Green Hydrogen Or Dirty Fuel? Treasury Department Rules On 45V Tax Credit

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Congress including a production tax credit (PTC) for clean hydrogen in Section 45V of the Inflation Reduction Act, created a pathway to profitability for the United States’ burgeoning hydrogen industry.

But whether 45V spurs a green hydrogen boom that cuts emissions or doubles down on fossil-fueled hydrogen production that increases pollution hinges on looming tax credit guidance from the U.S. Treasury Department.

Energy innovation policy

New 45V tax credit analysis from Energy Innovation Policy & Technology LLC® shows that loose tax credit guidance from Treasury could create hundreds of millions of tons of greenhouse gas emissions per year by 2030, at an annual cost of $30 billion in federal funding. Loose guidance would also set up the green hydrogen industry for failure long term, potentially closing the door on one of the most promising clean energy technologies.

However, if Treasury issues stringent tax credit guidance accurately accounting for emissions by following three smart design principles, the 45V tax credit could jumpstart a green hydrogen industry that is profitable from the start and can stand on its own once the tax credit expires. Stringent guidance would also cut emissions now and far into the future for hard to decarbonize economic sectors like heavy industry and long-haul aviation.

Truly green hydrogen will require new renewable energy resources

The U.S. cannot achieve its 2050 net-zero emissions targets without green hydrogen. Today, fossil fuel-derived hydrogen production accounts for about 1.5% of total U.S. climate pollution, mostly in fertilizer production and oil refining that are impossible to electrify.

Section 45V of the Inflation Reduction Act contains a clean hydrogen production tax credit designed to scale up production of this fuel while reducing its embodied emissions. The 45V tax credit’s value is tied to lifecycle hydrogen emissions through the point of production, with the highest credit level set at $3 per kilogram of hydrogen.

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Source: Forbes