U.S. Senators Bill Cassidy, M.D. (R-LA), Mike Crapo (R-ID), Jim Risch (R-ID), and Pete Ricketts (R-NE) today condemned the Biden administration’s new burdensome rule redefining “clean hydrogen,” making it exceedingly difficult for U.S. hydrogen producers to qualify for Section 45V tax credits. The new rule would require the electricity used to produce hydrogen to be sourced from renewable energy.
“With the proposed rule, the IRS and Treasury strayed far away from the simple definition of clean hydrogen,” wrote the senators. “Significant buildout of renewable energy to support hydrogen production will surely face permitting, supply chain, and inflation issues.”
“We hope you heed industry advice and revise the proposed rule to ensure flexibility for the hydrogen tax credit. The IRS and Treasury should not exceed the letter of the law to cater to a niche group,” concluded the senators.
Read the full letter here or below:
Dear Commissioner Werfel and Secretary Yellen,
We write to express deep concerns with the proposed rule on the Section 45V tax credit for hydrogen by the Internal Revenue Service (IRS) and the U.S. Department of the Treasury (Treasury). As proposed, the burdensome requirements necessary to obtain the hydrogen tax credit far exceed the statute. Efforts to inhibit such a nascent industry through overly restrictive Energy Attribute Certificate (EAC) requirements will surely backfire.
Opposition to the stringent requirements of the proposed guidance spans across our nation. All seven Regional Clean Hydrogen Hubs (H2Hubs) recently voiced concerns on the “proposed narrow guidance.” Specifically, the H2Hubs emphasized that, “these investments and jobs will not fully materialize unless Treasury’s guidance, in its current form, is significantly revised, as many of the projects generating these investments and supporting jobs will no longer be economically viable.” At its core, “the proposed guidance poses a significant risk to the ability for the U.S. to be a global leader in the hydrogen economy.”
With the proposed rule, the IRS and Treasury strayed far away from the simple definition of clean hydrogen. In statute, qualified clean hydrogen is defined as “hydrogen produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than four kilograms of CO2e per kilogram of hydrogen.” Instead, IRS and Treasury set forth EAC requirements for “incrementality, temporal matching, and deliverability,” more commonly known additionality, time-matching, and regionality, respectively.
By requiring electricity used to produce hydrogen to be from new sources of clean power, the additionality restriction will undermine existing clean energy assets. Significant buildout of renewable energy to support hydrogen production will surely face permitting, supply chain, and inflation issues. These challenges could easily delay hydrogen projects and lead to inefficiencies in the electric grid.
Similarly, by requiring tax credits to only apply when clean electricity is produced and consumed in the production of hydrogen simultaneously, hydrogen production with hourly time- matching becomes cost-prohibitive. Specifically, American Clean Power estimates that hourly time-matching requirements would increase the cost of hydrogen production between 20 and 150 percent.
Furthermore, by requiring clean power to be sourced from a patchwork of regions identified in the Department of Energy’s (DOE) National Transmission Needs Study, the proposed rule will cut off hydrogen projects from sources of clean electricity. DOE’s map bifurcates several states, H2Hubs, and even Regional Transmission Organizations, which will be disastrous. As highlighted by Greater New Orleans, Inc. and a coalition of 23 local industry and university partners, “Adopting the defined regions for 45V delivery requirement contradicts the Needs Study’s recommendations, undercuts national clean energy development, and has the potential to increase the cost of electrolytic hydrogen production.”
We hope you heed industry advice and revise the proposed rule to ensure flexibility for the hydrogen tax credit. The IRS and Treasury should not exceed the letter of the law to cater to a niche group. The viability of a robust nationwide hydrogen economy is at risk, as well as the $7 billion in investments made across seven H2Hubs.
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