On April 10, 2024, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released a notice of proposed rulemaking (the Supplemental Regulations) to supplement the Clean Hydrogen Production Tax Credit (PTC) under Section 45V of the Internal Revenue Code of 1986, as amended (the Code), providing additional information on the provisional emissions rate (PER) process and a request for comments. This notice follows the initial proposed regulations issued on December 26, 2023, discussed by Wilson Sonsini, and clarifies the Department of Energy (DOE) emissions value request process.

Section 45V Generally

Code Section 45V provides a 10-year PTC or Investment Tax Credit (ITC) for taxpayers who produce qualifying hydrogen at a facility placed in service after December 31, 2022, which began construction before January 1, 2033, with four credit amount tiers. As in the December notice, the Greenhouse gases, Regulated Emissions, and Energy use in Technologies (GREET) model allows for the determination of lifecycle greenhouse gas (GHG) emissions and subsequently provides taxpayers with their respective credit tier for both the PTC and ITC, respectively. The credit tiers, as determined by the GREET Model resulting from hydrogen production are identified in the below table:

The base credits above are multiplied by five if either the construction of the facility begins prior to January 29, 2023, and any alteration or repair of the facility that occurs after such date meets the prevailing wage and apprenticeship requirements, or if the prevailing wage and apprenticeship requirements are met with respect to both construction and alteration and repair.

Taxpayers receiving 45V can claim the Section 48 investment tax credit (ITC) or Section 45 production tax credits (PTC) on qualifying renewable energy properties used to generate electricity to power the production of the hydrogen facility, including bonus credits thereto. However, taxpayers claiming tax credits for qualifying carbon capture and sequestration under Section 45Q or clean fuel production under Section 45Z cannot stack these credits (for which they would otherwise be eligible) for the production of qualifying clean hydrogen from that same facility.

45V is eligible for both transferability and direct pay, including for electing taxpayers for a period of five years. For more on transferability and direct pay, please see the Wilson Sonsini white paper on monetizing credits under these options.

Key Takeaways

• The Supplemental Regulations clarify that taxpayers with hydrogen production pathways that fall outside the scope of the GREET Model should use the PER process to obtain an emissions value analysis from the DOE.
• To obtain a PER, applicants must complete a front-end engineering and design (FEED) study, as discussed below, based on an Association for Advanced Cost Engineering Class 3 Cost Estimate, which may pose economic and timing constraints for taxpayers who want to claim a Section 45V credit.
• The Supplemental Regulations provide specific instructions for applications to request an emissions value from the DOE and subsequently apply for a PER to access the Section 45V credit.

The PER Process

To address situations where a taxpayer’s hydrogen production pathway is not provided for under the GREET model, the PER process is used as an alternative. The PER process allows taxpayers to obtain an “emissions value” based on the DOE's analytical assessment of the GHG emissions associated with their respective hydrogen facility's production pathway. Once received from the DOE, such emission value must be attached to Form 7210, Clean Hydrogen Production Credit or Form 3468, Investment Credit to petition the Secretary of Treasury for a PER.

Under the previous guidance published in December, taxpayers could request an emissions value from the DOE after they completed a FEED study or by providing similar indicia of project maturity. However, the Supplemental Regulations now provide that the PER process begins with an emissions value request application with the DOE and requires that a FEED study be completed based on an Association for Advanced Cost Engineering Class 3 Cost Estimate (the Cost Estimate) to sufficiently indicate commercial project maturity for robust emissions analysis. In effect, by foreclosing other potential indicia of project maturity, the Supplemental Regulations may result in additional timing and economic constraints for applicants.

Procedural Requirements for the PER Process

To request an emissions value for a hydrogen production facility, taxpayers must submit the following information to the DOE:

• specific sections of the FEED study, as described in the DOE emissions value request instructions (Instructions), and
• a completed emissions value request form, as described in the Instructions.

In addition, the applicant may provide additional relevant information to be considered by the DOE in the request.

To file an emissions value request application, applicants must first send an email to the DOE at 45VemissionsRequest@ee.doe.gov, stating their intent to submit an emissions value request application and the name of the applicant's organization. The DOE will then send the applicant an email with a link to a secure folder to which the applicant would upload their application.

The Treasury Department and IRS are requesting comments, due within 30 days of publication of the notice, regarding the PER process. These specific comments include:

• whether alternative appropriate pathways to demonstrating project readiness exist,
• whether additional procedures should be implemented to effectuate the Emissions Value Request Application process and any other aspects of the process, and
• the information to be collected and whether additional information should be considered by the DOE in evaluating an Emissions Value Request Application.