Credit for Production of Clean Hydrogen and Energy Credit

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 10023]

RIN 1545-BQ97

Credit for Production of Clean Hydrogen and Energy Credit

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations implementing the credit for production of clean hydrogen and certain provisions of the energy credit as enacted by the Inflation Reduction Act of 2022. The regulations provide rules for: determining lifecycle greenhouse gas emissions rates resulting from hydrogen production processes; petitioning for provisional emissions rates; verifying production and sale or use of clean hydrogen; modifying or retrofitting existing qualified clean hydrogen production facilities; using electricity from certain renewable or zero-emissions sources to produce qualified clean hydrogen; and electing to treat part of a specified clean hydrogen production facility instead as property eligible for the energy credit. These regulations affect all taxpayers who produce qualified clean hydrogen and claim the clean hydrogen production credit, elect to treat part of a specified clean hydrogen production facility as property eligible for the energy credit, or produce electricity from certain renewable or zero-emissions sources used by taxpayers or related persons to produce qualified clean hydrogen.

DATES:

Effective date:

These regulations are effective January 10, 2025.

Applicability dates:

For dates of applicability,

see

§§ 1.45V-1(d), 1.45V-2(d), 1.45V-4(g), 1.45V-5(l), 1.45V-6(d), and 1.48-15(h).

FOR FURTHER INFORMATION CONTACT:

Courtney Hutson at (202) 317-5319 or Alan Tilley at (202) 317-6512 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Authority

This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) by adding regulations authorized to be issued by the Secretary of the Treasury or her delegate (Secretary) under sections 48 and 45V of the Internal Revenue Code (Code). The final regulations are issued under the authority granted under sections 45V(c)(1)(B), 45V(e)(5), 45V(f), 48(a)(15)(C), 48(a)(15)(E), 48(a)(16), 6001, and 7805(a) of the Code.

Section 45V(c)(1)(B) provides that lifecycle greenhouse gas emissions (lifecycle GHG emissions) shall only include emissions through the point of production (well-to-gate), as determined under the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (commonly referred to as the “GREET model”) developed by Argonne National Laboratory, or a successor model (as determined by the Secretary).

Section 45V(e)(5) directs the Secretary to issue regulations and guidance as she determines to be necessary to carry out the purposes of section 45V(e), which relates to the increased credit amount for qualified clean hydrogen production facilities that satisfy certain prevailing wage and apprenticeship requirements.

Further, section 45V(f) directs the Secretary to issue regulations or other guidance to carry out the purposes of section 45V, including for determining lifecycle GHG emissions.

Section 48(a)(15)(C) provides that the term “specified clean hydrogen production facility” means any qualified clean hydrogen production facility (as defined in section 45V(c)(3))(i) that is placed in service after December 31, 2022, (ii) with respect to which (I) no section 45V credit or section 45Q credit has been allowed, and (II) the taxpayer makes an irrevocable election to have section 48(a)(15) apply, and (iii) for which an unrelated third party has verified (in such form or manner as the Secretary may prescribe) that such facility produces hydrogen through a process that results in lifecycle GHG emissions that are consistent with the hydrogen that such facility was designed and expected to produce under section 48(a)(15)(A)(ii).

Section 48(a)(15)(E) directs the Secretary to issue such regulations or other guidance as she determines necessary to carry out the purposes of the section 48 energy credit, including regulations or guidance related to the recapture of such credit that exceeds the allowed amount “if the expected production were consistent with the actual verified production (or all of the credit so allowed in the absence of such verification).”

Section 48(a)(16) directs the Secretary to issue regulations or other guidance as she determines necessary to carry out the purposes of the section 48 energy credit, including for recordkeeping or information reporting requirements necessary for the administration of the credit.

Section 6001 provides an express delegation of authority to the Secretary, stating that, “[e]very person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, [s]he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.”

These regulations are also issued under the express delegation of authority under section 7805(a), which provides that “[t]he Secretary shall prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.”

Background

This document contains final regulations to implement the statutory provisions of sections 45V and 48(a)(15) of the Code, as enacted by section 13204 of Public Law 117-169, 136 Stat. 1818, 1935 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA).

The IRA added several provisions to the Code related to the production of, and investment in, clean hydrogen, which, along with the provisions of sections 45V and 48(a)(15), are described in part I of this Background section. Part II of this Background section describes a previous request for public comment on these provisions, and part III describes the proposed regulations promulgated under these provisions that the final regulations in this document adopt or modify as explained in the Summary of Comments and Explanation of Revisions.

I. IRA Provisions for Clean Hydrogen Production and Investment

This part I describes the credit for production of clean hydrogen as determined under section 45V (section 45V credit) and the irrevocable election to claim an energy credit under section 48 (section 48 credit) in lieu of the section 45V credit. Also described are statutory exceptions to the requirement that electricity be sold to an unrelated person to be eligible for the renewable electricity production credit determined

under section 45 (section 45 credit) or the zero-emission nuclear power production credit determined under section 45U (section 45U credit). Under these exceptions, electricity produced by a taxpayer from a qualified facility under section 45(d) or a qualified nuclear power facility under section 45U(b)(1) may be treated as sold by the taxpayer to an unrelated person during the taxable year if the electricity is used by the taxpayer or a related person at a qualified clean hydrogen production facility to produce qualified clean hydrogen.

A. Section 45V

1. Amount of Credit

Section 45V provides an income tax credit for the production of qualified clean hydrogen. For purposes of section 38, section 45V(a) provides that the clean hydrogen production credit for any taxable year is an amount equal to the product of (i) the kilograms of qualified clean hydrogen produced by the taxpayer during such taxable year at a qualified clean hydrogen production facility during the 10-year period beginning on the date such facility was originally placed in service, and (ii) the applicable amount as determined under section 45V(b) with respect to such hydrogen.

Section 45V(b)(1) provides that, for purposes of section 45V(a)(2), the applicable amount is an amount equal to the applicable percentage of $0.60. If the amount so determined is not a multiple of 0.1 cent, then such amount is rounded to the nearest multiple of 0.1 cent.

Section 45V(b)(2) provides that, for purposes of section 45V(b)(1), the applicable percentage is determined based on the lifecycle GHG emissions rate of the process used to produce any qualified clean hydrogen as follows: (i) if the lifecycle GHG emissions rate is not greater than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 20 percent; (ii) if the lifecycle GHG emissions rate is less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 25 percent; (iii) if the lifecycle GHG emissions rate is less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 33.4 percent; and (iv) if the lifecycle GHG emissions rate is less than 0.45 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 100 percent.

Section 45V(b)(3) provides that the $0.60 amount in section 45V(b)(1) is adjusted by multiplying such amount by the inflation adjustment factor (as determined under section 45(e)(2), determined by substituting “2022” for “1992” in section 45(e)(2)(B)) for the calendar year in which the qualified clean hydrogen is produced. If any amount as increased under section 45V(b)(3) is not a multiple of 0.1 cent, such amount is rounded to the nearest multiple of 0.1 cent.

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The IRS will publish the inflation-adjusted section 45V applicable amount annually. The section 45V applicable amounts for calendar years 2023 and 2024 were published in Notice 2024-45, 2024-26 I.R.B. 1747.

Section 45V(e)(1) provides that, in the case of any qualified clean hydrogen production facility that satisfies the requirements of section 45V(e)(2), the amount of the section 45V credit with respect to qualified clean hydrogen described in section 45V(b)(2) is equal to the amount determined under section 45V(a) (determined without regard to section 45V(e)(1)) multiplied by five.

A qualified clean hydrogen production facility meets the requirements of section 45V(e)(2) if: (i) the facility began construction before January 29, 2023, and with respect to any taxable year, for any portion of such taxable year that is within the 10-year period beginning on the date the facility is originally placed in service, the prevailing wage requirements of section 45V(e)(3)(A) are met for any alteration or repair of the facility that occurs after January 29, 2023 (to the extent applicable);

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or (ii) the facility satisfies the prevailing wage and apprenticeship (PWA) requirements of section 45V(e)(3)(A) and (4).

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Section 45V(e)(3)(A)(ii) requires the payment of wages at prevailing rates “with respect to any taxable year, for any portion of such taxable year which is within the period described in subsection (a)(2)”, with respect to the alteration or repair of the facility. There is no “period described in subsection (a)(2).” The Treasury Department and the IRS interpret the reference to “subsection (a)(2)” as a reference to section 45V(a)(1) where the 10-year credit period is identified.

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See

§§ 1.45-7, 1.45-8, 1.45-12, and 1.45V-3, as published in the

Federal Register

(89 FR 53184) on June 25, 2024.

Generally, the prevailing wage requirements under section 45V(e)(3)(A) with respect to any qualified clean hydrogen production facility require the taxpayer to ensure that any laborers and mechanics employed by the taxpayer or by any contractor or subcontractor in (i) the construction of such facility, and (ii) with respect to any taxable year, for any portion of such taxable year that is within the 10-year period beginning on the date such facility was originally placed in service, the alteration or repair of such facility, are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40 of the United States Code, commonly known as the Davis-Bacon Act. Correction and penalty rules similar to the rules of section 45(b)(7)(B) also apply.

Section 45V(e)(4) provides that rules similar to the apprenticeship requirements of section 45(b)(8) apply for purposes of section 45V(e)(2)(B).

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Under § 1.45V-3, the PWA requirements for purposes of section 45V(e)(2)(B) are satisfied if a facility meets the prevailing wage requirements of section 45(b)(7) and § 1.45-7, the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12. Those regulations are not a part of this Treasury decision and § 1.45V-3 is addressed only to the extent necessary for purposes of formatting the final regulations that are the subject of this decision in accordance with CFR standards.

For purposes of section 45V(a), in the case of a qualified clean hydrogen production facility that does not satisfy the requirements of section 45V(e)(2), the amount of the clean hydrogen production credit for any taxable year is $0.12, $0.15, $0.20, or $0.60 per kilogram of qualified clean hydrogen produced (before taking into account any inflation adjustment under section 45V(b)(3)), depending on the lifecycle GHG emissions rate associated with the facility's hydrogen production process. For facilities meeting the requirements of section 45V(e)(2), the credit amount determined under section 45V(a) (as adjusted for inflation subject to section 45V(b)(3)) is multiplied by five.

2. Definitions

a. Lifecycle Greenhouse Gas Emissions

Section 45V(c)(1)(A) provides that, subject to section 45V(c)(1)(B), the term “lifecycle greenhouse gas emissions” has the same meaning given such term under section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022. Under section 45V(c)(1)(B), the term “lifecycle greenhouse gas emissions” includes emissions only through the point of production (well-to-gate), as determined under the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation model, referred to as the “GREET model” commonly and in this document, developed by Argonne National Laboratory, or a successor model as determined by the Secretary.

b. Qualified Clean Hydrogen

Section 45V(c)(2)(A) provides that the term “qualified clean hydrogen” means hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Section 45V(c)(2)(B) further provides that the term “qualified clean hydrogen” does not include any hydrogen unless (i) such hydrogen is produced (A) in the United States (as defined in section 638(1) of the Code) or a United States territory (having the meaning of the term “possession” as defined in section 638(2)), (B) in the ordinary course of a trade or business of the taxpayer, and (C) for sale or use; and (ii) the production and sale or use of such hydrogen is verified by an unrelated party.

c. Provisional Emissions Rate

Section 45V(c)(2)(C) provides that, in the case of any hydrogen for which a lifecycle GHG emissions rate has not been determined for purposes of section 45V, a taxpayer producing such hydrogen may file a petition with the Secretary for a determination of the lifecycle GHG emissions rate with respect to such hydrogen, referred to as a “provisional emissions rate” or PER.

d. Qualified Clean Hydrogen Production Facility

Section 45V(c)(3) provides that the term “qualified clean hydrogen production facility” means a facility (i) owned by the taxpayer, (ii) that produces qualified clean hydrogen, and (iii) the construction of which begins before January 1, 2033.

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Section 45V does not specify an earliest date on which a qualified clean hydrogen production facility must begin construction or be placed in service to be eligible for the section 45V credit. However, the section 45V credit is available for qualified clean hydrogen produced after December 31, 2022.

See

§ 13204(a)(5)(A) of the IRA. Thus, the owner of a qualified clean hydrogen production facility originally placed in service after December 31, 2012, could claim the section 45V credit for qualified clean hydrogen produced during at least some portion of the 10-year period described in section 45V(a)(1), provided all other requirements are met.

3. Special Rules

a. Treatment of Facilities Owned by More Than One Taxpayer

Section 45V(d)(1) provides that rules similar to the rules of section 45(e)(3) apply for purposes of section 45V. Section 45(e)(3) provides that, in the case of a facility in which more than one person has an ownership interest, except to the extent provided in regulations prescribed by the Secretary, production from the facility is allocated among such persons in proportion to their respective ownership interests in the gross sales from such facility.

b. Coordination With Section 45Q

Section 45V(d)(2) provides that no section 45V credit is allowed with respect to any qualified clean hydrogen produced at a facility that includes carbon capture equipment for which a credit is allowed to any taxpayer under section 45Q (section 45Q credit) for the taxable year or any prior taxable year.

c. Credit Reduced for Tax-Exempt Bonds

Section 45V(d)(3) provides that rules similar to the rules under section 45(b)(3) (credit reduced for tax-exempt bonds) apply for purposes of section 45V. Section 45V(d)(3) is effective for facilities that begin construction after August 16, 2022.

See

§ 13204(a)(5)(B) of the IRA. Section 45(b)(3) provides that the amount of the credit determined under section 45(a) with respect to any facility for any taxable year (determined after the application of section 45(b)(1) and (2) regarding phaseout and inflation adjustment rules) is reduced by the amount that is the product of the amount so determined for such year and the lesser of 15 percent or a fraction (A) the numerator of which is the sum, for the taxable year and all prior taxable years, of proceeds of an issue of any obligations the interest on which is exempt from tax under section 103 and that is used to provide financing for the qualified facility, and (B) the denominator of which is the aggregate amount of additions to the capital account for the qualified facility for the taxable year and all prior taxable years. Section 45(b)(3) further provides that the amounts determined under section 45(b)(3) for any taxable year are determined as of the close of the taxable year.

d. Modification of Existing Facilities

Section 45V(d)(4) provides that for purposes of section 45V(a)(1), in the case of any facility that (A) was originally placed in service before January 1, 2023, and, prior to the modification described in section 45V(d)(4)(B), did not produce qualified clean hydrogen, and (B) after the date such facility was originally placed in service (i) is modified to produce qualified clean hydrogen, and (ii) amounts paid or incurred with respect to such modification are properly chargeable to the capital account of the taxpayer, such facility is deemed to have been originally placed in service as of the date the property required to complete the modification described in section 45V(d)(4)(B) is placed in service. Section 45V(d)(4) is effective for modifications made after December 31, 2022.

See

§ 13204(a)(5)(C) of the IRA.

B. Electricity Used at a Qualified Clean Hydrogen Production Facility

Section 45(e)(13) provides that electricity produced by the taxpayer is treated as sold by such taxpayer to an unrelated person during the taxable year if (i) such electricity is used during such taxable year by the taxpayer or a person related to the taxpayer at a qualified clean hydrogen production facility (as defined in section 45V(c)(3)) to produce qualified clean hydrogen (as defined in section 45V(c)(2)); and (ii) such use and production is verified (in such form or manner as the Secretary may prescribe) by an unrelated third party. Section 45(e)(13) is effective for electricity produced after December 31, 2022.

See

§ 13204(b)(3) of the IRA.

Section 45U(c)(2) provides that rules similar to the rules of section 45(e)(13) apply for purposes of section 45U. Generally, section 45U is effective for electricity produced at a qualified nuclear power facility and sold after December 31, 2023, in taxable years beginning after that date.

C. Election To Treat Clean Hydrogen Production Facilities as Energy Property

Section 48(a)(15)(A)(i) provides that, in the case of any qualified property (as defined in section 48(a)(5)(D)) that is part of a specified clean hydrogen production facility, such property is treated as energy property. Section 48(a)(15)(A)(ii) provides that the energy percentage of the basis of any qualified property that is treated as energy property is, for a facility that is designed and reasonably expected to produce qualified clean hydrogen with a lifecycle GHG emissions rate that is: (i) not greater than 4 kilograms of CO2e per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, 1.2 percent; (ii) less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per kilogram of hydrogen, 1.5 percent; (iii) less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of hydrogen, 2 percent; and (iv) less than 0.45 kilograms of CO2e per kilogram of hydrogen, 6 percent. Under section 48(a)(9), the amount of the section 48 credit determined for a specified clean hydrogen production facility under section 48(a)(15) is multiplied by five if the facility meets the requirements of section 48(a)(9)(B) (regarding application of certain maximum net

output levels of electrical or thermal energy or prevailing wage and apprenticeship requirements). However, the domestic content and energy communities bonuses under section 48(a)(12) and (14) do not apply to a specified clean hydrogen production facility.

Section 48(a)(15) is effective for property placed in service after December 31, 2022, and for any property the construction of which began before January 1, 2023, only to the extent of the basis thereof attributable to construction, reconstruction, or erection after December 31, 2022.

See

§ 13204(c)(3) of the IRA.

1. Denial of Production Credit

Section 48(a)(15)(B) provides that no section 45V credit or section 45Q credit is allowed for any taxable year with respect to any specified clean hydrogen production facility or any carbon capture equipment included at such facility.

2. Specified Clean Hydrogen Production Facility

Section 48(a)(15)(C) provides that the term “specified clean hydrogen production facility” means any qualified clean hydrogen production facility (as defined in section 45V(c)(3)) (i) that is placed in service after December 31, 2022, (ii) with respect to which (I) no section 45V credit or section 45Q credit has been allowed, and (II) the taxpayer makes an irrevocable election to have section 48(a)(15) apply, and (iii) for which an unrelated third party has verified (in such form or manner as the Secretary may prescribe) that such facility produces hydrogen through a process that results in lifecycle GHG emissions that are consistent with the hydrogen that such facility was designed and expected to produce under section 48(a)(15)(A)(ii).

3. Qualified Clean Hydrogen

Section 48(a)(15)(D) provides that, for purposes of section 48(a)(15), the term “qualified clean hydrogen” has the meaning given such term by section 45V(c)(2).

4. Regulations

Section 48(a)(15)(E) requires the Secretary to issue regulations or other guidance as she determines necessary to carry out the purposes of section 48, including regulations or other guidance that recaptures so much of any section 48 credit allowed as exceeds the amount of the credit that would have been allowed if the expected production were consistent with the actual verified production (or all of the credit so allowed in the absence of verification).

II. Notice 2022-58

On November 3, 2022, the Department of the Treasury (Treasury Department) and the IRS published Notice 2022-58, 2022-47 I.R.B. 483. The notice requested general comments on issues arising under section 45V and the associated clean hydrogen production and investment incentives in sections 45 and 48. The notice also requested specific comments concerning (i) definitions; (ii) boundaries of the well-to-gate analysis for determining the lifecycle GHG emissions rate; (iii) the PER process; (iv) recordkeeping and reporting; (v) verification by unrelated parties; and (vi) coordination with sections 45, 48, and 45Q. Stakeholders submitted more than 200 comments in response to Notice 2022-58, and those comments informed the development of the proposed regulations.

III. Proposed Regulations

On December 26, 2023, the Treasury Department and the IRS published proposed regulations under sections 45V and 48(a)(15) (REG-117631-23) in the

Federal Register

(88 FR 89220) to provide guidance on the credit for production of clean hydrogen and the energy credit, respectively (proposed regulations). The provisions of the proposed regulations are explained in greater detail in the preamble to the proposed regulations.

On April 11, 2024, the Treasury Department and the IRS published a supplemental notice of proposed rulemaking under sections 45V and 48(a)(15) in the

Federal Register

(89 FR 25551) inviting comments on the U.S. Department of Energy's (DOE) information collection related to the DOE's Emissions Value Request Process (EVRP) for use by applicants in obtaining an emissions value in support of a petition for a PER, as set forth in the proposed regulations. The EVRP is explained in greater detail in the supplemental notice of proposed rulemaking. On September 30, 2024, the DOE announced the opening of the EVRP.

See

Notice of Availability of the 45V Emissions Value Request Process (89 FR 80898).

Summary of Comments and Explanation of Revisions

This Summary of Comments and Explanation of Revisions summarizes the proposed regulations and all the substantive comments submitted in response to the proposed regulations. The Treasury Department and the IRS received approximately 30,000 written comments in response to the proposed regulations. The comments are available for public inspection at

www.regulations.gov

or upon request. A hearing was conducted in person and telephonically on March 25, 26, and 27, 2024, during which approximately 100 individuals testified.

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After full consideration of the hearing testimony and the comments received, these final regulations adopt the proposed regulations with modifications in response to the comments described in this Summary of Comments and Explanation of Revisions.

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A comment requested that the Treasury Department and the IRS (1) hold additional public hearings in, at a minimum, each of the seven regions where hydrogen hubs have been proposed; (2) provide virtual options for attending and presenting; and (3) clarify the process for participation at the public hearing. The Treasury Department and the IRS held a hearing over three days, which provided the public an opportunity to present testimony either in person or over the telephone. Individuals, whether testifying or not, could attend the hearing either in person or by telephone. Notice of the hearing was published as part of the proposed regulations in the

Federal Register

on December 26, 2023, which provided details to the public on how to participate. Accordingly, the public was provided a meaningful opportunity to participate in the hearing process.

The Treasury Department and the IRS also consulted extensively with scientific and technical experts from across the Federal government, including personnel from the DOE and the U.S. Environmental Protection Agency (EPA), in developing and drafting these final regulations. The Treasury Department and the IRS had regular meetings with these experts from the time that sections 45V and 48(a)(15) were enacted through the drafting and publication of the proposed regulations and the final regulations. The conclusions reached in these final regulations and explained in this Summary of Comments and Explanation of Revisions were deeply informed by the scientific and technical expertise that was shared by these experts.

Comments merely summarizing the proposed regulations, expressing generic, non-specific, or extraneous concerns, recommending statutory revisions to sections 45V, 48(a)(15), or other statutes, or addressing issues that do not pertain to the purposes of sections 45V and 48(a)(15) are not applicable to this rulemaking and are not adopted. Additionally, except to the extent discussed in this Summary of Comments and Explanation of Revisions, comments addressing the features of 45VH2-GREET or the contents of any supporting documentation to be provided in seeking an emissions value from the DOE are outside the scope of this

rulemaking and therefore are not addressed herein.

I. General Rules and Definitions

Proposed § 1.45V-1 provided definitions of key terms used in proposed §§ 1.45V-1 through 1.45V-6 and 1.48-15, to determine eligibility for, and the amount of, the section 45V credit for production of clean hydrogen. Comments addressed several of the proposed definitions, as described in this part I.A of the Summary of Comments and Explanation of Revisions.

In addition, these final regulations add the new terms “hydrogen gas stream,” “mixed gas or impurity,” and “productive use,” which are discussed in part I.A.5 of the Summary of Comments and Explanation of Revisions, as well as the terms “process” and “primary feedstock,” which are discussed in part I.A.7. With respect to the definition of “lifecycle GHG Emissions,” the final regulations add a new rule for certain emissions related to purification treated as through the point of production, which is discussed in part I.A.6.d of the Summary of Comments and Explanation of Revisions. The final regulations renumber the definitions to incorporate the added definitions.

A. Definitions

1. Applicable Amount

Section 45V(b)(1) defines applicable amount, and section 45V(b)(3) provides the inflation adjustment that applies when calculating the applicable amount. Proposed § 1.45V-1(a)(2) would have adopted this definition and its related inflation adjustment provision. No comments addressed these provisions, and these final regulations adopt them as proposed.

2. Applicable Percentage

Section 45V(b)(2) defines the term “applicable percentage.” Proposed § 1.45V-1(a)(3) adopted this definition. No comments addressed this provision, and these final regulations adopt the definition as proposed.

3. Claim

Proposed § 1.45V-1(a)(4) would have provided that, with respect to the section 45V credit determined for qualified clean hydrogen produced by the taxpayer at a qualified clean hydrogen production facility, the term “claim” means the filing of a completed Form 7210,

Clean Hydrogen Production Credit,

or any successor form(s), with the taxpayer's Federal income tax return or annual information return for the taxable year in which the credit is determined, and includes the making of an election under section 6417 or section 6418 and the regulations thereunder, with respect to such section 45V credit on the applicable entity's or eligible taxpayer's timely filed (including extensions) Federal income tax return or annual information return.

One comment requested that the final regulations offer a streamlined process to claim the section 45V credit for small producers of hydrogen. Section 45V does not make any distinction based on the size of the hydrogen producer, and the importance of reporting and compliance are the same regardless of the producer's size. Accordingly, providing a more streamlined process for claiming the section 45V credit for small producers is not appropriate. Additionally, to clarify, section 1.45V-1(a)(4) has no effect on the procedures for making an election under section 6417 or 6418, the requirements for which are described in the regulations for each provision. For procedures for making an election under section 6417, see § 1.6417-2(b). For procedures for making an election under section 6418, see § 1.6418-2. Accordingly, section 1.45V-1(a)(4) is adopted without change.

4. Facility

a. Equipment Included in the Definition of Facility

Proposed § 1.45V-1(a)(7)(i) would have provided that, for purposes of the definition of qualified clean hydrogen production facility provided at section 45V(c)(3), the term “facility” means a single production line that is used to produce qualified clean hydrogen, unless otherwise specified. Further, proposed § 1.45V-1(a)(7)(i) would have provided that a “single production line” includes all components of property that function interdependently to produce qualified clean hydrogen. Components of property would be functionally interdependent if the placing in service of each component were dependent upon the placing in service of each of the other components to produce qualified clean hydrogen. Proposed § 1.45V-1(a)(7)(iii) would have provided that components that have a purpose in addition to the production of qualified clean hydrogen may be part of a facility if such components function interdependently with other components to produce qualified clean hydrogen. Proposed § 1.45V-1(a)(7)(iv) would have provided an example to illustrate the definition of facility for purposes of section 45V.

Comments asked a variety of questions about the definition of “facility,” including whether specific equipment is part of a facility. Some comments requested clarification on the meaning of “single production line” and “functional interdependence” and whether components of a facility that produce hydrogen as a by-product of another production process are part of a “single production line” that is used to produce hydrogen. Other comments asked for clarification on whether designated spaces and equipment necessary for commercial operation, but not necessary for hydrogen production (for example, break rooms and lighting) are part of the “facility.” Another comment requested that the final regulations specify a method for allocating lifecycle GHG emissions across multipurpose components. The comment suggested that, in many cases, it would not be appropriate to include, through the point of production, all lifecycle GHG emissions from multipurpose components that are part of the balance of plant, such as the cooling tower or air compressor if the hydrogen production process does not consume a significant amount of energy from the use of such equipment.

One comment recommended that the final rules modify the definition of “facility” to include all electrolyzers within the balance of plant to prevent hydrogen producers from designating one electrolyzer as having produced hydrogen without energy attribute certificates (EACs) should a producer not have EACs sufficient to ensure all hydrogen produced at a facility is qualified clean hydrogen.

Another comment asked whether the definition of “facility” in proposed § 1.45V-1(a)(7) would create a “circular loop” wherein the hydrogen producer would need to identify the components of the facility in order to obtain an emissions rate under 45VH2-GREET, but could not identify the components of the facility without knowing whether the facility produces hydrogen at an emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.

One comment requested clarification that the definition of facility in proposed § 1.45V-1(a)(7) does not apply for purposes of the definition of “industrial facility” in § 1.45Q-2(d).

One comment requested clarification on whether a facility includes downstream property that uses the hydrogen produced at a qualified clean hydrogen production facility. Similarly, one comment requested clarification on whether hydrogen production equipment that is installed on the property of an industrial plant or a gas utility qualifies as a “facility.” Although

unclear, this comment appears to be requesting clarification whether an existing industrial plant or gas utility becomes a hydrogen production facility if hydrogen production equipment is added to the existing plant or utility.

In response to these comments seeking clarification on what is included in the definition of facility, these final regulations modify proposed § 1.45V-1(a)(7)(i) and (iv), as well as § 1.45V-1(a)(7)(ii), which identifies equipment that is not included in the definition of facility. Generally, the definition of “facility” is sufficiently clear as an established tax concept. The concept of “functional interdependence” has been used by courts for many years to decide whether property was placed in service for depreciation and the investment tax credit.

See, for example, Armstrong World Industries, Inc.

v.

Commissioner,

974 F.2d 422, 434 (3d Cir. 1992) (“[C]ourts appear to agree that individual components will be considered as a single property for tax purposes—when the component parts are functionally interdependent when each component is essential to the operation of the project as a whole and cannot be used separately to any effect.”). The general definition of facility in proposed § 1.45V-1(a)(7)(i) uses this “functional interdependence” concept by indicating that a single production line includes all components of property that function interdependently to produce qualified clean hydrogen. To ease the determination of what equipment is included, the final regulations add to this definition the phrase “through a process that results in the lifecycle GHG emissions rate used to determine the credit.” This clarifies that all equipment used to produce the qualified clean hydrogen for which the section 45V credit is determined is included as part of the qualified clean hydrogen facility. For example, carbon capture equipment is part of the facility if it contributes to the lifecycle GHG emissions rate of the process by which the qualified clean hydrogen for which the credit is determined is produced. In addition, these final regulations update the example in § 1.45V-1(a)(7)(iv) to reflect the modifications made to the text in § 1.45V-1(a)(7)(i).

Purification equipment is part of the facility if such equipment contributes to the purity content of the qualified clean hydrogen for which the section 45V credit is determined. As discussed in part I.A.6.c of this Summary of Comments and Explanation of Revisions, purification equipment that is used downstream of the facility's process of producing qualified clean hydrogen is not part of the facility, but in certain circumstances, emissions from such purification equipment are within the well-to-gate system boundary for purposes of the lifecycle GHG emissions rate analysis.

Regarding multipurpose components, these final regulations adopt proposed § 1.45V-1(a)(7)(iii) with a clarification that production is for qualified clean hydrogen. Proposed § 1.45V-1(a)(7)(iii) already clarifies that components can have multiple purposes, including but not limited to the production of qualified clean hydrogen, so long as the components function interdependently with other components to produce qualified clean hydrogen. With respect to the allocation of lifecycle GHG emissions attributed to multipurpose components, taxpayers must use a reasonable method to allocate the inputs used to determine such emissions.

To the extent a facility produces hydrogen as a by-product of another production process, any components of the facility that function interdependently to produce qualified clean hydrogen—regardless of whether they serve a purpose in addition to the production of qualified clean hydrogen—are part of the qualified clean hydrogen production facility.

With respect to whether equipment necessary for commercial operation, but not for hydrogen production, is part of the “facility” (such as break room lighting), § 1.45V-1(a)(7)(i) answers this question. If the placing in service of such equipment is not necessary to produce qualified clean hydrogen and is not part of the process that results in the lifecycle GHG emissions rate used to determine the credit, such equipment does not function interdependently with the qualified clean hydrogen production equipment and is not part of the “facility.” If such non-functionally interdependent equipment draws from the same electricity source as the facility, to the extent it is separately metered, such electricity usage would not be an input into 45VH2-GREET. To the extent such equipment is not separately metered, taxpayers must use a reasonable method to allocate such electricity usage.

The final regulations do not adopt the comment to revise the definition of “facility” to include all electrolyzers within the balance of plant. Under § 1.45V-1(a)(7)(i), to the extent each electrolyzer produces qualified clean hydrogen separately from the other electrolyzers (that is, does not function interdependently with the other electrolyzers), each electrolyzer is treated as a separate facility. Treating each electrolyzer within the balance of plant as a separate facility is consistent with Revenue Ruling 94-31, 1994-1 C.B. 16, which held that each wind turbine within a windfarm is a separate “qualified facility” under section 45 because each wind turbine can be separately operated and metered to produce electricity. Similar to a wind turbine within a wind farm, an electrolyzer within the balance of plant functions separately from the other electrolyzers to produce hydrogen. As to the concern that EACs may be shifted from one electrolyzer to another electrolyzer within the balance of plant, a hydrogen producer is free to acquire and retire EACs for some electrolyzers and not for others, no matter the production technology the electrolyzers use and no matter the extent of their co-location, so long as the retired EACs are matched to a particular electrolyzer's electricity consumption from which hydrogen is produced. Imposing a rule that co-located electrolyzers are considered part of the same facility so that they each receive an equal allocation of EACs would not necessarily reflect each electrolyzer's electricity consumption and would be inconsistent with existing tax law's treatment of the definition of “facility.”

In response to the comment that questioned whether the definition of “facility” in § 1.45V-1(a)(7) creates a “circular loop,” these final regulations modify proposed § 1.45V-1(a)(7)(i) to provide that equipment is part of the facility if it functions interdependently to produce qualified clean hydrogen through a process that results in the lifecycle GHG emissions rate used to determine the credit. The lifecycle GHG emissions analysis of the hydrogen production process is not coextensive with the tax definition of a hydrogen production facility. For example, lifecycle GHG emissions include emissions from stages of the hydrogen production process beyond the hydrogen production facility, such as emissions from growth, gathering, extraction, processing, and delivery of feedstock to a hydrogen production facility.

See

section 45V(c)(1)(A) (defining lifecycle GHG emissions by reference to section 211(o)(1)(H) of the Clean Air Act) and (B) (describing that lifecycle GHG emissions include emissions through the point of production (well-to-gate)); see also

Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using 45VH2-GREET

(45VH2-GREET User Manual), § 2.4.1 (Emissions of Electricity Generation), which can be

found at

www.energy.gov/45vresources.

The Summary of Comments and Explanation of Revisions to these final regulations generally refer to the 45VH2-GREET User Manual as it is currently publicly available, but at times references intended modifications to it. As further discussed in the Summary of Comments and Explanation of Revisions to these final regulations, the DOE intends to release a new version of 45VH2-GREET with an accompanying user manual in January 2025.

Regarding whether a “facility” includes downstream property that uses hydrogen produced at a qualified clean hydrogen production facility, downstream property that does not contribute to the facility's process of producing qualified clean hydrogen—but instead only to the later use of such hydrogen following its production—is not part of the facility because it does not function interdependently in the production of the qualified clean hydrogen for which the section 45V credit is determined. Further, § 1.45V-1(a)(7)(ii) provides that the facility does not include equipment used to condition or transport hydrogen beyond the point of production.

Regarding the effect of § 1.45V-1(a)(7) on the definition of industrial facility under § 1.45Q-2(d), whether and the extent to which the section 45V regulations affect terms defined in section 45Q is a matter that falls within the scope of section 45Q and is therefore not applicable to these regulations.

Regarding whether an industrial plant or gas utility becomes part of the hydrogen production “facility” when hydrogen production equipment is installed at the plant or utility, such an inquiry will depend on the facts and circumstances of the particular hydrogen production equipment and whether such equipment functions interdependently with the existing industrial plant or utility equipment to produce hydrogen. Accordingly, these final regulations provide sufficient criteria to apply to such an inquiry on a case-by-case basis.

b. Equipment Excluded From the Definition of Facility

Proposed § 1.45V-1(a)(7)(ii) would have provided that a facility does not include equipment used to condition or transport hydrogen beyond the point of production. Proposed § 1.45V-1(a)(7)(ii) also would have provided that a facility does not include electricity production equipment used to power the hydrogen production process, including any carbon capture equipment associated with the electricity production process.

Some comments requested clarification that a “facility” does not include upstream facilities that generate and supply electricity, fuel, feedstock, water, ammonia, or other inputs into or for use at the hydrogen production facility. Another comment requested confirmation that a facility producing renewable natural gas (RNG) that is supplied to a facility that uses the RNG to produce hydrogen does not fall within the definition of “facility.”

One comment recommended that the final rules exclude from the definition of “facility” any facility that includes an electrolyzer stack that was assembled in or by a “Covered Nation” as defined in 10 U.S.C. 4872(d)(2), or a “Foreign Entity of Concern,” as referenced under § 40207 of the Infrastructure Investment and Jobs Act, Public Law 117-58.

The Treasury Department and the IRS agree that clarification is needed on whether feedstock production equipment is part of the “facility.” In addition, clarification is needed on whether feedstock recovery equipment is part of the “facility.” Although proposed § 1.45V-1(a)(7)(ii)(B) would have excluded electricity production equipment from the definition of “facility,” the proposed rules would not have addressed other types of feedstock production and recovery equipment, such as RNG production equipment. The intent of the proposed rules was to exclude upstream feedstock production and recovery equipment, such as RNG production equipment, from the definition of facility. Accordingly, these final regulations add “feedstock-related equipment, including production, purification, recovery, transportation, or transmission equipment” to the list of items excluded from the definition of facility in § 1.45V-1(a)(7)(ii)(B). As discussed in this part I.A.6.c of this Summary of Comments and Explanation of Provisions, however, lifecycle GHG emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility are still included in the lifecycle GHG analysis reflected in 45VH2-GREET.

As to excluding components assembled in or by a “Covered Nation” or a “Foreign Entity of Concern” from the definition of facility, there is no provision of section 45V that imposes such a rule, so these final regulations do not adopt this comment.

5. Hydrogen Gas Stream, Mixed Gas or Impurity, and Productive Use

The final regulations add three new definitions, “hydrogen gas stream,” to § 1.45V-1(a)(8); “mixed gas or impurity,” to § 1.45V-1(a)(10); and “productive use” to § 1.45V-1(a)(12). The term “hydrogen gas stream” means a flow of gases that includes hydrogen, either alone or with one or more other gases. The term “mixed gas or impurity” means a non-hydrogen gas that is part of a hydrogen gas stream.

The term “productive use” means, with respect to a hydrogen gas stream, a consumption of the hydrogen gas stream in a manner that generates positive economic value, which is determined without regard to the availability of the section 45V credit. The term “productive use” means, with respect to qualified clean hydrogen, a consumption of qualified clean hydrogen in a manner that generates positive economic value, which is determined without regard to the availability of the section 45V credit. Positive economic value is determined without regard to the section 45V credit, consistent with the anti-abuse rule of § 1.45V-2(b). Thus, for example, a hydrogen gas stream produced with the primary purpose of obtaining the benefit of the section 45V credit in a wasteful manner would not have a productive use.

All three terms are relevant to the rule where certain emissions related to purification are treated as through point of production, described in part I.A.6.d of this Summary of Comments and Explanation of Revisions. The term “productive use” also relates to the anti-abuse rule described in part II.B of this Summary of Comments and Explanation of Revisions.

6. Lifecycle GHG Emissions

Section 45V(c)(1)(A) provides that, subject to section 45V(c)(1)(B), the term “lifecycle greenhouse gas emissions” has the same meaning given such term under section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)) as in effect on the date of enactment of section 45V. Section 45V(c)(1)(B) provides that the term “lifecycle greenhouse gas emissions” only includes emissions through the point of production (well-to-gate), as determined under the most recent GREET model, or a successor model (as determined by the Secretary). Proposed § 1.45V-1(a)(8) would have defined “lifecycle GHG emissions.” The final regulations renumber proposed § 1.45V-1(a)(8) to § 1.45V-1(a)(9).

Proposed § 1.45V-1(a)(8)(i) would have incorporated the statutory definitions provided in section 45V(c)(1)(A) and (B), specifically providing that the term has the same meaning as that in section 211(o)(1)(H) of the Clean Air Act as in effect on August 16, 2022, and includes

emissions only through the point of production (well-to-gate) as determined under the most recent GREET model, or a successor model. These final regulations modify proposed § 1.45V-1(a)(8)(i) to provide that, for purposes of section 45V, lifecycle GHG emissions are determined under the 45VH2-GREET Model. No comments were received on § 1.45V-1(a)(8)(i), and this provision is adopted as renumbered § 1.45V-1(a)(9)(i) without further changes.

By reference to section 211(o)(1)(H) of the Clean Air Act, section 45V(c)(1)(A) requires a complete assessment of direct and significant indirect emissions associated with a hydrogen production process. After consultation with the DOE and the EPA, the Treasury Department and the IRS interpret section 45V(c)(1)(A) with its reference to section 211(o)(1)(H) of the Clean Air Act as excluding emissions related to the manufacturing of the equipment within the hydrogen production pathway (for example, power generators, hydrogen production facility), from the definition of lifecycle GHG emissions. This interpretation is consistent with how EPA has implemented section 211(o)(1)(H) of the Clean Air Act for the Renewable Fuel Standard (RFS) program.

7

7

Regulatory Impact Analysis, Renewable Fuel Standard Program, U.S. Environmental Protection Agency, EPA-420-R-10-10-006, at 311-312 (Feb. 2010), available at

https://www.regulations.gov/document/EPA-HQ-OAR-2021-0324-0652.

a. Most Recent GREET Model

Proposed § 1.45V-1(a)(8)(ii) would have provided that, for purposes of the section 45V credit, the term “most recent GREET model” means the latest version of 45VH2-GREET developed by Argonne National Laboratory and published by the DOE, as provided in the instructions to the latest version of Form 7210,

Clean Hydrogen Production Credit,

or any successor form(s), on the first day of the taxable year during which the qualified clean hydrogen for which the taxpayer is claiming the section 45V credit was produced. Proposed § 1.45V-1(a)(8)(ii) would have further provided that, if a version of 45VH2-GREET becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer could, in its discretion, treat such later version of 45VH2-GREET as the most recent GREET model.

Several comments recommended changes to proposed § 1.45V-1(a)(8)(ii). Some comments requested that, instead of identifying 45VH2-GREET as the “most recent GREET model” under section 45V(c)(1)(B), the final regulations identify the R&D GREET model developed by Argonne National Laboratory and published by the DOE as the most recent GREET model. Comments further recommended that the final regulations require the use of 45VH2-GREET as a “successor model” only if 45VH2-GREET closely aligns in function and principle with the version of the R&D GREET model as it existed at the time that section 45V was enacted. Other comments supported 45VH2-GREET as the best available open-source lifecycle analysis methodology for determining lifecycle GHG emissions for purposes of section 45V. Yet another comment recommended that a model the comment had developed should be able to be used as an alternative to 45VH2-GREET.

Except for changing the nomenclature of the “most recent GREET model” to the “45VH2-GREET Model,” as further discussed in this part I.A.6.a of the Summary of Comments and Explanation of Revisions, these final regulations do not adopt the comments recommending changes to proposed § 1.45V-1(a)(8)(ii).

Though the Treasury Department and the IRS continue to view 45VH2-GREET as the most recent GREET model for the reasons described in the preamble to the proposed regulations and the fact that it was developed more recently than the R&D GREET model, the Treasury Department and the IRS recognize that the continued existence of the R&D GREET model and periodic updates to both 45VH2-GREET and the R&D GREET model have created some uncertainty in this regard. To avoid any potential uncertainty about the meaning of the most recent GREET model, which would be detrimental to the administration and implementation of the section 45V credit, the Secretary is invoking her express delegation of authority in section 45V(c)(1)(B) to determine 45VH2-GREET to be a “successor model” and to require its use.

In selecting 45VH2-GREET rather than the R&D GREET model or some other model, the Treasury Department and the IRS considered the statutory definition of lifecycle GHG emissions in section 211(o)(1)(H) of the Clean Air Act (as in effect on August 16, 2022) and the specific objectives of section 45V, and consulted with the DOE. 45VH2-GREET best meets these parameters. It is a model specifically developed by the Argonne National Laboratory as a derivative of and successor to the R&D GREET model, designed specifically to address hydrogen production processes and to meet the requirements and objectives of section 45V.

The R&D GREET model has been maintained by the DOE since 1995 to enable research regarding lifecycle analyses of hundreds of different methods of producing, delivering, and using energy. The model includes many fuels other than hydrogen (for example, biofuels, synthetic fuels, fossil fuels, and electrification), and includes information that is based on preliminary analyses (that is, analyses that are not yet complete, have significant technical uncertainties, or are still being reviewed by laboratory staff, DOE staff, or independent experts).

8

Annual updates to the model inform academic studies, informally guide decarbonization strategies and research and development funded by both the DOE and industry, and elicit stakeholder feedback that can improve the model, particularly with regard to preliminary pathways. R&D GREET is a valuable tool to characterize the benefits and impacts of energy technologies in a directional manner and to test out new and updated data and parameters, but it is not appropriate for use in analyses where a relatively high degree of precision and certainty is required, given the preliminary nature of much of the information represented, and where specific emissions fluxes and their representation are needed in a specific fashion (for example, to meet specifications within the statute). Moreover, because the R&D GREET model offers users many choices regarding analysis methodology (for example, co-product accounting, system boundaries, and global warming potential values), different users can achieve significantly different estimated GHG emissions rates even when representing the same facility. Many of these choices would not be appropriate in the specific context of the section 45V credit given the preliminary nature of much of the data underlying aspects of the R&D GREET model and the fact that the model does not require the use of specific methodologies and accounting parameters. Accordingly, R&D GREET does not provide the degree of certainty, structure, and specificity necessary to meet the statutory requirement of reflecting lifecycle GHG emissions as defined by section 211(o)(1)(H) of the Clean Air Act (as in effect on August 16, 2022), nor does it meet the specific objectives of such section or of the section 45V credit.

8

See generally GREET,

Office of Energy Efficiency & Renewable Energy, U.S. Department of Energy, available at

https://www.energy.gov/eere/greet.

In addition, implementation of the section 45V credit will be aided by a user-friendly model that characterizes the lifecycle GHG emissions rates of different hydrogen production processes consistently, with high levels of confidence, and with higher fidelity than R&D GREET, and consistent with the requirements, purposes, and objectives of the section 45V credit. The DOE directed the Argonne National Laboratory to develop 45VH2-GREET to meet three key parameters: (1) consistency of background assumptions for all users and across hydrogen production processes, while enhancing user friendliness, (2) technical robustness of the processes, and (3) consistency with the other requirements and purposes of section 45V. Each of these parameters is explained in additional detail as follows.

First, 45VH2-GREET facilitates consistent analyses across different processes while enhancing user friendliness. While R&D GREET allows users to simulate hundreds of different fuel pathways (including but not limited to those that involve hydrogen) and several different system boundaries with different user-defined assumptions, 45VH2-GREET exclusively allows simulations of the well-to-gate emissions associated with hydrogen production (as specified in section 45V(c)(1)(B) and in alignment with these final regulations). The simpler interface in 45VH2-GREET as compared to R&D GREET ensures that the model is accessible to a broad range of taxpayers, including those without significant prior experience in lifecycle analysis or a GREET model.

Second, 45VH2-GREET achieves technical robustness across hydrogen production pathways. Hydrogen production pathways represented in 45VH2-GREET are a subset of those in R&D GREET and were included following rigorous interagency review for technical fidelity and alignment with the statute. While additional hydrogen production pathways are available in R&D GREET, many are preliminary in nature and inappropriate for analyses requiring relatively high precision, data reliability, and analytical rigor to support use in implementation of the section 45V credit (as described previously in this part of the Summary of Comments and Explanation of Revisions and further in supporting documentation to R&D GREET

9

). Implementation of the section 45V credit necessitates the use of lifecycle GHG emissions rate calculations that are as precise and robust as feasible, as section 45V(b)(2) provides differing applicable percentages based on a range of lifecycle GHG emissions rates and section 45V(c)(2)(A) includes within the definition of qualified clean hydrogen only hydrogen produced with a lifecycle GHG emissions rate below a threshold level. Absent analytically robust emissions calculations, these final regulations would fail to implement Congress's directive to incentivize qualified clean hydrogen production, as distinguished among the different applicable percentage brackets, as well as fail to realize Congress's underlying objective of crediting only qualified clean hydrogen and providing greater credit amounts to hydrogen produced with lower lifecycle GHG emissions rates. As data on and analyses of additional hydrogen production pathways in R&D GREET become more robust, such pathways may be incorporated into future versions of 45VH2-GREET.

9

Summary of Expansions and Updates in R&D GREET 2023

(2023), Argonne National Laboratory, available at

https://greet.anl.gov/files/greet-2023-summary

(R&D GREET Supporting Documentation).

Additionally, 45VH2-GREET was developed to align with the text of section 45V, which requires that the credit be based on the “lifecycle greenhouse gas emissions” as defined under section 211(o)(1)(H) of the Clean Air Act, subject to the additional requirements of section 45V(c)(1)(B), which references the use of GREET or a successor model as determined by the Secretary, and limits the emissions estimates to “well-to-gate” emissions. Lifecycle GHG emissions are defined in section 211(o)(1)(H) of the Clean Air Act to include both direct emissions and significant indirect emissions. R&D GREET does not robustly account for the variability in emissions estimates of all potential significant indirect emissions of certain hydrogen production pathways, particularly when representing counterfactual scenarios. The model additionally does not address the risk of significant indirect emissions related to changes in market behavior associated with the incentives created by section 45V.

10

The proposed regulations therefore asked for comments on lifecycle analysis (LCA) considerations associated with hydrogen production pathways.

10

For example, in a December 13, 2023, letter to the Treasury Department, the EPA noted that it has interpreted section 211(o)(1)(H) of the Clean Air Act in the context of the Clean Air Act's RFS program. In that context, the EPA had previously determined that the version of ANL GREET that existed in 2010 (that is, R&D GREET) was not sufficient to calculate lifecycle GHG emissions for purposes of 211(o)(1)(H) of the Clean Air Act. The EPA also explained that the more recent version of ANL GREET that existed as of December 2023 similarly did not satisfy the relevant Clean Air Act criteria because it did not include the significant direct and indirect emissions that the EPA had previously determined were necessary.

See

Letter from Joseph Goffman, Principal Deputy Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Lily Batchelder, Assistant Secretary for Tax Policy, U.S. Department of the Treasury (Dec. 13, 2023), available at

https://home.treasury.gov/system/files/136/Final-EPA-letter-to-UST-on-SAF-signed.pdf.

In characterizing the lifecycle GHG emissions rate of a given hydrogen production pathway, 45VH2-GREET reflects key drivers of “lifecycle greenhouse gas emissions” as defined by section 45V(c)(1)(A) by cross-reference to section 211(o)(1)(H) of the Clean Air Act, subject to the additional requirements of section 45V(c)(1)(B). Consistent with the Clean Air Act, 45VH2-GREET, in conjunction with the broader regulatory framework, addresses direct GHG emissions (for example, at a hydrogen production facility) and significant indirect emissions (for example, upstream emissions associated with electricity consumption at a hydrogen production facility).

Third, 45VH2-GREET is consistent with the other requirements and purposes of section 45V. The accurate and fair administration of the section 45V credit requires the use of fixed “background data” assumptions for parameters for which bespoke inputs from hydrogen producers would present challenges for tax administration, which requires high fidelity to ensure the accurate assessment and reporting of lifecycle GHG emissions rates associated with the production of hydrogen. Allowing taxpayers to provide bespoke values for parameters that cannot be accurately determined at an individual taxpayer level or cannot be verified would invite exaggerated or understated estimates that could result in inaccurate section 45V credit determinations. Use of verifiable data ensures that the section 45V credit is available only to those facilities that meet statutory requirements and that the appropriate section 45V credit amount is determined with respect to those facilities. To facilitate the use of bespoke values where feasible and the use of appropriate alternative values where that is not feasible, as well as consistency across taxpayers, the proposed regulations introduced the concepts of “background data” (which cannot be changed by 45VH2-GREET users) and “foreground data” (which allows for bespoke inputs by 45VH2-GREET users), and 45VH2-GREET distinguishes between them in a consistent manner. For example, 45VH2-GREET incorporates the GHG emissions rates of regional grids as a

fixed background data parameter that users cannot change. The values incorporated in 45VH2-GREET as background data are based on individual power generators' reporting to the U.S. Energy Information Administration (EIA), emissions factors derived from the EPA's Emissions & Generation Resource Integrated Database (eGRID), estimates of upstream emissions derived by Argonne National Laboratory, and estimates of transmission and distribution losses based on State level reporting to the EIA. Given that GHG emissions estimates of regional grids are derived using the best available data and science, it is unlikely that a given taxpayer would be able to establish a value that differs materially from the 45VH2-GREET default and also has high fidelity. Moreover, given that this parameter is expected to be consistent across all taxpayers within a given region, it is appropriate to require that all such taxpayers utilize the same value rather than allowing for deviation across facilities.

Thus, 45VH2-GREET is consistent with the specific requirements of section 45V while maintaining R&D GREET's overall modeling approach and much of R&D GREET's background assumptions. This furthers the purposes reflected in section 45V(c)(1)(A) and (B). For these reasons, the Secretary has determined that 45VH2-GREET is a successor model for purposes of section 45V(c)(1)(B), and the final regulations require its use. Accordingly, proposed § 1.45V-1(a)(8)(ii) is modified and renumbered as § 1.45V-1(a)(9)(ii) to provide that the term “45VH2-GREET Model” means the latest publicly available version of 45VH2-GREET developed by Argonne National Laboratory and published by the DOE, as identified in the instructions to the latest version of Form 7210, or a successor form(s), on the first day of the taxable year during which the qualified clean hydrogen for which the taxpayer is claiming the section 45V credit was produced. Additionally, as further discussed in this Summary of Comments and Explanation of Revisions, proposed § 1.45V-4(a) is modified to provide that the lifecycle GHG emissions rate of each hydrogen production process at a qualified clean hydrogen production facility is determined under the 45VH2-GREET Model. Conforming changes have also been made throughout the regulatory text to replace “most recent GREET model” with “45VH2-GREET Model.”

b. Differences From R&D GREET

Several comments requested that 45VH2-GREET include all the pathways and technologies that are present in R&D GREET. Some of these comments also requested that 45VH2-GREET employ the same methodology used for measuring lifecycle GHG emissions as those used in R&D GREET. Some comments specifically requested that the transportation-related emissions be consistent between the two models.

The final regulations do not adopt these comments. As described in the 45VH2-GREET User Manual and as described in this part I.A.6 of the Summary of Comments and Explanation of Revisions, some pathways may be included in R&D GREET but not in a given version of 45VH2-GREET because the pathways were still preliminary when such version of 45VH2-GREET was developed and/or because the pathways did not adequately address all key sources of direct and significant indirect emissions (as required for consistency with section 211(o)(1)(H) of the Clean Air Act). Uncertainties around many of these pathways may include parameters such as identification of all relevant feedstocks or the choice of counterfactual scenarios. These uncertainties are described in sections 2.1.1 and 2.1.4 of the R&D GREET Supporting Documentation. Some pathways, such as those using certain types of biomass, also had uncertainties and had not completed the 45VH2-GREET technical review process at the time the most recent version was released, but may be added in future updates as data and other parameters become more robust. The proposed regulations requested comments on lifecycle analysis considerations associated with some of the pathways that were not included in the initial 45VH2-GREET release (for example, certain RNG pathways and fugitive methane), which could inform future updates to the model.

Some specific aspects of hydrogen production pathways within R&D GREET have completed an interagency review process, have been deemed sufficiently robust and, have therefore also been included in 45VH2-GREET. Examples include default assumptions associated with methane leakage during natural gas transportation to a facility or assumptions of the emissions that result from electricity generation from specific generators. Thus, some assumptions related to transportation emissions have been made consistent between R&D GREET and 45VH2-GREET, while other assumptions are still too uncertain to include in 45VH2-GREET but may be included if deemed sufficiently robust in the future based on evaluation by interagency technical experts.

R&D GREET is used for a range of purposes, including academic studies and research that do not necessarily require verification of assumptions with real-world data at specific facilities and at times rely on small and therefore uncertain sample sizes or datasets. Implementation of the section 45V credit, however, requires that information used to calculate the lifecycle GHG emissions rate reflect a given taxpayer's actual operation with a reasonable degree of certainty and be subject to independent verification where possible or, where not, that values used appropriately reflect the range of possibilities rather than allowing use of unverifiable inputs that inappropriately maximize the amount of the section 45V credit. As described previously, use of verifiable data is necessary in the context of tax administration and in particular with respect to the section 45V credit where eligibility for the amount of the credit is based on the facility's lifecycle GHG emissions rate.

c. Emissions Through the Point of Production (Well-to-Gate)

Proposed § 1.45V-1(a)(8)(iii) would have provided that, for purposes of section 45V(c)(1)(B) and proposed § 1.45V-1(a)(8)(i), the term “emissions through the point of production (well-to-gate)” means the aggregate lifecycle GHG emissions related to hydrogen produced at a hydrogen production facility during the taxable year through the point of production. Further, proposed § 1.45V-1(a)(8)(iii) would have provided that such term includes emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. Finally, proposed § 1.45V-1(a)(8)(iii) would have provided that such term includes the emissions associated with the hydrogen production process, inclusive of the electricity used by the hydrogen production facility and any capture and sequestration of carbon dioxide generated by the hydrogen production facility.

Some comments requested clarification on the definition of “well-to-gate” and whether emissions related to hydrogen purification, compression, liquefaction, transport, storage, and other activities are included in the definition for purposes of calculating the lifecycle GHG emissions rate of the hydrogen. Other comments provided feedback on the requirement in proposed § 1.45V-1(a)(8)(iii) that

taxpayers calculate the lifecycle GHG emissions rate of hydrogen produced at a hydrogen production facility based on the aggregate amount of hydrogen produced at the facility over the taxable year (in other words, use the average annual emissions rate). While some comments supported requiring taxpayers to calculate the lifecycle GHG emissions rate of hydrogen on an annual basis, other comments requested that taxpayers be permitted to calculate the lifecycle GHG emissions rate of hydrogen produced at their facility on a more granular basis. One comment expressed disappointment that the Treasury Department and the IRS did not engage States in defining lifecycle GHG emissions. Another comment recommended that the final regulations require State governments to adopt regulations to complement and enhance section 45V. Finally, one comment requested that the term “emissions through the point of production (well-to-gate)” exclude emissions from the production of hydrogen during natural disasters, emergency events, start-ups, shut-downs, and maintenance activities.

Regarding the request for clarification of whether specific activities fall within the well-to-gate system boundary, the definition of “emissions beyond the point of production (well-to-gate)” in proposed § 1.45V-1(a)(8)(iii) and renumbered as § 1.45V-1(a)(9)(iii) is sufficiently clear. Comments have indicated confusion, however, as to how the well-to-gate system boundary and the definition of facility interact. To clarify, the well-to-gate system boundary for purposes of determining the lifecycle GHG emissions rate of a process is distinct from the definition of facility for Federal income tax purposes. First, as specified in § 1.45V-1(a)(9)(iii), the well-to-gate system boundary includes certain emissions that occur upstream of the facility. For example, the well-to-gate system boundary includes emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. While such emissions are included in the well-to-gate system boundary, equipment used in such upstream activities—such as electricity generating equipment—is not part of the facility, as specified in § 1.45V-1(a)(7)(ii)(B). Second, as further specified in § 1.45V-1(a)(9)(iii), the well-to-gate system boundary also includes all emissions resulting from the facility's hydrogen production process, inclusive of the production of a mixed gas or impurity and the electricity used by the hydrogen production facility and any capture and sequestration of carbon dioxide generated by the hydrogen production facility. This includes emissions resulting from the use of all components that function interdependently to produce the qualified clean hydrogen for which the section 45V credit is determined. Emissions from activities that occur after the facility's hydrogen production process is complete, such as liquefaction, storage, or transport, are generally beyond the well-to-gate system boundary. The final regulations include a non-exhaustive list of examples of such activities in § 1.45V-1(a)(9)(iii). Finally, as explained in part I.A.6.d, § 1.45V-1(a)(9)(iv) is added to provide that emissions that result from certain purification activities that occur downstream of the facility's qualified clean hydrogen production process are still within the well-to-gate system boundary. Even though equipment used in such purification activities is not part of the facility, emissions associated with such purification are nevertheless within the well-to-gate system boundary for purposes of determining the section 45V credit.

However, the Treasury Department and the IRS, based on advice of the DOE, note that, in situations where a man-made chemical is produced using hydrogen feedstock (for example, ammonia), and is later cracked or “dehydrogenated” to release the hydrogen, the chemical represents a means of hydrogen storage and the cracking step releases the hydrogen from such storage. These steps occur downstream of hydrogen production and are therefore outside of the well-to-gate system boundary, and also do not constitute a distinct hydrogen production process. Accordingly, hydrogen released from cracking such chemicals cannot be used to claim the section 45V credit.

Regarding the requirement that taxpayers calculate the lifecycle GHG emissions rate of their hydrogen on an annual basis, these comments are addressed in response to comments received on proposed § 1.45V-4(a) in part III.A of this Summary of Comments and Explanation of Revisions.

Regarding a comment's criticism that the Treasury Department and the IRS did not engage the States in defining lifecycle GHG emissions, this term is defined in section 45V(c)(1)(A) as having the same meaning given such term under section 211(o)(1)(H) of the Clean Air Act. Moreover, States were afforded the opportunity to comment on the proposed regulations, and some did. Section 45V does not require State governments to take any action or to enact any legislation to complement section 45V. Section 45V provides a Federal income tax credit to owners of qualified clean hydrogen production facilities for the production of qualified clean hydrogen and imposes no obligations on the States. Accordingly, these final regulations do not adopt the request to require the States to enact legislation to complement section 45V.

Finally, regarding the request to exclude emissions from the production of hydrogen during periods of natural disasters, emergency events, start-ups, shut-downs, and maintenance activities, section 45V(c)(1) does not provide for or contemplate any such exceptions. These final regulations, therefore, do not adopt this comment's suggestion.

d. Certain Emissions Related to Purification Treated as Through Point of Production

In consultation with the DOE, the final regulations add a new § 1.45V-1(a)(9)(iv), which addresses emissions attributable to the purification of hydrogen. Section 1.45V-1(a)(9)(iv) provides that, if the taxpayer knows or has reason to know the purification of a hydrogen gas stream (that is, removal of a mixed gas or impurity) is necessary for a hydrogen gas stream to be productively used, or to be sold for productive use, any lifecycle GHG emissions relating to such purification (for example, emissions from electricity used in purification, or carbon dioxide that is separated from a hydrogen gas stream and then vented as part of purification) are treated as emissions through the point of production (well-to-gate). Additionally, if the taxpayer knows or has reason to know that a hydrogen gas stream contains less than 99 percent hydrogen and will be combusted without purification, any lifecycle GHG emissions relating to the purification needed to purify the hydrogen gas stream to contain 99 percent hydrogen are treated as emissions through the point of production (well-to-gate). Section1.45V-1(a)(9)(v) provides an example to illustrate this rule.

To ascertain the emissions associated with production of hydrogen in a manner that is consistent with section 45V, which requires that section 45V credit eligibility be determined on the basis of “kilograms of CO2e per kilogram of hydrogen”, 45VH2-GREET levelizes all well-to-gate emissions associated with a hydrogen production process over only the kilograms of pure hydrogen produced. This includes emissions attributable to the purification of a hydrogen gas stream to remove a mixed gas or impurity. Emissions attributable to purification

include emissions associated with energy consumption (for example, electricity consumed by purification equipment or by equipment used for carbon dioxide capture), as well as greenhouse gases that are separated out by purification equipment and not sequestered (for example, carbon dioxide that is captured and then vented).

Previous versions of 45VH2-GREET accounted for carbon dioxide emissions that may occur from the conversion of impurities or mixed gases downstream of the hydrogen production facility, thus including such emissions in the levelization. This approach will be revised in the forthcoming January 2025 version of 45VH2-GREET, such that emissions outside of the well-to-gate boundary are not accounted for in determining a process' lifecycle GHG emissions rate for purposes of section 45V. Qualified clean hydrogen production facilities can therefore be designed to achieve the level of purity required for sale or use (subject to the rules of section 45V and these final regulations), without regard to the carbon dioxide emissions that may occur from the conversion of impurities or mixed gases downstream (for example, the ultimate conversion to carbon dioxide of methanol produced from a mixed gas stream of hydrogen and carbon monoxide).

As the result of the January 2025 modification to 45VH2-GREET and the 45VH2-GREET User Manual, and to clarify the appropriate well-to-gate boundary, these final regulations, following consultation with the DOE, clarify the definition of emissions through the point of production (well-to-gate) to address emissions attributable to purification that the taxpayer knows or has reason to know are necessary in order for the hydrogen gas stream to be productively used, regardless of where such purification occurs. These emissions are properly treated as occurring within the well-to-gate boundary in § 1.45V-1(a)(9)(iv).

In certain cases—absent the section 45V credit—the taxpayer would normally purify a hydrogen gas stream prior to it being productively used or sold for productive use, and such purification would have lifecycle GHG emissions attributed to the hydrogen produced. Taxpayers, however, could have an incentive to claim that the purification (and its attendant emissions) occurs beyond the hydrogen production “gate.” If these emissions occur outside of the “gate,” then they would not be attributed in 45VH2-GREET to the hydrogen production process and therefore would not be included in the hydrogen production process' lifecycle GHG emissions rate for purposes of determining the amount of the section 45V credit. The taxpayer may, for example, forgo hydrogen purification that it would have performed absent the incentive of the section 45V credit, and produce comparatively “impure hydrogen.” The “impure hydrogen” may then be sold to a customer who would purify the hydrogen gas stream (something it would not need to do absent the incentive to the hydrogen producer due to the section 45V credit), thereby generating lifecycle GHG emissions that the taxpayer was able to forgo. Similarly, a taxpayer could have an incentive to instead sell a stream of impure hydrogen and a mixed gas or impurity (such as carbon monoxide), instead of the purified hydrogen gas stream, for combustion. The DOE has advised that, absent the section 45V credit, hydrogen gas streams are consistently sold at purity levels well above 99 percent today and that customers would likely have to substantially modify their operations to accept less pure gas streams. Therefore, DOE has advised that the predominant motivation to sell hydrogen for combustion at lower purities would be so the emissions associated with those impurities would not be accounted for within the well-to-gate boundary.

These circumstances would be inconsistent with a purpose of section 45V, which is to provide an incentive to produce qualified clean hydrogen and to provide a higher incentive to produce qualified clean hydrogen as more lifecycle GHG emissions are avoided. Producing hydrogen with a lower lifecycle GHG emissions rate and receiving a section 45V credit reflecting such an emissions rate in the case where the taxpayer knows or has reason to know that the customer must further purify the hydrogen gas stream (and emit additional emissions) so that such gas stream can be productively used by its customer is contrary to this purpose and to the requirement in section 45V(c)(2)(B)(i)(II) for hydrogen to be produced in the ordinary course of a trade or business of the taxpayer. To address this, and consistent with the purposes of section 45V, in cases where the taxpayer knows or has reason to know that additional purification is needed for a hydrogen gas stream to be productively used, the final regulations clarify that the emissions associated with the purification needed to produce the hydrogen for a productive use occur within the well-to-gate boundary. Likewise, in cases where the taxpayer knows or has reason to know that a hydrogen gas stream contains less than 99 percent hydrogen and will be combusted without purification, emissions that would have resulted from purifying the hydrogen gas stream to that percentage prior to combustion are treated as emissions within the well-to-gate boundary.

The final regulations are consistent with the treatment of emissions related to purification in the January 2025 version of 45VH2-GREET, which treats emissions attributable to purification that the taxpayer knows or has reason to know are necessary in order for the hydrogen gas stream to be productively used as within the gate.

7. Process

Section 45V(c)(1)(A) and (B) establish the boundaries for determining lifecycle GHG emissions rates associated with the production of hydrogen. Section 45V(c)(1)(A) mandates consideration of GHG emissions that are described in section 211(o)(1)(H) of the Clean Air Act. Section 45V(c)(1)(B) further specifies that the term “lifecycle greenhouse gas emissions” only includes emissions through the point of production (well-to-gate), as determined under the most recent GREET model or a successor model as determined by the Secretary. Accordingly, section 45V(c)(1)(B) specifies an ending boundary (that is, the gate of a hydrogen production facility) for the emissions that must be considered for purposes of the section 45V credit. It also specifies a model for use in determining lifecycle GHG emissions rates. Taken together, these statutory rules provide the boundaries for assessing lifecycle GHG emissions for purposes of section 45V.

Section 45V provides authority for the Secretary to specify and clarify how to determine lifecycle GHG emissions rates within these statutorily determined boundaries. Exercise of this authority is necessary because this statutory framework must address a wide range of hydrogen production processes that are currently viable or that may become viable in the future, the technical details of each hydrogen production process, and scientific advancements and uncertainties associated with lifecycle GHG analyses. Congress acknowledged that the Secretary would need to identify a system for determining lifecycle GHG emissions rates and expressly delegated to her the authority to do so in section 45V(f), which provides “the Secretary shall issue regulations or other guidance to carry out the purposes of this section, including regulations or other guidance for determining lifecycle greenhouse gas

emissions.” As noted previously, this authority is cabined by the directives in the statute, most critically the directive to measure well-to-gate lifecycle GHG emissions as defined by section 211(o)(1)(H) of the Clean Air Act.

The term “process,” as used in sections 45V(b)(2)(A) through (D) and in section 45V(c)(2)(A), is a parameter that requires further clarification. Proposed § 1.45V-4(a) and (b) would have required the section 45V credit to be determined according to the lifecycle GHG emissions rate of all hydrogen produced at a hydrogen production facility during the taxable year. Under this proposal, the term “process” included all the operations and inputs used by a facility to produce hydrogen during a taxable year.

The Treasury Department and the IRS received a number of comments which led to a reconsideration of how the term “process” is used in determining lifecycle GHG emission rates. After reviewing these comments and reexamining the meaning of the term “process” as it relates to the structure and purposes of section 45V, these final regulations add § 1.45V-1(a)(11) to define the terms “process” and “primary feedstock,” as discussed further in this part I.A.7 of this Summary of Comments and Explanation of Revisions. These final regulations also make a corresponding modification to § 1.45V-1(b) regarding the amount of the credit.

Several comments recommended that 45VH2-GREET allow for the blending of feedstocks, like natural gas and RNG. In the case of RNG, comments claimed that given the high cost of RNG, combining RNG with conventional natural gas could create certain market efficiencies that would justify the combined use of RNG and natural gas. Several comments opposed allowing the mixing of RNG (or other types of biomethane) with conventional natural gas to produce clean hydrogen; in particular, one comment noted that “splash blending,” or combining small amounts of RNG with conventional natural gas, could cost the U.S. government billions of dollars annually while potentially increasing overall emissions. According to one comment, to avoid splash blending, each methane-based feedstock should be considered a separate production line.

Section 45V generally requires that lifecycle GHG emissions rates be determined according to the process by which the hydrogen is produced. Section 45V(b)(2) provides the rules for determining the applicable percentages that are ultimately used to calculate the amount of the section 45V credit. In general, section 45V(b) requires applicable percentages to be determined with respect to “qualified clean hydrogen which is produced through a process that results in a lifecycle greenhouse gas emissions rate” that falls within statutorily mandated emissions rate ranges. Section 45V(c)(2)(A) defines the term qualified clean hydrogen as hydrogen that is produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.

Section 45V does not expressly define the term “process.” The plain meaning of the term “process” is “a series of actions or operations conducing to an end.”

11

In particular, for lifecycle assessment purposes, the term “process” has been defined as a “set of interrelated or interacting activities that transforms inputs into outputs.”

12

Building upon these definitions, combined with the statutory distinctions between processes that result in different specified ranges of lifecycle GHG emissions rates, the statutory text indicates that the term “process” necessarily includes a degree of uniformity and consistency among those inputs that can meaningfully differ in their GHG intensity. Section 45V(b)(2) provides varying credit amounts for hydrogen that is “produced through a process that results in a lifecycle greenhouse gas emissions rate” that falls into specified ranges. The term “process” must therefore mean more than just the production technique because the same production technique, such as steam methane reforming, could produce lifecycle GHG emissions rates that fall into different ranges specified in the statute depending on the inputs used. The statute differentiates between “a process that results in” one specified range of GHG emissions rates from “a process that results in” a different specified range of GHG emissions rates. See section 45V(b)(2)(A) through (D). The only effective way to distinguish between hydrogen production processes is to define the term “process” with respect to both the production technique and a class of uniform or similar inputs used in that technique.

11

Process,

Merriam-Webster Dictionary, available at

https://www.merriam-webster.com/dictionary/process.

12

International Organization for Standardization,

ISO 14040:2006, Environmental Management—Life Cycle Assessment—Principles and Framework

(2d ed. 2006).

This interpretation of the term “process” is consistent with the chemical transformations that are used to produce hydrogen, and with the language in section 45V. Treating input feedstocks with significantly different attributes as part of the same hydrogen production process (for example, by averaging the attributes of multiple types of methane used over a time period) often would not accurately reflect the chemical dynamic whereby each molecule of hydrogen originates from distinct source-molecule inputs that have distinct attributes affecting the lifecycle emissions of each hydrogen molecule and, as a result, often would not reflect the lifecycle GHG emissions rate of the resulting hydrogen molecules, as required by the statute. The most granular approach to assessing lifecycle GHG emissions would therefore be to match each molecule of hydrogen with its molecular inputs and identify the lifecycle emissions associated with the resulting hydrogen. However, this level of granularity is impractical to administer and unnecessary to implement the statute. The feasible and appropriate approach to aggregating molecules is to assess each hydrogen production process by grouping source molecules into categories of primary feedstock.

This aggregation approach best implements the statutory requirements of section 45V because the production of hydrogen using inputs with similar attributes can be expected to produce consistent emissions results, allowing the appropriate determination of eligibility and credit amounts under section 45V. An approach that incorrectly assumed all hydrogen molecules are a blend of feedstocks would not yield a correct lifecycle assessment, would have perverse incentive effects (as discussed subsequently in this Summary of Comments and Explanation of Revisions), and would be no more administrable than the approach adopted in these final rules.

With the exception of geologic hydrogen, all hydrogen production processes involve conversion of hydrogen-containing molecules into pure hydrogen. In electrolysis, for example, the feedstock—the source of the hydrogen molecules—is water, which contains no carbon and therefore does not directly produce carbon dioxide (or other GHGs) in the production of hydrogen. By contrast, in steam methane reforming, the feedstock is water and methane, which produces hydrogen and carbon dioxide when reformed. In pyrolysis, the feedstock is organic matter, which produces hydrogen and solid carbon when pyrolyzed. In methane pyrolysis, the feedstock is methane, which is converted into hydrogen and solid

carbon through the application of high temperatures.

Energy attributes and lifecycle GHG emissions can vary considerably among hydrogen-containing feedstocks. For instance, the water inputs into electrolysis generally have limited upstream emissions and zero direct GHG emissions from the chemical reaction that produces hydrogen. Hydrocarbon inputs into methane reforming produce a standard quantity of direct emissions through the chemical reaction that produces hydrogen, but upstream emissions vary considerably for different sources. Different hydrocarbon inputs have significantly different upstream practices (for example, methods of gathering, processing, or delivery) and counterfactuals, among other factors, which result in dramatic differences in resulting lifecycle GHG emissions rates of producing hydrogen from that methane source.

Because of the potential for significant variation in the lifecycle GHG emissions rates associated with different inputs, and the structure of section 45V, it is necessary to assess hydrogen production using different hydrogen-containing feedstocks as distinct processes. Accordingly, these final regulations distinguish processes based on their hydrogen-containing feedstock, which is referred to in these final regulations as a “primary feedstock.” A “primary feedstock” is defined in § 1.45V-1(a)(11) as a hydrogen-containing chemical that is transformed to produce hydrogen at a hydrogen production facility and has uniform or similar attributes distinguished by the source from which it is derived, if such source materially affects the lifecycle GHG emissions rate associated with use of the chemical to produce hydrogen.

If the term “process” were instead interpreted to encompass feedstocks with significantly different attributes as relevant to determining lifecycle GHG emissions, then the approach to determining whether a “process” has comported with statutorily prescribed lifecycle GHG emissions rate ranges for the purposes of determining the amount of the section 45V credit would not effectively, in fact, incentivize the production of hydrogen within a specific lifecycle GHG emissions rate range. For example, allowing a process to calculate a single emissions rate based on a mix of feedstocks with disparate attributes would increase the risk that hydrogen production that would otherwise not meet the statutory emissions requirements receives the section 45V credit simply by virtue of being commingled or averaged with hydrogen production that does meet the statutory emissions requirements using other inputs. This would be a foreseeable and inappropriate result if, as several comments urged, the term “process” were interpreted as any activities and inputs that resulted in the production of a kilogram of hydrogen. The statute's singular reference to “a process” and “a lifecycle greenhouse gas emissions rate” indicates that the statutory references to the term “process” requires evaluation on the basis of each specific process, with uniformity and consistency across its operations and primary feedstock that generally results in a consistent lifecycle GHG emissions rate. Defining the term “process” based solely on the type of a facility's operations that produce hydrogen (for example, steam methane reforming or autothermal reforming) is not appropriate because such operations could rely on feedstocks with materially different attributes and carbon intensities, which would result in very different lifecycle GHG emission rates that would not be observable if feedstocks are aggregated. Thus, feedstocks to a process should have attributes with a sufficient degree of uniformity and consistency to be considered part of the same “process.” Separately evaluating each hydrogen production process at a qualified clean hydrogen production facility is consistent with the statutory language and scheme of section 45V, which requires accuracy in determining “a lifecycle [GHG] emissions rate” for hydrogen produced via “a process.” See section 45V(c)(2)(A).

For these reasons, consistent with the transformation of feedstock in the production of hydrogen, § 1.45V-1(a)(11) defines the term “process” to mean the operations conducted by a facility to produce hydrogen (for example, electrolysis or steam methane reforming) during a taxable year using one primary feedstock. A facility producing hydrogen through electrolysis, for example, will have a single hydrogen production process in a taxable year with water as its primary feedstock. Electricity with different attributes would not result in distinct processes because electricity is not a primary feedstock (that is, it is not contributing hydrogen atoms to the hydrogen molecule); additionally, electricity cannot be differentiated at the molecular level. Electricity and heat are integral to the operations of hydrogen production facilities, and the form of energy used by a facility (for example, electricity versus heat) plays an essential role in discerning different hydrogen production processes. The energy powering a facility's operations enables the chemical transformation of molecular feedstocks into hydrogen, but energy does not itself contribute atoms to the hydrogen produced by a facility. Thus, the final regulations do not treat electricity and heat as primary feedstocks, but instead require tracking and assessing the emissions associated with energy used in a process through different mechanisms, as described in part III.D of this Summary of Comments and Explanation of Revisions and specified in 45VH2-GREET. For a facility that produces hydrogen through steam methane reforming using fossil natural gas, for example, the combination of fossil natural gas and water would be considered one primary feedstock because hydrogen molecules derive from both fossil natural gas and water and this form of hydrogen production requires use of both water and methane. Thus, a facility producing hydrogen exclusively through reforming of fossil natural gas with water would have a single hydrogen production process in a taxable year. A facility producing hydrogen through reforming of both fossil natural gas and RNG from animal manure with water would have two hydrogen production processes in that year; the primary feedstock for one process would be fossil natural gas and water, and the primary feedstock for the other process would be RNG from animal manure and water.

As further specified in the 45VH2-GREET User Manual and reflected in 45VH2-GREET, some types of primary feedstocks are distinguished by their origin (for example, methane from a specific source), as well as attributes of that source as relevant to determining lifecycle GHG emissions. While these final regulations cannot anticipate and address all possible primary feedstocks that may be utilized for hydrogen production, the Treasury Department and the IRS note that it is currently appropriate to treat fossil natural gas, RNG derived from landfill gas, RNG derived from animal waste, RNG derived from wastewater treatment plants, and gas derived from coal mine methane as distinct primary feedstocks. If a facility uses any of these gas streams in combination with water via interdependent steps (for example, in the case of reforming), then the combination of that gas stream (for example, fossil natural gas, RNG derived from landfill gas, etc.) and water is a singular primary feedstock. Such treatment implements the definition of primary feedstock adopted here, which treats as a single feedstock that which

has uniform or similar attributes distinguished by the source from which it is derived, if such source materially affects the lifecycle GHG emissions associated with use of the molecule to produce hydrogen.

If a facility utilizes more than one primary feedstock to produce hydrogen, then that facility will have an equal number of separate hydrogen production processes that each must be assessed separately to determine a lifecycle GHG emissions rate for the quantity of hydrogen produced through that process for purposes of section 45V. For example, if a taxpayer procures RNG sourced from a blend of sources, the taxpayer must account for the share of RNG derived from each source distinctly within 45VH2-GREET or an Emissions Value Request Application. Future releases of 45VH2-GREET and analyses conducted through the DOE's EVRP may address additional primary feedstocks, but any new primary feedstock must also be treated as distinct.

The Treasury Department and the IRS note that there is precedent for this type of approach for assessing emissions associated with the production of fuels. The RFS is another example of a framework that requires a determination of what activities should be aggregated or separated for purposes of lifecycle analysis to determine GHG emissions. Similar to the approach provided for here, the RFS conducts LCAs for distinct feedstock-technology-output combinations because those combinations have the potential to have distinct lifecycle emissions that should be credited differently under the RFS's statutory scheme.

See

“Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program,” 75 FR 14670, 14713 (Mar. 26, 2010) (EPA final regulation providing that different combinations of feedstock, production process, and fuel that result in different lifecycle GHG outcomes must be evaluated separately).

8. Qualified Clean Hydrogen

Section 45V(c)(2)(A) provides that “qualified clean hydrogen” means hydrogen which is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Further, section 45V(c)(2)(B) provides that such term does not include any hydrogen unless the production and sale or use of such hydrogen is verified by an unrelated party, and such hydrogen is produced in the United States (as defined in section 638(1) of the Code) or a United States possession (as defined in section 638(2)); in the ordinary course of a trade or business of the taxpayer; and for sale or use. Proposed § 1.45V-1(a)(9) substantially repeats the statutory definition.

Several comments requested clarification on the definition of “qualified clean hydrogen.” Some comments requested clarification that hydrogen does not need to be of a certain level of purity to constitute “qualified clean hydrogen.” Specifically, comments requested clarification that “qualified clean hydrogen” includes hydrogen that is produced as one of several constituents in a gas stream so long as the gas stream is valorized. The comments suggested that the statute does not specify that the hydrogen production must isolate the hydrogen or that the gas stream containing the hydrogen achieve a certain threshold hydrogen content to be eligible for the credit. These comments further suggested that requiring hydrogen to be separated from other components in a gas stream when those components would be immediately recombined with the hydrogen would be inefficient. One comment requested clarification on whether there are specific metering requirements for monitoring the purity of the hydrogen.

These final regulations do not modify the definition of “qualified clean hydrogen” to specify a certain level of purity, or to specify that no level of purity is required. A purity requirement does not need to be added to the definition of “qualified clean hydrogen” because 45VH2-GREET already accounts for impurities by assessing the well-to-gate emissions of a hydrogen production facility over only the kilograms of pure hydrogen produced. The treatment of mixed gases or impurities is further discussed in part I.A.6.d. of this Summary of Comments and Explanation of Revisions.

The decisions to characterize well-to-gate emissions of hydrogen based only on the kilograms of pure hydrogen produced, and to address impurities through the well-to-gate lifecycle GHG emissions analysis (in 45VH2-GREET or the PER process)—rather than by requiring hydrogen to be of a certain level of purity—are consistent with Congress's directive under section 45V(c)(1)(A) and (B) to determine lifecycle GHG emissions as defined under section 211(o)(1)(H) of the Clean Air Act and 45VH2-GREET.

As to the request for clarification on whether there are specific metering requirements for monitoring the purity of the hydrogen, as discussed in this part, impurities are accounted for through the well-to-gate lifecycle GHG emissions analysis (in 45VH2-GREET or the PER process). Metering requirements for all relevant inputs into 45VH2-GREET, including purity, are addressed in § 1.45V-5(g)(5), and no special metering requirements for purity, apart from those specified in § 1.45V-5(g)(5), are needed.

9. For Sale or Use

For purposes of section 45V(c)(2)(B)(i)(III) and proposed § 1.45V-1(a)(9)(i)(C), proposed § 1.45V-1(a)(9)(ii) would have provided that, the term “for sale or use” means for the primary purpose of making hydrogen ready and available for sale or use. Following production, storage of hydrogen before its sale or use would not disqualify such hydrogen from being considered produced for sale or use. No comments were received on proposed § 1.45V-1(a)(9)(ii), and this provision is adopted without change as renumbered § 1.45V-1(a)(13)(ii).

B. Amount of Credit

1. In General

Under section 45V(a), the clean hydrogen production credit is based on the amount of qualified clean hydrogen produced “during the 10-year period beginning on the date such facility was originally placed in service” multiplied by the applicable amount identified in section 45V(b). Proposed § 1.45V-1(b)(1) would have incorporated this calculation of the amount of credit by providing that the amount of the section 45V credit determined under section 45V(a) and the section 45V regulations for any taxable year is the product of the kilograms of qualified clean hydrogen produced by the taxpayer during such taxable year at a qualified clean hydrogen production facility during the 10-year period beginning on the date such facility was originally placed in service, multiplied by the applicable amount with respect to such hydrogen.

Several comments requested changes related to the 10-year credit period and the placed in service date specified in proposed § 1.45V-1(b)(1). One comment requested that the 10-year credit period be tolled for circumstances beyond the taxpayer's control or during periods of diminished capacity. Another comment requested that the placed in service date of a qualified clean hydrogen production facility be delayed until operational testing is complete and commercial quantities of hydrogen are produced. Another comment requested that the final regulations provide that a qualified clean hydrogen production facility cannot be placed in service until after December 31, 2022. This comment

suggested that, prior to January 1, 2023, it was impossible to produce qualified clean hydrogen because section 45V, which established what is qualified clean hydrogen, did not become effective until that date. Thus, this comment suggested, no hydrogen production facility could properly be treated as having been placed in service as a “qualified clean hydrogen production facility” until that date.

Another comment requested clarification of the requirements for pre-existing facilities that were originally placed in service prior to the enactment of section 45V and the extent to which such facilities can claim the section 45V credit for the years remaining in the 10-year period beginning on the date such facilities were originally placed in service.

These final regulations do not adopt the changes to proposed § 1.45V-1(b)(1) recommended by these comments. Section 45V(a) establishes that the credit is based, in part, on the placed in service date and the definition of “placed in service” is sufficiently clear as an established tax concept. Section 1.46-3(d)(1) provides that, for purposes of the section 38 credit (which includes the clean hydrogen production credit determined under section 45V,

see

section 38(b)(36)), property is considered placed in service in the earlier of the taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such property begins; or the taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity. Examples of property that is considered in a condition or state of readiness and availability for a specifically assigned function are set forth in § 1.46-3(d)(2). Section 1.46-3(d)(2)(ii) provides that operational farm equipment that is acquired during the taxable year and is not practicable to use until the following year is still considered ready and available for its assigned function in the taxable year. Section 1.46-3(d)(2)(iii) provides that equipment that is operational but is still undergoing testing to eliminate any defects is still considered ready and available for its assigned function. These examples clarify that property can be ready and available for its assigned function regardless of the level of production attained.

Various revenue rulings and case law have established a five-factor test for determining when a facility is placed in service, including (1) whether the necessary permits for operation have been obtained; (2) whether critical preoperational testing has been completed; (3) whether the taxpayer has control of the facility; (4) whether the unit has been synchronized with the transmission grid; and (5) whether daily or regular operation has begun.

See Ampersand Chowchilla Biomass, LLC

v.

United States,

150 Fed. Cl. 620 (2020) (citing Rev. Rul. 84-85, 1984-1 C.B. 10; Rev. Rul. 79-98, 1979-1 C.B. 103; Rev. Rul. 76-256, 1976-2 C.B. 46; and Rev. Rul. 76-428, 1976-2 C.B. 47),

aff'd,

26 F.4th 1306 (Fed. Cir. 2022). No one factor is dispositive.

Determining the date on which a qualified clean hydrogen production facility was placed in service is inherently fact intensive, and the existing case law and revenue rulings are sufficient for taxpayers to determine their facility's placed in service date. Relying upon existing standards provides sufficient clarity to taxpayers and avoids the confusion of creating multiple placed in service standards.

Regarding whether the final regulations should provide that the 10-year credit period is tolled to account for circumstances beyond the taxpayer's control or during periods of a facility's diminished capacity, the 10-year credit period is a statutory requirement under section 45V(a)(1), and there is no provision that provides an exception to this statutory rule.

Regarding whether the final regulations should clarify that a qualified clean hydrogen production facility cannot be placed in service until after December 31, 2022, the Treasury Department and the IRS clarify in this Summary of Comments and Explanation of Revisions that a qualified clean hydrogen production facility may have been placed in service prior to January 1, 2023. First, section 45V does not specify an earliest date on which a qualified clean hydrogen production facility must be placed in service to be eligible for the section 45V credit, and as explained in the Explanation of Provisions to the proposed regulations, the owner of a qualified clean hydrogen production facility originally placed in service after December 31, 2012, can claim the section 45V credit for qualified clean hydrogen produced during at least some portion of the 10-year period described in section 45V(a)(1), provided all other requirements are met. Second, providing a rule that a qualified clean hydrogen production facility cannot be placed in service until January 1, 2023, would conflict with section 45V(d)(4), which provides that a facility that did not produce qualified clean hydrogen and that was originally placed in service prior to January 1, 2023, can receive a new, deemed placed in service date as of the date the facility is modified after December 31, 2022, to produce qualified clean hydrogen. If, as the comment suggests, no qualified clean hydrogen production facility could be placed in service until January 1, 2023, then existing hydrogen production facilities would receive a new placed in service date regardless of whether they meet the requirements of section 45V(d)(4), rendering section 45V(d)(4) superfluous. Third, under the comment's reading, no qualified clean hydrogen production facility could be placed in service until the hydrogen production and its sale or use is verified, as those are requirements to have qualified clean hydrogen. Verification might not occur until a taxable year following the year in which the hydrogen was produced, which would prevent the credit from being determined in the first taxable year of production. Fifth, the comment's reading conflicts with section 6417(b)(5), which makes clear that a qualified clean hydrogen production facility can be originally placed in service prior to January 1, 2023.

See

section 6417(b)(5) (an applicable credit includes “[s]o much of the credit for production of clean hydrogen determined under section 45V(a) as is attributable to qualified clean hydrogen production facilities which are originally placed in service after December 31, 2012.”).

Finally, regarding the requirements and extent to which pre-existing facilities that were originally placed in service prior to the enactment of section 45V can claim the section 45V credit, for the reasons explained herein, this Summary of Comments and Explanation of Revisions clarifies that the owner of a qualified clean hydrogen production facility originally placed in service prior to the enactment of section 45V but after December 31, 2012, can claim the section 45V credit for the qualified clean hydrogen produced during at least some portion of the 10-year period described in section 45V(a)(1), provided all other requirements are met. Thus, owners of pre-existing facilities can potentially claim the section 45V credit for the remaining portion of the 10-year credit period. Alternatively, a pre-existing facility can receive a new date on which it is considered originally placed in service if it satisfies the requirements of § 1.45V-6(a) (regarding the modification of an existing facility to produce qualified clean hydrogen) or

(b) (regarding the retrofitting of an existing hydrogen production facility).

2. Producer of Qualified Clean Hydrogen

For purposes of section 45V(a)(1) and proposed § 1.45V-1(b)(1), proposed § 1.45V-1(b)(2) would have provided that the term “taxpayer” means the taxpayer that owns the qualified clean hydrogen production facility at the time of the facility's production of qualified clean hydrogen with respect to which the section 45V credit is claimed, regardless of whether such taxpayer is treated as a producer under section 263A of the Code or under any other provision of law with respect to such hydrogen.

One comment asked whether the phrase “treated as a producer under section 263A” in proposed § 1.45V-1(b)(2) has the same meaning as “produced by the taxpayer” under section 45X(a)(1)(A). To clarify, the term “produced by the taxpayer” as used in section 45X(a)(1)(A) is defined in § 1.45X-1(c) and that definition does not apply for purposes of section 45V. Section 45X and § 1.45X-1(c) address the production of eligible components as that term is used in section 45X, and not the production of hydrogen for purposes of section 45V. Therefore, taxpayers must determine whether they are considered the producer of the qualified clean hydrogen for purposes of determining the credit under section 45V using the definition provided in § 1.45V-1(b)(2), and not by reference to the definition of “produced by the taxpayer” under § 1.45X-1(c).

Under section 45V(a)(1) and (c)(3)(A), the taxpayer must be both the owner of the qualified clean hydrogen production facility and the producer of qualified clean hydrogen at the facility to be eligible for the section 45V credit, respectively. The intent of proposed § 1.45V-1(b)(2) was to clarify that, for purposes of section 45V(a)(1) and § 1.45V-1(b)(1), the “taxpayer” for these purposes is the owner of the qualified clean hydrogen production facility at the time the hydrogen is produced, regardless of whether the owner is required to capitalize costs under section 263A and § 1.263A-2(a), which provide rules relating to property produced by the taxpayer. As explained in the Explanation of Provisions to the proposed regulations, the definition of “taxpayer” in § 1.45V-1(b)(2) is intended, among other things, to avoid unintended consequences that could arise under § 1.263A-2(a)(1)(ii)(A) and (B)(

1

) with respect to contract manufacturing and tolling arrangements in the context of the section 45V credit. For example, under § 1.45V-1(b)(1), an owner of a hydrogen production facility that enters into an arrangement with a third party service recipient to produce qualified clean hydrogen using the service recipient's raw materials and inputs in exchange for a fee (a toller) is considered the producer of the qualified clean hydrogen for purposes of section 45V regardless of whether the toller is required to capitalize costs of producing the qualified clean hydrogen under section 263A. The final regulations provide the intended clarification described previously in this paragraph to § 1.45V-1(b)(2).

3. Increased Credit Amount for Qualified Clean Hydrogen

Proposed § 1.45V-1(b)(3) contained a cross-reference to § 1.45V-3, which provides rules under section 45V(e) that permit the amount of the section 45V credit determined under section 45V(a) and § 1.45V-1(b)(1) to be multiplied by five if certain requirements related to prevailing wages and apprenticeships are met.

Several comments were received relating to the prevailing wage and apprenticeship requirements of section 45V(e). Rules addressing the prevailing wage and apprenticeship requirements of section 45V(e) are provided in § 1.45V-3, which is not included in this rulemaking.

See

TD 9998,

Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements

(89 FR 53184). Accordingly, comments addressing the prevailing wage and apprenticeship requirements are beyond the scope of this rulemaking. These final regulations adopt the language in proposed § 1.45V-1(b)(3) without change.

C. Determination of Credit

Proposed § 1.45V-1(c) would have provided that, subject to any applicable Code sections that may limit the section 45V credit amount, the section 45V credit for any taxable year is determined with respect to the qualified clean hydrogen produced by the taxpayer during that taxable year, although the verification of the production and sale or use of such hydrogen may occur in a later taxable year. The taxpayer would not be eligible to claim the section 45V credit with respect to that hydrogen until all relevant verification requirements, and the verification itself, have been completed. Therefore, despite such verification occurring in a later taxable year, the section 45V credit would be properly claimed with respect to the taxable year of hydrogen production and subject to the general period of limitations for filing a claim for credit or refund. Thus, if verification occurred after the extended return filing due date for the taxable year in which the hydrogen was produced, the taxpayer would need to file an amended return or administrative adjustment request (AAR), as applicable, to claim the section 45V credit for such produced hydrogen.

The Treasury Department and the IRS requested comments on proposed § 1.45V-1(c), and whether taxpayers anticipated that they would be able to complete all the requirements for claiming the section 45V credit, including the requirements for verification specified in proposed § 1.45V-5, by the extended return filing deadline for the taxable year of hydrogen production. Comments were also requested on whether alternatives existed.

Several comments suggested alternatives to the requirement in § 1.45V-1(c) that the credit is determined in the taxable year of hydrogen production. Some comments expressed concern that a late verification report, filed after the extended return filing deadline for the taxable year of hydrogen production, would preclude taxpayers from making an elective payment under section 6417 or transfer election under section 6418, as the necessary elections under those statutes cannot be made on an amended return or AAR.

See

sections 6417(d)(3) and 6418(e)(1).

One comment recommended that taxpayers be allowed to claim the section 45V credit initially without a verification report, then once the verification report for the relevant taxable year is eventually submitted, the credit amount is “trued up,” with either the government or the taxpayer remitting funds to reflect the verified emissions rate and amount of production. Some comments requested taxpayers be allowed to make or change an election under section 6417 or 6418 on an amended return or AAR if they are claiming a section 45V credit on such amended return or AAR. Another comment proposed only requiring verification when there has been a change in the operation of a taxpayer's hydrogen production facility since the last verification, claiming that this would reduce the risk of late verifications precluding monetization elections. Finally, one comment asked that taxpayers be allowed to claim the section 45V credit and make an elective payment election or transfer election prior to the formal completion of the verification report to avoid missing the

extended return filing deadline due to a late verification report.

These final regulations do not adopt these comments suggesting revisions to the requirements of proposed § 1.45V-1(c). First, based on the comments received on the timing of verification, the Treasury Department and the IRS anticipate that qualified verifiers will be able to verify a taxpayer's production and sale or use of hydrogen by the deadline for filing the taxpayer's Federal income tax return, including extensions, so there should be no issue with making a timely elective payment or transfer election under section 6417 or 6418, respectively. Second, the requirement that the credit is determined in the taxable year of hydrogen production adheres to the requirement in section 45V(a)(1) that the section 45V credit for any taxable year is determined based on the kilograms of qualified clean hydrogen produced by the taxpayer during such taxable year. Providing a rule that the credit is determined in a year other than the taxable year of hydrogen production—such as the year of verification—would potentially create a timing mismatch between the taxable year in which the hydrogen is produced and creditable under section 45V(a)(1) and the taxable year in which the section 45V credit for such production can be claimed. Third, comments suggesting modifications to the rules regarding elective payment elections or transferability elections under sections 6417 and 6418, respectively, are beyond the scope of this rulemaking under section 45V.

Regarding the comments recommending exceptions to the verification requirements or allowing taxpayers to file verification reports after the section 45V credit has been claimed, the requirement that the production and sale or use of the hydrogen be verified is statutorily prescribed in section 45V(c)(2)(B)(ii), so these final regulations adopt the language in proposed § 1.45V-1(c) without change.

II. Special Rules

A. Coordination With Credit for Carbon Oxide Sequestration

Section 45V(d)(2) provides that no section 45V credit is allowed for any qualified clean hydrogen produced at a facility which includes carbon capture equipment for which a section 45Q credit is allowed to any taxpayer for the taxable year or any prior taxable year.

Proposed § 1.45V-2(a) would have followed that statutory provision and additionally provided that if the so-called “80/20 Rule” provided in § 1.45Q-2(g)(5) is satisfied with respect to such carbon capture equipment, and no new section 45Q credit has been allowed to any taxpayer for such carbon capture equipment, then the unit of carbon capture equipment (as defined in § 1.45Q-2(c)(3)) for which the 80/20 Rule is satisfied will not be treated as carbon capture equipment for which a section 45Q credit was allowed to any taxpayer for any prior taxable year for purposes of section 45V(d)(2) and proposed § 1.45V-2(a).

Further, proposed § 1.45V-1(a)(7)(i) would have clarified that equipment (which includes carbon capture equipment) that functions interdependently with other components of property to produce qualified clean hydrogen is part of the qualified clean hydrogen production facility, and proposed § 1.45V-1(a)(7)(ii)(B) would have clarified that electricity production equipment used to power the hydrogen production process, including any carbon capture equipment associated with the electricity production process, is not part of the qualified clean hydrogen production facility.

Several comments requested clarification that a separate, independent production line containing carbon capture equipment for which a section 45Q credit is allowed and that is co-located with a hydrogen production facility at a single industrial site does not disqualify the hydrogen production facility from the section 45V credit. For example, one comment requested clarification that an electricity generation facility that is co-located and interconnected with the hydrogen production facility, and for which the section 45Q credit is allowed, will not disqualify the hydrogen production facility from the section 45V credit. Conversely, some comments recommended that the final regulations modify proposed § 1.45V-1(a)(7)(ii)(B) to disallow the section 45V credit for hydrogen produced using electricity that was generated by an electricity generation facility for which the section 45Q credit is allowed.

One comment appeared to seek clarification that “allowed,” with respect to section 45V(d)(2), means the taxpayer has claimed the section 45Q credit on their tax return, not merely that they are eligible for claiming the section 45Q credit. The same comment requested confirmation that a taxpayer can claim the section 45V credit and then claim the section 45Q credit in a later taxable year on the same facility.

Finally, one comment requested an exception to section 45V(d)(2) to allow a taxpayer to claim both the section 45Q and section 45V credits on the same facility if the facility combines hydrogen and CO2 for the purpose of creating synthetic molecules.

These final regulations are not modified in response to these comments. The final regulations are sufficiently clear that the section 45V(d)(2) rules coordinating the section 45V credit with the section 45Q credit for carbon oxide sequestration only apply to the qualified clean hydrogen production facility. The definition of “facility” in § 1.45V-1(a)(7), as clarified in these final regulations and described in greater detail in part I.A.4 of this Summary of Comments and Explanation of Revisions, means all the components that function interdependently to produce clean hydrogen through a process that results in the lifecycle GHG emissions rate used to determine the credit, but does not include electricity production equipment used to power the hydrogen production process. Further, disallowing the section 45V credit for hydrogen produced using electricity generated at a facility containing carbon capture equipment for which a section 45Q credit has been allowed would require modifying the definition of “facility” at § 1.45V-1(a)(7) to include electricity production equipment. It would also present serious horizontal equity concerns for hydrogen producers who co-locate with electricity generators and those who do not. Therefore, electricity production equipment that powers the hydrogen production process and contains carbon capture equipment for which a section 45Q credit is allowed will not disqualify the hydrogen production facility from the section 45V credit. Further, these final regulations do not modify the definition of facility in § 1.45V-1(a)(7) to address specific co-located equipment used for other industrial processes because creating a rule to specifically address such co-located equipment is not necessary nor possible, given that the determination will depend on the facts and circumstances of such equipment.

Regarding the meaning of the term “allowed,” such term generally means that the item was claimed on the return and not challenged by the IRS.

See generally Virginian Hotel Corp. of Lynchburg

v.

Helvering,

319 U.S. 523, 526-27 (1943);

Lenz

v.

Commissioner,

101 T.C. 260, 264-65 (1993). The meaning of “allowed” is sufficiently clear as an established tax concept, as its definition derives from case law and general tax principles, and because the term “allowed” appears so frequently in the Code and its accompanying regulations.

Regarding whether a taxpayer can claim a section 45Q credit in a subsequent taxable year, section 45V(d)(2) contains no such prohibition, so the statute is already sufficiently clear and does not need further clarification.

Finally, regarding the comment's request for an exception to section 45V(d)(2) for the creation of synthetic molecules, the prohibition on claiming the section 45V credit on a facility for which a section 45Q credit has already been allowed is statutory, and the statute provides no such exception.

Accordingly, these final regulations adopt § 1.45V-2(a) as proposed.

B. Anti-Abuse Rule

Section 45V(c)(2)(B)(i) provides, among other things, that hydrogen is not qualified clean hydrogen unless it is produced in the ordinary course of a trade or business of the taxpayer, and for sale or use.

Section 45V(f) empowers the Secretary to issue regulations or other guidance to carry out the purposes of section 45V.

Proposed § 1.45V-2(b)(1) would have disallowed the section 45V credit where the primary purpose of the production and sale or use of qualified clean hydrogen was to obtain the section 45V credit in a manner that is wasteful. Proposed § 1.45V-2(b)(1) would have provided as an example the production of qualified clean hydrogen that the taxpayer knows or has reason to know will be vented, flared, or used to produce hydrogen. This proposed rule is referred to as the “anti-abuse rule.”

Proposed § 1.45V-5(d)(1) would have provided, among other things, that the qualified verifier must attest that a person has sold or made a verifiable use of such hydrogen. Proposed § 1.45V-5(d)(2) would have provided that a person's verifiable use of hydrogen undergoing verification “does not include—(i) Use of hydrogen to generate electricity that is then directly or indirectly used in the production of more hydrogen; or (ii) venting or flaring of hydrogen.” This proposed rule is referred to as the “verifiable use rule.”

Many comments in response to the proposed regulations made suggestions or asked for clarification regarding the prohibition in proposed § 1.45V-2(b)(1) against the sale or use of hydrogen for the primary purpose of obtaining the section 45V credit in a wasteful manner, often asking that the prohibition not apply to a particular scenario or set of circumstances.

Some comments recommended rules or asked for clarification regarding the prohibition in proposed § 1.45V-2(b)(1) against hydrogen production that the taxpayer knows or has reason to know will be vented or flared. These comments noted that venting and flaring are often required for routine safety or maintenance purposes and contended that such use of venting and flaring should not disqualify facilities from credit eligibility. However, in order to align with the purpose of section 45V and safeguard against abuse, one of these comments asked that the Treasury Department and the IRS more clearly state that it is the amount of clean hydrogen sold or used, not produced, that ultimately determines the credit amount.

One comment asked for explicit assurance that hydrogen produced and sold for use in energy storage would not run afoul of the anti-abuse rule when the stored energy is later used to produce hydrogen.

Some comments suggested disallowing the section 45V credit for hydrogen that is produced at the same time electricity is generated from hydrogen-to-power equipment that is physically connected via pipeline.

Some comments expressed concern that the anti-abuse rule would apply to certain non-abusive scenarios where hydrogen production facilities and hydrogen-based electricity generators operate concurrently but are connected to the same electric grid.

Another comment asked for clarification that capturing excess heat from hydrogen production, converting that heat to electricity, and using that electricity to power the production process does not run afoul of the anti-abuse rule.

Some comments asked for clarification that the anti-abuse rule does not apply to instances where produced hydrogen, in some cases from process waste streams, is used to power the production facility, resulting in lower emissions than would otherwise be achieved.

One comment suggested that the anti-abuse rule should not consider the cost of producing qualified clean hydrogen in relation to the amount of the section 45V credit because doing so would disincentivize development of cost-efficient hydrogen production technologies.

The Treasury Department and the IRS agree that clarification of the anti-abuse rule is appropriate. The DOE has advised that venting of hydrogen downstream of a hydrogen production facility is a standard industry practice where necessary for safety or maintenance reasons. The DOE has also advised that, in the future, flaring of hydrogen that would otherwise have been vented could become standard industry practice to mitigate the environmental impacts of venting. Further, the DOE has advised that concurrent operation of hydrogen production and power generation within the same energy storage system and at the same time may be wasteful if no measures are taken to mitigate or reduce the production and consumption of the hydrogen at the same time; for example, if an electrolytic hydrogen production facility as standard practice is producing hydrogen at the same time as the produced hydrogen is being used to produce electricity. However, the Treasury Department and the IRS clarify here that the anti-abuse rule is not meant to apply to the use of hydrogen to store energy for later conversion to electricity and sale to a regional electricity grid, when a buyer from the grid uses such electricity to produce hydrogen.

Accordingly, these final regulations clarify that the section 45V credit is not allowable if the primary purpose of the sale or use (rather than the production and sale or use) of qualified clean hydrogen is to obtain the benefit of the section 45V credit in a manner that is wasteful. Additionally, these final regulations clarify that the taxpayer obtains the section 45V credit in a wasteful manner if the taxpayer sells qualified clean hydrogen that the taxpayer knows or has reason to know will be vented, flared, used to produce heat or power that is then directly used to produce hydrogen, or otherwise used to produce hydrogen, in excess of standard commercial practices. Hydrogen is used to produce power that is then directly used to produce hydrogen if the hydrogen production facility exclusively uses such power to produce hydrogen or is treated as using the power produced by the electricity generating facility using the hydrogen and such use is verified by the acquisition and retirement of qualifying EACs. Hydrogen is not used to produce power that is then directly used to produce hydrogen if the power produced using hydrogen is merely supplied to the same electricity grid from which the hydrogen production facility draws power. Proposed § 1.45V-2(b)(1) is further modified to provide that venting or flaring for safety or maintenance reasons in the ordinary course of business is a non-abusive commercial industry practice. Consistent with the comment asking for clarity that it is the amount of clean hydrogen sold or used, not produced, that ultimately determines the credit amount, § 1.45V-2(b) of the final

regulations adds that, while not abusive, such venting or flaring is also not a verifiable use under § 1.45V-5(d)(2), and therefore any such hydrogen that is vented or flared for safety reasons is not eligible for the section 45V credit. Finally, these final regulations modify the example in § 1.45V-2(b)(2) (where qualified clean hydrogen is sold to obtain the benefit of the section 45V credit in a manner that is wasteful and thus not eligible for the section 45V credit) to reflect that the hydrogen in that example will be vented or flared in excess of standard commercial practices and add an example in § 1.45V-5(d) to illustrate the verifiable use rule in the context of a facility's use of its own hydrogen within its hydrogen production process, flaring of hydrogen for testing and maintenance, and waste heat recovery.

Finally, the Treasury Department and the IRS disagree with the comment's request that the anti-abuse rule be revised to not consider the cost of producing qualified clean hydrogen relative to the amount of the section 45V credit. The cost of hydrogen production relative to the amount of the section 45V credit is just one of many factors considered in the example provided in § 1.45V-2(b)(2). Whether a particular taxpayer's hydrogen production activities violate the anti-abuse rule will depend on all relevant facts and circumstances, and no one factor is controlling. Because the cost of hydrogen production relative to the value of the credit is not the only relevant factor, the Treasury Department and the IRS do not anticipate that including it within the example will deter investment in cost-efficient technologies.

A few comments asked that the anti-abuse rule be significantly pared back or removed altogether. One comment argued that the anti-abuse rule's prohibition of a wasteful primary purpose has no basis in the statute and is too broad to be authorized by the “ordinary course of a trade or business of the taxpayer” requirement of section 45V(c)(2)(B)(i)(II). The same comment proposed revising the anti-abuse rule to disallow the section 45V credit only where the taxpayer's sole purpose is to obtain the credit in a wasteful manner.

The same comment asserted that the anti-abuse rule exacerbates uncertainty by requiring that the rules of section 45V and the section 45V regulations be applied in a manner consistent with the purposes of section 45V and the section 45V regulations, while section 45V only authorizes regulations that carry out the purposes of the statute. The comment further argued that the primary purpose examples of wasteful “production of qualified clean hydrogen that the taxpayer knows or has reason to know will be vented, flared, or used to produce hydrogen” have no foundation in the statute. The comment asked for clarification whether a producer having a disqualifying purpose at the time of production or sale is sufficient to disallow the credit under proposed § 1.45V-2(b)(1), or if a disqualifying purpose at production

and

sale is required. The comment suggested that the example at proposed § 1.45V-2(b)(2) seems to indicate that a disqualifying purpose at the time of sale is sufficient to disallow the credit, while proposed § 1.45V-2(b)(1) seems to indicate that a producer must have a disqualifying purpose at production

and

sale for the credit to be disallowed.

First, the argument that section 45V provides no basis to support the prohibition of a wasteful primary purpose through an anti-abuse rule is mistaken because (1) the “for sale or use” requirement is plainly a purpose requirement, and the anti-abuse rule implements that purpose requirement; in other words, Congress did not intend that a nominal sale or use for purposes of generating credit claims would entitle taxpayers to the credit, but rather intended that only a sale or use possessing some degree of business purpose or economic effect would suffice; (2) likewise, the “in the ordinary course of a trade or business of the taxpayer” requirement justifies an anti-abuse rule since any activity with a primary purpose of wastefully obtaining a tax credit is not within the ordinary course of a trade or business; and (3) section 45V(f) authorizes the promulgation of regulations “to carry out the purposes of this section” and the obvious purpose of Congress to increase the supply of clean hydrogen in the United States would be undermined if credit claimants were not required to make their hydrogen reasonably available to legitimate hydrogen consumers. Hydrogen that is not so available cannot affect hydrogen supply.

Second, regarding the comment's objection to the proposed anti-abuse rule's requirement that the rules of section 45V and its regulations must be applied consistently with the purposes of the regulations, these final regulations do not modify the language in the proposed regulations. The section 45V regulations implement the section 45V statute. Therefore, taxpayers must apply the regulations consistently with the purposes of both the statute and its implementing regulations.

Third, the request that the proposed anti-abuse rule be modified to only disallow the section 45V credit where the taxpayer's “sole purpose” is to obtain the credit in a wasteful manner is problematic. The “primary purpose” requirement is the appropriate standard, because a sole purpose requirement could allow hydrogen producers to argue entitlement to claim the credit when nearly all their output is knowingly wasted while asserting there is some legitimate use for the small remainder thereof.

Fourth, the Treasury Department and the IRS agree that a discrepancy exists between the text of the proposed regulations and the example that would have followed regarding whether a wasteful primary purpose at the time of production or sale or use is sufficient to disallow the credit under proposed § 1.45V-2(b)(1), or if a disqualifying purpose at production and sale or use is required. Accordingly, these final regulations adopt proposed § 1.45V-2(b) with modifications to the rule and the example in order to clarify that only a sale or use with the primary purpose of obtaining the benefit of the section 45V credit in a wasteful manner is sufficient to disallow the credit under § 1.45V-2(b)(1). Note, the requirements of § 1.45V-2(b)(1) are independent of the excessive payment rules provided in § 1.6417-6 and the excessive credit transfer rules provided in § 1.6418-5. Taxpayers making the election under section 6417 or 6418 must separately meet the requirements provided in §§ 1.6417-6 and 1.6418-5.

C. Recordkeeping

Section 6001 provides, among other things, that (1) every person liable for tax under the Code shall keep such records as the Secretary may from time to time prescribe; and (2) whenever the Secretary deems it necessary, she may require any person, by regulations, to keep such records as she deems sufficient to show whether or not such person is liable for tax under the Code.

Section 45V(e)(5) provides that the Secretary shall issue such regulations or other guidance as she determines necessary to carry out the purposes of section 45V(e), including regulations or other guidance which provides recordkeeping or information reporting requirements for purposes of administering the requirements of section 45V(e).

Proposed § 1.45V-2(c) would have provided recordkeeping requirements for all taxpayers claiming the section 45V credit, including requirements related to the section 45V(e) increased credit amount. No comments addressed this provision. Proposed § 1.45V-2(c) is therefore adopted as proposed.

III. Procedures for Determining Lifecycle Greenhouse Gas Emissions Rates for Qualified Clean Hydrogen

A. In General

Proposed § 1.45V-4(a) would have provided that the amount of the section 45V credit is determined under section 45V(a) and proposed § 1.45V-1(b) based upon the lifecycle GHG emissions rate of all hydrogen produced at a qualified clean hydrogen production facility (as defined in proposed § 1.45V-1(a)(10)) during the taxable year. This determination would be required to be made following the close of such taxable year and must include all hydrogen production from the year.

See

proposed § 1.45V-4(b). Further, proposed § 1.45V-4(a) would have provided that the lifecycle GHG emissions rate for purposes of section 45V is determined under the most recent GREET model (as defined in proposed § 1.45V-1(a)(8)(ii)). Finally, proposed § 1.45V-4(a) would have provided that in the case of any hydrogen for which a lifecycle GHG emissions rate has not been determined under the most recent GREET model for purposes of section 45V, a taxpayer producing such hydrogen would be permitted to file a petition for a provisional emissions rate (PER) with the Secretary for a determination of the lifecycle GHG emissions rate with respect to such hydrogen.

Some comments supported the proposed requirement that taxpayers calculate the lifecycle GHG emissions rate of hydrogen produced at a hydrogen production facility based on the aggregate amount of hydrogen produced at the facility over the taxable year (that is, annual emissions averaging). These comments claimed that annual emissions averaging is more straightforward and less administratively burdensome than alternative methods. The comments also claimed that annual emissions averaging is less prone to being manipulated because it takes into consideration all hydrogen produced by the taxpayer over the taxable year. The comments appeared to suggest that sub-annual emissions averaging, where taxpayers could potentially select certain sub-annual periods of clean hydrogen production to offset other sub-annual periods of hydrogen production that would not otherwise meet the lifecycle GHG emissions levels required by section 45V, is inconsistent with section 45V. Finally, some comments argued that annual emissions averaging is more aligned with the capabilities of 45VH2-GREET and therefore would help to facilitate compliance.

In contrast, other comments requested that hydrogen producers be permitted to calculate the lifecycle GHG emissions rate of hydrogen produced at their facility on a more granular basis, suggesting changes to the definition of “emissions through the point of production (well-to-gate)” in proposed § 1.45V-1(a)(8)(iii). Comments maintained that determining the lifecycle GHG emissions rate for all hydrogen produced at a given hydrogen production facility during a taxable year is burdensome for taxpayers and creates uncertainty and risk. Some comments requested that lifecycle GHG emissions be permitted to be calculated on an hourly basis, including in the case of hydrogen produced using electricity, and in particular once the qualifying EAC requirements require temporal matching on an hourly basis (see part III.D.3.c of this Summary of Comments and Explanation of Revisions). Without calculation of lifecycle GHG emissions on an hourly basis, according to these comments, hours of hydrogen production that do not have corresponding hourly EACs could increase the lifecycle GHG emissions rate of all hydrogen produced for the year—even hydrogen produced using electricity represented by a corresponding hourly EAC—which would be contrary to the hourly matching principle. These comments note the variability of certain renewable or zero-emissions energy sources and the limited ability of hydrogen production facilities to quickly ramp up and down due to technical and economic reasons. Still, other comments requested that lifecycle GHG emissions be permitted to be calculated on a kilogram-by-kilogram basis, or by batching kilograms of hydrogen into distinct groups, to ensure a more precise determination of a facility's lifecycle GHG emissions rate. One comment requested that, for facilities placed in service before 2028, the credit be determined with respect to the specific volumes of hydrogen that meet the temporal matching EAC requirements of proposed § 1.45V-4(d)(3)(ii) rather than according to the average lifecycle GHG emissions rate of all hydrogen produced at a qualified clean hydrogen production facility on an annual basis.

The Treasury Department and the IRS disagree with eliminating the requirement that, in general, the lifecycle GHG emissions of a hydrogen production process be calculated on an annual basis. Section 211(o)(1)(H) of the Clean Air Act defines “lifecycle GHG emissions” as the aggregate quantity of GHG emissions (including direct emissions and significant indirect emissions such as significant emissions from land use changes), as determined by the EPA. Determining the lifecycle GHG emissions rate of a hydrogen production process, therefore, requires taking the “aggregate” quantity of emissions from a hydrogen production process over the course of the taxable year to derive a single emissions rate. This is consistent with the determination of the section 45V credit on an annual basis. Section 45V(a)(1) provides that “the clean hydrogen production credit for any taxable year is an amount equal to the product of the kilograms of qualified clean hydrogen produced by the taxpayer

during such taxable year

” (emphasis added). Calculating lifecycle GHG emissions for a hydrogen production process on an annual basis, therefore, aligns with the manner in which the section 45V credit is determined.

The Treasury Department and the IRS clarify that such annual determination is made separately for each hydrogen production process conducted at a hydrogen production facility during the taxable year. As a result, hydrogen producers will be able to claim higher credit amounts for producing qualified clean hydrogen using lower-emitting hydrogen production processes during the year, such as by using feedstocks with lower carbon intensities. For further discussion on process, see part I.A.7 of this Summary of Comments and Explanation of Revisions (explaining that production using each type of primary feedstock is considered a separate production process).

However, once hourly matching is required for qualifying EACs, hydrogen produced through a process that uses electricity may be at risk of not qualifying for the section 45V credit at an expected amount if a small number of hours are not covered by the acquisition and retirement of qualifying EACs, which could occur as a result of unforeseeable circumstances beyond a taxpayer's control.

Further, if a taxpayer believes it is infeasible to secure EACs from renewable or zero-emissions sources for every hour or a significant share of hours in a taxable year, then calculating lifecycle GHG emissions on an annual basis may cause such taxpayer to have no incentive to produce qualified clean hydrogen or qualified clean hydrogen in the lowest lifecycle GHG emissions tier. This is inconsistent with the purposes of section 45V, which includes encouraging the production of qualified clean hydrogen (with a higher credit amount for hydrogen with lower lifecycle GHG emissions rates) and

investments in hydrogen production facilities and processes that produce qualified clean hydrogen.

Section 1.45V-4(a)(2) of these final regulations provides a method to mitigate the risk associated with potential limitations in the supply of qualifying EACs, coupled with a guardrail to limit availability of this election to processes in which the taxpayer is producing qualified clean hydrogen, calculated on an annual basis. Specifically, proposed § 1.45V-4(a) is modified to provide that, solely for purposes of determining the lifecycle GHG emissions associated with a hydrogen production facility's use of electricity generated on or after January 1, 2030, to produce hydrogen, such emissions may be determined on an hourly basis. If a taxpayer utilizes this method, it must determine all emissions from the facility's use of electricity for the taxable year on an hourly basis. On or after January 1, 2030, when hourly matching is required, a facility's lifecycle GHG emissions from electricity for that hour will reflect the attributes of the qualifying EAC acquired and retired for that hour. In the case of electricity use as part of the hydrogen production process for which the taxpayer does not acquire and retire a qualifying EAC that reflects a specific hour in which such electricity was generated on or after January 1, 2030, the electricity emissions for that hour is determined by assuming that the facility is sourcing power with emissions equal to the default electricity emissions intensity within the regional electricity grid. The January 2025 version of the 45VH2-GREET User Manual provides further information on how such hourly accounting may be conducted in 45VH2-GREET. These final regulations add § 1.45V-4(a)(3)(i) and (ii) to provide examples illustrating the calculation of the lifecycle GHG emissions rate of the process used to produce hydrogen at a qualified clean hydrogen production facility, determined on an annual and an hourly basis, respectively.

This method is provided pursuant to the authority in section 45V(f) to “issue regulations or other guidance to carry out the purposes of [section 45V].” With respect to a facility's use of electricity in a hydrogen production process (including a facility that produces hydrogen through electrolysis, which is a single hydrogen production process), these final regulations modify the proposed rules to further incentivize the production of clean hydrogen in light of the temporal matching requirement provided in § 1.45V-4(d)(3)(ii). In particular, once the qualifying EAC requirements require temporal matching on an hourly basis, in the case of hydrogen produced using electricity that is represented by a qualifying EAC, a taxpayer who owns a facility that produces hydrogen through a process that results in annual emissions not greater than 4 kilograms of CO2e per kilogram of hydrogen can elect to determine the emissions associated with the electricity used in that process on an hourly basis. This method would enable hydrogen producers to mitigate the risk that limited availability of qualifying EACs could adversely affect eligibility for the section 45V cr

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