Rule2024-31513
Credit for Production of Clean Hydrogen and Energy Credit
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 10, 2025
Effective
January 10, 2025
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations implementing the credit for production of clean hydrogen and certain provisions of the energy credit as enacted by the Inflation Reduction Act of 2022. The regulations 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. These regulations 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.
Full Text
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[Federal Register Volume 90, Number 6 (Friday, January 10, 2025)]
[Rules and Regulations]
[Pages 2224-2329]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-31513]
[[Page 2223]]
Vol. 90
Friday,
No. 6
January 10, 2025
Part IV
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Credit for Production of Clean Hydrogen and Energy Credit; Final Rule
Federal Register / Vol. 90 , No. 6 / Friday, January 10, 2025 / Rules
and Regulations
[[Page 2224]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10023]
RIN 1545-BQ97
Credit for Production of Clean Hydrogen and Energy Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations implementing the
credit for production of clean hydrogen and certain provisions of the
energy credit as enacted by the Inflation Reduction Act of 2022. The
regulations 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.
These regulations 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.
DATES:
Effective date: These regulations are effective January 10, 2025.
Applicability dates: For dates of applicability, see Sec. Sec.
1.45V-1(d), 1.45V-2(d), 1.45V-4(g), 1.45V-5(l), 1.45V-6(d), and 1.48-
15(h).
FOR FURTHER INFORMATION CONTACT: Courtney Hutson at (202) 317-5319 or
Alan Tilley at (202) 317-6512 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
This document contains final regulations that amend the Income Tax
Regulations (26 CFR part 1) by adding regulations authorized to be
issued by the Secretary of the Treasury or her delegate (Secretary)
under sections 48 and 45V of the Internal Revenue Code (Code). The
final regulations are issued under the authority granted under sections
45V(c)(1)(B), 45V(e)(5), 45V(f), 48(a)(15)(C), 48(a)(15)(E), 48(a)(16),
6001, and 7805(a) of the Code.
Section 45V(c)(1)(B) provides that lifecycle greenhouse gas
emissions (lifecycle GHG emissions) shall only include emissions
through the point of production (well-to-gate), as determined under the
most recent Greenhouse gases, Regulated Emissions, and Energy use in
Transportation model (commonly referred to as the ``GREET model'')
developed by Argonne National Laboratory, or a successor model (as
determined by the Secretary).
Section 45V(e)(5) directs the Secretary to issue regulations and
guidance as she determines to be necessary to carry out the purposes of
section 45V(e), which relates to the increased credit amount for
qualified clean hydrogen production facilities that satisfy certain
prevailing wage and apprenticeship requirements.
Further, section 45V(f) directs the Secretary to issue regulations
or other guidance to carry out the purposes of section 45V, including
for determining lifecycle GHG emissions.
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).
Section 48(a)(15)(E) directs the Secretary to issue such
regulations or other guidance as she determines necessary to carry out
the purposes of the section 48 energy credit, including regulations or
guidance related to the recapture of such credit that exceeds the
allowed amount ``if the expected production were consistent with the
actual verified production (or all of the credit so allowed in the
absence of such verification).''
Section 48(a)(16) directs the Secretary to issue regulations or
other guidance as she determines necessary to carry out the purposes of
the section 48 energy credit, including for recordkeeping or
information reporting requirements necessary for the administration of
the credit.
Section 6001 provides an express delegation of authority to the
Secretary, stating that, ``[e]very person liable for any tax imposed by
this title, or for the collection thereof, shall keep such records,
render such statements, make such returns, and comply with such rules
and regulations as the Secretary may from time to time prescribe.
Whenever in the judgment of the Secretary it is necessary, [s]he may
require any person, by notice served upon such person or by
regulations, to make such returns, render such statements, or keep such
records, as the Secretary deems sufficient to show whether or not such
person is liable for tax under this title.''
These regulations are also issued under the express delegation of
authority under section 7805(a), which provides that ``[t]he Secretary
shall prescribe all needful rules and regulations for the enforcement
of [the Code], including all rules and regulations as may be necessary
by reason of any alteration of law in relation to internal revenue.''
Background
This document contains final regulations to implement the statutory
provisions of sections 45V and 48(a)(15) of the Code, as enacted by
section 13204 of Public Law 117-169, 136 Stat. 1818, 1935 (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, and part III
describes the proposed regulations promulgated under these provisions
that the final regulations in this document adopt or modify as
explained in the Summary of Comments and Explanation of Revisions.
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
[[Page 2225]]
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 an income tax credit for the production of
qualified clean hydrogen. For purposes of section 38, 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 GHG
emissions rate of the process used 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 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(b)(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. The section 45V applicable amounts for
calendar years 2023 and 2024 were published in Notice 2024-45, 2024-
26 I.R.B. 1747.
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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 portion 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
section 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 Sec. Sec. 1.45-7, 1.45-8, 1.45-12, and 1.45V-3, as
published in the Federal Register (89 FR 53184) on June 25, 2024.
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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)(B).\4\
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\4\ Under Sec. 1.45V-3, the PWA requirements for purposes of
section 45V(e)(2)(B) are satisfied if a facility meets the
prevailing wage requirements of section 45(b)(7) and Sec. 1.45-7,
the apprenticeship requirements of section 45(b)(8) and Sec. 1.45-
8, and the recordkeeping and reporting requirements of Sec. 1.45-
12. Those regulations are not a part of this Treasury decision and
Sec. 1.45V-3 is addressed only to the extent necessary for purposes
of formatting the final regulations that are the subject of this
decision 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 45V(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.
[[Page 2226]]
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, referred to as a
``provisional emissions rate'' or PER.
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 for the section 45V credit.
However, the section 45V credit is available for qualified clean
hydrogen produced after December 31, 2022. See Sec. 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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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 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. See Sec. 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 Sec. 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 third party.
Section 45(e)(13) is effective for electricity produced after December
31, 2022. See Sec. 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
[[Page 2227]]
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 (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 Sec. 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 ``qualified clean hydrogen'' has the meaning given
such term by section 45V(c)(2).
4. Regulations
Section 48(a)(15)(E) requires the Secretary 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. Notice 2022-58
On November 3, 2022, the Department of the Treasury (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.
Stakeholders submitted more than 200 comments in response to Notice
2022-58, and those comments informed the development of the proposed
regulations.
III. Proposed Regulations
On December 26, 2023, the Treasury Department and the IRS published
proposed regulations under sections 45V and 48(a)(15) (REG-117631-23)
in the Federal Register (88 FR 89220) to provide guidance on the credit
for production of clean hydrogen and the energy credit, respectively
(proposed regulations). The provisions of the proposed regulations are
explained in greater detail in the preamble to the proposed
regulations.
On April 11, 2024, the Treasury Department and the IRS published a
supplemental notice of proposed rulemaking under sections 45V and
48(a)(15) in the Federal Register (89 FR 25551) inviting comments on
the U.S. Department of Energy's (DOE) information collection related to
the DOE's Emissions Value Request Process (EVRP) for use by applicants
in obtaining an emissions value in support of a petition for a PER, as
set forth in the proposed regulations. The EVRP is explained in greater
detail in the supplemental notice of proposed rulemaking. On September
30, 2024, the DOE announced the opening of the EVRP. See Notice of
Availability of the 45V Emissions Value Request Process (89 FR 80898).
Summary of Comments and Explanation of Revisions
This Summary of Comments and Explanation of Revisions summarizes
the proposed regulations and all the substantive comments submitted in
response to the proposed regulations. The Treasury Department and the
IRS received approximately 30,000 written comments in response to the
proposed regulations. The comments are available for public inspection
at <a href="http://www.regulations.gov">www.regulations.gov</a> or upon request. A hearing was conducted in
person and telephonically on March 25, 26, and 27, 2024, during which
approximately 100 individuals testified.\6\ After full consideration of
the hearing testimony and the comments received, these final
regulations adopt the proposed regulations with modifications in
response to the comments described in this Summary of Comments and
Explanation of Revisions.
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\6\ A comment requested that the Treasury Department and the IRS
(1) hold additional public hearings in, at a minimum, each of the
seven regions where hydrogen hubs have been proposed; (2) provide
virtual options for attending and presenting; and (3) clarify the
process for participation at the public hearing. The Treasury
Department and the IRS held a hearing over three days, which
provided the public an opportunity to present testimony either in
person or over the telephone. Individuals, whether testifying or
not, could attend the hearing either in person or by telephone.
Notice of the hearing was published as part of the proposed
regulations in the Federal Register on December 26, 2023, which
provided details to the public on how to participate. Accordingly,
the public was provided a meaningful opportunity to participate in
the hearing process.
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The Treasury Department and the IRS also consulted extensively with
scientific and technical experts from across the Federal government,
including personnel from the DOE and the U.S. Environmental Protection
Agency (EPA), in developing and drafting these final regulations. The
Treasury Department and the IRS had regular meetings with these experts
from the time that sections 45V and 48(a)(15) were enacted through the
drafting and publication of the proposed regulations and the final
regulations. The conclusions reached in these final regulations and
explained in this Summary of Comments and Explanation of Revisions were
deeply informed by the scientific and technical expertise that was
shared by these experts.
Comments merely summarizing the proposed regulations, expressing
generic, non-specific, or extraneous concerns, recommending statutory
revisions to sections 45V, 48(a)(15), or other statutes, or addressing
issues that do not pertain to the purposes of sections 45V and
48(a)(15) are not applicable to this rulemaking and are not adopted.
Additionally, except to the extent discussed in this Summary of
Comments and Explanation of Revisions, comments addressing the features
of 45VH2-GREET or the contents of any supporting documentation to be
provided in seeking an emissions value from the DOE are outside the
scope of this
[[Page 2228]]
rulemaking and therefore are not addressed herein.
I. General Rules and Definitions
Proposed Sec. 1.45V-1 provided definitions of key terms used in
proposed Sec. Sec. 1.45V-1 through 1.45V-6 and 1.48-15, to determine
eligibility for, and the amount of, the section 45V credit for
production of clean hydrogen. Comments addressed several of the
proposed definitions, as described in this part I.A of the Summary of
Comments and Explanation of Revisions.
In addition, these final regulations add the new terms ``hydrogen
gas stream,'' ``mixed gas or impurity,'' and ``productive use,'' which
are discussed in part I.A.5 of the Summary of Comments and Explanation
of Revisions, as well as the terms ``process'' and ``primary
feedstock,'' which are discussed in part I.A.7. With respect to the
definition of ``lifecycle GHG Emissions,'' the final regulations add a
new rule for certain emissions related to purification treated as
through the point of production, which is discussed in part I.A.6.d of
the Summary of Comments and Explanation of Revisions. The final
regulations renumber the definitions to incorporate the added
definitions.
A. Definitions
1. Applicable Amount
Section 45V(b)(1) defines applicable amount, and section 45V(b)(3)
provides the inflation adjustment that applies when calculating the
applicable amount. Proposed Sec. 1.45V-1(a)(2) would have adopted this
definition and its related inflation adjustment provision. No comments
addressed these provisions, and these final regulations adopt them as
proposed.
2. Applicable Percentage
Section 45V(b)(2) defines the term ``applicable percentage.''
Proposed Sec. 1.45V-1(a)(3) adopted this definition. No comments
addressed this provision, and these final regulations adopt the
definition as proposed.
3. Claim
Proposed Sec. 1.45V-1(a)(4) would have provided that, 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 section 6418 and the
regulations thereunder, 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.
One comment requested that the final regulations offer a
streamlined process to claim the section 45V credit for small producers
of hydrogen. Section 45V does not make any distinction based on the
size of the hydrogen producer, and the importance of reporting and
compliance are the same regardless of the producer's size. Accordingly,
providing a more streamlined process for claiming the section 45V
credit for small producers is not appropriate. Additionally, to
clarify, section 1.45V-1(a)(4) has no effect on the procedures for
making an election under section 6417 or 6418, the requirements for
which are described in the regulations for each provision. For
procedures for making an election under section 6417, see Sec. 1.6417-
2(b). For procedures for making an election under section 6418, see
Sec. 1.6418-2. Accordingly, section 1.45V-1(a)(4) is adopted without
change.
4. Facility
a. Equipment Included in the Definition of Facility
Proposed Sec. 1.45V-1(a)(7)(i) would have provided that, for
purposes of the definition of 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, unless otherwise specified. Further, proposed Sec. 1.45V-
1(a)(7)(i) would have provided that a ``single production line''
includes all components of property that function interdependently to
produce qualified clean hydrogen. Components of property would be
functionally interdependent if the placing in service of each component
were dependent upon the placing in service of each of the other
components to produce qualified clean hydrogen. Proposed Sec. 1.45V-
1(a)(7)(iii) would have provided that components that have a purpose in
addition to the production of qualified clean 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 have provided an example to illustrate the definition
of facility for purposes of section 45V.
Comments asked a variety of questions about the definition of
``facility,'' including whether specific equipment is part of a
facility. Some comments requested clarification on the meaning of
``single production line'' and ``functional interdependence'' and
whether components of a facility that produce hydrogen as a by-product
of another production process are part of a ``single production line''
that is used to produce hydrogen. Other comments asked for
clarification on whether designated spaces and equipment necessary for
commercial operation, but not necessary for hydrogen production (for
example, break rooms and lighting) are part of the ``facility.''
Another comment requested that the final regulations specify a method
for allocating lifecycle GHG emissions across multipurpose components.
The comment suggested that, in many cases, it would not be appropriate
to include, through the point of production, all lifecycle GHG
emissions from multipurpose components that are part of the balance of
plant, such as the cooling tower or air compressor if the hydrogen
production process does not consume a significant amount of energy from
the use of such equipment.
One comment recommended that the final rules modify the definition
of ``facility'' to include all electrolyzers within the balance of
plant to prevent hydrogen producers from designating one electrolyzer
as having produced hydrogen without energy attribute certificates
(EACs) should a producer not have EACs sufficient to ensure all
hydrogen produced at a facility is qualified clean hydrogen.
Another comment asked whether the definition of ``facility'' in
proposed Sec. 1.45V-1(a)(7) would create a ``circular loop'' wherein
the hydrogen producer would need to identify the components of the
facility in order to obtain an emissions rate under 45VH2-GREET, but
could not identify the components of the facility without knowing
whether the facility produces hydrogen at an emissions rate of not
greater than 4 kilograms of CO2e per kilogram of hydrogen.
One comment requested clarification that the definition of facility
in proposed Sec. 1.45V-1(a)(7) does not apply for purposes of the
definition of ``industrial facility'' in Sec. 1.45Q-2(d).
One comment requested clarification on whether a facility includes
downstream property that uses the hydrogen produced at a qualified
clean hydrogen production facility. Similarly, one comment requested
clarification on whether hydrogen production equipment that is
installed on the property of an industrial plant or a gas utility
qualifies as a ``facility.'' Although
[[Page 2229]]
unclear, this comment appears to be requesting clarification whether an
existing industrial plant or gas utility becomes a hydrogen production
facility if hydrogen production equipment is added to the existing
plant or utility.
In response to these comments seeking clarification on what is
included in the definition of facility, these final regulations modify
proposed Sec. 1.45V-1(a)(7)(i) and (iv), as well as Sec. 1.45V-
1(a)(7)(ii), which identifies equipment that is not included in the
definition of facility. Generally, the definition of ``facility'' is
sufficiently clear as an established tax concept. The concept of
``functional interdependence'' has been used by courts for many years
to decide whether property was placed in service for depreciation and
the investment tax credit. See, for example, Armstrong World
Industries, Inc. v. Commissioner, 974 F.2d 422, 434 (3d Cir. 1992)
(``[C]ourts appear to agree that individual components will be
considered as a single property for tax purposes--when the component
parts are functionally interdependent when each component is essential
to the operation of the project as a whole and cannot be used
separately to any effect.''). The general definition of facility in
proposed Sec. 1.45V-1(a)(7)(i) uses this ``functional
interdependence'' concept by indicating that a single production line
includes all components of property that function interdependently to
produce qualified clean hydrogen. To ease the determination of what
equipment is included, the final regulations add to this definition the
phrase ``through a process that results in the lifecycle GHG emissions
rate used to determine the credit.'' This clarifies that all equipment
used to produce the qualified clean hydrogen for which the section 45V
credit is determined is included as part of the qualified clean
hydrogen facility. For example, carbon capture equipment is part of the
facility if it contributes to the lifecycle GHG emissions rate of the
process by which the qualified clean hydrogen for which the credit is
determined is produced. In addition, these final regulations update the
example in Sec. 1.45V-1(a)(7)(iv) to reflect the modifications made to
the text in Sec. 1.45V-1(a)(7)(i).
Purification equipment is part of the facility if such equipment
contributes to the purity content of the qualified clean hydrogen for
which the section 45V credit is determined. As discussed in part
I.A.6.c of this Summary of Comments and Explanation of Revisions,
purification equipment that is used downstream of the facility's
process of producing qualified clean hydrogen is not part of the
facility, but in certain circumstances, emissions from such
purification equipment are within the well-to-gate system boundary for
purposes of the lifecycle GHG emissions rate analysis.
Regarding multipurpose components, these final regulations adopt
proposed Sec. 1.45V-1(a)(7)(iii) with a clarification that production
is for qualified clean hydrogen. Proposed Sec. 1.45V-1(a)(7)(iii)
already clarifies that components can have multiple purposes, including
but not limited to the production of qualified clean hydrogen, so long
as the components function interdependently with other components to
produce qualified clean hydrogen. With respect to the allocation of
lifecycle GHG emissions attributed to multipurpose components,
taxpayers must use a reasonable method to allocate the inputs used to
determine such emissions.
To the extent a facility produces hydrogen as a by-product of
another production process, any components of the facility that
function interdependently to produce qualified clean hydrogen--
regardless of whether they serve a purpose in addition to the
production of qualified clean hydrogen--are part of the qualified clean
hydrogen production facility.
With respect to whether equipment necessary for commercial
operation, but not for hydrogen production, is part of the ``facility''
(such as break room lighting), Sec. 1.45V-1(a)(7)(i) answers this
question. If the placing in service of such equipment is not necessary
to produce qualified clean hydrogen and is not part of the process that
results in the lifecycle GHG emissions rate used to determine the
credit, such equipment does not function interdependently with the
qualified clean hydrogen production equipment and is not part of the
``facility.'' If such non-functionally interdependent equipment draws
from the same electricity source as the facility, to the extent it is
separately metered, such electricity usage would not be an input into
45VH2-GREET. To the extent such equipment is not separately metered,
taxpayers must use a reasonable method to allocate such electricity
usage.
The final regulations do not adopt the comment to revise the
definition of ``facility'' to include all electrolyzers within the
balance of plant. Under Sec. 1.45V-1(a)(7)(i), to the extent each
electrolyzer produces qualified clean hydrogen separately from the
other electrolyzers (that is, does not function interdependently with
the other electrolyzers), each electrolyzer is treated as a separate
facility. Treating each electrolyzer within the balance of plant as a
separate facility is consistent with Revenue Ruling 94-31, 1994-1 C.B.
16, which held that each wind turbine within a windfarm is a separate
``qualified facility'' under section 45 because each wind turbine can
be separately operated and metered to produce electricity. Similar to a
wind turbine within a wind farm, an electrolyzer within the balance of
plant functions separately from the other electrolyzers to produce
hydrogen. As to the concern that EACs may be shifted from one
electrolyzer to another electrolyzer within the balance of plant, a
hydrogen producer is free to acquire and retire EACs for some
electrolyzers and not for others, no matter the production technology
the electrolyzers use and no matter the extent of their co-location, so
long as the retired EACs are matched to a particular electrolyzer's
electricity consumption from which hydrogen is produced. Imposing a
rule that co-located electrolyzers are considered part of the same
facility so that they each receive an equal allocation of EACs would
not necessarily reflect each electrolyzer's electricity consumption and
would be inconsistent with existing tax law's treatment of the
definition of ``facility.''
In response to the comment that questioned whether the definition
of ``facility'' in Sec. 1.45V-1(a)(7) creates a ``circular loop,''
these final regulations modify proposed Sec. 1.45V-1(a)(7)(i) to
provide that equipment is part of the facility if it functions
interdependently to produce qualified clean hydrogen through a process
that results in the lifecycle GHG emissions rate used to determine the
credit. The lifecycle GHG emissions analysis of the hydrogen production
process is not coextensive with the tax definition of a hydrogen
production facility. For example, lifecycle GHG emissions include
emissions from stages of the hydrogen production process beyond the
hydrogen production facility, such as emissions from growth, gathering,
extraction, processing, and delivery of feedstock to a hydrogen
production facility. See section 45V(c)(1)(A) (defining lifecycle GHG
emissions by reference to section 211(o)(1)(H) of the Clean Air Act)
and (B) (describing that lifecycle GHG emissions include emissions
through the point of production (well-to-gate)); see also Guidelines to
Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen
Production Pathways using 45VH2-GREET (45VH2-GREET User Manual), Sec.
2.4.1 (Emissions of Electricity Generation), which can be
[[Page 2230]]
found at <a href="http://www.energy.gov/45vresources">www.energy.gov/45vresources</a>. The Summary of Comments and
Explanation of Revisions to these final regulations generally refer to
the 45VH2-GREET User Manual as it is currently publicly available, but
at times references intended modifications to it. As further discussed
in the Summary of Comments and Explanation of Revisions to these final
regulations, the DOE intends to release a new version of 45VH2-GREET
with an accompanying user manual in January 2025.
Regarding whether a ``facility'' includes downstream property that
uses hydrogen produced at a qualified clean hydrogen production
facility, downstream property that does not contribute to the
facility's process of producing qualified clean hydrogen--but instead
only to the later use of such hydrogen following its production--is not
part of the facility because it does not function interdependently in
the production of the qualified clean hydrogen for which the section
45V credit is determined. Further, Sec. 1.45V-1(a)(7)(ii) provides
that the facility does not include equipment used to condition or
transport hydrogen beyond the point of production.
Regarding the effect of Sec. 1.45V-1(a)(7) on the definition of
industrial facility under Sec. 1.45Q-2(d), whether and the extent to
which the section 45V regulations affect terms defined in section 45Q
is a matter that falls within the scope of section 45Q and is therefore
not applicable to these regulations.
Regarding whether an industrial plant or gas utility becomes part
of the hydrogen production ``facility'' when hydrogen production
equipment is installed at the plant or utility, such an inquiry will
depend on the facts and circumstances of the particular hydrogen
production equipment and whether such equipment functions
interdependently with the existing industrial plant or utility
equipment to produce hydrogen. Accordingly, these final regulations
provide sufficient criteria to apply to such an inquiry on a case-by-
case basis.
b. Equipment Excluded From the Definition of Facility
Proposed Sec. 1.45V-1(a)(7)(ii) would have provided that a
facility does not include equipment used to condition or transport
hydrogen beyond the point of production. Proposed Sec. 1.45V-
1(a)(7)(ii) also would have provided that a facility does not include
electricity production equipment used to power the hydrogen production
process, including any carbon capture equipment associated with the
electricity production process.
Some comments requested clarification that a ``facility'' does not
include upstream facilities that generate and supply electricity, fuel,
feedstock, water, ammonia, or other inputs into or for use at the
hydrogen production facility. Another comment requested confirmation
that a facility producing renewable natural gas (RNG) that is supplied
to a facility that uses the RNG to produce hydrogen does not fall
within the definition of ``facility.''
One comment recommended that the final rules exclude from the
definition of ``facility'' any facility that includes an electrolyzer
stack that was assembled in or by a ``Covered Nation'' as defined in 10
U.S.C. 4872(d)(2), or a ``Foreign Entity of Concern,'' as referenced
under Sec. 40207 of the Infrastructure Investment and Jobs Act, Public
Law 117-58.
The Treasury Department and the IRS agree that clarification is
needed on whether feedstock production equipment is part of the
``facility.'' In addition, clarification is needed on whether feedstock
recovery equipment is part of the ``facility.'' Although proposed Sec.
1.45V-1(a)(7)(ii)(B) would have excluded electricity production
equipment from the definition of ``facility,'' the proposed rules would
not have addressed other types of feedstock production and recovery
equipment, such as RNG production equipment. The intent of the proposed
rules was to exclude upstream feedstock production and recovery
equipment, such as RNG production equipment, from the definition of
facility. Accordingly, these final regulations add ``feedstock-related
equipment, including production, purification, recovery,
transportation, or transmission equipment'' to the list of items
excluded from the definition of facility in Sec. 1.45V-1(a)(7)(ii)(B).
As discussed in this part I.A.6.c of this Summary of Comments and
Explanation of Provisions, however, lifecycle GHG emissions associated
with feedstock growth, gathering, extraction, processing, and delivery
to a hydrogen production facility are still included in the lifecycle
GHG analysis reflected in 45VH2-GREET.
As to excluding components assembled in or by a ``Covered Nation''
or a ``Foreign Entity of Concern'' from the definition of facility,
there is no provision of section 45V that imposes such a rule, so these
final regulations do not adopt this comment.
5. Hydrogen Gas Stream, Mixed Gas or Impurity, and Productive Use
The final regulations add three new definitions, ``hydrogen gas
stream,'' to Sec. 1.45V-1(a)(8); ``mixed gas or impurity,'' to Sec.
1.45V-1(a)(10); and ``productive use'' to Sec. 1.45V-1(a)(12). The
term ``hydrogen gas stream'' means a flow of gases that includes
hydrogen, either alone or with one or more other gases. The term
``mixed gas or impurity'' means a non-hydrogen gas that is part of a
hydrogen gas stream.
The term ``productive use'' means, with respect to a hydrogen gas
stream, a consumption of the hydrogen gas stream in a manner that
generates positive economic value, which is determined without regard
to the availability of the section 45V credit. The term ``productive
use'' means, with respect to qualified clean hydrogen, a consumption of
qualified clean hydrogen in a manner that generates positive economic
value, which is determined without regard to the availability of the
section 45V credit. Positive economic value is determined without
regard to the section 45V credit, consistent with the anti-abuse rule
of Sec. 1.45V-2(b). Thus, for example, a hydrogen gas stream produced
with the primary purpose of obtaining the benefit of the section 45V
credit in a wasteful manner would not have a productive use.
All three terms are relevant to the rule where certain emissions
related to purification are treated as through point of production,
described in part I.A.6.d of this Summary of Comments and Explanation
of Revisions. The term ``productive use'' also relates to the anti-
abuse rule described in part II.B of this Summary of Comments and
Explanation of Revisions.
6. Lifecycle GHG 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)) as in effect on the date of enactment of
section 45V. Section 45V(c)(1)(B) provides that the term ``lifecycle
greenhouse gas emissions'' only includes emissions through the point of
production (well-to-gate), as determined under the most recent GREET
model, or a successor model (as determined by the Secretary). Proposed
Sec. 1.45V-1(a)(8) would have defined ``lifecycle GHG emissions.'' The
final regulations renumber proposed Sec. 1.45V-1(a)(8) to Sec. 1.45V-
1(a)(9).
Proposed Sec. 1.45V-1(a)(8)(i) would have incorporated the
statutory definitions provided in section 45V(c)(1)(A) and (B),
specifically providing that the term has the same meaning as that in
section 211(o)(1)(H) of the Clean Air Act as in effect on August 16,
2022, and includes
[[Page 2231]]
emissions only through the point of production (well-to-gate) as
determined under the most recent GREET model, or a successor model.
These final regulations modify proposed Sec. 1.45V-1(a)(8)(i) to
provide that, for purposes of section 45V, lifecycle GHG emissions are
determined under the 45VH2-GREET Model. No comments were received on
Sec. 1.45V-1(a)(8)(i), and this provision is adopted as renumbered
Sec. 1.45V-1(a)(9)(i) without further changes.
By reference to section 211(o)(1)(H) of the Clean Air Act, section
45V(c)(1)(A) requires a complete assessment of direct and significant
indirect emissions associated with a hydrogen production process. After
consultation with the DOE and the EPA, the Treasury Department and the
IRS interpret section 45V(c)(1)(A) with its reference to section
211(o)(1)(H) of the Clean Air Act as excluding emissions related to the
manufacturing of the equipment within the hydrogen production pathway
(for example, power generators, hydrogen production facility), from the
definition of lifecycle GHG emissions. This interpretation is
consistent with how EPA has implemented section 211(o)(1)(H) of the
Clean Air Act for the Renewable Fuel Standard (RFS) program.\7\
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\7\ Regulatory Impact Analysis, Renewable Fuel Standard Program,
U.S. Environmental Protection Agency, EPA-420-R-10-10-006, at 311-
312 (Feb. 2010), available at <a href="https://www.regulations.gov/document/EPA-HQ-OAR-2021-0324-0652">https://www.regulations.gov/document/EPA-HQ-OAR-2021-0324-0652</a>.
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a. Most Recent GREET Model
Proposed Sec. 1.45V-1(a)(8)(ii) would have provided that, for
purposes of the section 45V credit, the term ``most recent GREET
model'' means the latest version of 45VH2-GREET developed by Argonne
National Laboratory and published by the DOE, as provided in the
instructions to the latest version of Form 7210, Clean Hydrogen
Production Credit, or any successor form(s), on the first day of the
taxable year during which the qualified clean hydrogen for which the
taxpayer is claiming the section 45V credit was produced. Proposed
Sec. 1.45V-1(a)(8)(ii) would have further provided that, if a version
of 45VH2-GREET becomes publicly available after the first day of the
taxable year of production (but still within such taxable year), then
the taxpayer could, in its discretion, treat such later version of
45VH2-GREET as the most recent GREET model.
Several comments recommended changes to proposed Sec. 1.45V-
1(a)(8)(ii). Some comments requested that, instead of identifying
45VH2-GREET as the ``most recent GREET model'' under section
45V(c)(1)(B), the final regulations identify the R&D GREET model
developed by Argonne National Laboratory and published by the DOE as
the most recent GREET model. Comments further recommended that the
final regulations require the use of 45VH2-GREET as a ``successor
model'' only if 45VH2-GREET closely aligns in function and principle
with the version of the R&D GREET model as it existed at the time that
section 45V was enacted. Other comments supported 45VH2-GREET as the
best available open-source lifecycle analysis methodology for
determining lifecycle GHG emissions for purposes of section 45V. Yet
another comment recommended that a model the comment had developed
should be able to be used as an alternative to 45VH2-GREET.
Except for changing the nomenclature of the ``most recent GREET
model'' to the ``45VH2-GREET Model,'' as further discussed in this part
I.A.6.a of the Summary of Comments and Explanation of Revisions, these
final regulations do not adopt the comments recommending changes to
proposed Sec. 1.45V-1(a)(8)(ii).
Though the Treasury Department and the IRS continue to view 45VH2-
GREET as the most recent GREET model for the reasons described in the
preamble to the proposed regulations and the fact that it was developed
more recently than the R&D GREET model, the Treasury Department and the
IRS recognize that the continued existence of the R&D GREET model and
periodic updates to both 45VH2-GREET and the R&D GREET model have
created some uncertainty in this regard. To avoid any potential
uncertainty about the meaning of the most recent GREET model, which
would be detrimental to the administration and implementation of the
section 45V credit, the Secretary is invoking her express delegation of
authority in section 45V(c)(1)(B) to determine 45VH2-GREET to be a
``successor model'' and to require its use.
In selecting 45VH2-GREET rather than the R&D GREET model or some
other model, the Treasury Department and the IRS considered the
statutory definition of lifecycle GHG emissions in section 211(o)(1)(H)
of the Clean Air Act (as in effect on August 16, 2022) and the specific
objectives of section 45V, and consulted with the DOE. 45VH2-GREET best
meets these parameters. It is a model specifically developed by the
Argonne National Laboratory as a derivative of and successor to the R&D
GREET model, designed specifically to address hydrogen production
processes and to meet the requirements and objectives of section 45V.
The R&D GREET model has been maintained by the DOE since 1995 to
enable research regarding lifecycle analyses of hundreds of different
methods of producing, delivering, and using energy. The model includes
many fuels other than hydrogen (for example, biofuels, synthetic fuels,
fossil fuels, and electrification), and includes information that is
based on preliminary analyses (that is, analyses that are not yet
complete, have significant technical uncertainties, or are still being
reviewed by laboratory staff, DOE staff, or independent experts).\8\
Annual updates to the model inform academic studies, informally guide
decarbonization strategies and research and development funded by both
the DOE and industry, and elicit stakeholder feedback that can improve
the model, particularly with regard to preliminary pathways. R&D GREET
is a valuable tool to characterize the benefits and impacts of energy
technologies in a directional manner and to test out new and updated
data and parameters, but it is not appropriate for use in analyses
where a relatively high degree of precision and certainty is required,
given the preliminary nature of much of the information represented,
and where specific emissions fluxes and their representation are needed
in a specific fashion (for example, to meet specifications within the
statute). Moreover, because the R&D GREET model offers users many
choices regarding analysis methodology (for example, co-product
accounting, system boundaries, and global warming potential values),
different users can achieve significantly different estimated GHG
emissions rates even when representing the same facility. Many of these
choices would not be appropriate in the specific context of the section
45V credit given the preliminary nature of much of the data underlying
aspects of the R&D GREET model and the fact that the model does not
require the use of specific methodologies and accounting parameters.
Accordingly, R&D GREET does not provide the degree of certainty,
structure, and specificity necessary to meet the statutory requirement
of reflecting lifecycle GHG emissions as defined by section
211(o)(1)(H) of the Clean Air Act (as in effect on August 16, 2022),
nor does it meet the specific objectives of such section or of the
section 45V credit.
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\8\ See generally GREET, Office of Energy Efficiency & Renewable
Energy, U.S. Department of Energy, available at <a href="https://www.energy.gov/eere/greet">https://www.energy.gov/eere/greet</a>.
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[[Page 2232]]
In addition, implementation of the section 45V credit will be aided
by a user-friendly model that characterizes the lifecycle GHG emissions
rates of different hydrogen production processes consistently, with
high levels of confidence, and with higher fidelity than R&D GREET, and
consistent with the requirements, purposes, and objectives of the
section 45V credit. The DOE directed the Argonne National Laboratory to
develop 45VH2-GREET to meet three key parameters: (1) consistency of
background assumptions for all users and across hydrogen production
processes, while enhancing user friendliness, (2) technical robustness
of the processes, and (3) consistency with the other requirements and
purposes of section 45V. Each of these parameters is explained in
additional detail as follows.
First, 45VH2-GREET facilitates consistent analyses across different
processes while enhancing user friendliness. While R&D GREET allows
users to simulate hundreds of different fuel pathways (including but
not limited to those that involve hydrogen) and several different
system boundaries with different user-defined assumptions, 45VH2-GREET
exclusively allows simulations of the well-to-gate emissions associated
with hydrogen production (as specified in section 45V(c)(1)(B) and in
alignment with these final regulations). The simpler interface in
45VH2-GREET as compared to R&D GREET ensures that the model is
accessible to a broad range of taxpayers, including those without
significant prior experience in lifecycle analysis or a GREET model.
Second, 45VH2-GREET achieves technical robustness across hydrogen
production pathways. Hydrogen production pathways represented in 45VH2-
GREET are a subset of those in R&D GREET and were included following
rigorous interagency review for technical fidelity and alignment with
the statute. While additional hydrogen production pathways are
available in R&D GREET, many are preliminary in nature and
inappropriate for analyses requiring relatively high precision, data
reliability, and analytical rigor to support use in implementation of
the section 45V credit (as described previously in this part of the
Summary of Comments and Explanation of Revisions and further in
supporting documentation to R&D GREET \9\). Implementation of the
section 45V credit necessitates the use of lifecycle GHG emissions rate
calculations that are as precise and robust as feasible, as section
45V(b)(2) provides differing applicable percentages based on a range of
lifecycle GHG emissions rates and section 45V(c)(2)(A) includes within
the definition of qualified clean hydrogen only hydrogen produced with
a lifecycle GHG emissions rate below a threshold level. Absent
analytically robust emissions calculations, these final regulations
would fail to implement Congress's directive to incentivize qualified
clean hydrogen production, as distinguished among the different
applicable percentage brackets, as well as fail to realize Congress's
underlying objective of crediting only qualified clean hydrogen and
providing greater credit amounts to hydrogen produced with lower
lifecycle GHG emissions rates. As data on and analyses of additional
hydrogen production pathways in R&D GREET become more robust, such
pathways may be incorporated into future versions of 45VH2-GREET.
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\9\ Summary of Expansions and Updates in R&D GREET 2023 (2023),
Argonne National Laboratory, available at <a href="https://greet.anl.gov/files/greet-2023-summary">https://greet.anl.gov/files/greet-2023-summary</a> (R&D GREET Supporting Documentation).
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Additionally, 45VH2-GREET was developed to align with the text of
section 45V, which requires that the credit be based on the ``lifecycle
greenhouse gas emissions'' as defined under section 211(o)(1)(H) of the
Clean Air Act, subject to the additional requirements of section
45V(c)(1)(B), which references the use of GREET or a successor model as
determined by the Secretary, and limits the emissions estimates to
``well-to-gate'' emissions. Lifecycle GHG emissions are defined in
section 211(o)(1)(H) of the Clean Air Act to include both direct
emissions and significant indirect emissions. R&D GREET does not
robustly account for the variability in emissions estimates of all
potential significant indirect emissions of certain hydrogen production
pathways, particularly when representing counterfactual scenarios. The
model additionally does not address the risk of significant indirect
emissions related to changes in market behavior associated with the
incentives created by section 45V.\10\ The proposed regulations
therefore asked for comments on lifecycle analysis (LCA) considerations
associated with hydrogen production pathways.
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\10\ For example, in a December 13, 2023, letter to the Treasury
Department, the EPA noted that it has interpreted section
211(o)(1)(H) of the Clean Air Act in the context of the Clean Air
Act's RFS program. In that context, the EPA had previously
determined that the version of ANL GREET that existed in 2010 (that
is, R&D GREET) was not sufficient to calculate lifecycle GHG
emissions for purposes of 211(o)(1)(H) of the Clean Air Act. The EPA
also explained that the more recent version of ANL GREET that
existed as of December 2023 similarly did not satisfy the relevant
Clean Air Act criteria because it did not include the significant
direct and indirect emissions that the EPA had previously determined
were necessary. See Letter from Joseph Goffman, Principal Deputy
Assistant Administrator for the Office of Air and Radiation, U.S.
Environmental Protection Agency, to Lily Batchelder, Assistant
Secretary for Tax Policy, U.S. Department of the Treasury (Dec. 13,
2023), available at <a href="https://home.treasury.gov/system/files/136/Final-EPA-letter-to-UST-on-SAF-signed.pdf">https://home.treasury.gov/system/files/136/Final-EPA-letter-to-UST-on-SAF-signed.pdf</a>.
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In characterizing the lifecycle GHG emissions rate of a given
hydrogen production pathway, 45VH2-GREET reflects key drivers of
``lifecycle greenhouse gas emissions'' as defined by section
45V(c)(1)(A) by cross-reference to section 211(o)(1)(H) of the Clean
Air Act, subject to the additional requirements of section
45V(c)(1)(B). Consistent with the Clean Air Act, 45VH2-GREET, in
conjunction with the broader regulatory framework, addresses direct GHG
emissions (for example, at a hydrogen production facility) and
significant indirect emissions (for example, upstream emissions
associated with electricity consumption at a hydrogen production
facility).
Third, 45VH2-GREET is consistent with the other requirements and
purposes of section 45V. The accurate and fair administration of the
section 45V credit requires the use of fixed ``background data''
assumptions for parameters for which bespoke inputs from hydrogen
producers would present challenges for tax administration, which
requires high fidelity to ensure the accurate assessment and reporting
of lifecycle GHG emissions rates associated with the production of
hydrogen. Allowing taxpayers to provide bespoke values for parameters
that cannot be accurately determined at an individual taxpayer level or
cannot be verified would invite exaggerated or understated estimates
that could result in inaccurate section 45V credit determinations. Use
of verifiable data ensures that the section 45V credit is available
only to those facilities that meet statutory requirements and that the
appropriate section 45V credit amount is determined with respect to
those facilities. To facilitate the use of bespoke values where
feasible and the use of appropriate alternative values where that is
not feasible, as well as consistency across taxpayers, the proposed
regulations introduced the concepts of ``background data'' (which
cannot be changed by 45VH2-GREET users) and ``foreground data'' (which
allows for bespoke inputs by 45VH2-GREET users), and 45VH2-GREET
distinguishes between them in a consistent manner. For example, 45VH2-
GREET incorporates the GHG emissions rates of regional grids as a
[[Page 2233]]
fixed background data parameter that users cannot change. The values
incorporated in 45VH2-GREET as background data are based on individual
power generators' reporting to the U.S. Energy Information
Administration (EIA), emissions factors derived from the EPA's
Emissions & Generation Resource Integrated Database (eGRID), estimates
of upstream emissions derived by Argonne National Laboratory, and
estimates of transmission and distribution losses based on State level
reporting to the EIA. Given that GHG emissions estimates of regional
grids are derived using the best available data and science, it is
unlikely that a given taxpayer would be able to establish a value that
differs materially from the 45VH2-GREET default and also has high
fidelity. Moreover, given that this parameter is expected to be
consistent across all taxpayers within a given region, it is
appropriate to require that all such taxpayers utilize the same value
rather than allowing for deviation across facilities.
Thus, 45VH2-GREET is consistent with the specific requirements of
section 45V while maintaining R&D GREET's overall modeling approach and
much of R&D GREET's background assumptions. This furthers the purposes
reflected in section 45V(c)(1)(A) and (B). For these reasons, the
Secretary has determined that 45VH2-GREET is a successor model for
purposes of section 45V(c)(1)(B), and the final regulations require its
use. Accordingly, proposed Sec. 1.45V-1(a)(8)(ii) is modified and
renumbered as Sec. 1.45V-1(a)(9)(ii) to provide that the term ``45VH2-
GREET Model'' means the latest publicly available version of 45VH2-
GREET developed by Argonne National Laboratory and published by the
DOE, as identified in the instructions to the latest version of Form
7210, or a successor form(s), on the first day of the taxable year
during which the qualified clean hydrogen for which the taxpayer is
claiming the section 45V credit was produced. Additionally, as further
discussed in this Summary of Comments and Explanation of Revisions,
proposed Sec. 1.45V-4(a) is modified to provide that the lifecycle GHG
emissions rate of each hydrogen production process at a qualified clean
hydrogen production facility is determined under the 45VH2-GREET Model.
Conforming changes have also been made throughout the regulatory text
to replace ``most recent GREET model'' with ``45VH2-GREET Model.''
b. Differences From R&D GREET
Several comments requested that 45VH2-GREET include all the
pathways and technologies that are present in R&D GREET. Some of these
comments also requested that 45VH2-GREET employ the same methodology
used for measuring lifecycle GHG emissions as those used in R&D GREET.
Some comments specifically requested that the transportation-related
emissions be consistent between the two models.
The final regulations do not adopt these comments. As described in
the 45VH2-GREET User Manual and as described in this part I.A.6 of the
Summary of Comments and Explanation of Revisions, some pathways may be
included in R&D GREET but not in a given version of 45VH2-GREET because
the pathways were still preliminary when such version of 45VH2-GREET
was developed and/or because the pathways did not adequately address
all key sources of direct and significant indirect emissions (as
required for consistency with section 211(o)(1)(H) of the Clean Air
Act). Uncertainties around many of these pathways may include
parameters such as identification of all relevant feedstocks or the
choice of counterfactual scenarios. These uncertainties are described
in sections 2.1.1 and 2.1.4 of the R&D GREET Supporting Documentation.
Some pathways, such as those using certain types of biomass, also had
uncertainties and had not completed the 45VH2-GREET technical review
process at the time the most recent version was released, but may be
added in future updates as data and other parameters become more
robust. The proposed regulations requested comments on lifecycle
analysis considerations associated with some of the pathways that were
not included in the initial 45VH2-GREET release (for example, certain
RNG pathways and fugitive methane), which could inform future updates
to the model.
Some specific aspects of hydrogen production pathways within R&D
GREET have completed an interagency review process, have been deemed
sufficiently robust and, have therefore also been included in 45VH2-
GREET. Examples include default assumptions associated with methane
leakage during natural gas transportation to a facility or assumptions
of the emissions that result from electricity generation from specific
generators. Thus, some assumptions related to transportation emissions
have been made consistent between R&D GREET and 45VH2-GREET, while
other assumptions are still too uncertain to include in 45VH2-GREET but
may be included if deemed sufficiently robust in the future based on
evaluation by interagency technical experts.
R&D GREET is used for a range of purposes, including academic
studies and research that do not necessarily require verification of
assumptions with real-world data at specific facilities and at times
rely on small and therefore uncertain sample sizes or datasets.
Implementation of the section 45V credit, however, requires that
information used to calculate the lifecycle GHG emissions rate reflect
a given taxpayer's actual operation with a reasonable degree of
certainty and be subject to independent verification where possible or,
where not, that values used appropriately reflect the range of
possibilities rather than allowing use of unverifiable inputs that
inappropriately maximize the amount of the section 45V credit. As
described previously, use of verifiable data is necessary in the
context of tax administration and in particular with respect to the
section 45V credit where eligibility for the amount of the credit is
based on the facility's lifecycle GHG emissions rate.
c. Emissions Through the Point of Production (Well-to-Gate)
Proposed Sec. 1.45V-1(a)(8)(iii) would have provided 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. Further, proposed Sec. 1.45V-
1(a)(8)(iii) would have provided that such term includes emissions
associated with feedstock growth, gathering, extraction, processing,
and delivery to a hydrogen production facility. Finally, proposed Sec.
1.45V-1(a)(8)(iii) would have provided that such term 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.
Some comments requested clarification on the definition of ``well-
to-gate'' and whether emissions related to hydrogen purification,
compression, liquefaction, transport, storage, and other activities are
included in the definition for purposes of calculating the lifecycle
GHG emissions rate of the hydrogen. Other comments provided feedback on
the requirement in proposed Sec. 1.45V-1(a)(8)(iii) that
[[Page 2234]]
taxpayers calculate the lifecycle GHG emissions rate of hydrogen
produced at a hydrogen production facility based on the aggregate
amount of hydrogen produced at the facility over the taxable year (in
other words, use the average annual emissions rate). While some
comments supported requiring taxpayers to calculate the lifecycle GHG
emissions rate of hydrogen on an annual basis, other comments requested
that taxpayers be permitted to calculate the lifecycle GHG emissions
rate of hydrogen produced at their facility on a more granular basis.
One comment expressed disappointment that the Treasury Department and
the IRS did not engage States in defining lifecycle GHG emissions.
Another comment recommended that the final regulations require State
governments to adopt regulations to complement and enhance section 45V.
Finally, one comment requested that the term ``emissions through the
point of production (well-to-gate)'' exclude emissions from the
production of hydrogen during natural disasters, emergency events,
start-ups, shut-downs, and maintenance activities.
Regarding the request for clarification of whether specific
activities fall within the well-to-gate system boundary, the definition
of ``emissions beyond the point of production (well-to-gate)'' in
proposed Sec. 1.45V-1(a)(8)(iii) and renumbered as Sec. 1.45V-
1(a)(9)(iii) is sufficiently clear. Comments have indicated confusion,
however, as to how the well-to-gate system boundary and the definition
of facility interact. To clarify, the well-to-gate system boundary for
purposes of determining the lifecycle GHG emissions rate of a process
is distinct from the definition of facility for Federal income tax
purposes. First, as specified in Sec. 1.45V-1(a)(9)(iii), the well-to-
gate system boundary includes certain emissions that occur upstream of
the facility. For example, the well-to-gate system boundary includes
emissions associated with feedstock growth, gathering, extraction,
processing, and delivery to a hydrogen production facility. While such
emissions are included in the well-to-gate system boundary, equipment
used in such upstream activities--such as electricity generating
equipment--is not part of the facility, as specified in Sec. 1.45V-
1(a)(7)(ii)(B). Second, as further specified in Sec. 1.45V-
1(a)(9)(iii), the well-to-gate system boundary also includes all
emissions resulting from the facility's hydrogen production process,
inclusive of the production of a mixed gas or impurity and the
electricity used by the hydrogen production facility and any capture
and sequestration of carbon dioxide generated by the hydrogen
production facility. This includes emissions resulting from the use of
all components that function interdependently to produce the qualified
clean hydrogen for which the section 45V credit is determined.
Emissions from activities that occur after the facility's hydrogen
production process is complete, such as liquefaction, storage, or
transport, are generally beyond the well-to-gate system boundary. The
final regulations include a non-exhaustive list of examples of such
activities in Sec. 1.45V-1(a)(9)(iii). Finally, as explained in part
I.A.6.d, Sec. 1.45V-1(a)(9)(iv) is added to provide that emissions
that result from certain purification activities that occur downstream
of the facility's qualified clean hydrogen production process are still
within the well-to-gate system boundary. Even though equipment used in
such purification activities is not part of the facility, emissions
associated with such purification are nevertheless within the well-to-
gate system boundary for purposes of determining the section 45V
credit.
However, the Treasury Department and the IRS, based on advice of
the DOE, note that, in situations where a man-made chemical is produced
using hydrogen feedstock (for example, ammonia), and is later cracked
or ``dehydrogenated'' to release the hydrogen, the chemical represents
a means of hydrogen storage and the cracking step releases the hydrogen
from such storage. These steps occur downstream of hydrogen production
and are therefore outside of the well-to-gate system boundary, and also
do not constitute a distinct hydrogen production process. Accordingly,
hydrogen released from cracking such chemicals cannot be used to claim
the section 45V credit.
Regarding the requirement that taxpayers calculate the lifecycle
GHG emissions rate of their hydrogen on an annual basis, these comments
are addressed in response to comments received on proposed Sec. 1.45V-
4(a) in part III.A of this Summary of Comments and Explanation of
Revisions.
Regarding a comment's criticism that the Treasury Department and
the IRS did not engage the States in defining lifecycle GHG emissions,
this term is defined in section 45V(c)(1)(A) as having the same meaning
given such term under section 211(o)(1)(H) of the Clean Air Act.
Moreover, States were afforded the opportunity to comment on the
proposed regulations, and some did. Section 45V does not require State
governments to take any action or to enact any legislation to
complement section 45V. Section 45V provides a Federal income tax
credit to owners of qualified clean hydrogen production facilities for
the production of qualified clean hydrogen and imposes no obligations
on the States. Accordingly, these final regulations do not adopt the
request to require the States to enact legislation to complement
section 45V.
Finally, regarding the request to exclude emissions from the
production of hydrogen during periods of natural disasters, emergency
events, start-ups, shut-downs, and maintenance activities, section
45V(c)(1) does not provide for or contemplate any such exceptions.
These final regulations, therefore, do not adopt this comment's
suggestion.
d. Certain Emissions Related to Purification Treated as Through Point
of Production
In consultation with the DOE, the final regulations add a new Sec.
1.45V-1(a)(9)(iv), which addresses emissions attributable to the
purification of hydrogen. Section 1.45V-1(a)(9)(iv) provides that, if
the taxpayer knows or has reason to know the purification of a hydrogen
gas stream (that is, removal of a mixed gas or impurity) is necessary
for a hydrogen gas stream to be productively used, or to be sold for
productive use, any lifecycle GHG emissions relating to such
purification (for example, emissions from electricity used in
purification, or carbon dioxide that is separated from a hydrogen gas
stream and then vented as part of purification) are treated as
emissions through the point of production (well-to-gate). Additionally,
if the taxpayer knows or has reason to know that a hydrogen gas stream
contains less than 99 percent hydrogen and will be combusted without
purification, any lifecycle GHG emissions relating to the purification
needed to purify the hydrogen gas stream to contain 99 percent hydrogen
are treated as emissions through the point of production (well-to-
gate). Section1.45V-1(a)(9)(v) provides an example to illustrate this
rule.
To ascertain the emissions associated with production of hydrogen
in a manner that is consistent with section 45V, which requires that
section 45V credit eligibility be determined on the basis of
``kilograms of CO2e per kilogram of hydrogen'', 45VH2-GREET levelizes
all well-to-gate emissions associated with a hydrogen production
process over only the kilograms of pure hydrogen produced. This
includes emissions attributable to the purification of a hydrogen gas
stream to remove a mixed gas or impurity. Emissions attributable to
purification
[[Page 2235]]
include emissions associated with energy consumption (for example,
electricity consumed by purification equipment or by equipment used for
carbon dioxide capture), as well as greenhouse gases that are separated
out by purification equipment and not sequestered (for example, carbon
dioxide that is captured and then vented).
Previous versions of 45VH2-GREET accounted for carbon dioxide
emissions that may occur from the conversion of impurities or mixed
gases downstream of the hydrogen production facility, thus including
such emissions in the levelization. This approach will be revised in
the forthcoming January 2025 version of 45VH2-GREET, such that
emissions outside of the well-to-gate boundary are not accounted for in
determining a process' lifecycle GHG emissions rate for purposes of
section 45V. Qualified clean hydrogen production facilities can
therefore be designed to achieve the level of purity required for sale
or use (subject to the rules of section 45V and these final
regulations), without regard to the carbon dioxide emissions that may
occur from the conversion of impurities or mixed gases downstream (for
example, the ultimate conversion to carbon dioxide of methanol produced
from a mixed gas stream of hydrogen and carbon monoxide).
As the result of the January 2025 modification to 45VH2-GREET and
the 45VH2-GREET User Manual, and to clarify the appropriate well-to-
gate boundary, these final regulations, following consultation with the
DOE, clarify the definition of emissions through the point of
production (well-to-gate) to address emissions attributable to
purification that the taxpayer knows or has reason to know are
necessary in order for the hydrogen gas stream to be productively used,
regardless of where such purification occurs. These emissions are
properly treated as occurring within the well-to-gate boundary in Sec.
1.45V-1(a)(9)(iv).
In certain cases--absent the section 45V credit--the taxpayer would
normally purify a hydrogen gas stream prior to it being productively
used or sold for productive use, and such purification would have
lifecycle GHG emissions attributed to the hydrogen produced. Taxpayers,
however, could have an incentive to claim that the purification (and
its attendant emissions) occurs beyond the hydrogen production
``gate.'' If these emissions occur outside of the ``gate,'' then they
would not be attributed in 45VH2-GREET to the hydrogen production
process and therefore would not be included in the hydrogen production
process' lifecycle GHG emissions rate for purposes of determining the
amount of the section 45V credit. The taxpayer may, for example, forgo
hydrogen purification that it would have performed absent the incentive
of the section 45V credit, and produce comparatively ``impure
hydrogen.'' The ``impure hydrogen'' may then be sold to a customer who
would purify the hydrogen gas stream (something it would not need to do
absent the incentive to the hydrogen producer due to the section 45V
credit), thereby generating lifecycle GHG emissions that the taxpayer
was able to forgo. Similarly, a taxpayer could have an incentive to
instead sell a stream of impure hydrogen and a mixed gas or impurity
(such as carbon monoxide), instead of the purified hydrogen gas stream,
for combustion. The DOE has advised that, absent the section 45V
credit, hydrogen gas streams are consistently sold at purity levels
well above 99 percent today and that customers would likely have to
substantially modify their operations to accept less pure gas streams.
Therefore, DOE has advised that the predominant motivation to sell
hydrogen for combustion at lower purities would be so the emissions
associated with those impurities would not be accounted for within the
well-to-gate boundary.
These circumstances would be inconsistent with a purpose of section
45V, which is to provide an incentive to produce qualified clean
hydrogen and to provide a higher incentive to produce qualified clean
hydrogen as more lifecycle GHG emissions are avoided. Producing
hydrogen with a lower lifecycle GHG emissions rate and receiving a
section 45V credit reflecting such an emissions rate in the case where
the taxpayer knows or has reason to know that the customer must further
purify the hydrogen gas stream (and emit additional emissions) so that
such gas stream can be productively used by its customer is contrary to
this purpose and to 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. To address this, and consistent with the purposes of
section 45V, in cases where the taxpayer knows or has reason to know
that additional purification is needed for a hydrogen gas stream to be
productively used, the final regulations clarify that the emissions
associated with the purification needed to produce the hydrogen for a
productive use occur within the well-to-gate boundary. Likewise, in
cases where the taxpayer knows or has reason to know that a hydrogen
gas stream contains less than 99 percent hydrogen and will be combusted
without purification, emissions that would have resulted from purifying
the hydrogen gas stream to that percentage prior to combustion are
treated as emissions within the well-to-gate boundary.
The final regulations are consistent with the treatment of
emissions related to purification in the January 2025 version of 45VH2-
GREET, which treats emissions attributable to purification that the
taxpayer knows or has reason to know are necessary in order for the
hydrogen gas stream to be productively used as within the gate.
7. Process
Section 45V(c)(1)(A) and (B) establish the boundaries for
determining lifecycle GHG emissions rates associated with the
production of hydrogen. Section 45V(c)(1)(A) mandates consideration of
GHG emissions that are described in section 211(o)(1)(H) of the Clean
Air Act. Section 45V(c)(1)(B) further specifies that the term
``lifecycle greenhouse gas emissions'' only includes emissions through
the point of production (well-to-gate), as determined under the most
recent GREET model or a successor model as determined by the Secretary.
Accordingly, section 45V(c)(1)(B) specifies an ending boundary (that
is, the gate of a hydrogen production facility) for the emissions that
must be considered for purposes of the section 45V credit. It also
specifies a model for use in determining lifecycle GHG emissions rates.
Taken together, these statutory rules provide the boundaries for
assessing lifecycle GHG emissions for purposes of section 45V.
Section 45V provides authority for the Secretary to specify and
clarify how to determine lifecycle GHG emissions rates within these
statutorily determined boundaries. Exercise of this authority is
necessary because this statutory framework must address a wide range of
hydrogen production processes that are currently viable or that may
become viable in the future, the technical details of each hydrogen
production process, and scientific advancements and uncertainties
associated with lifecycle GHG analyses. Congress acknowledged that the
Secretary would need to identify a system for determining lifecycle GHG
emissions rates and expressly delegated to her the authority to do so
in section 45V(f), which provides ``the Secretary shall issue
regulations or other guidance to carry out the purposes of this
section, including regulations or other guidance for determining
lifecycle greenhouse gas
[[Page 2236]]
emissions.'' As noted previously, this authority is cabined by the
directives in the statute, most critically the directive to measure
well-to-gate lifecycle GHG emissions as defined by section 211(o)(1)(H)
of the Clean Air Act.
The term ``process,'' as used in sections 45V(b)(2)(A) through (D)
and in section 45V(c)(2)(A), is a parameter that requires further
clarification. Proposed Sec. 1.45V-4(a) and (b) would have required
the section 45V credit to be determined according to the lifecycle GHG
emissions rate of all hydrogen produced at a hydrogen production
facility during the taxable year. Under this proposal, the term
``process'' included all the operations and inputs used by a facility
to produce hydrogen during a taxable year.
The Treasury Department and the IRS received a number of comments
which led to a reconsideration of how the term ``process'' is used in
determining lifecycle GHG emission rates. After reviewing these
comments and reexamining the meaning of the term ``process'' as it
relates to the structure and purposes of section 45V, these final
regulations add Sec. 1.45V-1(a)(11) to define the terms ``process''
and ``primary feedstock,'' as discussed further in this part I.A.7 of
this Summary of Comments and Explanation of Revisions. These final
regulations also make a corresponding modification to Sec. 1.45V-1(b)
regarding the amount of the credit.
Several comments recommended that 45VH2-GREET allow for the
blending of feedstocks, like natural gas and RNG. In the case of RNG,
comments claimed that given the high cost of RNG, combining RNG with
conventional natural gas could create certain market efficiencies that
would justify the combined use of RNG and natural gas. Several comments
opposed allowing the mixing of RNG (or other types of biomethane) with
conventional natural gas to produce clean hydrogen; in particular, one
comment noted that ``splash blending,'' or combining small amounts of
RNG with conventional natural gas, could cost the U.S. government
billions of dollars annually while potentially increasing overall
emissions. According to one comment, to avoid splash blending, each
methane-based feedstock should be considered a separate production
line.
Section 45V generally requires that lifecycle GHG emissions rates
be determined according to the process by which the hydrogen is
produced. Section 45V(b)(2) provides the rules for determining the
applicable percentages that are ultimately used to calculate the amount
of the section 45V credit. In general, section 45V(b) requires
applicable percentages to be determined with respect to ``qualified
clean hydrogen which is produced through a process that results in a
lifecycle greenhouse gas emissions rate'' that falls within statutorily
mandated emissions rate ranges. Section 45V(c)(2)(A) defines the term
qualified clean hydrogen as hydrogen that is produced through a process
that results in a lifecycle greenhouse gas emissions rate of not
greater than 4 kilograms of CO2e per kilogram of hydrogen.
Section 45V does not expressly define the term ``process.'' The
plain meaning of the term ``process'' is ``a series of actions or
operations conducing to an end.'' \11\ In particular, for lifecycle
assessment purposes, the term ``process'' has been defined as a ``set
of interrelated or interacting activities that transforms inputs into
outputs.'' \12\ Building upon these definitions, combined with the
statutory distinctions between processes that result in different
specified ranges of lifecycle GHG emissions rates, the statutory text
indicates that the term ``process'' necessarily includes a degree of
uniformity and consistency among those inputs that can meaningfully
differ in their GHG intensity. Section 45V(b)(2) provides varying
credit amounts for hydrogen that is ``produced through a process that
results in a lifecycle greenhouse gas emissions rate'' that falls into
specified ranges. The term ``process'' must therefore mean more than
just the production technique because the same production technique,
such as steam methane reforming, could produce lifecycle GHG emissions
rates that fall into different ranges specified in the statute
depending on the inputs used. The statute differentiates between ``a
process that results in'' one specified range of GHG emissions rates
from ``a process that results in'' a different specified range of GHG
emissions rates. See section 45V(b)(2)(A) through (D). The only
effective way to distinguish between hydrogen production processes is
to define the term ``process'' with respect to both the production
technique and a class of uniform or similar inputs used in that
technique.
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\11\ Process, Merriam-Webster Dictionary, available at <a href="https://www.merriam-webster.com/dictionary/process">https://www.merriam-webster.com/dictionary/process</a>.
\12\ International Organization for Standardization, ISO
14040:2006, Environmental Management--Life Cycle Assessment--
Principles and Framework (2d ed. 2006).
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This interpretation of the term ``process'' is consistent with the
chemical transformations that are used to produce hydrogen, and with
the language in section 45V. Treating input feedstocks with
significantly different attributes as part of the same hydrogen
production process (for example, by averaging the attributes of
multiple types of methane used over a time period) often would not
accurately reflect the chemical dynamic whereby each molecule of
hydrogen originates from distinct source-molecule inputs that have
distinct attributes affecting the lifecycle emissions of each hydrogen
molecule and, as a result, often would not reflect the lifecycle GHG
emissions rate of the resulting hydrogen molecules, as required by the
statute. The most granular approach to assessing lifecycle GHG
emissions would therefore be to match each molecule of hydrogen with
its molecular inputs and identify the lifecycle emissions associated
with the resulting hydrogen. However, this level of granularity is
impractical to administer and unnecessary to implement the statute. The
feasible and appropriate approach to aggregating molecules is to assess
each hydrogen production process by grouping source molecules into
categories of primary feedstock.
This aggregation approach best implements the statutory
requirements of section 45V because the production of hydrogen using
inputs with similar attributes can be expected to produce consistent
emissions results, allowing the appropriate determination of
eligibility and credit amounts under section 45V. An approach that
incorrectly assumed all hydrogen molecules are a blend of feedstocks
would not yield a correct lifecycle assessment, would have perverse
incentive effects (as discussed subsequently in this Summary of
Comments and Explanation of Revisions), and would be no more
administrable than the approach adopted in these final rules.
With the exception of geologic hydrogen, all hydrogen production
processes involve conversion of hydrogen-containing molecules into pure
hydrogen. In electrolysis, for example, the feedstock--the source of
the hydrogen molecules--is water, which contains no carbon and
therefore does not directly produce carbon dioxide (or other GHGs) in
the production of hydrogen. By contrast, in steam methane reforming,
the feedstock is water and methane, which produces hydrogen and carbon
dioxide when reformed. In pyrolysis, the feedstock is organic matter,
which produces hydrogen and solid carbon when pyrolyzed. In methane
pyrolysis, the feedstock is methane, which is converted into hydrogen
and solid
[[Page 2237]]
carbon through the application of high temperatures.
Energy attributes and lifecycle GHG emissions can vary considerably
among hydrogen-containing feedstocks. For instance, the water inputs
into electrolysis generally have limited upstream emissions and zero
direct GHG emissions from the chemical reaction that produces hydrogen.
Hydrocarbon inputs into methane reforming produce a standard quantity
of direct emissions through the chemical reaction that produces
hydrogen, but upstream emissions vary considerably for different
sources. Different hydrocarbon inputs have significantly different
upstream practices (for example, methods of gathering, processing, or
delivery) and counterfactuals, among other factors, which result in
dramatic differences in resulting lifecycle GHG emissions rates of
producing hydrogen from that methane source.
Because of the potential for significant variation in the lifecycle
GHG emissions rates associated with different inputs, and the structure
of section 45V, it is necessary to assess hydrogen production using
different hydrogen-containing feedstocks as distinct processes.
Accordingly, these final regulations distinguish processes based on
their hydrogen-containing feedstock, which is referred to in these
final regulations as a ``primary feedstock.'' A ``primary feedstock''
is defined in Sec. 1.45V-1(a)(11) as a hydrogen-containing chemical
that is transformed to produce hydrogen at a hydrogen production
facility and has uniform or similar attributes distinguished by the
source from which it is derived, if such source materially affects the
lifecycle GHG emissions rate associated with use of the chemical to
produce hydrogen.
If the term ``process'' were instead interpreted to encompass
feedstocks with significantly different attributes as relevant to
determining lifecycle GHG emissions, then the approach to determining
whether a ``process'' has comported with statutorily prescribed
lifecycle GHG emissions rate ranges for the purposes of determining the
amount of the section 45V credit would not effectively, in fact,
incentivize the production of hydrogen within a specific lifecycle GHG
emissions rate range. For example, allowing a process to calculate a
single emissions rate based on a mix of feedstocks with disparate
attributes would increase the risk that hydrogen production that would
otherwise not meet the statutory emissions requirements receives the
section 45V credit simply by virtue of being commingled or averaged
with hydrogen production that does meet the statutory emissions
requirements using other inputs. This would be a foreseeable and
inappropriate result if, as several comments urged, the term
``process'' were interpreted as any activities and inputs that resulted
in the production of a kilogram of hydrogen. The statute's singular
reference to ``a process'' and ``a lifecycle greenhouse gas emissions
rate'' indicates that the statutory references to the term ``process''
requires evaluation on the basis of each specific process, with
uniformity and consistency across its operations and primary feedstock
that generally results in a consistent lifecycle GHG emissions rate.
Defining the term ``process'' based solely on the type of a facility's
operations that produce hydrogen (for example, steam methane reforming
or autothermal reforming) is not appropriate because such operations
could rely on feedstocks with materially different attributes and
carbon intensities, which would result in very different lifecycle GHG
emission rates that would not be observable if feedstocks are
aggregated. Thus, feedstocks to a process should have attributes with a
sufficient degree of uniformity and consistency to be considered part
of the same ``process.'' Separately evaluating each hydrogen production
process at a qualified clean hydrogen production facility is consistent
with the statutory language and scheme of section 45V, which requires
accuracy in determining ``a lifecycle [GHG] emissions rate'' for
hydrogen produced via ``a process.'' See section 45V(c)(2)(A).
For these reasons, consistent with the transformation of feedstock
in the production of hydrogen, Sec. 1.45V-1(a)(11) defines the term
``process'' to mean the operations conducted by a facility to produce
hydrogen (for example, electrolysis or steam methane reforming) during
a taxable year using one primary feedstock. A facility producing
hydrogen through electrolysis, for example, will have a single hydrogen
production process in a taxable year with water as its primary
feedstock. Electricity with different attributes would not result in
distinct processes because electricity is not a primary feedstock (that
is, it is not contributing hydrogen atoms to the hydrogen molecule);
additionally, electricity cannot be differentiated at the molecular
level. Electricity and heat are integral to the operations of hydrogen
production facilities, and the form of energy used by a facility (for
example, electricity versus heat) plays an essential role in discerning
different hydrogen production processes. The energy powering a
facility's operations enables the chemical transformation of molecular
feedstocks into hydrogen, but energy does not itself contribute atoms
to the hydrogen produced by a facility. Thus, the final regulations do
not treat electricity and heat as primary feedstocks, but instead
require tracking and assessing the emissions associated with energy
used in a process through different mechanisms, as described in part
III.D of this Summary of Comments and Explanation of Revisions and
specified in 45VH2-GREET. For a facility that produces hydrogen through
steam methane reforming using fossil natural gas, for example, the
combination of fossil natural gas and water would be considered one
primary feedstock because hydrogen molecules derive from both fossil
natural gas and water and this form of hydrogen production requires use
of both water and methane. Thus, a facility producing hydrogen
exclusively through reforming of fossil natural gas with water would
have a single hydrogen production process in a taxable year. A facility
producing hydrogen through reforming of both fossil natural gas and RNG
from animal manure with water would have two hydrogen production
processes in that year; the primary feedstock for one process would be
fossil natural gas and water, and the primary feedstock for the other
process would be RNG from animal manure and water.
As further specified in the 45VH2-GREET User Manual and reflected
in 45VH2-GREET, some types of primary feedstocks are distinguished by
their origin (for example, methane from a specific source), as well as
attributes of that source as relevant to determining lifecycle GHG
emissions. While these final regulations cannot anticipate and address
all possible primary feedstocks that may be utilized for hydrogen
production, the Treasury Department and the IRS note that it is
currently appropriate to treat fossil natural gas, RNG derived from
landfill gas, RNG derived from animal waste, RNG derived from
wastewater treatment plants, and gas derived from coal mine methane as
distinct primary feedstocks. If a facility uses any of these gas
streams in combination with water via interdependent steps (for
example, in the case of reforming), then the combination of that gas
stream (for example, fossil natural gas, RNG derived from landfill gas,
etc.) and water is a singular primary feedstock. Such treatment
implements the definition of primary feedstock adopted here, which
treats as a single feedstock that which
[[Page 2238]]
has uniform or similar attributes distinguished by the source from
which it is derived, if such source materially affects the lifecycle
GHG emissions associated with use of the molecule to produce hydrogen.
If a facility utilizes more than one primary feedstock to produce
hydrogen, then that facility will have an equal number of separate
hydrogen production processes that each must be assessed separately to
determine a lifecycle GHG emissions rate for the quantity of hydrogen
produced through that process for purposes of section 45V. For example,
if a taxpayer procures RNG sourced from a blend of sources, the
taxpayer must account for the share of RNG derived from each source
distinctly within 45VH2-GREET or an Emissions Value Request
Application. Future releases of 45VH2-GREET and analyses conducted
through the DOE's EVRP may address additional primary feedstocks, but
any new primary feedstock must also be treated as distinct.
The Treasury Department and the IRS note that there is precedent
for this type of approach for assessing emissions associated with the
production of fuels. The RFS is another example of a framework that
requires a determination of what activities should be aggregated or
separated for purposes of lifecycle analysis to determine GHG
emissions. Similar to the approach provided for here, the RFS conducts
LCAs for distinct feedstock-technology-output combinations because
those combinations have the potential to have distinct lifecycle
emissions that should be credited differently under the RFS's statutory
scheme. See ``Regulation of Fuels and Fuel Additives: Changes to
Renewable Fuel Standard Program,'' 75 FR 14670, 14713 (Mar. 26, 2010)
(EPA final regulation providing that different combinations of
feedstock, production process, and fuel that result in different
lifecycle GHG outcomes must be evaluated separately).
8. Qualified Clean Hydrogen
Section 45V(c)(2)(A) provides that ``qualified clean hydrogen''
means hydrogen which 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. Further, section 45V(c)(2)(B) provides that
such term does not include any hydrogen unless the production and sale
or use of such hydrogen is verified by an unrelated party, and such
hydrogen is produced in the United States (as defined in section 638(1)
of the Code) or a United States possession (as defined in section
638(2)); in the ordinary course of a trade or business of the taxpayer;
and for sale or use. Proposed Sec. 1.45V-1(a)(9) substantially repeats
the statutory definition.
Several comments requested clarification on the definition of
``qualified clean hydrogen.'' Some comments requested clarification
that hydrogen does not need to be of a certain level of purity to
constitute ``qualified clean hydrogen.'' Specifically, comments
requested clarification that ``qualified clean hydrogen'' includes
hydrogen that is produced as one of several constituents in a gas
stream so long as the gas stream is valorized. The comments suggested
that the statute does not specify that the hydrogen production must
isolate the hydrogen or that the gas stream containing the hydrogen
achieve a certain threshold hydrogen content to be eligible for the
credit. These comments further suggested that requiring hydrogen to be
separated from other components in a gas stream when those components
would be immediately recombined with the hydrogen would be inefficient.
One comment requested clarification on whether there are specific
metering requirements for monitoring the purity of the hydrogen.
These final regulations do not modify the definition of ``qualified
clean hydrogen'' to specify a certain level of purity, or to specify
that no level of purity is required. A purity requirement does not need
to be added to the definition of ``qualified clean hydrogen'' because
45VH2-GREET already accounts for impurities by assessing the well-to-
gate emissions of a hydrogen production facility over only the
kilograms of pure hydrogen produced. The treatment of mixed gases or
impurities is further discussed in part I.A.6.d. of this Summary of
Comments and Explanation of Revisions.
The decisions to characterize well-to-gate emissions of hydrogen
based only on the kilograms of pure hydrogen produced, and to address
impurities through the well-to-gate lifecycle GHG emissions analysis
(in 45VH2-GREET or the PER process)--rather than by requiring hydrogen
to be of a certain level of purity--are consistent with Congress's
directive under section 45V(c)(1)(A) and (B) to determine lifecycle GHG
emissions as defined under section 211(o)(1)(H) of the Clean Air Act
and 45VH2-GREET.
As to the request for clarification on whether there are specific
metering requirements for monitoring the purity of the hydrogen, as
discussed in this part, impurities are accounted for through the well-
to-gate lifecycle GHG emissions analysis (in 45VH2-GREET or the PER
process). Metering requirements for all relevant inputs into 45VH2-
GREET, including purity, are addressed in Sec. 1.45V-5(g)(5), and no
special metering requirements for purity, apart from those specified in
Sec. 1.45V-5(g)(5), are needed.
9. For Sale or Use
For purposes of section 45V(c)(2)(B)(i)(III) and proposed Sec.
1.45V-1(a)(9)(i)(C), proposed Sec. 1.45V-1(a)(9)(ii) would have
provided that, the term ``for sale or use'' means for the primary
purpose of making hydrogen ready and available for sale or use.
Following production, storage of hydrogen before its sale or use would
not disqualify such hydrogen from being considered produced for sale or
use. No comments were received on proposed Sec. 1.45V-1(a)(9)(ii), and
this provision is adopted without change as renumbered Sec. 1.45V-
1(a)(13)(ii).
B. Amount of Credit
1. In General
Under section 45V(a), the clean hydrogen production credit is based
on the amount of qualified clean hydrogen produced ``during the 10-year
period beginning on the date such facility was originally placed in
service'' multiplied by the applicable amount identified in section
45V(b). Proposed Sec. 1.45V-1(b)(1) would have incorporated this
calculation of the amount of credit by providing that the amount of the
section 45V credit determined under section 45V(a) and the section 45V
regulations for any taxable year is the product of 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, multiplied by the applicable amount with respect to such
hydrogen.
Several comments requested changes related to the 10-year credit
period and the placed in service date specified in proposed Sec.
1.45V-1(b)(1). One comment requested that the 10-year credit period be
tolled for circumstances beyond the taxpayer's control or during
periods of diminished capacity. Another comment requested that the
placed in service date of a qualified clean hydrogen production
facility be delayed until operational testing is complete and
commercial quantities of hydrogen are produced. Another comment
requested that the final regulations provide that a qualified clean
hydrogen production facility cannot be placed in service until after
December 31, 2022. This comment
[[Page 2239]]
suggested that, prior to January 1, 2023, it was impossible to produce
qualified clean hydrogen because section 45V, which established what is
qualified clean hydrogen, did not become effective until that date.
Thus, this comment suggested, no hydrogen production facility could
properly be treated as having been placed in service as a ``qualified
clean hydrogen production facility'' until that date.
Another comment requested clarification of the requirements for
pre-existing facilities that were originally placed in service prior to
the enactment of section 45V and the extent to which such facilities
can claim the section 45V credit for the years remaining in the 10-year
period beginning on the date such facilities were originally placed in
service.
These final regulations do not adopt the changes to proposed Sec.
1.45V-1(b)(1) recommended by these comments. Section 45V(a) establishes
that the credit is based, in part, on the placed in service date and
the definition of ``placed in service'' is sufficiently clear as an
established tax concept. Section 1.46-3(d)(1) provides that, for
purposes of the section 38 credit (which includes the clean hydrogen
production credit determined under section 45V, see section 38(b)(36)),
property is considered placed in service in the earlier of the taxable
year in which, under the taxpayer's depreciation practice, the period
for depreciation with respect to such property begins; or the taxable
year in which the property is placed in a condition or state of
readiness and availability for a specifically assigned function,
whether in a trade or business, in the production of income, in a tax-
exempt activity, or in a personal activity. Examples of property that
is considered in a condition or state of readiness and availability for
a specifically assigned function are set forth in Sec. 1.46-3(d)(2).
Section 1.46-3(d)(2)(ii) provides that operational farm equipment that
is acquired during the taxable year and is not practicable to use until
the following year is still considered ready and available for its
assigned function in the taxable year. Section 1.46-3(d)(2)(iii)
provides that equipment that is operational but is still undergoing
testing to eliminate any defects is still considered ready and
available for its assigned function. These examples clarify that
property can be ready and available for its assigned function
regardless of the level of production attained.
Various revenue rulings and case law have established a five-factor
test for determining when a facility is placed in service, including
(1) whether the necessary permits for operation have been obtained; (2)
whether critical preoperational testing has been completed; (3) whether
the taxpayer has control of the facility; (4) whether the unit has been
synchronized with the transmission grid; and (5) whether daily or
regular operation has begun. See Ampersand Chowchilla Biomass, LLC v.
United States, 150 Fed. Cl. 620 (2020) (citing Rev. Rul. 84-85, 1984-1
C.B. 10; Rev. Rul. 79-98, 1979-1 C.B. 103; Rev. Rul. 76-256, 1976-2
C.B. 46; and Rev. Rul. 76-428, 1976-2 C.B. 47), aff'd, 26 F.4th 1306
(Fed. Cir. 2022). No one factor is dispositive.
Determining the date on which a qualified clean hydrogen production
facility was placed in service is inherently fact intensive, and the
existing case law and revenue rulings are sufficient for taxpayers to
determine their facility's placed in service date. Relying upon
existing standards provides sufficient clarity to taxpayers and avoids
the confusion of creating multiple placed in service standards.
Regarding whether the final regulations should provide that the 10-
year credit period is tolled to account for circumstances beyond the
taxpayer's control or during periods of a facility's diminished
capacity, the 10-year credit period is a statutory requirement under
section 45V(a)(1), and there is no provision that provides an exception
to this statutory rule.
Regarding whether the final regulations should clarify that a
qualified clean hydrogen production facility cannot be placed in
service until after December 31, 2022, the Treasury Department and the
IRS clarify in this Summary of Comments and Explanation of Revisions
that a qualified clean hydrogen production facility may have been
placed in service prior to January 1, 2023. First, section 45V does not
specify an earliest date on which a qualified clean hydrogen production
facility must be placed in service to be eligible for the section 45V
credit, and as explained in the Explanation of Provisions to the
proposed regulations, the owner of a qualified clean hydrogen
production facility originally placed in service after December 31,
2012, can 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. Second,
providing a rule that a qualified clean hydrogen production facility
cannot be placed in service until January 1, 2023, would conflict with
section 45V(d)(4), which provides that a facility that did not produce
qualified clean hydrogen and that was originally placed in service
prior to January 1, 2023, can receive a new, deemed placed in service
date as of the date the facility is modified after December 31, 2022,
to produce qualified clean hydrogen. If, as the comment suggests, no
qualified clean hydrogen production facility could be placed in service
until January 1, 2023, then existing hydrogen production facilities
would receive a new placed in service date regardless of whether they
meet the requirements of section 45V(d)(4), rendering section 45V(d)(4)
superfluous. Third, under the comment's reading, no qualified clean
hydrogen production facility could be placed in service until the
hydrogen production and its sale or use is verified, as those are
requirements to have qualified clean hydrogen. Verification might not
occur until a taxable year following the year in which the hydrogen was
produced, which would prevent the credit from being determined in the
first taxable year of production. Fifth, the comment's reading
conflicts with section 6417(b)(5), which makes clear that a qualified
clean hydrogen production facility can be originally placed in service
prior to January 1, 2023. See section 6417(b)(5) (an applicable credit
includes ``[s]o much of the credit for production of clean hydrogen
determined under section 45V(a) as is attributable to qualified clean
hydrogen production facilities which are originally placed in service
after December 31, 2012.'').
Finally, regarding the requirements and extent to which pre-
existing facilities that were originally placed in service prior to the
enactment of section 45V can claim the section 45V credit, for the
reasons explained herein, this Summary of Comments and Explanation of
Revisions clarifies that the owner of a qualified clean hydrogen
production facility originally placed in service prior to the enactment
of section 45V but after December 31, 2012, can claim the section 45V
credit for the 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. Thus, owners of pre-existing facilities
can potentially claim the section 45V credit for the remaining portion
of the 10-year credit period. Alternatively, a pre-existing facility
can receive a new date on which it is considered originally placed in
service if it satisfies the requirements of Sec. 1.45V-6(a) (regarding
the modification of an existing facility to produce qualified clean
hydrogen) or
[[Page 2240]]
(b) (regarding the retrofitting of an existing hydrogen production
facility).
2. Producer of Qualified Clean Hydrogen
For purposes of section 45V(a)(1) and proposed Sec. 1.45V-1(b)(1),
proposed Sec. 1.45V-1(b)(2) would have provided that 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 hydrogen.
One comment asked whether the phrase ``treated as a producer under
section 263A'' in proposed Sec. 1.45V-1(b)(2) has the same meaning as
``produced by the taxpayer'' under section 45X(a)(1)(A). To clarify,
the term ``produced by the taxpayer'' as used in section 45X(a)(1)(A)
is defined in Sec. 1.45X-1(c) and that definition does not apply for
purposes of section 45V. Section 45X and Sec. 1.45X-1(c) address the
production of eligible components as that term is used in section 45X,
and not the production of hydrogen for purposes of section 45V.
Therefore, taxpayers must determine whether they are considered the
producer of the qualified clean hydrogen for purposes of determining
the credit under section 45V using the definition provided in Sec.
1.45V-1(b)(2), and not by reference to the definition of ``produced by
the taxpayer'' under Sec. 1.45X-1(c).
Under section 45V(a)(1) and (c)(3)(A), the taxpayer must be both
the owner of the qualified clean hydrogen production facility and the
producer of qualified clean hydrogen at the facility to be eligible for
the section 45V credit, respectively. The intent of proposed Sec.
1.45V-1(b)(2) was to clarify that, for purposes of section 45V(a)(1)
and Sec. 1.45V-1(b)(1), the ``taxpayer'' for these purposes is the
owner of the qualified clean hydrogen production facility at the time
the hydrogen is produced, regardless of whether the owner is required
to capitalize costs under section 263A and Sec. 1.263A-2(a), which
provide rules relating to property produced by the taxpayer. As
explained in the Explanation of Provisions to the proposed regulations,
the definition of ``taxpayer'' in Sec. 1.45V-1(b)(2) is intended,
among other things, to avoid unintended consequences that could arise
under Sec. 1.263A-2(a)(1)(ii)(A) and (B)(1) with respect to contract
manufacturing and tolling arrangements in the context of the section
45V credit. For example, under Sec. 1.45V-1(b)(1), an owner of a
hydrogen production facility that enters into an arrangement with a
third party service recipient to produce qualified clean hydrogen using
the service recipient's raw materials and inputs in exchange for a fee
(a toller) is considered the producer of the qualified clean hydrogen
for purposes of section 45V regardless of whether the toller is
required to capitalize costs of producing the qualified clean hydrogen
under section 263A. The final regulations provide the intended
clarification described previously in this paragraph to Sec. 1.45V-
1(b)(2).
3. Increased Credit Amount for Qualified Clean Hydrogen
Proposed Sec. 1.45V-1(b)(3) contained a cross-reference to Sec.
1.45V-3, which provides rules under section 45V(e) that permit the
amount of the section 45V credit determined under section 45V(a) and
Sec. 1.45V-1(b)(1) to be multiplied by five if certain requirements
related to prevailing wages and apprenticeships are met.
Several comments were received relating to the prevailing wage and
apprenticeship requirements of section 45V(e). Rules addressing the
prevailing wage and apprenticeship requirements of section 45V(e) are
provided in Sec. 1.45V-3, which is not included in this rulemaking.
See TD 9998, Increased Amounts of Credit or Deduction for Satisfying
Certain Prevailing Wage and Registered Apprenticeship Requirements (89
FR 53184). Accordingly, comments addressing the prevailing wage and
apprenticeship requirements are beyond the scope of this rulemaking.
These final regulations adopt the language in proposed Sec. 1.45V-
1(b)(3) without change.
C. Determination of Credit
Proposed Sec. 1.45V-1(c) would have provided 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. The taxpayer
would not be eligible to claim the section 45V credit with respect to
that hydrogen 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 due date for the taxable year in which the
hydrogen was produced, the taxpayer would need to file an amended
return or administrative adjustment request (AAR), as applicable, to
claim the section 45V credit for such produced hydrogen.
The Treasury Department and the IRS requested comments on proposed
Sec. 1.45V-1(c), and whether taxpayers anticipated that they would be
able to complete all the requirements for claiming the section 45V
credit, including the requirements for verification specified in
proposed Sec. 1.45V-5, by the extended return filing deadline for the
taxable year of hydrogen production. Comments were also requested on
whether alternatives existed.
Several comments suggested alternatives to the requirement in Sec.
1.45V-1(c) that the credit is determined in the taxable year of
hydrogen production. Some comments expressed concern that a late
verification report, filed after the extended return filing deadline
for the taxable year of hydrogen production, would preclude taxpayers
from making an elective payment under section 6417 or transfer election
under section 6418, as the necessary elections under those statutes
cannot be made on an amended return or AAR. See sections 6417(d)(3) and
6418(e)(1).
One comment recommended that taxpayers be allowed to claim the
section 45V credit initially without a verification report, then once
the verification report for the relevant taxable year is eventually
submitted, the credit amount is ``trued up,'' with either the
government or the taxpayer remitting funds to reflect the verified
emissions rate and amount of production. Some comments requested
taxpayers be allowed to make or change an election under section 6417
or 6418 on an amended return or AAR if they are claiming a section 45V
credit on such amended return or AAR. Another comment proposed only
requiring verification when there has been a change in the operation of
a taxpayer's hydrogen production facility since the last verification,
claiming that this would reduce the risk of late verifications
precluding monetization elections. Finally, one comment asked that
taxpayers be allowed to claim the section 45V credit and make an
elective payment election or transfer election prior to the formal
completion of the verification report to avoid missing the
[[Page 2241]]
extended return filing deadline due to a late verification report.
These final regulations do not adopt these comments suggesting
revisions to the requirements of proposed Sec. 1.45V-1(c). First,
based on the comments received on the timing of verification, the
Treasury Department and the IRS anticipate that qualified verifiers
will be able to verify a taxpayer's production and sale or use of
hydrogen by the deadline for filing the taxpayer's Federal income tax
return, including extensions, so there should be no issue with making a
timely elective payment or transfer election under section 6417 or
6418, respectively. Second, the requirement that the credit is
determined in the taxable year of hydrogen production adheres to the
requirement in section 45V(a)(1) that the section 45V credit for any
taxable year is determined based on the kilograms of qualified clean
hydrogen produced by the taxpayer during such taxable year. Providing a
rule that the credit is determined in a year other than the taxable
year of hydrogen production--such as the year of verification--would
potentially create a timing mismatch between the taxable year in which
the hydrogen is produced and creditable under section 45V(a)(1) and the
taxable year in which the section 45V credit for such production can be
claimed. Third, comments suggesting modifications to the rules
regarding elective payment elections or transferability elections under
sections 6417 and 6418, respectively, are beyond the scope of this
rulemaking under section 45V.
Regarding the comments recommending exceptions to the verification
requirements or allowing taxpayers to file verification reports after
the section 45V credit has been claimed, the requirement that the
production and sale or use of the hydrogen be verified is statutorily
prescribed in section 45V(c)(2)(B)(ii), so these final regulations
adopt the language in proposed Sec. 1.45V-1(c) without change.
II. Special Rules
A. Coordination With Credit for Carbon Oxide Sequestration
Section 45V(d)(2) provides that no section 45V credit is allowed
for any qualified clean hydrogen produced at a facility which includes
carbon capture equipment for which a section 45Q credit is allowed to
any taxpayer for the taxable year or any prior taxable year.
Proposed Sec. 1.45V-2(a) would have followed that statutory
provision and additionally provided that if the so-called ``80/20
Rule'' provided in Sec. 1.45Q-2(g)(5) is satisfied with respect to
such carbon capture equipment, and no new section 45Q credit has been
allowed to any taxpayer for such carbon capture equipment, then the
unit of carbon capture equipment (as defined in Sec. 1.45Q-2(c)(3))
for which the 80/20 Rule is satisfied will not be treated as carbon
capture equipment for which a section 45Q credit was allowed to any
taxpayer for any prior taxable year for purposes of section 45V(d)(2)
and proposed Sec. 1.45V-2(a).
Further, proposed Sec. 1.45V-1(a)(7)(i) would have clarified that
equipment (which includes carbon capture equipment) that functions
interdependently with other components of property to produce qualified
clean hydrogen is part of the qualified clean hydrogen production
facility, and proposed Sec. 1.45V-1(a)(7)(ii)(B) would have clarified
that electricity production equipment used to power the hydrogen
production process, including any carbon capture equipment associated
with the electricity production process, is not part of the qualified
clean hydrogen production facility.
Several comments requested clarification that a separate,
independent production line containing carbon capture equipment for
which a section 45Q credit is allowed and that is co-located with a
hydrogen production facility at a single industrial site does not
disqualify the hydrogen production facility from the section 45V
credit. For example, one comment requested clarification that an
electricity generation facility that is co-located and interconnected
with the hydrogen production facility, and for which the section 45Q
credit is allowed, will not disqualify the hydrogen production facility
from the section 45V credit. Conversely, some comments recommended that
the final regulations modify proposed Sec. 1.45V-1(a)(7)(ii)(B) to
disallow the section 45V credit for hydrogen produced using electricity
that was generated by an electricity generation facility for which the
section 45Q credit is allowed.
One comment appeared to seek clarification that ``allowed,'' with
respect to section 45V(d)(2), means the taxpayer has claimed the
section 45Q credit on their tax return, not merely that they are
eligible for claiming the section 45Q credit. The same comment
requested confirmation that a taxpayer can claim the section 45V credit
and then claim the section 45Q credit in a later taxable year on the
same facility.
Finally, one comment requested an exception to section 45V(d)(2) to
allow a taxpayer to claim both the section 45Q and section 45V credits
on the same facility if the facility combines hydrogen and CO2 for the
purpose of creating synthetic molecules.
These final regulations are not modified in response to these
comments. The final regulations are sufficiently clear that the section
45V(d)(2) rules coordinating the section 45V credit with the section
45Q credit for carbon oxide sequestration only apply to the qualified
clean hydrogen production facility. The definition of ``facility'' in
Sec. 1.45V-1(a)(7), as clarified in these final regulations and
described in greater detail in part I.A.4 of this Summary of Comments
and Explanation of Revisions, means all the components that function
interdependently to produce clean hydrogen through a process that
results in the lifecycle GHG emissions rate used to determine the
credit, but does not include electricity production equipment used to
power the hydrogen production process. Further, disallowing the section
45V credit for hydrogen produced using electricity generated at a
facility containing carbon capture equipment for which a section 45Q
credit has been allowed would require modifying the definition of
``facility'' at Sec. 1.45V-1(a)(7) to include electricity production
equipment. It would also present serious horizontal equity concerns for
hydrogen producers who co-locate with electricity generators and those
who do not. Therefore, electricity production equipment that powers the
hydrogen production process and contains carbon capture equipment for
which a section 45Q credit is allowed will not disqualify the hydrogen
production facility from the section 45V credit. Further, these final
regulations do not modify the definition of facility in Sec. 1.45V-
1(a)(7) to address specific co-located equipment used for other
industrial processes because creating a rule to specifically address
such co-located equipment is not necessary nor possible, given that the
determination will depend on the facts and circumstances of such
equipment.
Regarding the meaning of the term ``allowed,'' such term generally
means that the item was claimed on the return and not challenged by the
IRS. See generally Virginian Hotel Corp. of Lynchburg v. Helvering, 319
U.S. 523, 526-27 (1943); Lenz v. Commissioner, 101 T.C. 260, 264-65
(1993). The meaning of ``allowed'' is sufficiently clear as an
established tax concept, as its definition derives from case law and
general tax principles, and because the term ``allowed'' appears so
frequently in the Code and its accompanying regulations.
[[Page 2242]]
Regarding whether a taxpayer can claim a section 45Q credit in a
subsequent taxable year, section 45V(d)(2) contains no such
prohibition, so the statute is already sufficiently clear and does not
need further clarification.
Finally, regarding the comment's request for an exception to
section 45V(d)(2) for the creation of synthetic molecules, the
prohibition on claiming the section 45V credit on a facility for which
a section 45Q credit has already been allowed is statutory, and the
statute provides no such exception.
Accordingly, these final regulations adopt Sec. 1.45V-2(a) as
proposed.
B. Anti-Abuse Rule
Section 45V(c)(2)(B)(i) provides, among other things, that hydrogen
is not qualified clean hydrogen unless it is produced in the ordinary
course of a trade or business of the taxpayer, and for sale or use.
Section 45V(f) empowers the Secretary to issue regulations or other
guidance to carry out the purposes of section 45V.
Proposed Sec. 1.45V-2(b)(1) would have disallowed the section 45V
credit where the primary purpose of the production and sale or use of
qualified clean hydrogen was to obtain the section 45V credit in a
manner that is wasteful. Proposed Sec. 1.45V-2(b)(1) would have
provided as an example the production of qualified clean hydrogen that
the taxpayer knows or has reason to know will be vented, flared, or
used to produce hydrogen. This proposed rule is referred to as the
``anti-abuse rule.''
Proposed Sec. 1.45V-5(d)(1) would have provided, among other
things, that the qualified verifier must attest that a person has sold
or made a verifiable use of such hydrogen. Proposed Sec. 1.45V-5(d)(2)
would have provided that a person's verifiable use of hydrogen
undergoing verification ``does not include--(i) Use of hydrogen to
generate electricity that is then directly or indirectly used in the
production of more hydrogen; or (ii) venting or flaring of hydrogen.''
This proposed rule is referred to as the ``verifiable use rule.''
Many comments in response to the proposed regulations made
suggestions or asked for clarification regarding the prohibition in
proposed Sec. 1.45V-2(b)(1) against the sale or use of hydrogen for
the primary purpose of obtaining the section 45V credit in a wasteful
manner, often asking that the prohibition not apply to a particular
scenario or set of circumstances.
Some comments recommended rules or asked for clarification
regarding the prohibition in proposed Sec. 1.45V-2(b)(1) against
hydrogen production that the taxpayer knows or has reason to know will
be vented or flared. These comments noted that venting and flaring are
often required for routine safety or maintenance purposes and contended
that such use of venting and flaring should not disqualify facilities
from credit eligibility. However, in order to align with the purpose of
section 45V and safeguard against abuse, one of these comments asked
that the Treasury Department and the IRS more clearly state that it is
the amount of clean hydrogen sold or used, not produced, that
ultimately determines the credit amount.
One comment asked for explicit assurance that hydrogen produced and
sold for use in energy storage would not run afoul of the anti-abuse
rule when the stored energy is later used to produce hydrogen.
Some comments suggested disallowing the section 45V credit for
hydrogen that is produced at the same time electricity is generated
from hydrogen-to-power equipment that is physically connected via
pipeline.
Some comments expressed concern that the anti-abuse rule would
apply to certain non-abusive scenarios where hydrogen production
facilities and hydrogen-based electricity generators operate
concurrently but are connected to the same electric grid.
Another comment asked for clarification that capturing excess heat
from hydrogen production, converting that heat to electricity, and
using that electricity to power the production process does not run
afoul of the anti-abuse rule.
Some comments asked for clarification that the anti-abuse rule does
not apply to instances where produced hydrogen, in some cases from
process waste streams, is used to power the production facility,
resulting in lower emissions than would otherwise be achieved.
One comment suggested that the anti-abuse rule should not consider
the cost of producing qualified clean hydrogen in relation to the
amount of the section 45V credit because doing so would disincentivize
development of cost-efficient hydrogen production technologies.
The Treasury Department and the IRS agree that clarification of the
anti-abuse rule is appropriate. The DOE has advised that venting of
hydrogen downstream of a hydrogen production facility is a standard
industry practice where necessary for safety or maintenance reasons.
The DOE has also advised that, in the future, flaring of hydrogen that
would otherwise have been vented could become standard industry
practice to mitigate the environmental impacts of venting. Further, the
DOE has advised that concurrent operation of hydrogen production and
power generation within the same energy storage system and at the same
time may be wasteful if no measures are taken to mitigate or reduce the
production and consumption of the hydrogen at the same time; for
example, if an electrolytic hydrogen production facility as standard
practice is producing hydrogen at the same time as the produced
hydrogen is being used to produce electricity. However, the Treasury
Department and the IRS clarify here that the anti-abuse rule is not
meant to apply to the use of hydrogen to store energy for later
conversion to electricity and sale to a regional electricity grid, when
a buyer from the grid uses such electricity to produce hydrogen.
Accordingly, these final regulations clarify that the section 45V
credit is not allowable if the primary purpose of the sale or use
(rather than 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. Additionally, these final regulations clarify that
the taxpayer obtains the section 45V credit in a wasteful manner if the
taxpayer sells qualified clean hydrogen that the taxpayer knows or has
reason to know will be vented, flared, used to produce heat or power
that is then directly used to produce hydrogen, or otherwise used to
produce hydrogen, in excess of standard commercial practices. Hydrogen
is used to produce power that is then directly used to produce hydrogen
if the hydrogen production facility exclusively uses such power to
produce hydrogen or is treated as using the power produced by the
electricity generating facility using the hydrogen and such use is
verified by the acquisition and retirement of qualifying EACs. Hydrogen
is not used to produce power that is then directly used to produce
hydrogen if the power produced using hydrogen is merely supplied to the
same electricity grid from which the hydrogen production facility draws
power. Proposed Sec. 1.45V-2(b)(1) is further modified to provide that
venting or flaring for safety or maintenance reasons in the ordinary
course of business is a non-abusive commercial industry practice.
Consistent with the comment asking for clarity that it is the amount of
clean hydrogen sold or used, not produced, that ultimately determines
the credit amount, Sec. 1.45V-2(b) of the final
[[Page 2243]]
regulations adds that, while not abusive, such venting or flaring is
also not a verifiable use under Sec. 1.45V-5(d)(2), and therefore any
such hydrogen that is vented or flared for safety reasons is not
eligible for the section 45V credit. Finally, these final regulations
modify the example in Sec. 1.45V-2(b)(2) (where qualified clean
hydrogen is sold to obtain the benefit of the section 45V credit in a
manner that is wasteful and thus not eligible for the section 45V
credit) to reflect that the hydrogen in that example will be vented or
flared in excess of standard commercial practices and add an example in
Sec. 1.45V-5(d) to illustrate the verifiable use rule in the context
of a facility's use of its own hydrogen within its hydrogen production
process, flaring of hydrogen for testing and maintenance, and waste
heat recovery.
Finally, the Treasury Department and the IRS disagree with the
comment's request that the anti-abuse rule be revised to not consider
the cost of producing qualified clean hydrogen relative to the amount
of the section 45V credit. The cost of hydrogen production relative to
the amount of the section 45V credit is just one of many factors
considered in the example provided in Sec. 1.45V-2(b)(2). Whether a
particular taxpayer's hydrogen production activities violate the anti-
abuse rule will depend on all relevant facts and circumstances, and no
one factor is controlling. Because the cost of hydrogen production
relative to the value of the credit is not the only relevant factor,
the Treasury Department and the IRS do not anticipate that including it
within the example will deter investment in cost-efficient
technologies.
A few comments asked that the anti-abuse rule be significantly
pared back or removed altogether. One comment argued that the anti-
abuse rule's prohibition of a wasteful primary purpose has no basis in
the statute and is too broad to be authorized by the ``ordinary course
of a trade or business of the taxpayer'' requirement of section
45V(c)(2)(B)(i)(II). The same comment proposed revising the anti-abuse
rule to disallow the section 45V credit only where the taxpayer's sole
purpose is to obtain the credit in a wasteful manner.
The same comment asserted that the anti-abuse rule exacerbates
uncertainty by requiring that the rules of section 45V and the section
45V regulations be applied in a manner consistent with the purposes of
section 45V and the section 45V regulations, while section 45V only
authorizes regulations that carry out the purposes of the statute. The
comment further argued that the primary purpose examples of wasteful
``production of qualified clean hydrogen that the taxpayer knows or has
reason to know will be vented, flared, or used to produce hydrogen''
have no foundation in the statute. The comment asked for clarification
whether a producer having a disqualifying purpose at the time of
production or sale is sufficient to disallow the credit under proposed
Sec. 1.45V-2(b)(1), or if a disqualifying purpose at production and
sale is required. The comment suggested that the example at proposed
Sec. 1.45V-2(b)(2) seems to indicate that a disqualifying purpose at
the time of sale is sufficient to disallow the credit, while proposed
Sec. 1.45V-2(b)(1) seems to indicate that a producer must have a
disqualifying purpose at production and sale for the credit to be
disallowed.
First, the argument that section 45V provides no basis to support
the prohibition of a wasteful primary purpose through an anti-abuse
rule is mistaken because (1) the ``for sale or use'' requirement is
plainly a purpose requirement, and the anti-abuse rule implements that
purpose requirement; in other words, Congress did not intend that a
nominal sale or use for purposes of generating credit claims would
entitle taxpayers to the credit, but rather intended that only a sale
or use possessing some degree of business purpose or economic effect
would suffice; (2) likewise, the ``in the ordinary course of a trade or
business of the taxpayer'' requirement justifies an anti-abuse rule
since any activity with a primary purpose of wastefully obtaining a tax
credit is not within the ordinary course of a trade or business; and
(3) section 45V(f) authorizes the promulgation of regulations ``to
carry out the purposes of this section'' and the obvious purpose of
Congress to increase the supply of clean hydrogen in the United States
would be undermined if credit claimants were not required to make their
hydrogen reasonably available to legitimate hydrogen consumers.
Hydrogen that is not so available cannot affect hydrogen supply.
Second, regarding the comment's objection to the proposed anti-
abuse rule's requirement that the rules of section 45V and its
regulations must be applied consistently with the purposes of the
regulations, these final regulations do not modify the language in the
proposed regulations. The section 45V regulations implement the section
45V statute. Therefore, taxpayers must apply the regulations
consistently with the purposes of both the statute and its implementing
regulations.
Third, the request that the proposed anti-abuse rule be modified to
only disallow the section 45V credit where the taxpayer's ``sole
purpose'' is to obtain the credit in a wasteful manner is problematic.
The ``primary purpose'' requirement is the appropriate standard,
because a sole purpose requirement could allow hydrogen producers to
argue entitlement to claim the credit when nearly all their output is
knowingly wasted while asserting there is some legitimate use for the
small remainder thereof.
Fourth, the Treasury Department and the IRS agree that a
discrepancy exists between the text of the proposed regulations and the
example that would have followed regarding whether a wasteful primary
purpose at the time of production or sale or use is sufficient to
disallow the credit under proposed Sec. 1.45V-2(b)(1), or if a
disqualifying purpose at production and sale or use is required.
Accordingly, these final regulations adopt proposed Sec. 1.45V-2(b)
with modifications to the rule and the example in order to clarify that
only a sale or use with the primary purpose of obtaining the benefit of
the section 45V credit in a wasteful manner is sufficient to disallow
the credit under Sec. 1.45V-2(b)(1). Note, the requirements of Sec.
1.45V-2(b)(1) are independent of the excessive payment rules provided
in Sec. 1.6417-6 and the excessive credit transfer rules provided in
Sec. 1.6418-5. Taxpayers making the election under section 6417 or
6418 must separately meet the requirements provided in Sec. Sec.
1.6417-6 and 1.6418-5.
C. Recordkeeping
Section 6001 provides, among other things, that (1) every person
liable for tax under the Code shall keep such records as the Secretary
may from time to time prescribe; and (2) whenever the Secretary deems
it necessary, she may require any person, by regulations, to keep such
records as she deems sufficient to show whether or not such person is
liable for tax under the Code.
Section 45V(e)(5) provides that the Secretary shall issue such
regulations or other guidance as she determines necessary to carry out
the purposes of section 45V(e), including regulations or other guidance
which provides recordkeeping or information reporting requirements for
purposes of administering the requirements of section 45V(e).
Proposed Sec. 1.45V-2(c) would have provided recordkeeping
requirements for all taxpayers claiming the section 45V credit,
including requirements related to the section 45V(e) increased credit
amount. No comments addressed this provision. Proposed Sec. 1.45V-2(c)
is therefore adopted as proposed.
[[Page 2244]]
III. Procedures for Determining Lifecycle Greenhouse Gas Emissions
Rates for Qualified Clean Hydrogen
A. In General
Proposed Sec. 1.45V-4(a) would have provided 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 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 would be required to be made following the close of such
taxable year and must include all hydrogen production from the year.
See proposed Sec. 1.45V-4(b). Further, proposed Sec. 1.45V-4(a) would
have provided 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)). Finally, proposed Sec. 1.45V-
4(a) would have provided 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 would be permitted to file a petition for a provisional
emissions rate (PER) with the Secretary for a determination of the
lifecycle GHG emissions rate with respect to such hydrogen.
Some comments supported the proposed requirement that taxpayers
calculate the lifecycle GHG emissions rate of hydrogen produced at a
hydrogen production facility based on the aggregate amount of hydrogen
produced at the facility over the taxable year (that is, annual
emissions averaging). These comments claimed that annual emissions
averaging is more straightforward and less administratively burdensome
than alternative methods. The comments also claimed that annual
emissions averaging is less prone to being manipulated because it takes
into consideration all hydrogen produced by the taxpayer over the
taxable year. The comments appeared to suggest that sub-annual
emissions averaging, where taxpayers could potentially select certain
sub-annual periods of clean hydrogen production to offset other sub-
annual periods of hydrogen production that would not otherwise meet the
lifecycle GHG emissions levels required by section 45V, is inconsistent
with section 45V. Finally, some comments argued that annual emissions
averaging is more aligned with the capabilities of 45VH2-GREET and
therefore would help to facilitate compliance.
In contrast, other comments requested that hydrogen producers be
permitted to calculate the lifecycle GHG emissions rate of hydrogen
produced at their facility on a more granular basis, suggesting changes
to the definition of ``emissions through the point of production (well-
to-gate)'' in proposed Sec. 1.45V-1(a)(8)(iii). Comments maintained
that determining the lifecycle GHG emissions rate for all hydrogen
produced at a given hydrogen production facility during a taxable year
is burdensome for taxpayers and creates uncertainty and risk. Some
comments requested that lifecycle GHG emissions be permitted to be
calculated on an hourly basis, including in the case of hydrogen
produced using electricity, and in particular once the qualifying EAC
requirements require temporal matching on an hourly basis (see part
III.D.3.c of this Summary of Comments and Explanation of Revisions).
Without calculation of lifecycle GHG emissions on an hourly basis,
according to these comments, hours of hydrogen production that do not
have corresponding hourly EACs could increase the lifecycle GHG
emissions rate of all hydrogen produced for the year--even hydrogen
produced using electricity represented by a corresponding hourly EAC--
which would be contrary to the hourly matching principle. These
comments note the variability of certain renewable or zero-emissions
energy sources and the limited ability of hydrogen production
facilities to quickly ramp up and down due to technical and economic
reasons. Still, other comments requested that lifecycle GHG emissions
be permitted to be calculated on a kilogram-by-kilogram basis, or by
batching kilograms of hydrogen into distinct groups, to ensure a more
precise determination of a facility's lifecycle GHG emissions rate. One
comment requested that, for facilities placed in service before 2028,
the credit be determined with respect to the specific volumes of
hydrogen that meet the temporal matching EAC requirements of proposed
Sec. 1.45V-4(d)(3)(ii) rather than according to the average lifecycle
GHG emissions rate of all hydrogen produced at a qualified clean
hydrogen production facility on an annual basis.
The Treasury Department and the IRS disagree with eliminating the
requirement that, in general, the lifecycle GHG emissions of a hydrogen
production process be calculated on an annual basis. Section
211(o)(1)(H) of the Clean Air Act defines ``lifecycle GHG emissions''
as the aggregate quantity of GHG emissions (including direct emissions
and significant indirect emissions such as significant emissions from
land use changes), as determined by the EPA. Determining the lifecycle
GHG emissions rate of a hydrogen production process, therefore,
requires taking the ``aggregate'' quantity of emissions from a hydrogen
production process over the course of the taxable year to derive a
single emissions rate. This is consistent with the determination of the
section 45V credit on an annual basis. Section 45V(a)(1) provides that
``the clean hydrogen production credit for any taxable year is an
amount equal to the product of the kilograms of qualified clean
hydrogen produced by the taxpayer during such taxable year'' (emphasis
added). Calculating lifecycle GHG emissions for a hydrogen production
process on an annual basis, therefore, aligns with the manner in which
the section 45V credit is determined.
The Treasury Department and the IRS clarify that such annual
determination is made separately for each hydrogen production process
conducted at a hydrogen production facility during the taxable year. As
a result, hydrogen producers will be able to claim higher credit
amounts for producing qualified clean hydrogen using lower-emitting
hydrogen production processes during the year, such as by using
feedstocks with lower carbon intensities. For further discussion on
process, see part I.A.7 of this Summary of Comments and Explanation of
Revisions (explaining that production using each type of primary
feedstock is considered a separate production process).
However, once hourly matching is required for qualifying EACs,
hydrogen produced through a process that uses electricity may be at
risk of not qualifying for the section 45V credit at an expected amount
if a small number of hours are not covered by the acquisition and
retirement of qualifying EACs, which could occur as a result of
unforeseeable circumstances beyond a taxpayer's control.
Further, if a taxpayer believes it is infeasible to secure EACs
from renewable or zero-emissions sources for every hour or a
significant share of hours in a taxable year, then calculating
lifecycle GHG emissions on an annual basis may cause such taxpayer to
have no incentive to produce qualified clean hydrogen or qualified
clean hydrogen in the lowest lifecycle GHG emissions tier. This is
inconsistent with the purposes of section 45V, which includes
encouraging the production of qualified clean hydrogen (with a higher
credit amount for hydrogen with lower lifecycle GHG emissions rates)
and
[[Page 2245]]
investments in hydrogen production facilities and processes that
produce qualified clean hydrogen.
Section 1.45V-4(a)(2) of these final regulations provides a method
to mitigate the risk associated with potential limitations in the
supply of qualifying EACs, coupled with a guardrail to limit
availability of this election to processes in which the taxpayer is
producing qualified clean hydrogen, calculated on an annual basis.
Specifically, proposed Sec. 1.45V-4(a) is modified to provide that,
solely for purposes of determining the lifecycle GHG emissions
associated with a hydrogen production facility's use of electricity
generated on or after January 1, 2030, to produce hydrogen, such
emissions may be determined on an hourly basis. If a taxpayer utilizes
this method, it must determine all emissions from the facility's use of
electricity for the taxable year on an hourly basis. On or after
January 1, 2030, when hourly matching is required, a facility's
lifecycle GHG emissions from electricity for that hour will reflect the
attributes of the qualifying EAC acquired and retired for that hour. In
the case of electricity use as part of the hydrogen production process
for which the taxpayer does not acquire and retire a qualifying EAC
that reflects a specific hour in which such electricity was generated
on or after January 1, 2030, the electricity emissions for that hour is
determined by assuming that the facility is sourcing power with
emissions equal to the default electricity emissions intensity within
the regional electricity grid. The January 2025 version of the 45VH2-
GREET User Manual provides further information on how such hourly
accounting may be conducted in 45VH2-GREET. These final regulations add
Sec. 1.45V-4(a)(3)(i) and (ii) to provide examples illustrating the
calculation of the lifecycle GHG emissions rate of the process used to
produce hydrogen at a qualified clean hydrogen production facility,
determined on an annual and an hourly basis, respectively.
This method is provided pursuant to the authority in section 45V(f)
to ``issue regulations or other guidance to carry out the purposes of
[section 45V].'' With respect to a facility's use of electricity in a
hydrogen production process (including a facility that produces
hydrogen through electrolysis, which is a single hydrogen production
process), these final regulations modify the proposed rules to further
incentivize the production of clean hydrogen in light of the temporal
matching requirement provided in Sec. 1.45V-4(d)(3)(ii). In
particular, once the qualifying EAC requirements require temporal
matching on an hourly basis, in the case of hydrogen produced using
electricity that is represented by a qualifying EAC, a taxpayer who
owns a facility that produces hydrogen through a process that results
in annual emissions not greater than 4 kilograms of CO2e per kilogram
of hydrogen can elect to determine the emissions associated with the
electricity used in that process on an hourly basis. This method would
enable hydrogen producers to mitigate the risk that limited
availability of qualifying EACs could adversely affect eligibility for
the section 45V credit for all hydrogen from a single process.
This method is available only if the process for which an election
is made achieves an annual lifecycle GHG emissions rate of not greater
than 4 kilograms of CO2e per kilogram of hydrogen for all hydrogen
produced pursuant to that process during the taxable year. This
guardrail advances the purposes of section 45V because it provides
added flexibility and risk mitigation only in circumstances where the
hydrogen production process produces hydrogen that, over the course of
the year, meets the definition of qualified clean hydrogen on an annual
basis. In the absence of this condition, allowing the lifecycle GHG
emissions associated with electricity used in a hydrogen production
process to be determined on an hourly basis could encourage the
production of hydrogen through processes that do not meet the emissions
requirements of section 45V, contrary to the statute and the purpose of
section 45V.
B. Use of 45VH2-GREET
Proposed Sec. 1.45V-4(b) would have provided 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 have further provided 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
within the interface of 45VH2-GREET.
The 45VH2-GREET User Manual released in conjunction with the
proposed regulations provided that 45VH2-GREET is expected to be
updated on at least a yearly basis. Moreover, it mentioned that these
updates are expected to include representations of additional hydrogen
production processes and updates to background data (as supporting
analysis is completed by the Argonne National Laboratory). This means
that, under proposed Sec. 1.45V-4(b), use of 45VH2-GREET would result
in taxpayers using an updated version of 45VH2-GREET each taxable year
(insofar as such an update arises).
Multiple comments raised concern about the requirement for
taxpayers to use a potentially updated version of 45VH2-GREET each
taxable year during the 10-year credit period due to uncertainty about
whether changes to 45VH2-GREET may unexpectedly alter annual emissions
assessments, which would directly impact the amount of the section 45V
credit. Several comments requested that taxpayers be allowed to ``lock
in'' the version of 45VH2-GREET that was available on the date the
``final investment decision'' was made. Similarly, several other
comments requested that taxpayers be allowed to use the latest version
of 45VH2-GREET that was available on the date the hydrogen production
facility was placed in service or the date when construction of the
facility began (beginning of construction or BOC). Some of these
comments further requested that taxpayers be allowed to use subsequent
updated versions of 45VH2-GREET at their discretion. Finally, some
comments requested that taxpayers be permitted to rely upon a single
version of 45VH2-GREET unless and until there is a material change to
the facility's hydrogen production process.
In considering these comments, the Treasury Department and the IRS
note that the statute envisions use of updated models, referencing use
of ``the most recent'' version of GREET or a successor model. However,
the Treasury Department and the IRS understand that taxpayers would
benefit from having more certainty about a hydrogen production
facility's lifecycle GHG emissions rate throughout the credit period
for that facility, and therefore have determined that a beginning of
construction safe harbor provision would help mitigate taxpayers'
reasonable concern. Accordingly, the final regulations modify proposed
Sec. 1.45V-4(b) by adding a second paragraph (Sec. 1.45V-4(b)(2))
giving taxpayers the option to make an election to use the version of
45VH2-GREET that was in effect on the date when construction of their
hydrogen production facility began for the remaining taxable years
within the 10-year credit period.
In the case of a facility owned by the taxpayer that began
construction prior to December 26, 2023, Sec. 1.45V-4(b)(2) provides
taxpayers with the option to make an election to use the first
[[Page 2246]]
publicly available version of 45VH2-GREET (that is, the version of
45VH2-GREET released in December 2023) for the remaining taxable years
within the 10-year credit period. This election is irrevocable, meaning
taxpayers may not subsequently opt to use an updated version of 45VH2-
GREET once they have opted to lock-in the applicable version of 45VH2-
GREET. Section 1.45V-4(b)(2)(i) of the final regulations further
provides that, in the case of a facility that is modified to produce
qualified clean hydrogen under section 45V(d)(4) and Sec. 1.45V-6(a),
or a facility that is retrofitted in a manner that entitles the
facility to a new placed in service date under Sec. 1.45V-6(b), the
date the facility began construction is the date construction of the
modification or retrofit began. Finally, Sec. 1.45V-4(b)(2)(ii) is
added to provide that a taxpayer makes the election with respect to a
qualified clean hydrogen production facility's hydrogen production
process on Form 7210 by no later than the due date (including
extensions) for filing the taxpayer's Federal income tax return for a
taxable year ending no later than December 31, 2025, or for the taxable
year in which such facility is placed in service, whichever taxable
year is later. The election is made separately for each hydrogen
production process (but on the same Form 7210). For purposes of
determining BOC, taxpayers may rely upon the guidance provided in
Notice 2022-61,\13\ as well as the guidance issued under sections
45,\14\ 45Q,\15\ and 48.\16\ Changes have also been made to proposed
Sec. 1.48-15(d) to provide a corresponding BOC safe harbor with
respect to a specified clean hydrogen production facility.
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\13\ 2022-52 I.R.B. 560.
\14\ See Notice 2013-29, 2013-20 I.R.B. 1085, clarified by
Notice 2013-60, 2013-44 I.R.B. 431, then clarified and modified by
Notice 2014-46, 2014-36 I.R.B. 520, then updated by Notice 2015-25,
2015-13 I.R.B. 814, then clarified and modified by Notice 2016-31,
2016-23 I.R.B. 1025, and then updated, clarified, and modified by
Notice 2017-04, 2017-4 I.R.B. 541; Notice 2018-59, 2018-28 I.R.B.
196, modified by Notice 2019-43, 2019-31 I.R.B. 487, then modified
by Notice 2020-41, 2020-25 I.R.B. 954, and then clarified and
modified by Notice 2021-5, 2021-3 I.R.B. 479, and then clarified and
modified by Notice 2021-41, 2021-29 I.R.B. 17.
\15\ See Notice 2020-12, 2020-11 I.R.B. 495.
\16\ See Notice 2018-59, modified by Notice 2019-43 and by
Notice 2020-41, and then clarified and modified by Notice 2024-41.
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It is appropriate to provide this safe harbor based on a facility's
beginning of construction date because it better supports the purpose
of taxpayer certainty than a placed in service date, and because,
unlike a ``final investment decision'' date, the beginning of
construction date is an established, defined concept in tax law. For
taxpayers that elect to lock-in a version of 45VH2-GREET, these final
regulations do not adopt the comments' suggestions that taxpayers also
be given the option to use subsequent updated versions of 45VH2-GREET
at their discretion. Such an option would enable taxpayers to lock-in a
version of 45VH2-GREET while retaining the option to elect a future
version of 45VH2-GREET that would reflect lower lifecycle GHG
emissions, which would fail to further the purpose of this safe harbor
to provide additional taxpayer certainty.
In all other cases, taxpayers must use the latest version of 45VH2-
GREET that is publicly available on the first day of the taxable year
during which the qualified clean hydrogen for which the taxpayer is
claiming the section 45V credit was produced; or, if a version of
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 later version of 45VH2-
GREET as the 45VH2-GREET Model.
C. Provisional Emissions Rate (PER)
1. In General
Proposed Sec. 1.45V-4(c)(1) would have provided 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). No comments addressed this definition, so it is adopted as
proposed with one change made to clarify that the term ``provisional
emissions rate'' or ``PER'' means the lifecycle GHG emissions rate of
the hydrogen produced through a process at a hydrogen production
facility as determined by the Secretary under Sec. 1.45V-4(c).
2. Restriction on Filing a Provisional Emissions Rate Petition
Proposed Sec. 1.45V-4(c)(2)(i) would have provided 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. Further, proposed Sec. 1.45V-4(c)(2)(i) would have provided
that a lifecycle GHG emissions rate has not been determined under the
most recent GREET model with respect to hydrogen 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. Proposed Sec. 1.45V-4(c)(2)(i) also would have
provided 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, then the taxpayer's request for an
emissions value will automatically be denied.
Some comments, despite proposed Sec. 1.45V-4(c)(2)(i), and in
disagreement with its restriction on filing a PER petition, sought to
clarify that a taxpayer using a hydrogen production pathway included in
45VH2-GREET may nevertheless file a PER petition because they have
independently verifiable data that differs from the background data
used by 45VH2-GREET. Many of these comments challenged the
appropriateness of the background data used by 45VH2-GREET, claiming
that they do not reflect the actual values of such parameters and that
more accurate measurements of such parameters can be reliably obtained
by taxpayers. These comments therefore requested that taxpayers be
allowed to file a PER petition after challenging these assumptions
through the EVRP, because using actual values would likely result in a
lower and more accurate emissions rate.
The parameters in 45VH2-GREET have been deemed background data if
independent verification of bespoke values for individual facilities is
expected to be infeasible with reasonable fidelity. The Treasury
Department and the IRS recognize that the capabilities of verification
resources are evolving, and the DOE is continuously monitoring the
availability of robust data and verification methods for both
background and foreground data parameters in 45VH2-GREET. For example,
as described in part III.E of this Summary of Comments and Explanation
of Revisions, an upcoming release of 45VH2-GREET will include upstream
methane loss rates as foreground data once enhanced GHG reporting to
the EPA is available and other program integrity measures are fully
implemented. Once a parameter becomes foreground data in 45VH2-GREET,
taxpayers may treat that
[[Page 2247]]
parameter as foreground data in their emissions value request
application (through an EVRP in support of the PER process). Allowing
taxpayers to provide their own values for background data would run
counter to the rationale for determining that a given parameter is
background data. The Treasury Department and the IRS note that allowing
taxpayers to challenge background data through the EVRP likely would
significantly increase the number of emissions value request
applications, resulting in substantial administrative burden and
administrability concerns for the DOE, and potentially far slower
reviews for all interested taxpayers. Therefore, these final
regulations do not allow taxpayers to avail themselves of the PER
petition process if their hydrogen production pathway (which consists
of the combination of production technology and input feedstock
materials and sources) is included in 45VH2-GREET regardless of any
disagreement with the background assumptions.
Several comments also raised concerns about the treatment of novel
variations of hydrogen production pathways that currently are
represented in 45VH2-GREET, claiming that the model does not provide
the correct emissions value for their variation. These comments asked
that the final regulations modify proposed Sec. 1.45V-4(c)(2)(i) to
state explicitly that taxpayers may use the PER process for novel
variations of existing pathways. These final regulations do not adopt
these comments. Since the original version of 45VH2-GREET and
supporting documentation were published, the DOE has updated the model
and the 45VH2-GREET User Manual to include specific definitions of the
feedstocks and technologies represented in the model. Taxpayers who
have developed a novel variation of a hydrogen production pathway may
use the PER process if their pathway does not meet the definitions of
the feedstocks and technologies represented in the 45VH2-GREET Model.
The text of Sec. 1.45V-4(c)(2)(i) and the definitions in the 45VH2-
GREET User Manual provide sufficient information to taxpayers to
determine whether their pathway qualifies for the PER process.
Several comments asked to streamline the process for petitioning
for a PER for RNG feedstocks derived from non-landfill sources (for
example, food waste, animal waste, and biogas derived from renewable
diesel or sustainable aviation fuel production), claiming that these
sources make up 30 percent of North American RNG production. It is not
clear whether these comments, in requesting to streamline the process
for petitioning for a PER, are asking the Treasury Department and the
IRS to allow these taxpayers to participate in the PER process
altogether or whether they are requesting the Treasury Department and
the IRS create a separate, streamlined PER petition process for
taxpayers who plan to produce hydrogen using non-landfill RNG. To the
extent that the comments ask for the former, as stated above, taxpayers
may petition the Secretary for a PER if either the feedstock used by
their facility or the facility's hydrogen production technology is not
included in 45VH2-GREET. Moreover, it is anticipated that some non-
landfill RNG hydrogen production processes (such as from livestock
manure) will be added to 45VH2-GREET in 2025, in a manner that is
consistent with these final regulations. To the extent that the
comments ask for a separate, streamlined PER process, these final
regulations do not adopt this request as it is not consistent with the
statutory purposes of section 45V to offer preferential treatment to
any group of feedstocks.
Lastly, one comment asked that the Treasury Department and the IRS
decline to issue a PER for taxpayers using geologic hydrogen until more
robust climate and environmental data is available. The Treasury
Department and the IRS are aware that emissions analysis of newer
methods of hydrogen production, such as geologic hydrogen, is subject
to technical uncertainty. The DOE intends to address these
uncertainties by engaging with applicants during the EVRP and through
independent research. The DOE intends to issue emissions values only
when an analysis has been completed robustly addressing these
uncertainties, and to an extent comparable to other uncertainties
within 45VH2-GREET. Applicants to the PER process will additionally be
subject to the independent verification requirements of proposed Sec.
1.45V-5, which will help ensure the key sources of greenhouse gases are
reflected in the lifecycle analysis of a given facility. Given these
safeguards, the Treasury Department and the IRS clarify in this Summary
of Comments and Explanation of Revisions to these final regulations
that PERs may be used for any hydrogen production pathway (meaning a
specific technology and input feedstock materials and sources) not
included in the 45VH2-GREET Model, including geologic hydrogen. No
further clarification in the regulatory text is needed; therefore,
these final regulations adopt proposed Sec. 1.45V-4(c)(2)(i) with
conforming changes made to confirm that the Secretary has designated
45VH2-GREET as a successor model.
Proposed Sec. 1.45V-4(c)(2)(ii) would have specified 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. No comments addressed this provision. It is adopted as
proposed with changes made to confirm that the Secretary has designated
45VH2-GREET as a successor model and to clarify that, for purposes of
the PER process, the lifecycle GHG emissions rate of the hydrogen
produced at a hydrogen production facility is made with respect to
hydrogen produced through a process.
3. Process for Filing a Provisional Emissions Rate Petition
Proposed Sec. 1.45V-4(c)(3) would have provided that a taxpayer
petitions the Secretary for a PER by attaching a PER petition to its
Federal income tax 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 have
provided 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 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).
The Treasury Department and the IRS understand that this filing
requirement may mean that a taxpayer must attach voluminous documents
to its return, which may cause tax administration issues. For effective
tax administration, the Treasury Department and the IRS have modified
this provision to state that a PER petition must contain (i) the letter
received from the DOE stating the emissions value the DOE determined
with respect to the facility's hydrogen
[[Page 2248]]
production pathway, and (ii) the DOE control number assigned to the
emissions value request of the taxpayer. This information will be
sufficient for the Treasury Department and the IRS to be able to
request additional information from the taxpayer, as necessary.
Proposed Sec. 1.45V-4(c)(3) would have further provided 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 to which the PER petition is
attached. No comments were received on this provision and it is adopted
as proposed with amendments to reflect the new requirements for what a
PER petition must contain and to clarify that the taxpayer attaches the
PER petition to its Federal income tax return or information return.
4. Provisional Emissions Rate Determination
Proposed Sec. 1.45V-4(c)(4) would have provided 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 have provided 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) also would have provided 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 have stated, 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 have stated 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. No comments were received on this provision.
This provision is adopted as proposed with a clarification to Sec.
1.45V-4(c)(4) to clarify that the emissions value is deemed accepted
upon the taxpayer's filing of its Federal income tax return (or
information return), and to clarify that the production, including the
data the taxpayer submitted in the PER petition and the data provided
to the DOE in support of the taxpayer's EVRP application, and sale or
use of the hydrogen must be verified under Sec. 1.45V-5.
5. Department of Energy Emissions Value Request Process
Proposed Sec. 1.45V-4(c)(5) would have provided that, in order to
obtain an emissions value, an applicant must submit a request for an
emissions value following procedures specified by the DOE. The DOE
opened the EVRP to the public on September 30, 2024.
Proposed Sec. 1.45V-4(c)(5) also would have provided 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-4(c)(5) would have
provided that, if applicable, background data parameters in 45VH2-GREET
would be treated as background data (with fixed values that an
applicant cannot change) in the EVRP. The EVRP 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 have further provided 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. Additionally, proposed Sec.
1.45V-4(c)(5) would have provided 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 45VH2-
GREET or applications that are incomplete. Guidance and procedures for
applicants to request and obtain an emissions value from the DOE are
published by the DOE on its 45V Emissions Value Request application
page, which may be found at <a href="https://www.energy.gov/eere/45v-emissions-value-request">https://www.energy.gov/eere/45v-emissions-value-request</a>.
In the Explanation of Provisions to the proposed regulations, the
Treasury Department and the IRS requested comments on the 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.
The Treasury Department and the IRS received many comments in
response to that request for comments. The comments questioned the FEED
study requirement, claiming that these studies are costly and create
uncertainty in investment decisions. The comments claimed that a key
economic factor in justifying the cost of a FEED study is the amount of
section 45V credit a project can claim, and estimating the credit
without the emissions value is not feasible. The comments further
claimed that the level of project maturity required for a FEED study
necessitates a substantial amount of capital investment, which creates
uncertainty because taxpayers would be taking a risk that their
substantial investment may be frustrated by a higher-than-expected
emissions value and thus a lower section 45V credit. Instead of
requiring a FEED study, the comments suggested a variety of
alternatives: (i) a front-end loading (FEL-2) level feasibility study,
coupled with a detailed financial model and a lifecycle GHG emissions
analysis prepared by a qualified party; (ii) sufficient engineering
definition to produce a Class 4 cost estimate, as defined by the
Association for the Advancement of Cost Engineering (AACE)
International Recommended Practice No. 18R-97; and (iii) exemption from
this requirement for certain pathways.
At this nascent stage of the EVRP and after consultation with the
DOE, these final regulations retain the requirement for a FEED study
but clarify that a taxpayer only needs a Class 3 FEED study or similar
indication of project maturity, as determined by the DOE, to apply for
an emissions value. Class 3 FEED studies reflect more mature projects
than FEED studies of Class 4 or 5, making them more likely to be robust
and therefore likely to facilitate faster reviews. Class 3 FEED studies
can be conducted sooner in a project and are generally less detailed or
time-consuming than a Class 1 or 2 FEED study, addressing the comments'
concerns on cost. Further, the DOE advised that Class 3 FEED studies
are likely to be conducted by a majority of developers of hydrogen
production facilities across pathways, given how complex and capital
intensive these facilities are. However, the DOE will continue to
explore the feasibility of alternatives to a Class 3 FEED study (for
example, a FEED study of a different class) and may identify such
alternatives in the future. To the extent the DOE determines that a
similar indicator of project maturity would satisfy the requirements of
Sec. 1.45V-4(c)(5), such determination will be published by the DOE on
its 45V
[[Page 2249]]
Emissions Value Request application page. Thus, the provision is
adopted as proposed with changes made to clarify that a taxpayer may
apply for an emissions value only after it has completed a Class 3 FEED
study or other indication of project maturity, as determined by the
DOE. The receipt of an emissions value, however, does not constitute a
determination that all other requirements for claiming the section 45V
credit, including compliance with the anti-abuse and verifiable use
rules, are met.
The Treasury Department and the IRS also received many comments on
the EVRP generally. Some of these comments requested that the Treasury
Department and the IRS (in conjunction with the DOE) create an appeals
process through which an applicant can challenge their emissions value.
A few comments requested that applicants be allowed to revise or
supplement their emissions value request application at various stages
of the application process. Some comments requested that the DOE allow
applicants with multiple facilities to apply for one emissions value.
And other comments asked that applicants be able to submit various
documents in support of their applications (for example, submitting
documents obtained using modeling software or the R&D GREET model).
The DOE has not developed an appeals process or a method for an
applicant to unilaterally revise or supplement their application.
However, an applicant may submit additional information to the DOE
before the DOE has completed its analysis or after it has determined
the facility's emissions value. These final regulations provide that
applicants seeking a new emissions value after the DOE has completed
its analysis may reapply only if they wish to resubmit their
application with new or revised technical information or clarifications
related to the information previously submitted. If the applicant's
resubmissions result in the applicant receiving multiple emissions
values from the DOE for a given hydrogen production pathway, the
applicant should use the value that aligns with the information the
applicant provided to the DOE with respect to the facility's operations
in support of the application that resulted in the emissions value used
The DOE will evaluate emissions value request applications using
information provided by applicants coupled with background data in
45VH2-GREET (for example, grid emissions, upstream methane emissions).
If background data in 45VH2-GREET evolve, information in the latest
version of 45VH2-GREET will be used. As new background data parameters
are added to 45VH2-GREET or existing parameters become disaggregated
(for example, if regionalized upstream methane parameters are
incorporated in lieu of a national average), the DOE may revise the
information requested through the EVRP to be consistent with the
information required to run 45VH2-GREET. For example, if 45VH2-GREET is
modified to include regional upstream methane background assumptions,
and to require users to select the region that their natural gas is
sourced from, applicants to the EVRP will also be expected to provide
information about the region their natural gas is sourced from and will
be evaluated using the same regional upstream methane background
assumptions.
Some comments expressed concern about the timing and transparency
of the EVRP. Regarding timing, the comments expressed concern that
submitted requests would have long processing times and that could
affect project funding and create delays. These comments suggested that
the DOE impose on itself a time limit to process applications, after
which time an applicant's emissions value is deemed to be the value
determined by the lifecycle GHG emissions analysis attached to their
tax return.
The DOE has advised that it endeavors to review requests as quickly
as possible. A provision to impose a time limit on the DOE's
consideration of emissions value requests could impede an accurate and
rigorous review of the requests and would require additional
administrative processes. Additionally, because the IRS deems as
accepted the emissions value provided by the DOE upon filing, and such
deemed acceptance is the Secretary's determination of the PER as
provided in proposed Sec. 1.45V-4(c)(4), an accurate and rigorous
review is necessary to such a determination. Regarding transparency,
the DOE has stated publicly in the Emissions Value Request Application
Instructions the variables that drive the timeline for application
review, which include the volume of applications around a given
pathway, complexity/ease of evaluating the hydrogen production pathway,
and the commercial readiness of the pathway. The DOE has advised that
it expects to be able to provide additional transparency regarding the
timeline required for application review. Any additional information
will be published by the DOE on its 45V Emissions Value Request page.
6. Effect of Provisional Emissions Rate
Proposed Sec. 1.45V-4(c)(6) would have provided 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 othe
[…truncated; see source link]Indexed from Federal Register on January 10, 2025.
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.