On January 3, the U.S. Department of the Treasury and Internal Revenue Service (IRS) released highly anticipated final rules for the section 45V Clean Hydrogen Production Tax Credit. Established by the 2022 Inflation Reduction Act, the new tax credit applies to the production of clean hydrogen produced after 2022.
The final rule provides clarity to the previously proposed rules on how hydrogen producers -- using primarily electricity and methane -- can determine eligibility for the tax credit.
Emission Tiers
To qualify as clean hydrogen under the statute, the lifecycle greenhouse gas (GHG) emissions of the hydrogen production process must be no greater than four kilograms (kg) of carbon dioxide equivalents (CO2e) per kg of hydrogen (H2) produced. Qualifying clean hydrogen falls into four credit tiers, with hydrogen produced with the lowest GHG emissions receiving the largest tax credit.
The credit is technology-neutral and enables pathways for hydrogen produced using both electricity and methane, providing investment certainty while ensuring compliance with emissions standards.
Electrolytic Hydrogen
For hydrogen production using electricity, the final rules incorporate criteria proposed in December 2023, with additional clarity and flexibility added in the January 2025 final rule. The rule defines certain tax credit eligibility criteria of generated electricity used for hydrogen production.
Three Pillars
The final rules largely maintain the "Three Pillars" for determining eligibility of renewable electricity for tax credit-qualified electrolytic hydrogen production:
Methane-Based Hydrogen (aka Blue Hydrogen) and Carbon Capture
The final regulations provide rules for determining the eligibility of "blue hydrogen" produced using methane reforming technologies with CCS. This inclusion opens the door for natural gas producers to participate in the clean hydrogen market. The new rules specify how to calculate lifecycle GHG emissions, particularly from upstream methane production, to determine the level of credit for blue hydrogen production. The rule specifies the use of newer versions of the model "45VH2-GREET."
Several collaborations are underway to further develop and optimize steam methane reforming (SMR) based hydrogen production: