January 16, 2024

IRS Releases Proposed Regulation to Section 45V of Internal Revenue Code

At a Glance

  • In connection with the Inflation Reduction Act, on December 22, 2023, the Internal Revenue Service (IRS) released a Proposed Regulation related to Section 45V of the Internal Revenue Code.
  • Section 45V provides credits for the production of clean hydrogen and the Proposed Regulation includes detailed information on the model to be used to determine lifecycle greenhouse gas emissions.
  • Importantly, producers intending to utilize the clean hydrogen credit under Section 45V and the carbon sequestration credit under Section 45Q will not be able to utilize both.

In connection with the Inflation Reduction Act (IRA), on December 22, 2023, the Internal Revenue Service (IRS) released a Proposed Regulation related to Section 45V of the Internal Revenue Code.

The Proposed Regulation, among other things: (i) clarifies the credit amounts for clean hydrogen production; (ii) provides additional key definitions; (iii) identifies the model used to determine lifecycle greenhouse gas (GHG) emissions; and (iv) provides the verification process required under Section 45V.

The IRS is accepting written comments on the Proposed Regulation until February 26, 2024, and will hold a public hearing on the Proposed Regulation and comments on March 25, 2024.

Credit Determination

As stated in the IRA,1 the tax credits available for clean hydrogen are dependent on the lifecycle GHG emissions rate of the production process at a qualified facility2 during the taxable year. Essentially, the lower the lifecycle GHG emissions, the greater the credit available for the hydrogen produced.

Like other programs contained within the IRA, prevailing wage and apprenticeship requirements greatly affect the final credit amount, up to a total of five times the original amount. The lifecycle emissions rates cited in the rulemaking were established in statute by the IRA. For example, for hydrogen produced at the lowest emissions category and meeting the apprenticeship and prevailing wage requirements, the taxpayer can receive a credit of $3.00 per kilogram of hydrogen (kgH2). However, for hydrogen also produced at the lowest emissions category and not meeting the additional prevailing wage and apprenticeship requirements would only receive a credit of $0.60 per kgH2. Below is a table comparing the impact of lifecycle GHG emissions and satisfaction of prevailing wage and apprenticeship requirements on the credit amount available under Section 45V.

Lifecycle Emissions Rate (kg of CO2/kg of H2)

Credit Amount w/ Wage and Apprenticeship Requirements (per kgH2)

Credit Amount w/o Wage and Apprenticeship Requirements (per kgH2)

< 0.45 kg



.45 – 1.5 kg



1.5 – 2.5 kg



2.5 – 4.0 kg



In addition to being subject to inflation, the credit is available to taxpayers for a 10-year period, beginning on the date that the qualified property is placed into service. To qualify under Section 45V, a qualified facility must begin construction by January 1, 2033.

Definition of 'Facility'

The Proposed Regulation defines “facility” under Section 45V as a “single production line” that is used in the production of qualified clean hydrogen. Going one step further, the phrase “single production line” is defined to include all components that are “functionally interdependent to produce qualified clean hydrogen.”

Important to note, the term “facility” would not, under the Proposed Regulation, include any equipment that the taxpayer uses or is necessary to transport or condition the clean hydrogen beyond the point of production. Additionally, the term “facility” would not include any electricity production equipment that is used to power the hydrogen production process.

Lifecycle GHG Model

As the credit amount is determined by the lifecycle GHG emissions rate, it is important to understand the model that the IRS has selected to quantify emissions. The IRS elected to use a model that had been developed by the Department of Energy (DOE), but with specific modifications for use in hydrogen-based applications, specifically the 45VH2-GREET Model. The model, which was altered specifically for this tax credit by DOE’s Argonne National Laboratory, includes emissions calculation methods for the different pathways that hydrogen can be produced.

The IRS adopted this model for the flexibility it provides producers, including those looking to utilize carbon capture and sequestration (CCS) technology, but also stipulated that the 45VH2-GREET Model may be updated throughout the lifetime of a qualified facility. This means that a producer must use the latest version of the 45VH2-GREET Model that is available on the first day of a taxable year. There is a possibility under the Proposed Regulation that certain producers of clean hydrogen may lose their qualification for the credit if their production method is not included in the latest version of the 45VH2-GREET Model. If a taxpayer using a production pathway or technology is not included in the 45VH2-GREET Model for that particular year, then they may petition the Secretary of the Treasury for a provisional emissions rate (PER) which would measure the emissions on the same scale as the 45VH2-GREET Model.

In an effort to ensure that taxpayers are not able to “double-dip” on several IRA tax credits, a clean hydrogen production facility utilizing CCS will not be eligible to claim both the Section 45V hydrogen credit and the Section 45Q carbon capture credit. Additionally, any facility seeking to claim the Section 45V hydrogen credit will need to ensure that it did not claim the Section 45Q carbon capture credit in any prior years.

Verification of Processes

The IRA was written to encourage the deployment of clean hydrogen technologies that use low-to-no carbon emissions in production. As such, the highest credit amounts will likely only be able to be claimed by production methods using renewable electricity, also known as green hydrogen. To verify that producers are using renewable energy for the production of clean hydrogen, the IRS has stipulated that taxpayers may use Energy Attribute Certificates (EACs), including Renewable Energy Certificates (RECs), to demonstrate compliance. To meet the qualifications, the proposed rule stipulates three criteria that must be met:

  1. Incrementality: The qualified facility producing the energy attributed to the EAC being utilized must be “new” or “uprated” with a commercial operations date no earlier than three years before the qualified clean hydrogen production facility is placed in service. Additionally, uprates are considered to qualify as a source of new clean power generation.
  2. Deliverability: To drive regional development of clean power generation, the Proposed Regulation specifies that the clean power used in the production of the hydrogen must be sourced from the same region as the hydrogen production facility. A “region” is defined under the Proposed Regulation as a U.S. region derived from the DOE’s 2023 National Transmission Needs Study.
  3. Temporal Matching: The Proposed Regulation stipulates that producers utilizing EACs will need to be matched to production on an hourly basis. Essentially, that the clean power being generated is being utilized during the same hour that the producer is utilizing it (the hourly matching method). The IRS stated that cost effective technology to measure and achieve this level of temporal matching is currently out of reach and proposed a transitional phase to allow the EAC market to develop this technology. This transitional phase approach would allow for annual matching until December 31, 2027.

The Proposed Regulation requests comments on these three criteria and the broader use of CCS technology for power plants utilizing fossil fuels, including natural gas, landfill gas, biomass and coal gasification.

Service Date of Retrofitted Facilities

Facilities existing before January 1, 2023, but not producing qualified clean hydrogen before the time of modification, will be considered as newly placed in service on the date the modifications are placed in service. Like other tax credit programs within the IRA, the “80/20 rule” pertaining to a new placed in-service date for retrofitted facilities will be applicable. The IRS’s 80/20 rule essentially means that the facility may be considered newly in place even if it contains some existing property, so long as the fair market value of the existing property is not more than 20% of the total value of the newly placed in service facility.

Use of Renewable Natural Gas (RNG) in Hydrogen Production

The Proposed Regulation includes some criteria for facilities that produce clean hydrogen using RNG, such as biogas, in their processes, but largely seeks comments on how to incorporate them. Firms with a stake in these production methods should comment.

The Proposed Regulation significantly clarifies the credit amounts and the means to claim the highest amount, with a clear preference for “green” hydrogen, as opposed to “blue”3 hydrogen, which is produced using natural gas with CCS. There is still, however, significant questions that DOE and the IRS have requested comments.

  1. Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1946.
  2. 88 FR 89220, 89221 (Dec. 26, 2023).
  3. Blue hydrogen is defined as hydrogen produced from natural gas, using a steam reforming process. A byproduct of this process is carbon dioxide, which is then captured using CCS technology. While this is considered a carbon neutral process, the fugitive emissions from the natural gas extraction process means there usually is some leakage.

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