Full Title: Smart Design Of 45V Hydrogen Production Tax Credit Will Reduce Emissions And Grow The Industry
Author(s): Dan Esposito, Eric Gimon, and Mike O'Boyle
Publisher(s): Energy Innovation
Publication Date: April 11, 2023
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The United States cannot achieve net-zero greenhouse gas (GHG) emissions without carbon-free hydrogen. Today, this molecule serves the chemicals and refining industries, and fossil fuel-derived hydrogen production contributes about 1.5 percent of total U.S. climate pollution. Shifting to cleaner hydrogen production can replace these dirty sources while cutting GHG emissions in industries that are hard or impossible to electrify. Congress included a production tax credit (PTC) for clean hydrogen in Section 45V of the Inflation Reduction Act (IRA) to help scale the nascent industry. The tax credit’s value is tied to the lifecycle GHG emissions of hydrogen production—including upstream emissions—with the highest tranche set at $3 per kilogram (kg) of hydrogen that is nearly emissions free.
The U.S. Treasury Department’s design of the Inflation Reduction Act’s 45V hydrogen production tax credit will determine both the level of greenhouse gas (GHG) emissions caused by electrolytic hydrogen production and the viability of the clean hydrogen industry. Loose guidance could increase hydrogen production emissions by up to five times and set the industry up for failure. However, setting standards that comply with three principles—additionality, deliverability, and time-matching—and that account for grid power emissions can spur robust growth of clean electrolytic hydrogen and support emissions reductions today and long after the policy expires.