineering and design (FEED) study or some other similar measure of commercial maturity.⁵ DOE determined that a FEED study based on an Association for Advanced Cost Engineering Class 3 Cost Estimate suffices to show commercial maturity, but the Notice requests comments on alternatives.⁶

To request a PER, the producer must e-mail DOE, who will reply with a link to upload specific sections of the FEED study and a completed emissions value request form.⁷ The Notice requests feedback on this submission process as well as whether DOE should consider other information when evaluating the request.⁸

The Notice does not address other issues or request additional comments related to the Proposed Regulations. The comment period for the Proposed Regulations closed at the end of February. Treasury recently held a public hearing where several clean energy industry groups reported the Proposed Regulations would be a detriment to the domestic hydrogen industry, stall projects, and increase production costs.⁹ To date, Treasury has not finalized the Proposed Regulations.

Comments in response to the Notice are due on May 13, 2024.

Footnotes

¹ 88 Fed. Reg. 89,220 (Dec. 26, 2023), https://www.govinfo.gov/content/pkg/FR-2023-12-26/pdf/2023-28359.pdf.

² 89 Fed. Reg. 25,551 (Apr. 11, 2024), https://www.govinfo.gov/content/pkg/FR-2024-04-11/pdf/2024-07644.pdf.

³ 88 Fed. Reg. at 89,225.

⁴ See section 45V(c)(2)(C), Prop Treas. Reg. § 1.45V-4(c).

⁵ Prop. Treas. Reg. § 1.45V-4(c)(5).

⁶ 89 Fed. Reg. at 25,551.

⁷ 89 Fed. Reg. at 25,551-52.

⁸ 89 Fed. Reg. at 25,552.

⁹ See, e.g., Kat Lucero, Clean Hydrogen Tax Credit Regs' Pillars Too Strict, IRS Told, Law360, Mar. 25, 2024, https://www.law360.com/tax-authority/articles/1816943/clean-hydrogen-tax-credit-regs-pillars-too-strict-irs-told; Caleb Harshberger, Companies, Groups Clash Over IRS Hydrogen Tax Credit Regulations, Mar. 25, 2024, https://news.bloomberglaw.com/health-law-and-business/companies-groups-clash-over-irs-hydrogen-tax-credit-regulations

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