The Inflation Reduction Act’s new hydrogen production tax credit, known as code 45V, is intended to incentivize a shift to low-carbon hydrogen production by offering producers a credit that increases in value as the carbon emissions associated with produced hydrogen declines. With an outsized credit for the lowest-carbon tier, the incentive’s aim is clear: Drive deployment of hydrogen production technologies that will be needed by, and aligned with, the nation’s overall clean energy transition. But instead of meeting that straightforward aim, a series of implementation loopholes threaten to fully undermine it. This includes loopholes related to biomethane, whereby heavily polluting fossil fuel-fired hydrogen production facilities - the very facilities the tax credit is trying to incentivize a shift away from - can cloak themselves as “clean” and reap full tax credit rewards, without having done anything but pushed around paper. As a result, billions of dollars of public funds meant to drive the cleaning up of hydrogen could actually result in the bolstering of fossil fuel incumbents, not new clean facilities. Worse, by incentivizing hydrogen production pathways entirely misaligned with the true needs of the nation’s clean energy transition, the harmful consequences of allowing these loopholes could be felt long into the future. The Treasury Department, in collaboration with the Department of Energy and the Environmental Protection Agency, is responsible for protecting against such outcomes by developing guidance for tax credit implementation to ensure qualifying “clean” hydrogen is truly clean. To date, most stakeholder engagement has focused on the lifecycle greenhouse gas (GHG) accounting framework required to accurately report the carbon intensity of electrolytically produced hydrogen, or hydrogen generated by using electricity to split water into hydrogen and oxygen. As detailed in this accompanying blogpost, that’s because the... |