Controversy Over New US Treasury Rules Impacting Hydrogen Incentives
TL/DR –
The US Treasury Department is preparing to issue new regulations related to the Inflation Reduction Act’s hydrogen incentives, leading to controversy, particularly among those involved in green hydrogen projects. The draft regulation, released in December, is criticized for the economic challenges it creates for green hydrogen projects, with a key issue being the requirement for green hydrogen projects to directly source their energy from wind or solar projects to access full tax credits. Stakeholders are lobbying for exemptions and deferrals to these proposed rules, and a public hearing is scheduled for March 25, 2024, to discuss the regulations further.
The US Treasury Department’s New Hydrogen Regulations
The US Treasury Department is preparing to release new regulations related to the Inflation Reduction Act’s hydrogen incentives. Green hydrogen project stakeholders have raised concerns over these guidelines due to the potential economic impact on their projects. The draft regulation, announced in December, is also set to affect companies currently planning green hydrogen projects.
Understanding the Inflation Reduction Act
President Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022. The legislation incorporates tax incentives for clean energy and manufacturing, healthcare cost reduction, corporate tax code reforms, and IRS efforts to boost customer service and ensure corporate tax compliance. The US Department of the Treasury is responsible for executing key components of the law, including formulating tax regulations and offering guidance for implementing energy credits and other tax law modifications.
Disputes Over the Draft Regulation
The draft regulation controversy revolves around the expanded tax credits implementation under Section 45V of the IRA. The regulation could substantially affect hydrogen project economics. The main disagreement is over the mandate for green hydrogen projects to source their energy directly from wind or solar projects for full tax credit access. The Treasury Department plans to consider stakeholder feedback before finalizing the regulation.
Industry Stakeholders’ Discussions and Lobbying
The suggested framework assesses hydrogen’s carbon emissions and eligibility for tax credits worth up to 3 per kilogram of hydrogen produced. The proposal to prevent green hydrogen plants from using existing grid power is a key point of dispute. Various stakeholders and environmental groups are pushing for deferrals and exemptions to these rules. The IRS is considering circumstances that could warrant a relaxation of this rule.
Consequences for the Nuclear Power Industry
The nuclear power industry criticized the proposed rules, claiming that they exclude nuclear power plants from climate change solutions. The regulations require newly built resource-based hydrogen, which is a hurdle for legacy nuclear sites. However, the rules also incentivize deploying new reactors and allow the use of natural gas with carbon capture and sequestration.
Public Hearing and Upcoming Considerations
A public hearing on the regulations is scheduled for March 25, 2024. Stakeholders have two weeks to give public comments on the proposed federal rules for hydrogen production tax credits. As the US Treasury Department finalizes these regulations, stakeholders will continue lobbying for amendments that will address the diverse interests within the hydrogen industry. The results of this process will significantly impact the future of hydrogen production and the broader US clean energy landscape.
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