Tax Regulations Impacting Green Hydrogen Production Released

The Internal Revenue Service (IRS) issued guidance on April 11, 2024 for the collection of information for taxpayers to request an emissions value from the Department of Energy (DOE) to petition the Secretary of the Treasury for a determination of a provisional emissions rate (PER). 

Proposed regulations were issued on December 26, 2023, relating to “green hydrogen”—the tax credit for production of clean hydrogen and the election to treat clean hydrogen production facilities as energy property. These additional proposed regulations provide procedures for taxpayers to petition for a PER determination and refer to the process for taxpayers to request an emissions value from the DOE to file a petition. This guidance is layered in addition to the off-site “three-pillar” regime discussed in the March 25–27 hearings on the regulations proposed last year.

• The three pillars focused on “front of meter” purchase of power certificates—meaning at an offsite location.
• This guidance focuses on “behind the meter”—meaning on-site power generation.

What Does This Mean to You?

Stated briefly, the IRS is requiring a “behind the meter” clean hydrogen taxpayer to attach a prefile PER ruling (letter from the DOE) to the tax return (Form 7210 Clean Hydrogen Production Credit) to claim IRC 45V production tax credit (PTC). The proposed process would be the following:

• Taxpayer does a preconstruction design stage Front-End Engineering and Design (FEED) study.
• The FEED study must be Class-3 cost estimate on the Life-cycle Green House Gas (LGHG) involved in the life cycle generation of clean hydrogen.
• Taxpayer will need to fill out an Emissions Value Request Application (EVRA).
  • Specific sections of the FEED study will be attached to EVRA.
• Taxpayer submits the EVRA plus FEED study via secure portal to the IRS/DOE for review.
  • Very similar process to the joint federal registrar portal currently used for Investment Tax Credit (ITC) Direct Pay and ITC Transferability.
  • Taxpayer sends request to an email address and gets a secure portal link.

Scott Stogsdill, Director Federal Income Tax at Ryan, said: “The proposed PER process is more reasonable than the proposed three pillars. I would encourage on-site clean power generation over the current administrative burden of off-site three pillars. What would this look like? Build a utility-grade solar field adjacent to your clean-hydrogen industrial plant; however, be aware that peak production will only happen on sunny days. This also means the ideal location will be in the sunbelt region. Alternatively, build near a wind, geothermal, or nuclear site.”

The comment period for the proposed regulations closes on May 15, 2024. Comments are requested on the DOE’s EVRA process, including 1) whether additional procedures should be implemented to effectuate the EVRA process, 2) information to be collected and whether additional information should be considered by the DOE in evaluating an EVRA, and 3) any other aspects of the emissions value request process.

For more information, please contact the Ryan tax professionals below.

TECHNICAL INFORMATION CONTACTS: 

Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com

Nicholaus List
Director
Ryan
917.472.9472
nicholaus.list@ryan.com

Scott Stogsdill
Director
Ryan
469.399.4496
scott.stogsdill@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.