Navigating the IRA’s latest supplemental rule around hydrogen production tax credits

The Department of the Treasury and the Internal Revenue Service recently published a supplemental notice of proposed rulemaking concerning the Inflation Reduction Act of 2022 (IRA). The IRA introduced hydrogen production tax credits under section 45V and provided for the treatment of clean hydrogen production facilities as energy property under section 48(a)(15). The new regulations detail the procedures necessary for hydrogen producers to obtain a specific emissions value from the Department of Energy (DOE), which is essential for eligibility for these tax credits.

To qualify for the emissions value, producers must initially complete a Front-End Engineering and Design (FEED) study or an equivalent demonstration of project maturity. This emissions value measures the lifecycle greenhouse gas emissions of the hydrogen production process and must be included when petitioning the Secretary of the Treasury for a provisional emissions rate.

The IRS has laid out detailed instructions and required forms, which will be made available by the DOE. Applicants are required to submit an Emissions Value Request Application to the DOE that includes significant sections of a completed FEED study or an equivalent demonstration of project maturity. This application supports the DOE's assessment of the lifecycle greenhouse gas emissions from the hydrogen production process. Detailed instructions provided by the DOE explain how to complete and submit this application, specifying which parts of the FEED study are necessary and how additional supporting information should be included. Furthermore, the forms necessary for attaching the DOE's emissions value in filings with the IRS, specifically Form 7210, Clean Hydrogen Production Credit, or Form 3468, Investment Credit, are part of this process.

These regulations also open a 30-day public comment period, soliciting feedback on the information collection related to the emissions value request process. Comments are invited on the necessity of the information collection, its practical utility, and ways to minimize the compliance burden for applicants.

The proposed regulations on hydrogen production tax credits have significant implications for the hydrogen industry, striking a balance between environmental standards and industrial growth. While hydrogen developers argue that overly strict regulations could stifle innovation and slow industry growth, environmental groups advocate for stringent standards to ensure that hydrogen production aligns with climate change mitigation goals. This regulatory challenge underscores the need for policies that maintain environmental integrity without hindering technological and economic progress, making the public consultation process vital for refining the rules to suit both environmental and industrial needs.

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