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The Treasury Department has finalized its rules for the hydrogen production tax credit (Law360, subscription). While the guidance is a step in the right direction, more must be done to make hydrogen a widely used energy source, the NAM said.  
 
What’s going on: The final production tax credit, known as 45V for the section of the tax code in which it’s located, was released last Friday and includes measures that the NAM supports, including increased timeline flexibility and allowances for the use of natural gas alternatives in the production of hydrogen fuel. 

• The final guidelines give producers up to $3 per kilogram of eligible clean hydrogen produced and make the credit available for the first 10 years of a facility’s operation.
• They also clarify how producers of hydrogen—including hydrogen made from both natural gas and alternative sources, such as nuclear and methane—can determine their eligibility for the credit.
• The NAM has urged Treasury to maintain flexibility and follow congressional intent in the final rules since the credit was established by the 2022 Inflation Reduction Act.  

What’s new: The final rules took into consideration comments by the NAM and other advocates. In addition to allowing nuclear power and other natural gas alternatives, changes include the following: 

• Deliverability: Electricity generated by a facility that’s in the same grid region as the hydrogen-production plant is eligible for the credit, with a new pathway created to demonstrate electricity transfers between regions. 
• Carbon capture and sequestration: Electricity produced by a generator that implemented carbon capture and sequestration may also be eligible for the credit, so long as the CCS system came online less than 36 months before a new hydrogen facility was placed into service.
• Time matching: Those seeking to use Energy Attribute Certificates to attribute electricity use to a specific generator will meet requirements if the power in question is generated in the same hour the hydrogen site uses electricity to make the hydrogen. The final guidance pushed back the requirement for facilities producing electrolytic hydrogen to do hourly matching from 2028 to 2030. 

Qualifying projects: “By law, the tax credit’s value is based on the lifecycle greenhouse gas emissions of hydrogen production,” Gas Processing & LNG reports. 

• “To qualify as clean hydrogen under the statute, the lifecycle GHG emissions of the hydrogen production process must be no greater than 4 kilograms of carbon dioxide equivalents per kilogram of hydrogen produced. Qualifying clean hydrogen falls into four credit tiers, with hydrogen produced with the lowest GHG emissions receiving the largest credit.”  

A good start, but … Although the final rules reflect some important changes, more needs to be done to unleash hydrogen’s full potential, NAM President and CEO Jay Timmons said.

• “[F]or hydrogen to truly become a game-changing energy source, we need to address restrictions that make it harder to cost-compete on a global scale. A robust and flexible hydrogen industry will also be a major boon to the production and utilization of American natural gas as well as American nuclear power. Under President Donald Trump’s leadership, we have an opportunity to cut taxes, slash red tape and unleash permitting reform—turning this credit into a powerful tool for American energy leadership and fuel security.”