US Treasury Finalizes Clean Hydrogen Tax Credit Guidelines, Offering New Flexibility for Projects
- Madina Turaeva
- Feb 2
- 3 min read
Updated: Mar 4
The US Treasury Department has finalized its long-awaited guidance on the 45V clean hydrogen production tax credits, bringing clarity to the rules governing access to tax credits worth up to $3 per kilogram for hydrogen produced using low-carbon energy sources. While the guidance introduces some new flexibilities, it maintains stringent requirements aimed at ensuring the environmental integrity of the hydrogen produced, which could affect project costs but also support the long-term viability of clean hydrogen projects across the country.
The finalized guidance, released earlier this month, stipulates that to qualify for the lucrative tax credits, projects must demonstrate that the energy used in hydrogen production is not only low-carbon but also new, identifiable, and sourced locally. While these requirements add complexity and could increase costs, many experts believe that these conditions are feasible and ultimately worth the effort, especially as the full tax credits could help make green and clean hydrogen competitive with traditional forms of hydrogen.
These guidelines are seen as crucial in helping hydrogen projects gain the necessary social license to operate, as the clear focus on low-carbon credentials appeals to both climate-conscious consumers and investors. However, despite maintaining tight guardrails, the Treasury’s decision to relax some aspects of the guidance, compared to earlier draft versions released in December 2023, has raised optimism that the economics of key US hydrogen projects can still work. This includes projects focused on pink hydrogen, which is derived from nuclear energy, and blue hydrogen, produced from natural gas with carbon capture and storage (CCS).
A Balanced Approach for Clean Hydrogen
The Treasury has largely upheld the "three pillars" framework for green hydrogen projects powered by renewable energy. These pillars require projects to:
(1) use renewable power that is "incremental" (i.e., additional to what is already being produced),
(2) generate hydrogen using energy that is produced at the same time (hourly matching),
(3) source energy locally.
These stringent requirements are intended to ensure that clean hydrogen production does not undermine renewable energy goals or fail to reduce carbon emissions effectively.
However, one of the most contentious parts of the framework—hourly matching—has been given a bit more flexibility. Treasury has extended the deadline for projects to meet the hourly matching requirement from 2028 to 2030, allowing developers more time to align their energy procurement with hydrogen production needs. In the interim, projects can still qualify for the credits as long as their annual renewable energy usage matches their demand. Additionally, some leeway has been provided for temporary interruptions, with emissions capped at 4 kg of CO2 per kilogram of hydrogen produced.
In another significant development, Treasury clarified that projects using electricity from energy storage systems, such as batteries, qualify for hourly matching, which is a critical consideration given that solar and wind energy are intermittent by nature. Moreover, carve-outs have been made for projects in states with strong renewable energy standards and cap-and-trade programs, with Washington and California being the first to meet these criteria.
Challenges and Opportunities Ahead
Despite the flexibilities introduced, policy discrepancies at the state level could still pose challenges. As Roxana Bekemohammadi, founder and executive director of the US Hydrogen Alliance, points out, states like Oregon, which have ambitious clean energy mandates, are not fully recognized under the new guidance, potentially creating an uneven playing field for hydrogen projects. These discrepancies could also impact the attractiveness of the US hydrogen sector to international partners and investors, who may be looking for consistent regulatory standards across states.
In terms of cost-effectiveness, some experts warn that the hourly matching and incrementality requirements could increase operational challenges and costs, which may offset some of the benefits provided by the tax credits. Jason Munster, a former hydrogen expert at the Department of Energy, noted that while these conditions make it difficult for green hydrogen to become viable without subsidies by 2035, they do not make it impossible.
Looking forward, levelized cost of hydrogen data from Energy Intelligence suggests that the price of green hydrogen could fall to around $3.50 per kilogram by 2030 under a mid-scenario. If it can reach the $1-$2 per kilogram range, green hydrogen could eventually compete on price with conventional gray hydrogen, making it a critical player in the clean energy transition.
In conclusion, while the US Treasury’s finalized clean hydrogen tax credit guidance presents some challenges, it also offers enough flexibility to support the continued growth and commercial viability of the hydrogen sector. By balancing environmental rigor with pragmatic adjustments, the Treasury’s framework sets the stage for a more sustainable, scalable hydrogen economy in the United States.
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