ARKANSAS, January 4 (Future Headlines)- The U.S. Treasury Department and International Revenue Service (IRS) have unveiled proposed regulations for the clean hydrogen tax credit established by the Inflation Reduction Act (IRA). This regulatory guidance, released on December 22, is a significant step in defining the parameters for claiming the tax credit, particularly concerning the production of clean hydrogen using biomass and biogas. This comprehensive report delves into the key aspects of the proposed regulations, addressing definitions, credit calculation, considerations of lifecycle greenhouse gas (GHG) emissions, and the use of various hydrogen production pathways.
The IRA introduced a production tax credit for each kilogram of qualified clean hydrogen produced at a qualified facility. The credit’s value is tied to the emissions intensity of the hydrogen production process, fostering environmentally conscious practices. The proposed regulations provide clarity on the determination of the credit amount, considering both the emissions intensity and the taxpayer’s adherence to wage and apprenticeship requirements during the construction, alteration, and repair of the clean hydrogen production facility. The proposed regulations offer essential definitions and procedures for administering and claiming the clean hydrogen tax credit. This includes guidelines for calculating the lifecycle GHG emissions rate resulting from the hydrogen production process.
The regulations introduce a provisional emissions rate (PER) process to calculate the lifecycle GHG emissions associated with hydrogen produced using biomass not currently represented in the U.S. Department of Energy’s GREET model. The proposed regulations acknowledge the use of the GREET model for calculating lifecycle GHG emissions, incorporating pathways like steam methane reforming (SMR), autothermal reforming (ATR), biomass gasification, and more.
The IRS invites public comments on information requirements related to direct and indirect GHG emissions associated with two electricity generation types: fossil fuel-powered with carbon capture and storage (CCS) and biomass-powered electricity generation. The regulations outline the IRS’s intention to establish rules addressing hydrogen production pathways using renewable natural gas (RNG) or fugitive methane, such as that from coal mine operations. Conditions for accounting for certificates and GHG emissions benefits are delineated. The proposed regulations suggest conditions for biogas or biogas-based RNG to receive an emissions value consistent with the gas’s environmental attributes, emphasizing the importance of the first productive use of relevant methane.
The regulations propose limitations on emissions value for biogas from sources with historical productive use before the taxable year in which the relevant hydrogen production facility is placed in service. This aims to prevent emissions associated with diverting biogas from existing productive uses. For existing biogas sources with partial productive use and partial flaring or venting, the proposed regulations offer a mechanism to determine the eligible volume for emissions value based on reported data to programs like the Greenhouse Gas Reporting Program.
Stakeholders have the opportunity to provide public comments on the proposed regulations until February 26. The IRS has specifically requested input on various aspects, including information requirements for documenting GHG emissions associated with specific electricity generation types. A public hearing is slated for March 25, where industry representatives, experts, and other stakeholders can express their views and discuss outlined topics. Requests to speak and topic outlines must be submitted by March 4.
Reporting by Kevin Wood; Editing by Sarah White