Proposed Rule2023-28359
Section 45V Credit for Production of Clean Hydrogen; Section 48(a)(15) Election To Treat Clean Hydrogen Production Facilities as Energy Property
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Published
December 26, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations relating to the credit for production of clean hydrogen (clean hydrogen production credit) and the energy credit, as established and amended by the Inflation Reduction Act of 2022, respectively. The proposed regulations would provide rules for: determining lifecycle greenhouse gas emissions rates resulting from hydrogen production processes; petitioning for provisional emissions rates; verifying production and sale or use of clean hydrogen; modifying or retrofitting existing qualified clean hydrogen production facilities; using electricity from certain renewable or zero-emissions sources to produce qualified clean hydrogen; and electing to treat part of a specified clean hydrogen production facility instead as property eligible for the energy credit. The proposed regulations would affect all taxpayers who produce qualified clean hydrogen and claim the clean hydrogen production credit, elect to treat part of a specified clean hydrogen production facility as property eligible for the energy credit, or produce electricity from certain renewable or zero-emissions sources used by taxpayers or related persons to produce qualified clean hydrogen. This document also provides notice of a public hearing on the proposed regulations.
Full Text
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[Federal Register Volume 88, Number 246 (Tuesday, December 26, 2023)]
[Proposed Rules]
[Pages 89220-89255]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-28359]
[[Page 89219]]
Vol. 88
Tuesday,
No. 246
December 26, 2023
Part IV
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Section 45V Credit for Production of Clean Hydrogen; Section 48(a)(15)
Election To Treat Clean Hydrogen Production Facilities as Energy
Property; Proposed Rule
Federal Register / Vol. 88 , No. 246 / Tuesday, December 26, 2023 /
Proposed Rules
[[Page 89220]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-117631-23]
RIN 1545-BQ97
Section 45V Credit for Production of Clean Hydrogen; Section
48(a)(15) Election To Treat Clean Hydrogen Production Facilities as
Energy Property
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to the
credit for production of clean hydrogen (clean hydrogen production
credit) and the energy credit, as established and amended by the
Inflation Reduction Act of 2022, respectively. The proposed regulations
would provide rules for: determining lifecycle greenhouse gas emissions
rates resulting from hydrogen production processes; petitioning for
provisional emissions rates; verifying production and sale or use of
clean hydrogen; modifying or retrofitting existing qualified clean
hydrogen production facilities; using electricity from certain
renewable or zero-emissions sources to produce qualified clean
hydrogen; and electing to treat part of a specified clean hydrogen
production facility instead as property eligible for the energy credit.
The proposed regulations would affect all taxpayers who produce
qualified clean hydrogen and claim the clean hydrogen production
credit, elect to treat part of a specified clean hydrogen production
facility as property eligible for the energy credit, or produce
electricity from certain renewable or zero-emissions sources used by
taxpayers or related persons to produce qualified clean hydrogen. This
document also provides notice of a public hearing on the proposed
regulations.
DATES: Written or electronic comments must be received by February 26,
2024. The public hearing on these proposed regulations is scheduled to
be held on March 25, 2024, at 10 a.m. (ET). Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by March 4, 2024. If no outlines are received by March 4,
2024, the public hearing will be cancelled. Requests to attend the
public hearing must be received by March 18, 2024. The public hearing
will be made accessible to people with disabilities. Requests for
special assistance during the hearing must be received by March 18,
2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-117631-23) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-117631-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations,
the Office of Chief Counsel (Passthroughs and Special Industries) at
(202) 317-6853 (not a toll-free number); concerning submissions of
comments or the public hearing, Vivian Hayes at (202) 317-6901 (not a
toll-free number) or by email to <a href="/cdn-cgi/l/email-protection#e19194838d888289848093888f8692a1889392cf868e97"><span class="__cf_email__" data-cfemail="75050017191c161d1014071c1b1206351c07065b121a03">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed regulations to amend the Income Tax
Regulations (26 CFR part 1) under sections 45V and 48(a)(15) of the
Internal Revenue Code (Code), as added to the Code by section 13204 of
Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as
the Inflation Reduction Act of 2022 (IRA).
The IRA added several provisions to the Code related to the
production of, and investment in, clean hydrogen, which, along with the
provisions of sections 45V and 48(a)(15), are described in part I of
this Background section. Part II of this Background section describes a
previous request for public comment on these provisions.
I. IRA Provisions for Clean Hydrogen Production and Investment
This part I describes the credit for production of clean hydrogen
as determined under section 45V (section 45V credit) and the
irrevocable election to claim an energy credit under section 48
(section 48 credit) in lieu of the section 45V credit. Also described
are statutory exceptions to the requirement that electricity be sold to
an unrelated person to be eligible for the renewable electricity
production credit determined under section 45 (section 45 credit) or
the zero-emission nuclear power production credit determined under
section 45U (section 45U credit). Under these exceptions, electricity
produced by a taxpayer from a qualified facility under section 45(d) or
a qualified nuclear power facility under section 45U(b)(1) may be
treated as sold by the taxpayer to an unrelated person during the
taxable year if the electricity is used by the taxpayer or a related
person at a qualified clean hydrogen production facility to produce
qualified clean hydrogen.
A. Section 45V
1. Amount of Credit
Section 45V provides a tax credit for the production of qualified
clean hydrogen. For purposes of section 38 of the Code, section 45V(a)
provides that the clean hydrogen production credit for any taxable year
is an amount equal to the product of (i) the kilograms of qualified
clean hydrogen produced by the taxpayer during such taxable year at a
qualified clean hydrogen production facility during the 10-year period
beginning on the date such facility was originally placed in service,
and (ii) the applicable amount as determined under section 45V(b) with
respect to such hydrogen.
Section 45V(b)(1) provides that, for purposes of section 45V(a)(2),
the applicable amount is an amount equal to the applicable percentage
of $0.60. If the amount so determined is not a multiple of 0.1 cent,
then such amount is rounded to the nearest multiple of 0.1 cent.
Section 45V(b)(2) provides that, for purposes of section 45V(b)(1),
the applicable percentage is determined based on the lifecycle
greenhouse gas emissions (lifecycle GHG emissions) rate of the process
to produce any qualified clean hydrogen as follows: (i) if the
lifecycle GHG emissions rate is not greater than 4 kilograms of carbon
dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than
2.5 kilograms of CO2e per kilogram of hydrogen, then the applicable
percentage is 20 percent; (ii) if the lifecycle GHG emissions rate is
less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less
than 1.5 kilograms of CO2e per kilogram of hydrogen, then the
applicable percentage is 25 percent; (iii) if the lifecycle GHG
emissions rate is less than 1.5 kilograms of CO2e per kilogram of
hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of
[[Page 89221]]
hydrogen, then the applicable percentage is 33.4 percent; and (iv) if
the lifecycle GHG emissions rate is less than 0.45 kilograms of CO2e
per kilogram of hydrogen, then the applicable percentage is 100
percent.
Section 45V(b)(3) provides that the $0.60 amount in section
45V(a)(1) is adjusted by multiplying such amount by the inflation
adjustment factor (as determined under section 45(e)(2), determined by
substituting ``2022'' for ``1992'' in section 45(e)(2)(B)) for the
calendar year in which the qualified clean hydrogen is produced. If any
amount as increased under section 45V(b)(3) is not a multiple of 0.1
cent, such amount is rounded to the nearest multiple of 0.1 cent.\1\
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\1\ The IRS will publish the inflation-adjusted section 45V
applicable amount annually. For the calendar year 2023, the section
45V(b)(3) inflation adjustment factor is equal to one, so the
inflation-adjusted applicable amount remains $0.60 for the calendar
year 2023.
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Section 45V(e)(1) provides that, in the case of any qualified clean
hydrogen production facility that satisfies the requirements of section
45V(e)(2), the amount of the section 45V credit with respect to
qualified clean hydrogen described in section 45V(b)(2) is equal to the
amount determined under section 45V(a) (determined without regard to
section 45V(e)(1)) multiplied by five.
A qualified clean hydrogen production facility meets the
requirements of section 45V(e)(2) if: (i) the facility began
construction before January 29, 2023, and with respect to any taxable
year, for any period of such taxable year that is within the 10-year
period beginning on the date the facility is originally placed in
service, the prevailing wage requirements of section 45V(e)(3)(A) are
met for any alteration or repair of the facility that occurs after
January 29, 2023 (to the extent applicable); \2\ or (ii) the facility
satisfies the prevailing wage and apprenticeship (PWA) requirements of
sections 45V(e)(3)(A) and (4).\3\
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\2\ Section 45V(e)(3)(A)(ii) requires the payment of wages at
prevailing rates ``with respect to any taxable year, for any portion
of such taxable year which is within the period described in
subsection (a)(2)'', with respect to the alteration or repair of the
facility. There is no ``period described in subsection (a)(2).'' The
Treasury Department and the IRS interpret the reference to
``subsection (a)(2)'' as a reference to section 45V(a)(1) where the
10-year credit period is identified.
\3\ See proposed Sec. Sec. 1.45-7, 1.45-8, 1.45-12, and 1.45V-3
as proposed in the notice of proposed rulemaking (REG-100908-23)
published in the Federal Register (88 FR 60018) on August 30, 2023,
and corrected at 88 FR 73807 on October 27, 2023.
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Generally, the prevailing wage requirements under section
45V(e)(3)(A) with respect to any qualified clean hydrogen production
facility require the taxpayer to ensure that any laborers and mechanics
employed by the taxpayer or by any contractor or subcontractor in (i)
the construction of such facility, and (ii) with respect to any taxable
year, for any portion of such taxable year that is within the 10-year
period beginning on the date such facility was originally placed in
service, the alteration or repair of such facility, are paid wages at
rates not less than the prevailing rates for construction, alteration,
or repair of a similar character in the locality in which such facility
is located as most recently determined by the Secretary of Labor, in
accordance with subchapter IV of chapter 31 of title 40 of the United
States Code, commonly known as the Davis-Bacon Act. Correction and
penalty rules similar to the rules of section 45(b)(7)(B) also apply.
Section 45V(e)(4) provides that rules similar to the apprenticeship
requirements of section 45(b)(8) apply for purposes of section
45V(e)(2).\4\
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\4\ Under proposed Sec. 1.45V-3, the PWA requirements for
purposes of section 45V(e)(2) would be satisfied if a facility meets
the prevailing wage requirements of section 45(b)(7) and proposed
Sec. 1.45-7, the apprenticeship requirements of section 45(b)(8)
and proposed Sec. 1.45-8, and the recordkeeping and reporting
requirements of proposed Sec. 1.45-12. Those proposed regulations
are outside the scope of this notice of proposed rulemaking and
proposed Sec. 1.45V-3 is addressed only to the extent necessary for
purposes of formatting the proposed regulations that are the subject
of this notice of proposed rulemaking in accordance with CFR
standards.
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For purposes of section 45V(a), in the case of a qualified clean
hydrogen production facility that does not satisfy the requirements of
section 45(e)(2), the amount of the clean hydrogen production credit
for any taxable year is $0.12, $0.15, $0.20, or $0.60 per kilogram of
qualified clean hydrogen produced (before taking into account any
inflation adjustment under section 45V(b)(3)), depending on the
lifecycle GHG emissions rate associated with the facility's hydrogen
production process. For facilities meeting the requirements of section
45V(e)(2), the credit amount determined under section 45V(a) (as
adjusted for inflation subject to section 45V(b)(3)) is multiplied by
five.
2. Definitions
a. Lifecycle Greenhouse Gas Emissions
Section 45V(c)(1)(A) provides that, subject to section
45V(c)(1)(B), the term ``lifecycle greenhouse gas emissions'' has the
same meaning given such term under section 211(o)(1)(H) of the Clean
Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022.
Under section 45V(c)(1)(B), the term ``lifecycle greenhouse gas
emissions'' includes emissions only through the point of production
(well-to-gate), as determined under the most recent Greenhouse gases,
Regulated Emissions, and Energy use in Transportation model, referred
to as the ``GREET model'' commonly and in this document, developed by
Argonne National Laboratory, or a successor model as determined by the
Secretary of the Treasury or her delegate (Secretary).
b. Qualified Clean Hydrogen
Section 45V(c)(2)(A) provides that the term ``qualified clean
hydrogen'' means hydrogen that is produced through a process that
results in a lifecycle GHG emissions rate of not greater than 4
kilograms of CO2e per kilogram of hydrogen. Section 45V(c)(2)(B)
further provides that the term ``qualified clean hydrogen'' does not
include any hydrogen unless (i) such hydrogen is produced (A) in the
United States (as defined in section 638(1) of the Code) or a United
States territory (having the meaning of the term ``possession'' as
defined in section 638(2)), (B) in the ordinary course of a trade or
business of the taxpayer, and (C) for sale or use; and (ii) the
production and sale or use of such hydrogen is verified by an unrelated
party.
c. Provisional Emissions Rate
Section 45V(c)(2)(C) provides that, in the case of any hydrogen for
which a lifecycle GHG emissions rate has not been determined for
purposes of section 45V, a taxpayer producing such hydrogen may file a
petition with the Secretary for a determination of the lifecycle GHG
emissions rate with respect to such hydrogen, which is referred to as a
``provisional emissions rate'' or PER in the proposed regulations.
d. Qualified Clean Hydrogen Production Facility
Section 45V(c)(3) provides that the term ``qualified clean hydrogen
production facility'' means a facility (i) owned by the taxpayer, (ii)
that produces qualified clean hydrogen, and (iii) the construction of
which begins before January 1, 2033.\5\
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\5\ Section 45V does not specify an earliest date on which a
qualified clean hydrogen production facility must begin construction
or be placed in service to be eligible to claim the section 45V
credit. However, the section 45V credit is available for qualified
clean hydrogen produced after December 31, 2022. Section
13204(a)(5)(A) of the IRA. Thus, the owner of a qualified clean
hydrogen production facility originally placed in service after
December 31, 2012, could claim the section 45V credit for qualified
clean hydrogen produced during at least some portion of the 10-year
period described in section 45V(a)(1), provided all other
requirements are met.
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[[Page 89222]]
3. Special Rules
a. Treatment of Facilities Owned by More Than One Taxpayer
Section 45V(d)(1) provides that rules similar to the rules of
section 45(e)(3) apply for purposes of section 45V. Section 45(e)(3)
provides that, in the case of a facility in which more than one person
has an ownership interest, except to the extent provided in regulations
prescribed by the Secretary, production from the facility is allocated
among such persons in proportion to their respective ownership
interests in the gross sales from such facility.
b. Coordination With Section 45Q
Section 45V(d)(2) provides that no section 45V credit is allowed
with respect to any qualified clean hydrogen produced at a facility
that includes carbon capture equipment for which a credit is allowed to
any taxpayer as determined under section 45Q (section 45Q credit) for
the taxable year or any prior taxable year.
c. Credit Reduced for Tax-Exempt Bonds
Section 45V(d)(3) provides that rules similar to the rules under
section 45(b)(3) (credit reduced for tax-exempt bonds) apply for
purposes of section 45V. Section 45V(d)(3) is effective for facilities
that begin construction after August 16, 2022. Section 13204(a)(5)(B)
of the IRA. Section 45(b)(3) provides that the amount of the credit
determined under section 45(a) with respect to any facility for any
taxable year (determined after the application of section 45(b)(1) and
(2) regarding phaseout and inflation adjustment rules) is reduced by
the amount that is the product of the amount so determined for such
year and the lesser of 15 percent or a fraction (A) the numerator of
which is the sum, for the taxable year and all prior taxable years, of
proceeds of an issue of any obligations the interest on which is exempt
from tax under section 103 and that is used to provide financing for
the qualified facility, and (B) the denominator of which is the
aggregate amount of additions to the capital account for the qualified
facility for the taxable year and all prior taxable years. Section
45(b)(3) further provides that the amounts determined under section
45(b)(3) for any taxable year are determined as of the close of the
taxable year.
d. Modification of Existing Facilities
Section 45V(d)(4) provides that for purposes of section 45V(a)(1),
in the case of any facility that (A) was originally placed in service
before January 1, 2023, and, prior to the modification described in
section 45V(d)(4)(B), did not produce qualified clean hydrogen, and (B)
after the date such facility was originally placed in service (i) is
modified to produce qualified clean hydrogen, and (ii) amounts paid or
incurred with respect to such modification are properly chargeable to
the capital account of the taxpayer, such facility is deemed to have
been originally placed in service as of the date the property required
to complete the modification described in section 45V(d)(4)(B) is
placed in service. Section 45V(d)(4) is effective for modifications
made after December 31, 2022. See section 13204(a)(5)(C) of the IRA.
B. Electricity Used at a Qualified Clean Hydrogen Production Facility
Section 45(e)(13) provides that electricity produced by the
taxpayer is treated as sold by such taxpayer to an unrelated person
during the taxable year if (i) such electricity is used during such
taxable year by the taxpayer or a person related to the taxpayer at a
qualified clean hydrogen production facility (as defined in section
45V(c)(3)) to produce qualified clean hydrogen (as defined in section
45V(c)(2)); and (ii) such use and production is verified (in such form
or manner as the Secretary may prescribe) by an unrelated party.
Section 45(e)(13) is effective for electricity produced after December
31, 2022. See section 13204(b)(3) of the IRA.
Section 45U(c)(2) provides that rules similar to the rules of
section 45(e)(13) apply for purposes of section 45U. Generally, section
45U is effective for electricity produced at a qualified nuclear power
facility and sold after December 31, 2023, in taxable years beginning
after that date.
C. Election To Treat Clean Hydrogen Production Facilities as Energy
Property
Section 48(a)(15)(A)(i) provides that, in the case of any qualified
property (as defined in section 48(a)(5)(D)) that is part of a
specified clean hydrogen production facility, such property is treated
as energy property. Section 48(a)(15)(A)(ii) provides that the energy
percentage of the basis of any qualified property that is treated as
energy property is, for a facility that is designed and reasonably
expected to produce qualified clean hydrogen with a lifecycle GHG
emissions rate that is: (i) not greater than 4 kilograms of CO2e per
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per
kilogram of hydrogen, 1.2 percent; (ii) less than 2.5 kilograms of CO2e
per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per
kilogram of hydrogen, 1.5 percent; (iii) less than 1.5 kilograms of
CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e
per kilogram of hydrogen, 2 percent; and (iv) less than 0.45 kilograms
of CO2e per kilogram of hydrogen, 6 percent. Under section 48(a)(9),
the amount of the section 48 credit determined for a specified clean
hydrogen production facility under section 48(a)(15) is multiplied by
five if the facility meets the requirements of section 48(a)(9)(B)
(regarding application of certain maximum net output levels of
electrical or thermal energy or prevailing wage and apprenticeship
requirements). However, the domestic content and energy communities
bonuses under section 48(a)(12) and (a)(14) do not apply to a specified
clean hydrogen production facility.
Section 48(a)(15) is effective for property placed in service after
December 31, 2022, and for any property the construction of which began
before January 1, 2023, only to the extent of the basis thereof
attributable to construction, reconstruction, or erection after
December 31, 2022. See section 13204(c)(3) of the IRA.
1. Denial of Production Credit
Section 48(a)(15)(B) provides that no section 45V credit or section
45Q credit is allowed for any taxable year with respect to any
specified clean hydrogen production facility or any carbon capture
equipment included at such facility.
2. Specified Clean Hydrogen Production Facility
Section 48(a)(15)(C) provides that the term ``specified clean
hydrogen production facility'' means any qualified clean hydrogen
production facility (as defined in section 45V(c)(3)) (i) that is
placed in service after December 31, 2022, (ii) with respect to which
(I) no section 45V credit or section 45Q credit has been allowed, and
(II) the taxpayer makes an irrevocable election to have section
48(a)(15) apply, and (iii) for which an unrelated third party has
verified (in such form or manner as the Secretary may prescribe) that
such facility produces hydrogen through a process that results in
lifecycle GHG emissions that are consistent with the hydrogen that such
facility was designed and expected to produce under section
48(a)(15)(A)(ii).
3. Qualified Clean Hydrogen
Section 48(a)(15)(D) provides that, for purposes of section
48(a)(15), the term
[[Page 89223]]
``qualified clean hydrogen'' has the meaning given such term by section
45V(c)(2).
4. Regulations
Section 48(a)(15)(E) provides the Secretary authority to issue
regulations or other guidance as she determines necessary to carry out
the purposes of section 48, including regulations or other guidance
that recaptures so much of any section 48 credit allowed as exceeds the
amount of the credit that would have been allowed if the expected
production were consistent with the actual verified production (or all
of the credit so allowed in the absence of verification).
II. Previous Request for Comments
On November 3, 2022, the Treasury Department and the IRS published
Notice 2022-58, 2022-47 I.R.B. 483. The notice requested general
comments on issues arising under section 45V and the associated clean
hydrogen production and investment incentives in sections 45 and 48.
The notice also requested specific comments concerning (i) definitions;
(ii) boundaries of the well-to-gate analysis for determining the
lifecycle GHG emissions rate; (iii) the PER process; (iv) recordkeeping
and reporting; (v) verification by unrelated parties; and (vi)
coordination with sections 45, 48, and 45Q. The Treasury Department and
the IRS received over 200 comments from industry participants,
environmental groups, individuals, and other stakeholders. The Treasury
Department and the IRS appreciate the commenters' interest and
engagement on these issues. These comments have been carefully
considered in the development of these proposed regulations.
Explanation of Provisions
I. Overview
Proposed Sec. 1.45V-1 would provide guidance, including
definitions of key terms used in proposed Sec. Sec. 1.45V-1 through
1.45V-6 and 1.48-15, to determine the eligibility for, and the amount
of, the section 45V credit for the production of qualified clean
hydrogen. The term ``section 45V credit'' would be provided at Sec.
1.45V-1(a)(12) and mean the credit for production of clean hydrogen
determined under section 45V, so much of sections 6417 and 6418 that
relate to section 45V, and the section 45V regulations. The term
``section 45V regulations'' would be provided at proposed Sec. 1.45V-
1(a)(13) to mean the provisions of Sec. Sec. 1.45V-1 through 1.45V-6
and so much of the regulations under sections 6417 and 6418 that relate
to the section 45V credit.
Proposed Sec. 1.45V-2 would provide special rules for purposes of
the section 45V credit. Proposed Sec. 1.45V-4 would provide procedures
for determining lifecycle GHG emissions rates for qualified clean
hydrogen. Proposed Sec. 1.45V-5 would provide procedures for
verification of qualified clean hydrogen production and sale or use.
Proposed Sec. 1.45V-6 would provide rules for determining the placed
in service date for an existing facility that is modified or
retrofitted to produce qualified clean hydrogen. Additionally, proposed
Sec. 1.48-15 would provide procedures for a taxpayer to elect to treat
any qualified property that is part of a specified clean hydrogen
production facility as energy property for purposes of the section 48
credit.
II. Definitions
Proposed Sec. 1.45V-1(a)(2) through (13) would provide generally
applicable definitions of terms for purposes of section 45V, so much of
sections 6417 and 6418 of the Code that relate to the section 45V
credit, and the section 45V regulations. The definitions for applicable
amount, applicable percentage, and qualified clean hydrogen production
facility would generally reflect the statutory definitions without
additional elaboration on the terms. See proposed Sec. 1.45V-1(a)(2),
(3), and (10). This part II discusses those definitions in the proposed
regulations that provide additional clarity beyond the statutory
language.
A. Facility
Proposed Sec. 1.45V-1(a)(7)(i) would provide that, for purposes of
the definition of a qualified clean hydrogen production facility
provided at section 45V(c)(3), the term ``facility'' means a single
production line that is used to produce qualified clean hydrogen. A
``single production line'' would include all components of property
that function interdependently to produce qualified clean hydrogen.
Components of property are functionally interdependent if the placing
in service of each component is dependent upon the placing in service
of each of the other components to produce qualified clean hydrogen.
Proposed Sec. 1.45V-1(a)(7)(ii) would provide that a facility does not
include equipment used to condition or transport hydrogen beyond the
point of production. A facility would also not include electricity
production equipment used to power the hydrogen production process,
including any carbon capture equipment associated with the electricity
production process. Proposed Sec. 1.45V-1(a)(7)(iii) would provide
that components that have a purpose in addition to the production of
qualified hydrogen may be part of a facility if such components
function interdependently with other components to produce qualified
clean hydrogen. Proposed Sec. 1.45V-1(a)(7)(iv) would provide an
example to illustrate the definition of facility for purposes of
section 45V.
B. Lifecycle Greenhouse Gas Emissions
Proposed Sec. 1.45V-1(a)(8)(i) would incorporate the statutory
definition of the term ``lifecycle greenhouse gas emissions'' under
section 45V(c)(1)(A) and (B), specifically providing that the term has
the same meaning as that in 42 U.S.C. 7545(o)(1)(H) as in effect on
August 16, 2022, and includes emissions only through the point of
production (well-to-gate) as determined under the most recent GREET
model.
C. Most Recent GREET Model
Proposed Sec. 1.45V-1(a)(8)(ii) would provide that the term ``most
recent GREET model'' means the latest version of 45VH2-GREET developed
by Argonne National Laboratory (ANL) that is publicly available on the
first day of the taxpayer's taxable year in which the qualified clean
hydrogen for which the taxpayer is claiming the section 45V credit was
produced.\6\ After consultation with the Department of Energy (DOE),
the Treasury Department and the IRS believe that the use of the latest
version of 45VH2-GREET would be appropriate because it is tailored to
the administration of the section 45V tax credit and includes features
that make it easy to use for taxpayers. Use of the latest version of
45VH2-GREET would also ensure that the pathways and approaches provided
for determining well-to-gate emissions for various hydrogen production
processes are of sufficient methodological certainty to be appropriate
for determining eligibility of tax credits. The latest version of
45VH2-GREET is the only variant of GREET that is suitable for use and
may be used to determine emissions rates for purposes of the section
45V credit.
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\6\ 45VH2-GREET is a user interface designed to accept input
related to a hydrogen production facility, execute GREET
calculations in the background, and display the well-to-gate carbon
intensity of produced hydrogen in kg of CO2e/kg of H<INF>2</INF>.
45VH2-GREET is currently available at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
Successor locations for 45V-H2GREET will be provided in IRS forms
and instructions.
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Further, proposed Sec. 1.45V-1(a)(8)(ii) would provide that, if a
version of
[[Page 89224]]
45VH2-GREET becomes publicly available after the first day of the
taxable year of production (but still within such taxable year), then
the taxpayer may, in its discretion, treat such version of 45VH2-GREET
as the most recent GREET model.
Instead of defining ``most recent GREET model'' to be the latest
version of 45VH2-GREET that is publicly available on the first day of
the taxpayer's taxable year, an alternative approach would be for the
Secretary to determine that the latest version of 45VH2-GREET is an
appropriate ``successor model,'' as provided by section 45V(c)(1)(B),
for the purpose of administering the section 45V tax credit. The
Treasury Department and the IRS request comment on these approaches.
D. Emissions Through the Point of Production (Well-to-Gate)
Proposed Sec. 1.45V-1(a)(8)(iii) would provide that, for purposes
of section 45V(c)(1)(B) and proposed Sec. 1.45V-1(a)(8)(i), the term
``emissions through the point of production (well-to-gate)'' means the
aggregate lifecycle GHG emissions related to hydrogen produced at a
hydrogen production facility during the taxable year through the point
of production. It includes emissions associated with feedstock growth,
gathering, extraction, processing, and delivery to a hydrogen
production facility. It also includes the emissions associated with the
hydrogen production process, inclusive of the electricity used by the
hydrogen production facility and any capture and sequestration of
carbon dioxide generated by the hydrogen production facility.
E. Qualified Clean Hydrogen
Proposed Sec. 1.45V-1(a)(9)(i) would incorporate the statutory
definition of the term ``qualified clean hydrogen'' provided at section
45V(c)(2)(A) and (B), including the requirement that the hydrogen be
produced (i) in the United States or a U.S. territory (meaning
possession as provided in section 638(2)); (ii) in the ordinary course
of a trade or business of the taxpayer; and (iii) for sale or use.
Proposed Sec. 1.45V-1(a)(9)(i)(B) would provide that, to qualify as
qualified clean hydrogen, the production and sale or use of such
hydrogen must be verified by an unrelated party (as required by section
45V(c)(2)(B)(ii)). See also proposed Sec. 1.45V-5.
Proposed Sec. 1.45V-1(a)(9)(ii) would provide that for purposes of
section 45V(c)(2)(B)(i)(III) and proposed Sec. 1.45V-1(a)(9)(i)(C) the
term ``for sale or use'' means for the primary purpose of making such
hydrogen ready and available for sale or use. Storage of hydrogen
before its sale or use would not disqualify such hydrogen from being
considered produced for sale or use.
III. Rules of General Applicability
Proposed Sec. 1.45V-1(b)(1) would provide the general rules for
calculating the amount of the section 45V credit.
Proposed Sec. 1.45V-1(b)(2) would provide that, for purposes of
section 45V(a)(1) and proposed Sec. 1.45V-1(b)(1), the term
``taxpayer'' means the taxpayer that owns the qualified clean hydrogen
production facility at the time of the facility's production of
qualified clean hydrogen with respect to which the section 45V credit
is claimed, regardless of whether such taxpayer is treated as a
producer under section 263A of the Code or under any other provision of
law with respect to such qualified clean hydrogen. This rule is
intended to avoid unintended consequences that could arise with respect
to contract manufacturing and tolling arrangements under Sec. 1.263A-
2(a)(1)(ii)(A) and (a)(1)(ii)(B)(1) in the context of the section 45V
credit, as well as to simplify the administration of the section 45V
credit and provide clarity for taxpayers.
Proposed Sec. 1.45V-1(c) would provide that, subject to any
applicable Code sections that may limit the section 45V credit amount,
the section 45V credit for any taxable year is determined with respect
to the qualified clean hydrogen produced by the taxpayer during that
taxable year although the verification of the production and sale or
use of such hydrogen may occur in a later taxable year. However, the
taxpayer would not be eligible to claim the section 45V credit until
all relevant verification requirements, and the verification itself,
have been completed. Therefore, despite such verification occurring in
a later taxable year, the section 45V credit would be properly claimed
with respect to the taxable year of hydrogen production and subject to
the general period of limitations for filing a claim for credit or
refund. Thus, if verification occurred after the extended return filing
deadline for the taxable year in which the hydrogen was produced, the
taxpayer would need to file an amended return or administrative
adjustment request (AAR) to claim the section 45V credit for such
hydrogen. The Treasury Department and the IRS request comments on this
proposed rule, specifically whether taxpayers anticipate they will be
able to complete all the requirements for claiming the section 45V
credit, including the proposed requirements for verification specified
below, by the extended return filing deadline for the taxable year of
hydrogen production. If taxpayers anticipate that they will not be able
to complete all the requirements by such filing deadline, comments are
also requested on what specific alternatives to the proposed rule, if
any, should be considered and their rationale.
IV. Special Rules
Proposed Sec. 1.45V-2(a) would address the coordination between
the section 45V credit and the section 45Q credit.
Proposed Sec. 1.45V-2(b)(1) would provide an anti-abuse rule that
would make the section 45V credit unavailable in extraordinary
circumstances in which, based on a consideration of all the relevant
facts and circumstances, the primary purpose of the production and sale
or use of qualified clean hydrogen is to obtain the benefit of the
section 45V credit in a manner that is wasteful, such as the production
of qualified clean hydrogen that the taxpayer knows or has reason to
know will be vented, flared, or used to produce hydrogen.
If the cost of producing qualified clean hydrogen were to be less
than the amount of the section 45V credit that would be available with
respect to such hydrogen, the Treasury Department and the IRS are
concerned that taxpayers may have an incentive to produce qualified
clean hydrogen solely for the purpose of exploiting the section 45V
credit in a manner that is inconsistent with a purpose of section 45V,
which is to provide an incentive to produce qualified clean hydrogen
for a productive use. Producing and selling or using qualified clean
hydrogen with the primary purpose of obtaining the benefit of the
section 45V credit in a wasteful manner would not, in certain
circumstances, satisfy the requirement in section 45V(c)(2)(B)(i)(II)
for hydrogen to be produced in the ordinary course of a trade or
business of the taxpayer. Proposed Sec. 1.45V-2(b)(2) would provide an
example illustrating this anti-abuse rule.
V. Procedures for Determining Lifecycle Greenhouse Gas Emissions Rates
for Qualified Clean Hydrogen.
Proposed Sec. 1.45V-4(a) would provide that the amount of the
section 45V credit is determined under section 45V(a) and proposed
Sec. 1.45V-1(b) based upon the lifecycle GHG emissions rate (as
defined in proposed Sec. 1.45V-1(a)(8)(i)) of all hydrogen produced at
a qualified clean hydrogen production facility (as defined in proposed
Sec. 1.45V-1(a)(10)) during the taxable year. This determination is
made following the close of each such taxable year and must include all
hydrogen production from
[[Page 89225]]
the year. Further, proposed Sec. 1.45V-4(a) would provide that the
lifecycle GHG emissions rate for purposes of section 45V is determined
under the most recent GREET model (as defined in proposed Sec. 1.45V-
1(a)(8)(ii)). Additionally, proposed Sec. 1.45V-4(a) would provide
that in the case of any hydrogen for which a lifecycle GHG emissions
rate has not been determined under the most recent GREET model for
purposes of section 45V, a taxpayer producing such hydrogen may file a
petition with the Secretary for a determination of the lifecycle GHG
emissions rate with respect to such hydrogen (a provisional emissions
rate (PER)).
A. GREET Model
Proposed Sec. 1.45V-4(b) would provide procedures to calculate the
lifecycle GHG emissions rate of hydrogen produced at a hydrogen
production facility using the most recent GREET model as defined in
proposed Sec. 1.45V-1(a)(8)(ii) (referring to 45VH2-GREET). Proposed
Sec. 1.45V-4(b) would provide that for each taxable year during the
period described in section 45V(a)(1), a taxpayer claiming the section
45V credit determines the lifecycle GHG emissions rate of hydrogen
produced at a hydrogen production facility using the most recent GREET
model. Such a determination is made separately for each hydrogen
production facility the taxpayer owns and as of the close of each
respective taxable year in which such production occurs (that is, such
a determination is made for that taxable year's total hydrogen
production at a hydrogen production facility). Proposed Sec. 1.45V-
4(b) would provide that in calculating the lifecycle GHG emissions rate
for purposes of determining the amount of the section 45V credit, the
taxpayer must accurately enter all information about its qualified
clean hydrogen production facility requested within the interface of
45VH2-GREET in compliance with the most recent version of the
Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of
Hydrogen Production Pathways using 45VH2-GREET (GREET User Manual),
which currently can be found at: <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>. Current
45VH2-GREET, previous versions of 45VH2-GREET, and subsequent updates
to 45VH2-GREET can be found at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>. Proposed
Sec. 1.45V-4(b) would provide that information for the location of
45VH2-GREET and accompanying documentation will be included in the
instructions to the Form 7210, Clean Hydrogen Production Credit.
45VH2-GREET includes various hydrogen production pathways. As of
the publication date of these proposed regulations, 45VH2-GREET
includes the following hydrogen production pathways--
(1) Steam methane reforming (SMR) of natural gas, with potential
carbon capture and sequestration (CCS);
(2) Autothermal reforming (ATR) of natural gas, with potential CCS;
(3) SMR of landfill gas with potential CCS;
(4) ATR of landfill gas with potential CCS;
(5) Coal gasification with potential CCS;
(6) Biomass gasification with corn stover and logging residue with
no significant market value with potential CCS;
(7) Low-temperature water electrolysis using electricity; and
(8) High-temperature water electrolysis using electricity and
potential heat from nuclear power plants.
As described in Guidelines to Determine Well-to-Gate Greenhouse Gas
(GHG) Emissions of Hydrogen Production Pathways using 45VH2-GREET
(GREET User Manual), certain parameters in 45VH2-GREET are fixed
assumptions, referred to as ``background data'' in this document. Users
of 45VH2-GREET may not change background data. Examples of background
data include upstream methane loss rates, emissions associated with
power generation from specific generator types, and emissions
associated with regional electricity grids. Background data are
parameters for which bespoke inputs from hydrogen producers are
unlikely to be independently verifiable with high fidelity, given the
current status of verification mechanisms. The Treasury Department and
the IRS seek comment on the readiness of verification mechanisms that
could be utilized for certain background data in 45VH2-GREET if it were
reverted to foreground data in future releases. For example, the
upstream methane loss rate is background data in 45VH2-GREET, and the
Treasury Department and the IRS seek comment on conditions, if any,
under which the methane loss rate may in future releases become
foreground data (such as certificates that verifiably demonstrate
different methane loss rates for natural gas feedstocks, sometimes
described as responsibly sourced natural gas).
45VH2-GREET allows users to input the quantity of valorized co-
products (that is, co-products from the hydrogen production process
that are productively utilized or sold) and allocates emissions to
those co-products (rather than to the hydrogen production) as described
in Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions
of Hydrogen Production Pathways using 45VH2-GREET 2023. As described in
that document, 45VH2-GREET utilizes the ``system expansion'' approach
for all co-products if possible, but restricts the amount of steam co-
product that reformers can claim based on the quantity of steam that an
optimally designed reformer is expected to be capable of producing
based on modeling from the National Energy Technology Laboratory.\7\
This restriction is included within the model to avoid incentivizing
generation or over-production of hydrogen co-products like steam to
enable access to a higher tax credit value by artificially reducing the
calculated carbon intensity of the hydrogen (for example, by combustion
of fuel onsite that is unnecessary for hydrogen production). The
Treasury Department and the IRS seek comments on this approach,
including whether alternative co-product accounting methods, such as
physical allocation (for example, energy allocation or mass allocation)
or allocation based on other characteristics, would better ensure well-
to-gate carbon intensity of hydrogen production is accurately
represented.
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\7\ National Energy Technology Laboratory, DOE, ``Comparison of
Commercial, State-of-the-Art, Fossil-Based Hydrogen Production
Technologies,'' April 12, 2022, available at <a href="https://www.netl.doe.gov/energy-analysis/details?id=ed4825aa-8f04-4df7-abef-60e564f636c9">https://www.netl.doe.gov/energy-analysis/details?id=ed4825aa-8f04-4df7-abef-60e564f636c9</a>.
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B. Provisional Emissions Rate
Proposed Sec. 1.45V-4(c)(1) would provide that, for purposes of
section 45V(c)(2)(C) and proposed Sec. 1.45V-4(a), the term
``provisional emissions rate'' or ``PER'' means the lifecycle GHG
emissions rate of the process by which qualified clean hydrogen is
produced by the taxpayer at a qualified clean hydrogen production
facility as determined by the Secretary under proposed Sec. 1.45V-
4(c).
Proposed Sec. 1.45V-4(c)(2)(i) would provide that a taxpayer may
not file a petition with the Secretary for a PER unless a lifecycle GHG
emissions rate has not been determined under the most recent GREET
model (as defined in proposed Sec. 1.45V-1(a)(8)(ii) as 45VH2-GREET)
for hydrogen produced by the taxpayer at a hydrogen production
facility. Proposed Sec. 1.45V-4(c)(2)(i) would further provide that a
lifecycle GHG emissions rate has not been determined under the most
recent GREET model with respect to hydrogen
[[Page 89226]]
produced by the taxpayer at a hydrogen production facility if it uses a
hydrogen production pathway that is not included in the most recent
GREET model--that is, if either the feedstock used by such facility or
the facility's hydrogen production technology is not included in the
most recent GREET model.
For example, the initial version of 45VH2-GREET does not model
every possible biomass fuel as a feedstock nor does it represent all
hydrogen production technologies that are currently of commercial
interest or that may be commercially viable in the future, including
geologic hydrogen, trigeneration, or other technologies if sufficient
technical analysis had not been completed at the time the model was
published. A taxpayer with one of these types of hydrogen production
pathways may use the PER process to obtain carbon intensities because
such hydrogen production technologies or feedstocks are not currently
in 45VH2-GREET. To use the PER process, the hydrogen production pathway
that the taxpayer is utilizing must either be consuming a feedstock
that is not represented in 45VH2-GREET (for example, a type of biomass
that is not represented in the model) or using a hydrogen production
technology that is not represented in 45VH2-GREET (for example,
technologies used to drill for geologic hydrogen or trigeneration that
can use a fuel cell to co-produce hydrogen, heat, and power). A
taxpayer may not use the PER process if its feedstock and hydrogen
production technology are represented in 45VH2-GREET, even if the
taxpayer disagrees with the underlying assumptions (that is, background
data) or calculation approach used by the most recent 45VH2-GREET.
Future versions of 45VH2-GREET may include additional hydrogen
production pathways, such as geologic hydrogen, as sufficient technical
information becomes available to provide consistent treatment in 45VH2-
GREET.
Proposed Sec. 1.45V-4(c)(2)(i) would also provide that, if a
taxpayer's request for an emissions value from the DOE under proposed
Sec. 1.45V-4(c)(5) with respect to the hydrogen produced by the
taxpayer at a hydrogen production facility is pending at the time such
hydrogen production facility's pathway is included in an updated
version of 45VH2-GREET, the taxpayer's request for an emissions value
will be automatically denied.
Proposed Sec. 1.45V-4(c)(2)(ii) would specify that,
notwithstanding proposed Sec. 1.45V-1(a)(8)(ii), for the taxable year
in which the hydrogen production pathway the taxpayer uses to produce
hydrogen at a qualified clean hydrogen production facility is first
included in an updated version of 45VH2-GREET, the updated version of
45VH2-GREET will be considered the most recent GREET model with respect
to the hydrogen produced by the taxpayer at the hydrogen production
facility.
1. Process for Filing a Provisional Emissions Rate Petition
Proposed Sec. 1.45V-4(c)(3) would provide that a taxpayer
petitions the Secretary for a PER by attaching a PER petition to its
Federal income tax return or information return for the first taxable
year of hydrogen production ending within the 10-year period described
in section 45V(a)(1) for which the taxpayer claims the section 45V
credit for hydrogen to which the PER petition relates and for which a
lifecycle GHG emissions rate has not been determined, as defined under
proposed Sec. 1.45V-4(c)(2)(i). Proposed Sec. 1.45V-4(c)(3) would
provide that a PER petition must contain (i) an emissions value
obtained from the DOE setting forth the DOE's analytical assessment of
the lifecycle GHG emissions rate associated with the facility's
hydrogen production pathway, and (ii) a copy of the taxpayer's request
to the DOE for an emissions value, including any information that the
taxpayer provided to the DOE pursuant to the emissions value request
process specified in proposed Sec. 1.45V-4(c)(5). Proposed Sec.
1.45V-4(c)(3) would further provide that, if the taxpayer obtained more
than one emissions value from the DOE, then the PER petition must
contain the emissions value setting forth the lifecycle GHG emissions
rate of the hydrogen for which the section 45V credit is claimed on the
Form 7210, Clean Hydrogen Production Credit, to which the PER petition
is attached.
2. Provisional Emissions Rate Determination
Proposed Sec. 1.45V-4(c)(4) would provide that upon the IRS's
acceptance of the taxpayer's Federal income tax return or information
return containing a PER petition, the emissions value specified on such
PER petition will be deemed accepted. Proposed Sec. 1.45V-4(c)(4)
would provide that a taxpayer would be able to rely upon an emissions
value provided by the DOE for purposes of calculating and claiming a
section 45V credit, provided that any information, representations, or
other data provided to the DOE in support of the request for an
emissions value are accurate. Proposed Sec. 1.45V-4(c)(4) would also
state that the IRS's deemed acceptance of such emissions value is the
Secretary's determination of the PER. Proposed Sec. 1.45V-4(c)(4)
would state, however, that the production and sale or use of such
hydrogen must be verified by an unrelated party under section
45V(c)(2)(B)(ii) and in compliance with the procedures provided in
proposed Sec. 1.45V-5. Proposed Sec. 1.45V-4(c)(4) would state that
such verification and any information, representations, or other data
provided to the DOE in support of the request for an emissions value
are subject to later examination by the IRS.
3. Department of Energy Emissions Value Request Process
Proposed Sec. 1.45V-4(c)(5) would provide that, in order to obtain
an emissions value, an applicant must submit a request for an emissions
value following procedures that will be specified by the DOE. The
emissions value request process will open on April 1, 2024.
Proposed Sec. 1.45V-5 would also provide that emissions values
will be evaluated using the same well-to-gate system boundary that is
employed in 45VH2-GREET, as proposed in Sec. 1.45V-1(a)(8)(iii).
Additionally, proposed Sec. 1.45V-5 would also provide that if
applicable, background data parameters in 45VH2-GREET would also be
treated as background data (with fixed values that an applicant cannot
change) in the emissions value request process. The emissions value
request process would be subject to any guidance issued under section
45V, including any guidance related to the use of EACs.
Proposed Sec. 1.45V-4(c)(5) would also provide that an applicant
may request an emissions value from the DOE only after a front-end
engineering and design (FEED) study or similar indication of project
maturity, such as project specification and cost estimation sufficient
to inform a final investment decision, has been completed for the
hydrogen production facility. Forthcoming guidance from the DOE, which
will be published prior to the April 1, 2024, opening of the emissions
value request process, will specify criteria the DOE intends to
consider in evaluating whether a FEED study has been completed or that
a similar indicator of project readiness has been achieved. The
Treasury Department and the IRS seek comments on appropriate indicators
of project readiness that should be in place before an applicant
requests an emissions value to ensure that requests correspond to
hydrogen production facilities with significant commercial interest,
and standards against which these indicators could be measured.
[[Page 89227]]
Additionally, proposed Sec. 1.45V-4(c)(5) would provide that the
DOE may decline to review applications that are not responsive,
including those applications that use a hydrogen production technology
and feedstock already in GREET or applications that are incomplete.
Guidance and procedures for applicants to request and obtain an
emissions value from the DOE will be published by the DOE,\8\ including
a process for, under limited circumstances, a revision to the DOE's
initial analytical assessment of an emissions value, such as to address
revised technical information or facility design and operation.
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\8\ DOE will provide guidance and procedures at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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4. Effect of Provisional Emissions Rate
Proposed Sec. 1.45V-4(c)(6) would provide that a taxpayer may use
a PER determined by the Secretary to calculate the amount of the clean
hydrogen production credit under section 45V(a) and proposed Sec.
1.45V-1(b) with respect to qualified clean hydrogen produced by the
taxpayer at a qualified clean hydrogen production facility beginning
with the first taxable year in which a PER determined by the Secretary
has been obtained and for any subsequent taxable year during the 10-
year period beginning on the date such facility was originally placed
in service, provided all other requirements of section 45V are met, and
until the lifecycle GHG emissions rate of such hydrogen has been
determined (for purposes of section 45V(c)(2)(C)) under the most recent
GREET model (as defined in proposed Sec. 1.45V-1(a)(8)(ii)).
Proposed Sec. 1.45V-4(c)(6) would provide that the Secretary's PER
determination is not an examination or an inspection of books of
account for purposes of section 7605(b) of the Code, and would not
preclude or impede the IRS (under section 7605(b) or any administrative
provisions adopted by the IRS) from later examining a return or
inspecting books or records with respect to any taxable year for which
the section 45V credit is claimed. Proposed Sec. 1.45V-4(c)(6) would
provide that a verification report submitted under section
45V(c)(2)(B)(ii) and Sec. 1.45V-5 and any information,
representations, or other data provided to the DOE in support of an
emissions value request would still be subject to IRS examination.
Further, proposed Sec. 1.45V-4(c)(6) would state that a PER
determination would not mean that the IRS has determined that all the
requirements of section 45V have been satisfied for any taxable year,
nor would it create an inference that such a presumption exists.
C. Use of Energy Attribute Certificates
The Treasury Department and the IRS, in consultation with the
United States Environmental Protection Agency (EPA) and the DOE, have
preliminarily determined that energy attribute certificates (EACs) may
be considered under certain conditions in documenting purchased
electricity inputs and assessing emissions impacts of electricity used
in the production of hydrogen for purposes of the section 45V
credit.\9\ For purposes of these proposed regulations, the term
``EACs'' refers solely to EACs that represent attributes of electricity
generated by a specific facility or source. The EPA has advised that
EACs are an established mechanism for substantiating the purchase of
electricity from zero GHG-emitting sources and that the use of EACs
with attributes that meet certain criteria is an appropriate way for
the Treasury Department and the IRS to document electricity inputs to
electrolytic hydrogen production. Such EACs can also serve as a
reasonable methodological proxy for quantifying certain indirect
emissions associated with electricity for purposes of the section 45V
credit. Similarly, the EPA and the DOE have advised that it would be
appropriate for EACs with attributes that meet certain criteria to be
included as part of the basis for assessing emissions for purposes of
the section 45V credit. The Treasury Department and the IRS have
preliminarily determined that the use of certain EACs, which satisfy
the qualifying EAC requirements (as specified in proposed Sec. 1.45V-
4(d)(3)), is consistent with the references to subparagraph (H) of
section 211(o)(1) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)) and
the most recent GREET Model, as specified in section 45V(c)(1).
---------------------------------------------------------------------------
\9\ EPA Letter, available at <a href="https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf">https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf</a>; DOE. 2023. ``Assessing Lifecycle
Greenhouse Gas Emissions Associated with Electricity Use for the
Section 45V Clean Hydrogen Production Tax Credit.'' Washington, DC:
U.S. Department of Energy available at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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Proposed Sec. 1.45V-4(d)(1) would provide that for purposes of
section 45V, if a taxpayer determines a lifecycle GHG emissions rate
for hydrogen produced at a hydrogen production facility using the most
recent GREET model (as defined in proposed Sec. 1.45V-1(a)(8)(ii)) or
a PER (as defined in proposed Sec. 1.45V-4(c)(1)), then the taxpayer
may reflect in GREET or include in a PER such hydrogen production
facility's use of electricity as being from a specific electricity
generating facility rather than the being from the regional electricity
grid (as represented in 45VH2-GREET) only if the taxpayer acquires and
retires a qualifying EAC (as defined in proposed Sec. 1.45V-
4(d)(2)(iv)) for each unit of electricity that the taxpayer claims from
such source. For example, one megawatt-hour of electricity used to
produce hydrogen would need to be matched with one megawatt-hour of
qualifying EACs. The Treasury Department and the IRS seek comments on
whether a different treatment would be more appropriate to account for
transmission and distribution line losses.
Further, proposed Sec. 1.45V-4(d)(1) would provide that to satisfy
this requirement, a taxpayer's acquisition and retirement of qualifying
EACs must also be recorded in a qualified EAC registry or accounting
system (as defined in proposed Sec. 1.45V-4(d)(2)(v)) so that the
acquisition and retirement of such EACs may be verified by a qualified
verifier (as defined in proposed Sec. 1.45V-5(h)).
The double counting of EACs and their underlying attributes would
undermine the integrity of lifecycle GHG emissions rate determinations
that incorporate EACs. A double counting occurs if two different
parties claim the same environmental benefits from the same generated
energy.\10\ Uniformly requiring claims of using electricity generated
from specific sources to be evidenced by EACs that meet the
requirements of proposed Sec. 1.45V-4(d)(1) would mitigate the risk of
double counting. Thus, proposed Sec. 1.45V-4(d)(1) would provide that
certain requirements must be met regardless of whether the electricity
generating facility giving rise to the qualifying EAC is grid
connected, directly connected, or co-located with the hydrogen
production facility (that is, regardless of whether the underlying
source of the qualifying EAC physically supplies electricity through a
direct connection to the hydrogen production facility).
---------------------------------------------------------------------------
\10\ EPA, ``Double Counting,'' last updated Feb. 5, 2023,
available at <a href="https://www.epa.gov/green-power-markets/double-counting">https://www.epa.gov/green-power-markets/double-counting</a>.
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1. Definitions Related To Use of Energy Attribute Certificates
Proposed Sec. 1.45V-4(d)(2)(i) would define the term ``commercial
operations date'' or ``COD'' as the date on which a facility that
generates electricity begins commercial operations. The COD, as defined
here, is the first date of the operation of the relevant electricity
[[Page 89228]]
generating facility. The general rules for determining an electricity
generating facility's placed in service date for Federal income tax
purposes would not apply in determining its COD.
Proposed Sec. 1.45V-4(d)(2)(ii) would define the term ``energy
attribute certificate'' or ``EAC'' to mean a tradeable contractual
instrument, issued through a qualified EAC registry or accounting
system (as defined in proposed Sec. 1.45V-4(d)(2)(v)), that represents
the energy attributes of a specific unit of energy produced. An EAC may
be acquired with or separately from the underlying energy it
represents. An EAC can be retired by or on behalf of its owner, which
is the party that has the right to claim the underlying attributes
represented by an EAC. Renewable energy certificates (RECs) and other
similar energy certificates issued through a registry or accounting
system are forms of EACs.
Proposed Sec. 1.45V-4(d)(2)(iii) would define the term ``eligible
EAC'' to mean an EAC that, with respect to the electricity to which the
EAC relates, provides, at minimum, the following information: (i) a
description of the electricity generating facility, including the
technology and feedstock used to generate the electricity; (ii) the
amount and units of electricity; (iii) the date on which the facility
that generated the electricity first began commercial operations
(referred to as the commercial operations date (COD)) (as defined in
proposed Sec. 1.45V-4(d)(2)(i)); (iv) for electricity that is
generated before January 1, 2028, the calendar year in which such
electricity was generated; (v) for electricity that is generated after
December 31, 2027, the date and hour in which such electricity was
generated; and (vi) a unique project identification number or assigned
identifier for each EAC that can be used to cross reference any
additional electricity generating facility information that may be
needed, such as location.
Proposed Sec. 1.45V-4(d)(2)(iv) would define the term ``qualifying
EAC'' to mean an eligible EAC (as defined in proposed Sec. 1.45V-
4(d)(2)(iii)) that meets the requirements of proposed Sec. 1.45V-
4(d)(3) and for which the satisfaction of those requirements has been
verified by a qualified verifier (as defined in proposed Sec. 1.45V-
5(h)).
Proposed Sec. 1.45V-4(d)(2)(v) would define the term ``qualified
EAC registry or accounting system'' to mean a tracking system that (i)
assigns a unique identification number to each EAC tracked by such
system, (ii) enables verification that only one EAC is associated with
each unit of electricity, (iii) verifies that the underlying attributes
of each EAC is claimed and retired only once, (iv) identifies the owner
of each EAC, and (v) provides a publicly accessible view (for example,
through an application programming interface) of all currently
registered electricity generators in the tracking system to prevent the
duplicative registration of such generators. Qualified EAC registries
currently include, but are not limited to, the following: Electric
Reliability Council of Texas (ERCOT); Michigan Renewable Energy
Certification System (MIRECS); Midwest Renewable Energy Tracking
System, Inc. (M-RETS); North American Registry (NAR); New England Power
Pool Generation Information System (NEPOOL-GIS); New York Generation
Attribute Tracking System (NYGATS); North Carolina Renewable Energy
Tracking System (NC-RETS); PJM Generation Attribute Tracking System
(PJM-GATS); and Western Electric Coordinating Council (WREGIS).
Proposed Sec. 1.45V-4(d)(2)(vi) would define the term ``region''
to mean a United States region derived from the National Transmission
Needs Study (DOE Needs Study) that was released by the DOE on October
30, 2023.\11\ The DOE has mapped the DOE Needs Study regions to actual
balancing authorities. The data file and map of the resulting United
States regions can be found in Guidelines to Determine Well-to-Gate
Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using
45VH2-GREET (GREET User Manual) as of December 26, 2023. The location
of an electricity generation source and the location of a hydrogen
production facility will be based on the balancing authority to which
it is electrically interconnected (not its geographic location), with
each balancing authority linked to a single region. The MISO balancing
authority is an exception because it is split into two U.S. regions as
shown in the map located at GREET User Manual as of December 26, 2023.
Alaska, Hawaii, and each U.S. territory will be treated as separate
regions.
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\11\ DOE, National Transmission Needs Study, Oct. 2023,
available at <a href="https://www.energy.gov/sites/default/files/2023-10/National_Transmission_Needs_Study_2023.pdf">https://www.energy.gov/sites/default/files/2023-10/National_Transmission_Needs_Study_2023.pdf</a>.
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2. Eligible Energy Attribute Certificate Requirements
Proposed Sec. 1.45V-4(d)(3) would provide that an EAC meets the
requirements to be a qualifying EAC if it meets the requirements for
incrementality, temporal matching, and deliverability. The
incrementality requirement in proposed Sec. 1.45V-4(d)(3)(i) would
require qualifying EACs to represent incremental source electricity,
such as electricity from an electricity generating facility that has a
recent COD. As discussed in more detail later in this section, the
Treasury Department and the IRS are requesting comments on whether and
under what circumstances electricity generated by an existing
electricity generating facility (that is, with a less recent COD) that
is dedicated to hydrogen production may be treated as satisfying the
incrementality requirement. The temporal matching requirement in
proposed Sec. 1.45V-4(d)(3)(ii) would require that qualifying EACs are
retired that represent electricity produced in the same time period in
which the hydrogen production facility consumes electricity in the
production of hydrogen. The deliverability requirement in proposed
Sec. 1.45V-4(d)(3)(iii) would require qualifying EACs to represent
electricity that was produced by an electricity generating facility
that is in the same region as the relevant hydrogen production
facility.
The Treasury Department and the IRS, in consultation with the EPA
and the DOE, have preliminarily determined that these qualifying EAC
requirements are consistent with the requirements of section
45V(c)(1)(A) and (B) of the Code.\12\ The EPA has advised that, based
on its prior implementation of section 211(o)(1)(H) of the Clean Air
Act in other contexts, it would be reasonable and consistent with the
EPA's precedent for the Treasury Department and the IRS to determine
that induced grid emissions are an anticipated real-world result of
electrolytic hydrogen production that must be considered in lifecycle
GHG analyses for purposes of the section 45V credit. Such
interpretation would be consistent with the EPA's long-standing
interpretation and application of section 211(o)(1)(H) of the Clean Air
Act in the context of the Renewable Fuel Standard (RFS) program. The
EPA has also noted that EACs are an established means for documentation
and verification of the electricity generation and purchase of zero-GHG
electricity. Moreover, the EPA has advised that it believes it would be
reasonable for the Treasury Department and the IRS to use EACs that
possess specific attributes that meet certain criteria as a means of
reducing the risk of induced grid emissions resulting from
[[Page 89229]]
new load from electrolytic hydrogen production being added to an
existing grid. Such requirements would mitigate the risk of
inappropriately crediting hydrogen production that does not meet the
lifecycle GHG levels required by section 45V.
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\12\ EPA Letter, available at <a href="https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf">https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf</a>; DOE. 2023. ``Assessing Lifecycle
Greenhouse Gas Emissions Associated with Electricity Use for the
Section 45V Clean Hydrogen Production Tax Credit.'' Washington, DC:
U.S. Department of Energy, available at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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DOE has published a technical paper, Assessing Lifecycle Greenhouse
Gas Emissions Associated with Electricity Use for the Section 45V Clean
Hydrogen Production Tax Credit, which the Treasury Department and the
IRS have reviewed, and which has informed the development of the
proposed regulations. As discussed therein, incrementality, temporal
matching, and deliverability requirements are important guardrails to
ensure that hydrogen producers' electricity use can be reasonably
deemed to reflect the emissions associated with the specific generators
from which the EACs were purchased and retired. If hydrogen producers
rely on EACs without attributes that meet these three criteria there is
a significant risk that hydrogen production would significantly
increase induced grid GHG emissions beyond the allowable levels
required to qualify for the section 45V credit.
Electricity from a specific generator will have a GHG emissions
profile that results from both its direct and indirect emissions. EACs
with attributes that meet the three criteria are intended to address
indirect GHG emissions resulting from the dynamics of the electricity
market and the electric grid. If a hydrogen producer purchases zero
GHG-emitting electricity that is represented by such EACs it is
relatively straightforward to verify both the direct and indirect
emissions resulting from such purchase and use. However, for minimal-
emitting sources of electricity, additional considerations may be
necessary to verify the full range of direct and indirect emissions.
The Treasury Department and the IRS request comment on what information
is needed to document and verify GHG emissions related to minimal-
emitting electricity generation that is purchased and used for hydrogen
production for purposes of claiming the section 45V credit.
While the Treasury Department and the IRS are soliciting comment on
the type of information that hydrogen producers must provide in order
to document and verify the direct and indirect GHG emissions associated
with purchased electricity generally, we are also seeking input on two
specific types of electricity generation for which GHG emissions can be
highly variable or uncertain: fossil fuel-powered electricity
generation with CCS and biomass-powered electricity generation. With
regard to non-minimally emitting electricity generation, and fossil
fuel-powered generation and biomass powered generation with or without
CCS in particular, the Treasury Department and the IRS request comment
on mechanisms to verify accurately real-world emissions related to
hydrogen production. This includes mechanisms for, among other things,
verification of the origin of the feedstock, rate of carbon capture,
and other parameters that are relevant to accurate lifecycle analysis,
as well as the ability of EAC instruments to represent accurately such
attributes. The Treasury Department and the IRS also request comment on
specific lifecycle GHG emissions considerations, including the use of
counterfactual scenarios, that should be considered in evaluating
direct and indirect emissions associated with specific types of biomass
and its consumption. The Treasury Department and the IRS also request
comment on the extent and manner in which incrementality, temporal
matching, and deliverability should be applied in accounting for
existing or new electricity generation from biomass or fossil
feedstock. These comments may inform future versions of 45VH2-GREET.
a. Incrementality
Proposed Sec. 1.45V-4(d)(3)(i)(A) would provide that an EAC meets
the incrementality requirement if the electricity generating facility
that produced the unit of electricity to which the EAC relates has a
COD (as defined in proposed Sec. 1.45V-4(d)(2)(i)) that is no more
than 36 months before the hydrogen production facility for which the
EAC is retired was placed in service.
The Treasury Department and the IRS understand that EAC tracking
systems capture the COD of each electricity generating facility during
the registration process (often using data also reported to the Energy
Information Administration), inclusive of month and year, which can be
cross-referenced based on project identification codes included on
those EACs. That COD should represent the initial date of operation for
the relevant electricity generating facility. Third-party verifiers
should use this data to confirm the eligibility of purchased and
retired EACs.
The Treasury Department and the IRS note that there are
circumstances in which an existing higher-emitting electricity
generating facility may make upgrades to subsequently deliver minimal-
emitting electricity. For example, an existing fossil-fuel electricity
generating facility may add CCS capability, thereby reducing its
lifecycle emissions rate as determined in 45VH2-GREET. The Treasury
Department and the IRS request comments on whether the electricity
generated by such a facility should be considered incremental under
circumstances such as if an existing fossil fuel electricity-generating
facility after the addition of CCS (after upgrade), had a COD that is
no more than 36 months before the relevant hydrogen production facility
was placed in service. Comment is also requested on the related
question of whether, depending on its carbon dioxide capture rate, it
would be appropriate to treat such a facility as a new source of
minimal-emitting generation on the grid that would not be associated
with induced grid emissions. Relevant to these questions, the Treasury
Department and the IRS additionally request comment on what information
would be needed to allow for qualifying EACs representing existing
fossil fuel-powered electricity from facilities that have added CCS. In
particular, comment is requested on whether there are safeguards that
can ensure that a hydrogen producer's purchase and use of electricity
from an existing fossil fuel-fired electricity generating facility that
installs CCS does not result in indirect GHG emissions due to the
dynamics of the electricity market and electric grid. The Treasury
Department and the IRS request comment on the direct and induced
emissions impacts of making such a facility eligible, and whether and
under what circumstances it would be appropriate to do so.
Proposed Sec. 1.45V-4(d)(3)(i)(B) would provide an alternative
test for establishing incrementality for electricity generating
facilities that undergo an uprate. Proposed Sec. 1.45V-4(d)(3)(i)(B)
would provide that an EAC satisfies this alternative test if the
electricity represented by the EAC is produced by an electricity
generating facility that had an uprate no more than 36 months before
the hydrogen production facility with respect to which the EAC is
retired was placed in service and such electricity is part of such
electricity generating facility's uprated production.
Proposed Sec. 1.45V-4(d)(3)(i)(B) would provide rules for
determining uprated production. Specifically, proposed Sec. 1.45V-
4(d)(3)(i)(B) would provide that an uprated electricity generating
facility's production must be prorated to each hour or year, consistent
with the requirements in proposed Sec. 1.45V-4(d)(3)(ii), of such
facility's generation by multiplying each hour's production
[[Page 89230]]
by the uprated production rate to determine the electricity to which
the uprate relates. Proposed Sec. 1.45V-4(d)(3)(i)(B) would define key
terms, including: (i) ``uprate,'' which means an increase in an
electricity generating facility's rated nameplate capacity (in
nameplate megawatts); (ii) ``pre-uprate capacity,'' which means the
nameplate capacity of an electricity generating facility immediately
before an uprate; (iii) ``post-uprate capacity,'' which means the
nameplate capacity of an electricity generating facility immediately
after an uprate; (iv) ``incremental generation capacity,'' which means
the increase in an electricity generating facility's rated nameplate
capacity from the pre-uprate capacity to the post-uprate capacity; (v)
``uprated production rate,'' which means the incremental generation
capacity (in nameplate megawatts) divided by the post-uprate capacity
(in nameplate megawatts); and (vi) ``uprated production,'' which means
the uprated production rate of an electricity generating facility
multiplied by its total generation output in a given hour (in megawatt
hours). Proposed Sec. 1.45V-4(d)(3)(i)(C) would provide an example to
illustrate the application of the alternative test for establishing
incrementality due to uprates.
The DOE has advised that there are circumstances during which
diversion of existing minimal (that is, zero or near-zero) emissions
power generation to hydrogen production is unlikely to result in
significant induced GHG emissions.\13\ Such circumstances may include
generation from minimal-emitting power plants (i) that would retire
absent the ability to sell electricity for qualified clean hydrogen
production, (ii) during periods in which minimal-emitting generation
would have otherwise been curtailed, if marginal emissions rates are
minimal, or (iii) in locations where grid-electricity is 100 percent
generated by minimal-emitting generators or where increases in load do
not increase grid emissions, for example, due to State policy capping
total GHG emissions such that new load must be met with minimal-
emitting generators. The Treasury Department and the IRS seek comments
on whether and how to provide alternative approaches to identifying
circumstances in which there is minimal risk of significant induced
grid emissions for certain existing electricity generating facilities.
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\13\ DOE. 2023. ``Assessing Lifecycle Greenhouse Gas Emissions
Associated with Electricity Use for the Section 45V Clean Hydrogen
Production Tax Credit.'' Washington, DC: U.S. Department of Energy,
available at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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The Treasury Department and the IRS are considering providing, in
the final regulations, alternative circumstances under which an EAC may
be deemed to satisfy the incrementality requirement. The Treasury
Department and the IRS request comments on these specific circumstances
as described in part V.C.2.a.i through iii of this Explanation of
Provisions.
i. Avoided Retirements Approach
The Treasury Department and the IRS seek comments on whether to
recognize an avoided retirements approach that would treat EACs from an
existing electricity generating facility as satisfying the
incrementality requirement if the facility is likely to avoid
retirement because of its relationship with a hydrogen production
facility. With respect to this potential approach, the Treasury
Department and the IRS request comments on the following: (i) the
appropriate criteria that should be considered to assess retirement
risk; (ii) the extent to which demonstration of financial loss,
projected or actual local electricity market conditions, presence of
out-of-market financial support (which could potentially include
financial support driven by Federal or State policy, bilateral
contracts for EACs or above-market electricity sales, or revenue
provided by cost-of-service regulation), or upcoming relicensing
decisions, in combination, are appropriate criteria to assess risk;
(iii) industry best practices for estimating financial loss and the
documentation necessary to support those estimates; (iv) the
appropriate criteria that should be taken into account to assess the
likelihood that an electricity generator's relationship with a hydrogen
production facility avoids retirement of the generator (for example,
size of electrolyzer, co-location, contract length, or otherwise); (v)
the appropriate criteria that should be taken into account to ensure
that only electricity generation supplying the minimum hydrogen
production necessary to avoid retirement is counted as incremental,
and, in particular, whether there should be a cap on the amount of
generation from a given facility that qualifies as incremental and how
such a cap should be determined; (vi) the period during which any
determination of incrementality of existing electricity generators
would be maintained before a new showing would be required; (vii) the
process by which eligibility for this approach should be determined and
any related administrability considerations; and (viii) what role, if
any, EAC tracking systems should play in the verification or tracking
of eligible EACs from such electricity generators.
With respect to processes that may be used to implement this
approach, the Treasury Department and the IRS request comments on
whether such approach should allow existing minimal-emitting generators
that wish to provide EACs to hydrogen producers to demonstrate
incrementality through submission to the IRS or another Federal agency,
such as the DOE, specific information that supports a conclusion that
the electricity generator is at risk of retirement that may be
mitigated by sales to hydrogen producers, and, if so, what information
and information submission process should be required.
The available data on retirement risk indicates this approach may
be warranted. Some clean power plants, primarily nuclear plants, have
retired in recent years. Based on data from the Energy Information
Administration (EIA), from 2013 through 2022, 10,800 megawatts (MW) of
nuclear, 1,700 MW of wind, 950 MW of hydropower, and 360 MW of solar
have retired.\14\ Studies have shown that there is risk of continued
retirement in the years ahead.\15\ The EIA, for example, estimates that
an additional 4,600 MW of existing nuclear plants may retire through
2032, equivalent to five percent of the existing nuclear fleet (1,900
gigawatts (GW) of renewable power plants may retire as well).\16\ Some
of these plant owners (primarily owners of nuclear plants) may decide
whether to retire the plants based on the finances of continuing to
operate the plants. It is likely that for some plants, additional
revenue from selling EACs and electricity to hydrogen producers may
improve the financial outlook of the plant and help avert retirement,
thereby keeping the minimal-emitting power plant in operation and not
resulting in induced grid emissions compared to a scenario in which the
plant retires.
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\14\ Monthly Generator Report Based on Form 860 available at
<a href="https://www.eia.gov/electricity/data/eia860m/">https://www.eia.gov/electricity/data/eia860m/</a>.
\15\ See John Bistline et al, ``Emissions and energy impacts of
the Inflation Reduction Act'', 380Science, 1324-27, June 29, 2023,
available at <a href="https://www.science.org/doi/10.1126/science.adg3781">https://www.science.org/doi/10.1126/science.adg3781</a>;
U.S. Energy Information Administration, Annual Energy Outlook 2023,
March 16, 2023, available at <a href="https://www.eia.gov/outlooks/aeo/tables_ref.php">https://www.eia.gov/outlooks/aeo/tables_ref.php</a>.
\16\ U.S. Energy Information Administration, Annual Energy
Outlook 2023, March 16, 2023, available at <a href="https://www.eia.gov/outlooks/aeo/tables_ref.php">https://www.eia.gov/outlooks/aeo/tables_ref.php</a>.
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[[Page 89231]]
ii. Zero or Minimal Induced Grid Emissions Through Modeling or Other
Evidence
The Treasury Department and the IRS seek comments on whether to
provide an opportunity to demonstrate zero or minimal induced grid
emissions through modeling or other evidence under specific
circumstances. A demonstrated or modeled minimal-emission approach
could treat electricity produced by certain existing electricity
generating facilities under certain circumstances as satisfying the
incrementality requirement if it is demonstrated that such sources and
circumstances would not give rise to significant induced grid
emissions. Such a showing could be based on modeling or potentially be
deemed to be made in certain circumstances based on regional grid
characteristics, state policy, or facility history.
The Treasury Department and the IRS request comments on this
demonstrated or modeled minimal-emission approach, including: (i) the
circumstances in which it should be available and the criteria that are
appropriate to evaluate and determine whether those circumstances
occur; (ii) who should apply under this approach, the electricity
generation facility, the hydrogen producer, or both; (iii) what data or
modeling should be submitted; (iv) best practices for making such
demonstrations, including for ensuring the impartiality and
replicability of calculation approaches; (v) how an administrator of
such a program would validate the accuracy of applicant submissions;
(vi) under what circumstances, if any, it would be appropriate to deem
generation to satisfy the incrementality requirement without modeling,
and what documentation should be provided in these cases; (vii) the
process by which eligibility for this approach should be determined and
any related administrability considerations; (viii) the period during
which any determination of incrementality would be maintained before a
new showing would be required; and (ix) the circumstances and
capability of EACs and tracking systems to track and verify energy
attributes from such sources.
There are several circumstances that may be covered under this
pathway. Periods of curtailment or zero or negative pricing is one such
circumstance. Hydropower plants sometimes ``spill'' water, a form of
curtailment. Curtailment of minimal-emitting electricity generation
tends to occur during times when wholesale electricity prices are zero
or negative on a system-wide basis. Purchasing EACs from existing
minimal-emitting electricity generators under these conditions would
have limited or no induced grid emissions as these are times during
which increased load would tend to be met by the otherwise curtailed
minimal-emitting electricity generators rather than inducing increased
generation from emitting electricity generators, and so is unlikely to
significantly increase induced grid emissions.
Similarly, if in a particular region, all generation--including
imported generation--comes from minimal-emitting electricity
generators, then increased load is unlikely to significantly increase
induced grid emissions. The same may be true if a region is subject to
a state or local policy that ensures that new load is met with minimal-
emitting electricity generation.
There may be limited risk of significant induced GHG emissions for
islanded generation systems. Diversion of generation from a minimal-
emitting electricity generator that has never been connected to the
grid generally may not have the same induced GHG emissions effects as
diversion from an electricity generator that is connected to the grid.
Induced GHG emissions could occur, however, if the energy demand that
the existing minimal-emitting electricity generator previously met is
instead met by a different, emitting, energy source. For example, an
onsite minimal-emitting electricity generator that powers an industrial
facility could be diverted for hydrogen production, in which case the
induced GHG emissions would depend on what happens at the site to meet
the power needs of the industrial facility (unless the industrial
facility ceases operation).
iii. Formulaic Approaches To Addressing Incrementality From Existing
Clean Generators
The Treasury Department and the IRS recognize the difficulty in
reliably identifying the specific electricity generators and specific
times and places in which the circumstances described in part V.C.2.a.i
and ii of this Explanation of Provisions might occur. Therefore, the
Treasury Department and the IRS are also considering alternative
approaches that would serve as proxy for all the pathways described in
part V.C.2.a.i and part V.C.2.a.ii of this Explanation of Provisions.
EACs that satisfy the incrementality requirement through this pathway
would still be required to meet temporal matching and deliverability
requirements.
One such approach would deem five percent of the hourly generation
from minimal-emitting electricity generators (for example, wind, solar,
nuclear, and hydropower facilities) placed in service before January 1,
2023, as satisfying the incrementality requirement. This pathway may be
appropriate because some circumstances (including periods of
curtailment or times when generation from minimal-emitting electricity
generation is on the margin) may make the resulting incremental
generation difficult to anticipate or identify, or because the process
for identifying the circumstances (such as avoided retirement risk or
modeling of minimal-emissions) may be overly burdensome to evaluate for
specific electricity generators or require data that is not available.
In some instances, for example, in determining whether EACs come from
electricity generation that would otherwise have been curtailed, these
circumstances require understanding of counterfactual ``what if''
scenarios that depend on numerous assumptions. In other circumstances,
for example, in determining whether EACs come from minimal-emitting
electricity generators that otherwise would have retired or if policy
regimes restrict increases in grid emissions in the face of growing
electricity demand, they may require detailed assessment and pre-
qualification based on applicant-submitted information and forecasts
with related concerns about information accuracy. In still other cases,
they may require complex geographically and temporally granular
modeling and data (such as for marginal emission rates that consider
operational and structural effects \17\) in concert with hourly EAC
tracking infrastructure that is not yet widely available.
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\17\ DOE 2023. ``Assessing Lifecycle Greenhouse Gas Emissions
Associated with Electricity Use for the Section 45V Clean Hydrogen
Production Tax Credit.'' Washington, DC: U.S. Department of Energy,
available at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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The Treasury Department and the IRS are mindful of the risk that an
allowance without further temporal, spatial, and circumstantial
precision results in hydrogen production facilities receiving credits
for which they should not be eligible given their induced emissions
rates. Given the risks of induced GHG emissions, the Treasury
Department and the IRS believe that a broadly available allowance that
is not tailored to specific geographic or other conditions should not
be greater than the national average rate of the occurrence of the
above circumstances and instead should be a conservative lower bound of
the national average. The DOE reports that wind curtailment in 2022
averaged 5.3 percent of total wind generation
[[Page 89232]]
nationwide (data are only available for Independent System Operator
(ISO) regions),\18\ and Lawrence Berkeley National Laboratory reports
curtailment rates for solar photovoltaics at over 10 percent of solar
generation in ERCOT and over 3 percent in California Independent System
Operator (CAISO).
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\18\ Office of Energy Efficiency & Renewable Energy, DOE,
``Land-Based Wind Market Report: 2023 Edition,'' Aug. 24, 2023,
available at <a href="https://www.energy.gov/eere/wind/articles/land-based-wind-market-report-2023-edition">https://www.energy.gov/eere/wind/articles/land-based-wind-market-report-2023-edition</a>.
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Purchasing EACs from existing minimal-emission electricity
generators, whether or not from the electricity generators that would
otherwise curtail their output, under these conditions would have
limited risk of induced grid emissions. As noted earlier, curtailment
is most likely to occur in the face of negative wholesale electricity
prices if the marginal grid emissions rate is minimal or zero. Based on
a data tool developed by Lawrence Berkeley National Laboratory that
considers over 50,000 wholesale pricing nodes across the nation,
negative wholesale prices occurred during roughly five percent of hours
over the last several years (6.3 percent of hours in 2022, 5.8 percent
in 2021, 4.8 percent in 2020, 3.3 percent in 2019, and 2.3% in
2018).\19\ These are times during which increased load is unlikely to
increase significantly induced grid emissions.\20\ Modeled data from
the National Renewable Energy Laboratory (NREL) is broadly consistent
with these trends. Specifically, NREL's Cambium data set for 2024 shows
that long-run marginal emissions rates on a national basis are
projected to be at or near zero for about five percent of hours, times
during which minimal-emitting electricity generators are on the margin
and often curtailed.\21\
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\19\ Berkeley Lab, Electricity Markets & Policy, The Renewables
and Wholesale Electricity Prices (ReWEP) Tool, available at <a href="https://emp.lbl.gov/renewables-and-wholesale-electricity-prices-rewep">https://emp.lbl.gov/renewables-and-wholesale-electricity-prices-rewep</a>.
\20\ For example, see New York State Energy Research and
Development Authority (NYSERDA). 2022 ``Projected Emission Factors
for New York State Grid Electricity,'' NYSERDA Report Number 22-18,
available at <a href="https://www.nyserda.ny.gov/-/media/Project/Nyserda/Files/Publications/Energy-Analysis/22-18-Projected-Emission-Factors-for-New-York-Grid-Electricity.pdf">https://www.nyserda.ny.gov/-/media/Project/Nyserda/Files/Publications/Energy-Analysis/22-18-Projected-Emission-Factors-for-New-York-Grid-Electricity.pdf</a>.
\21\ See National Renewable Energy Laboratory, Energy Analysis,
Cambium, available at <a href="https://www.nrel.gov/analysis/cambium.html">https://www.nrel.gov/analysis/cambium.html</a>.
Long-run marginal emissions rates at or near zero defined as under
25 kg CO2e/MWh.
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In addition, some minimal-emitting electricity generators are at
risk of retirement, including about five percent of the nuclear fleet
according to EIA estimates. A percentage allowance can also serve as
proxy for avoided retirements.
The Treasury Department and the IRS seek comments on this five
percent-allowance approach, including the merits of this approach
compared to the targeted pathways described, particularly with respect
to balancing administrative feasibility and burden with accuracy of
identifying circumstances with a low risk of induced grid emissions.
The Treasury Department and the IRS also seek comments on whether 5
percent is the appropriate magnitude for an allowance. In particular,
as noted earlier, data show that curtailment rates have increased in
recent years, and NREL's Cambium model predicts additional increases
going forward. In light of these data and projections, the Treasury
Department and the IRS seek comments on whether a higher amount, such
as up to 10 percent, would be appropriate, either in general or in
certain cases or circumstances. The Treasury Department and the IRS
also seek comments on: (i) how a five-percent allowance should be
tracked, allocated, and administered and how feasible it is for EAC
tracking systems to incorporate data on such an allowance; (ii) whether
the five percent should apply to all existing minimal-emitting
electricity generators in all locations or a subset and for what
reasons; (iii) whether such an allowance should be assessed at the
individual plant level or across an operator's fleet within the same
deliverability region; and (iv) any other administrability
considerations. The Treasury Department and the IRS seek comments
specifically on whether and how the ``averaging'' approach of a proxy
appropriately captures the circumstances in which generation is
incremental or does not generate induced grid emissions. The Treasury
Department and the IRS also seek comments on how and whether the
targeted alternative approaches or the other proxy approaches described
subsequently in this part V.C.2.a.iii of this Explanation of Provisions
might replace the five-percent allowance or might be coordinated with
the allowance.
The Treasury Department and the IRS invite comments on alternative
formulaic, proxy approaches that might better capture conditions under
which using existing minimal-emitting electricity generation to produce
hydrogen does not significantly impact induced grid emissions. The
Treasury Department and the IRS request comments on whether there would
be an appropriate, more formulaic approach to capturing retirement
risk, instead of the application-based process or the five-percent
allowance. Comments are specifically requested on whether such an
alternative approach should be limited to facilities with specific
technical, market, or geographic characteristics corresponding with a
greater risk of retirement (for example, participation in a wholesale
market, lack of state support for a facility, nuclear plants with a
single reactor) and higher likelihood that using a subset of
electricity generation and related EACs for hydrogen production would
minimize the risk.
In particular, the Treasury Department and the IRS seek comments on
whether existing nuclear and hydroelectric facilities that need to
undertake a relicensing process are generally at higher risk of
retirement without additional financial assistance and, if so, what
considerations should be integrated into a potential formulaic
approach. Comments are further requested on whether there are
particular characteristics of hydrogen production facilities associated
with existing generators at risk of retirement that should be
considered (i) to demonstrate that the hydrogen production reduces
retirement risk, such as co-location of hydrogen production with an
existing generator and (ii) to assess the minimum hydrogen production
necessary to reduce retirement risk, such as limitations on project
size, electrolyzer capacity, or percent of generation used by the
hydrogen production. Comments are further requested on how to determine
the portion of such electricity generation and related EACs, which is
generally likely to be sufficient to minimize that risk. Similarly,
with respect to the modeled or demonstrated approach described in part
V.C.2.a.ii of this Explanation of Provisions, the Treasury Department
and the IRS request comments on whether there are formulaic approaches
that might be used instead of an application-based pre-qualification
process and the broad five-percent allowance.
For each of these possible alternative approaches to establish
incrementality, the Treasury Department and the IRS request comments on
how eligibility for the approach may be reliably verified by an
unrelated party and administered by the IRS.
b. Temporal Matching
Proposed Sec. 1.45V-4(d)(3)(ii)(A) would provide the general rule
that an EAC satisfies the temporal matching requirement if the
electricity represented by the EAC is generated in the same hour that
the taxpayer's hydrogen production facility uses electricity to produce
hydrogen. Proposed Sec. 1.45V-4(d)(3)(ii)(B) would
[[Page 89233]]
provide a transition rule to allow an EAC that represents electricity
generated before January 1, 2028 to fall within the general rule
provided in proposed Sec. 1.45V-4(d)(3)(ii)(A) if the electricity
represented by the EAC is generated in the same calendar year that the
taxpayer's hydrogen production facility uses electricity to produce
hydrogen. The DOE has advised that hourly matching is necessary to
properly address significant indirect emissions from electricity use
and that the tracking systems and related contractual structures for
hourly matching will take some time to develop to an appropriate level
of maturity.\22\ This transition rule is intended to provide time for
the EAC market to develop the hourly tracking capability necessary to
verify compliance with this requirement.
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\22\ DOE. 2023. ``Assessing Lifecycle Greenhouse Gas Emissions
Associated with Electricity Use for the Section 45V Clean Hydrogen
Production Tax Credit,'' Washington, DC: U.S. Department of Energy,
available at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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Hourly tracking systems for EACs are not yet broadly available
across the country and will take some time to develop.\23\ In a recent
survey of nine existing tracking systems,\24\ two of the tracking
systems indicated that they are already tracking on an hourly basis,
although software functionality in these two systems remains limited.
Fully developing the functionality of these systems will take time, as
will creating and developing the functionality of hourly tracking
infrastructure in other regions of the country. Of the other tracking
systems, assuming that challenges are overcome, four gave a timeline of
less than one year to two years, and one gave a timeline of three to
five years; in the latter case, the respondent noted that the timeline
could be closer to three years if there is full state agency buy-in,
clear instructions are received from federal or state agencies, and
funding for stakeholder participation is made available. Two tracking
systems declined to give a timeline to develop this functionality. In
the same survey, tracking systems identified a number of challenges to
hourly tracking that will need to be overcome, including cost,
regulatory approval, interactions with state policy, sufficient
stakeholder engagement, data availability and management, and user
confusion. Moreover, once the tracking software infrastructure is in
place nationally, it may take additional time for transactional
structures and efficient hourly EAC markets to develop. Among the
issues that require resolution as EAC tracking systems move to hourly
resolution is the treatment of electricity storage.\25\
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\23\ Electric Power Research Institute, ``24/7 Carbon-free
Energy: Matching Carbon-free Energy Procurement to Hourly Electric
Load,'' Dec. 15, 2022, available at <a href="https://www.epri.com/research/products/000000003002025290">https://www.epri.com/research/products/000000003002025290</a>.
\24\ Center for Research Solutions, ``Readiness for Hourly: U.S.
Renewable Energy Tracking Systems,'' June 15, 2023, available at
<a href="https://resource-solutions.org/wp-content/uploads/2023/06/Readiness-for-Hourly-U.S.-Renewable-Energy-Tracking-Systems.pdf">https://resource-solutions.org/wp-content/uploads/2023/06/Readiness-for-Hourly-U.S.-Renewable-Energy-Tracking-Systems.pdf</a>.
\25\ DOE. 2023. ``Assessing Lifecycle Greenhouse Gas Emissions
Associated with Electricity Use for the Section 45V Clean Hydrogen
Production Tax Credit,'' Washington, DC: U.S. Department of Energy,
available at: <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>.
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Given the state of tracking systems, the expected responses to this
proposed rule, and the impact of demand to drive development of the
tracking systems, the Treasury Department and the IRS anticipate that
the proposed duration of the transition rule would allow sufficient
time for systems to develop hourly tracking mechanisms and for the
associated trading markets to develop. The Treasury Department and the
IRS acknowledge uncertainty in the timing of implementing an hourly
matching requirement, however, and request comments on the appropriate
duration of this transition rule to hourly matching, including specific
data regarding current industry practices, the predicted timelines for
development of hourly tracking mechanisms, and the predicted timeline
for market development for hourly EACs.
c. Deliverability
Proposed Sec. 1.45V-4(d)(3)(iii) would provide that an EAC meets
the deliverability requirements if the electricity represented by the
EAC is generated by a source that is in the same region (as defined in
proposed Sec. 1.45V-4(d)(2)(vi)) as the relevant hydrogen production
facility. This approach provides reasonable assurances of
deliverability of electricity because the regions, as defined earlier,
were developed by the DOE in consideration of transmission constraints
and congestion and, in many cases, match power-systems operation. The
Treasury Department and the IRS recognize that transmission limitations
also exist within these specified regions but are not aware of readily
administrable options to reflect those grid constraints. The DOE has
generally found that inter-regional transmission constraints tend to be
greater than within-region constraints.\26\ The Treasury Department and
the IRS request comments on whether there are additional ways to
establish deliverability, such as circumstances indicating that
electricity is actually deliverable from an electricity generating
facility to a hydrogen production facility, even if the two are not
located in the same region or if the clean electricity generator is
located outside of the United States.
---------------------------------------------------------------------------
\26\ DOE, National Transmission Needs Study, Oct. 2023,
available at <a href="https://www.energy.gov/sites/default/files/2023-10/National_Transmission_Needs_Study_2023.pdf">https://www.energy.gov/sites/default/files/2023-10/National_Transmission_Needs_Study_2023.pdf</a>.
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VI. Procedures for Verification of Qualified Clean Hydrogen Production
and Sale or Use
Section 45V(c)(2)(B)(ii) provides that hydrogen is not qualified
clean hydrogen unless ``the production and sale or use of such hydrogen
is verified by an unrelated party.''
A. Requirements for Verification Reports
Proposed Sec. 1.45V-5(a) would provide that a verification report
must be attached to the taxpayer's Form 7210, Clean Hydrogen Production
Credit, or any successor form(s), and included with the taxpayer's
Federal income tax return or information return for each qualified
clean hydrogen production facility and for each taxable year in which
the taxpayer claims the section 45V credit. Proposed Sec. 1.45V-5(b)
would provide that the verification report specified in Sec. 1.45V-
5(a) must be prepared by a qualified verifier (as defined in Sec.
1.45V-5(h)) under penalties of perjury. Proposed Sec. 1.45V-5(b)(1)
through (6) would describe the following information that a
verification report must contain: (i) an attestation from the qualified
verifier regarding the taxpayer's production of qualified clean
hydrogen for sale or use during the taxable year (production
attestation), (ii) an attestation from the qualified verifier regarding
the amount of such qualified clean hydrogen sold or used (sale or use
attestation), (iii) an attestation from the qualified verifier
regarding conflicts of interest (conflict attestation), (iv) certain
information regarding the qualified verifier, including documentation
of the qualified verifier's qualifications (qualified verifier
statement), (v) certain general information about the taxpayer's
hydrogen production facility where the hydrogen production undergoing
verification occurred, and (vi) any documentation necessary to
substantiate the verification process given the standards and best
practices prescribed by the qualified verifier's accrediting body and
the circumstances of the taxpayer and the taxpayer's hydrogen
production facility.
[[Page 89234]]
B. Requirements for Production Attestation
Proposed Sec. 1.45V-5(c)(1) would provide that a production
attestation must state, under penalties of perjury, that the qualified
verifier performed a verification sufficient to determine that the
operation, during the applicable taxable year, of the hydrogen
production facility that produced the hydrogen for which the section
45V credit is claimed, and any EACs applied pursuant to proposed Sec.
1.45V-4(d), are accurately reflected in: (i) the amount of qualified
clean hydrogen produced by the taxpayer that is claimed on the Form
7210, Clean Hydrogen Production Credit, or any successor form(s), to
which the verification report is attached; and (ii) either the data the
taxpayer entered into the most recent GREET model (as defined in
proposed Sec. 1.45V-1(a)(8)(ii)) to determine the lifecycle GHG
emissions rate that is claimed on the Form 7210, or the data the
taxpayer submitted in the PER petition relating to the hydrogen for
which the section 45V credit is claimed, and which was provided to the
DOE in support of the taxpayer's request for the emissions value
provided in the PER petition. For any acquisition and retirement of
qualifying EACs, the verification must include validation that any
purchases of EACs from specified sources as entered into the most
recent GREET model or used as part of a PER application meet all
requirements for being qualifying EACs, and that any required technical
parameters of the generating source (for example, CCS capture rate, or
sources of biomass) as entered into 45VH2-GREET or as part of a PER
application are accurate.
Proposed Sec. 1.45V-5(c)(2) would provide that, if the production
attestation attests to the information specified in proposed Sec.
1.45V-5(c)(1)(ii)(B), then the production attestation must also specify
the emissions value received from the DOE that was calculated using
such data, expressed in kilograms of CO2e per kilogram of hydrogen.
Proposed Sec. 1.45V-5(c)(3) would provide that the production
attestation must specify the lifecycle GHG emissions rate (expressed in
kilograms of CO2e per kilogram of hydrogen) and the amount of qualified
clean hydrogen produced by the taxpayer, (expressed in kilograms), that
are claimed on the Form 7210, Clean Hydrogen Production Credit, or any
successor form(s), to which the verification report is attached.
C. Requirements for Sale or Use Attestation
Proposed Sec. 1.45V-5(d)(1) would provide that the sale or use
attestation must be an attestation, made under penalties of perjury,
that the qualified verifier performed a verification sufficient to
determine that the amount of qualified clean hydrogen that is specified
in the production attestation (described in proposed Sec. 1.45V-5(c)),
and that is claimed on the Form 7210, Clean Hydrogen Production Credit,
or any successor form(s), to which the verification report is attached,
has been sold or used.
Proposed Sec. 1.45V-5(d)(2) would provide that, for purposes of
section 45V(c)(2)(B)(ii) and Sec. 1.45V-1(a)(9)(ii), the hydrogen
specified in proposed Sec. 1.45V-5(d)(1) has been used if a person
makes a verifiable use of such hydrogen. Section 45V does not deny a
section 45V credit if the hydrogen is sold or used outside the United
States (as defined in section 638(1) or a United States territory
(having the meaning of the term ``possession'' as defined in section
638(2)). Thus, a verifiable use can occur within or outside the United
States. A verifiable use can be made by the taxpayer or a person other
than the taxpayer. For example, in a tolling arrangement pursuant to
which a service recipient provides raw materials or inputs such as
water or electricity to a third-party service provider that owns a
hydrogen production facility (the toller), and the toller produces
hydrogen for the service recipient using the service recipient's raw
materials or inputs in exchange for a fee, use of the hydrogen by the
service recipient would be a verifiable use. However, a verifiable use
includes neither (i) use of hydrogen to generate electricity that is
then directly or indirectly used in the production of more hydrogen,
nor (ii) venting or flaring hydrogen.
Excluding those activities from qualifying as a verifiable use is
intended to prevent the wasteful production of hydrogen and abusive
section 45V credit generation schemes. For example, without this
restriction, the section 45V credit could be exploited through the
production of qualified clean hydrogen that is used to generate
electricity that is, in turn, used to produce additional qualified
clean hydrogen. The primary purpose of these arrangements would be the
exploitation of the section 45V credit and possibly other Federal
income tax credits. Such arrangements are inconsistent with the intent
of section 45V and with the statutory ``use'' requirement because they
would incentivize the inefficient production of qualified clean
hydrogen for unproductive use and would result in excessive claims of
the section 45V credit. The Treasury Department and the IRS request
comments on whether there are additional safeguards that the
regulations could adopt to prevent this or similar types of abusive
section 45V credit claims, including section 45V credit claims arising
if such circular arrangements are coordinated among multiple parties.
D. Requirements for Conflict Attestation
Proposed Sec. 1.45V-5(e)(1) would provide that the verification
report must also include a conflict attestation, made under penalties
of perjury, that (i) the qualified verifier has not received a fee
based to any extent on the value of any section 45V credit that has
been or is expected to be claimed by any taxpayer and no arrangement
has been made for such fee to be paid at some time in the future; (ii)
the qualified verifier was not a party to any transaction in which the
taxpayer sold qualified clean hydrogen it had produced or in which the
taxpayer purchased inputs for the production of such hydrogen; (iii)
the qualified verifier is not related, within the meaning of section
267(b) or 707(b)(1), to, or an employee of, the taxpayer; (iv) the
qualified verifier is not married to an individual described in
proposed Sec. 1.45V-5(e)(1)(iii); and (v) if the qualified verifier is
acting in his or her capacity as a partner in a partnership, an
employee of any person, whether an individual, corporation, or
partnership, or an independent contractor engaged by a person other
than the taxpayer, the attestations under proposed Sec. 1.45V-
5(e)(1)(i) through (iv) must be made with respect to the partnership or
the person who employs or engages the qualified verifier.
Proposed Sec. 1.45V-5(e)(2) would provide that, if a transfer
election has been made under section 6418(a) of the Code with respect
to the section 45V credit, then the attestation requirements under
proposed Sec. 1.45V-5(e)(1) would need to be made with respect to the
qualified verifier's independence from both the eligible taxpayer (as
defined in section 6418(f)(2) and Sec. 1.6418-1(b)) and the transferee
taxpayer (as described in section 6418(a) and defined in Sec. 1.6418-
1(m)).
E. Requirements for Qualified Verifier Statement
Proposed Sec. 1.45V-5(f) would provide that the qualified verifier
statement must contain (i) the qualified verifier's name, address, and
taxpayer identification number; (ii) the qualified verifier's
qualifications to conduct the
[[Page 89235]]
verification, including the qualified verifier's education and
experience and a photocopy of the qualified verifier's certificate
received from their accrediting body; (iii) if the qualified verifier
is acting in his or her capacity as a partner in a partnership, an
employee of any person, whether an individual, corporation, or
partnership, or an independent contractor engaged by a person other
than the taxpayer, the name, address, and taxpayer identification
number of the partnership or the person who employs or engages the
qualified verifier; (iv) the signature of the qualified verifier and
the date signed by the qualified verifier; and (v) a statement that the
verification was conducted for Federal income tax purposes.
F. General Information Required To Be Included in Verification Report
Proposed Sec. 1.45V-5(g) would provide that the verification
report must include (i) the location of the hydrogen production
facility; (ii) a description of the hydrogen production facility,
including its method of producing hydrogen; (iii) the type(s) of
feedstock(s) used by the hydrogen production facility during the
taxable year of production; (iv) the amount(s) of feedstock(s) used by
the hydrogen production facility during the taxable year of production;
and (v) a list of the metering devices used to record any data used by
the qualified verifier to support the production attestation along with
a statement that the qualified verifier is reasonably assured that the
device(s) underwent industry-appropriate quality assurance and quality
control, and that the accuracy and calibration of the device has been
tested in the last year.
G. Definitions Related to Verifications
Proposed Sec. 1.45V-5(h) would define the term ``qualified
verifier'' to mean any individual or organization with active
accreditation (i) as a validation and verification body from the
American National Standards Institute National Accreditation Board; or
(ii) as a verifier, lead verifier, or verification body under the
California Air Resources Board Low Carbon Fuel Standard program. The
Treasury Department and the IRS request comment on this definition of
``qualified verifier,'' including on whether additional accreditations
that demonstrate sufficient expertise for verification of lifecycle
analysis for the section 45V credit should be included.
Proposed Sec. 1.45V-5(i) would define the term ``unrelated party''
(as described in section 45V(c)(2)(B)(ii)) to mean a qualified verifier
who meets the conflict attestation requirements as provided in proposed
Sec. 1.45V-5(e).
H. Requirements for Taxpayers Claiming Both the Section 45V Credit and
the Section 45 Credit or the Section 45U Credit
Proposed Sec. 1.45V-5(j) would provide requirements that, in the
case of a taxpayer who produces electricity for which either the
section 45 credit or section 45U credit is claimed and the taxpayer or
a related person (as defined in section 45(e)(4)) uses such electricity
(and related EACs) to produce hydrogen for which the section 45V credit
is claimed, the verification report must also contain attestations that
the qualified verifier performed a verification sufficient to determine
that (i) the electricity used to produce hydrogen was produced at the
relevant facility for which either the section 45 credit or section 45U
credit was claimed, (ii) the given amount of such electricity (in
kilowatt hours) used to produce hydrogen at the relevant qualified
clean hydrogen production facility is reasonably assured of being
accurate, and (iii) the electricity for which a section 45 or section
45U credit was claimed is represented by EACs that are retired in
connection with the production of such hydrogen.
I. Required Time for Filing a Verification Report
Proposed Sec. 1.45V-5(k) would provide that a verification report
must be signed and dated by the qualified verifier no later than (i)
the due date, including extensions, of the Federal income tax return or
information return for the taxable year during which the hydrogen
undergoing verification is produced; or (ii) in the case of a section
45V credit first claimed on an amended return or administrative
adjustment request (AAR), the date on which the amended return or AAR
is filed.
VII. Placed in Service Date for Existing Facility That Is Modified or
Retrofitted To Produce Qualified Clean Hydrogen
A. Modification of an Existing Facility
Under section 45V(d)(4), in the case of any facility that was
originally placed in service before January 1, 2023, and, prior to the
modification (described in section 45V(d)(4)(B)), did not produce
qualified clean hydrogen, and after the date the facility was
originally placed in service (i) is modified to produce qualified clean
hydrogen, and (ii) amounts paid or incurred with respect to the
modification are properly chargeable to the taxpayer's capital account,
the facility will be deemed to have been originally placed in service
as of the date the property required to complete the modification is
placed in service. The rule in section 45V(d)(4) for modification of
existing facilities applies to modifications made after December 31,
2022. See section 13204(a)(5)(C) of the IRA.
Proposed Sec. 1.45V-6(a)(1) would incorporate the statutory
provisions of section 45V(d)(4). Proposed Sec. 1.45V-6(a)(2) would
further provide that an existing facility will not be deemed to have
been originally placed in service as of the date the property required
to complete the modification is placed in service unless the
modification is made for the purpose of enabling the facility to
produce qualified clean hydrogen and the taxpayer pays or incurs an
amount with respect to such modification that is properly chargeable to
the taxpayer's capital account for the facility. Proposed Sec. 1.45V-
6(a)(2) would also provide that a modification is made for the purpose
of enabling the facility to produce qualified clean hydrogen if the
facility could not produce hydrogen with a lifecycle GHG emissions rate
that is less than or equal to 4 kilograms of CO2e per kilogram hydrogen
but for the modification. Changing fuel inputs to the hydrogen
production process, such as switching from conventional natural gas to
renewable natural gas, would not qualify as a facility modification for
purposes of proposed Sec. 1.45V-6(a)(2).
Examples 1, 2, and 3 of proposed Sec. 1.45V-6(c) would provide
examples illustrating the application of the rules provided by section
45V(d)(4) and proposed Sec. 1.45V-6(a).
B. Retrofit of an Existing Facility (80/20 Rule)
Proposed Sec. 1.45V-6(b) would provide that an existing facility
may establish a new date on which it is considered originally placed in
service for purposes of section 45V, even though the facility contains
some used property, provided the fair market value of the used property
is not more than 20 percent of the facility's total value (the cost of
the new property plus the value of the used property) (80/20 Rule).
Proposed Sec. 1.45V-6(b) would further provide that for purposes of
the 80/20 Rule, the cost of new property includes all properly
capitalized costs of the new property included within the facility.
Proposed Sec. 1.45V-6(b) would provide that, if a facility satisfies
the requirements of the 80/20 Rule, then the date on which such
facility is considered originally placed in service for purposes of
section 45V(a)(1) is the date on which the new property added to the
facility is placed
[[Page 89236]]
in service. Proposed Sec. 1.45V-6(b) would also provide that the 80/20
Rule applies to any existing facility, regardless of whether the
facility previously produced qualified clean hydrogen and regardless of
when the facility was originally placed in service (before application
of proposed Sec. 1.45V-6(b)). Examples 4 and 5 of proposed Sec.
1.45V-6(c) would provide examples illustrating the application of the
80/20 Rule.
VIII. Election To Treat a Clean Hydrogen Production Facility as Energy
Property for Purposes of the Section 48 Credit
A. Overview
Section 48(a)(15) allows a taxpayer that owns and places in service
a specified clean hydrogen production facility (as defined in section
48(a)(15)(C)) to make an irrevocable election to claim the section 48
credit in lieu of the section 45V credit for any qualified property (as
defined in section 48(a)(5)(D)) that is part of the facility. This
provision is effective for property placed in service after December
31, 2022. For any property that is placed in service after December 31,
2022, and the construction of which begins before January 1, 2023,
section 13204(c)(3) of the IRA provides that section 48(a)(15) applies
only to the extent of the basis of such property that is attributable
to construction, reconstruction, or erection occurring after December
31, 2022.
Proposed Sec. 1.48-15(a) would provide that a taxpayer that owns
and places in service a specified clean hydrogen production facility
(as defined in section 48(a)(15)(C) and proposed Sec. 1.48-15(b)) can
make an irrevocable election under section 48(a)(15)(C)(ii)(II) to
treat any qualified property (as defined in section 48(a)(5)(D)) that
is part of the facility as energy property for purposes of section 48.
Proposed Sec. 1.48-15(b) would define the term ``specified clean
hydrogen production facility'' to mean any qualified clean hydrogen
production facility (within the meaning of section 45V(c)(3)) and
proposed Sec. 1.45V-1(a)(10)): (i) that is placed in service after
December 31, 2022; (ii) with respect to which no section 45V credit or
section 45Q credit has been allowed, and for which the taxpayer makes
an irrevocable election to have section 48(a)(15) apply; and (iii) for
which an unrelated party has verified in the manner specified in
proposed Sec. 1.48-15(e) that such facility produces hydrogen through
a process that results in lifecycle GHG emissions that are consistent
with the hydrogen that such facility was designed and expected to
produce under section 48(a)(15)(A)(ii) and proposed Sec. 1.48-15(c).
Proposed Sec. 1.48-15(c)(1) would provide the energy percentage
(used by a taxpayer to calculate a section 48 credit) for a specified
clean hydrogen production facility that is designed and reasonably
expected to produce qualified clean hydrogen through a process that
results in a lifecycle GHG emissions rate of not greater than 4
kilograms of CO2e per kilogram of hydrogen. Proposed Sec. 1.48-
15(c)(2) would further provide that ``designed and reasonably expected
to produce'' means hydrogen produced through a process that results in
the lifecycle GHG emissions rate specified in the annual verification
report for the taxable year in which the section 48(a)(15) election is
made. The Treasury Department and the IRS request comments on this
proposed rule and whether there are any challenges to using the
lifecycle GHG emissions rate achieved in the taxable year in which the
section 48(a)(15) election is made to determine the facility's energy
percentage for purposes of calculating the section 48 credit amount.
B. Election Procedures
1. Time and Manner of Making Election
Proposed Sec. 1.48-15(d)(1) would provide that, to make an
election under section 48(a)(15)(c)(ii)(II), a taxpayer must claim the
section 48 credit with respect to a specified clean hydrogen production
facility on a Form 3468, Investment Credit, or any successor form(s),
and file the form with the taxpayer's Federal income tax return or
information return for the taxable year in which the specified clean
hydrogen production facility is originally placed in service. Proposed
Sec. 1.48-15(d)(1) would provide that the taxpayer must also attach a
statement to its Form 3468, Investment Credit, or any successor
form(s), filed with its Federal income tax return or information return
that includes all the information required by the instructions to Form
3468, Investment Credit, or any successor form(s), for each specified
clean hydrogen production facility subject to an election. Proposed
Sec. 1.48-15(d)(1) would provide that a separate election must be made
for each specified clean hydrogen production facility that meets the
requirements provided in section 48(a)(15) to treat the qualified
property that is part of the facility as energy property.
Proposed Sec. 1.48-15(d)(1) would further provide that, if any
taxpayer owning an interest in a specified clean hydrogen production
facility makes an election with respect to the facility, then that
election would be binding on all taxpayers that directly or indirectly
own an interest in the facility. Thus, consistent with section
48(a)(15)(B), if a taxpayer owning an interest in a specified clean
hydrogen production facility makes an election under section
48(a)(15)(C)(ii)(II), then no other taxpayer owning an interest in the
same facility will be allowed a section 45V credit or section 45Q
credit with respect to the facility.
The Treasury Department and the IRS request comments on whether, in
the context of a specified clean hydrogen production facility that is
directly owned through an arrangement properly treated as a tenancy-in-
common for Federal income tax purposes or through an organization that
has made a valid election under section 761(a) of the Code, each co-
owner's or member's undivided ownership share of the qualified property
comprised in the facility should be treated for purposes of section
48(a)(15)(C)(ii)(II) as a separate facility owned by such co-owner or
member, with each such co-owner or member eligible to make a separate
election under section 48(a)(15)(C)(ii)(II) to claim the section 48
credit in lieu of the section 45V credit with respect to its undivided
ownership interest in the facility or share of the underlying qualified
property.
2. Special Rule for Partnerships and S Corporations
Proposed Sec. 1.48-15(d)(2) would provide that, in the case of a
specified clean hydrogen production facility owned by a partnership or
an S corporation, the election under section 48(a)(15)(C)(ii)(II) would
be made by the partnership or S corporation and would be binding on all
ultimate credit claimants (as defined in Sec. 1.50-1(b)(3)(ii)).
Proposed Sec. 1.48-15(d)(2) would provide that the partnership or S
corporation must file a Form 3468, Investment Credit, or any successor
forms(s), with its partnership or S corporation return for the taxable
year in which the specified clean hydrogen production facility is
placed in service to indicate that it is making the election, and
attach a statement that includes all the information required by the
instructions to Form 3468, Investment Credit, or any successor form(s),
for each specified clean hydrogen production facility subject to the
election. Proposed Sec. 1.48-15(d)(2) would provide that the ultimate
credit claimant's section 48 must be based on each claimant's share of
the basis (as defined in Sec. 1.46-3(f)) of the specified
[[Page 89237]]
clean hydrogen production facility on a completed Form 3468, Investment
Credit, or any successor forms(s), and file such form with a Federal
income tax return or information return for the taxable year that ends
with or within the taxable year in which the partnership or S
corporation made the election. Proposed Sec. 1.48-15(d)(2) would
provide that the partnership or S corporation making the election must
provide the ultimate credit claimants with the necessary information to
complete Form 3468, Investment Credit, or any successor forms(s), to
claim the section 48 credit.
3. Election Irrevocable
Proposed Sec. 1.48-15(d)(3) would provide that the election to
treat any qualified property that is part of a specified clean hydrogen
production facility as energy property would be irrevocable.
4. Election Availability Date
Proposed Sec. 1.48-15(d)(4) would provide that the election to
treat any qualified property that is part of a specified clean hydrogen
production facility as energy property would be available for property
placed in service after December 31, 2022, and, for any property that
began construction before January 1, 2023, only to the extent of the
basis thereof attributable to the construction, reconstruction, or
erection after December 31, 2022.
C. Third-Party Verification
Proposed Sec. 1.48-15(e)(1) would provide that, in the case of a
taxpayer that makes an election under section 48(a)(15)(c)(ii)(II) to
treat any qualified property that is part of a specified clean hydrogen
production facility as energy property for purposes of the section 48
credit, the taxpayer must obtain an annual verification report for the
taxable year in which the election is made and for each taxable year
thereafter of the recapture period specified in proposed Sec. 1.48-
15(f)(3). Proposed Sec. 1.48-15(e)(1) would further provide that the
taxpayer must also submit the annual verification report as an
attachment to the Form 3468, Investment Credit, or any successor
form(s), for the taxable year in which the election is made.
Further, proposed Sec. 1.48-15(e)(2)(i) would provide that the
annual verification report must be signed under penalties of perjury by
a qualified verifier (as defined in proposed Sec. 1.45V-5(h)) and
contain (i) the information specified in Sec. Sec. 1.45V-5(b) and
1.45V-5(d) through Sec. 1.45V-5(h); (ii) a statement attesting to the
lifecycle GHG emissions rate (determined under section 45V(c) and Sec.
1.45V-4) of the hydrogen produced at the specified clean hydrogen
production facility for the taxable year to which the annual
verification report relates and that the operation, during such taxable
year, of the specified clean hydrogen production facility, and any EACs
applied pursuant to Sec. 1.45V-4(d) for the purpose of accounting for
such facility's emissions, are accurately reflected in the data the
taxpayer entered into the most recent GREET model (as defined in Sec.
1.45V-1(a)(8)(ii)) (or in the data the taxpayer provided to the DOE in
support of the taxpayer's request for an emissions value), to determine
the lifecycle GHG emissions rate of the hydrogen undergoing
verification; and (iii) an attestation that the facility produced
hydrogen through a process that results in a lifecycle GHG emissions
rate that is consistent with, or lower than, the lifecycle GHG
emissions rate of the hydrogen that such facility was designed and
expected to produce.
Proposed Sec. 1.48-15(e)(2)(ii) would provide that if a transfer
election has been made under section 6418(a) of the Code with respect
to the section 48 credit for a specified clean hydrogen production
facility, then the conflict attestation containing the information
specified in proposed Sec. 1.45V-5(e)(1) must be made with respect to
the qualified verifier's independence from both the eligible taxpayer
(as defined in section 6418(f)(2) and Sec. 1.6418-1(b)) and the
transferee taxpayer (as described in section 6418(a) and defined in
Sec. 1.6418-1(m)), and without regard to the requirements under
proposed Sec. 1.45V-5(e)(2).
Proposed Sec. 1.48-15(e)(2)(iii) would provide that in the event
the facility produces qualified clean hydrogen through a process that
results in a lifecycle GHG emissions rate greater than the lifecycle
GHG emissions rate such facility was designed and expected to produce
(and thus the qualified verifier cannot provide the attestation
specified in proposed Sec. 1.48-15(e)(2)(i)(B)), resulting in a
reduced energy percentage under section 48(a)(15)(A)(ii) with respect
to such facility, an emissions tier recapture event under proposed
Sec. 1.48-15(f)(2) will occur. Proposed Sec. 1.48-15(e)(2)(iv) would
provide that the hydrogen a facility was ``designed and expected to
produce'' would mean hydrogen produced through a process that results
in the lifecycle GHG emissions rate specified in proposed Sec. 1.48-
15(c)(2).
Additionally, proposed Sec. 1.48-15(e)(2)(v) would require that
the annual verification report must be signed and dated by the
qualified verifier no later than the due date, including extensions, of
the Federal income tax return or information return for the taxable
year in which the hydrogen undergoing verification was produced.
Proposed Sec. 1.48-15(e)(2)(vi) would provide that in addition to the
recordkeeping requirements set forth in Sec. 1.48-15(g), the taxpayer
must retain the annual verification report for at least six years after
the due date, with extensions, for filing the Federal income tax return
or information return for the taxable year in which the hydrogen
undergoing verification was produced.
D. Credit Recapture
Section 48(a)(15)(E) directs the Secretary to issue such
regulations or other guidance as determined necessary to carry out the
purposes of section 48, including regulations or other guidance
addressing recapture of so much of the credit allowed under section 48
as exceeds the amount of the credit that would have been allowed if the
expected production were consistent with the actual verified production
or all of the credit so allowed in the absence of such verification.
1. Emissions Tier Recapture Events Under Section 48(a)(15)(E)
Proposed Sec. 1.48-15(f)(1), would provide that, for purposes of
section 48(a)(15)(E), in any taxable year of the recapture period
specified in proposed Sec. 1.48-15(f)(3) in which an emissions tier
recapture event (as defined in proposed Sec. 1.48-15(f)(2)) occurs,
the tax imposed on the taxpayer under chapter 1 of the Code for the
taxable year of the emissions tier recapture event is increased by the
recapture amount specified in proposed Sec. 1.48-15(f)(4).
Proposed Sec. 1.48-15(f)(2) would provide that an emissions tier
recapture event under section 48(a)(15)(E) occurs during any taxable
year of the recapture period specified in proposed Sec. 1.48-15(f)(3)
under the following circumstances: (i) the taxpayer fails to obtain an
annual verification report by the deadline for filing its Federal
income tax return or information return (including extensions) for any
taxable year in which an annual verification report was required under
proposed Sec. 1.48-15(e)(1); (ii) the specified clean hydrogen
production facility actually produced hydrogen through a process that
results in a lifecycle GHG emissions rate that can only support a lower
energy percentage than the energy percentage used to calculate the
amount of the section 48 credit for such facility for the year in which
the facility is placed in service; or (iii) the specified clean
hydrogen production facility
[[Page 89238]]
actually produced hydrogen through a process that results in a
lifecycle GHG emissions rate of greater than 4 kilograms of CO2e per
kilogram of hydrogen.
2. Recapture Period Under Section 48(a)(15)(E)
Proposed Sec. 1.48-15(f)(3) would provide that the recapture
period begins on the first day of the first taxable year after the
taxable year in which the facility was placed in service and ends on
the last day of the fifth taxable year after the close of the taxable
year in which the facility was placed in service. For example, if a
calendar-year taxpayer places in service a specified clean hydrogen
production facility on June 1, 2023, then the last day of the fifth
taxable year following the close of the taxable year in which the
facility was placed in service is December 31, 2028. Therefore, the
recapture period is January 1, 2024, through December 31, 2028.
3. Recapture Amount
Proposed Sec. 1.48-15(f)(4) would provide that, if an emissions
tier recapture event has occurred under proposed Sec. 1.48-15(f)(2),
the recapture amount for the taxable year in which the emissions tier
recapture event occurred is equal to 20 percent of the excess of (i)
the section 48 credit allowed to the taxpayer for the specified clean
hydrogen production facility for the taxable year in which the facility
was placed in service, over (ii) the section 48 credit that would have
been allowed to the taxpayer for the facility if the taxpayer had used
the energy percentage supported by the actual production to calculate
the amount of the section 48 credit. Proposed Sec. 1.48-15(f)(4)(ii)
would provide that, in the case of any emissions tier recapture event
described in proposed Sec. 1.48-15(f)(2), the carrybacks and
carryovers under section 39 must be adjusted by reason of the emissions
tier recapture event. Proposed Sec. 1.48-15(f)(4)(iii) would further
provide that, if the specified clean hydrogen production facility
produced hydrogen through a process that results in a lifecycle GHG
emissions rate of greater than 4 kilograms of CO2e per kilogram of
hydrogen, or if the taxpayer fails to submit an annual verification
report with its Federal income tax return or information return with
respect to a specified clean hydrogen production facility for any
taxable year of the recapture period, then the section 48 credit that
would have been allowed to the taxpayer for the facility would be zero.
Thus, in that case, the recapture amount in the taxable year of the
emissions tier recapture event would be 20 percent of the section 48
credit allowed to the taxpayer with respect to such specified clean
hydrogen production facility. Proposed Sec. 1.48-15(f)(5) would
provide an example illustrating the application of proposed Sec. 1.48-
15(f)(1) through (4).
Unless modified in future guidance, any reporting of emissions tier
recapture under proposed Sec. 1.48-15(f) is made on the taxpayer's
annual tax return. The Secretary may issue future guidance and/or
prescribe tax forms and instructions to address the reporting of
emissions tier recapture under proposed Sec. 1.48-15(f) and any
additional annual reporting obligations. The Treasury Department and
IRS therefore request comments on the reporting of recapture and any
additional annual reporting obligations.
4. Coordination With Recapture Rules Under Sections 50 and 48(a)(10)(C)
Proposed Sec. 1.48-15(f)(6) would provide that, during any taxable
year of the recapture period for any credit allowed under section 48(a)
with respect to qualified property that is part of a specified clean
hydrogen production facility, the recapture rules would be applied, if
applicable, in the following order: (i) section 50(a) (recapture in
case of dispositions, etc.); (ii) section 48(a)(10)(C) (recapture
relating to the prevailing wage requirements); and (iii) section
48(a)(15)(E) (emissions tier recapture).
E. Recordkeeping Requirements
Proposed Sec. 1.45V-2(c) would provide that a taxpayer claiming
the section 45V credit would need to meet the general recordkeeping
requirements under section 6001 necessary to substantiate the amount of
the section 45V credit claimed by the taxpayer. Section 6001 provides
that every person liable for any tax imposed by the Code, or for the
collection thereof, must keep such records as the Secretary may from
time to time prescribe. Section 1.6001-1(a) provides that any person
subject to income tax must keep such permanent books of account or
records as are sufficient to establish the amount of gross income,
deductions, credits, or other matters required to be shown by such
person in any return of such tax. Section 1.6001-1(e) provides that the
books and records required by Sec. 1.6001-1 must be retained so long
as the contents thereof may become material in the administration of
any internal revenue law.
Proposed Sec. 1.45V-2(c) would also provide that taxpayers must
retain all raw data used for submission of the request for an emissions
value to the DOE for at least six years after the due date (including
extensions) for filing the Federal income tax return or information
return to which the PER petition is ultimately attached.
Proposed Sec. 1.48-15(g) would provide corresponding recordkeeping
rules.
IX. Renewable Natural Gas and Fugitive Sources of Methane
The Treasury Department and the IRS intend to provide rules
addressing hydrogen production pathways that use renewable natural gas
(RNG) or other fugitive sources of methane (for example, from coal mine
operations) for purposes of the section 45V credit. In the context of
this guidance, the term RNG refers to biogas that has been upgraded to
be equivalent in nature to fossil natural gas. Fugitive methane refers
to the release of methane through, for example, equipment leaks, or
venting during the extraction, processing, transformation, and delivery
of fossil fuels to the point of final use, such as coal mine methane or
coal bed methane. Such rules would apply to all RNG used for the
purposes of the section 45V credit and would provide conditions that
must be met before certificates for RNG or fugitive methane
(representations of the environmental attributes of the methane) and
the GHG emissions benefits they are meant to represent may be taken
into account in determining lifecycle GHG emissions rates for purposes
of the section 45V credit. Such conditions would be logically
consistent with but not identical to the incrementality, temporal
matching, and deliverability requirements for electricity derived EACs,
in that they would be designed to reflect the ways in which additional
RNG or demand for fugitive methane can impact lifecycle GHG emissions
and also to address the differences between electricity and methane,
including but not limited to the different sources of emissions,
markets, available tracking and verification methods, and potential for
perverse incentives.
The Treasury Department and the IRS anticipate requiring that for
purposes of the section 45V credit, for biogas or biogas-based RNG to
receive an emissions value consistent with that gas (and not standard
natural gas), the RNG used during the hydrogen production process must
originate from the first productive use of the relevant methane. For
any specific source of biogas,\27\
[[Page 89239]]
productive use is generally defined as any valuable application of
biogas (including to provide heat or cooling, generate electricity, or
upgraded to RNG), and specifically excludes venting to the atmosphere
or capture and flaring. The Treasury Department and the IRS further
propose to define ``first productive use'' of the relevant methane as
the time when a producer of that gas first begins using or selling it
for productive use in the same taxable year as (or after) the relevant
hydrogen production facility was placed in service. The implication of
this proposal is that biogas from any source that had been productively
used in a taxable year prior to taxable year in which the relevant
hydrogen production facility was placed in service would not receive an
emission value consistent with biogas-based RNG but would instead
receive a value consistent with natural gas in the determination of the
emissions value for that specific hydrogen production pathway. This
proposal would limit emissions associated with the diversion of biogas
or RNG from other pre-existing productive uses.
---------------------------------------------------------------------------
\27\ Biogas is gas resulting from the decomposition of organic
matter under anaerobic conditions, and the principal constituent is
methane (50-75 percent).
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For existing biogas sources that typically productively use or sell
a portion of the biogas and flare or vent the remaining excess, the
flared or vented portion may be eligible for first productive use as
defined above if the flaring or venting volume can be adequately
demonstrated and verified. In such circumstances, the flared or vented
volume may be determined based on the previous taxable year's flared or
vented volume as demonstrated via reported data to programs such as the
Greenhouse Gas Reporting Program. Requirements would be established to
reduce the risk that entities will deliberately generate additional
biogas for purposes of the section 45V credit, above historic and
expected future levels or an equivalent metric, for example by
generating biogas through the intentional generation of waste, and to
ensure that other factors affecting the emissions rate of hydrogen
produced with biogas-based RNG or RNG procurement via RNG certificates
are taken into account. The Treasury Department and the IRS request
comment on these and other potential conditions. Any fugitive sources
of methane would be treated in the same fashion as described above for
RNG.
For purposes of the section 45V credit, hydrogen producers using
RNG or fugitive methane would be required to acquire and retire
corresponding attribute certificates through a book-and-claim system
that can verify in an electronic tracking system that all applicable
requirements are met. Hydrogen producers would also be required to have
a pipeline interconnection and measurement using a revenue grade meter.
These rules would apply to the use of certificates with both direct and
non-direct claims of RNG or fugitive methane use. Direct use would
involve the production of hydrogen with a direct exclusive pipeline
connection to a facility that generates RNG or from which fugitive
methane is being sourced, while non-direct use would involve producing
hydrogen using RNG or fugitive methane sourced from a commercial or
common-carrier natural gas pipeline. In all cases, attribute
certificates would need to document the RNG or fugitive methane
procurement for qualified clean hydrogen production claims and that the
environmental attributes of the RNG or fugitive methane being used are
not sold to other parties or used for compliance with other policies or
programs.
The Treasury Department and the IRS request comments on these and
other rules related to RNG and fugitive methane. Regarding fugitive
methane, the Treasury Department and the IRS request comment on the
appropriate lifecycle analysis considerations associated with specific
fugitive methane sources, such as counterfactual scenarios, to account
for direct and significant indirect emissions, and also the manner in
which to assess methane from these sources if the current practice is
flaring. These comments may inform future versions of 45VH2-GREET. In
particular, the Treasury Department and the IRS request comments on the
following questions:
(1) What data sources and peer reviewed studies provide information
on RNG production systems (including biogas production and reforming
systems), markets, monitoring, reporting, and verification processes,
and GHG emissions associated with these production systems and markets?
(2) What conditions for the use of biogas and RNG would ensure that
emissions accounting for purposes of the section 45V credit reflects
and reduces the risk of indirect emissions effects from hydrogen
production using biogas and RNG? How can taxpayers verify that they
have met these requirements?
(3) How broadly available and reliable are existing electronic
tracking systems for RNG certificates in book and claim systems? What
developments may be required, if any, before such systems are
appropriate for use with RNG certificates used to claim the section 45V
credit?
(4) How should RNG or fugitive methane resulting from the first
productive use of methane be defined, documented, and verified? What
industry best practices or alternative methods would enable such
verification to be reflected in an RNG or methane certificate or other
documentation? What additional information should be included in RNG
certificates to help certify compliance?
(5) What are the emissions associated with different methods of
transporting RNG or fugitive methane to hydrogen producers (for
example, vehicular transport, pipeline)?
(6) How can the section 45V regulations reflect and mitigate
indirect emissions effects from the diversion of biogas or RNG or
fugitive methane from potential future productive uses? What other new
uses of biogas or RNG or fugitive methane could be affected in the
future if more gas from new capture and productive use of methane from
these sources is used in the hydrogen production process?
(7) How can the potential for the generation of additional
emissions from the production of additional waste, waste diversion from
lower-emitting disposal methods, and changes in waste management
practices be limited through emissions accounting or rules for biogas
and RNG use established for purposes of the section 45V credit?
(8) To limit the additional production of waste, should the final
regulations limit eligibility to methane sources that existed as of a
certain date or waste or waste streams that were produced before a
certain date, such as the date that the IRA was enacted? If so, how can
that be documented or verified? How should any changes in volumes of
waste and waste capacity at existing methane sources be documented and
treated for purposes of the section 45V credit? How should additional
capture of existing waste or waste streams be documented and treated?
(9) Are geographic or temporal deliverability requirements needed
to reflect and reduce the risk of indirect emissions effects from
biogas and RNG or fugitive methane use in the hydrogen production
process? If so, what should these requirements be and are electronic
tracking systems able to capture these details?
(10) How should variation in methane leakage across the existing
natural gas pipeline system be taken into account in estimating the
emissions from the transportation of RNG or fugitive methane or
establishing rules for RNG or fugitive methane use? How should methane
leakage rates be estimated based on factors such as the location
[[Page 89240]]
where RNG or fugitive methane is injected and withdrawn, the distance
between the locations where RNG or fugitive methane is injected and
withdrawn, season of year, age of pipelines, or other factors? Are data
or analysis available to support this?
(11) What counterfactual assumptions and data should be used to
assess the lifecycle GHG emissions of hydrogen production pathways that
rely on RNG? Is venting an appropriate counterfactual assumption for
some pathways? If not, what other factors should be considered?
(12) What criteria should be used in assessing biogas and RNG-based
PERs? What practices should be put in place to reduce the risk of
unintended consequences (for example, gaming)? Should conservative
default parameters and counterfactuals be used unless proven otherwise
by a third party?
The Treasury Department and the IRS understand that, before final
regulations addressing the section 45V credit are issued, taxpayers
will use 45VH2-GREET or the PER process to determine a lifecycle GHG
emissions rate for hydrogen production facilities that rely on direct
use of landfill gas or any fugitive methane feedstock, provided they
meet the requirement that the gas being used results from the first
productive use of methane from the landfill source or fugitive methane
source. The term ``direct use'' means that there is a direct, exclusive
pipeline connection between the hydrogen production facility and the
source of the gas that is procured (for example, the upgrading or
processing facility that produces RNG from landfill gas). Relative to a
book-and-claim system, the direct connection between a gas supplier and
a hydrogen production facility can reduce the uncertainty of pipeline
leakage, tracking, and verification. The Treasury Department and the
IRS are considering providing a rule that taxpayers would need to
provide and maintain documentation to substantiate that (i) the RNG
being used results from the first productive use of the methane at the
landfill source and is not displacing a previous productive use; and
(ii) the environmental attributes of the RNG being used, including
those of the underlying biogas, are not sold to other parties or used
for compliance with other policies or programs. When additional
conditions addressing hydrogen production pathways that use RNG or
fugitive methane for purposes of the section 45V credit are determined
at a later date, taxpayers would also be required to maintain
documentation that the RNG or fugitive methane being used meets those
requirements and to acquire and retire any RNG or fugitive methane
certificates that are established. The Treasury Department and IRS are
also considering providing rules for using RNG certificates and
documentation required in the event additional conditions for use of
RNG are later imposed.
Tracking and verification mechanisms for RNG or fugitive methane
specific to the needs of the section 45V credit are not yet available,
and existing systems have limited capabilities for tracking and
verifying RNG pathways, especially in the part of the production
process before the methane has been reformed to RNG. Existing tracking
and verification systems do not clearly distinguish between inputs,
verify or require verification of underlying practices claimed by RNG
production sources, require proof of generator interconnection or
revenue-quality metering, provide validation of generation methodology,
include exclusively United States based-generation, verify generator
registration, and track the vintage of generator interconnection. The
Treasury Department and IRS are considering providing rules to address
whether or how book-and-claim systems with sufficient tracking and
verification mechanisms may be used to attribute the environmental
benefits of RNG or fugitive methane to hydrogen producers in the final
regulations. Additional certainty is also needed to accurately account
for emissions from pathways that do not yet exist in 45VH2-GREET and
from RNG that is injected into a commercial or common-carrier pipeline.
The Treasury Department and IRS understand that, before final
regulations are issued, taxpayers will determine a lifecycle GHG
emissions rate for hydrogen production pathways using landfill gas by
using 45VH2-GREET in cases in which the hydrogen production facility is
receiving RNG through a direct dedicated pipeline connection and
measurement using a revenue grade meter. The PER process will not
address other hydrogen production pathways using biogas and RNG until
after the final regulations are issued.
Proposed Applicability Dates
These regulations are proposed to apply to taxable years beginning
after these proposed regulations are published in the Federal Register.
Taxpayers may rely on these proposed regulations for taxable years
beginning after December 31, 2022, and before the date the final
regulations are published in the Federal Register, provided the
taxpayers follow the proposed regulations in their entirety and in a
consistent manner.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit. A Federal agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless the collection of information
displays a valid control number.
The collections of information in these proposed regulations would
include reporting, third-party disclosure, and recordkeeping
requirements. These collections are necessary for taxpayers to claim
the section 45V credit, or the section 48 credit with respect to a
specified clean hydrogen production facility, and for the IRS to
validate that taxpayers have met the regulatory requirements and are
entitled to claim either credit.
The recordkeeping requirements in these proposed regulations would
include the requirement that taxpayers claiming the section 45V credit,
or the section 48 credit with respect to a specified clean hydrogen
production facility, need to meet the general recordkeeping provisions
under section 6001 necessary to substantiate the amount of the section
45V credit or section 48 credit claimed by the taxpayer as detailed in
proposed Sec. Sec. 1.45V-2(c) and 1.48-15(g). These recordkeeping
requirements are considered general tax records under Sec. 1.6001-
1(e). For PRA purposes, general tax records are already approved by OMB
under 1545-0074 for individuals/sole proprietors, 1545-0123 for
business entities, and 1545-0047 for tax-exempt organizations, and
1545-0092 for trust and estate filers.
The proposed regulations would reference the DOE's process for
applicants to request an emissions value from the DOE that could then
be used
[[Page 89241]]
to file a petition with the Secretary for a PER determination as
detailed in proposed Sec. 1.45V-4. The petition made to IRS will be
performed by attaching the emissions value obtained from the DOE to the
filing of Form 7210. The burden for these requirements will be included
within the Form and Instructions for 7210. Form 7210 will be approved
by OMB, in accordance with 5 CFR 1320.10, under the following OMB
Control Numbers: 1545-0074 for individuals, 1545-0123 for businesses,
1545-0047 for tax-exempt organizations, and 1545-NEW for trust and
estate filers.
The proposed regulations mention the collection of information
associated with the process for taxpayers to request an emissions value
from the DOE and is reflected in the DOE's Paperwork Reduction Act
Submission relating to such process. These proposed regulations are not
creating or changing any of the collection requirements submitted by
DOE to OMB for approval. Approval of the DOE's Paperwork Reduction Act
Submission is pending with OMB. These proposed regulations are not
creating or changing any of the collection requirements being approved
by OMB under the DOE OMB Control Number 1910-XXXX.
The proposed regulations would include reporting requirements that
taxpayers claiming the section 45V credit provide a verification report
with their annual Federal income tax return or information return for
each taxable year in which they claim the section 45V credit as
detailed in proposed Sec. 1.45V-5. The proposed regulation also
includes a third-party disclosure requirement that a verification
report must be certified by an unrelated third party. The verification
report must contain an attestation regarding the taxpayer's production
of qualified clean hydrogen for sale or use, the amount of qualified
clean hydrogen sold or used by the taxpayer, conflicts of interest, the
verifier's qualifications, and documentation necessary to substantiate
the verification process. The taxpayer must submit the verification
report to the IRS by attaching it to Form 7210, Clean Hydrogen
Production Credit, or any successor form(s). The burden for these
requirements will be included within the Form and Instructions for Form
7210. Form 7210 will be approved by OMB, in accordance with 5 CFR
1320.10, under the following OMB Control Numbers: 1545-0074 for
individuals, 1545-0123 for businesses, 1545-0047 for tax-exempt
organizations, and 1545-NEW for trust and estate filers.
The proposed regulations include reporting, third-party disclosure,
and recordkeeping requirements that taxpayers making the election under
section 48(a)(15) to claim the energy credit under section 48 with
respect to a specified clean hydrogen production facility. The
reporting requirement is that taxpayers submit an annual verification
report with their Federal income tax return or information return for
the year in which they claim the section 48 credit. The third-party
disclosure requirement is that an annual verification report must be
certified by an unrelated third-party. The annual verification report
must contain an attestation regarding the taxpayer's production of
qualified clean hydrogen for sale or use, the amount of qualified clean
hydrogen sold or used by the taxpayer, conflicts of interest, the
verifier's qualifications, the lifecycle GHG emissions rate of the
hydrogen that the specified clean hydrogen production facility
produced, and documentation necessary to substantiate the verification
process. The proposed regulations also include a requirement that the
taxpayer obtain and retain an annual verification report for each
taxable year of the recapture period. The taxpayer must obtain the
annual verification report by the return filing deadline (with
extensions) for the taxable year to which the annual verification
report relates. The annual verification report must contain an
attestation regarding the taxpayer's production of qualified clean
hydrogen for sale or use during the taxable year, the amount of
qualified clean hydrogen sold or used by the taxpayer during the
taxable year, the lifecycle GHG emissions rate of the hydrogen that the
specified clean hydrogen production facility produced during the
taxable year, conflicts of interest, the verifier's qualifications, and
documentation necessary to substantiate the verification process. The
annual verification report for the taxable year in which the section
48(a)(15) election is made will be attached to Form 3468. The annual
verification report for each taxable year of the recapture period will
be retained by the taxpayer for at least six years after the due date
(with extensions) for filing the Federal income tax return or
information return for the year to which the report relates. The burden
for these requirements will be included within the Form and
Instructions for 3468. The revisions to Form 3468 will be approved by
OMB, in accordance with 5 CFR 1320.10, under the following OMB Control
Numbers: 1545-0074 for individuals, 1545-0123 for businesses, 1545-0047
for tax-exempt organizations, and 1545-0155 for trust and estate
filers.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will likely have a significant economic
impact on a substantial number of small entities. This determination
requires further study. However, because there is a possibility of
significant economic impact on a substantial number of small entities,
an IRFA is provided in these proposed regulations. The Treasury
Department and the IRS invite comments on both the number of entities
affected and the economic impact on small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel of the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
A. Need for and Objectives of the Rule
The proposed regulations provide guidance to taxpayers intending to
claim the section 45V credit for the production of qualified clean
hydrogen or make the election under section 48(a)(15) to treat
qualified property that is part of a specified clean hydrogen
production facility as energy property and claim the section 48 credit.
The proposed regulations would provide needed guidance for taxpayers on
use of the GREET model to determine the lifecycle GHG emissions rate
resulting from the hydrogen production process, procedures for
petitioning the Secretary for a PER determination, requirements for the
verification of the production and sale or use of the hydrogen,
requirements for modifications to an existing hydrogen production
facility, and procedures for making the election under section
48(a)(15).
[[Page 89242]]
B. Affected Small Entities
The RFA directs agencies to provide a description of, and if
feasible, an estimate of, the number of small entities that may be
affected by the proposed rules, if adopted. The Small Business
Administration's Office of Advocacy estimates in its 2023 Frequently
Asked Questions that 99.9 percent of American businesses meet the
definition of a small business. The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration. As described more fully in the
preamble to this proposed regulation and in this IRFA, sections 45V and
48(a)(15) and these proposed regulations may affect a variety of
different businesses across several different industries. Because the
potential credit claimants can vary widely, it is difficult to estimate
at this time the impact of these proposed regulations, if any, on small
businesses. Although there is uncertainty as to the exact number of
small businesses within this group, the current estimated number of
respondents to these proposed rules is between 800 and 1000 taxpayers.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on these
proposed rules and again when taxpayers start using the guidance and
procedures provided in these proposed regulations to claim the section
45V credit, or the section 48 credit with respect to a specified clean
hydrogen production facility.
C. Impact of the Rules
The proposed regulations provide rules for how taxpayers can claim
the section 45V credit, or the section 48 credit with respect to a
specified clean hydrogen production facility. Taxpayers that claim the
section 45V credit, or the section 48 credit with respect to a
specified clean hydrogen production facility, will have administrative
costs related to reading and understanding the rules as well as
recordkeeping and reporting requirements because of the verification
and Federal income tax return or information return requirements. The
costs will vary across different-sized entities and across the type of
project(s) in which such entities are engaged.
To claim a section 45V credit, a taxpayer must determine the
lifecycle GHG emissions rate for all hydrogen produced at a qualified
clean hydrogen production facility during the taxable year. If the
hydrogen production technology or feedstock used by the taxpayer to
produce hydrogen is addressed in the most recent 45VH2-GREET, the
taxpayer must use 45VH2-GREET to determine the emissions rate for the
hydrogen produced during that taxable year at the qualified clean
hydrogen production facility. If the hydrogen production technology or
feedstock used by the taxpayer to produce hydrogen is not included in
the most recent 45VH2-GREET, the taxpayer must petition the Secretary
for a provisional emissions rate (PER). As part of the process for a
taxpayer to petition for a PER, a taxpayer must submit an application
to the DOE for an emissions value that it may use to claim the section
45V credit.
In addition to determining the lifecycle GHG emissions rate for
hydrogen produced by the taxpayer at a qualified clean hydrogen
production facility during the taxable year, before claiming the
section 45V credit, a taxpayer must submit a verification report,
certified by an unrelated third party, attesting to the taxpayer's
production of qualified clean hydrogen for sale or use, the amount of
qualified clean hydrogen sold or used by the taxpayer, conflicts of
interest, the verifier's qualifications, and documentation necessary to
substantiate the verification process. The process for claiming the
section 48 credit with respect to a specified clean hydrogen production
facility requires a taxpayer to submit an annual verification report
with its Federal income tax return or information return for the
taxable year in which it claims the section 48 credit, as well as to
obtain an annual verification report for the five taxable years
following the taxable year in which the section 48(a)(15) election is
made. Additionally, the taxpayer would need to retain records
sufficient to establish compliance with these proposed regulations for
as long as may be relevant.
Although the Treasury Department and the IRS do not have sufficient
data to determine precisely the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in the Paperwork Reduction Act
section of the preamble.
D. Alternatives Considered
The Treasury Department and the IRS considered alternatives to the
proposed regulations. The proposed regulations were designed to
minimize burdens for taxpayers while ensuring that the statutory
requirements of sections 45V and 48(a)(15) are met. For example, in
providing rules related to the information required to be submitted to
claim the section 45V credit, or the section 48 credit with respect to
a specified hydrogen production facility, the Treasury Department and
the IRS considered whether the production and sale or use of the
hydrogen could be verified by an unrelated party without requiring the
unrelated party to possess certain qualifications or conflict of
interest characteristics. Such an option would, however, increase the
opportunity for fraud or excessive payments under section 45V or
section 48. Section 45V(f) specifically authorizes the IRS to
promulgate regulations or other guidance providing for requirements for
recordkeeping or information reporting for purposes of administering
the requirements of section 45V. As described in the preamble to these
proposed regulations, these proposed rules carry out that Congressional
intent as the verification requirements allow the IRS to verify the
taxpayer's entitlement to the section 45V credit.
Additionally, the Treasury Department and the IRS considered
whether to require taxpayers to submit an annual verification report
with their Federal income tax returns or information returns claiming
the section 45V credit. Section 45V requires the taxpayer to obtain an
annual verification report, and the Treasury Department and the IRS
determined that requiring the taxpayer to attach such a report to their
federal income tax return or information return is the most efficient
way of ensuring the completion and accuracy of the report.
Additionally, the Treasury Department and the IRS considered
allowing taxpayers to treat the section 45V credit as determined in the
taxable year of hydrogen production or verification. However, such an
option would create administrability issues and potentially a mismatch
between the taxable year in which the hydrogen is produced and the
taxable year in which the section 45V credit for such production is
claimed. Thus, the proposed regulations would require the credit to be
determined in the taxable year of production.
Comments are requested on the requirements in the proposed
regulations, including specifically whether there are less burdensome
alternatives that do not increase the risk of duplication, fraud, or
improper payments under section 45V.
E. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed regulations would not duplicate, overlap, or conflict
with any relevant Federal rules. As discussed
[[Page 89243]]
above, the proposed regulations would merely provide procedures and
definitions to allow taxpayers to claim the section 45V credit, or the
section 48 credit with respect to a specified clean hydrogen production
facility. The Treasury Department and the IRS invite input from
interested members of the public on identifying and avoiding
overlapping, duplicative, or conflicting requirements.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This proposed
rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to comments regarding the notice of
proposed rulemaking that are submitted timely to the IRS as prescribed
in the preamble under the ADDRESSES section. The Treasury Department
and the IRS request comments on all aspects of the proposed
regulations. All comments will be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing has been scheduled for March 25, 2024, beginning
at 10 a.m. (ET), in the Auditorium at the Internal Revenue Building,
1111 Constitution Avenue NW, Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
additional, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Participants may alternatively attend the public
hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed and the time to be devoted to each topic by
March 4, 2024. A period of 10 minutes will be allotted to each person
for making comments. An agenda showing the scheduling of the speakers
will be prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the hearing.
If no outline of the topics to be discussed at the hearing is received
by March 4, 2024, the public hearing will be cancelled. If the public
hearing is cancelled, a notice of cancellation of the public hearing
will be published in the Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#b4c4c1d6d8ddd7dcd1d5c6dddad3c7f4ddc6c79ad3dbc2"><span class="__cf_email__" data-cfemail="0c7c796e60656f64696d7e65626b7f4c657e7f226b637a">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-117631-23 and the language TESTIFY in Person.
For example, the subject line may say: Request to TESTIFY in Person at
Hearing for REG-117631-23.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#3b4b4e59575258535e5a4952555c487b524948155c544d"><span class="__cf_email__" data-cfemail="b3c3c6d1dfdad0dbd6d2c1daddd4c0f3dac1c09dd4dcc5">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number RE-117631-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-117631-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#b5c5c0d7d9dcd6ddd0d4c7dcdbd2c6f5dcc7c69bd2dac3"><span class="__cf_email__" data-cfemail="cfbfbaada3a6aca7aaaebda6a1a8bc8fa6bdbce1a8a0b9">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-117631-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing in Person for REG-117631-23. Requests to attend the
public hearing must be received by 5:00 p.m. EST on March 18, 2024.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#afdfdacdc3c6ccc7caceddc6c1c8dcefc6dddc81c8c0d9"><span class="__cf_email__" data-cfemail="abdbdec9c7c2c8c3cecad9c2c5ccd8ebc2d9d885ccc4dd">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by at least March 18, 2024.
Statement of Availability of IRS Documents
IRS guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of these proposed regulations is the Office of
the Associate Chief Counsel (Passthroughs and Special Industries).
However other personnel from the Treasury Department, the DOE, the EPA,
and the IRS participated in the development of the proposed
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order for Sec. Sec. 1.45V-1 through 1.45V-6 and
1.48-15 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.45V-1 also issued under 26 U.S.C. 45V(f).
Section 1.45V-2 also issued under 26 U.S.C. 45V(f).
Section 1.45V-3 also issued under 26 U.S.C. 45V(e) and (f).
Section 1.45V-4 also issued under 26 U.S.C. 45V(f).
Section 1.45V-5 also issued under 26 U.S.C. 45V(f).
Section 1.45V-6 also issued under 26 U.S.C. 45V(c) and (d).
* * * * *
Section 1.48-15 also issued under 26 U.S.C. 48(a)(15).
* * * * *
0
Par. 2. Sections 1.45V-0 through 1.45V-6 are added to read as follows:
Sec.
* * * * *
1.45V-0 Table of contents.
1.45V-1 Credit for production of qualified clean hydrogen.
1.45V-2 Special rules.
[[Page 89244]]
1.45V-3 [Reserved]
1.45V-4 Procedures for determining lifecycle greenhouse gas
emissions rates for qualified clean hydrogen.
1.45V-5 Procedures for verification of qualified clean hydrogen
production and sale or use.
1.45V-6 Rules for determining the placed in service date for an
existing facility that is modified to produce qualified clean
hydrogen.
* * * * *
Sec. 1.45V-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.45V-1
through 1.45V-6.
Sec. 1.45V-1 Credit for production of qualified clean hydrogen.
(a) Overview.
(1) In general.
(2) Applicable amount.
(i) In general.
(ii) Inflation adjustment.
(3) Applicable percentage.
(4) Claim.
(5) Code.
(6) DOE.
(7) Facility.
(i) In general.
(ii) Treatment of certain indirect production and post-
production equipment.
(iii) Multipurpose components.
(iv) Example.
(8) Lifecycle GHG emissions.
(i) In general.
(ii) Most recent GREET model.
(iii) Emissions through the point of production (well-to-gate).
(9) Qualified clean hydrogen.
(i) In general.
(ii) For sale or use.
(10) Qualified clean hydrogen production facility.
(11) Secretary.
(12) Section 45V credit.
(13) Section 45V regulations.
(b) Amount of credit.
(1) In general.
(2) Producer of qualified clean hydrogen.
(3) Increased credit amount for qualified clean hydrogen
production facilities.
(c) Determination of credit.
(d) Applicability date.
Sec. 1.45V-2 Special rules.
(a) Coordination with credit for carbon oxide sequestration.
(b) Anti-abuse rule.
(1) In general.
(2) Example.
(i) Facts.
(ii) Analysis.
(c) Recordkeeping.
(d) Applicability date.
Sec. 1.45V-3 [Reserved]
Sec. 1.45V-4 Procedures for determining lifecycle greenhouse gas
emissions rates for qualified clean hydrogen.
(a) In general.
(b) Use of the most recent GREET model.
(c) Provisional emissions rate (PER).
(1) In general.
(2) Rate not determined.
(i) In general.
(ii) Subsequent inclusion in 45VH2-GREET.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Department of Energy emissions value request process.
(6) Effect of PER.
(d) Use of Energy Attribute Certificates (EACs).
(1) In general.
(2) Definitions.
(i) Commercial operations date.
(ii) Energy attribute certificate.
(iii) Eligible EAC.
(iv) Qualifying EAC.
(v) Qualified EAC registry or accounting system.
(vi) Region.
(3) Qualifying EAC requirements.
(i) Incrementality.
(ii) Temporal matching.
(iii) Deliverability.
(e) Applicability date.
Sec. 1.45V-5 Procedures for verification of qualified clean
hydrogen production and sale or use.
(a) In general.
(b) Requirements for verification reports.
(c) Requirements for the production attestation.
(d) Requirements for the sale or use attestation.
(1) In general.
(2) Verifiable use.
(e) Requirements for the conflict attestation.
(1) In general.
(2) Special rule for transfer elections.
(f) Requirements for the qualified verifier statement.
(g) General information on the taxpayer's hydrogen production
facility.
(h) Qualified verifier.
(i) Unrelated party.
(j) Requirements for taxpayers claiming both the section 45V
credit and the section 45 credit or the section 45U credit.
(k) Timely verification report.
(l) Applicability date.
Sec. 1.45V-6 Rules for determining the placed in service date for
an existing facility that is modified to produce qualified clean
hydrogen.
(a) Modification of an existing facility.
(1) In general.
(2) Modification requirements.
(b) Retrofit of an Existing Facility (80/20 Rule).
(c) Examples.
(1) Example 1: Modification of an existing facility.
(i) Facts.
(ii) Analysis.
(2) Example 2: Modification of an existing facility;
coordination with the section 45Q credit previously allowed.
(i) Facts.
(ii) Analysis.
(3) Example 3: Modification of an existing facility and
coordination with section 45Q credit not previously allowed.
(i) Facts.
(ii) Analysis.
(4) Example 4: Retrofit of an Existing Facility (80/20 Rule) and
coordination with section 45Q credit previously allowed.
(i) Facts.
(ii) Analysis.
(5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and
coordination with section 45Q credit previously allowed.
(i) Facts.
(ii) Analysis.
(d) Applicability date.
Sec. 1.45V-1 Credit for production of clean hydrogen.
(a) Overview--(1) In general. For purposes of section 38 of the
Code, the section 45V credit is determined under section 45V of the
Code, so much of sections 6417 and 6418 of the Code that relate to
section 45V, and the section 45V regulations (as defined in paragraph
(a)(13) of this section). Paragraphs (a)(2) through (13) of this
section provide generally applicable definitions of terms that, unless
otherwise provided, apply for purposes of section 45V, the section 45V
regulations, and any provision of the Code or this chapter that
expressly refers to any provision of section 45V or the section 45V
regulations. Paragraph (b) of this section provides rules for
determining the amount of the section 45V credit for any taxable year,
which generally depends on the kilograms of qualified clean hydrogen
produced during the taxable year and the emissions intensity of the
process used to produce such hydrogen, as well as whether certain
requirements, including the requirements under Sec. 1.45V-3, are
satisfied. Paragraph (c) of this section provides rules regarding the
taxable year for which a section 45V credit is determined. See Sec.
1.45V-2 for special rules, including rules to coordinate the section
45V credit with the credit for carbon oxide sequestration determined
under section 45Q of the Code, an anti-abuse rule, and recordkeeping
requirements. See Sec. 1.45V-3 for rules relating to the increased
credit amount for satisfying the prevailing wage and apprenticeship
requirements. See Sec. 1.45V-4 for procedures to determine lifecycle
greenhouse gas (GHG) emissions rates for qualified clean hydrogen and
Sec. 1.45V-5 for procedures for verification of qualified clean
hydrogen production and sale or use. See Sec. 1.45V-6 for rules to
determine the placed in service date for an existing facility that is
modified or retrofitted to produce qualified clean hydrogen. See also
Sec. 1.48-15 for procedures to elect to treat any qualified property
that is part of a specified clean hydrogen production facility as
energy property for purposes of section 48 of the Code.
(2) Applicable amount--(i) In general. The term applicable amount
means the amount equal to the applicable percentage of $0.60, provided
that if any such amount is not a multiple of 0.1
[[Page 89245]]
cent, such amount is rounded to the nearest multiple of 0.1 cent.
(ii) Inflation adjustment. The $0.60 amount specified in section
45V(b)(1) and paragraph (a)(2)(i) of this section is adjusted annually
by multiplying such amount by the inflation adjustment factor (as
determined under section 45(e)(2) of the Code, determined by
substituting ``2022'' for ``1992'' in section 45(e)(2)(B)) for the
calendar year in which the qualified clean hydrogen is produced,
provided that if any such amount as adjusted is not a multiple of 0.1
cent, such amount is rounded to the nearest multiple of 0.1 cent.
(3) Applicable percentage. The term applicable percentage means the
percentage set forth in paragraphs (a)(3)(i) through (iv) of this
section, which is determined according to the lifecycle GHG emissions
rate of the process by which the qualified clean hydrogen is produced:
(i) In the case of any qualified clean hydrogen that is produced
through a process that results in a lifecycle GHG emissions rate of not
greater than 4 kilograms of carbon dioxide equivalent (CO2e) per
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per
kilogram of hydrogen, the applicable percentage is 20 percent.
(ii) In the case of any qualified clean hydrogen that is produced
through a process that results in a lifecycle GHG emissions rate of
less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less
than 1.5 kilograms of CO2e per kilogram of hydrogen, the applicable
percentage is 25 percent.
(iii) In the case of any qualified clean hydrogen that is produced
through a process that results in a lifecycle GHG emissions rate of
less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less
than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable
percentage is 33.4 percent.
(iv) In the case of any qualified clean hydrogen that is produced
through a process that results in a lifecycle GHG emissions rate of
less than 0.45 kilograms of CO2e per kilogram of hydrogen, the
applicable percentage is 100 percent.
(4) Claim. With respect to the section 45V credit determined for
qualified clean hydrogen produced by the taxpayer at a qualified clean
hydrogen production facility, the term claim means the filing of a
completed Form 7210, Clean Hydrogen Production Credit, or any successor
form(s), with the taxpayer's Federal income tax return or annual
information return for the taxable year in which the credit is
determined, and includes the making of an election under section 6417
or 6418 and the regulations in this chapter under section 6417 or 6418,
as applicable, with respect to such section 45V credit on the
applicable entity's or eligible taxpayer's timely filed (including
extensions) Federal income tax return or annual information return.
(5) Code. The term Code means the Internal Revenue Code.
(6) DOE. The term DOE means the U.S. Department of Energy.
(7) Facility--(i) In general. For purposes of the definition of
qualified clean hydrogen production facility provided at section
45V(c)(3) and paragraph (a)(10) of this section, unless otherwise
specified, the term facility means a single production line that is
used to produce qualified clean hydrogen. A single production line
includes all components of property that function interdependently to
produce qualified clean hydrogen. Components of property function
interdependently to produce qualified clean hydrogen if the placing in
service of each component is dependent upon the placing in service of
each of the other components to produce qualified clean hydrogen.
(ii) Treatment of certain indirect production and post-production
equipment. The term facility does not include--
(A) Equipment that is used to condition or transport hydrogen
beyond the point of production; or
(B) Notwithstanding paragraph (a)(7)(iii) of this section,
e
[…truncated; see source link]Indexed from Federal Register on December 26, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.