The Treasury Department released final guidance on Friday outlining the requirements that facilities must meet to receive the hydrogen tax credit established by the Inflation Reduction Act (IRA).
The department stated that the final rules include safeguards proposed in December 2023 but with the flexibility to include hydrogen made from natural gas with carbon capture, renewable natural gas, and coal mine methane to qualify for the tax credit of up to $3 per kilogram.
“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,” John Podesta, senior advisor to President Joe Biden for International Climate Policy, said in a statement.
The final rules expand the definition of incremental electricity generation to include nuclear plants at risk of retirement and tied to hydrogen investment, allowing up to 200 megawatts per reactor.
The Treasury acknowledged that certain nuclear reactors face retirement risk due to economic factors, and that avoiding such retirements would ensure “the additional demand from hydrogen production will not have induced emissions.”
Other changes in the final rules include considering electricity generated in states with robust emissions caps, such as Washington and California, as incremental. The department said that more states could qualify if they adopt robust policies that meet the criteria.
Under the final rules, electricity from power plants that have added carbon capture and sequestration within 36 months prior to the hydrogen facility’s operation would also be considered incremental.
The department maintained its proposed requirement that a plant’s electricity generation should happen within the same hour that the hydrogen energy is produced.
“The final rules extend the transition allowing annual matching rule two additional years relative to the proposed rules, with hourly matching required starting in 2030 for all facilities,” it stated.
The lifecycle greenhouse gas emissions must not be more than 4 kilograms of carbon dioxide equivalents per kilogram of hydrogen produced to qualify as clean hydrogen, according to the guidance.
The credit will be divided into four tiers, with the highest credit awarded to hydrogen produced with the lowest greenhouse gas emissions. Project developers will need to meet prevailing wage and apprenticeship standards to qualify for the full tax credit.
Frank Wolak, president and CEO of the Fuel Cell and Hydrogen Energy Association, said the Treasury has made “significant improvements” but the guidance is still “extremely complex.”
“This rule is still extremely complex and will require intense evaluation by project developers to understand all the nuances and how they will apply to their specific facilities,” Wolak said in a statement.
“There are also multiple areas where implementation and timing will be up to the incoming Trump-Vance Administration,” he added.
Conrad Schneider, senior director at the Clean Air Task Force (CATF), praised the Biden administration for its efforts to promote clean hydrogen production.
“Hydrogen is an important feedstock for fertilizer production, petroleum refining, and other sectors vital to our modern economy and holds significant potential for decarbonizing hard-to-abate sectors, such as marine shipping, steel production, and aviation,” he said in a statement.
Schneider emphasized the need to decarbonize hydrogen production across the supply chain, noting that most hydrogen production currently relies on highly polluting fossil fuel energy.
However, Schneider raised concerns over the Treasury’s decision to push the hourly matching from 2028 to 2030, warning that it could lead to a potential increase in emissions in the short term.
Marty Durbin, president of the U.S. Chamber’s Global Energy Institute, said that the rules “fell short.”
“While the rule provides some of the additional flexibility we sought, especially in recognizing the importance of natural gas as a cornerstone of a hydrogen economy, we believe that it still will leave billions of dollars of announced projects in limbo.”
