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17 April 2024

Treasury Department, IRS Issue Additional Section 45V Clean Hydrogen PTC Guidance

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The U.S. Department of the Treasury and IRS on April 10, 2024, issued a supplemental notice of proposed rulemaking (NPRM)...
United States Energy and Natural Resources
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Highlights

  • The U.S. Department of the Treasury and IRS on April 10, 2024, issued a supplemental notice of proposed rulemaking (NPRM) regarding the clean hydrogen production tax credit (PTC) under Section 45V of the Internal Revenue Code.
  • The supplemental NPRM provides additional information on the provisional emissions rate (PER) process.
  • The Treasury Department and IRS are seeking comments on the supplemental NPRM within approximately 30 days of its release.

The U.S. Department of the Treasury Department and IRS on April 10, 2024, issued a supplemental notice of proposed rulemaking (NPRM) under the Internal Revenue Code's Section 45V clean hydrogen production tax credit (PTC). The supplemental NPRM provides additional information on the provisional emissions rate (PER) process and requests comments on the same. The supplemental NPRM follows the initial NPRM under Section 45V, issued on Dec. 26, 2023. (See Holland & Knight's previous alerts, "Treasury, IRS Release Section 45V Clean Hydrogen PTC Proposed Regulations," Dec. 22, 2023, and "Breaking Down the Section 45V Clean Hydrogen PTC Proposed Regulations," Jan. 10, 2024.)

The PER Process

The amount of the Section 45V credit is determined by reference to the life cycle greenhouse gas (LGHG) emissions rate of all hydrogen produced at a qualified clean hydrogen production facility during a taxable year. The LGHG emissions are to be determined by the U.S. Department of Energy's (DOE) Greenhouse gases, Regulated Emissions, and Energy use in Technologies (GREET) model. If the most recent GREET model does not provide an LGHG emissions rate associated with a facility's hydrogen production pathway (i.e., if either the feedstock used by the facility or the production technology is not included in the most recent GREET model), Proposed Treas. Reg. § 1.45V-4 directs the taxpayer to use the PER process.

Holland & Knight Insight

The 45VH3-GREET model was last revised in March 2024. A log of all changes made in the latest version of 45VH3-GREET is available, as is an archive of older versions of 45VH3-GREET.


Requesting a PER

Under the initial NPRM, a taxpayer can request a PER only after it has completed a front-end engineering and design (FEED) study or similar indicia of project maturity. The supplemental NPRM provides that the PER process begins with a submission of a completed Emissions Value Request Application and requires that a FEED study be completed based on an Association for Advanced Cost Engineering Class 3 Cost Estimate.

Holland & Knight Insight

The Treasury Department and IRS are seeking comments on alternatives to the FEED study for demonstrating project readiness. Given the significant capital and development time required for a clean hydrogen production facility, several taxpayers noted in comments to the NPRM that completion of a FEED study was too late. This is because the PER determines the emissions rate, which, in turn, determines the amount of the credit under Section 45V. Where the Section 45V credit is critical to project economics, the inability to request a PER earlier in the developmental process could pose challenges.


As discussed in the supplemental NPRM, in order to request a PER for a given hydrogen production facility, taxpayers must submit the following information to the DOE:

  • specific sections of the FEED study, as described in the DOE's emissions value request process instructions
  • a completed Emissions Value Request Form, as described in the instructions

Additionally, taxpayers may submit any additional information that may be beneficial to the DOE in completing an LGHG analysis. The Treasury Department and IRS are requesting comments regarding the PER process, including:

  • whether additional procedures should be implemented to effectuate the Emissions Value Request Application process
  • information to be collected and whether additional information should be considered by the DOE in evaluating an Emissions Value Request Application
  • any other aspects of the process

Comments are due in approximately 30 days.

Holland & Knight Insight

Taxpayers needing to seek a PER for clean hydrogen production facilities should strongly consider submitting comments in response to the supplemental NPRM.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
17 April 2024

Treasury Department, IRS Issue Additional Section 45V Clean Hydrogen PTC Guidance

United States Energy and Natural Resources

Contributor

Holland & Knight is a global law firm with nearly 2,000 lawyers in offices throughout the world. Our attorneys provide representation in litigation, business, real estate, healthcare and governmental law. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location.
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