On January 10
th, 2025, the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) released the final rule for Section 45V “Credit for Production of Clean Hydrogen” established under the Inflation Reduction Act. On January 20
th, President Trump signed an executive order entitled, “Unleashing American Energy” which establishes policies for promoting domestic energy and natural resource production. Section 7 of the EO pauses disbursement of funds appropriated through the Inflation Reduction Act. A memo issued by OMB on January 21
st clarifies that the pause only applies to funds supporting agency programs, projects or activities that may be implicated by the policies prioritized the EO. It would not impact disbursement of tax credits under Title 26 of the Internal Revenue Code in Section 45V. The
Inflation Reduction Act (IRA) was enacted in 2022 and provides substantial grants, tax credits, and other financial incentives intended to support the development of electric vehicles, renewable energy, and other clean technologies. This article provides a summary of the final 45V tax credit provisions.
Overview of Section 45V Tax Credit
Section 45V provides a tax credit for “qualified clean hydrogen” with maximum lifecycle greenhouse gas (GHG) emissions of four kilograms of CO
2 equivalent (CO
2e) per kilogram of hydrogen produced. The maximum credit is set at $0.60 per kilogram with the
credit amount incrementally decreasing depending on the lifecycle GHG emissions associated with the fuel production process. For example, if the hydrogen production process results in emissions lower than 0.45 kg CO
2e per kilogram of hydrogen produced, producers can qualify for the full credit of $0.60 per kilogram.
Additionally, a key feature of Section 45V is the enhanced credit multiplier: facilities that meet “
Prevailing Wage and Apprenticeship” (PWA) requirements, which ensure that workers are paid prevailing wages and that apprenticeship programs are implemented, can multiply the credit by five, increasing the maximum value of the incentive to $3.00 per kilogram of clean hydrogen produced. Facilities can apply for the credit annually with the credit being available for up to ten years.
Implementation and Key Provisions of Section 45V
Section 45V outlines specific requirements that hydrogen production facilities must satisfy in order to qualify for the tax credit:
- Production Facility Requirements: A facility must be located in the U.S. or its territories and be under construction before January 1, 2033.
- Applicable GREET Model: A key component of the final rule is the requirement for producers to utilize the 45VH2-GREET model to assess lifecycle emissions for produced hydrogen. This model was developed by Argonne National Laboratory specifically for purposes of the Section 45V program and is based on the most current and applicable data and information for hydrogen production.
- Third-Party Verification: Hydrogen production volumes and lifecycle GHG emissions must be verified by an independent and accredited third-party to ensure compliance with the standards set forth in Part IV of Section 45V.
- Other Tax Credit Provisions: Facilities are not allowed to claim tax credits under Section 45V and other IRS provisions, such as the Section 45Q credit for carbon capture.
The Final IRS Rule and Its Impact on Clean Hydrogen
The final rule provides additional clarity regarding the implementation of Section 45V tax credits. For electrolytic hydrogen, facilities seeking to use Energy Attribute Certificates (EACs) must attribute electricity usage to specific EAC generators and meet hourly matching, deliverability, and incrementality requirements beginning in 2030. For methane-based hydrogen, producers can utilize book-and-claim provisions to account for renewable natural gas and coal mine methane purchases in their emission calculations. The final rule also updated methane leakage rates used to determine credit value and removed “first productive use” requirement. In addition, the regulations provide more detail on the provisional emissions rate (PER) petition process, which allows hydrogen producers to be eligible for tax credits even if their feedstock or production process is not specified in the applicable GREET model.
Conclusion
The final clean hydrogen production tax credit rule provides the much-needed certainty to hydrogen producers to understand the process and the requirements to secure significant tax credits that will improve the economics of their products. It is expected that these credits will significantly expand clean hydrogen production in the U.S. for facilities that comply with the associated labor requirements, which in turn are expected to yield more jobs.
The Trinity team actively tracks new developments associated with both federal and state clean fuel regulations and related programs and helps stakeholders understand their implications and financial impacts. Our subject matter experts also provide support with technical lifecycle assessments to estimate carbon intensity scores for qualified clean hydrogen. For inquiries, please contact Trinity at 800.229.6655 or email
Daksh Aggarwal or
Alex Marcucci.
