Hydrogen startups are widely seen as a promising way to eliminate fossil fuels from heavy industry and long-haul transportation. However, they have been stuck in limbo for the past couple of years, awaiting official guidance from the U.S. Treasury on lucrative tax credits. The wait is over, with the Treasury finalizing rules under section 45V of the Inflation Reduction Act that allow hydrogen producers to qualify for tax credits.
"We’re grateful to have a final rule," Beth Deane, chief legal officer at Electric Hydrogen, told TechCrunch. "Without that, the industry is just kind of dead in the track." The rules, which took nearly two years to develop, aim to relax some aspects of the draft proposal, providing a reprieve for existing nuclear and fossil fuel power plants.
Sources of Hydrogen
Hydrogen can be produced through various methods, each with its own environmental impact. Two main sources are:
- Electrolysis: This method uses electricity to split water molecules into hydrogen and oxygen.
- Steam Reformation: This process uses steam and heat to break methane molecules into hydrogen and carbon dioxide.
Variations in Production
- Steam Reformation: Can produce either grey hydrogen (emitting CO2) or blue hydrogen (capturing and storing CO2).
- Electrolyzers: Can be powered by renewable energy (green hydrogen) or nuclear power (pink hydrogen).
For those interested in the "hydrogen rainbow," there are numerous types, each with distinct properties.
The 45V Rules: A Comprehensive Overview
The final rules under section 45V of the Inflation Reduction Act aim to streamline the production and certification process for hydrogen. These rules provide clarity on:
- Production Methods: Detailed guidelines on how hydrogen is produced.
- Certification Process: Clear criteria for certifying hydrogen quality.
- Tax Credits: Allowable deductions for hydrogen fuel cell electric vehicles (HFCEVs).
Tax Credits: A Significant Incentive
The tax credit framework offers significant financial benefits, with the following key provisions:
- Production Tax Credit (PTC): Eligible for up to 20% of qualified production costs.
- Research and Development (R&D) Credit: Available for eligible R&D expenses.
Eligibility requirements include:
- Production occurring on or after January 1, 2024.
- Use of advanced methods like carbon capture and net zero technologies.
Benefits to Existing Power Plants
Existing power plants can benefit from these rules in several ways:
- Renewable Integration: Allowance for up to 33% of net generation to be from renewable sources.
- Low-Carbon Fuels: Encourages the use of low-carbon hydrogen for grid flexibility.
Criticisms and Controversies
Despite the positive outlook, some critics argue that the rules may not sufficiently address:
- Environmental Impact: Long-term effects of hydrogen production on climate change.
- Supply Chain Concerns: Reliance on imported hydrogen due to geopolitical tensions.
Conclusion
The final rules under section 45V represent a significant step forward in promoting hydrogen as a clean energy solution. By providing clarity and incentives, the regulations aim to accelerate the transition away from fossil fuels and reduce greenhouse gas emissions.
Bio: Beth Deane is the chief legal officer at Electric Hydrogen, a company dedicated to advancing sustainable hydrogen production technologies.
