Trade associations challenge 45V tax credit over emissions calculation concerns

Several trade associations have raised concerns surrounding the 45V clean hydrogen production tax credit, stating that it could prevent investment in clean hydrogen.

As it stands, the proposed regulations for 45V require clean hydrogen producers using natural gas as a feedstock to input a fixed upstream emissions rate based on a national average.

However, within the 45VH2-GREET model, which is tailed for assessing hydrogen production pathways, the upstream emissions rate is “background” data that cannot be altered by a producer.

It says that maintaining upstream methane emissions in blue hydrogen as background data could put major projects in jeopardy, which could result in less clean hydrogen.

The 45VH2-GREET model calculates the greenhouse gas emissions from producing hydrogen, focusing on everything from the start of production to when it leaves the plant. This is measured per kilogram of pure hydrogen at a standard pressure of 300 psia (about 20 bar). Since hydrogen production conditions (like pressure and purity) can vary between different producers, the model uses this standard measure to ensure a fair comparison of emissions across all facilities.

For the 2023 version of 45VH2-GREET, when users input their data, they need to specify the purity and pressure of the hydrogen they produce. If the hydrogen is produced at a pressure lower than 300 psia, the model will calculate how much electricity would be needed to increase the pressure to 300 psia.

Equally, if the hydrogen is produced at a higher pressure, it will estimate the electricity needed to achieve that higher pressure, starting at 300 psia.

This helps to adjust the emissions calculation based on the energy needed to compress hydrogen to a consistent pressure, ensuring that the emissions data is comparable regardless of the production specifics.

The letter highlights this as a concern, stating that, even if they have verifiable upstream emissions rates that would “more accurately” represent the project’s carbon intensity.

It continues, “We believe the requirement to use a fixed, national average instead of actual emissions data is misguided and represents a missed opportunity that will have a significant impact on the development and growth of clean hydrogen.”

Due to the above reasoning, the letter expresses concerns that, if the proposed regulation is finalised as written, clean hydrogen producers will have inaccurate lifecycle greenhouse gas emissions calculations.

In turn, it says this will disincentivise the reduction of upstream emissions, which is the opposite of the intent of the original legislation.

As a recommendation, the letter suggests that the Treasury move upstream methane emissions to foreground data in its final guidance.

It expands, “The change would be best implemented through the use of reported data using the EPA Greenhouse Gas Reporting Programme (GHGRP) Subpart W (or the same methodology for producers who do not need to report under GHGRP), as Subpart W currently provides the best option for verifiable, project-specific methane leak data.”

The letter further says that without the ability to input lower emissions intensity, developers who would qualify for a higher value credit based on the actual carbon intensity of their operations would instead receive a lower value credit – based entirely on a pre-set number that does not represent their real-world emissions.

This will also allow operators with higher upstream emissions rates than the fixed average to claim a lower rate they are not entitled to.

Signers include Clean Air Task Force (CATF), the Fuel Cell & Hydrogen Energy Association (FCHEA), the Appalachian Regional Clean Hydrogen Hub (ARCH2), US Chamber of Commerce, Open Hydrogen Initiative and National Association of Manufacturers.

Just last month (February 2024), the American Petroleum Institute (API) called on the Biden Administration to recognise all types of hydrogen production, including blue hydrogen, as drivers of a low-carbon future in its 45V regulations.

At the time, API also criticised the draft regulation, saying that its focus almost exclusively on hydrogen produced using electricity generated from entirely renewable energy sources, or green hydrogen.

Dustin Meyer, Senior Vice-President of Policy, Economics, and Regulatory Affairs at API, described the Biden administration’s plans as a “narrow path” that “discriminates against certain technologies and feedstocks.”

Read more: API calls on Biden Administration to recognise blue hydrogen as a climate solution in 45V regulations


Decarbonisation Summit 2024: Industrial Gases and Clean Energies 3.0

The global industrial gas and equipment business has an imperative role to play in the future of clean fuels and decarbonisation. The energy transition simply won’t happen without it.

At the same time, the industry has its own activities to decarbonise and circular economies to carve out – think green air gases and bio-based carbon dioxide (CO2), as well as CO2 utilisation and e-fuels, and so much more besides.

There are pathways to progress and questions to answer on this journey, not least:

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These questions and more will be in the spotlight at gasworld’s Decarbonisation Summit in April 2024. Interested in speaking and contributing? Get in touch with our Content Director, Rob Cockerill, at [email protected]

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