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09.28.21

The 45X tax credit and other clean hydrogen proposals in the House infrastructure package

BY , Ben Reiter

In the past several weeks, various U.S. House committees have begun releasing legislative text for the proposed $3.5 trillion infrastructure bill. Included in both the House Ways and Means Committee markup and the Energy and Commerce Committee markup are provisions aimed at increasing the deployment of clean hydrogen.

The House Ways and Means Committee bill primarily does this by introducing a new tax credit—titled 45X—modeled on the Clean H2 Production Act, which was included in the Clean Energy for America Act that passed out of the Senate Finance Committee in May, and is likely to be the “linchpin” of the Senate’s clean energy tax proposals. As with the Clean H2 Production Act, the House Ways and Means bill’s 45X credit would provide up to a $3 credit per kilogram of hydrogen produced for a ten-year period following a facility’s placed-in-service date. To be eligible for the full $3, the facility would have to demonstrate a 95% or greater reduction in lifecycle greenhouse gas emissions compared to hydrogen produced by a steam methane-reforming process. The 45X credit decreases to 34% for facilities demonstrating a 94ꟷ85% reduction in lifecycle greenhouse gas emissions, 25% for facilities demonstrating an 84ꟷ75% reduction, and 20% for facilities in the 75ꟷ40% reduction range.

Importantly, the House bill extends the direct pay option—included for other renewable energy tax credits—to 45X. The bill also allows qualified clean hydrogen facilities to be treated as energy property and elect to receive the investment tax credit (ITC) in lieu of 45X and subjects the credit to the same percentage reductions for failure to capture 95% or more of lifecycle greenhouse gases. The bill has a slightly more aggressive construction commencement deadline of 2028 as opposed to the 2030 date contained in the Clean H2 Production Act. Separate from the creation of the 45X credit, the Ways and Means Committee bill extends the ITC to “energy storage technology,” which includes hydrogen storage. The House bill disallows Section 45X credits with respect to “any qualified clean hydrogen produced at a facility which includes property for which a credit is allowed under Section 45Q.” This provision—specific to blue hydrogen (hydrogen produced from natural gas reforming and carbon capture)—will likely continue to be the subject of further discussion, revision, and debate. It remains unclear what colors of hydrogen should benefit from the hydrogen programs contained in the infrastructure legislation. This a topic of significant debate with some groups pushing for the legislation to be limited to green hydrogen (i.e., hydrogen produced from renewable-powered electrolysis). Others have advocated for a technologically neutral approach by which any color of hydrogen—blue, green, turquoise, or pink—could qualify for the programs as long as certain greenhouse gas reduction thresholds are met.

Clean hydrogen will be eligible to qualify under the House Energy and Commerce Committee’s featured program—the Clean Electricity Payment Program (CEPP). CEPP takes the technologically neutral approach in that it defines “qualified clean electricity” as “electricity generated by an electric generating unit, or technology type or class thereof, that has a carbon intensity that is not more than 0.10.” Hydrogen that meets this definition, whatever its color, will thus be eligible. CEPP provides incentives (and penalties) for energy suppliers (e.g., utilities) to increase the amount of clean electricity they provide year-over-year to reach a nationwide clean electricity goal of 80% by 2030. The House Energy and Commerce Committee’s bill also provides a rebate for hydrogen fuel cell vehicle refueling equipment located at workplaces, multi-unit housing structures, and other publicly accessible locations.

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Ellen S. Friedman

Partner

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Ben Reiter

Associate

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