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NAM: Change Clean Hydrogen Tax Credit Guidance

Proposed guidance for the Inflation Reduction Act’s first tax credit—the 45V, or clean hydrogen tax credit—could discourage emissions reductions and stymie investment in low-carbon hydrogen production, the NAM said ahead of the Treasury Department’s first public hearing on the matter on Monday.

What’s going on: The NAM, along with five other industry groups, last Friday urged Treasury, the Internal Revenue Service and the White House to change the way proposed 45V guidance counts upstream emissions for “blue hydrogen,” the kind produced using natural gas.

  • “Internal Revenue Service’s proposed regulations for 45V require clean hydrogen producers using natural gas as a feedstock to input a fixed upstream emissions rate based on a national average,” the groups said. “If the proposed regulation is finalized as written, clean hydrogen producers will have inaccurate lifecycle greenhouse gas emissions calculations, which will disincentivize the reduction of upstream emissions—exactly the opposite of the intent of the original legislation.”

The background: In December, Treasury and the IRS proposed guidance for 45V, a major pillar of the Biden administration’s energy agenda that aims to make low-carbon hydrogen affordable enough to help decarbonize various industries.

Why it’s important: Prohibiting developers from submitting their actual upstream emissions data will result in unfair allocation of the 45V, something that would have far-reaching consequences, the NAM and its allies said.

  • “Without the ability to input lower emissions intensity, developers who would qualify for a higher value credit based on the actual carbon intensity of their operations would instead receive a lower value credit … [and] operators with higher upstream emissions rates than the fixed average [will be allowed] to claim a lower rate they are not entitled to claim. Maintaining upstream methane emissions as background data could put major projects in jeopardy, which could result in less clean hydrogen produced and fewer American jobs.”

What should be done: Treasury should make methane emissions foreground data—not background—in its final 45V guidance, using Environmental Protection Agency Greenhouse Gas Reporting Program Subpart W. 

  • This methodology “currently provides the best option for verifiable, project-specific methane leak data,” the groups concluded.
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