IRA Section 13204 – Clean Hydrogen Tax Credit

Section 13204 of the IRA inserts a new section 45V into the IRC, creating a new tax credit for the production of qualified clean hydrogen (QCH). QCH is defined as hydrogen produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of carbon dioxide-equivalent per kilogram of hydrogen. The QCH must be produced in the ordinary course of trade or business of the taxpayer for sale or use, must have been produced in the U.S., and the production and sale or use of the hydrogen must be verified by an unrelated party. The QCH production facility must be one owned by the taxpayer, produce QCH after December 31, 2022, and have begun construction before January 1, 2033. The producer can claim the credit for 10 years after the facility is placed into service.

The amount of the credit depends on the lifecycle greenhouse gas emissions associated with production of the QCH. The base rate starts at $0.60 per kilogram of QCH produced. The base rate is reduced if lifecycle greenhouse gas emissions from production exceed 0.45 kilograms of carbon dioxide equivalent per kilogram of hydrogen produced. For example, where lifecycle emissions are between 0.45 and 1.5 kilograms of carbon dioxide equivalent per kilogram of hydrogen produced, the amount of the credit is reduced to $0.20. The amount of the credit may, however, be multiple by 5 if certain wage and apprenticeship requirements are met.

The credit cannot be claimed if the QCH was produced in a facility with carbon capture equipment which makes the facility eligible to receive the tax credit under section 45Q for the taxable year or any prior taxable year. A taxpayer may however claim this tax credit even if the QCH was produced in a facility that uses electricity purchased from a facility eligible for the production or investment tax credits, and the facility bought the electricity as an unrelated person (or satisfied requirements on sale to an unrelated person).

The Treasury Department must issue regulations or other guidance to implement this section, including regulations on determination of lifecycle greenhouse gas emissions and verification procedures for the production and sale of QCH.