Electrolytic hydrogen

For hydrogen production using electricity (e.g. “green” hydrogen using renewables and “pink” hydrogen using nuclear), the final rules incorporate crucial safeguards proposed in December 2023, but with additional clarity and flexibility that will help facilitate clean hydrogen investment. Specifically, the final rules require that taxpayers seeking to use Energy Attribute Certificates (EACs) to attribute electricity use to a specific generator meet certain criteria for temporal matching, deliverability, and incrementality. These safeguards help ensure that electricity consumption for hydrogen meets the statutory lifecycle GHG emissions standards, including that the lifecycle assessment take into account both direct and significant indirect emissions from hydrogen production. As the final regulations explain, without those safeguards, that additional load on the grid from hydrogen production will result in induced emissions.

However, the final rules differ from the proposed rules in several respects:

New clean power (incrementality): As in the proposed rules, the final rules define electricity generation as incremental if the generator begins commercial operations within 36 months of the hydrogen facility being placed in service, or to the extent a plant increases its capacity within that period. The final rules provide additional pathways for demonstrating incrementality, including:

Nuclear retirement risk. Electricity produced by nuclear plants meeting certain bright-line indications of being at risk of retirement and certain indications of co-dependence on hydrogen investment will be considered incremental, up to 200 MW per qualifying reactor. This reflects the fact that certain nuclear reactors are at greater risk of retirement based on certain economic factors, and if a nuclear retirement is averted then the additional demand from hydrogen production will not have induced emissions.
State policies. Electricity generated in states with robust GHG emissions caps paired with clean electricity standards or renewable portfolio standards meeting the criteria set forth in the final rules will be considered incremental, given that, together, those policies can prevent significant induced emissions from hydrogen production. In consultation with expert agencies, Treasury has determined that Washington and California’s policies currently meet these criteria. Additional states could meet the criteria in the future if they adopt robust policies that meet the criteria.
New Carbon Capture and Sequestration (CCS). Electricity from a generator that has added CCS within a 36-month window before the hydrogen facility is placed in service will be considered incremental.

New, deliverable clean power generated annually, with a phase-in to hourly generation (time-matching): The final rules maintain the proposed requirement that EACs meet the temporal matching requirement if the electricity represented by the EAC is generated in the same hour as a hydrogen facility uses electricity to produce hydrogen. The final rules extend the transition allowing annual matching rule two additional years relative to the proposed rules, with hourly matching required starting in 2030 for all facilities.
Deliverability: The final rules confirm that electricity generated by a facility in the same grid region as the hydrogen facility meets the deliverability requirement, with certain clarifications, including providing a pathway to demonstrate electricity transfers between regions. Grid regions are based on the Department of Energy National Transmission Needs Study.
Hourly accounting option: Once hourly matching is required, the final rules allow hydrogen producers to determine electricity-related lifecycle emissions on an hour-by-hour basis as long as the annual emissions of the hydrogen production process are under section 45V’s limit of 4 kg of CO2e per kg of hydrogen produced. This option will provide additional investment certainty because it helps producers avoid losing much of the credit value if they cannot procure EACs for a limited number of hours during the year.

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