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Internal Revenue Service Holds Hearings on Hydrogen Production Tax Credits

Tax Development Apr 08, 2024

Internal Revenue Service Holds Hearings on Hydrogen Production Tax Credits

One of the more troubling issues facing the public and taxpayers today is the quest to reduce greenhouse gas emissions to control climate change. Approximately 100 interested parties attended and spoke at the three-day hearings on March 25, 26, and 27, 2024, held by the Internal Revenue Service (IRS), regarding the regulations for the Section 45V credit for the production of clean hydrogen. These credits will make it economically feasible to produce clean energy hydrogen. The speakers at the hearings were a mix of industry proponents and climate activists.

The main controversy, which was the focus of the hearings, was how tightly to limit the credit based on a three-pillar regime. The three-pillar regime was a program developed and implemented in the European Union (EU).

The first pillar is that the credit will only be available if new electricity sources contribute to the manufacture of hydrogen. New means that the facility was placed in service within the last 36 months. This pillar ensures that existing sources of clean energy are not diverted to make hydrogen, resulting in older, dirtier technology being used to meet existing demand.

The second pillar is called “hourly matching.” This requires generation from new, clean electricity to be matched with the production of hydrogen on an hourly basis. A strict reading of this requirement would mean that for each hour hydrogen is produced, it is matched with a certificate of clean energy for each hour energy is consumed to produce the hydrogen.

The third pillar is “deliverability.” The deliverability requirement would only allow a hydrogen producer to purchase clean energy within the facility’s local region. Essentially, energy to produce the hydrogen must come from a source that can be physically delivered to the production facility. It would prevent a hydrogen manufacturer from securing renewable energy credits from a faraway unknown source that may or may not be a dirty source. Thus, all together, the source of energy to produce hydrogen must be both a local and new source by which hour-by-hour tracking of energy is allowed.

Proponents of the strict interpretation and enforcement of the three pillars say it will ensure that only green energy is used to produce hydrogen. The proponents of the stricter interpretation are primarily climate activists who claim that without strict guidelines, the reduction of the use of “dirty energy” cannot be ensured. 

Opponents of the strict implementation of the pillars say that it will stifle the development of the hydrogen production industry. They claim the IRS is borrowing guidance from the EU that was never intended by Congress. Specifically, with respect to pillar one, industry claims that the requirement that the facility that generates the green energy used to produce hydrogen must be a new facility is too inflexible and has no reason for being present other than a regulatory hurdle outside of Internal Revenue Code (IRC) § 45V. As to the second pillar, industry spokesmen felt this restriction was not in the law and added nothing to its intent. If the source is clean, why does it need to come from a facility built within the last 36 months, and why does the location of the source matter as long as the energy can be tracked to a clean source? Finally, opponents say that matching on an hourly basis is too onerous, unless some sort of estimation can be used to develop this data.

We will need to wait and see how the IRS reacts to the comments given at the hearings. As a leader in the analysis of the clean energy credit, Ryan can advise both producers and purchasers of the credit and will continue to monitor the ongoing developments. Please contact our green energy team listed below if you would like any guidance.


Ian Boccaccio

Scott Stogsdill

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