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  • Writer's pictureIrra Core

Will the 45V Tax Credit Spur Clean Hydrogen Production?

Clean hydrogen could have a significant role in the decarbonization of our CO2 emissions, up to 25% according to United States Department of Energy[1]. To incentivize production of clean hydrogen, the Inflation Reduction Act (IRA) made available tax credits under Section 45V for producing clean hydrogen (PTC) or investment in clean hydrogen projects (ITC)[2]. These tax credits can range up to $3.00 per kg of clean hydrogen produced which is certainly an attractive proposition for most investors and equity partners in the renewable fuels’ domain.

 

While the potential tax credit sounds lucrative, how resource intensive is it to obtain these 45V tax credits? The following steps clarify the overall process:

  • Modeling GHG Emissions:  Facilities must model emissions associated with their hydrogen production using the correct fuel pathway, using the 45VH2-GREET[3] model. The current model has eight approved pathways for hydrogen production and each year of tax credit application requires implementation of the most recent model.

  • Electricity Documentation:  Emissions from electricity purchased from the grid can be substantiated with energy attribute certificates if the criterion of incremental generation, geographic matching and temporal matching can be demonstrated.

  • Annual Tax Credit Verification:  Tax credit application in the ITC scenario would also entail annual verification and reporting during the recapture period.

  • Annual Life Cycle Analysis (LCA) Report and Third-Party Verification:  Application of provision emissions rate for novel feedstock and/or technology not yet included in the GREET models require an approved Lifecycle Analysis (LCA) report, comprehensive documentation and third-party verification.


So, will the 45V tax credits spur hydrogen production? There is a good argument to be made that if these projects are coupled with the credit generation markets for low carbon fuels in California, Oregon and Washington, they are financially viable and attractive to investors and equity partners. As outlined above, the tax credit application process, however, is non-trivial.   Acquiring technical assistance from a consulting group with expertise in renewable fuels reporting and auditing will be necessary to efficiently work through the technical reporting and 3rd-party auditing process.


Give us a call if you have questions regarding this process, and are interested in creating credits. Irra Core, icore@algcorp.com, 805-764-6006.


Clean Hydrogen Production, Clean Fuels Program, Low Carbon Fuel
Clean Hydrogen Fuel


[1] DOE. 2023a. Pathways to Commercial Liftoff: Clean Hydrogen, Washington, DC: U.S. Department of Energy.

[3] https://www.energy.gov/eere/greet, accessed 02.20.2024.




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