Hydrogen Tax Credit Guidance to Be Finalized by Year’s End; Department of Energy Opens Emissions Value Request Process for Clean Hydrogen Producers

After months of waiting to see how federal regulators might advance clean hydrogen tax policy in the runup to and following the November election, we are finally getting some news: 

• Several outlets are reporting that the Department of the Treasury (“Treasury”) expects to finalize proposed rules for Inflation Reduction Act’s (“IRA”) Section 45V clean hydrogen production tax credit by the end of the year, with one Treasury official stating that the agency is “working to include appropriate adjustments and additional flexibilities to help grow the industry and move projects forward.” (E&E News (subscription required); see also Heatmap (subscription required)). Though light on specifics, these statements suggest there will be changes to the December 2023 proposed 45V regulations in response to stakeholder comments that the proposal was too stringent in certain respects, for example, in how it addressed “significant indirect emissions” from hydrogen production.
• And, on Monday, September 30, 2024, the Department of Energy (“DOE”) officially opened its emissions value request process for clean hydrogen producers whose production methods fall outside DOE’s eight modeled hydrogen production pathways. Those producers will need to obtain an individualized “emissions value” from DOE to qualify for Section 45V. DOE issued Application Instructions and an Emissions Value Request Form for the submissions. While helpful, the documents, unfortunately, say little about how long the process will take or whether and how DOE will prioritize certain applications over others. However, all applicants must complete a Front-End Engineering and Design (“FEED”) study before submitting. Developers should read those documents carefully when preparing their submissions, especially the instructions for submitting confidential business information.

The rest of this post focuses on the DOE emissions value request process. As we near (potentially) finalized rules, we’ll be watching closely for more updates on Section 45V.

Background
Section 45V offers hydrogen producers a tax credit of up to $3 per kilogram of clean hydrogen they produce, provided they can show lifecycle emissions of no more than 0.45 kgCO2e per kgH2 and meet other requirements (e.g., prevailing wage and apprenticeship requirements). The U.S. hydrogen market is currently dominated by emissions-intensive, so-called “grey” hydrogen—that is, hydrogen produced by steam methane reforming of natural gas. Clean hydrogen developers across the country are seeking to produce lower-emitting alternatives. However, because grey hydrogen is cheap to produce and well-established, most view the 45V tax credit as essential to bringing the costs of clean hydrogen down to competitive levels.

Treasury proposed regulations for implementing Section 45V in December 2023 (“Proposed Rules”). At the same time, DOE issued what it called 45VH2-GREET, a lifecycle emissions model designed specifically for 45V based on Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Technologies (“GREET”) model. But unlike the general Argonne GREET model, the Section 45V-specific GREET iteration supports only eight pathways for producing hydrogen:

1. Steam methane reforming (SMR) of natural gas, with potential carbon capture and sequestration (CCS)
2. Autothermal reforming (ATR) of natural gas, with potential CCS;
3. SMR of landfill gas with potential CCS;
4. ATR of landfill gas with potential CCS;
5. Coal gasification with potential CCS;
6. Biomass gasification with corn stover and logging residue with no significant market value with potential CCS;
7. Low-temperature water electrolysis using electricity; and
8. High-temperature water electrolysis using electricity and potential heat from nuclear power plants.

Under the current proposal, producers planning to make hydrogen using different feedstocks and methods cannot rely solely on the 45VH2-GREET model to calculate their emissions for the 45V credit. They must instead proceed with the “Provisional Emissions Rate” or “PER” process to receive an individualized emissions rate they can then use to qualify for 45V.

Treasury’s Proposed Rules addressed the PER process but left many questions for future agency action. Chief among them was how to request an “emissions value” determination from DOE. On April 10, 2024, DOE released limited guidance on that process and requested further stakeholder comment. On Monday, September 30, 2024, DOE officially opened its emission value request process to applicants.

DOE Emissions Value Request Process and Guidance
DOE’s process has several key requirements. DOE may decline to review non-responsive or incomplete applications.

1. All applicants must complete a FEED study based on an Association for the Advancement of Cost Engineering (“AACE”) Class 3 Cost Estimate. There are no apparent exceptions to this requirement. This deviates from the Proposed Rules, allowing either a FEED study or a “similar indication of project maturity, as determined by the DOE, such as [a] project specification and cost estimation sufficient to inform a final investment decision.” Despite this, and, as DOE acknowledges, several comments it received regarding other indicators of project maturity, DOE is sticking with the AACE Class 3 Cost Estimate as the only indicator it will accept at this time. 
2. DOE will not accept applications wherein determining an emissions value “could be unnecessary or misleading given significant uncertainty regarding how life cycle analysis considerations of the pathway will be addressed in final 45V regulations, and/or inconsistency of the pathway with proposed regulations.” It’s unclear exactly what this means. It could refer to provisions in the Proposed Regulations that disallow applicants who can otherwise rely on the 45VH2-GREET pathways from using the PER process. Some have advocated against this exclusion, hoping to use the PER process to show, for example, that certain fixed “background data” in the 45VH2-GREET model should not apply to their project, such as the fixed assumptions on methane leakage rates for producers using a natural gas feedstock. However, DOE could also be referring to other gaps in the Proposed Rules, such as the lack of any specific rules for calculating emissions associated with certain renewable natural gas (“RNG”) feedstocks. DOE could be signaling that it will not use the emissions value process to preempt any forthcoming decisions by Treasury on lifecycle emissions for those sources.

Applications to DOE must include the following:

1. Certain, specific sections of the AACE Class 3 FEED study; and
2. A completed Emissions Value Request Form.

The required FEED study Sections are:

1. Block flow diagrams of all major processes within the hydrogen production facility;
2. Piping & instrumentation diagrams (P&IDs);
3. Energy & material mass flows and balances;
4. Process equipment list;
5. Water mass flows and balances;
6. Chemical composition and balances of process inputs and outputs;
7. Steady-state greenhouse gas (GHG) emissions data (CO2, CH2, N2O);
8. Waste stream management summary; and
9. Physical and chemical properties of process input and output flows as applicable (e.g., purity, pressure, density, enthalpy, lower heating value, carbon content in mass%, etc.)

Information from the FEED study must also be used to complete the Emissions Value Request Form. Required information includes:

1. The applicant’s contact information;
2. A process block diagram of the hydrogen production pathway for the qualified clean hydrogen production facility (referred to as the “facility”);
3. Input and output flows expected for the facility;
4. Total annual expected consumption of each feedstock used by the facility;
5. Source and quantity of electricity expected to be used by the facility and verified by qualifying energy attribute certificates (EACs) consistent with any guidance issued by the Internal Revenue Service (“IRS”) or Treasury with respect to section 45V;
6. Source and quantity of electricity expected to be used by the facility without qualifying EACs; and
7. Total quantity of hydrogen and valorized co-products expected to be generated by the facility.

Applicants may also submit “additional documents in support of completing an emissions analysis of the facility’s hydrogen production pathway.” This unspecified additional information is “optional” according to DOE’s instructions and not required for a determination by DOE that an application is “complete.”

Submission Instructions
Before submitting the required information, applicants must send an email to 45VEmissionsRequest@ee.doe.gov alerting DOE of their intent to submit. That email must include the name of the applicant’s organization and the subject line: “Intent to Submit Emissions Value Request Application.” DOE will then respond with a link to a secure folder where the required documents can be uploaded.

Application Processing
The instructions state that DOE may follow up with questions regarding the materials submitted and request a site visit “where possible.” Applicants will have 30 days to respond to questions and site visit requests. DOE may deny an application if it doesn’t receive a response within 30 days.

The instructions state that DOE employees “and contractors, including personnel at Argonne National Laboratory,” will review the application.

Confidential Information
DOE warns that applicants should not include trade secrets or business-sensitive proprietary information, or otherwise confidential information in their submissions unless that information is necessary to meet the above requirements. If an applicant must submit confidential information, it should be “properly marked” so that it can be protected to “the extent permitted by law, including the Freedom of Information Act” (“FOIA”). DOE will handle the information it receives in accordance with its FOIA regulations (10 CFR 1004.11). Applicants submitting confidential information must provide two copies to DOE, a confidential copy and a “non-confidential” redacted copy.

The instructions address how DOE will use confidential information it receives. In particular, DOE may use it to “inform updates to the 45VH2-GREET model.” The instructions state that any information disclosed in such updates will be “restricted to that which has been gained through other sources or anonymized information gathered through a review of applications” and will not include any information that could be traced back to a particular “technology or company.”

Timing of Review
DOE does not make any guarantees on timing other than to say that it intends to review applications as quickly as possible. However, DOE lists three factors that could affect the timing of its review, including:

1. Volume of applications received around a given hydrogen production pathway,
2. Complexity/ease of evaluating the hydrogen production pathway, and 
3. Commercial readiness of the pathway.

DOE will inform applicants if their applications are complete before beginning its review. When the review is completed, applicants will receive written documentation with their emissions values that may be used in petitioning IRS for a PER.

Next Steps for Applicants to Consider

1. Developers who need a PER should account for added time and expense associated with DOE’s emissions value process.
2. Although DOE does not say so explicitly, developers can assume that DOE may review applications on a first-come, first-served basis. This means there could be significant benefits to submitting early, and there may be other benefits as well. DOE’s instructions say that the agency may use applicant information to update the 45VH2-GREET model. Applicants may prefer that DOE uses their information for updates rather than relying on information submitted by others.
3. Developers should carefully assess whether and to what extent they must submit confidential information as part of the process and take appropriate steps consistent with FOIA, DOE regulations, and the Application Instructions to ensure that their information is protected from public disclosure to the greatest extent possible. Developers should first consider whether they need to submit confidential business information at all. For some, submitting such information may be unavoidable. In those cases, it will be critical to take all necessary steps to minimize the risk of public disclosure.
4. Developers should consider whether and to what extent they submit optional “additional documents” with their application materials. Additional documents could include a lifecycle assessment prepared by developers or their consultants with the steps and assumptions used to arrive at an emissions value the developer believes it should receive. Developers should carefully consider the potential benefits and drawbacks of submitting such information, including confidentiality considerations, as discussed above.