The long and complex process of developing final rules for the section 45V hydrogen tax credit regulations has not been an easy task for Treasury and the IRS. The proposed regulations received significant attention and feedback, with nearly 30,000 comment letters and three days of IRS hearings dedicated to the topic. The discussions focused on various aspects of the regulations, including the treatment of fugitive methane and the concerns of hydrogen hubs.
One key issue under debate is the treatment of renewable natural gas (RNG) and other fugitive sources of methane in the regulations. The proposed rules did not provide clear guidance on how these sources would be handled, leading to uncertainty for potential tax credit seekers. Future rules are expected to address this issue and establish conditions for certificates for RNG and fugitive methane, which could impact the eligibility of steam methane reforming facilities for the section 45V credit.
The leakage of methane, a potent greenhouse gas, is a crucial factor in determining the environmental impact of hydrogen production. The proposed regulations sought input on how to verify background data in the model and potential alterations to the default leak rate of 0.9 percent. Various stakeholders argued for changes to the assumed leak rate, suggesting different approaches based on basin-specific measurements and the availability of technology for measuring methane emissions.
Coal mine methane is another important source of fugitive methane emissions that has been overlooked in the proposed regulations. Companies interested in capturing coal mine methane for use in hydrogen projects have raised concerns about the exclusion of this pathway in the 45VH2-GREET model. The inclusion of coal mine methane in future versions of the model is being advocated for by industry groups to ensure that this significant emission source is properly accounted for.
Hydrogen hubs, such as ARCH2 in Appalachia and ARCHES in California, have expressed dissatisfaction with various aspects of the proposed regulations. Concerns have been raised about the environmental policy differentiation based on regional characteristics, the treatment of coal mine methane, and the restrictive nature of the 45VH2-GREET model. The hubs have proposed alternative criteria and adjustments to the regulations to better reflect their specific circumstances and operational realities.
The final rules for the section 45V hydrogen tax credit regulations will have far-reaching implications for the hydrogen industry and its environmental impact. Companies and industry groups are actively engaged in the rule-making process, advocating for changes that align with their priorities and operational needs. As Treasury and the IRS work towards releasing the final regulations, they will need to navigate through the complexities and competing interests to ensure a fair and effective framework for incentivizing clean hydrogen production.
