The US Treasury has unveiled significant relaxations to the rules for hydrogen producers looking to grab tax credits baked into the Inflation Reduction Act (IRA).
Section 45V of the IRA offers clean hydrogen producers up to $3/kg in a bid to reduce the cost gap to incumbent grey hydrogen and other fossil fuels.
Under the initial proposal, released in December 2023, producers would have had to match their clean hydrogen plant’s operations with renewable electricity production within the same hour from 2028.
However, the hourly matching requirement has now been pushed back until 2030.
Treasury has maintained the rule of electrolysers and renewable electricity assets being located in the same grid region. Furthermore, renewable power assets must be no older than three years old at the time of hydrogen production start-up.
However, a new pathway has been added to allow for existing nuclear reactors, up to 200MW, as a viable electricity source for hydrogen producers.
“This reflects the fact that certain nuclear reactors are at greater risk of retirement based on certain economic factors, and if a nuclear retirement is averted then the additional demand from hydrogen production will not have induced emissions,” Treasury said.
Additionally, it appears that electricity produced by fossil fuel-powered generators that have been equipped with CCS within a three-year window before hydrogen production starts will be considered eligible.
Beyond 2030, once hourly matching has been put in place, producers will be able to opt for an “hourly accounting option” to determine electricity-related lifecycle emissions on an “hour-by-hour basis” provided hydrogen produced still meets 45V’s limit of 4kg of CO2/kg of hydrogen.
The major backtrack from rules that had been described as stringent and restrictive by many comes after the Treasury received around 30,000 public comments.
“These rules incorporate helpful feedback from companies planning investments which will drive significant deployment of clean hydrogen to power heavy industry and help create good-paying jobs,” said Deputy Secretary of the Treasury, Wally Adeyemo.
John Podesta, Senior Advisor to the President, added, “The extensive revisions we’ve made in this final rule provide the certainty that hydrogen producers need to keep their projects moving forward and make the United States a global leader in truly green hydrogen.”
H2 View understands the Department of Energy (DOE) will be releasing an updated version of the 45VH2-GREET model, which had also faced significant complaints.
Despite wide dissatisfaction with the rules, there were staunch defenders of the three pillars. Air Products claimed that the rules would ensure taxpayers were spent on the most viable and clean hydrogen projects.
“If we don’t have those strong three pillars, we will not have real emissions reduction, we’ll lose public trust and we’ll throw a lot of taxpayer money down the toilet,” Eric Guter, Air Products’ Vice-President of Investor Relations, previously told H2 View.
Despite clarity, the future of 45V remains clouded
While the clarity will undoubtedly be welcomed by many, how long it will last is another question.
President-Elect Donald Trump will take office on January 20, 2025, with clean energy proponents bracing for setbacks after four years of supportive legislation from the Biden government.
Trump’s previous climate policies, notably his executive order in 2017 to roll back several Obama-era climate regulations, have left many in the hydrogen sector on edge.
During his campaign, Trump pledged to significantly cut back the IRA’s climate incentives, a move that worried many clean energy advocates. His pointed remarks on hydrogen, often referencing mobility applications, and his close relationship with Elon Musk have fuelled speculation about a shift in federal support for hydrogen initiatives.
However, insiders suggest that Trump will face significant hurdles in dismantling the IRA entirely. Even with a Republican-controlled House, attempts to scrap the IRA in full may prove difficult.
Sources tell H2 View that a new Trump administration could adopt an “all-of-the-above” strategy – making minor cuts to the IRA’s climate provisions while keeping select elements that align with Trump’s broader policy goals.
This approach could include maintaining the IRA’s 45V clean hydrogen production tax credit, albeit with potentially more flexible rules, which might appeal to the hydrogen industry but rankle environmental groups.
Some experts in Washington have suggested that if the new administration attempts to cut the IRA’s incentives for hydrogen entirely, legal battles may arise – just as they could now that the three pillars are confirmed, which some suggest goes against the congressional intent of the legislation.
For now, hydrogen stakeholders are waiting to see how deeply Trump’s policy “scalpel” will cut into the existing climate legislation and how these shifts could impact the sector’s long-term outlook.
