Hydrogen Tax Credit Rules: Here’s What’s Happening

The U.S. Treasury Department has unveiled final rules for hydrogen production tax credits, aiming to boost clean energy investment and position America as a leader in green hydrogen production.

At a Glance

  • Treasury released final hydrogen tax credit rules on January 3, 2025
  • New regulations allow nuclear and methane-produced hydrogen to qualify
  • Tax credits of up to $3 per kilogram available for clean hydrogen production
  • Rules aim to make the U.S. a leader in green hydrogen technology
  • Project developers must meet wage and apprenticeship standards for full credit

Flexible Regulations to Boost Clean Hydrogen Production

The U.S. Treasury Department has finalized rules for hydrogen production tax credits, introducing more flexibility compared to previous proposals. The regulations, released on January 3, are part of the Inflation Reduction Act (IRA) and aim to accelerate clean hydrogen growth in the United States.

The new rules expand the definition of eligible hydrogen production methods, allowing fuel produced using nuclear-generated electricity or methane to qualify for the tax incentive. This broadened scope includes hydrogen from natural gas with carbon capture, renewable natural gas, and coal mine methane, offering credits of up to $3 per kilogram.

Incentivizing Clean Energy and Nuclear Power

In a significant move to support the nuclear industry, the final rules now consider nuclear plants at risk of retirement as part of the incremental electricity generation definition. This allowance extends to up to 200 megawatts per reactor, potentially providing a lifeline to struggling nuclear facilities while promoting clean hydrogen production.

The regulations also recognize electricity from states with robust emissions caps, such as Washington and California, as incremental. Additionally, power plants that add carbon capture within 36 months before a hydrogen facility begins operation are included in this category, further incentivizing clean energy practices.

Emissions Standards and Credit Tiers

To qualify as clean hydrogen under these rules, lifecycle greenhouse gas emissions must not exceed 4 kg of CO2 equivalents per kg of hydrogen produced. The tax credit is structured into four tiers, with the highest credit awarded to production methods with the lowest emissions. This tiered approach aims to encourage the development and implementation of increasingly cleaner hydrogen production technologies.

While the rules set ambitious targets for clean hydrogen production, they also provide some flexibility in implementation. For instance, the requirement for electricity generation to match hydrogen production on an hourly basis will not take effect until 2030, giving producers time to adapt their operations.

Industry Reactions and Concerns

The release of these final rules has garnered mixed reactions from industry stakeholders. Frank Wolak of the Fuel Cell and Hydrogen Energy Association acknowledged the complexity of the regulations, highlighting the challenges that producers may face in compliance. Conrad Schneider of the Clean Air Task Force praised the overall efforts but expressed concerns about delaying the hourly matching requirement to 2030.

On the other hand, Marty Durbin of the U.S. Chamber’s Global Energy Institute criticized the rules for potentially leaving some projects in limbo, suggesting that the regulations might create uncertainty for ongoing and planned hydrogen initiatives.