The US Treasury Department announced on Friday (3 January) the final rules for the section 45V Clean Hydrogen Production Tax Credit, which featured several adjustments from the draft plan published in December 2023. The changes include expanded eligibility for nuclear-powered and methane-based hydrogen projects.
Established under the Inflation Reduction Act (IRA), the 45V tax credit aims to spur investment in the US hydrogen industry and bolster low-carbon hydrogen production.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
A nuclear pathway opened
One of the most significant updates in the final rules is the inclusion of nuclear power as a qualifying energy source for electrolytic hydrogen production, provided the project helps to prevent the retirement of nuclear reactors.
“This [decision] 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,” the Treasury said.
Nuclear energy can now qualify for the $3 per kilogram (kg) credit, as long as life cycle greenhouse gas (GHG) emissions remain below the statutory limit of 4kg of CO₂ equivalent per kilogram of hydrogen produced.
The change followed industry concerns that limiting the credit to renewable energy would hinder the hydrogen sector’s growth. Notably, three of the seven hydrogen hubs that secured the US Department of Energy’s $7bn grant in 2023 feature nuclear power.
The decision has been favourable for the nuclear industry, with shares of nuclear power companies such as Constellation soaring after the announcement.
However, it has also been met with controversy; environmental groups and renewable energy advocates argue that only hydrogen made from renewable sources should be eligible for the benefits.
A boost for blue hydrogen
The guidelines for methane-based hydrogen, which currently constitutes most of the world’s hydrogen, have been another point of contention.
Critics have long accused methane-based hydrogen producers of ‘greenwashing’, claiming that using fossil fuels for the energy-intensive hydrogen production process could result in a higher overall use of carbon-emitting sources.
The 2023 draft proposal alleviated these concerns as it hinted at a tiered system in which hydrogen producers using fossil fuels would get less benefits.
The final rules, however, state that the credit, which ranges from $0.60 to $3/kg (assuming prevailing wage and apprenticeship compliance), will depend on the life cycle GHG emissions of hydrogen production. This system allows natural-gas-based hydrogen produced with carbon capture, as well as hydrogen produced from natural gas alternatives such as wastewater, animal manure and landfill gas, to qualify for the full credit ($3/kg) if the emissions threshold is met.
Hydrogen from coal mine methane is expected to only qualify for lower credits.
According to the Treasury, the final rules will “aim to enhance the accuracy of upstream methane leakage rates used in determining the credit value” to ensure proper categorisation of different credit tiers.
Senior director at the Clean Air Task Force, Conrad Schneider, told the Washington Post that although the tax credit is a positive development, accurately tracking emissions from hydrogen production could become “impossible” if the incoming Trump administration loosens regulations on methane and emissions reporting.
Delayed deadline for hourly certification
The final rules also delayed the deadline by which hydrogen producers using electricity must verify compliance on an hourly basis, rather than annually, to be eligible for credits.
The start date to meet hourly certification requirements has been pushed back two years from the draft plan to 2030, giving producers more time to adjust. The new deadline aligns with the EU’s standards.
“The 45V hydrogen tax credit is among the most, if not the most, generous incentives for hydrogen production in the world,” says Pavan Vyakaranam, senior power analyst at GlobalData.
Despite the 45V credit and relevant government-backed initiatives to help the country maintain its leadership in the global hydrogen market, the US hydrogen industry faces uncertainty as Trump prepares to take office again. The president-elect’s vocal disapproval of clean energy initiatives including the IRA has raised concerns about the future of the sector, which has benefitted significantly from federal support.
