`[Federal Register Volume 90, Number 6 (Friday, January 10, 2025)]
[Rules and Regulations]
[Pages 2224-2329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-31513]



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Vol. 90

Friday,

No. 6

January 10, 2025

Part IV





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Credit for Production of Clean Hydrogen and Energy Credit; Final Rule

  Federal Register / Vol. 90 , No. 6 / Friday, January 10, 2025 / Rules 
and Regulations  

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 10023]
RIN 1545-BQ97


Credit for Production of Clean Hydrogen and Energy Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations implementing the 
credit for production of clean hydrogen and certain provisions of the 
energy credit as enacted by the Inflation Reduction Act of 2022. The 
regulations provide rules for: determining lifecycle greenhouse gas 
emissions rates resulting from hydrogen production processes; 
petitioning for provisional emissions rates; verifying production and 
sale or use of clean hydrogen; modifying or retrofitting existing 
qualified clean hydrogen production facilities; using electricity from 
certain renewable or zero-emissions sources to produce qualified clean 
hydrogen; and electing to treat part of a specified clean hydrogen 
production facility instead as property eligible for the energy credit. 
These regulations affect all taxpayers who produce qualified clean 
hydrogen and claim the clean hydrogen production credit, elect to treat 
part of a specified clean hydrogen production facility as property 
eligible for the energy credit, or produce electricity from certain 
renewable or zero-emissions sources used by taxpayers or related 
persons to produce qualified clean hydrogen.

DATES: 
    Effective date: These regulations are effective January 10, 2025.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.45V-1(d), 1.45V-2(d), 1.45V-4(g), 1.45V-5(l), 1.45V-6(d), and 1.48-
15(h).

FOR FURTHER INFORMATION CONTACT: Courtney Hutson at (202) 317-5319 or 
Alan Tilley at (202) 317-6512 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Authority

    This document contains final regulations that amend the Income Tax 
Regulations (26 CFR part 1) by adding regulations authorized to be 
issued by the Secretary of the Treasury or her delegate (Secretary) 
under sections 48 and 45V of the Internal Revenue Code (Code). The 
final regulations are issued under the authority granted under sections 
45V(c)(1)(B), 45V(e)(5), 45V(f), 48(a)(15)(C), 48(a)(15)(E), 48(a)(16), 
6001, and 7805(a) of the Code.
    Section 45V(c)(1)(B) provides that lifecycle greenhouse gas 
emissions (lifecycle GHG emissions) shall only include emissions 
through the point of production (well-to-gate), as determined under the 
most recent Greenhouse gases, Regulated Emissions, and Energy use in 
Transportation model (commonly referred to as the ``GREET model'') 
developed by Argonne National Laboratory, or a successor model (as 
determined by the Secretary).
    Section 45V(e)(5) directs the Secretary to issue regulations and 
guidance as she determines to be necessary to carry out the purposes of 
section 45V(e), which relates to the increased credit amount for 
qualified clean hydrogen production facilities that satisfy certain 
prevailing wage and apprenticeship requirements.
    Further, section 45V(f) directs the Secretary to issue regulations 
or other guidance to carry out the purposes of section 45V, including 
for determining lifecycle GHG emissions.
    Section 48(a)(15)(C) provides that the term ``specified clean 
hydrogen production facility'' means any qualified clean hydrogen 
production facility (as defined in section 45V(c)(3))(i) that is placed 
in service after December 31, 2022, (ii) with respect to which (I) no 
section 45V credit or section 45Q credit has been allowed, and (II) the 
taxpayer makes an irrevocable election to have section 48(a)(15) apply, 
and (iii) for which an unrelated third party has verified (in such form 
or manner as the Secretary may prescribe) that such facility produces 
hydrogen through a process that results in lifecycle GHG emissions that 
are consistent with the hydrogen that such facility was designed and 
expected to produce under section 48(a)(15)(A)(ii).
    Section 48(a)(15)(E) directs the Secretary to issue such 
regulations or other guidance as she determines necessary to carry out 
the purposes of the section 48 energy credit, including regulations or 
guidance related to the recapture of such credit that exceeds the 
allowed amount ``if the expected production were consistent with the 
actual verified production (or all of the credit so allowed in the 
absence of such verification).''
    Section 48(a)(16) directs the Secretary to issue regulations or 
other guidance as she determines necessary to carry out the purposes of 
the section 48 energy credit, including for recordkeeping or 
information reporting requirements necessary for the administration of 
the credit.
    Section 6001 provides an express delegation of authority to the 
Secretary, stating that, ``[e]very person liable for any tax imposed by 
this title, or for the collection thereof, shall keep such records, 
render such statements, make such returns, and comply with such rules 
and regulations as the Secretary may from time to time prescribe. 
Whenever in the judgment of the Secretary it is necessary, [s]he may 
require any person, by notice served upon such person or by 
regulations, to make such returns, render such statements, or keep such 
records, as the Secretary deems sufficient to show whether or not such 
person is liable for tax under this title.''
    These regulations are also issued under the express delegation of 
authority under section 7805(a), which provides that ``[t]he Secretary 
shall prescribe all needful rules and regulations for the enforcement 
of [the Code], including all rules and regulations as may be necessary 
by reason of any alteration of law in relation to internal revenue.''

Background

    This document contains final regulations to implement the statutory 
provisions of sections 45V and 48(a)(15) of the Code, as enacted by 
section 13204 of Public Law 117-169, 136 Stat. 1818, 1935 (August 16, 
2022), commonly known as the Inflation Reduction Act of 2022 (IRA).
    The IRA added several provisions to the Code related to the 
production of, and investment in, clean hydrogen, which, along with the 
provisions of sections 45V and 48(a)(15), are described in part I of 
this Background section. Part II of this Background section describes a 
previous request for public comment on these provisions, and part III 
describes the proposed regulations promulgated under these provisions 
that the final regulations in this document adopt or modify as 
explained in the Summary of Comments and Explanation of Revisions.

I. IRA Provisions for Clean Hydrogen Production and Investment

    This part I describes the credit for production of clean hydrogen 
as determined under section 45V (section 45V credit) and the 
irrevocable election to claim an energy credit under section 48 
(section 48 credit) in lieu of the section 45V credit. Also described 
are statutory exceptions to the requirement that electricity be sold to 
an unrelated person to be eligible for the renewable electricity 
production credit determined

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under section 45 (section 45 credit) or the zero-emission nuclear power 
production credit determined under section 45U (section 45U credit). 
Under these exceptions, electricity produced by a taxpayer from a 
qualified facility under section 45(d) or a qualified nuclear power 
facility under section 45U(b)(1) may be treated as sold by the taxpayer 
to an unrelated person during the taxable year if the electricity is 
used by the taxpayer or a related person at a qualified clean hydrogen 
production facility to produce qualified clean hydrogen.

A. Section 45V

1. Amount of Credit
    Section 45V provides an income tax credit for the production of 
qualified clean hydrogen. For purposes of section 38, section 45V(a) 
provides that the clean hydrogen production credit for any taxable year 
is an amount equal to the product of (i) the kilograms of qualified 
clean hydrogen produced by the taxpayer during such taxable year at a 
qualified clean hydrogen production facility during the 10-year period 
beginning on the date such facility was originally placed in service, 
and (ii) the applicable amount as determined under section 45V(b) with 
respect to such hydrogen.
    Section 45V(b)(1) provides that, for purposes of section 45V(a)(2), 
the applicable amount is an amount equal to the applicable percentage 
of $0.60. If the amount so determined is not a multiple of 0.1 cent, 
then such amount is rounded to the nearest multiple of 0.1 cent.
    Section 45V(b)(2) provides that, for purposes of section 45V(b)(1), 
the applicable percentage is determined based on the lifecycle GHG 
emissions rate of the process used to produce any qualified clean 
hydrogen as follows: (i) if the lifecycle GHG emissions rate is not 
greater than 4 kilograms of carbon dioxide equivalent (CO2e) per 
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per 
kilogram of hydrogen, then the applicable percentage is 20 percent; 
(ii) if the lifecycle GHG emissions rate is less than 2.5 kilograms of 
CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e 
per kilogram of hydrogen, then the applicable percentage is 25 percent; 
(iii) if the lifecycle GHG emissions rate is less than 1.5 kilograms of 
CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e 
per kilogram of hydrogen, then the applicable percentage is 33.4 
percent; and (iv) if the lifecycle GHG emissions rate is less than 0.45 
kilograms of CO2e per kilogram of hydrogen, then the applicable 
percentage is 100 percent.
    Section 45V(b)(3) provides that the $0.60 amount in section 
45V(b)(1) is adjusted by multiplying such amount by the inflation 
adjustment factor (as determined under section 45(e)(2), determined by 
substituting ``2022'' for ``1992'' in section 45(e)(2)(B)) for the 
calendar year in which the qualified clean hydrogen is produced. If any 
amount as increased under section 45V(b)(3) is not a multiple of 0.1 
cent, such amount is rounded to the nearest multiple of 0.1 cent.\1\
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    \1\ The IRS will publish the inflation-adjusted section 45V 
applicable amount annually. The section 45V applicable amounts for 
calendar years 2023 and 2024 were published in Notice 2024-45, 2024-
26 I.R.B. 1747.
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    Section 45V(e)(1) provides that, in the case of any qualified clean 
hydrogen production facility that satisfies the requirements of section 
45V(e)(2), the amount of the section 45V credit with respect to 
qualified clean hydrogen described in section 45V(b)(2) is equal to the 
amount determined under section 45V(a) (determined without regard to 
section 45V(e)(1)) multiplied by five.
    A qualified clean hydrogen production facility meets the 
requirements of section 45V(e)(2) if: (i) the facility began 
construction before January 29, 2023, and with respect to any taxable 
year, for any portion of such taxable year that is within the 10-year 
period beginning on the date the facility is originally placed in 
service, the prevailing wage requirements of section 45V(e)(3)(A) are 
met for any alteration or repair of the facility that occurs after 
January 29, 2023 (to the extent applicable); \2\ or (ii) the facility 
satisfies the prevailing wage and apprenticeship (PWA) requirements of 
section 45V(e)(3)(A) and (4).\3\
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    \2\ Section 45V(e)(3)(A)(ii) requires the payment of wages at 
prevailing rates ``with respect to any taxable year, for any portion 
of such taxable year which is within the period described in 
subsection (a)(2)'', with respect to the alteration or repair of the 
facility. There is no ``period described in subsection (a)(2).'' The 
Treasury Department and the IRS interpret the reference to 
``subsection (a)(2)'' as a reference to section 45V(a)(1) where the 
10-year credit period is identified.
    \3\ See Sec. Sec.  1.45-7, 1.45-8, 1.45-12, and 1.45V-3, as 
published in the Federal Register (89 FR 53184) on June 25, 2024.
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    Generally, the prevailing wage requirements under section 
45V(e)(3)(A) with respect to any qualified clean hydrogen production 
facility require the taxpayer to ensure that any laborers and mechanics 
employed by the taxpayer or by any contractor or subcontractor in (i) 
the construction of such facility, and (ii) with respect to any taxable 
year, for any portion of such taxable year that is within the 10-year 
period beginning on the date such facility was originally placed in 
service, the alteration or repair of such facility, are paid wages at 
rates not less than the prevailing rates for construction, alteration, 
or repair of a similar character in the locality in which such facility 
is located as most recently determined by the Secretary of Labor, in 
accordance with subchapter IV of chapter 31 of title 40 of the United 
States Code, commonly known as the Davis-Bacon Act. Correction and 
penalty rules similar to the rules of section 45(b)(7)(B) also apply.
    Section 45V(e)(4) provides that rules similar to the apprenticeship 
requirements of section 45(b)(8) apply for purposes of section 
45V(e)(2)(B).\4\
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    \4\ Under Sec.  1.45V-3, the PWA requirements for purposes of 
section 45V(e)(2)(B) are satisfied if a facility meets the 
prevailing wage requirements of section 45(b)(7) and Sec.  1.45-7, 
the apprenticeship requirements of section 45(b)(8) and Sec.  1.45-
8, and the recordkeeping and reporting requirements of Sec.  1.45-
12. Those regulations are not a part of this Treasury decision and 
Sec.  1.45V-3 is addressed only to the extent necessary for purposes 
of formatting the final regulations that are the subject of this 
decision in accordance with CFR standards.
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    For purposes of section 45V(a), in the case of a qualified clean 
hydrogen production facility that does not satisfy the requirements of 
section 45V(e)(2), the amount of the clean hydrogen production credit 
for any taxable year is $0.12, $0.15, $0.20, or $0.60 per kilogram of 
qualified clean hydrogen produced (before taking into account any 
inflation adjustment under section 45V(b)(3)), depending on the 
lifecycle GHG emissions rate associated with the facility's hydrogen 
production process. For facilities meeting the requirements of section 
45V(e)(2), the credit amount determined under section 45V(a) (as 
adjusted for inflation subject to section 45V(b)(3)) is multiplied by 
five.
2. Definitions
a. Lifecycle Greenhouse Gas Emissions
    Section 45V(c)(1)(A) provides that, subject to section 
45V(c)(1)(B), the term ``lifecycle greenhouse gas emissions'' has the 
same meaning given such term under section 211(o)(1)(H) of the Clean 
Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022. 
Under section 45V(c)(1)(B), the term ``lifecycle greenhouse gas 
emissions'' includes emissions only through the point of production 
(well-to-gate), as determined under the most recent Greenhouse gases, 
Regulated Emissions, and Energy use in Transportation model, referred 
to as the ``GREET model'' commonly and in this document, developed by 
Argonne National Laboratory, or a successor model as determined by the 
Secretary.

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b. Qualified Clean Hydrogen
    Section 45V(c)(2)(A) provides that the term ``qualified clean 
hydrogen'' means hydrogen that is produced through a process that 
results in a lifecycle GHG emissions rate of not greater than 4 
kilograms of CO2e per kilogram of hydrogen. Section 45V(c)(2)(B) 
further provides that the term ``qualified clean hydrogen'' does not 
include any hydrogen unless (i) such hydrogen is produced (A) in the 
United States (as defined in section 638(1) of the Code) or a United 
States territory (having the meaning of the term ``possession'' as 
defined in section 638(2)), (B) in the ordinary course of a trade or 
business of the taxpayer, and (C) for sale or use; and (ii) the 
production and sale or use of such hydrogen is verified by an unrelated 
party.
c. Provisional Emissions Rate
    Section 45V(c)(2)(C) provides that, in the case of any hydrogen for 
which a lifecycle GHG emissions rate has not been determined for 
purposes of section 45V, a taxpayer producing such hydrogen may file a 
petition with the Secretary for a determination of the lifecycle GHG 
emissions rate with respect to such hydrogen, referred to as a 
``provisional emissions rate'' or PER.
d. Qualified Clean Hydrogen Production Facility
    Section 45V(c)(3) provides that the term ``qualified clean hydrogen 
production facility'' means a facility (i) owned by the taxpayer, (ii) 
that produces qualified clean hydrogen, and (iii) the construction of 
which begins before January 1, 2033.\5\
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    \5\ Section 45V does not specify an earliest date on which a 
qualified clean hydrogen production facility must begin construction 
or be placed in service to be eligible for the section 45V credit. 
However, the section 45V credit is available for qualified clean 
hydrogen produced after December 31, 2022. See Sec.  13204(a)(5)(A) 
of the IRA. Thus, the owner of a qualified clean hydrogen production 
facility originally placed in service after December 31, 2012, could 
claim the section 45V credit for qualified clean hydrogen produced 
during at least some portion of the 10-year period described in 
section 45V(a)(1), provided all other requirements are met.
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3. Special Rules
a. Treatment of Facilities Owned by More Than One Taxpayer
    Section 45V(d)(1) provides that rules similar to the rules of 
section 45(e)(3) apply for purposes of section 45V. Section 45(e)(3) 
provides that, in the case of a facility in which more than one person 
has an ownership interest, except to the extent provided in regulations 
prescribed by the Secretary, production from the facility is allocated 
among such persons in proportion to their respective ownership 
interests in the gross sales from such facility.
b. Coordination With Section 45Q
    Section 45V(d)(2) provides that no section 45V credit is allowed 
with respect to any qualified clean hydrogen produced at a facility 
that includes carbon capture equipment for which a credit is allowed to 
any taxpayer under section 45Q (section 45Q credit) for the taxable 
year or any prior taxable year.
c. Credit Reduced for Tax-Exempt Bonds
    Section 45V(d)(3) provides that rules similar to the rules under 
section 45(b)(3) (credit reduced for tax-exempt bonds) apply for 
purposes of section 45V. Section 45V(d)(3) is effective for facilities 
that begin construction after August 16, 2022. See Sec.  13204(a)(5)(B) 
of the IRA. Section 45(b)(3) provides that the amount of the credit 
determined under section 45(a) with respect to any facility for any 
taxable year (determined after the application of section 45(b)(1) and 
(2) regarding phaseout and inflation adjustment rules) is reduced by 
the amount that is the product of the amount so determined for such 
year and the lesser of 15 percent or a fraction (A) the numerator of 
which is the sum, for the taxable year and all prior taxable years, of 
proceeds of an issue of any obligations the interest on which is exempt 
from tax under section 103 and that is used to provide financing for 
the qualified facility, and (B) the denominator of which is the 
aggregate amount of additions to the capital account for the qualified 
facility for the taxable year and all prior taxable years. Section 
45(b)(3) further provides that the amounts determined under section 
45(b)(3) for any taxable year are determined as of the close of the 
taxable year.
d. Modification of Existing Facilities
    Section 45V(d)(4) provides that for purposes of section 45V(a)(1), 
in the case of any facility that (A) was originally placed in service 
before January 1, 2023, and, prior to the modification described in 
section 45V(d)(4)(B), did not produce qualified clean hydrogen, and (B) 
after the date such facility was originally placed in service (i) is 
modified to produce qualified clean hydrogen, and (ii) amounts paid or 
incurred with respect to such modification are properly chargeable to 
the capital account of the taxpayer, such facility is deemed to have 
been originally placed in service as of the date the property required 
to complete the modification described in section 45V(d)(4)(B) is 
placed in service. Section 45V(d)(4) is effective for modifications 
made after December 31, 2022. See Sec.  13204(a)(5)(C) of the IRA.

B. Electricity Used at a Qualified Clean Hydrogen Production Facility

    Section 45(e)(13) provides that electricity produced by the 
taxpayer is treated as sold by such taxpayer to an unrelated person 
during the taxable year if (i) such electricity is used during such 
taxable year by the taxpayer or a person related to the taxpayer at a 
qualified clean hydrogen production facility (as defined in section 
45V(c)(3)) to produce qualified clean hydrogen (as defined in section 
45V(c)(2)); and (ii) such use and production is verified (in such form 
or manner as the Secretary may prescribe) by an unrelated third party. 
Section 45(e)(13) is effective for electricity produced after December 
31, 2022. See Sec.  13204(b)(3) of the IRA.
    Section 45U(c)(2) provides that rules similar to the rules of 
section 45(e)(13) apply for purposes of section 45U. Generally, section 
45U is effective for electricity produced at a qualified nuclear power 
facility and sold after December 31, 2023, in taxable years beginning 
after that date.

C. Election To Treat Clean Hydrogen Production Facilities as Energy 
Property

    Section 48(a)(15)(A)(i) provides that, in the case of any qualified 
property (as defined in section 48(a)(5)(D)) that is part of a 
specified clean hydrogen production facility, such property is treated 
as energy property. Section 48(a)(15)(A)(ii) provides that the energy 
percentage of the basis of any qualified property that is treated as 
energy property is, for a facility that is designed and reasonably 
expected to produce qualified clean hydrogen with a lifecycle GHG 
emissions rate that is: (i) not greater than 4 kilograms of CO2e per 
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per 
kilogram of hydrogen, 1.2 percent; (ii) less than 2.5 kilograms of CO2e 
per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per 
kilogram of hydrogen, 1.5 percent; (iii) less than 1.5 kilograms of 
CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e 
per kilogram of hydrogen, 2 percent; and (iv) less than 0.45 kilograms 
of CO2e per kilogram of hydrogen, 6 percent. Under section 48(a)(9), 
the amount of the section 48 credit determined for a specified clean 
hydrogen production facility under section 48(a)(15) is multiplied by 
five if the facility meets the requirements of section 48(a)(9)(B) 
(regarding application of certain maximum net

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output levels of electrical or thermal energy or prevailing wage and 
apprenticeship requirements). However, the domestic content and energy 
communities bonuses under section 48(a)(12) and (14) do not apply to a 
specified clean hydrogen production facility.
    Section 48(a)(15) is effective for property placed in service after 
December 31, 2022, and for any property the construction of which began 
before January 1, 2023, only to the extent of the basis thereof 
attributable to construction, reconstruction, or erection after 
December 31, 2022. See Sec.  13204(c)(3) of the IRA.
1. Denial of Production Credit
    Section 48(a)(15)(B) provides that no section 45V credit or section 
45Q credit is allowed for any taxable year with respect to any 
specified clean hydrogen production facility or any carbon capture 
equipment included at such facility.
2. Specified Clean Hydrogen Production Facility
    Section 48(a)(15)(C) provides that the term ``specified clean 
hydrogen production facility'' means any qualified clean hydrogen 
production facility (as defined in section 45V(c)(3)) (i) that is 
placed in service after December 31, 2022, (ii) with respect to which 
(I) no section 45V credit or section 45Q credit has been allowed, and 
(II) the taxpayer makes an irrevocable election to have section 
48(a)(15) apply, and (iii) for which an unrelated third party has 
verified (in such form or manner as the Secretary may prescribe) that 
such facility produces hydrogen through a process that results in 
lifecycle GHG emissions that are consistent with the hydrogen that such 
facility was designed and expected to produce under section 
48(a)(15)(A)(ii).
3. Qualified Clean Hydrogen
    Section 48(a)(15)(D) provides that, for purposes of section 
48(a)(15), the term ``qualified clean hydrogen'' has the meaning given 
such term by section 45V(c)(2).
4. Regulations
    Section 48(a)(15)(E) requires the Secretary to issue regulations or 
other guidance as she determines necessary to carry out the purposes of 
section 48, including regulations or other guidance that recaptures so 
much of any section 48 credit allowed as exceeds the amount of the 
credit that would have been allowed if the expected production were 
consistent with the actual verified production (or all of the credit so 
allowed in the absence of verification).

II. Notice 2022-58

    On November 3, 2022, the Department of the Treasury (Treasury 
Department) and the IRS published Notice 2022-58, 2022-47 I.R.B. 483. 
The notice requested general comments on issues arising under section 
45V and the associated clean hydrogen production and investment 
incentives in sections 45 and 48. The notice also requested specific 
comments concerning (i) definitions; (ii) boundaries of the well-to-
gate analysis for determining the lifecycle GHG emissions rate; (iii) 
the PER process; (iv) recordkeeping and reporting; (v) verification by 
unrelated parties; and (vi) coordination with sections 45, 48, and 45Q. 
Stakeholders submitted more than 200 comments in response to Notice 
2022-58, and those comments informed the development of the proposed 
regulations.

III. Proposed Regulations

    On December 26, 2023, the Treasury Department and the IRS published 
proposed regulations under sections 45V and 48(a)(15) (REG-117631-23) 
in the Federal Register (88 FR 89220) to provide guidance on the credit 
for production of clean hydrogen and the energy credit, respectively 
(proposed regulations). The provisions of the proposed regulations are 
explained in greater detail in the preamble to the proposed 
regulations.
    On April 11, 2024, the Treasury Department and the IRS published a 
supplemental notice of proposed rulemaking under sections 45V and 
48(a)(15) in the Federal Register (89 FR 25551) inviting comments on 
the U.S. Department of Energy's (DOE) information collection related to 
the DOE's Emissions Value Request Process (EVRP) for use by applicants 
in obtaining an emissions value in support of a petition for a PER, as 
set forth in the proposed regulations. The EVRP is explained in greater 
detail in the supplemental notice of proposed rulemaking. On September 
30, 2024, the DOE announced the opening of the EVRP. See Notice of 
Availability of the 45V Emissions Value Request Process (89 FR 80898).
Summary of Comments and Explanation of Revisions
    This Summary of Comments and Explanation of Revisions summarizes 
the proposed regulations and all the substantive comments submitted in 
response to the proposed regulations. The Treasury Department and the 
IRS received approximately 30,000 written comments in response to the 
proposed regulations. The comments are available for public inspection 
at www.regulations.gov or upon request. A hearing was conducted in 
person and telephonically on March 25, 26, and 27, 2024, during which 
approximately 100 individuals testified.\6\ After full consideration of 
the hearing testimony and the comments received, these final 
regulations adopt the proposed regulations with modifications in 
response to the comments described in this Summary of Comments and 
Explanation of Revisions.
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    \6\ A comment requested that the Treasury Department and the IRS 
(1) hold additional public hearings in, at a minimum, each of the 
seven regions where hydrogen hubs have been proposed; (2) provide 
virtual options for attending and presenting; and (3) clarify the 
process for participation at the public hearing. The Treasury 
Department and the IRS held a hearing over three days, which 
provided the public an opportunity to present testimony either in 
person or over the telephone. Individuals, whether testifying or 
not, could attend the hearing either in person or by telephone. 
Notice of the hearing was published as part of the proposed 
regulations in the Federal Register on December 26, 2023, which 
provided details to the public on how to participate. Accordingly, 
the public was provided a meaningful opportunity to participate in 
the hearing process.
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    The Treasury Department and the IRS also consulted extensively with 
scientific and technical experts from across the Federal government, 
including personnel from the DOE and the U.S. Environmental Protection 
Agency (EPA), in developing and drafting these final regulations. The 
Treasury Department and the IRS had regular meetings with these experts 
from the time that sections 45V and 48(a)(15) were enacted through the 
drafting and publication of the proposed regulations and the final 
regulations. The conclusions reached in these final regulations and 
explained in this Summary of Comments and Explanation of Revisions were 
deeply informed by the scientific and technical expertise that was 
shared by these experts.
    Comments merely summarizing the proposed regulations, expressing 
generic, non-specific, or extraneous concerns, recommending statutory 
revisions to sections 45V, 48(a)(15), or other statutes, or addressing 
issues that do not pertain to the purposes of sections 45V and 
48(a)(15) are not applicable to this rulemaking and are not adopted. 
Additionally, except to the extent discussed in this Summary of 
Comments and Explanation of Revisions, comments addressing the features 
of 45VH2-GREET or the contents of any supporting documentation to be 
provided in seeking an emissions value from the DOE are outside the 
scope of this

[[Page 2228]]

rulemaking and therefore are not addressed herein.

I. General Rules and Definitions

    Proposed Sec.  1.45V-1 provided definitions of key terms used in 
proposed Sec. Sec.  1.45V-1 through 1.45V-6 and 1.48-15, to determine 
eligibility for, and the amount of, the section 45V credit for 
production of clean hydrogen. Comments addressed several of the 
proposed definitions, as described in this part I.A of the Summary of 
Comments and Explanation of Revisions.
    In addition, these final regulations add the new terms ``hydrogen 
gas stream,'' ``mixed gas or impurity,'' and ``productive use,'' which 
are discussed in part I.A.5 of the Summary of Comments and Explanation 
of Revisions, as well as the terms ``process'' and ``primary 
feedstock,'' which are discussed in part I.A.7. With respect to the 
definition of ``lifecycle GHG Emissions,'' the final regulations add a 
new rule for certain emissions related to purification treated as 
through the point of production, which is discussed in part I.A.6.d of 
the Summary of Comments and Explanation of Revisions. The final 
regulations renumber the definitions to incorporate the added 
definitions.

A. Definitions

1. Applicable Amount
    Section 45V(b)(1) defines applicable amount, and section 45V(b)(3) 
provides the inflation adjustment that applies when calculating the 
applicable amount. Proposed Sec.  1.45V-1(a)(2) would have adopted this 
definition and its related inflation adjustment provision. No comments 
addressed these provisions, and these final regulations adopt them as 
proposed.
2. Applicable Percentage
    Section 45V(b)(2) defines the term ``applicable percentage.'' 
Proposed Sec.  1.45V-1(a)(3) adopted this definition. No comments 
addressed this provision, and these final regulations adopt the 
definition as proposed.
3. Claim
    Proposed Sec.  1.45V-1(a)(4) would have provided that, with respect 
to the section 45V credit determined for qualified clean hydrogen 
produced by the taxpayer at a qualified clean hydrogen production 
facility, the term ``claim'' means the filing of a completed Form 7210, 
Clean Hydrogen Production Credit, or any successor form(s), with the 
taxpayer's Federal income tax return or annual information return for 
the taxable year in which the credit is determined, and includes the 
making of an election under section 6417 or section 6418 and the 
regulations thereunder, with respect to such section 45V credit on the 
applicable entity's or eligible taxpayer's timely filed (including 
extensions) Federal income tax return or annual information return.
    One comment requested that the final regulations offer a 
streamlined process to claim the section 45V credit for small producers 
of hydrogen. Section 45V does not make any distinction based on the 
size of the hydrogen producer, and the importance of reporting and 
compliance are the same regardless of the producer's size. Accordingly, 
providing a more streamlined process for claiming the section 45V 
credit for small producers is not appropriate. Additionally, to 
clarify, section 1.45V-1(a)(4) has no effect on the procedures for 
making an election under section 6417 or 6418, the requirements for 
which are described in the regulations for each provision. For 
procedures for making an election under section 6417, see Sec.  1.6417-
2(b). For procedures for making an election under section 6418, see 
Sec.  1.6418-2. Accordingly, section 1.45V-1(a)(4) is adopted without 
change.
4. Facility
a. Equipment Included in the Definition of Facility
    Proposed Sec.  1.45V-1(a)(7)(i) would have provided that, for 
purposes of the definition of qualified clean hydrogen production 
facility provided at section 45V(c)(3), the term ``facility'' means a 
single production line that is used to produce qualified clean 
hydrogen, unless otherwise specified. Further, proposed Sec.  1.45V-
1(a)(7)(i) would have provided that a ``single production line'' 
includes all components of property that function interdependently to 
produce qualified clean hydrogen. Components of property would be 
functionally interdependent if the placing in service of each component 
were dependent upon the placing in service of each of the other 
components to produce qualified clean hydrogen. Proposed Sec.  1.45V-
1(a)(7)(iii) would have provided that components that have a purpose in 
addition to the production of qualified clean hydrogen may be part of a 
facility if such components function interdependently with other 
components to produce qualified clean hydrogen. Proposed Sec.  1.45V-
1(a)(7)(iv) would have provided an example to illustrate the definition 
of facility for purposes of section 45V.
    Comments asked a variety of questions about the definition of 
``facility,'' including whether specific equipment is part of a 
facility. Some comments requested clarification on the meaning of 
``single production line'' and ``functional interdependence'' and 
whether components of a facility that produce hydrogen as a by-product 
of another production process are part of a ``single production line'' 
that is used to produce hydrogen. Other comments asked for 
clarification on whether designated spaces and equipment necessary for 
commercial operation, but not necessary for hydrogen production (for 
example, break rooms and lighting) are part of the ``facility.'' 
Another comment requested that the final regulations specify a method 
for allocating lifecycle GHG emissions across multipurpose components. 
The comment suggested that, in many cases, it would not be appropriate 
to include, through the point of production, all lifecycle GHG 
emissions from multipurpose components that are part of the balance of 
plant, such as the cooling tower or air compressor if the hydrogen 
production process does not consume a significant amount of energy from 
the use of such equipment.
    One comment recommended that the final rules modify the definition 
of ``facility'' to include all electrolyzers within the balance of 
plant to prevent hydrogen producers from designating one electrolyzer 
as having produced hydrogen without energy attribute certificates 
(EACs) should a producer not have EACs sufficient to ensure all 
hydrogen produced at a facility is qualified clean hydrogen.
    Another comment asked whether the definition of ``facility'' in 
proposed Sec.  1.45V-1(a)(7) would create a ``circular loop'' wherein 
the hydrogen producer would need to identify the components of the 
facility in order to obtain an emissions rate under 45VH2-GREET, but 
could not identify the components of the facility without knowing 
whether the facility produces hydrogen at an emissions rate of not 
greater than 4 kilograms of CO2e per kilogram of hydrogen.
    One comment requested clarification that the definition of facility 
in proposed Sec.  1.45V-1(a)(7) does not apply for purposes of the 
definition of ``industrial facility'' in Sec.  1.45Q-2(d).
    One comment requested clarification on whether a facility includes 
downstream property that uses the hydrogen produced at a qualified 
clean hydrogen production facility. Similarly, one comment requested 
clarification on whether hydrogen production equipment that is 
installed on the property of an industrial plant or a gas utility 
qualifies as a ``facility.'' Although

[[Page 2229]]

unclear, this comment appears to be requesting clarification whether an 
existing industrial plant or gas utility becomes a hydrogen production 
facility if hydrogen production equipment is added to the existing 
plant or utility.
    In response to these comments seeking clarification on what is 
included in the definition of facility, these final regulations modify 
proposed Sec.  1.45V-1(a)(7)(i) and (iv), as well as Sec.  1.45V-
1(a)(7)(ii), which identifies equipment that is not included in the 
definition of facility. Generally, the definition of ``facility'' is 
sufficiently clear as an established tax concept. The concept of 
``functional interdependence'' has been used by courts for many years 
to decide whether property was placed in service for depreciation and 
the investment tax credit. See, for example, Armstrong World 
Industries, Inc. v. Commissioner, 974 F.2d 422, 434 (3d Cir. 1992) 
(``[C]ourts appear to agree that individual components will be 
considered as a single property for tax purposes--when the component 
parts are functionally interdependent when each component is essential 
to the operation of the project as a whole and cannot be used 
separately to any effect.''). The general definition of facility in 
proposed Sec.  1.45V-1(a)(7)(i) uses this ``functional 
interdependence'' concept by indicating that a single production line 
includes all components of property that function interdependently to 
produce qualified clean hydrogen. To ease the determination of what 
equipment is included, the final regulations add to this definition the 
phrase ``through a process that results in the lifecycle GHG emissions 
rate used to determine the credit.'' This clarifies that all equipment 
used to produce the qualified clean hydrogen for which the section 45V 
credit is determined is included as part of the qualified clean 
hydrogen facility. For example, carbon capture equipment is part of the 
facility if it contributes to the lifecycle GHG emissions rate of the 
process by which the qualified clean hydrogen for which the credit is 
determined is produced. In addition, these final regulations update the 
example in Sec.  1.45V-1(a)(7)(iv) to reflect the modifications made to 
the text in Sec.  1.45V-1(a)(7)(i).
    Purification equipment is part of the facility if such equipment 
contributes to the purity content of the qualified clean hydrogen for 
which the section 45V credit is determined. As discussed in part 
I.A.6.c of this Summary of Comments and Explanation of Revisions, 
purification equipment that is used downstream of the facility's 
process of producing qualified clean hydrogen is not part of the 
facility, but in certain circumstances, emissions from such 
purification equipment are within the well-to-gate system boundary for 
purposes of the lifecycle GHG emissions rate analysis.
    Regarding multipurpose components, these final regulations adopt 
proposed Sec.  1.45V-1(a)(7)(iii) with a clarification that production 
is for qualified clean hydrogen. Proposed Sec.  1.45V-1(a)(7)(iii) 
already clarifies that components can have multiple purposes, including 
but not limited to the production of qualified clean hydrogen, so long 
as the components function interdependently with other components to 
produce qualified clean hydrogen. With respect to the allocation of 
lifecycle GHG emissions attributed to multipurpose components, 
taxpayers must use a reasonable method to allocate the inputs used to 
determine such emissions.
    To the extent a facility produces hydrogen as a by-product of 
another production process, any components of the facility that 
function interdependently to produce qualified clean hydrogen--
regardless of whether they serve a purpose in addition to the 
production of qualified clean hydrogen--are part of the qualified clean 
hydrogen production facility.
    With respect to whether equipment necessary for commercial 
operation, but not for hydrogen production, is part of the ``facility'' 
(such as break room lighting), Sec.  1.45V-1(a)(7)(i) answers this 
question. If the placing in service of such equipment is not necessary 
to produce qualified clean hydrogen and is not part of the process that 
results in the lifecycle GHG emissions rate used to determine the 
credit, such equipment does not function interdependently with the 
qualified clean hydrogen production equipment and is not part of the 
``facility.'' If such non-functionally interdependent equipment draws 
from the same electricity source as the facility, to the extent it is 
separately metered, such electricity usage would not be an input into 
45VH2-GREET. To the extent such equipment is not separately metered, 
taxpayers must use a reasonable method to allocate such electricity 
usage.
    The final regulations do not adopt the comment to revise the 
definition of ``facility'' to include all electrolyzers within the 
balance of plant. Under Sec.  1.45V-1(a)(7)(i), to the extent each 
electrolyzer produces qualified clean hydrogen separately from the 
other electrolyzers (that is, does not function interdependently with 
the other electrolyzers), each electrolyzer is treated as a separate 
facility. Treating each electrolyzer within the balance of plant as a 
separate facility is consistent with Revenue Ruling 94-31, 1994-1 C.B. 
16, which held that each wind turbine within a windfarm is a separate 
``qualified facility'' under section 45 because each wind turbine can 
be separately operated and metered to produce electricity. Similar to a 
wind turbine within a wind farm, an electrolyzer within the balance of 
plant functions separately from the other electrolyzers to produce 
hydrogen. As to the concern that EACs may be shifted from one 
electrolyzer to another electrolyzer within the balance of plant, a 
hydrogen producer is free to acquire and retire EACs for some 
electrolyzers and not for others, no matter the production technology 
the electrolyzers use and no matter the extent of their co-location, so 
long as the retired EACs are matched to a particular electrolyzer's 
electricity consumption from which hydrogen is produced. Imposing a 
rule that co-located electrolyzers are considered part of the same 
facility so that they each receive an equal allocation of EACs would 
not necessarily reflect each electrolyzer's electricity consumption and 
would be inconsistent with existing tax law's treatment of the 
definition of ``facility.''
    In response to the comment that questioned whether the definition 
of ``facility'' in Sec.  1.45V-1(a)(7) creates a ``circular loop,'' 
these final regulations modify proposed Sec.  1.45V-1(a)(7)(i) to 
provide that equipment is part of the facility if it functions 
interdependently to produce qualified clean hydrogen through a process 
that results in the lifecycle GHG emissions rate used to determine the 
credit. The lifecycle GHG emissions analysis of the hydrogen production 
process is not coextensive with the tax definition of a hydrogen 
production facility. For example, lifecycle GHG emissions include 
emissions from stages of the hydrogen production process beyond the 
hydrogen production facility, such as emissions from growth, gathering, 
extraction, processing, and delivery of feedstock to a hydrogen 
production facility. See section 45V(c)(1)(A) (defining lifecycle GHG 
emissions by reference to section 211(o)(1)(H) of the Clean Air Act) 
and (B) (describing that lifecycle GHG emissions include emissions 
through the point of production (well-to-gate)); see also Guidelines to 
Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen 
Production Pathways using 45VH2-GREET (45VH2-GREET User Manual), Sec.  
2.4.1 (Emissions of Electricity Generation), which can be

[[Page 2230]]

found at www.energy.gov/45vresources. The Summary of Comments and 
Explanation of Revisions to these final regulations generally refer to 
the 45VH2-GREET User Manual as it is currently publicly available, but 
at times references intended modifications to it. As further discussed 
in the Summary of Comments and Explanation of Revisions to these final 
regulations, the DOE intends to release a new version of 45VH2-GREET 
with an accompanying user manual in January 2025.
    Regarding whether a ``facility'' includes downstream property that 
uses hydrogen produced at a qualified clean hydrogen production 
facility, downstream property that does not contribute to the 
facility's process of producing qualified clean hydrogen--but instead 
only to the later use of such hydrogen following its production--is not 
part of the facility because it does not function interdependently in 
the production of the qualified clean hydrogen for which the section 
45V credit is determined. Further, Sec.  1.45V-1(a)(7)(ii) provides 
that the facility does not include equipment used to condition or 
transport hydrogen beyond the point of production.
    Regarding the effect of Sec.  1.45V-1(a)(7) on the definition of 
industrial facility under Sec.  1.45Q-2(d), whether and the extent to 
which the section 45V regulations affect terms defined in section 45Q 
is a matter that falls within the scope of section 45Q and is therefore 
not applicable to these regulations.
    Regarding whether an industrial plant or gas utility becomes part 
of the hydrogen production ``facility'' when hydrogen production 
equipment is installed at the plant or utility, such an inquiry will 
depend on the facts and circumstances of the particular hydrogen 
production equipment and whether such equipment functions 
interdependently with the existing industrial plant or utility 
equipment to produce hydrogen. Accordingly, these final regulations 
provide sufficient criteria to apply to such an inquiry on a case-by-
case basis.
b. Equipment Excluded From the Definition of Facility
    Proposed Sec.  1.45V-1(a)(7)(ii) would have provided that a 
facility does not include equipment used to condition or transport 
hydrogen beyond the point of production. Proposed Sec.  1.45V-
1(a)(7)(ii) also would have provided that a facility does not include 
electricity production equipment used to power the hydrogen production 
process, including any carbon capture equipment associated with the 
electricity production process.
    Some comments requested clarification that a ``facility'' does not 
include upstream facilities that generate and supply electricity, fuel, 
feedstock, water, ammonia, or other inputs into or for use at the 
hydrogen production facility. Another comment requested confirmation 
that a facility producing renewable natural gas (RNG) that is supplied 
to a facility that uses the RNG to produce hydrogen does not fall 
within the definition of ``facility.''
    One comment recommended that the final rules exclude from the 
definition of ``facility'' any facility that includes an electrolyzer 
stack that was assembled in or by a ``Covered Nation'' as defined in 10 
U.S.C. 4872(d)(2), or a ``Foreign Entity of Concern,'' as referenced 
under Sec.  40207 of the Infrastructure Investment and Jobs Act, Public 
Law 117-58.
    The Treasury Department and the IRS agree that clarification is 
needed on whether feedstock production equipment is part of the 
``facility.'' In addition, clarification is needed on whether feedstock 
recovery equipment is part of the ``facility.'' Although proposed Sec.  
1.45V-1(a)(7)(ii)(B) would have excluded electricity production 
equipment from the definition of ``facility,'' the proposed rules would 
not have addressed other types of feedstock production and recovery 
equipment, such as RNG production equipment. The intent of the proposed 
rules was to exclude upstream feedstock production and recovery 
equipment, such as RNG production equipment, from the definition of 
facility. Accordingly, these final regulations add ``feedstock-related 
equipment, including production, purification, recovery, 
transportation, or transmission equipment'' to the list of items 
excluded from the definition of facility in Sec.  1.45V-1(a)(7)(ii)(B). 
As discussed in this part I.A.6.c of this Summary of Comments and 
Explanation of Provisions, however, lifecycle GHG emissions associated 
with feedstock growth, gathering, extraction, processing, and delivery 
to a hydrogen production facility are still included in the lifecycle 
GHG analysis reflected in 45VH2-GREET.
    As to excluding components assembled in or by a ``Covered Nation'' 
or a ``Foreign Entity of Concern'' from the definition of facility, 
there is no provision of section 45V that imposes such a rule, so these 
final regulations do not adopt this comment.
5. Hydrogen Gas Stream, Mixed Gas or Impurity, and Productive Use
    The final regulations add three new definitions, ``hydrogen gas 
stream,'' to Sec.  1.45V-1(a)(8); ``mixed gas or impurity,'' to Sec.  
1.45V-1(a)(10); and ``productive use'' to Sec.  1.45V-1(a)(12). The 
term ``hydrogen gas stream'' means a flow of gases that includes 
hydrogen, either alone or with one or more other gases. The term 
``mixed gas or impurity'' means a non-hydrogen gas that is part of a 
hydrogen gas stream.
    The term ``productive use'' means, with respect to a hydrogen gas 
stream, a consumption of the hydrogen gas stream in a manner that 
generates positive economic value, which is determined without regard 
to the availability of the section 45V credit. The term ``productive 
use'' means, with respect to qualified clean hydrogen, a consumption of 
qualified clean hydrogen in a manner that generates positive economic 
value, which is determined without regard to the availability of the 
section 45V credit. Positive economic value is determined without 
regard to the section 45V credit, consistent with the anti-abuse rule 
of Sec.  1.45V-2(b). Thus, for example, a hydrogen gas stream produced 
with the primary purpose of obtaining the benefit of the section 45V 
credit in a wasteful manner would not have a productive use.
    All three terms are relevant to the rule where certain emissions 
related to purification are treated as through point of production, 
described in part I.A.6.d of this Summary of Comments and Explanation 
of Revisions. The term ``productive use'' also relates to the anti-
abuse rule described in part II.B of this Summary of Comments and 
Explanation of Revisions.
6. Lifecycle GHG Emissions
    Section 45V(c)(1)(A) provides that, subject to section 
45V(c)(1)(B), the term ``lifecycle greenhouse gas emissions'' has the 
same meaning given such term under section 211(o)(1)(H) of the Clean 
Air Act (42 U.S.C. 7545(o)(1)) as in effect on the date of enactment of 
section 45V. Section 45V(c)(1)(B) provides that the term ``lifecycle 
greenhouse gas emissions'' only includes emissions through the point of 
production (well-to-gate), as determined under the most recent GREET 
model, or a successor model (as determined by the Secretary). Proposed 
Sec.  1.45V-1(a)(8) would have defined ``lifecycle GHG emissions.'' The 
final regulations renumber proposed Sec.  1.45V-1(a)(8) to Sec.  1.45V-
1(a)(9).
    Proposed Sec.  1.45V-1(a)(8)(i) would have incorporated the 
statutory definitions provided in section 45V(c)(1)(A) and (B), 
specifically providing that the term has the same meaning as that in 
section 211(o)(1)(H) of the Clean Air Act as in effect on August 16, 
2022, and includes

[[Page 2231]]

emissions only through the point of production (well-to-gate) as 
determined under the most recent GREET model, or a successor model. 
These final regulations modify proposed Sec.  1.45V-1(a)(8)(i) to 
provide that, for purposes of section 45V, lifecycle GHG emissions are 
determined under the 45VH2-GREET Model. No comments were received on 
Sec.  1.45V-1(a)(8)(i), and this provision is adopted as renumbered 
Sec.  1.45V-1(a)(9)(i) without further changes.
    By reference to section 211(o)(1)(H) of the Clean Air Act, section 
45V(c)(1)(A) requires a complete assessment of direct and significant 
indirect emissions associated with a hydrogen production process. After 
consultation with the DOE and the EPA, the Treasury Department and the 
IRS interpret section 45V(c)(1)(A) with its reference to section 
211(o)(1)(H) of the Clean Air Act as excluding emissions related to the 
manufacturing of the equipment within the hydrogen production pathway 
(for example, power generators, hydrogen production facility), from the 
definition of lifecycle GHG emissions. This interpretation is 
consistent with how EPA has implemented section 211(o)(1)(H) of the 
Clean Air Act for the Renewable Fuel Standard (RFS) program.\7\
---------------------------------------------------------------------------

    \7\ Regulatory Impact Analysis, Renewable Fuel Standard Program, 
U.S. Environmental Protection Agency, EPA-420-R-10-10-006, at 311-
312 (Feb. 2010), available at https://www.regulations.gov/document/EPA-HQ-OAR-2021-0324-0652.
---------------------------------------------------------------------------

a. Most Recent GREET Model
    Proposed Sec.  1.45V-1(a)(8)(ii) would have provided that, for 
purposes of the section 45V credit, the term ``most recent GREET 
model'' means the latest version of 45VH2-GREET developed by Argonne 
National Laboratory and published by the DOE, as provided in the 
instructions to the latest version of Form 7210, Clean Hydrogen 
Production Credit, or any successor form(s), on the first day of the 
taxable year during which the qualified clean hydrogen for which the 
taxpayer is claiming the section 45V credit was produced. Proposed 
Sec.  1.45V-1(a)(8)(ii) would have further provided that, if a version 
of 45VH2-GREET becomes publicly available after the first day of the 
taxable year of production (but still within such taxable year), then 
the taxpayer could, in its discretion, treat such later version of 
45VH2-GREET as the most recent GREET model.
    Several comments recommended changes to proposed Sec.  1.45V-
1(a)(8)(ii). Some comments requested that, instead of identifying 
45VH2-GREET as the ``most recent GREET model'' under section 
45V(c)(1)(B), the final regulations identify the R&D GREET model 
developed by Argonne National Laboratory and published by the DOE as 
the most recent GREET model. Comments further recommended that the 
final regulations require the use of 45VH2-GREET as a ``successor 
model'' only if 45VH2-GREET closely aligns in function and principle 
with the version of the R&D GREET model as it existed at the time that 
section 45V was enacted. Other comments supported 45VH2-GREET as the 
best available open-source lifecycle analysis methodology for 
determining lifecycle GHG emissions for purposes of section 45V. Yet 
another comment recommended that a model the comment had developed 
should be able to be used as an alternative to 45VH2-GREET.
    Except for changing the nomenclature of the ``most recent GREET 
model'' to the ``45VH2-GREET Model,'' as further discussed in this part 
I.A.6.a of the Summary of Comments and Explanation of Revisions, these 
final regulations do not adopt the comments recommending changes to 
proposed Sec.  1.45V-1(a)(8)(ii).
    Though the Treasury Department and the IRS continue to view 45VH2-
GREET as the most recent GREET model for the reasons described in the 
preamble to the proposed regulations and the fact that it was developed 
more recently than the R&D GREET model, the Treasury Department and the 
IRS recognize that the continued existence of the R&D GREET model and 
periodic updates to both 45VH2-GREET and the R&D GREET model have 
created some uncertainty in this regard. To avoid any potential 
uncertainty about the meaning of the most recent GREET model, which 
would be detrimental to the administration and implementation of the 
section 45V credit, the Secretary is invoking her express delegation of 
authority in section 45V(c)(1)(B) to determine 45VH2-GREET to be a 
``successor model'' and to require its use.
    In selecting 45VH2-GREET rather than the R&D GREET model or some 
other model, the Treasury Department and the IRS considered the 
statutory definition of lifecycle GHG emissions in section 211(o)(1)(H) 
of the Clean Air Act (as in effect on August 16, 2022) and the specific 
objectives of section 45V, and consulted with the DOE. 45VH2-GREET best 
meets these parameters. It is a model specifically developed by the 
Argonne National Laboratory as a derivative of and successor to the R&D 
GREET model, designed specifically to address hydrogen production 
processes and to meet the requirements and objectives of section 45V.
    The R&D GREET model has been maintained by the DOE since 1995 to 
enable research regarding lifecycle analyses of hundreds of different 
methods of producing, delivering, and using energy. The model includes 
many fuels other than hydrogen (for example, biofuels, synthetic fuels, 
fossil fuels, and electrification), and includes information that is 
based on preliminary analyses (that is, analyses that are not yet 
complete, have significant technical uncertainties, or are still being 
reviewed by laboratory staff, DOE staff, or independent experts).\8\ 
Annual updates to the model inform academic studies, informally guide 
decarbonization strategies and research and development funded by both 
the DOE and industry, and elicit stakeholder feedback that can improve 
the model, particularly with regard to preliminary pathways. R&D GREET 
is a valuable tool to characterize the benefits and impacts of energy 
technologies in a directional manner and to test out new and updated 
data and parameters, but it is not appropriate for use in analyses 
where a relatively high degree of precision and certainty is required, 
given the preliminary nature of much of the information represented, 
and where specific emissions fluxes and their representation are needed 
in a specific fashion (for example, to meet specifications within the 
statute). Moreover, because the R&D GREET model offers users many 
choices regarding analysis methodology (for example, co-product 
accounting, system boundaries, and global warming potential values), 
different users can achieve significantly different estimated GHG 
emissions rates even when representing the same facility. Many of these 
choices would not be appropriate in the specific context of the section 
45V credit given the preliminary nature of much of the data underlying 
aspects of the R&D GREET model and the fact that the model does not 
require the use of specific methodologies and accounting parameters. 
Accordingly, R&D GREET does not provide the degree of certainty, 
structure, and specificity necessary to meet the statutory requirement 
of reflecting lifecycle GHG emissions as defined by section 
211(o)(1)(H) of the Clean Air Act (as in effect on August 16, 2022), 
nor does it meet the specific objectives of such section or of the 
section 45V credit.
---------------------------------------------------------------------------

    \8\ See generally GREET, Office of Energy Efficiency & Renewable 
Energy, U.S. Department of Energy, available at https://www.energy.gov/eere/greet.

---------------------------------------------------------------------------

[[Page 2232]]

    In addition, implementation of the section 45V credit will be aided 
by a user-friendly model that characterizes the lifecycle GHG emissions 
rates of different hydrogen production processes consistently, with 
high levels of confidence, and with higher fidelity than R&D GREET, and 
consistent with the requirements, purposes, and objectives of the 
section 45V credit. The DOE directed the Argonne National Laboratory to 
develop 45VH2-GREET to meet three key parameters: (1) consistency of 
background assumptions for all users and across hydrogen production 
processes, while enhancing user friendliness, (2) technical robustness 
of the processes, and (3) consistency with the other requirements and 
purposes of section 45V. Each of these parameters is explained in 
additional detail as follows.
    First, 45VH2-GREET facilitates consistent analyses across different 
processes while enhancing user friendliness. While R&D GREET allows 
users to simulate hundreds of different fuel pathways (including but 
not limited to those that involve hydrogen) and several different 
system boundaries with different user-defined assumptions, 45VH2-GREET 
exclusively allows simulations of the well-to-gate emissions associated 
with hydrogen production (as specified in section 45V(c)(1)(B) and in 
alignment with these final regulations). The simpler interface in 
45VH2-GREET as compared to R&D GREET ensures that the model is 
accessible to a broad range of taxpayers, including those without 
significant prior experience in lifecycle analysis or a GREET model.
    Second, 45VH2-GREET achieves technical robustness across hydrogen 
production pathways. Hydrogen production pathways represented in 45VH2-
GREET are a subset of those in R&D GREET and were included following 
rigorous interagency review for technical fidelity and alignment with 
the statute. While additional hydrogen production pathways are 
available in R&D GREET, many are preliminary in nature and 
inappropriate for analyses requiring relatively high precision, data 
reliability, and analytical rigor to support use in implementation of 
the section 45V credit (as described previously in this part of the 
Summary of Comments and Explanation of Revisions and further in 
supporting documentation to R&D GREET \9\). Implementation of the 
section 45V credit necessitates the use of lifecycle GHG emissions rate 
calculations that are as precise and robust as feasible, as section 
45V(b)(2) provides differing applicable percentages based on a range of 
lifecycle GHG emissions rates and section 45V(c)(2)(A) includes within 
the definition of qualified clean hydrogen only hydrogen produced with 
a lifecycle GHG emissions rate below a threshold level. Absent 
analytically robust emissions calculations, these final regulations 
would fail to implement Congress's directive to incentivize qualified 
clean hydrogen production, as distinguished among the different 
applicable percentage brackets, as well as fail to realize Congress's 
underlying objective of crediting only qualified clean hydrogen and 
providing greater credit amounts to hydrogen produced with lower 
lifecycle GHG emissions rates. As data on and analyses of additional 
hydrogen production pathways in R&D GREET become more robust, such 
pathways may be incorporated into future versions of 45VH2-GREET.
---------------------------------------------------------------------------

    \9\ Summary of Expansions and Updates in R&D GREET 2023 (2023), 
Argonne National Laboratory, available at https://greet.anl.gov/files/greet-2023-summary (R&D GREET Supporting Documentation).
---------------------------------------------------------------------------

    Additionally, 45VH2-GREET was developed to align with the text of 
section 45V, which requires that the credit be based on the ``lifecycle 
greenhouse gas emissions'' as defined under section 211(o)(1)(H) of the 
Clean Air Act, subject to the additional requirements of section 
45V(c)(1)(B), which references the use of GREET or a successor model as 
determined by the Secretary, and limits the emissions estimates to 
``well-to-gate'' emissions. Lifecycle GHG emissions are defined in 
section 211(o)(1)(H) of the Clean Air Act to include both direct 
emissions and significant indirect emissions. R&D GREET does not 
robustly account for the variability in emissions estimates of all 
potential significant indirect emissions of certain hydrogen production 
pathways, particularly when representing counterfactual scenarios. The 
model additionally does not address the risk of significant indirect 
emissions related to changes in market behavior associated with the 
incentives created by section 45V.\10\ The proposed regulations 
therefore asked for comments on lifecycle analysis (LCA) considerations 
associated with hydrogen production pathways.
---------------------------------------------------------------------------

    \10\ For example, in a December 13, 2023, letter to the Treasury 
Department, the EPA noted that it has interpreted section 
211(o)(1)(H) of the Clean Air Act in the context of the Clean Air 
Act's RFS program. In that context, the EPA had previously 
determined that the version of ANL GREET that existed in 2010 (that 
is, R&D GREET) was not sufficient to calculate lifecycle GHG 
emissions for purposes of 211(o)(1)(H) of the Clean Air Act. The EPA 
also explained that the more recent version of ANL GREET that 
existed as of December 2023 similarly did not satisfy the relevant 
Clean Air Act criteria because it did not include the significant 
direct and indirect emissions that the EPA had previously determined 
were necessary. See Letter from Joseph Goffman, Principal Deputy 
Assistant Administrator for the Office of Air and Radiation, U.S. 
Environmental Protection Agency, to Lily Batchelder, Assistant 
Secretary for Tax Policy, U.S. Department of the Treasury (Dec. 13, 
2023), available at https://home.treasury.gov/system/files/136/Final-EPA-letter-to-UST-on-SAF-signed.pdf.
---------------------------------------------------------------------------

    In characterizing the lifecycle GHG emissions rate of a given 
hydrogen production pathway, 45VH2-GREET reflects key drivers of 
``lifecycle greenhouse gas emissions'' as defined by section 
45V(c)(1)(A) by cross-reference to section 211(o)(1)(H) of the Clean 
Air Act, subject to the additional requirements of section 
45V(c)(1)(B). Consistent with the Clean Air Act, 45VH2-GREET, in 
conjunction with the broader regulatory framework, addresses direct GHG 
emissions (for example, at a hydrogen production facility) and 
significant indirect emissions (for example, upstream emissions 
associated with electricity consumption at a hydrogen production 
facility).
    Third, 45VH2-GREET is consistent with the other requirements and 
purposes of section 45V. The accurate and fair administration of the 
section 45V credit requires the use of fixed ``background data'' 
assumptions for parameters for which bespoke inputs from hydrogen 
producers would present challenges for tax administration, which 
requires high fidelity to ensure the accurate assessment and reporting 
of lifecycle GHG emissions rates associated with the production of 
hydrogen. Allowing taxpayers to provide bespoke values for parameters 
that cannot be accurately determined at an individual taxpayer level or 
cannot be verified would invite exaggerated or understated estimates 
that could result in inaccurate section 45V credit determinations. Use 
of verifiable data ensures that the section 45V credit is available 
only to those facilities that meet statutory requirements and that the 
appropriate section 45V credit amount is determined with respect to 
those facilities. To facilitate the use of bespoke values where 
feasible and the use of appropriate alternative values where that is 
not feasible, as well as consistency across taxpayers, the proposed 
regulations introduced the concepts of ``background data'' (which 
cannot be changed by 45VH2-GREET users) and ``foreground data'' (which 
allows for bespoke inputs by 45VH2-GREET users), and 45VH2-GREET 
distinguishes between them in a consistent manner. For example, 45VH2-
GREET incorporates the GHG emissions rates of regional grids as a

[[Page 2233]]

fixed background data parameter that users cannot change. The values 
incorporated in 45VH2-GREET as background data are based on individual 
power generators' reporting to the U.S. Energy Information 
Administration (EIA), emissions factors derived from the EPA's 
Emissions & Generation Resource Integrated Database (eGRID), estimates 
of upstream emissions derived by Argonne National Laboratory, and 
estimates of transmission and distribution losses based on State level 
reporting to the EIA. Given that GHG emissions estimates of regional 
grids are derived using the best available data and science, it is 
unlikely that a given taxpayer would be able to establish a value that 
differs materially from the 45VH2-GREET default and also has high 
fidelity. Moreover, given that this parameter is expected to be 
consistent across all taxpayers within a given region, it is 
appropriate to require that all such taxpayers utilize the same value 
rather than allowing for deviation across facilities.
    Thus, 45VH2-GREET is consistent with the specific requirements of 
section 45V while maintaining R&D GREET's overall modeling approach and 
much of R&D GREET's background assumptions. This furthers the purposes 
reflected in section 45V(c)(1)(A) and (B). For these reasons, the 
Secretary has determined that 45VH2-GREET is a successor model for 
purposes of section 45V(c)(1)(B), and the final regulations require its 
use. Accordingly, proposed Sec.  1.45V-1(a)(8)(ii) is modified and 
renumbered as Sec.  1.45V-1(a)(9)(ii) to provide that the term ``45VH2-
GREET Model'' means the latest publicly available version of 45VH2-
GREET developed by Argonne National Laboratory and published by the 
DOE, as identified in the instructions to the latest version of Form 
7210, or a successor form(s), on the first day of the taxable year 
during which the qualified clean hydrogen for which the taxpayer is 
claiming the section 45V credit was produced. Additionally, as further 
discussed in this Summary of Comments and Explanation of Revisions, 
proposed Sec.  1.45V-4(a) is modified to provide that the lifecycle GHG 
emissions rate of each hydrogen production process at a qualified clean 
hydrogen production facility is determined under the 45VH2-GREET Model. 
Conforming changes have also been made throughout the regulatory text 
to replace ``most recent GREET model'' with ``45VH2-GREET Model.''
b. Differences From R&D GREET
    Several comments requested that 45VH2-GREET include all the 
pathways and technologies that are present in R&D GREET. Some of these 
comments also requested that 45VH2-GREET employ the same methodology 
used for measuring lifecycle GHG emissions as those used in R&D GREET. 
Some comments specifically requested that the transportation-related 
emissions be consistent between the two models.
    The final regulations do not adopt these comments. As described in 
the 45VH2-GREET User Manual and as described in this part I.A.6 of the 
Summary of Comments and Explanation of Revisions, some pathways may be 
included in R&D GREET but not in a given version of 45VH2-GREET because 
the pathways were still preliminary when such version of 45VH2-GREET 
was developed and/or because the pathways did not adequately address 
all key sources of direct and significant indirect emissions (as 
required for consistency with section 211(o)(1)(H) of the Clean Air 
Act). Uncertainties around many of these pathways may include 
parameters such as identification of all relevant feedstocks or the 
choice of counterfactual scenarios. These uncertainties are described 
in sections 2.1.1 and 2.1.4 of the R&D GREET Supporting Documentation. 
Some pathways, such as those using certain types of biomass, also had 
uncertainties and had not completed the 45VH2-GREET technical review 
process at the time the most recent version was released, but may be 
added in future updates as data and other parameters become more 
robust. The proposed regulations requested comments on lifecycle 
analysis considerations associated with some of the pathways that were 
not included in the initial 45VH2-GREET release (for example, certain 
RNG pathways and fugitive methane), which could inform future updates 
to the model.
    Some specific aspects of hydrogen production pathways within R&D 
GREET have completed an interagency review process, have been deemed 
sufficiently robust and, have therefore also been included in 45VH2-
GREET. Examples include default assumptions associated with methane 
leakage during natural gas transportation to a facility or assumptions 
of the emissions that result from electricity generation from specific 
generators. Thus, some assumptions related to transportation emissions 
have been made consistent between R&D GREET and 45VH2-GREET, while 
other assumptions are still too uncertain to include in 45VH2-GREET but 
may be included if deemed sufficiently robust in the future based on 
evaluation by interagency technical experts.
    R&D GREET is used for a range of purposes, including academic 
studies and research that do not necessarily require verification of 
assumptions with real-world data at specific facilities and at times 
rely on small and therefore uncertain sample sizes or datasets. 
Implementation of the section 45V credit, however, requires that 
information used to calculate the lifecycle GHG emissions rate reflect 
a given taxpayer's actual operation with a reasonable degree of 
certainty and be subject to independent verification where possible or, 
where not, that values used appropriately reflect the range of 
possibilities rather than allowing use of unverifiable inputs that 
inappropriately maximize the amount of the section 45V credit. As 
described previously, use of verifiable data is necessary in the 
context of tax administration and in particular with respect to the 
section 45V credit where eligibility for the amount of the credit is 
based on the facility's lifecycle GHG emissions rate.
c. Emissions Through the Point of Production (Well-to-Gate)
    Proposed Sec.  1.45V-1(a)(8)(iii) would have provided that, for 
purposes of section 45V(c)(1)(B) and proposed Sec.  1.45V-1(a)(8)(i), 
the term ``emissions through the point of production (well-to-gate)'' 
means the aggregate lifecycle GHG emissions related to hydrogen 
produced at a hydrogen production facility during the taxable year 
through the point of production. Further, proposed Sec.  1.45V-
1(a)(8)(iii) would have provided that such term includes emissions 
associated with feedstock growth, gathering, extraction, processing, 
and delivery to a hydrogen production facility. Finally, proposed Sec.  
1.45V-1(a)(8)(iii) would have provided that such term includes the 
emissions associated with the hydrogen production process, inclusive of 
the electricity used by the hydrogen production facility and any 
capture and sequestration of carbon dioxide generated by the hydrogen 
production facility.
    Some comments requested clarification on the definition of ``well-
to-gate'' and whether emissions related to hydrogen purification, 
compression, liquefaction, transport, storage, and other activities are 
included in the definition for purposes of calculating the lifecycle 
GHG emissions rate of the hydrogen. Other comments provided feedback on 
the requirement in proposed Sec.  1.45V-1(a)(8)(iii) that

[[Page 2234]]

taxpayers calculate the lifecycle GHG emissions rate of hydrogen 
produced at a hydrogen production facility based on the aggregate 
amount of hydrogen produced at the facility over the taxable year (in 
other words, use the average annual emissions rate). While some 
comments supported requiring taxpayers to calculate the lifecycle GHG 
emissions rate of hydrogen on an annual basis, other comments requested 
that taxpayers be permitted to calculate the lifecycle GHG emissions 
rate of hydrogen produced at their facility on a more granular basis. 
One comment expressed disappointment that the Treasury Department and 
the IRS did not engage States in defining lifecycle GHG emissions. 
Another comment recommended that the final regulations require State 
governments to adopt regulations to complement and enhance section 45V. 
Finally, one comment requested that the term ``emissions through the 
point of production (well-to-gate)'' exclude emissions from the 
production of hydrogen during natural disasters, emergency events, 
start-ups, shut-downs, and maintenance activities.
    Regarding the request for clarification of whether specific 
activities fall within the well-to-gate system boundary, the definition 
of ``emissions beyond the point of production (well-to-gate)'' in 
proposed Sec.  1.45V-1(a)(8)(iii) and renumbered as Sec.  1.45V-
1(a)(9)(iii) is sufficiently clear. Comments have indicated confusion, 
however, as to how the well-to-gate system boundary and the definition 
of facility interact. To clarify, the well-to-gate system boundary for 
purposes of determining the lifecycle GHG emissions rate of a process 
is distinct from the definition of facility for Federal income tax 
purposes. First, as specified in Sec.  1.45V-1(a)(9)(iii), the well-to-
gate system boundary includes certain emissions that occur upstream of 
the facility. For example, the well-to-gate system boundary includes 
emissions associated with feedstock growth, gathering, extraction, 
processing, and delivery to a hydrogen production facility. While such 
emissions are included in the well-to-gate system boundary, equipment 
used in such upstream activities--such as electricity generating 
equipment--is not part of the facility, as specified in Sec.  1.45V-
1(a)(7)(ii)(B). Second, as further specified in Sec.  1.45V-
1(a)(9)(iii), the well-to-gate system boundary also includes all 
emissions resulting from the facility's hydrogen production process, 
inclusive of the production of a mixed gas or impurity and the 
electricity used by the hydrogen production facility and any capture 
and sequestration of carbon dioxide generated by the hydrogen 
production facility. This includes emissions resulting from the use of 
all components that function interdependently to produce the qualified 
clean hydrogen for which the section 45V credit is determined. 
Emissions from activities that occur after the facility's hydrogen 
production process is complete, such as liquefaction, storage, or 
transport, are generally beyond the well-to-gate system boundary. The 
final regulations include a non-exhaustive list of examples of such 
activities in Sec.  1.45V-1(a)(9)(iii). Finally, as explained in part 
I.A.6.d, Sec.  1.45V-1(a)(9)(iv) is added to provide that emissions 
that result from certain purification activities that occur downstream 
of the facility's qualified clean hydrogen production process are still 
within the well-to-gate system boundary. Even though equipment used in 
such purification activities is not part of the facility, emissions 
associated with such purification are nevertheless within the well-to-
gate system boundary for purposes of determining the section 45V 
credit.
    However, the Treasury Department and the IRS, based on advice of 
the DOE, note that, in situations where a man-made chemical is produced 
using hydrogen feedstock (for example, ammonia), and is later cracked 
or ``dehydrogenated'' to release the hydrogen, the chemical represents 
a means of hydrogen storage and the cracking step releases the hydrogen 
from such storage. These steps occur downstream of hydrogen production 
and are therefore outside of the well-to-gate system boundary, and also 
do not constitute a distinct hydrogen production process. Accordingly, 
hydrogen released from cracking such chemicals cannot be used to claim 
the section 45V credit.
    Regarding the requirement that taxpayers calculate the lifecycle 
GHG emissions rate of their hydrogen on an annual basis, these comments 
are addressed in response to comments received on proposed Sec.  1.45V-
4(a) in part III.A of this Summary of Comments and Explanation of 
Revisions.
    Regarding a comment's criticism that the Treasury Department and 
the IRS did not engage the States in defining lifecycle GHG emissions, 
this term is defined in section 45V(c)(1)(A) as having the same meaning 
given such term under section 211(o)(1)(H) of the Clean Air Act. 
Moreover, States were afforded the opportunity to comment on the 
proposed regulations, and some did. Section 45V does not require State 
governments to take any action or to enact any legislation to 
complement section 45V. Section 45V provides a Federal income tax 
credit to owners of qualified clean hydrogen production facilities for 
the production of qualified clean hydrogen and imposes no obligations 
on the States. Accordingly, these final regulations do not adopt the 
request to require the States to enact legislation to complement 
section 45V.
    Finally, regarding the request to exclude emissions from the 
production of hydrogen during periods of natural disasters, emergency 
events, start-ups, shut-downs, and maintenance activities, section 
45V(c)(1) does not provide for or contemplate any such exceptions. 
These final regulations, therefore, do not adopt this comment's 
suggestion.
d. Certain Emissions Related to Purification Treated as Through Point 
of Production
    In consultation with the DOE, the final regulations add a new Sec.  
1.45V-1(a)(9)(iv), which addresses emissions attributable to the 
purification of hydrogen. Section 1.45V-1(a)(9)(iv) provides that, if 
the taxpayer knows or has reason to know the purification of a hydrogen 
gas stream (that is, removal of a mixed gas or impurity) is necessary 
for a hydrogen gas stream to be productively used, or to be sold for 
productive use, any lifecycle GHG emissions relating to such 
purification (for example, emissions from electricity used in 
purification, or carbon dioxide that is separated from a hydrogen gas 
stream and then vented as part of purification) are treated as 
emissions through the point of production (well-to-gate). Additionally, 
if the taxpayer knows or has reason to know that a hydrogen gas stream 
contains less than 99 percent hydrogen and will be combusted without 
purification, any lifecycle GHG emissions relating to the purification 
needed to purify the hydrogen gas stream to contain 99 percent hydrogen 
are treated as emissions through the point of production (well-to-
gate). Section1.45V-1(a)(9)(v) provides an example to illustrate this 
rule.
    To ascertain the emissions associated with production of hydrogen 
in a manner that is consistent with section 45V, which requires that 
section 45V credit eligibility be determined on the basis of 
``kilograms of CO2e per kilogram of hydrogen'', 45VH2-GREET levelizes 
all well-to-gate emissions associated with a hydrogen production 
process over only the kilograms of pure hydrogen produced. This 
includes emissions attributable to the purification of a hydrogen gas 
stream to remove a mixed gas or impurity. Emissions attributable to 
purification

[[Page 2235]]

include emissions associated with energy consumption (for example, 
electricity consumed by purification equipment or by equipment used for 
carbon dioxide capture), as well as greenhouse gases that are separated 
out by purification equipment and not sequestered (for example, carbon 
dioxide that is captured and then vented).
    Previous versions of 45VH2-GREET accounted for carbon dioxide 
emissions that may occur from the conversion of impurities or mixed 
gases downstream of the hydrogen production facility, thus including 
such emissions in the levelization. This approach will be revised in 
the forthcoming January 2025 version of 45VH2-GREET, such that 
emissions outside of the well-to-gate boundary are not accounted for in 
determining a process' lifecycle GHG emissions rate for purposes of 
section 45V. Qualified clean hydrogen production facilities can 
therefore be designed to achieve the level of purity required for sale 
or use (subject to the rules of section 45V and these final 
regulations), without regard to the carbon dioxide emissions that may 
occur from the conversion of impurities or mixed gases downstream (for 
example, the ultimate conversion to carbon dioxide of methanol produced 
from a mixed gas stream of hydrogen and carbon monoxide).
    As the result of the January 2025 modification to 45VH2-GREET and 
the 45VH2-GREET User Manual, and to clarify the appropriate well-to-
gate boundary, these final regulations, following consultation with the 
DOE, clarify the definition of emissions through the point of 
production (well-to-gate) to address emissions attributable to 
purification that the taxpayer knows or has reason to know are 
necessary in order for the hydrogen gas stream to be productively used, 
regardless of where such purification occurs. These emissions are 
properly treated as occurring within the well-to-gate boundary in Sec.  
1.45V-1(a)(9)(iv).
    In certain cases--absent the section 45V credit--the taxpayer would 
normally purify a hydrogen gas stream prior to it being productively 
used or sold for productive use, and such purification would have 
lifecycle GHG emissions attributed to the hydrogen produced. Taxpayers, 
however, could have an incentive to claim that the purification (and 
its attendant emissions) occurs beyond the hydrogen production 
``gate.'' If these emissions occur outside of the ``gate,'' then they 
would not be attributed in 45VH2-GREET to the hydrogen production 
process and therefore would not be included in the hydrogen production 
process' lifecycle GHG emissions rate for purposes of determining the 
amount of the section 45V credit. The taxpayer may, for example, forgo 
hydrogen purification that it would have performed absent the incentive 
of the section 45V credit, and produce comparatively ``impure 
hydrogen.'' The ``impure hydrogen'' may then be sold to a customer who 
would purify the hydrogen gas stream (something it would not need to do 
absent the incentive to the hydrogen producer due to the section 45V 
credit), thereby generating lifecycle GHG emissions that the taxpayer 
was able to forgo. Similarly, a taxpayer could have an incentive to 
instead sell a stream of impure hydrogen and a mixed gas or impurity 
(such as carbon monoxide), instead of the purified hydrogen gas stream, 
for combustion. The DOE has advised that, absent the section 45V 
credit, hydrogen gas streams are consistently sold at purity levels 
well above 99 percent today and that customers would likely have to 
substantially modify their operations to accept less pure gas streams. 
Therefore, DOE has advised that the predominant motivation to sell 
hydrogen for combustion at lower purities would be so the emissions 
associated with those impurities would not be accounted for within the 
well-to-gate boundary.
    These circumstances would be inconsistent with a purpose of section 
45V, which is to provide an incentive to produce qualified clean 
hydrogen and to provide a higher incentive to produce qualified clean 
hydrogen as more lifecycle GHG emissions are avoided. Producing 
hydrogen with a lower lifecycle GHG emissions rate and receiving a 
section 45V credit reflecting such an emissions rate in the case where 
the taxpayer knows or has reason to know that the customer must further 
purify the hydrogen gas stream (and emit additional emissions) so that 
such gas stream can be productively used by its customer is contrary to 
this purpose and to the requirement in section 45V(c)(2)(B)(i)(II) for 
hydrogen to be produced in the ordinary course of a trade or business 
of the taxpayer. To address this, and consistent with the purposes of 
section 45V, in cases where the taxpayer knows or has reason to know 
that additional purification is needed for a hydrogen gas stream to be 
productively used, the final regulations clarify that the emissions 
associated with the purification needed to produce the hydrogen for a 
productive use occur within the well-to-gate boundary. Likewise, in 
cases where the taxpayer knows or has reason to know that a hydrogen 
gas stream contains less than 99 percent hydrogen and will be combusted 
without purification, emissions that would have resulted from purifying 
the hydrogen gas stream to that percentage prior to combustion are 
treated as emissions within the well-to-gate boundary.
    The final regulations are consistent with the treatment of 
emissions related to purification in the January 2025 version of 45VH2-
GREET, which treats emissions attributable to purification that the 
taxpayer knows or has reason to know are necessary in order for the 
hydrogen gas stream to be productively used as within the gate.
7. Process
    Section 45V(c)(1)(A) and (B) establish the boundaries for 
determining lifecycle GHG emissions rates associated with the 
production of hydrogen. Section 45V(c)(1)(A) mandates consideration of 
GHG emissions that are described in section 211(o)(1)(H) of the Clean 
Air Act. Section 45V(c)(1)(B) further specifies that the term 
``lifecycle greenhouse gas emissions'' only includes emissions through 
the point of production (well-to-gate), as determined under the most 
recent GREET model or a successor model as determined by the Secretary. 
Accordingly, section 45V(c)(1)(B) specifies an ending boundary (that 
is, the gate of a hydrogen production facility) for the emissions that 
must be considered for purposes of the section 45V credit. It also 
specifies a model for use in determining lifecycle GHG emissions rates. 
Taken together, these statutory rules provide the boundaries for 
assessing lifecycle GHG emissions for purposes of section 45V.
    Section 45V provides authority for the Secretary to specify and 
clarify how to determine lifecycle GHG emissions rates within these 
statutorily determined boundaries. Exercise of this authority is 
necessary because this statutory framework must address a wide range of 
hydrogen production processes that are currently viable or that may 
become viable in the future, the technical details of each hydrogen 
production process, and scientific advancements and uncertainties 
associated with lifecycle GHG analyses. Congress acknowledged that the 
Secretary would need to identify a system for determining lifecycle GHG 
emissions rates and expressly delegated to her the authority to do so 
in section 45V(f), which provides ``the Secretary shall issue 
regulations or other guidance to carry out the purposes of this 
section, including regulations or other guidance for determining 
lifecycle greenhouse gas

[[Page 2236]]

emissions.'' As noted previously, this authority is cabined by the 
directives in the statute, most critically the directive to measure 
well-to-gate lifecycle GHG emissions as defined by section 211(o)(1)(H) 
of the Clean Air Act.
    The term ``process,'' as used in sections 45V(b)(2)(A) through (D) 
and in section 45V(c)(2)(A), is a parameter that requires further 
clarification. Proposed Sec.  1.45V-4(a) and (b) would have required 
the section 45V credit to be determined according to the lifecycle GHG 
emissions rate of all hydrogen produced at a hydrogen production 
facility during the taxable year. Under this proposal, the term 
``process'' included all the operations and inputs used by a facility 
to produce hydrogen during a taxable year.
    The Treasury Department and the IRS received a number of comments 
which led to a reconsideration of how the term ``process'' is used in 
determining lifecycle GHG emission rates. After reviewing these 
comments and reexamining the meaning of the term ``process'' as it 
relates to the structure and purposes of section 45V, these final 
regulations add Sec.  1.45V-1(a)(11) to define the terms ``process'' 
and ``primary feedstock,'' as discussed further in this part I.A.7 of 
this Summary of Comments and Explanation of Revisions. These final 
regulations also make a corresponding modification to Sec.  1.45V-1(b) 
regarding the amount of the credit.
    Several comments recommended that 45VH2-GREET allow for the 
blending of feedstocks, like natural gas and RNG. In the case of RNG, 
comments claimed that given the high cost of RNG, combining RNG with 
conventional natural gas could create certain market efficiencies that 
would justify the combined use of RNG and natural gas. Several comments 
opposed allowing the mixing of RNG (or other types of biomethane) with 
conventional natural gas to produce clean hydrogen; in particular, one 
comment noted that ``splash blending,'' or combining small amounts of 
RNG with conventional natural gas, could cost the U.S. government 
billions of dollars annually while potentially increasing overall 
emissions. According to one comment, to avoid splash blending, each 
methane-based feedstock should be considered a separate production 
line.
    Section 45V generally requires that lifecycle GHG emissions rates 
be determined according to the process by which the hydrogen is 
produced. Section 45V(b)(2) provides the rules for determining the 
applicable percentages that are ultimately used to calculate the amount 
of the section 45V credit. In general, section 45V(b) requires 
applicable percentages to be determined with respect to ``qualified 
clean hydrogen which is produced through a process that results in a 
lifecycle greenhouse gas emissions rate'' that falls within statutorily 
mandated emissions rate ranges. Section 45V(c)(2)(A) defines the term 
qualified clean hydrogen as hydrogen that is produced through a process 
that results in a lifecycle greenhouse gas emissions rate of not 
greater than 4 kilograms of CO2e per kilogram of hydrogen.
    Section 45V does not expressly define the term ``process.'' The 
plain meaning of the term ``process'' is ``a series of actions or 
operations conducing to an end.'' \11\ In particular, for lifecycle 
assessment purposes, the term ``process'' has been defined as a ``set 
of interrelated or interacting activities that transforms inputs into 
outputs.'' \12\ Building upon these definitions, combined with the 
statutory distinctions between processes that result in different 
specified ranges of lifecycle GHG emissions rates, the statutory text 
indicates that the term ``process'' necessarily includes a degree of 
uniformity and consistency among those inputs that can meaningfully 
differ in their GHG intensity. Section 45V(b)(2) provides varying 
credit amounts for hydrogen that is ``produced through a process that 
results in a lifecycle greenhouse gas emissions rate'' that falls into 
specified ranges. The term ``process'' must therefore mean more than 
just the production technique because the same production technique, 
such as steam methane reforming, could produce lifecycle GHG emissions 
rates that fall into different ranges specified in the statute 
depending on the inputs used. The statute differentiates between ``a 
process that results in'' one specified range of GHG emissions rates 
from ``a process that results in'' a different specified range of GHG 
emissions rates. See section 45V(b)(2)(A) through (D). The only 
effective way to distinguish between hydrogen production processes is 
to define the term ``process'' with respect to both the production 
technique and a class of uniform or similar inputs used in that 
technique.
---------------------------------------------------------------------------

    \11\ Process, Merriam-Webster Dictionary, available at https://www.merriam-webster.com/dictionary/process.
    \12\ International Organization for Standardization, ISO 
14040:2006, Environmental Management--Life Cycle Assessment--
Principles and Framework (2d ed. 2006).
---------------------------------------------------------------------------

    This interpretation of the term ``process'' is consistent with the 
chemical transformations that are used to produce hydrogen, and with 
the language in section 45V. Treating input feedstocks with 
significantly different attributes as part of the same hydrogen 
production process (for example, by averaging the attributes of 
multiple types of methane used over a time period) often would not 
accurately reflect the chemical dynamic whereby each molecule of 
hydrogen originates from distinct source-molecule inputs that have 
distinct attributes affecting the lifecycle emissions of each hydrogen 
molecule and, as a result, often would not reflect the lifecycle GHG 
emissions rate of the resulting hydrogen molecules, as required by the 
statute. The most granular approach to assessing lifecycle GHG 
emissions would therefore be to match each molecule of hydrogen with 
its molecular inputs and identify the lifecycle emissions associated 
with the resulting hydrogen. However, this level of granularity is 
impractical to administer and unnecessary to implement the statute. The 
feasible and appropriate approach to aggregating molecules is to assess 
each hydrogen production process by grouping source molecules into 
categories of primary feedstock.
    This aggregation approach best implements the statutory 
requirements of section 45V because the production of hydrogen using 
inputs with similar attributes can be expected to produce consistent 
emissions results, allowing the appropriate determination of 
eligibility and credit amounts under section 45V. An approach that 
incorrectly assumed all hydrogen molecules are a blend of feedstocks 
would not yield a correct lifecycle assessment, would have perverse 
incentive effects (as discussed subsequently in this Summary of 
Comments and Explanation of Revisions), and would be no more 
administrable than the approach adopted in these final rules.
    With the exception of geologic hydrogen, all hydrogen production 
processes involve conversion of hydrogen-containing molecules into pure 
hydrogen. In electrolysis, for example, the feedstock--the source of 
the hydrogen molecules--is water, which contains no carbon and 
therefore does not directly produce carbon dioxide (or other GHGs) in 
the production of hydrogen. By contrast, in steam methane reforming, 
the feedstock is water and methane, which produces hydrogen and carbon 
dioxide when reformed. In pyrolysis, the feedstock is organic matter, 
which produces hydrogen and solid carbon when pyrolyzed. In methane 
pyrolysis, the feedstock is methane, which is converted into hydrogen 
and solid

[[Page 2237]]

carbon through the application of high temperatures.
    Energy attributes and lifecycle GHG emissions can vary considerably 
among hydrogen-containing feedstocks. For instance, the water inputs 
into electrolysis generally have limited upstream emissions and zero 
direct GHG emissions from the chemical reaction that produces hydrogen. 
Hydrocarbon inputs into methane reforming produce a standard quantity 
of direct emissions through the chemical reaction that produces 
hydrogen, but upstream emissions vary considerably for different 
sources. Different hydrocarbon inputs have significantly different 
upstream practices (for example, methods of gathering, processing, or 
delivery) and counterfactuals, among other factors, which result in 
dramatic differences in resulting lifecycle GHG emissions rates of 
producing hydrogen from that methane source.
    Because of the potential for significant variation in the lifecycle 
GHG emissions rates associated with different inputs, and the structure 
of section 45V, it is necessary to assess hydrogen production using 
different hydrogen-containing feedstocks as distinct processes. 
Accordingly, these final regulations distinguish processes based on 
their hydrogen-containing feedstock, which is referred to in these 
final regulations as a ``primary feedstock.'' A ``primary feedstock'' 
is defined in Sec.  1.45V-1(a)(11) as a hydrogen-containing chemical 
that is transformed to produce hydrogen at a hydrogen production 
facility and has uniform or similar attributes distinguished by the 
source from which it is derived, if such source materially affects the 
lifecycle GHG emissions rate associated with use of the chemical to 
produce hydrogen.
    If the term ``process'' were instead interpreted to encompass 
feedstocks with significantly different attributes as relevant to 
determining lifecycle GHG emissions, then the approach to determining 
whether a ``process'' has comported with statutorily prescribed 
lifecycle GHG emissions rate ranges for the purposes of determining the 
amount of the section 45V credit would not effectively, in fact, 
incentivize the production of hydrogen within a specific lifecycle GHG 
emissions rate range. For example, allowing a process to calculate a 
single emissions rate based on a mix of feedstocks with disparate 
attributes would increase the risk that hydrogen production that would 
otherwise not meet the statutory emissions requirements receives the 
section 45V credit simply by virtue of being commingled or averaged 
with hydrogen production that does meet the statutory emissions 
requirements using other inputs. This would be a foreseeable and 
inappropriate result if, as several comments urged, the term 
``process'' were interpreted as any activities and inputs that resulted 
in the production of a kilogram of hydrogen. The statute's singular 
reference to ``a process'' and ``a lifecycle greenhouse gas emissions 
rate'' indicates that the statutory references to the term ``process'' 
requires evaluation on the basis of each specific process, with 
uniformity and consistency across its operations and primary feedstock 
that generally results in a consistent lifecycle GHG emissions rate. 
Defining the term ``process'' based solely on the type of a facility's 
operations that produce hydrogen (for example, steam methane reforming 
or autothermal reforming) is not appropriate because such operations 
could rely on feedstocks with materially different attributes and 
carbon intensities, which would result in very different lifecycle GHG 
emission rates that would not be observable if feedstocks are 
aggregated. Thus, feedstocks to a process should have attributes with a 
sufficient degree of uniformity and consistency to be considered part 
of the same ``process.'' Separately evaluating each hydrogen production 
process at a qualified clean hydrogen production facility is consistent 
with the statutory language and scheme of section 45V, which requires 
accuracy in determining ``a lifecycle [GHG] emissions rate'' for 
hydrogen produced via ``a process.'' See section 45V(c)(2)(A).
    For these reasons, consistent with the transformation of feedstock 
in the production of hydrogen, Sec.  1.45V-1(a)(11) defines the term 
``process'' to mean the operations conducted by a facility to produce 
hydrogen (for example, electrolysis or steam methane reforming) during 
a taxable year using one primary feedstock. A facility producing 
hydrogen through electrolysis, for example, will have a single hydrogen 
production process in a taxable year with water as its primary 
feedstock. Electricity with different attributes would not result in 
distinct processes because electricity is not a primary feedstock (that 
is, it is not contributing hydrogen atoms to the hydrogen molecule); 
additionally, electricity cannot be differentiated at the molecular 
level. Electricity and heat are integral to the operations of hydrogen 
production facilities, and the form of energy used by a facility (for 
example, electricity versus heat) plays an essential role in discerning 
different hydrogen production processes. The energy powering a 
facility's operations enables the chemical transformation of molecular 
feedstocks into hydrogen, but energy does not itself contribute atoms 
to the hydrogen produced by a facility. Thus, the final regulations do 
not treat electricity and heat as primary feedstocks, but instead 
require tracking and assessing the emissions associated with energy 
used in a process through different mechanisms, as described in part 
III.D of this Summary of Comments and Explanation of Revisions and 
specified in 45VH2-GREET. For a facility that produces hydrogen through 
steam methane reforming using fossil natural gas, for example, the 
combination of fossil natural gas and water would be considered one 
primary feedstock because hydrogen molecules derive from both fossil 
natural gas and water and this form of hydrogen production requires use 
of both water and methane. Thus, a facility producing hydrogen 
exclusively through reforming of fossil natural gas with water would 
have a single hydrogen production process in a taxable year. A facility 
producing hydrogen through reforming of both fossil natural gas and RNG 
from animal manure with water would have two hydrogen production 
processes in that year; the primary feedstock for one process would be 
fossil natural gas and water, and the primary feedstock for the other 
process would be RNG from animal manure and water.
    As further specified in the 45VH2-GREET User Manual and reflected 
in 45VH2-GREET, some types of primary feedstocks are distinguished by 
their origin (for example, methane from a specific source), as well as 
attributes of that source as relevant to determining lifecycle GHG 
emissions. While these final regulations cannot anticipate and address 
all possible primary feedstocks that may be utilized for hydrogen 
production, the Treasury Department and the IRS note that it is 
currently appropriate to treat fossil natural gas, RNG derived from 
landfill gas, RNG derived from animal waste, RNG derived from 
wastewater treatment plants, and gas derived from coal mine methane as 
distinct primary feedstocks. If a facility uses any of these gas 
streams in combination with water via interdependent steps (for 
example, in the case of reforming), then the combination of that gas 
stream (for example, fossil natural gas, RNG derived from landfill gas, 
etc.) and water is a singular primary feedstock. Such treatment 
implements the definition of primary feedstock adopted here, which 
treats as a single feedstock that which

[[Page 2238]]

has uniform or similar attributes distinguished by the source from 
which it is derived, if such source materially affects the lifecycle 
GHG emissions associated with use of the molecule to produce hydrogen.
    If a facility utilizes more than one primary feedstock to produce 
hydrogen, then that facility will have an equal number of separate 
hydrogen production processes that each must be assessed separately to 
determine a lifecycle GHG emissions rate for the quantity of hydrogen 
produced through that process for purposes of section 45V. For example, 
if a taxpayer procures RNG sourced from a blend of sources, the 
taxpayer must account for the share of RNG derived from each source 
distinctly within 45VH2-GREET or an Emissions Value Request 
Application. Future releases of 45VH2-GREET and analyses conducted 
through the DOE's EVRP may address additional primary feedstocks, but 
any new primary feedstock must also be treated as distinct.
    The Treasury Department and the IRS note that there is precedent 
for this type of approach for assessing emissions associated with the 
production of fuels. The RFS is another example of a framework that 
requires a determination of what activities should be aggregated or 
separated for purposes of lifecycle analysis to determine GHG 
emissions. Similar to the approach provided for here, the RFS conducts 
LCAs for distinct feedstock-technology-output combinations because 
those combinations have the potential to have distinct lifecycle 
emissions that should be credited differently under the RFS's statutory 
scheme. See ``Regulation of Fuels and Fuel Additives: Changes to 
Renewable Fuel Standard Program,'' 75 FR 14670, 14713 (Mar. 26, 2010) 
(EPA final regulation providing that different combinations of 
feedstock, production process, and fuel that result in different 
lifecycle GHG outcomes must be evaluated separately).
8. Qualified Clean Hydrogen
    Section 45V(c)(2)(A) provides that ``qualified clean hydrogen'' 
means hydrogen which is produced through a process that results in a 
lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e 
per kilogram of hydrogen. Further, section 45V(c)(2)(B) provides that 
such term does not include any hydrogen unless the production and sale 
or use of such hydrogen is verified by an unrelated party, and such 
hydrogen is produced in the United States (as defined in section 638(1) 
of the Code) or a United States possession (as defined in section 
638(2)); in the ordinary course of a trade or business of the taxpayer; 
and for sale or use. Proposed Sec.  1.45V-1(a)(9) substantially repeats 
the statutory definition.
    Several comments requested clarification on the definition of 
``qualified clean hydrogen.'' Some comments requested clarification 
that hydrogen does not need to be of a certain level of purity to 
constitute ``qualified clean hydrogen.'' Specifically, comments 
requested clarification that ``qualified clean hydrogen'' includes 
hydrogen that is produced as one of several constituents in a gas 
stream so long as the gas stream is valorized. The comments suggested 
that the statute does not specify that the hydrogen production must 
isolate the hydrogen or that the gas stream containing the hydrogen 
achieve a certain threshold hydrogen content to be eligible for the 
credit. These comments further suggested that requiring hydrogen to be 
separated from other components in a gas stream when those components 
would be immediately recombined with the hydrogen would be inefficient. 
One comment requested clarification on whether there are specific 
metering requirements for monitoring the purity of the hydrogen.
    These final regulations do not modify the definition of ``qualified 
clean hydrogen'' to specify a certain level of purity, or to specify 
that no level of purity is required. A purity requirement does not need 
to be added to the definition of ``qualified clean hydrogen'' because 
45VH2-GREET already accounts for impurities by assessing the well-to-
gate emissions of a hydrogen production facility over only the 
kilograms of pure hydrogen produced. The treatment of mixed gases or 
impurities is further discussed in part I.A.6.d. of this Summary of 
Comments and Explanation of Revisions.
    The decisions to characterize well-to-gate emissions of hydrogen 
based only on the kilograms of pure hydrogen produced, and to address 
impurities through the well-to-gate lifecycle GHG emissions analysis 
(in 45VH2-GREET or the PER process)--rather than by requiring hydrogen 
to be of a certain level of purity--are consistent with Congress's 
directive under section 45V(c)(1)(A) and (B) to determine lifecycle GHG 
emissions as defined under section 211(o)(1)(H) of the Clean Air Act 
and 45VH2-GREET.
    As to the request for clarification on whether there are specific 
metering requirements for monitoring the purity of the hydrogen, as 
discussed in this part, impurities are accounted for through the well-
to-gate lifecycle GHG emissions analysis (in 45VH2-GREET or the PER 
process). Metering requirements for all relevant inputs into 45VH2-
GREET, including purity, are addressed in Sec.  1.45V-5(g)(5), and no 
special metering requirements for purity, apart from those specified in 
Sec.  1.45V-5(g)(5), are needed.
9. For Sale or Use
    For purposes of section 45V(c)(2)(B)(i)(III) and proposed Sec.  
1.45V-1(a)(9)(i)(C), proposed Sec.  1.45V-1(a)(9)(ii) would have 
provided that, the term ``for sale or use'' means for the primary 
purpose of making hydrogen ready and available for sale or use. 
Following production, storage of hydrogen before its sale or use would 
not disqualify such hydrogen from being considered produced for sale or 
use. No comments were received on proposed Sec.  1.45V-1(a)(9)(ii), and 
this provision is adopted without change as renumbered Sec.  1.45V-
1(a)(13)(ii).

B. Amount of Credit

1. In General
    Under section 45V(a), the clean hydrogen production credit is based 
on the amount of qualified clean hydrogen produced ``during the 10-year 
period beginning on the date such facility was originally placed in 
service'' multiplied by the applicable amount identified in section 
45V(b). Proposed Sec.  1.45V-1(b)(1) would have incorporated this 
calculation of the amount of credit by providing that the amount of the 
section 45V credit determined under section 45V(a) and the section 45V 
regulations for any taxable year is the product of the kilograms of 
qualified clean hydrogen produced by the taxpayer during such taxable 
year at a qualified clean hydrogen production facility during the 10-
year period beginning on the date such facility was originally placed 
in service, multiplied by the applicable amount with respect to such 
hydrogen.
    Several comments requested changes related to the 10-year credit 
period and the placed in service date specified in proposed Sec.  
1.45V-1(b)(1). One comment requested that the 10-year credit period be 
tolled for circumstances beyond the taxpayer's control or during 
periods of diminished capacity. Another comment requested that the 
placed in service date of a qualified clean hydrogen production 
facility be delayed until operational testing is complete and 
commercial quantities of hydrogen are produced. Another comment 
requested that the final regulations provide that a qualified clean 
hydrogen production facility cannot be placed in service until after 
December 31, 2022. This comment

[[Page 2239]]

suggested that, prior to January 1, 2023, it was impossible to produce 
qualified clean hydrogen because section 45V, which established what is 
qualified clean hydrogen, did not become effective until that date. 
Thus, this comment suggested, no hydrogen production facility could 
properly be treated as having been placed in service as a ``qualified 
clean hydrogen production facility'' until that date.
    Another comment requested clarification of the requirements for 
pre-existing facilities that were originally placed in service prior to 
the enactment of section 45V and the extent to which such facilities 
can claim the section 45V credit for the years remaining in the 10-year 
period beginning on the date such facilities were originally placed in 
service.
    These final regulations do not adopt the changes to proposed Sec.  
1.45V-1(b)(1) recommended by these comments. Section 45V(a) establishes 
that the credit is based, in part, on the placed in service date and 
the definition of ``placed in service'' is sufficiently clear as an 
established tax concept. Section 1.46-3(d)(1) provides that, for 
purposes of the section 38 credit (which includes the clean hydrogen 
production credit determined under section 45V, see section 38(b)(36)), 
property is considered placed in service in the earlier of the taxable 
year in which, under the taxpayer's depreciation practice, the period 
for depreciation with respect to such property begins; or the taxable 
year in which the property is placed in a condition or state of 
readiness and availability for a specifically assigned function, 
whether in a trade or business, in the production of income, in a tax-
exempt activity, or in a personal activity. Examples of property that 
is considered in a condition or state of readiness and availability for 
a specifically assigned function are set forth in Sec.  1.46-3(d)(2). 
Section 1.46-3(d)(2)(ii) provides that operational farm equipment that 
is acquired during the taxable year and is not practicable to use until 
the following year is still considered ready and available for its 
assigned function in the taxable year. Section 1.46-3(d)(2)(iii) 
provides that equipment that is operational but is still undergoing 
testing to eliminate any defects is still considered ready and 
available for its assigned function. These examples clarify that 
property can be ready and available for its assigned function 
regardless of the level of production attained.
    Various revenue rulings and case law have established a five-factor 
test for determining when a facility is placed in service, including 
(1) whether the necessary permits for operation have been obtained; (2) 
whether critical preoperational testing has been completed; (3) whether 
the taxpayer has control of the facility; (4) whether the unit has been 
synchronized with the transmission grid; and (5) whether daily or 
regular operation has begun. See Ampersand Chowchilla Biomass, LLC v. 
United States, 150 Fed. Cl. 620 (2020) (citing Rev. Rul. 84-85, 1984-1 
C.B. 10; Rev. Rul. 79-98, 1979-1 C.B. 103; Rev. Rul. 76-256, 1976-2 
C.B. 46; and Rev. Rul. 76-428, 1976-2 C.B. 47), aff'd, 26 F.4th 1306 
(Fed. Cir. 2022). No one factor is dispositive.
    Determining the date on which a qualified clean hydrogen production 
facility was placed in service is inherently fact intensive, and the 
existing case law and revenue rulings are sufficient for taxpayers to 
determine their facility's placed in service date. Relying upon 
existing standards provides sufficient clarity to taxpayers and avoids 
the confusion of creating multiple placed in service standards.
    Regarding whether the final regulations should provide that the 10-
year credit period is tolled to account for circumstances beyond the 
taxpayer's control or during periods of a facility's diminished 
capacity, the 10-year credit period is a statutory requirement under 
section 45V(a)(1), and there is no provision that provides an exception 
to this statutory rule.
    Regarding whether the final regulations should clarify that a 
qualified clean hydrogen production facility cannot be placed in 
service until after December 31, 2022, the Treasury Department and the 
IRS clarify in this Summary of Comments and Explanation of Revisions 
that a qualified clean hydrogen production facility may have been 
placed in service prior to January 1, 2023. First, section 45V does not 
specify an earliest date on which a qualified clean hydrogen production 
facility must be placed in service to be eligible for the section 45V 
credit, and as explained in the Explanation of Provisions to the 
proposed regulations, the owner of a qualified clean hydrogen 
production facility originally placed in service after December 31, 
2012, can claim the section 45V credit for qualified clean hydrogen 
produced during at least some portion of the 10-year period described 
in section 45V(a)(1), provided all other requirements are met. Second, 
providing a rule that a qualified clean hydrogen production facility 
cannot be placed in service until January 1, 2023, would conflict with 
section 45V(d)(4), which provides that a facility that did not produce 
qualified clean hydrogen and that was originally placed in service 
prior to January 1, 2023, can receive a new, deemed placed in service 
date as of the date the facility is modified after December 31, 2022, 
to produce qualified clean hydrogen. If, as the comment suggests, no 
qualified clean hydrogen production facility could be placed in service 
until January 1, 2023, then existing hydrogen production facilities 
would receive a new placed in service date regardless of whether they 
meet the requirements of section 45V(d)(4), rendering section 45V(d)(4) 
superfluous. Third, under the comment's reading, no qualified clean 
hydrogen production facility could be placed in service until the 
hydrogen production and its sale or use is verified, as those are 
requirements to have qualified clean hydrogen. Verification might not 
occur until a taxable year following the year in which the hydrogen was 
produced, which would prevent the credit from being determined in the 
first taxable year of production. Fifth, the comment's reading 
conflicts with section 6417(b)(5), which makes clear that a qualified 
clean hydrogen production facility can be originally placed in service 
prior to January 1, 2023. See section 6417(b)(5) (an applicable credit 
includes ``[s]o much of the credit for production of clean hydrogen 
determined under section 45V(a) as is attributable to qualified clean 
hydrogen production facilities which are originally placed in service 
after December 31, 2012.'').
    Finally, regarding the requirements and extent to which pre-
existing facilities that were originally placed in service prior to the 
enactment of section 45V can claim the section 45V credit, for the 
reasons explained herein, this Summary of Comments and Explanation of 
Revisions clarifies that the owner of a qualified clean hydrogen 
production facility originally placed in service prior to the enactment 
of section 45V but after December 31, 2012, can claim the section 45V 
credit for the qualified clean hydrogen produced during at least some 
portion of the 10-year period described in section 45V(a)(1), provided 
all other requirements are met. Thus, owners of pre-existing facilities 
can potentially claim the section 45V credit for the remaining portion 
of the 10-year credit period. Alternatively, a pre-existing facility 
can receive a new date on which it is considered originally placed in 
service if it satisfies the requirements of Sec.  1.45V-6(a) (regarding 
the modification of an existing facility to produce qualified clean 
hydrogen) or

[[Page 2240]]

(b) (regarding the retrofitting of an existing hydrogen production 
facility).
2. Producer of Qualified Clean Hydrogen
    For purposes of section 45V(a)(1) and proposed Sec.  1.45V-1(b)(1), 
proposed Sec.  1.45V-1(b)(2) would have provided that the term 
``taxpayer'' means the taxpayer that owns the qualified clean hydrogen 
production facility at the time of the facility's production of 
qualified clean hydrogen with respect to which the section 45V credit 
is claimed, regardless of whether such taxpayer is treated as a 
producer under section 263A of the Code or under any other provision of 
law with respect to such hydrogen.
    One comment asked whether the phrase ``treated as a producer under 
section 263A'' in proposed Sec.  1.45V-1(b)(2) has the same meaning as 
``produced by the taxpayer'' under section 45X(a)(1)(A). To clarify, 
the term ``produced by the taxpayer'' as used in section 45X(a)(1)(A) 
is defined in Sec.  1.45X-1(c) and that definition does not apply for 
purposes of section 45V. Section 45X and Sec.  1.45X-1(c) address the 
production of eligible components as that term is used in section 45X, 
and not the production of hydrogen for purposes of section 45V. 
Therefore, taxpayers must determine whether they are considered the 
producer of the qualified clean hydrogen for purposes of determining 
the credit under section 45V using the definition provided in Sec.  
1.45V-1(b)(2), and not by reference to the definition of ``produced by 
the taxpayer'' under Sec.  1.45X-1(c).
    Under section 45V(a)(1) and (c)(3)(A), the taxpayer must be both 
the owner of the qualified clean hydrogen production facility and the 
producer of qualified clean hydrogen at the facility to be eligible for 
the section 45V credit, respectively. The intent of proposed Sec.  
1.45V-1(b)(2) was to clarify that, for purposes of section 45V(a)(1) 
and Sec.  1.45V-1(b)(1), the ``taxpayer'' for these purposes is the 
owner of the qualified clean hydrogen production facility at the time 
the hydrogen is produced, regardless of whether the owner is required 
to capitalize costs under section 263A and Sec.  1.263A-2(a), which 
provide rules relating to property produced by the taxpayer. As 
explained in the Explanation of Provisions to the proposed regulations, 
the definition of ``taxpayer'' in Sec.  1.45V-1(b)(2) is intended, 
among other things, to avoid unintended consequences that could arise 
under Sec.  1.263A-2(a)(1)(ii)(A) and (B)(1) with respect to contract 
manufacturing and tolling arrangements in the context of the section 
45V credit. For example, under Sec.  1.45V-1(b)(1), an owner of a 
hydrogen production facility that enters into an arrangement with a 
third party service recipient to produce qualified clean hydrogen using 
the service recipient's raw materials and inputs in exchange for a fee 
(a toller) is considered the producer of the qualified clean hydrogen 
for purposes of section 45V regardless of whether the toller is 
required to capitalize costs of producing the qualified clean hydrogen 
under section 263A. The final regulations provide the intended 
clarification described previously in this paragraph to Sec.  1.45V-
1(b)(2).
3. Increased Credit Amount for Qualified Clean Hydrogen
    Proposed Sec.  1.45V-1(b)(3) contained a cross-reference to Sec.  
1.45V-3, which provides rules under section 45V(e) that permit the 
amount of the section 45V credit determined under section 45V(a) and 
Sec.  1.45V-1(b)(1) to be multiplied by five if certain requirements 
related to prevailing wages and apprenticeships are met.
    Several comments were received relating to the prevailing wage and 
apprenticeship requirements of section 45V(e). Rules addressing the 
prevailing wage and apprenticeship requirements of section 45V(e) are 
provided in Sec.  1.45V-3, which is not included in this rulemaking. 
See TD 9998, Increased Amounts of Credit or Deduction for Satisfying 
Certain Prevailing Wage and Registered Apprenticeship Requirements (89 
FR 53184). Accordingly, comments addressing the prevailing wage and 
apprenticeship requirements are beyond the scope of this rulemaking. 
These final regulations adopt the language in proposed Sec.  1.45V-
1(b)(3) without change.

C. Determination of Credit

    Proposed Sec.  1.45V-1(c) would have provided that, subject to any 
applicable Code sections that may limit the section 45V credit amount, 
the section 45V credit for any taxable year is determined with respect 
to the qualified clean hydrogen produced by the taxpayer during that 
taxable year, although the verification of the production and sale or 
use of such hydrogen may occur in a later taxable year. The taxpayer 
would not be eligible to claim the section 45V credit with respect to 
that hydrogen until all relevant verification requirements, and the 
verification itself, have been completed. Therefore, despite such 
verification occurring in a later taxable year, the section 45V credit 
would be properly claimed with respect to the taxable year of hydrogen 
production and subject to the general period of limitations for filing 
a claim for credit or refund. Thus, if verification occurred after the 
extended return filing due date for the taxable year in which the 
hydrogen was produced, the taxpayer would need to file an amended 
return or administrative adjustment request (AAR), as applicable, to 
claim the section 45V credit for such produced hydrogen.
    The Treasury Department and the IRS requested comments on proposed 
Sec.  1.45V-1(c), and whether taxpayers anticipated that they would be 
able to complete all the requirements for claiming the section 45V 
credit, including the requirements for verification specified in 
proposed Sec.  1.45V-5, by the extended return filing deadline for the 
taxable year of hydrogen production. Comments were also requested on 
whether alternatives existed.
    Several comments suggested alternatives to the requirement in Sec.  
1.45V-1(c) that the credit is determined in the taxable year of 
hydrogen production. Some comments expressed concern that a late 
verification report, filed after the extended return filing deadline 
for the taxable year of hydrogen production, would preclude taxpayers 
from making an elective payment under section 6417 or transfer election 
under section 6418, as the necessary elections under those statutes 
cannot be made on an amended return or AAR. See sections 6417(d)(3) and 
6418(e)(1).
    One comment recommended that taxpayers be allowed to claim the 
section 45V credit initially without a verification report, then once 
the verification report for the relevant taxable year is eventually 
submitted, the credit amount is ``trued up,'' with either the 
government or the taxpayer remitting funds to reflect the verified 
emissions rate and amount of production. Some comments requested 
taxpayers be allowed to make or change an election under section 6417 
or 6418 on an amended return or AAR if they are claiming a section 45V 
credit on such amended return or AAR. Another comment proposed only 
requiring verification when there has been a change in the operation of 
a taxpayer's hydrogen production facility since the last verification, 
claiming that this would reduce the risk of late verifications 
precluding monetization elections. Finally, one comment asked that 
taxpayers be allowed to claim the section 45V credit and make an 
elective payment election or transfer election prior to the formal 
completion of the verification report to avoid missing the

[[Page 2241]]

extended return filing deadline due to a late verification report.
    These final regulations do not adopt these comments suggesting 
revisions to the requirements of proposed Sec.  1.45V-1(c). First, 
based on the comments received on the timing of verification, the 
Treasury Department and the IRS anticipate that qualified verifiers 
will be able to verify a taxpayer's production and sale or use of 
hydrogen by the deadline for filing the taxpayer's Federal income tax 
return, including extensions, so there should be no issue with making a 
timely elective payment or transfer election under section 6417 or 
6418, respectively. Second, the requirement that the credit is 
determined in the taxable year of hydrogen production adheres to the 
requirement in section 45V(a)(1) that the section 45V credit for any 
taxable year is determined based on the kilograms of qualified clean 
hydrogen produced by the taxpayer during such taxable year. Providing a 
rule that the credit is determined in a year other than the taxable 
year of hydrogen production--such as the year of verification--would 
potentially create a timing mismatch between the taxable year in which 
the hydrogen is produced and creditable under section 45V(a)(1) and the 
taxable year in which the section 45V credit for such production can be 
claimed. Third, comments suggesting modifications to the rules 
regarding elective payment elections or transferability elections under 
sections 6417 and 6418, respectively, are beyond the scope of this 
rulemaking under section 45V.
    Regarding the comments recommending exceptions to the verification 
requirements or allowing taxpayers to file verification reports after 
the section 45V credit has been claimed, the requirement that the 
production and sale or use of the hydrogen be verified is statutorily 
prescribed in section 45V(c)(2)(B)(ii), so these final regulations 
adopt the language in proposed Sec.  1.45V-1(c) without change.

II. Special Rules

A. Coordination With Credit for Carbon Oxide Sequestration

    Section 45V(d)(2) provides that no section 45V credit is allowed 
for any qualified clean hydrogen produced at a facility which includes 
carbon capture equipment for which a section 45Q credit is allowed to 
any taxpayer for the taxable year or any prior taxable year.
    Proposed Sec.  1.45V-2(a) would have followed that statutory 
provision and additionally provided that if the so-called ``80/20 
Rule'' provided in Sec.  1.45Q-2(g)(5) is satisfied with respect to 
such carbon capture equipment, and no new section 45Q credit has been 
allowed to any taxpayer for such carbon capture equipment, then the 
unit of carbon capture equipment (as defined in Sec.  1.45Q-2(c)(3)) 
for which the 80/20 Rule is satisfied will not be treated as carbon 
capture equipment for which a section 45Q credit was allowed to any 
taxpayer for any prior taxable year for purposes of section 45V(d)(2) 
and proposed Sec.  1.45V-2(a).
    Further, proposed Sec.  1.45V-1(a)(7)(i) would have clarified that 
equipment (which includes carbon capture equipment) that functions 
interdependently with other components of property to produce qualified 
clean hydrogen is part of the qualified clean hydrogen production 
facility, and proposed Sec.  1.45V-1(a)(7)(ii)(B) would have clarified 
that electricity production equipment used to power the hydrogen 
production process, including any carbon capture equipment associated 
with the electricity production process, is not part of the qualified 
clean hydrogen production facility.
    Several comments requested clarification that a separate, 
independent production line containing carbon capture equipment for 
which a section 45Q credit is allowed and that is co-located with a 
hydrogen production facility at a single industrial site does not 
disqualify the hydrogen production facility from the section 45V 
credit. For example, one comment requested clarification that an 
electricity generation facility that is co-located and interconnected 
with the hydrogen production facility, and for which the section 45Q 
credit is allowed, will not disqualify the hydrogen production facility 
from the section 45V credit. Conversely, some comments recommended that 
the final regulations modify proposed Sec.  1.45V-1(a)(7)(ii)(B) to 
disallow the section 45V credit for hydrogen produced using electricity 
that was generated by an electricity generation facility for which the 
section 45Q credit is allowed.
    One comment appeared to seek clarification that ``allowed,'' with 
respect to section 45V(d)(2), means the taxpayer has claimed the 
section 45Q credit on their tax return, not merely that they are 
eligible for claiming the section 45Q credit. The same comment 
requested confirmation that a taxpayer can claim the section 45V credit 
and then claim the section 45Q credit in a later taxable year on the 
same facility.
    Finally, one comment requested an exception to section 45V(d)(2) to 
allow a taxpayer to claim both the section 45Q and section 45V credits 
on the same facility if the facility combines hydrogen and CO2 for the 
purpose of creating synthetic molecules.
    These final regulations are not modified in response to these 
comments. The final regulations are sufficiently clear that the section 
45V(d)(2) rules coordinating the section 45V credit with the section 
45Q credit for carbon oxide sequestration only apply to the qualified 
clean hydrogen production facility. The definition of ``facility'' in 
Sec.  1.45V-1(a)(7), as clarified in these final regulations and 
described in greater detail in part I.A.4 of this Summary of Comments 
and Explanation of Revisions, means all the components that function 
interdependently to produce clean hydrogen through a process that 
results in the lifecycle GHG emissions rate used to determine the 
credit, but does not include electricity production equipment used to 
power the hydrogen production process. Further, disallowing the section 
45V credit for hydrogen produced using electricity generated at a 
facility containing carbon capture equipment for which a section 45Q 
credit has been allowed would require modifying the definition of 
``facility'' at Sec.  1.45V-1(a)(7) to include electricity production 
equipment. It would also present serious horizontal equity concerns for 
hydrogen producers who co-locate with electricity generators and those 
who do not. Therefore, electricity production equipment that powers the 
hydrogen production process and contains carbon capture equipment for 
which a section 45Q credit is allowed will not disqualify the hydrogen 
production facility from the section 45V credit. Further, these final 
regulations do not modify the definition of facility in Sec.  1.45V-
1(a)(7) to address specific co-located equipment used for other 
industrial processes because creating a rule to specifically address 
such co-located equipment is not necessary nor possible, given that the 
determination will depend on the facts and circumstances of such 
equipment.
    Regarding the meaning of the term ``allowed,'' such term generally 
means that the item was claimed on the return and not challenged by the 
IRS. See generally Virginian Hotel Corp. of Lynchburg v. Helvering, 319 
U.S. 523, 526-27 (1943); Lenz v. Commissioner, 101 T.C. 260, 264-65 
(1993). The meaning of ``allowed'' is sufficiently clear as an 
established tax concept, as its definition derives from case law and 
general tax principles, and because the term ``allowed'' appears so 
frequently in the Code and its accompanying regulations.

[[Page 2242]]

    Regarding whether a taxpayer can claim a section 45Q credit in a 
subsequent taxable year, section 45V(d)(2) contains no such 
prohibition, so the statute is already sufficiently clear and does not 
need further clarification.
    Finally, regarding the comment's request for an exception to 
section 45V(d)(2) for the creation of synthetic molecules, the 
prohibition on claiming the section 45V credit on a facility for which 
a section 45Q credit has already been allowed is statutory, and the 
statute provides no such exception.
    Accordingly, these final regulations adopt Sec.  1.45V-2(a) as 
proposed.

B. Anti-Abuse Rule

    Section 45V(c)(2)(B)(i) provides, among other things, that hydrogen 
is not qualified clean hydrogen unless it is produced in the ordinary 
course of a trade or business of the taxpayer, and for sale or use.
    Section 45V(f) empowers the Secretary to issue regulations or other 
guidance to carry out the purposes of section 45V.
    Proposed Sec.  1.45V-2(b)(1) would have disallowed the section 45V 
credit where the primary purpose of the production and sale or use of 
qualified clean hydrogen was to obtain the section 45V credit in a 
manner that is wasteful. Proposed Sec.  1.45V-2(b)(1) would have 
provided as an example the production of qualified clean hydrogen that 
the taxpayer knows or has reason to know will be vented, flared, or 
used to produce hydrogen. This proposed rule is referred to as the 
``anti-abuse rule.''
    Proposed Sec.  1.45V-5(d)(1) would have provided, among other 
things, that the qualified verifier must attest that a person has sold 
or made a verifiable use of such hydrogen. Proposed Sec.  1.45V-5(d)(2) 
would have provided that a person's verifiable use of hydrogen 
undergoing verification ``does not include--(i) Use of hydrogen to 
generate electricity that is then directly or indirectly used in the 
production of more hydrogen; or (ii) venting or flaring of hydrogen.'' 
This proposed rule is referred to as the ``verifiable use rule.''
    Many comments in response to the proposed regulations made 
suggestions or asked for clarification regarding the prohibition in 
proposed Sec.  1.45V-2(b)(1) against the sale or use of hydrogen for 
the primary purpose of obtaining the section 45V credit in a wasteful 
manner, often asking that the prohibition not apply to a particular 
scenario or set of circumstances.
    Some comments recommended rules or asked for clarification 
regarding the prohibition in proposed Sec.  1.45V-2(b)(1) against 
hydrogen production that the taxpayer knows or has reason to know will 
be vented or flared. These comments noted that venting and flaring are 
often required for routine safety or maintenance purposes and contended 
that such use of venting and flaring should not disqualify facilities 
from credit eligibility. However, in order to align with the purpose of 
section 45V and safeguard against abuse, one of these comments asked 
that the Treasury Department and the IRS more clearly state that it is 
the amount of clean hydrogen sold or used, not produced, that 
ultimately determines the credit amount.
    One comment asked for explicit assurance that hydrogen produced and 
sold for use in energy storage would not run afoul of the anti-abuse 
rule when the stored energy is later used to produce hydrogen.
    Some comments suggested disallowing the section 45V credit for 
hydrogen that is produced at the same time electricity is generated 
from hydrogen-to-power equipment that is physically connected via 
pipeline.
    Some comments expressed concern that the anti-abuse rule would 
apply to certain non-abusive scenarios where hydrogen production 
facilities and hydrogen-based electricity generators operate 
concurrently but are connected to the same electric grid.
    Another comment asked for clarification that capturing excess heat 
from hydrogen production, converting that heat to electricity, and 
using that electricity to power the production process does not run 
afoul of the anti-abuse rule.
    Some comments asked for clarification that the anti-abuse rule does 
not apply to instances where produced hydrogen, in some cases from 
process waste streams, is used to power the production facility, 
resulting in lower emissions than would otherwise be achieved.
    One comment suggested that the anti-abuse rule should not consider 
the cost of producing qualified clean hydrogen in relation to the 
amount of the section 45V credit because doing so would disincentivize 
development of cost-efficient hydrogen production technologies.
    The Treasury Department and the IRS agree that clarification of the 
anti-abuse rule is appropriate. The DOE has advised that venting of 
hydrogen downstream of a hydrogen production facility is a standard 
industry practice where necessary for safety or maintenance reasons. 
The DOE has also advised that, in the future, flaring of hydrogen that 
would otherwise have been vented could become standard industry 
practice to mitigate the environmental impacts of venting. Further, the 
DOE has advised that concurrent operation of hydrogen production and 
power generation within the same energy storage system and at the same 
time may be wasteful if no measures are taken to mitigate or reduce the 
production and consumption of the hydrogen at the same time; for 
example, if an electrolytic hydrogen production facility as standard 
practice is producing hydrogen at the same time as the produced 
hydrogen is being used to produce electricity. However, the Treasury 
Department and the IRS clarify here that the anti-abuse rule is not 
meant to apply to the use of hydrogen to store energy for later 
conversion to electricity and sale to a regional electricity grid, when 
a buyer from the grid uses such electricity to produce hydrogen.
    Accordingly, these final regulations clarify that the section 45V 
credit is not allowable if the primary purpose of the sale or use 
(rather than the production and sale or use) of qualified clean 
hydrogen is to obtain the benefit of the section 45V credit in a manner 
that is wasteful. Additionally, these final regulations clarify that 
the taxpayer obtains the section 45V credit in a wasteful manner if the 
taxpayer sells qualified clean hydrogen that the taxpayer knows or has 
reason to know will be vented, flared, used to produce heat or power 
that is then directly used to produce hydrogen, or otherwise used to 
produce hydrogen, in excess of standard commercial practices. Hydrogen 
is used to produce power that is then directly used to produce hydrogen 
if the hydrogen production facility exclusively uses such power to 
produce hydrogen or is treated as using the power produced by the 
electricity generating facility using the hydrogen and such use is 
verified by the acquisition and retirement of qualifying EACs. Hydrogen 
is not used to produce power that is then directly used to produce 
hydrogen if the power produced using hydrogen is merely supplied to the 
same electricity grid from which the hydrogen production facility draws 
power. Proposed Sec.  1.45V-2(b)(1) is further modified to provide that 
venting or flaring for safety or maintenance reasons in the ordinary 
course of business is a non-abusive commercial industry practice. 
Consistent with the comment asking for clarity that it is the amount of 
clean hydrogen sold or used, not produced, that ultimately determines 
the credit amount, Sec.  1.45V-2(b) of the final

[[Page 2243]]

regulations adds that, while not abusive, such venting or flaring is 
also not a verifiable use under Sec.  1.45V-5(d)(2), and therefore any 
such hydrogen that is vented or flared for safety reasons is not 
eligible for the section 45V credit. Finally, these final regulations 
modify the example in Sec.  1.45V-2(b)(2) (where qualified clean 
hydrogen is sold to obtain the benefit of the section 45V credit in a 
manner that is wasteful and thus not eligible for the section 45V 
credit) to reflect that the hydrogen in that example will be vented or 
flared in excess of standard commercial practices and add an example in 
Sec.  1.45V-5(d) to illustrate the verifiable use rule in the context 
of a facility's use of its own hydrogen within its hydrogen production 
process, flaring of hydrogen for testing and maintenance, and waste 
heat recovery.
    Finally, the Treasury Department and the IRS disagree with the 
comment's request that the anti-abuse rule be revised to not consider 
the cost of producing qualified clean hydrogen relative to the amount 
of the section 45V credit. The cost of hydrogen production relative to 
the amount of the section 45V credit is just one of many factors 
considered in the example provided in Sec.  1.45V-2(b)(2). Whether a 
particular taxpayer's hydrogen production activities violate the anti-
abuse rule will depend on all relevant facts and circumstances, and no 
one factor is controlling. Because the cost of hydrogen production 
relative to the value of the credit is not the only relevant factor, 
the Treasury Department and the IRS do not anticipate that including it 
within the example will deter investment in cost-efficient 
technologies.
    A few comments asked that the anti-abuse rule be significantly 
pared back or removed altogether. One comment argued that the anti-
abuse rule's prohibition of a wasteful primary purpose has no basis in 
the statute and is too broad to be authorized by the ``ordinary course 
of a trade or business of the taxpayer'' requirement of section 
45V(c)(2)(B)(i)(II). The same comment proposed revising the anti-abuse 
rule to disallow the section 45V credit only where the taxpayer's sole 
purpose is to obtain the credit in a wasteful manner.
    The same comment asserted that the anti-abuse rule exacerbates 
uncertainty by requiring that the rules of section 45V and the section 
45V regulations be applied in a manner consistent with the purposes of 
section 45V and the section 45V regulations, while section 45V only 
authorizes regulations that carry out the purposes of the statute. The 
comment further argued that the primary purpose examples of wasteful 
``production of qualified clean hydrogen that the taxpayer knows or has 
reason to know will be vented, flared, or used to produce hydrogen'' 
have no foundation in the statute. The comment asked for clarification 
whether a producer having a disqualifying purpose at the time of 
production or sale is sufficient to disallow the credit under proposed 
Sec.  1.45V-2(b)(1), or if a disqualifying purpose at production and 
sale is required. The comment suggested that the example at proposed 
Sec.  1.45V-2(b)(2) seems to indicate that a disqualifying purpose at 
the time of sale is sufficient to disallow the credit, while proposed 
Sec.  1.45V-2(b)(1) seems to indicate that a producer must have a 
disqualifying purpose at production and sale for the credit to be 
disallowed.
    First, the argument that section 45V provides no basis to support 
the prohibition of a wasteful primary purpose through an anti-abuse 
rule is mistaken because (1) the ``for sale or use'' requirement is 
plainly a purpose requirement, and the anti-abuse rule implements that 
purpose requirement; in other words, Congress did not intend that a 
nominal sale or use for purposes of generating credit claims would 
entitle taxpayers to the credit, but rather intended that only a sale 
or use possessing some degree of business purpose or economic effect 
would suffice; (2) likewise, the ``in the ordinary course of a trade or 
business of the taxpayer'' requirement justifies an anti-abuse rule 
since any activity with a primary purpose of wastefully obtaining a tax 
credit is not within the ordinary course of a trade or business; and 
(3) section 45V(f) authorizes the promulgation of regulations ``to 
carry out the purposes of this section'' and the obvious purpose of 
Congress to increase the supply of clean hydrogen in the United States 
would be undermined if credit claimants were not required to make their 
hydrogen reasonably available to legitimate hydrogen consumers. 
Hydrogen that is not so available cannot affect hydrogen supply.
    Second, regarding the comment's objection to the proposed anti-
abuse rule's requirement that the rules of section 45V and its 
regulations must be applied consistently with the purposes of the 
regulations, these final regulations do not modify the language in the 
proposed regulations. The section 45V regulations implement the section 
45V statute. Therefore, taxpayers must apply the regulations 
consistently with the purposes of both the statute and its implementing 
regulations.
    Third, the request that the proposed anti-abuse rule be modified to 
only disallow the section 45V credit where the taxpayer's ``sole 
purpose'' is to obtain the credit in a wasteful manner is problematic. 
The ``primary purpose'' requirement is the appropriate standard, 
because a sole purpose requirement could allow hydrogen producers to 
argue entitlement to claim the credit when nearly all their output is 
knowingly wasted while asserting there is some legitimate use for the 
small remainder thereof.
    Fourth, the Treasury Department and the IRS agree that a 
discrepancy exists between the text of the proposed regulations and the 
example that would have followed regarding whether a wasteful primary 
purpose at the time of production or sale or use is sufficient to 
disallow the credit under proposed Sec.  1.45V-2(b)(1), or if a 
disqualifying purpose at production and sale or use is required. 
Accordingly, these final regulations adopt proposed Sec.  1.45V-2(b) 
with modifications to the rule and the example in order to clarify that 
only a sale or use with the primary purpose of obtaining the benefit of 
the section 45V credit in a wasteful manner is sufficient to disallow 
the credit under Sec.  1.45V-2(b)(1). Note, the requirements of Sec.  
1.45V-2(b)(1) are independent of the excessive payment rules provided 
in Sec.  1.6417-6 and the excessive credit transfer rules provided in 
Sec.  1.6418-5. Taxpayers making the election under section 6417 or 
6418 must separately meet the requirements provided in Sec. Sec.  
1.6417-6 and 1.6418-5.

C. Recordkeeping

    Section 6001 provides, among other things, that (1) every person 
liable for tax under the Code shall keep such records as the Secretary 
may from time to time prescribe; and (2) whenever the Secretary deems 
it necessary, she may require any person, by regulations, to keep such 
records as she deems sufficient to show whether or not such person is 
liable for tax under the Code.
    Section 45V(e)(5) provides that the Secretary shall issue such 
regulations or other guidance as she determines necessary to carry out 
the purposes of section 45V(e), including regulations or other guidance 
which provides recordkeeping or information reporting requirements for 
purposes of administering the requirements of section 45V(e).
    Proposed Sec.  1.45V-2(c) would have provided recordkeeping 
requirements for all taxpayers claiming the section 45V credit, 
including requirements related to the section 45V(e) increased credit 
amount. No comments addressed this provision. Proposed Sec.  1.45V-2(c) 
is therefore adopted as proposed.

[[Page 2244]]

III. Procedures for Determining Lifecycle Greenhouse Gas Emissions 
Rates for Qualified Clean Hydrogen

A. In General

    Proposed Sec.  1.45V-4(a) would have provided that the amount of 
the section 45V credit is determined under section 45V(a) and proposed 
Sec.  1.45V-1(b) based upon the lifecycle GHG emissions rate of all 
hydrogen produced at a qualified clean hydrogen production facility (as 
defined in proposed Sec.  1.45V-1(a)(10)) during the taxable year. This 
determination would be required to be made following the close of such 
taxable year and must include all hydrogen production from the year. 
See proposed Sec.  1.45V-4(b). Further, proposed Sec.  1.45V-4(a) would 
have provided that the lifecycle GHG emissions rate for purposes of 
section 45V is determined under the most recent GREET model (as defined 
in proposed Sec.  1.45V-1(a)(8)(ii)). Finally, proposed Sec.  1.45V-
4(a) would have provided that in the case of any hydrogen for which a 
lifecycle GHG emissions rate has not been determined under the most 
recent GREET model for purposes of section 45V, a taxpayer producing 
such hydrogen would be permitted to file a petition for a provisional 
emissions rate (PER) with the Secretary for a determination of the 
lifecycle GHG emissions rate with respect to such hydrogen.
    Some comments supported the proposed requirement that taxpayers 
calculate the lifecycle GHG emissions rate of hydrogen produced at a 
hydrogen production facility based on the aggregate amount of hydrogen 
produced at the facility over the taxable year (that is, annual 
emissions averaging). These comments claimed that annual emissions 
averaging is more straightforward and less administratively burdensome 
than alternative methods. The comments also claimed that annual 
emissions averaging is less prone to being manipulated because it takes 
into consideration all hydrogen produced by the taxpayer over the 
taxable year. The comments appeared to suggest that sub-annual 
emissions averaging, where taxpayers could potentially select certain 
sub-annual periods of clean hydrogen production to offset other sub-
annual periods of hydrogen production that would not otherwise meet the 
lifecycle GHG emissions levels required by section 45V, is inconsistent 
with section 45V. Finally, some comments argued that annual emissions 
averaging is more aligned with the capabilities of 45VH2-GREET and 
therefore would help to facilitate compliance.
    In contrast, other comments requested that hydrogen producers be 
permitted to calculate the lifecycle GHG emissions rate of hydrogen 
produced at their facility on a more granular basis, suggesting changes 
to the definition of ``emissions through the point of production (well-
to-gate)'' in proposed Sec.  1.45V-1(a)(8)(iii). Comments maintained 
that determining the lifecycle GHG emissions rate for all hydrogen 
produced at a given hydrogen production facility during a taxable year 
is burdensome for taxpayers and creates uncertainty and risk. Some 
comments requested that lifecycle GHG emissions be permitted to be 
calculated on an hourly basis, including in the case of hydrogen 
produced using electricity, and in particular once the qualifying EAC 
requirements require temporal matching on an hourly basis (see part 
III.D.3.c of this Summary of Comments and Explanation of Revisions). 
Without calculation of lifecycle GHG emissions on an hourly basis, 
according to these comments, hours of hydrogen production that do not 
have corresponding hourly EACs could increase the lifecycle GHG 
emissions rate of all hydrogen produced for the year--even hydrogen 
produced using electricity represented by a corresponding hourly EAC--
which would be contrary to the hourly matching principle. These 
comments note the variability of certain renewable or zero-emissions 
energy sources and the limited ability of hydrogen production 
facilities to quickly ramp up and down due to technical and economic 
reasons. Still, other comments requested that lifecycle GHG emissions 
be permitted to be calculated on a kilogram-by-kilogram basis, or by 
batching kilograms of hydrogen into distinct groups, to ensure a more 
precise determination of a facility's lifecycle GHG emissions rate. One 
comment requested that, for facilities placed in service before 2028, 
the credit be determined with respect to the specific volumes of 
hydrogen that meet the temporal matching EAC requirements of proposed 
Sec.  1.45V-4(d)(3)(ii) rather than according to the average lifecycle 
GHG emissions rate of all hydrogen produced at a qualified clean 
hydrogen production facility on an annual basis.
    The Treasury Department and the IRS disagree with eliminating the 
requirement that, in general, the lifecycle GHG emissions of a hydrogen 
production process be calculated on an annual basis. Section 
211(o)(1)(H) of the Clean Air Act defines ``lifecycle GHG emissions'' 
as the aggregate quantity of GHG emissions (including direct emissions 
and significant indirect emissions such as significant emissions from 
land use changes), as determined by the EPA. Determining the lifecycle 
GHG emissions rate of a hydrogen production process, therefore, 
requires taking the ``aggregate'' quantity of emissions from a hydrogen 
production process over the course of the taxable year to derive a 
single emissions rate. This is consistent with the determination of the 
section 45V credit on an annual basis. Section 45V(a)(1) provides that 
``the clean hydrogen production credit for any taxable year is an 
amount equal to the product of the kilograms of qualified clean 
hydrogen produced by the taxpayer during such taxable year'' (emphasis 
added). Calculating lifecycle GHG emissions for a hydrogen production 
process on an annual basis, therefore, aligns with the manner in which 
the section 45V credit is determined.
    The Treasury Department and the IRS clarify that such annual 
determination is made separately for each hydrogen production process 
conducted at a hydrogen production facility during the taxable year. As 
a result, hydrogen producers will be able to claim higher credit 
amounts for producing qualified clean hydrogen using lower-emitting 
hydrogen production processes during the year, such as by using 
feedstocks with lower carbon intensities. For further discussion on 
process, see part I.A.7 of this Summary of Comments and Explanation of 
Revisions (explaining that production using each type of primary 
feedstock is considered a separate production process).
    However, once hourly matching is required for qualifying EACs, 
hydrogen produced through a process that uses electricity may be at 
risk of not qualifying for the section 45V credit at an expected amount 
if a small number of hours are not covered by the acquisition and 
retirement of qualifying EACs, which could occur as a result of 
unforeseeable circumstances beyond a taxpayer's control.
    Further, if a taxpayer believes it is infeasible to secure EACs 
from renewable or zero-emissions sources for every hour or a 
significant share of hours in a taxable year, then calculating 
lifecycle GHG emissions on an annual basis may cause such taxpayer to 
have no incentive to produce qualified clean hydrogen or qualified 
clean hydrogen in the lowest lifecycle GHG emissions tier. This is 
inconsistent with the purposes of section 45V, which includes 
encouraging the production of qualified clean hydrogen (with a higher 
credit amount for hydrogen with lower lifecycle GHG emissions rates) 
and

[[Page 2245]]

investments in hydrogen production facilities and processes that 
produce qualified clean hydrogen.
    Section 1.45V-4(a)(2) of these final regulations provides a method 
to mitigate the risk associated with potential limitations in the 
supply of qualifying EACs, coupled with a guardrail to limit 
availability of this election to processes in which the taxpayer is 
producing qualified clean hydrogen, calculated on an annual basis. 
Specifically, proposed Sec.  1.45V-4(a) is modified to provide that, 
solely for purposes of determining the lifecycle GHG emissions 
associated with a hydrogen production facility's use of electricity 
generated on or after January 1, 2030, to produce hydrogen, such 
emissions may be determined on an hourly basis. If a taxpayer utilizes 
this method, it must determine all emissions from the facility's use of 
electricity for the taxable year on an hourly basis. On or after 
January 1, 2030, when hourly matching is required, a facility's 
lifecycle GHG emissions from electricity for that hour will reflect the 
attributes of the qualifying EAC acquired and retired for that hour. In 
the case of electricity use as part of the hydrogen production process 
for which the taxpayer does not acquire and retire a qualifying EAC 
that reflects a specific hour in which such electricity was generated 
on or after January 1, 2030, the electricity emissions for that hour is 
determined by assuming that the facility is sourcing power with 
emissions equal to the default electricity emissions intensity within 
the regional electricity grid. The January 2025 version of the 45VH2-
GREET User Manual provides further information on how such hourly 
accounting may be conducted in 45VH2-GREET. These final regulations add 
Sec.  1.45V-4(a)(3)(i) and (ii) to provide examples illustrating the 
calculation of the lifecycle GHG emissions rate of the process used to 
produce hydrogen at a qualified clean hydrogen production facility, 
determined on an annual and an hourly basis, respectively.
    This method is provided pursuant to the authority in section 45V(f) 
to ``issue regulations or other guidance to carry out the purposes of 
[section 45V].'' With respect to a facility's use of electricity in a 
hydrogen production process (including a facility that produces 
hydrogen through electrolysis, which is a single hydrogen production 
process), these final regulations modify the proposed rules to further 
incentivize the production of clean hydrogen in light of the temporal 
matching requirement provided in Sec.  1.45V-4(d)(3)(ii). In 
particular, once the qualifying EAC requirements require temporal 
matching on an hourly basis, in the case of hydrogen produced using 
electricity that is represented by a qualifying EAC, a taxpayer who 
owns a facility that produces hydrogen through a process that results 
in annual emissions not greater than 4 kilograms of CO2e per kilogram 
of hydrogen can elect to determine the emissions associated with the 
electricity used in that process on an hourly basis. This method would 
enable hydrogen producers to mitigate the risk that limited 
availability of qualifying EACs could adversely affect eligibility for 
the section 45V credit for all hydrogen from a single process.
    This method is available only if the process for which an election 
is made achieves an annual lifecycle GHG emissions rate of not greater 
than 4 kilograms of CO2e per kilogram of hydrogen for all hydrogen 
produced pursuant to that process during the taxable year. This 
guardrail advances the purposes of section 45V because it provides 
added flexibility and risk mitigation only in circumstances where the 
hydrogen production process produces hydrogen that, over the course of 
the year, meets the definition of qualified clean hydrogen on an annual 
basis. In the absence of this condition, allowing the lifecycle GHG 
emissions associated with electricity used in a hydrogen production 
process to be determined on an hourly basis could encourage the 
production of hydrogen through processes that do not meet the emissions 
requirements of section 45V, contrary to the statute and the purpose of 
section 45V.

B. Use of 45VH2-GREET

    Proposed Sec.  1.45V-4(b) would have provided procedures to 
calculate the lifecycle GHG emissions rate of hydrogen produced at a 
hydrogen production facility using the most recent GREET model as 
defined in proposed Sec.  1.45V-1(a)(8)(ii) (referring to 45VH2-GREET). 
Proposed Sec.  1.45V-4(b) would have further provided that for each 
taxable year during the period described in section 45V(a)(1), a 
taxpayer claiming the section 45V credit determines the lifecycle GHG 
emissions rate of hydrogen produced at a hydrogen production facility 
within the interface of 45VH2-GREET.
    The 45VH2-GREET User Manual released in conjunction with the 
proposed regulations provided that 45VH2-GREET is expected to be 
updated on at least a yearly basis. Moreover, it mentioned that these 
updates are expected to include representations of additional hydrogen 
production processes and updates to background data (as supporting 
analysis is completed by the Argonne National Laboratory). This means 
that, under proposed Sec.  1.45V-4(b), use of 45VH2-GREET would result 
in taxpayers using an updated version of 45VH2-GREET each taxable year 
(insofar as such an update arises).
    Multiple comments raised concern about the requirement for 
taxpayers to use a potentially updated version of 45VH2-GREET each 
taxable year during the 10-year credit period due to uncertainty about 
whether changes to 45VH2-GREET may unexpectedly alter annual emissions 
assessments, which would directly impact the amount of the section 45V 
credit. Several comments requested that taxpayers be allowed to ``lock 
in'' the version of 45VH2-GREET that was available on the date the 
``final investment decision'' was made. Similarly, several other 
comments requested that taxpayers be allowed to use the latest version 
of 45VH2-GREET that was available on the date the hydrogen production 
facility was placed in service or the date when construction of the 
facility began (beginning of construction or BOC). Some of these 
comments further requested that taxpayers be allowed to use subsequent 
updated versions of 45VH2-GREET at their discretion. Finally, some 
comments requested that taxpayers be permitted to rely upon a single 
version of 45VH2-GREET unless and until there is a material change to 
the facility's hydrogen production process.
    In considering these comments, the Treasury Department and the IRS 
note that the statute envisions use of updated models, referencing use 
of ``the most recent'' version of GREET or a successor model. However, 
the Treasury Department and the IRS understand that taxpayers would 
benefit from having more certainty about a hydrogen production 
facility's lifecycle GHG emissions rate throughout the credit period 
for that facility, and therefore have determined that a beginning of 
construction safe harbor provision would help mitigate taxpayers' 
reasonable concern. Accordingly, the final regulations modify proposed 
Sec.  1.45V-4(b) by adding a second paragraph (Sec.  1.45V-4(b)(2)) 
giving taxpayers the option to make an election to use the version of 
45VH2-GREET that was in effect on the date when construction of their 
hydrogen production facility began for the remaining taxable years 
within the 10-year credit period.
    In the case of a facility owned by the taxpayer that began 
construction prior to December 26, 2023, Sec.  1.45V-4(b)(2) provides 
taxpayers with the option to make an election to use the first

[[Page 2246]]

publicly available version of 45VH2-GREET (that is, the version of 
45VH2-GREET released in December 2023) for the remaining taxable years 
within the 10-year credit period. This election is irrevocable, meaning 
taxpayers may not subsequently opt to use an updated version of 45VH2-
GREET once they have opted to lock-in the applicable version of 45VH2-
GREET. Section 1.45V-4(b)(2)(i) of the final regulations further 
provides that, in the case of a facility that is modified to produce 
qualified clean hydrogen under section 45V(d)(4) and Sec.  1.45V-6(a), 
or a facility that is retrofitted in a manner that entitles the 
facility to a new placed in service date under Sec.  1.45V-6(b), the 
date the facility began construction is the date construction of the 
modification or retrofit began. Finally, Sec.  1.45V-4(b)(2)(ii) is 
added to provide that a taxpayer makes the election with respect to a 
qualified clean hydrogen production facility's hydrogen production 
process on Form 7210 by no later than the due date (including 
extensions) for filing the taxpayer's Federal income tax return for a 
taxable year ending no later than December 31, 2025, or for the taxable 
year in which such facility is placed in service, whichever taxable 
year is later. The election is made separately for each hydrogen 
production process (but on the same Form 7210). For purposes of 
determining BOC, taxpayers may rely upon the guidance provided in 
Notice 2022-61,\13\ as well as the guidance issued under sections 
45,\14\ 45Q,\15\ and 48.\16\ Changes have also been made to proposed 
Sec.  1.48-15(d) to provide a corresponding BOC safe harbor with 
respect to a specified clean hydrogen production facility.
---------------------------------------------------------------------------

    \13\ 2022-52 I.R.B. 560.
    \14\ See Notice 2013-29, 2013-20 I.R.B. 1085, clarified by 
Notice 2013-60, 2013-44 I.R.B. 431, then clarified and modified by 
Notice 2014-46, 2014-36 I.R.B. 520, then updated by Notice 2015-25, 
2015-13 I.R.B. 814, then clarified and modified by Notice 2016-31, 
2016-23 I.R.B. 1025, and then updated, clarified, and modified by 
Notice 2017-04, 2017-4 I.R.B. 541; Notice 2018-59, 2018-28 I.R.B. 
196, modified by Notice 2019-43, 2019-31 I.R.B. 487, then modified 
by Notice 2020-41, 2020-25 I.R.B. 954, and then clarified and 
modified by Notice 2021-5, 2021-3 I.R.B. 479, and then clarified and 
modified by Notice 2021-41, 2021-29 I.R.B. 17.
    \15\ See Notice 2020-12, 2020-11 I.R.B. 495.
    \16\ See Notice 2018-59, modified by Notice 2019-43 and by 
Notice 2020-41, and then clarified and modified by Notice 2024-41.
---------------------------------------------------------------------------

    It is appropriate to provide this safe harbor based on a facility's 
beginning of construction date because it better supports the purpose 
of taxpayer certainty than a placed in service date, and because, 
unlike a ``final investment decision'' date, the beginning of 
construction date is an established, defined concept in tax law. For 
taxpayers that elect to lock-in a version of 45VH2-GREET, these final 
regulations do not adopt the comments' suggestions that taxpayers also 
be given the option to use subsequent updated versions of 45VH2-GREET 
at their discretion. Such an option would enable taxpayers to lock-in a 
version of 45VH2-GREET while retaining the option to elect a future 
version of 45VH2-GREET that would reflect lower lifecycle GHG 
emissions, which would fail to further the purpose of this safe harbor 
to provide additional taxpayer certainty.
    In all other cases, taxpayers must use the latest version of 45VH2-
GREET that is publicly available on the first day of the taxable year 
during which the qualified clean hydrogen for which the taxpayer is 
claiming the section 45V credit was produced; or, if a version of 
45VH2-GREET becomes publicly available after the first day of the 
taxable year of production (but still within such taxable year), then 
the taxpayer may, in its discretion, treat such later version of 45VH2-
GREET as the 45VH2-GREET Model.

C. Provisional Emissions Rate (PER)

1. In General
    Proposed Sec.  1.45V-4(c)(1) would have provided that, for purposes 
of section 45V(c)(2)(C) and proposed Sec.  1.45V-4(a), the term 
``provisional emissions rate'' or ``PER'' means the lifecycle GHG 
emissions rate of the process by which qualified clean hydrogen is 
produced by the taxpayer at a qualified clean hydrogen production 
facility as determined by the Secretary under proposed Sec.  1.45V-
4(c). No comments addressed this definition, so it is adopted as 
proposed with one change made to clarify that the term ``provisional 
emissions rate'' or ``PER'' means the lifecycle GHG emissions rate of 
the hydrogen produced through a process at a hydrogen production 
facility as determined by the Secretary under Sec.  1.45V-4(c).
2. Restriction on Filing a Provisional Emissions Rate Petition
    Proposed Sec.  1.45V-4(c)(2)(i) would have provided that a taxpayer 
may not file a petition with the Secretary for a PER unless a lifecycle 
GHG emissions rate has not been determined under the most recent GREET 
model (as defined in proposed Sec.  1.45V-1(a)(8)(ii) as 45VH2-GREET) 
for hydrogen produced by the taxpayer at a hydrogen production 
facility. Further, proposed Sec.  1.45V-4(c)(2)(i) would have provided 
that a lifecycle GHG emissions rate has not been determined under the 
most recent GREET model with respect to hydrogen produced by the 
taxpayer at a hydrogen production facility if it uses a hydrogen 
production pathway that is not included in the most recent GREET 
model--that is, if either the feedstock used by such facility or the 
facility's hydrogen production technology is not included in the most 
recent GREET model. Proposed Sec.  1.45V-4(c)(2)(i) also would have 
provided that, if a taxpayer's request for an emissions value from the 
DOE under proposed Sec.  1.45V-4(c)(5) with respect to the hydrogen 
produced by the taxpayer at a hydrogen production facility is pending 
at the time such hydrogen production facility's pathway is included in 
an updated version of 45VH2-GREET, then the taxpayer's request for an 
emissions value will automatically be denied.
    Some comments, despite proposed Sec.  1.45V-4(c)(2)(i), and in 
disagreement with its restriction on filing a PER petition, sought to 
clarify that a taxpayer using a hydrogen production pathway included in 
45VH2-GREET may nevertheless file a PER petition because they have 
independently verifiable data that differs from the background data 
used by 45VH2-GREET. Many of these comments challenged the 
appropriateness of the background data used by 45VH2-GREET, claiming 
that they do not reflect the actual values of such parameters and that 
more accurate measurements of such parameters can be reliably obtained 
by taxpayers. These comments therefore requested that taxpayers be 
allowed to file a PER petition after challenging these assumptions 
through the EVRP, because using actual values would likely result in a 
lower and more accurate emissions rate.
    The parameters in 45VH2-GREET have been deemed background data if 
independent verification of bespoke values for individual facilities is 
expected to be infeasible with reasonable fidelity. The Treasury 
Department and the IRS recognize that the capabilities of verification 
resources are evolving, and the DOE is continuously monitoring the 
availability of robust data and verification methods for both 
background and foreground data parameters in 45VH2-GREET. For example, 
as described in part III.E of this Summary of Comments and Explanation 
of Revisions, an upcoming release of 45VH2-GREET will include upstream 
methane loss rates as foreground data once enhanced GHG reporting to 
the EPA is available and other program integrity measures are fully 
implemented. Once a parameter becomes foreground data in 45VH2-GREET, 
taxpayers may treat that

[[Page 2247]]

parameter as foreground data in their emissions value request 
application (through an EVRP in support of the PER process). Allowing 
taxpayers to provide their own values for background data would run 
counter to the rationale for determining that a given parameter is 
background data. The Treasury Department and the IRS note that allowing 
taxpayers to challenge background data through the EVRP likely would 
significantly increase the number of emissions value request 
applications, resulting in substantial administrative burden and 
administrability concerns for the DOE, and potentially far slower 
reviews for all interested taxpayers. Therefore, these final 
regulations do not allow taxpayers to avail themselves of the PER 
petition process if their hydrogen production pathway (which consists 
of the combination of production technology and input feedstock 
materials and sources) is included in 45VH2-GREET regardless of any 
disagreement with the background assumptions.
    Several comments also raised concerns about the treatment of novel 
variations of hydrogen production pathways that currently are 
represented in 45VH2-GREET, claiming that the model does not provide 
the correct emissions value for their variation. These comments asked 
that the final regulations modify proposed Sec.  1.45V-4(c)(2)(i) to 
state explicitly that taxpayers may use the PER process for novel 
variations of existing pathways. These final regulations do not adopt 
these comments. Since the original version of 45VH2-GREET and 
supporting documentation were published, the DOE has updated the model 
and the 45VH2-GREET User Manual to include specific definitions of the 
feedstocks and technologies represented in the model. Taxpayers who 
have developed a novel variation of a hydrogen production pathway may 
use the PER process if their pathway does not meet the definitions of 
the feedstocks and technologies represented in the 45VH2-GREET Model. 
The text of Sec.  1.45V-4(c)(2)(i) and the definitions in the 45VH2-
GREET User Manual provide sufficient information to taxpayers to 
determine whether their pathway qualifies for the PER process.
    Several comments asked to streamline the process for petitioning 
for a PER for RNG feedstocks derived from non-landfill sources (for 
example, food waste, animal waste, and biogas derived from renewable 
diesel or sustainable aviation fuel production), claiming that these 
sources make up 30 percent of North American RNG production. It is not 
clear whether these comments, in requesting to streamline the process 
for petitioning for a PER, are asking the Treasury Department and the 
IRS to allow these taxpayers to participate in the PER process 
altogether or whether they are requesting the Treasury Department and 
the IRS create a separate, streamlined PER petition process for 
taxpayers who plan to produce hydrogen using non-landfill RNG. To the 
extent that the comments ask for the former, as stated above, taxpayers 
may petition the Secretary for a PER if either the feedstock used by 
their facility or the facility's hydrogen production technology is not 
included in 45VH2-GREET. Moreover, it is anticipated that some non-
landfill RNG hydrogen production processes (such as from livestock 
manure) will be added to 45VH2-GREET in 2025, in a manner that is 
consistent with these final regulations. To the extent that the 
comments ask for a separate, streamlined PER process, these final 
regulations do not adopt this request as it is not consistent with the 
statutory purposes of section 45V to offer preferential treatment to 
any group of feedstocks.
    Lastly, one comment asked that the Treasury Department and the IRS 
decline to issue a PER for taxpayers using geologic hydrogen until more 
robust climate and environmental data is available. The Treasury 
Department and the IRS are aware that emissions analysis of newer 
methods of hydrogen production, such as geologic hydrogen, is subject 
to technical uncertainty. The DOE intends to address these 
uncertainties by engaging with applicants during the EVRP and through 
independent research. The DOE intends to issue emissions values only 
when an analysis has been completed robustly addressing these 
uncertainties, and to an extent comparable to other uncertainties 
within 45VH2-GREET. Applicants to the PER process will additionally be 
subject to the independent verification requirements of proposed Sec.  
1.45V-5, which will help ensure the key sources of greenhouse gases are 
reflected in the lifecycle analysis of a given facility. Given these 
safeguards, the Treasury Department and the IRS clarify in this Summary 
of Comments and Explanation of Revisions to these final regulations 
that PERs may be used for any hydrogen production pathway (meaning a 
specific technology and input feedstock materials and sources) not 
included in the 45VH2-GREET Model, including geologic hydrogen. No 
further clarification in the regulatory text is needed; therefore, 
these final regulations adopt proposed Sec.  1.45V-4(c)(2)(i) with 
conforming changes made to confirm that the Secretary has designated 
45VH2-GREET as a successor model.
    Proposed Sec.  1.45V-4(c)(2)(ii) would have specified that, 
notwithstanding proposed Sec.  1.45V-1(a)(8)(ii), for the taxable year 
in which the hydrogen production pathway the taxpayer uses to produce 
hydrogen at a qualified clean hydrogen production facility is first 
included in an updated version of 45VH2-GREET, the updated version of 
45VH2-GREET will be considered the most recent GREET model with respect 
to the hydrogen produced by the taxpayer at the hydrogen production 
facility. No comments addressed this provision. It is adopted as 
proposed with changes made to confirm that the Secretary has designated 
45VH2-GREET as a successor model and to clarify that, for purposes of 
the PER process, the lifecycle GHG emissions rate of the hydrogen 
produced at a hydrogen production facility is made with respect to 
hydrogen produced through a process.
3. Process for Filing a Provisional Emissions Rate Petition
    Proposed Sec.  1.45V-4(c)(3) would have provided that a taxpayer 
petitions the Secretary for a PER by attaching a PER petition to its 
Federal income tax return for the first taxable year of hydrogen 
production ending within the 10-year period described in section 
45V(a)(1) for which the taxpayer claims the section 45V credit for 
hydrogen to which the PER petition relates and for which a lifecycle 
GHG emissions rate has not been determined, as defined under proposed 
Sec.  1.45V-4(c)(2)(i). Proposed Sec.  1.45V-4(c)(3) would have 
provided that a PER petition must contain (i) an emissions value 
obtained from the DOE setting forth the DOE's analytical assessment of 
the lifecycle GHG emissions associated with the facility's hydrogen 
production pathway, and (ii) a copy of the taxpayer's request to the 
DOE for an emissions value, including any information that the taxpayer 
provided to the DOE pursuant to the emissions value request process 
specified in proposed Sec.  1.45V-4(c)(5).
    The Treasury Department and the IRS understand that this filing 
requirement may mean that a taxpayer must attach voluminous documents 
to its return, which may cause tax administration issues. For effective 
tax administration, the Treasury Department and the IRS have modified 
this provision to state that a PER petition must contain (i) the letter 
received from the DOE stating the emissions value the DOE determined 
with respect to the facility's hydrogen

[[Page 2248]]

production pathway, and (ii) the DOE control number assigned to the 
emissions value request of the taxpayer. This information will be 
sufficient for the Treasury Department and the IRS to be able to 
request additional information from the taxpayer, as necessary.
    Proposed Sec.  1.45V-4(c)(3) would have further provided that, if 
the taxpayer obtained more than one emissions value from the DOE, then 
the PER petition must contain the emissions value setting forth the 
lifecycle GHG emissions rate of the hydrogen for which the section 45V 
credit is claimed on the Form 7210 to which the PER petition is 
attached. No comments were received on this provision and it is adopted 
as proposed with amendments to reflect the new requirements for what a 
PER petition must contain and to clarify that the taxpayer attaches the 
PER petition to its Federal income tax return or information return.
4. Provisional Emissions Rate Determination
    Proposed Sec.  1.45V-4(c)(4) would have provided that upon the 
IRS's acceptance of the taxpayer's Federal income tax return or 
information return containing a PER petition, the emissions value 
specified on such PER petition will be deemed accepted. Proposed Sec.  
1.45V-4(c)(4) would have provided that a taxpayer would be able to rely 
upon an emissions value provided by the DOE for purposes of calculating 
and claiming a section 45V credit, provided that any information, 
representations, or other data provided to the DOE in support of the 
request for an emissions value are accurate. Proposed Sec.  1.45V-
4(c)(4) also would have provided that the IRS's deemed acceptance of 
such emissions value is the Secretary's determination of the PER. 
Proposed Sec.  1.45V-4(c)(4) would have stated, however, that the 
production and sale or use of such hydrogen must be verified by an 
unrelated party under section 45V(c)(2)(B)(ii) and in compliance with 
the procedures provided in proposed Sec.  1.45V-5. Proposed Sec.  
1.45V-4(c)(4) would have stated that such verification and any 
information, representations, or other data provided to the DOE in 
support of the request for an emissions value are subject to later 
examination by the IRS. No comments were received on this provision. 
This provision is adopted as proposed with a clarification to Sec.  
1.45V-4(c)(4) to clarify that the emissions value is deemed accepted 
upon the taxpayer's filing of its Federal income tax return (or 
information return), and to clarify that the production, including the 
data the taxpayer submitted in the PER petition and the data provided 
to the DOE in support of the taxpayer's EVRP application, and sale or 
use of the hydrogen must be verified under Sec.  1.45V-5.
5. Department of Energy Emissions Value Request Process
    Proposed Sec.  1.45V-4(c)(5) would have provided that, in order to 
obtain an emissions value, an applicant must submit a request for an 
emissions value following procedures specified by the DOE. The DOE 
opened the EVRP to the public on September 30, 2024.
    Proposed Sec.  1.45V-4(c)(5) also would have provided that 
emissions values will be evaluated using the same well-to-gate system 
boundary that is employed in 45VH2-GREET, as proposed in Sec.  1.45V-
1(a)(8)(iii). Additionally, proposed Sec.  1.45V-4(c)(5) would have 
provided that, if applicable, background data parameters in 45VH2-GREET 
would be treated as background data (with fixed values that an 
applicant cannot change) in the EVRP. The EVRP would be subject to any 
guidance issued under section 45V, including any guidance related to 
the use of EACs.
    Proposed Sec.  1.45V-4(c)(5) would have further provided that an 
applicant may request an emissions value from the DOE only after a 
front-end engineering and design (FEED) study or similar indication of 
project maturity, such as project specification and cost estimation 
sufficient to inform a final investment decision, has been completed 
for the hydrogen production facility. Additionally, proposed Sec.  
1.45V-4(c)(5) would have provided that the DOE may decline to review 
applications that are not responsive, including those applications that 
use a hydrogen production technology and feedstock already in 45VH2-
GREET or applications that are incomplete. Guidance and procedures for 
applicants to request and obtain an emissions value from the DOE are 
published by the DOE on its 45V Emissions Value Request application 
page, which may be found at https://www.energy.gov/eere/45v-emissions-value-request.
    In the Explanation of Provisions to the proposed regulations, the 
Treasury Department and the IRS requested comments on the appropriate 
indicators of project readiness that should be in place before an 
applicant requests an emissions value to ensure that requests 
correspond to hydrogen production facilities with significant 
commercial interest, and standards against which these indicators could 
be measured.
    The Treasury Department and the IRS received many comments in 
response to that request for comments. The comments questioned the FEED 
study requirement, claiming that these studies are costly and create 
uncertainty in investment decisions. The comments claimed that a key 
economic factor in justifying the cost of a FEED study is the amount of 
section 45V credit a project can claim, and estimating the credit 
without the emissions value is not feasible. The comments further 
claimed that the level of project maturity required for a FEED study 
necessitates a substantial amount of capital investment, which creates 
uncertainty because taxpayers would be taking a risk that their 
substantial investment may be frustrated by a higher-than-expected 
emissions value and thus a lower section 45V credit. Instead of 
requiring a FEED study, the comments suggested a variety of 
alternatives: (i) a front-end loading (FEL-2) level feasibility study, 
coupled with a detailed financial model and a lifecycle GHG emissions 
analysis prepared by a qualified party; (ii) sufficient engineering 
definition to produce a Class 4 cost estimate, as defined by the 
Association for the Advancement of Cost Engineering (AACE) 
International Recommended Practice No. 18R-97; and (iii) exemption from 
this requirement for certain pathways.
    At this nascent stage of the EVRP and after consultation with the 
DOE, these final regulations retain the requirement for a FEED study 
but clarify that a taxpayer only needs a Class 3 FEED study or similar 
indication of project maturity, as determined by the DOE, to apply for 
an emissions value. Class 3 FEED studies reflect more mature projects 
than FEED studies of Class 4 or 5, making them more likely to be robust 
and therefore likely to facilitate faster reviews. Class 3 FEED studies 
can be conducted sooner in a project and are generally less detailed or 
time-consuming than a Class 1 or 2 FEED study, addressing the comments' 
concerns on cost. Further, the DOE advised that Class 3 FEED studies 
are likely to be conducted by a majority of developers of hydrogen 
production facilities across pathways, given how complex and capital 
intensive these facilities are. However, the DOE will continue to 
explore the feasibility of alternatives to a Class 3 FEED study (for 
example, a FEED study of a different class) and may identify such 
alternatives in the future. To the extent the DOE determines that a 
similar indicator of project maturity would satisfy the requirements of 
Sec.  1.45V-4(c)(5), such determination will be published by the DOE on 
its 45V

[[Page 2249]]

Emissions Value Request application page. Thus, the provision is 
adopted as proposed with changes made to clarify that a taxpayer may 
apply for an emissions value only after it has completed a Class 3 FEED 
study or other indication of project maturity, as determined by the 
DOE. The receipt of an emissions value, however, does not constitute a 
determination that all other requirements for claiming the section 45V 
credit, including compliance with the anti-abuse and verifiable use 
rules, are met.
    The Treasury Department and the IRS also received many comments on 
the EVRP generally. Some of these comments requested that the Treasury 
Department and the IRS (in conjunction with the DOE) create an appeals 
process through which an applicant can challenge their emissions value. 
A few comments requested that applicants be allowed to revise or 
supplement their emissions value request application at various stages 
of the application process. Some comments requested that the DOE allow 
applicants with multiple facilities to apply for one emissions value. 
And other comments asked that applicants be able to submit various 
documents in support of their applications (for example, submitting 
documents obtained using modeling software or the R&D GREET model).
    The DOE has not developed an appeals process or a method for an 
applicant to unilaterally revise or supplement their application. 
However, an applicant may submit additional information to the DOE 
before the DOE has completed its analysis or after it has determined 
the facility's emissions value. These final regulations provide that 
applicants seeking a new emissions value after the DOE has completed 
its analysis may reapply only if they wish to resubmit their 
application with new or revised technical information or clarifications 
related to the information previously submitted. If the applicant's 
resubmissions result in the applicant receiving multiple emissions 
values from the DOE for a given hydrogen production pathway, the 
applicant should use the value that aligns with the information the 
applicant provided to the DOE with respect to the facility's operations 
in support of the application that resulted in the emissions value used 
The DOE will evaluate emissions value request applications using 
information provided by applicants coupled with background data in 
45VH2-GREET (for example, grid emissions, upstream methane emissions). 
If background data in 45VH2-GREET evolve, information in the latest 
version of 45VH2-GREET will be used. As new background data parameters 
are added to 45VH2-GREET or existing parameters become disaggregated 
(for example, if regionalized upstream methane parameters are 
incorporated in lieu of a national average), the DOE may revise the 
information requested through the EVRP to be consistent with the 
information required to run 45VH2-GREET. For example, if 45VH2-GREET is 
modified to include regional upstream methane background assumptions, 
and to require users to select the region that their natural gas is 
sourced from, applicants to the EVRP will also be expected to provide 
information about the region their natural gas is sourced from and will 
be evaluated using the same regional upstream methane background 
assumptions.
    Some comments expressed concern about the timing and transparency 
of the EVRP. Regarding timing, the comments expressed concern that 
submitted requests would have long processing times and that could 
affect project funding and create delays. These comments suggested that 
the DOE impose on itself a time limit to process applications, after 
which time an applicant's emissions value is deemed to be the value 
determined by the lifecycle GHG emissions analysis attached to their 
tax return.
    The DOE has advised that it endeavors to review requests as quickly 
as possible. A provision to impose a time limit on the DOE's 
consideration of emissions value requests could impede an accurate and 
rigorous review of the requests and would require additional 
administrative processes. Additionally, because the IRS deems as 
accepted the emissions value provided by the DOE upon filing, and such 
deemed acceptance is the Secretary's determination of the PER as 
provided in proposed Sec.  1.45V-4(c)(4), an accurate and rigorous 
review is necessary to such a determination. Regarding transparency, 
the DOE has stated publicly in the Emissions Value Request Application 
Instructions the variables that drive the timeline for application 
review, which include the volume of applications around a given 
pathway, complexity/ease of evaluating the hydrogen production pathway, 
and the commercial readiness of the pathway. The DOE has advised that 
it expects to be able to provide additional transparency regarding the 
timeline required for application review. Any additional information 
will be published by the DOE on its 45V Emissions Value Request page.
6. Effect of Provisional Emissions Rate
    Proposed Sec.  1.45V-4(c)(6) would have provided that a taxpayer 
may use a PER determined by the Secretary to calculate the amount of 
the clean hydrogen production credit under section 45V(a) and proposed 
Sec.  1.45V-1(b) with respect to qualified clean hydrogen produced by 
the taxpayer at a qualified clean hydrogen production facility 
beginning with the first taxable year in which a PER determined by the 
Secretary has been obtained and for any subsequent taxable year during 
the 10-year period beginning on the date such facility was originally 
placed in service, provided all other requirements of section 45V are 
met, and until the lifecycle GHG emissions rate of such hydrogen has 
been determined (for purposes of section 45V(c)(2)(C)) under the most 
recent version of 45VH2-GREET (as defined in proposed Sec.  1.45V-
1(a)(8)(ii)).
    Proposed Sec.  1.45V-4(c)(6) would have further provided that the 
Secretary's PER determination is not an examination or an inspection of 
books of account for purposes of section 7605(b) of the Code, and would 
not preclude or impede the IRS (under section 7605(b) or any 
administrative provisions adopted by the IRS) from later examining a 
return or inspecting books or records with respect to any taxable year 
for which the section 45V credit is claimed. Proposed Sec.  1.45V-
4(c)(6) would have provided that a verification report submitted under 
section 45V(c)(2)(B)(ii) and Sec.  1.45V-5 and any information, 
representations, or other data provided to the DOE in support of an 
emissions value request would still be subject to IRS examination. 
Further, proposed Sec.  1.45V-4(c)(6) would have stated that a PER 
determination would not mean that the IRS has determined that all the 
requirements of section 45V have been satisfied for any taxable year, 
nor would it create an inference that such a presumption exists.
    Some comments asked the Treasury Department and the IRS to allow 
optionality between using the PER process or 45VH2-GREET, claiming that 
the optionality would provide more flexibility and certainty for 
hydrogen producers. Other comments asked for the creation of a ``safe 
harbor'' rule, allowing taxpayers to continue using their PERs in cases 
where their pathway was incorporated into 45VH2-GREET and the model 
calculated a higher emissions rate than the taxpayers' respective PERs. 
These comments also claimed that a ``safe harbor'' rule would provide 
certainty and alleviate any unfairness that may come from having

[[Page 2250]]

a higher emissions rate with 45VH2-GREET than with a PER.
    The Treasury Department and the IRS recognize that a taxpayer's 
inability to estimate with a high degree of certainty the amount of 
section 45V credit--due to the possibility that their hydrogen 
production pathway will be subsequently included in 45VH2-GREET, which 
might reflect a higher lifecycle GHG emissions rate than their PER--
could affect a taxpayer's efforts to obtain financing for a hydrogen 
production facility. Allowing taxpayers to lock-in a PER in all 
instances, however, would be inconsistent with the statute. Section 
45V(c)(1)(B) provides that lifecycle GHG emissions shall be determined 
using the most recent version of the GREET model or a successor model, 
as determined by the Secretary. Section 45V(c)(2)(C) provides: ``In the 
case of any hydrogen for which a lifecycle greenhouse gas emissions 
rate has not been determined for purposes of this section, a taxpayer 
producing such hydrogen may file a petition with the Secretary for 
determination of the lifecycle greenhouse gas emissions rate with 
respect to such hydrogen.'' Section 45V(c)(2)(C) is a conditional 
sentence. For a taxpayer to be eligible to petition the Secretary for a 
PER, the taxpayer must meet the condition of producing hydrogen for 
which a lifecycle GHG emissions rate has not been determined (that is, 
hydrogen whose technology or feedstock is not in 45VH2-GREET). 
Likewise, for a taxpayer to be eligible to continue using a PER, the 
taxpayer's technology or feedstock must not be in 45VH2-GREET. Allowing 
optionality or creating a safe harbor rule in this case would mean 
ignoring the condition set by Congress. Therefore, these final 
regulations do not adopt these comments.
    Following the confines of the statute, these final regulations 
clarify in Sec.  1.45V-4(c)(6)(i) that taxpayers may continue to use 
the PER determined by the Secretary under Sec.  1.45V-4(c)(4) to 
calculate the amount of the section 45V credit with respect to 
qualified clean hydrogen produced at a qualified clean hydrogen 
production facility, provided that (1) the lifecycle GHG emissions rate 
of such hydrogen has not been determined (for purposes of section 
45V(c)(2)(C)) under the 45VH2-GREET Model (as described in Sec.  1.45V-
4(c)(2)(ii)) (subject to the exception in Sec.  1.45V-4(c)(6)(iv)); (2) 
there are no material changes to the information about the taxpayer's 
hydrogen production process from the information provided to the DOE to 
obtain an emissions value pursuant to Sec.  1.45V-4(c)(2)(i), and (3) 
all other requirements of section 45V are met. These final regulations 
further clarify in Sec.  1.45V-4(c)(6)(ii) that a ``material change'' 
means any change that would cause a qualified verifier (as defined in 
Sec.  1.45V-5(h)) to be unable to complete a production attestation 
under section 45V(c)(2)(B)(ii) and Sec.  1.45V-5(c).
    Further, Sec.  1.45V-4(c)(6)(iii)(A) is added to provide that the 
taxpayer may, in its discretion, make an irrevocable election effective 
for the remaining taxable years within the period described in section 
45V(a)(1), to treat the version of 45VH2-GREET in which the taxpayer's 
qualified clean hydrogen production facility's hydrogen production 
pathway is first included as the 45VH2-GREET Model. The final 
regulations also add Sec.  1.45V-4(c)(6)(iii)(B) to provide that the 
taxpayer makes the election with respect to a qualified clean hydrogen 
production facility on Form 7210 for the taxable year in which the 
taxpayer's qualified clean hydrogen production facility's hydrogen 
production pathway is first included in 45VH2-GREET. Changes have also 
been made to Sec.  1.48-15(d) to provide a corresponding subsequent 
inclusion safe harbor election with respect to a specified clean 
hydrogen production facility.
    Finally, Sec.  1.45V-4(c)(6)(iv) is added to provide a special rule 
for taxpayers who received an emissions value from the DOE prior to 
beginning construction of their respective facility. This rule allows a 
taxpayer to continue relying on its PER, despite the rate having been 
determined under the 45VH2-GREET Model. Section 1.45V-4(c)(6)(iv) 
provides that, notwithstanding the requirement of Sec.  1.45V-
4(c)(6)(i)(A), a taxpayer who received an emissions value from the DOE 
with respect to a qualified clean hydrogen production facility pursuant 
to Sec.  1.45V-4(c)(2)(i) before the date when construction of the 
facility began, may, in its discretion, continue to use the PER 
determined by the Secretary and the associated emissions value to 
calculate the amount of the section 45V credit with respect to 
qualified clean hydrogen produced at the qualified clean hydrogen 
production facility for the remainder of the period described in 
section 45V(a)(1), provided that the taxpayer continues to satisfy the 
requirements of Sec.  1.45V-4(c)(6)(i)(B) and (C). This special rule is 
limited to taxpayers who obtained an emissions value before the date 
when construction of their facility began because these taxpayers began 
construction in reliance on their PERs. Taxpayers who began 
construction before obtaining an emissions value did not do so in 
reliance on their PERs and therefore, as a temporal matter, did not 
need to lock-in their PERs in order to secure financing to begin 
construction. This special rule provides parallel treatment to the 
beginning of construction safe harbor for 45VH2-GREET in Sec.  1.45V-
4(b)(2)(i).

D. Use of Energy Attribute Certificates (EACs)

1. In General
    Proposed Sec.  1.45V-4(d) would have provided a framework for the 
use of EACs as the sole means of documenting purchased electricity 
inputs from specific sources and reflecting emissions impacts of that 
electricity used in the production of hydrogen for purposes of the 
section 45V credit. Under this framework, a taxpayer must acquire and 
retire qualifying EACs to establish, for purposes of section 45V, that 
it acquired for use electricity from a specific electricity generation 
facility (and therefore did not rely on the electricity generally 
sourced via the regional electricity grid). The framework would have 
required taxpayers to acquire and retire EACs that meet requirements 
for incrementality, temporal matching, and deliverability (qualifying 
EAC requirements), as provided in proposed Sec.  1.45V-4(d)(3). These 
final regulations generally adopt the qualifying EAC framework of the 
proposed regulations, with the modifications noted in this part III.D 
of this Summary of Comments and Explanation of Revisions.
    Proposed Sec.  1.45V-4(d)(1) would have provided that for purposes 
of section 45V, if a taxpayer determines a lifecycle GHG emissions rate 
for hydrogen produced at a hydrogen production facility using the most 
recent version of 45VH2-GREET (as defined in proposed Sec.  1.45V-
1(a)(8)(ii)) or a PER (as defined in proposed Sec.  1.45V-4(c)(1)), 
then the taxpayer may reflect in 45VH2-GREET or include in a PER such 
hydrogen production facility's use of electricity as being from a 
specific electricity generating facility rather than being from the 
regional electricity grid (as represented in 45VH2-GREET) only if the 
taxpayer acquires and retires a qualifying EAC (as defined in proposed 
Sec.  1.45V-4(d)(2)(iv)) for each unit of electricity that the taxpayer 
claims from such source. For example, one megawatt-hour of electricity 
used to produce hydrogen would need to be matched with one megawatt-
hour of qualifying EACs. Further, proposed Sec.  1.45V-4(d)(1) would 
have provided that in order to satisfy this requirement, a taxpayer's 
acquisition and retirement

[[Page 2251]]

of qualifying EACs must also be recorded in a qualified EAC registry or 
accounting system (as defined in proposed Sec.  1.45V-4(d)(2)(iv)) so 
that the acquisition and retirement of such EACs may be verified by a 
qualified verifier (as defined in proposed Sec.  1.45V-5(h)).
    With respect to the requirement that each unit of electricity used 
to produce hydrogen needs to be matched with the electricity 
represented by the qualifying EACs, in the proposed regulations the 
Treasury Department and the IRS specifically requested comment as to 
whether a different treatment would be more appropriate to account for 
transmission and distribution line losses. For example, taxpayers could 
be required to adjust the electricity represented by the qualifying EAC 
downward to account for such losses, which would necessitate buying 
additional qualifying EACs to make up for the adjustment. Some comments 
supported the approach of the proposed regulations to not impose a 
downward adjustment of EACs because granular geographic matching would 
already mitigate transmission and distribution line losses. Other 
comments agreed there should be no downward adjustment to EACs, 
expressing administrability concerns that an adjustment to an EAC to 
account for losses would vary depending on the taxpayer's location. In 
contrast, other comments countered that an adjustment should be made to 
account for transmission and distribution line losses, to accurately 
determine electricity usage and GHG emissions, unless the hydrogen 
production facility can provide sufficient documentation that shows 
that no losses have occurred. These comments posit that not requiring 
an adjustment could cause a mismeasurement of GHG emissions, by failing 
to take into account the electricity used to make up for such losses. 
In response to these comments, the Treasury Department and the IRS, 
after consultation with the DOE and the EPA, note that existing EAC 
markets--including markets where purchasers buy EACs to comply with 
Clean Energy Standards (CES) or Renewable Portfolio Standards (RPS) as 
well as those where purchasers voluntarily choose to buy EACs--use EACs 
to enable end-use claims on a one-to-one basis. As noted by the 
comments, accounting for transmission and distribution line losses also 
would pose administrability challenges for taxpayers and for 
verification given uncertainty regarding appropriate assumptions to 
account for such losses. For these reasons, these final regulations 
maintain standard practice and therefore retain the one-to-one rule of 
the proposed regulations. Given the increased accuracy that accounting 
for such losses would provide, the Treasury Department and the IRS may 
revisit this requirement if the administrability and verification 
challenges abate.
    Several comments asked that the final regulations state that 
distributed energy resources may generate qualifying EACs. One of these 
comments proposed clarifying that all resources that qualify for 
wholesale bidding under Federal Energy Regulatory Commission (FERC) 
Order No. 2222, Participation of Distributed Energy Resource 
Aggregations in Markets Operated by Regional Transmission Organizations 
and Independent System Operators (85 FR 67094), may generate EACs. In 
response, the Treasury Department and the IRS confirm that distributed 
energy resources that are grid connected or are directly connected to a 
hydrogen production facility may generate qualifying EACs, provided 
that the requirements of Sec.  1.45V-4(d) are met.
    Several comments asked for exceptions to the EAC framework, under 
which a taxpayer could establish the use of electricity from a specific 
electricity generation source without the acquisition and retirement of 
qualifying EACs. Another comment proposed allowing the use of power 
purchase agreements as an alternative to the EAC framework. Similarly, 
several comments suggested exempting any hydrogen production facility 
with its own behind-the-meter source of clean electricity (for example, 
a directly connected hydrogen production facility) from the EAC 
framework.
    In response to these comments, the Treasury Department and the IRS 
note that the EAC framework is necessary to prevent double counting of 
the energy and emissions attributes represented by EACs and to mitigate 
the risk of significant indirect emissions. As explained in part V.C of 
the Explanation of Provisions to the proposed regulations, the double 
counting of EACs and their underlying energy and emissions attributes 
would undermine the integrity of lifecycle GHG emissions rate 
determinations that incorporate EACs. Double counting occurs if two 
different parties claim the energy and emissions attributes and 
associated environmental benefits from generated energy.\17\ Uniformly 
requiring claims of using electricity generated from specific sources 
to be evidenced by EACs that meet the requirements of Sec.  1.45V-
4(d)(1) would mitigate the risk of double counting. Thus, the 
requirements of the EAC framework must be met regardless of whether the 
electricity generating facility giving rise to the qualifying EAC is 
grid connected, directly connected, or co-located with the hydrogen 
production facility (that is, regardless of whether the underlying 
source of the qualifying EAC physically supplies electricity through a 
direct connection to the hydrogen production facility). With respect to 
behind-the-meter sources of clean electricity, the Treasury Department 
and the IRS note that many such sources already participate in EAC 
registries and sell EACs. Even in cases in which the electricity source 
does not participate in a formal EAC registry, because every unit of 
electricity generated has tradeable attributes, and because the use of 
such electricity for hydrogen production can still result in increased 
emissions, EACs must still be generated and retired. In addition, 
behind-the-meter sources still pose a risk of induced emissions if such 
sources involve pre-existing generation that was grid-connected or was 
used for a purpose other than hydrogen production; such sources would 
result in induced emissions if they were diverted to hydrogen 
production. Similarly, making the EAC framework optional or allowing an 
exception for power purchase agreements raises the possibility of 
double counting of energy and emissions attributes. While it is 
possible this concern could potentially be reduced through alternative 
measures such as a ``no double sale'' attestation made by the 
electricity source with respect to the attributes, such alternatives 
would create administrability and coordination problems for sales made 
outside the EAC framework. In contrast, the required use of the EAC 
framework described in the proposed regulations provides for a 
consistent and effective anti-double counting system that is uniform 
for all taxpayers, regardless of their sources of electricity, and 
represents standard industry practice across regulatory and voluntary 
markets. Because of these many reasons, no alternative measures are 
necessary or appropriate.
---------------------------------------------------------------------------

    \17\ Double Counting, U.S. Environmental Protection Agency, 
available at https://www.epa.gov/green-power-markets/double-counting 
(last updated Jan. 15, 2024).
---------------------------------------------------------------------------

    Several comments suggested that the Treasury Department and the IRS 
should explicitly forbid double counting of EACs in the final 
regulations. One comment was concerned that given the number of EAC 
registries on the market there would be a high risk of double counting 
when multiple registries

[[Page 2252]]

substantiate an EAC for the same unit of electricity. While the 
Treasury Department and the IRS concur that double counting is a risk 
absent an EAC framework that prevents double counting, the EAC 
framework of these final regulations is intended to mitigate that risk 
by requiring qualifying EACs to be tracked in EAC registries and 
establishing minimum requirements for such registries. The Treasury 
Department and the IRS are confident that EAC registries can continue 
to mitigate the risks of double counting in part by working together to 
ensure that each issued EAC is distinct and unique. In addition, these 
final regulations modify the requirements for third-party verification 
to require verifiers to confirm and attest either that electricity 
generators tied to EACs applied to a particular section 45V credit 
claim are not registered on multiple qualifying EAC registries, or 
that, if such generators are registered on multiple qualifying EAC 
registries, each EAC undergoing verification from each such generator 
is being issued by only one qualifying EAC registry. This will further 
reduce double counting risks. See Sec.  1.45V-5(c)(2). The final 
regulations also modify the definition of eligible EAC in Sec.  1.45V-
4(d)(2)(iii) to clarify that the EAC must be registered on only one 
qualified EAC registry or accounting system.
    One comment stated that the EAC framework in the proposed 
regulations does not align with similar frameworks adopted by States 
through RPS and CES. The comment suggested that the misalignment could 
lead to double counting and other accounting issues and recommended 
that the Treasury Department and the IRS align its EAC framework with 
that of the States. However, the Treasury Department and the IRS do not 
agree that the EAC framework of the proposed regulations is misaligned 
with similar frameworks adopted by States through RPS and CES. Under 
section 45V, hydrogen producers are likely to be able to use the same 
EAC registries as are employed by the States for purposes of RPS 
compliance, voluntary markets, and other needs. It is true that the 
statutory basis of section 45V requires the Treasury Department and the 
IRS to establish EAC qualifying criteria that are different from State 
RPS programs. Some of these criteria will require EAC registries to 
augment their capabilities to ensure that clean hydrogen producers have 
access to qualifying EACs. However, the Treasury Department and the IRS 
are confident that if market demand for qualifying EACs exist, EAC 
registries will develop the necessary functional requirements for EAC 
tracking to meet that demand. Such development is already occurring. 
For example, a variety of comments have stated that hourly tracking by 
2030 or earlier would be feasible, and several EAC registries have 
begun to introduce such tracking.
    Several comments requested clarification of the extent to which 
taxpayers can claim the section 45V credit while availing themselves of 
other incentive programs that also require the acquisition and 
retirement of EACs. For example, one comment requested clarification 
that an EAC can be used to satisfy both section 45V requirements and 
the California Low Carbon Fuel Standard (CA LCFS). In response to these 
comments, the Treasury Department and the IRS re-affirm that double 
counting of EACs is disallowed. EACs may not be acquired and retired 
for purposes of the EAC framework of section 45V if they are separately 
acquired and retired for any other purpose. However, taxpayers may take 
advantage of section 45V concurrently with State incentive and other 
programs in other ways, at the discretion of State policymakers. For 
instance, hydrogen credited by section 45V may be an eligible fuel in 
CA LCFS (to the extent this is allowed by California's rules). In 
addition, the treatment within State programs of clean electricity, the 
EACs of which have been acquired and retired for hydrogen production 
under section 45V, is a matter of State policy.
    One comment asked that the final regulations allow for relief from 
filing deadlines if a taxpayer is unable to comply with the EAC 
framework due to a delay, such as with third-party verification. The 
comment suggested that because the verification process is new and 
untested, there should be an accommodation process for producers that 
are unable to file or amend their returns prior to the close of the 
section 6511(a) statute of limitations on filing a claim for credit or 
refund. The Treasury Department and the IRS are aware that taxpayers 
may encounter unforeseeable compliance issues. The section 45V credit 
may be claimed on an amended return or AAR, as with other credits, 
subject to the section 6511(a) statute of limitations noted by the 
comment. Part IV.K of this Summary of Comments and Explanation of 
Revisions explains further clarifications to the third-party 
verification rules of proposed Sec.  1.45V-5(k)(2), that such 
verification, so long as it is made prior to the date the amended 
return or AAR is filed, is considered timely. Accordingly, these final 
regulations do not provide the requested filing relief at this time, 
but the Treasury Department and the IRS will continue to monitor the 
compliance concerns raised by the comment.
    The same comment requested that hydrogen producers that acquire 
EACs from a qualified EAC registry or accounting system in good faith 
be permitted to rely on the EACs and not be held accountable for errors 
or inaccuracies in such information after the fact. In response, the 
Treasury Department and the IRS again note that the EAC framework is 
intended to mitigate double counting and other errors. To the extent 
the comment requests a safe harbor for the information contained in any 
acquired EAC, these final regulations do not adopt the comment, as the 
creation of such a safe harbor would require the Treasury Department 
and the IRS to determine what constitutes good faith. In response to 
the comment's concern about errors with respect to EACs, Sec.  1.45V-
4(d)(2)(viii) of the final regulations provides standards that a 
qualified EAC registry or accounting system must meet, and the Treasury 
Department and the IRS expect that registries meeting these standards 
will help ensure a high degree of accuracy with respect to their 
qualifying EACs.
    Finally, a number of comments raised questions with respect to how 
the EAC framework and qualifying EAC requirements relate to hydrogen 
produced using renewable natural gas or fugitive methane. These 
comments are addressed in the general discussion of hydrogen produced 
using RNG or fugitive methane, in part III.H of this Summary of 
Comments and Explanation of Revisions.
2. Definitions
    Proposed Sec.  1.45V-4(d)(2) included definitions for the terms (i) 
``commercial operations date;'' (ii) ``energy attribute certificate;'' 
(iii) ``eligible EAC;'' (iv) ``qualifying EAC;'' (v) ``qualified EAC 
registry or accounting system;'' and (vi) ``region.'' These terms are 
retained in these final regulations. The final regulations also add the 
new definitions of (i) ``qualifying electricity decarbonization 
standard;'' (ii) ``qualifying GHG cap program;'' (iii) ``merchant 
nuclear reactor''; (iv) ``qualifying nuclear reactor;'' (v) ``written 
binding contract;'' and (vi) ``qualifying State,'' which are discussed 
in part III.D.3.b of this Summary of Comments and Explanation of 
Revisions. The paragraphs of Sec.  1.45V-4(d)(2) are renumbered in 
these final regulations to account for these additional terms.

[[Page 2253]]

    These final regulations amend the definition of eligible EACs and 
provide additional requirements for electricity sources that use carbon 
capture technology (discussed in part III.D.3.b.ii of the Summary of 
Comments and Explanation of Provisions).
    The Treasury Department and the IRS received several comments 
concerning the proposed definitions. Proposed Sec.  1.45V-
4(d)(2)(iii)(C) would have required an EAC (as defined in proposed 
Sec.  1.45V-4(d)(2)(i)) to provide a ``commercial operations date'' or 
``COD'' to be an ``eligible EAC.'' Proposed Sec.  1.45V-4(d)(2)(i) 
would have defined COD as the date on which a facility that generates 
electricity begins commercial operations. The COD, as defined here, 
would be the first date of the operation of the relevant electricity 
generating facility. The general rules for determining an electricity 
generating facility's placed in service date for Federal income tax 
purposes would not have applied in determining its COD.
    One comment noted that the Western Renewable Energy Generation 
Information System (WREGIS) \18\ database does not currently track the 
COD of electricity generation facilities and asked the requirement to 
provide a COD be removed from the definition of eligible EAC. The 
comment suggested that the final regulations instead rely on qualified 
verifiers to determine the COD. The Treasury Department and the IRS 
disagree that COD is not tracked in WREGIS. The COD of each generator 
is available in the WREGIS database and linked to a project 
identification. Therefore, the final regulations do not adopt this 
comment.
---------------------------------------------------------------------------

    \18\ WREGIS was identified as a qualified EAC registry in the 
Explanation of Provisions to the proposed regulations. See Proposed 
Sec.  1.45V-4, 88 FR 89220, 89228 (Dec. 26, 2023).
---------------------------------------------------------------------------

    Proposed Sec.  1.45V-4(d)(2)(v) would have defined ``qualified EAC 
registry or accounting system'' to mean a tracking system that (i) 
assigns a unique identification number to each EAC tracked by such 
system, (ii) enables verification that only one EAC is associated with 
each unit of electricity, (iii) verifies that the underlying attributes 
of each EAC is claimed and retired only once, (iv) identifies the owner 
of each EAC, and (v) provides a publicly accessible view (for example, 
through an application programming interface) of all currently 
registered electricity generators in the tracking system to prevent the 
duplicative registration of such generators. Many comments called for 
the Treasury Department and the IRS to develop standardized rules for 
EAC registries. Several comments suggested adoption of the 
``EnergyTag'' standard would prevent fraud, enhance auditability, 
facilitate registry interoperability, and provide application 
programming interface access features as well as cybersecurity 
standards.
    In response to these comments, the Treasury Department and the IRS 
note that rules of proposed Sec.  1.45V-4(d)(2)(v), finalized herein 
under Sec.  1.45V-4(d)(2)(viii), provide a set of standardized 
requirements that EAC registries must satisfy. These final regulations 
do not provide specific rules prescribing the standards that EAC 
registries must follow to satisfy these requirements. A single 
standard, while desirable, is not adopted due to lack of sufficient 
consensus among EAC registries and their participants. Further, 
adopting a single standard could have unintended consequences and 
unnecessarily burden or exclude certain EAC registries. The Treasury 
Department and the IRS, however, encourage EAC registries and external 
stakeholders to work together to develop such standards. The proposed 
regulations noted that qualified EAC registries currently include, but 
are not necessarily limited to, the following: Electric Reliability 
Council of Texas (ERCOT); Michigan Renewable Energy Certification 
System (MIRECS); Midwest Renewable Energy Tracking System, Inc. (M-
RETS); North American Registry (NAR); New England Power Pool Generation 
Information System (NEPOOL-GIS); New York Generation Attribute Tracking 
System (NYGATS); North Carolina Renewable Energy Tracking System (NC-
RETS); PJM Generation Attribute Tracking System (PJM-GATS); and WREGIS. 
The Treasury Department and the IRS continue to expect that these 
registries will be qualified EAC registries as defined in Sec.  1.45V-
4(d)(2)(viii) of the final regulations but note that these registries 
currently do not generally issue or track EACs that meet the hourly 
tracking requirements of Sec.  1.45V-4(d)(3)(ii)(A) of the final 
regulations.
    One comment emphasized that EAC registries are currently not fully 
developed for use with respect to section 45V and noted that many of 
the identified qualified EAC registries do not track all electricity 
sources. In response, the Treasury Department and the IRS recognize 
that the section 45V final regulations will require EAC registries to 
develop new capabilities. For instance, some EAC registries do not 
track all forms of electricity, and hourly tracking capabilities are 
just being developed. However, the EAC registry rules established in 
these final regulations ensure consistency with the section 45V 
statutory requirements, including its requirement to determine 
lifecycle GHG emissions rates, which includes addressing significant 
indirect emissions such as potential induced emissions. In addition, 
the Treasury Department and the IRS anticipate that EAC registry rules 
in these final regulations, and industry interest in complying with 
requirements for securing the tax credit, will provide a significant 
market incentive for registries to enhance their capabilities to meet 
the needs of the clean hydrogen industry. The Treasury Department and 
the IRS also note that there is substantial interest from a broad 
cross-section of electricity consumers, including but not limited to 
hydrogen production facilities, in the development of these same 
capabilities to enable voluntary market claims related to hourly 
matching of clean electricity. The Treasury Department and the IRS 
encourage EAC registries to work together and with stakeholders to 
develop appropriate, common approaches to enhancing the ability of EAC 
registries to provide additional, reliable tracking information, and 
are confident that the new capabilities can be developed by the EAC 
registries to facilitate compliance with section 45V and accelerate the 
growth of clean hydrogen production.
    Finally, the Treasury Department and the IRS received comments with 
respect to the definition of ``region'', which are addressed in 
response to comments received regarding deliverability in proposed 
Sec.  1.45V-4(d)(3)(iii) in part III.D.3.d of this Summary of Comments 
and Explanation of Revisions.
3. Qualifying EAC Requirements
a. In General
    Proposed Sec.  1.45V-4(d)(3) would have provided that an EAC meets 
the requirements to be a qualifying EAC if it meets the qualifying EAC 
requirements for incrementality, temporal matching, and deliverability. 
A taxpayer is not required to acquire and retire qualifying EACs. 
However, the taxpayer may only reflect in 45VH2-GREET or include in a 
PER the taxpayer's use of electricity as being from a specific 
electricity generating facility (rather than being from the regional 
electricity grid) if the taxpayer acquires and retires qualifying EACs. 
See proposed Sec.  1.45V-4(d)(1).
    Many comments supported these requirements. Generally, these 
comments agreed that the qualifying EAC requirements are necessary to 
ensure that electricity consumption

[[Page 2254]]

associated with hydrogen production, and particularly with electrolytic 
hydrogen production and other electricity-intensive hydrogen production 
pathways, do not result in significant induced grid emissions that 
would disqualify the hydrogen production from the tax credit under the 
statute. Comments also stated that the qualifying EAC requirements are 
the best way to adhere to the statutory requirements of section 
45V(c)(1). One comment stated that the proposed regulations' 
interpretation of section 211(o)(1)(H) of the Clean Air Act aligned 
with both section 45V and the EPA's interpretation. Another comment 
suggested that the proposed regulations' accounting of induced grid 
emissions is consistent with longstanding interpretation by the EPA 
with respect to the Clean Air Act, about which Congress was aware when 
section 45V was enacted.
    On the other hand, many comments criticized the qualifying EAC 
requirements. Several comments contended that the qualifying EAC 
requirements lack legal support in section 45V and fail to align with 
congressional intent. These comments questioned the underlying policy 
rationale. Comments also criticized the concept of ``induced grid 
emissions.'' One comment argued that neither section 45V, the Clean Air 
Act, nor any other Federal statute identifies the risk of ``induced 
grid emissions'' as a basis for imposing the qualifying EAC 
requirements.
    After consideration of these comments, these final regulations 
retain the qualifying EAC requirements. The consideration of 
significant indirect emissions, which in this context includes induced 
grid emissions, is required by section 45V. Section 45V(c)(1) defines 
the term ``lifecycle greenhouse gas emissions'' to have the same 
meaning as that under section 211(o)(1)(H) of the Clean Air Act, 
limited to include only emissions through the point of production 
(well-to-gate). Section 211(o)(1)(H) of the Clean Air Act provides, in 
relevant part, that ``[t]he term `lifecycle greenhouse gas emissions' 
means the aggregate quantity of greenhouse gas emissions (including 
direct emissions and significant indirect emissions such as significant 
emissions from land use changes), as determined by the [EPA] 
Administrator, related to the full fuel lifecycle'' (emphasis added). 
Thus, not considering significant indirect emissions related to the 
full lifecycle of the fuel (including the electricity used to produce 
the hydrogen) in the determination of a lifecycle GHG emissions rate 
for a hydrogen process would be contrary to the statute.
    As noted in the Explanation of Provisions of the proposed 
regulations, the Treasury Department and the IRS consulted with the EPA 
and the DOE to develop the qualifying EAC framework. The EPA advised 
that, based on its prior implementation of section 211(o)(1)(H) of the 
Clean Air Act in the context of the RFS, it would be reasonable for the 
Treasury Department and the IRS to determine that induced grid 
emissions are an anticipated real-world result of electrolytic hydrogen 
production that constitute significant indirect emissions and must 
therefore be considered in lifecycle GHG analyses for purposes of the 
section 45V credit.\19\ As the EPA December 2023 Letter explained, 
``[e]lectricity users, including hydrogen producers, can cause or 
induce emissions by adding new load and consuming electricity. Because 
the grid must always balance electricity demand with supply, this 
increased electricity demand results in increased electricity supply 
and, if the new electricity is not zero-emitting, additional emissions 
from the grid.'' As induced grid emissions are not currently included 
in the emissions calculations provided by any version of GREET, the use 
of qualifying EACs as a means to consider induced GHG emissions is a 
reasonable methodological proxy in lieu of calculating these emissions 
as part of the LCA assessment.
---------------------------------------------------------------------------

    \19\ See Letter from Janet McCabe, Deputy Administrator, U.S. 
Environmental Protection Agency, to Lily Batchelder, Assistant 
Secretary for Tax Policy, U.S. Department of the Treasury (Dec. 20, 
2023), available at https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf (EPA December 2023 Letter).
---------------------------------------------------------------------------

    The EPA also noted that EACs are an established means for 
documentation and verification of the generation and purchase of zero-
GHG-emitting electricity. Moreover, the EPA advised that, in the 
context of electrolytic hydrogen, EACs that possess specific attributes 
that meet certain criteria are an appropriate way in the context of 
section 45V of verifying the generation and delivery of zero GHG-
emitting electricity and can serve as a reasonable methodological proxy 
for quantifying induced grid emissions associated with new load from 
electrolytic hydrogen production being added to an existing grid. Such 
requirements would mitigate the risk of inappropriately crediting 
hydrogen production that does not meet the lifecycle GHG levels 
required by section 45V.
    The development of the qualifying EAC requirements and framework 
was also informed by a 2023 DOE technical paper (DOE Technical 
Paper).\20\ As discussed therein, incrementality, temporal matching, 
and deliverability requirements are important guardrails to ensure that 
hydrogen producers' electricity use can be reasonably deemed to reflect 
the emissions associated with the specific generators from which the 
EACs were purchased and retired. If hydrogen producers rely on EACs 
without attributes that meet these three criteria there is a 
significant risk that hydrogen production would significantly increase 
direct and significant indirect GHG emissions--and, in particular, 
induced grid emissions--beyond the levels required to qualify for the 
section 45V credit.
---------------------------------------------------------------------------

    \20\ See U.S. Department of Energy, Assessing Lifecycle 
Greenhouse Gas Emissions Associated with Electricity Use for the 
Section 45V Clean Hydrogen Production Tax Credit (Dec. 19, 2023), 
available at https://www.energy.gov/45vresources (scroll to ``45V 
White Paper;'' then click ``Read and download the 45V White 
Paper'').
---------------------------------------------------------------------------

    Based on advice of the DOE and the EPA, the proposed regulations 
included the qualifying EAC requirements. Upon consideration of the 
comments received, these final regulations retain the requirements. The 
qualifying EAC requirements are indeed necessary to address the risk of 
significant indirect emissions associated with electricity use for 
purposes of the section 45V credit. Electricity from a specific 
generator will have a GHG emissions profile that results from both its 
direct and indirect emissions. Requiring EACs with attributes that meet 
the three criteria is necessary to address and prevent, to the extent 
reasonably practicable, indirect GHG emissions resulting from the 
dynamics of the electricity market and the electric grid and fulfill 
the statute's directive to only award the section 45V credit to 
hydrogen production with lifecycle GHG emissions within specified 
levels.
    Section 45V(c)(1) and section 211(o)(1)(H) of the Clean Air Act 
require the consideration of significant indirect emissions. A few 
comments questioned how the induced indirect emissions from the use of 
electricity to produce hydrogen are significant. Some stated that 
modeling should be done to determine if indirect emissions are 
significant. Other comments included analysis and modeling, finding 
that induced grid emissions will often be large enough to affect 
whether a project qualifies for the section 45V credit or what tier of 
the credit it qualifies for, indicating that these emissions are 
significant.
    In response, the Treasury Department and the IRS note that whether 
emissions are significant must be understood

[[Page 2255]]

within the structure of section 45V. For purposes of section 45V, the 
specific amount of emissions determine whether hydrogen produced is 
qualified clean hydrogen (with a lifecycle GHG emissions rate of not 
greater than 4 kilograms of CO2e per kilogram of hydrogen) and what 
applicable percentage, and therefore amount of credit, the taxpayer may 
qualify for. See Section 45V(b) and (c)(2). In this statutory context, 
any indirect emissions may be significant, because such emissions could 
affect the qualification for, and amount of, the section 45V credit. In 
addition, the Treasury Department and the IRS note that the DOE advised 
that ``electrolysis projects that use grid electricity have the 
potential to be several times more GHG intensive than the threshold for 
the lowest value Sec.  45V tax credit tier (i.e., 4 kg of CO2e/kg H2), 
and could be more GHG intensive than existing forms of conventional 
hydrogen production.'' \21\ Further, the EPA advised in the EPA 
December 2023 Letter that ``publications have noted that electrolysis 
projects that use large amounts of grid electricity to produce hydrogen 
have the potential to be several times more greenhouse-gas intensive 
than the threshold for even the lowest value IRC section 45V tax credit 
tier, and could in fact be more greenhouse-gas intensive than existing 
forms of conventional hydrogen production.'' \22\ For example, one 
study found that subsidized grid-connected hydrogen production has the 
potential to induce additional emissions at effective rates worse than 
those of conventional, fossil-based hydrogen production pathways and 
that hydrogen electrolysis with no incrementality requirement would 
cause GHG emissions rates at nearly 20 kilograms of CO2e per kilogram 
of hydrogen in an 82 percent carbon-free California power grid in 
2030.\23\ Another study found that electrolysis using non-additional 
clean energy would incur 22 to 40 kilograms of CO2e per kilogram of 
hydrogen across all 14 modeled regions comprising the 48 contiguous 
U.S. states and the District of Columbia.\24\ Another study assessed 
the impact on GHG emissions of electrolytic hydrogen production without 
an incrementality requirement and found that this could increase 
emissions by 73 million metric tons in 2030.\25\ Further, the level of 
induced grid emissions is expected to often be large enough to 
disqualify hydrogen production from credit eligibility or, at minimum, 
affect which level of credit the production is eligible for. Based on 
the evidence, the Treasury Department and the IRS are statutorily 
required under section 45V to consider induced grid emissions as 
``significant indirect emissions,'' consistent with the EPA's previous 
interpretation of that term in section 211(o)(1)(H) of the Clean Air 
Act.\26\
---------------------------------------------------------------------------

    \21\ DOE Technical Paper supra note 20.
    \22\ EPA December 2023 Letter supra note 19 (citing U.S. 
Department of Energy, Pathways to Commercial Liftoff: Clean Hydrogen 
(2023), at 10-12, available at https://liftoff.energy.gov/wp-content/uploads/2023/05/20230523-Pathways-to-Commercial-Liftoff-Clean-Hydrogen.pdf).
    \23\ Wilson Ricks et al., Minimizing Emissions from Grid-Based 
Hydrogen Production in the United States, 18 Environmental Research 
Letters, no. 1, Jan. 2023, available at https://iopscience.iop.org/article/10.1088/1748-9326/acacb5/pdf.
    \24\ Dan Esposito et al., Smart Design of 45V Hydrogen 
Production Tax Credit Will Reduce Emissions and Grow the Industry, 
at 19 (Apr. 2023), available at https://energyinnovation.org/wp-content/uploads/Smart-Design-Of-45V-Hydrogen-Production-Tax-Credit-Will-Reduce-Emissions-And-Grow-The-Industry.pdf.
    \25\ The study notes this figure assumes no improvement in grid 
carbon intensity over time. Ben King et al., Scaling Green Hydrogen 
in a Post-IRA World, Rhodium Group (Blog) (Mar. 16, 2023), available 
at https://rhg.com/research/scaling-clean-hydrogen-ira/.
    \26\ See EPA December 2023 Letter supra note 19.
---------------------------------------------------------------------------

    Many of the comments that criticized the qualifying EAC 
requirements and framework also raised concerns about the effect that 
the requirements may have on industry. For example, some comments 
opposed the requirements on the grounds that they exacerbate challenges 
that already exist in getting hydrogen production projects underway, 
such as higher costs related to debt, materials, and labor, as well as 
competition to electrolytic hydrogen from other types of fuel 
production processes. Similarly, one comment claimed that the proposed 
qualifying EAC requirement framework would significantly increase the 
production cost of the lowest carbon-intensity hydrogen. Other comments 
claimed that the regulatory costs outweigh the emissions benefits. 
Comments also stated that implementing the qualifying EAC requirements 
could cause a significant expansion of renewable energy generation 
sources without regard to existing generation sources and therefore 
artificially accelerate the development of such sources; this may cause 
problems if the development does not also address reliability concerns 
of a particular region's infrastructure.
    In contrast, several other comments stressed the importance of 
maintaining the rigor of the qualifying EAC requirements and cautioned 
that any flexibility should be done with care and consideration to 
ensure that the intended purpose of the qualifying EAC requirements is 
not undermined. One comment urged that the final regulations maintain 
the strictness of the qualifying EAC requirements for purposes of 
determining section 45V credit eligibility to ensure that hydrogen 
producers are properly incentivized and constrained to utilize the 
section 45V credit for the generation of qualified clean hydrogen. Some 
supportive comments, despite acknowledging the challenges of meeting 
the requirements of the qualifying EAC requirements in the near term, 
claimed that electricity meeting the qualifying EAC requirements is 
likely to be available in vast quantities. These comments generally 
contended that the qualifying EAC framework will make electrolytic 
hydrogen production economically beneficial and environmentally 
sustainable.
    As noted previously in this part of the Summary of Comments and 
Explanation of Revisions, the qualifying EAC requirements address the 
risk of significant indirect emissions associated with electricity used 
in the production of hydrogen for purposes of the section 45V credit. 
The comments outlined in this part reflect different views on how the 
consideration of significant indirect emissions may affect the hydrogen 
industry. The section 45V credit incentivizes certain hydrogen 
production, but subject to limitations regarding the level of lifecycle 
GHG emissions. One of those limitations is the statutory requirement to 
take into account significant indirect emissions. Therefore, the 
recommendation to eliminate the qualifying EAC requirements is not 
adopted by these final regulations because it would fail to address 
such emissions.
    While some comments advocated for abandoning the qualifying EAC 
requirements in their entirety, other comments suggested modifications, 
such as by giving hydrogen producers more time to adjust or allowing 
greater flexibility in sourcing the electricity used. They also 
emphasized the need for such modifications to ensure that the 
qualifying EAC requirements do not create an uneven playing field 
across regions, disadvantage existing clean electricity generators, or 
have the effect of incentivizing only non-electrolytic, fossil-fuel-
based hydrogen production.
    The Treasury Department and the IRS have considered these comments, 
and these final regulations make adjustments to each of the qualifying 
EAC requirements to provide additional flexibility, while continuing to 
adhere to the statutory requirements of section 45V. These final 
regulations adopt certain alternative rules under the incrementality 
requirement of proposed Sec.  1.45V-4(d)(3)(i) that reflect situations

[[Page 2256]]

that do not pose the same risk of induced grid emissions that the 
incrementality requirement is otherwise needed to address. These 
alternatives are discussed in more detail in part III.D.3.b.ii through 
v of the Summary of Comments and Explanation of Revisions. In addition, 
these final regulations, in response to the comments, delay until 2030 
the requirement that temporal matching be hourly (from 2028 in the 
proposed regulations). This change is discussed in more detail in part 
III.D.3.c.ii of this Summary of Comments and Explanation of Revisions. 
These final regulations, however, do not delay the imposition of the 
qualifying EAC requirements or provide rules that would exempt certain 
hydrogen producers from those requirements. As previously noted, the 
qualifying EAC requirements are needed to address the risk that induced 
grid emissions will otherwise lead to lifecycle GHG emissions rates 
that are beyond the statutory thresholds. Consideration of significant 
induced grid emissions and disqualifying hydrogen production above the 
statutory thresholds is required under section 45V. In addition to 
addressing induced grid emissions risk, the qualifying EAC framework 
also is needed to prevent double counting of energy attributes. 
Furthermore, EACs play a secondary role to inform and verify the 
feedstock assumptions applied in 45VH2-GREET in estimating the 
lifecycle emissions of hydrogen production.
    One comment recommended an alternative to the qualifying EAC 
requirements that follows European Union (EU) rules allowing hydrogen 
production to qualify as green where hydrogen is produced in a region 
with an average renewable electricity share exceeding 90 percent in the 
previous calendar year, if the hydrogen production does not exceed the 
proportion of renewable electricity in the region. Another comment 
noted that while the EU has exemptions to incrementality, the EU also 
has an Emissions Trading System that caps consequential emissions that 
may result from the exemption. In consultation with the DOE, the 
Treasury Department and the IRS note that the approach taken by the 
first comment cannot ensure consistency with the 4 kilograms of CO2e 
per kilogram of hydrogen emissions intensity threshold based on a 
lifecycle GHG emissions analysis that conforms with section 45V because 
diverted zero emission electricity generation could still be backfilled 
with GHG emitting generation. However, these final regulations adopt an 
incrementality pathway consistent with statutory requirements that 
looks to features of State law, as discussed in part III.D.3.b.iv of 
this Summary of Comments and Explanation of Revisions.
    Another comment suggested that EACs be required only corresponding 
to the percentage of electricity purchased by the hydrogen producer 
that equals the percentage of the total electricity demand of 
production in the region that is not currently renewable. In response, 
the Treasury Department and the IRS note that the most reliable way to 
validate electricity use claims is through the retirement of EACs. 
Doing otherwise risks the possibility of double sale and counting of 
energy attributes. Further, as described in the Explanation of 
Provisions to the proposed regulations, the three qualifying EAC 
requirements combine to mitigate the risk that induced grid emissions 
will lead to lifecycle GHG emission rates that are above what is 
permitted for eligibility for the section 45V credit. If the hydrogen 
facility's increased electricity load is only partly matched with 
incremental clean generation, then there can be no assurance that the 
remaining portion of that increased load has no induced grid emissions 
(in fact, induced grid emissions would be expected). Such emissions 
must be considered in estimating the lifecycle GHG emission rate under 
section 45V.
    A number of comments suggested that the regulations allow the use 
of carbon or emissions matching in lieu of, or as an alternative to, 
the current EAC framework. One of these comments explained that such an 
approach would identify the annual emissions induced by the energy 
consumption of a hydrogen electrolyzer and offset them by at least an 
equivalent amount of avoided emissions attributable to the procurement 
of onsite or offsite sources of renewable energy generation. Similarly, 
several comments proposed that carbon matching or carbon accounting 
could be used as substitute for certain qualifying EACs. For instance, 
comments suggested allowing the use of marginal carbon accounting, 
paired with incrementality, to replace temporal matching and 
deliverability. In response to these comments, the Treasury Department 
and the IRS note that the three qualifying EAC requirements are 
intended to mitigate the risk of significant indirect emissions, 
including induced grid emissions. As described in the DOE Technical 
Paper, and supported in multiple comments, the requirements address 
both operational (short-term) and structural (long-term) effects that 
can affect lifecycle emissions outcomes. The Treasury Department and 
the IRS are concerned about the ability to develop a rigorous, fully 
standardized, and carbon-based accounting system, whereas the EAC 
qualifying criteria have already been established, is consistent with 
standard industry practice for the voluntary market and most State 
regulatory programs, and will be readily administrable on a nationwide 
basis.
    Several comments were not convinced of the viability of EACs and 
the qualifying EAC requirements, and questioned models and scenarios 
that are used to justify the viability of the requirements. Whereas 
some comments requested exemptions from the qualifying EAC 
requirements, other comments requested delays in implementation. 
Requests for exemptions addressed specific technologies or feedstocks, 
specific electricity generators, certain types of hydrogen production 
facilities, certain reliance periods, and certain jurisdictions or 
regions. Some comments requested a specific exception from the 
qualifying EAC requirements where the hydrogen production facility uses 
electricity to produce hydrogen and such electricity generating 
facility is directly connected with the hydrogen production facility 
(that is, behind-the-meter). One comment suggested that the qualifying 
EAC requirements should not apply in their entirety if a hydrogen 
production facility uses electricity generated by a facility that 
qualifies for either the section 45Y credit or the section 48E credit. 
Many comments requested reliance rules (sometimes referred to in 
comments as ``grandfathering'') with respect to some or all of the 
qualifying EAC requirements, for hydrogen production facilities with a 
beginning-of-construction date, placed in service date, or commercial-
operations date before a certain point.
    Comments that recommended that the regulations delay implementing 
the qualifying EAC requirements due to viability concerns varied 
considerably. One comment recommended that implementation be based upon 
meeting defined requirements that establish viability of imposing 
qualifying EAC requirements. Other comments suggested a variety of 
proposed timelines for implementation.
    In contrast, other comments urged that the final regulations should 
not provide any exemptions from or delays in implementation. Some 
comments advocated for an accelerated timeline for implementing the 
qualifying EAC

[[Page 2257]]

requirements to reduce the risk of induced grid emissions, and urged 
that delays be avoided.
    In response to these comments, these final regulations do not 
provide exemptions from the qualifying EAC requirements or delay their 
application, as such exemptions or delays would lead to induced grid 
emissions. Section 45V requires that the determination of lifecycle GHG 
emissions consider significant indirect emissions, and as described 
earlier, the qualifying EAC requirements are the best available 
approach for addressing induced grid emissions that could constitute 
significant indirect emissions given the statutory requirement to use 
the most recent GREET model or a successor model. Delaying the 
qualifying EAC requirements would delay the entire regulatory framework 
that addresses the risk of significant indirect emissions and ensures 
that the credit is only awarded to hydrogen produced through a process 
that results in qualifying lifecycle GHG emission rates, which would be 
in a manner that is contrary to the statute.
    With respect to comments' requests for an exception for behind-the-
meter generation, these final regulations do not create such an 
exception. As explained in part III.D.1 of this Summary of Comments and 
Explanation of Revisions regarding the discussion of the EAC framework, 
uniformly requiring claims of electricity usage generated from specific 
sources to be evidenced by EACs that meet the requirements of Sec.  
1.45V-4(d)(1) is necessary to mitigate the risks of double counting of 
electricity attributes and of induced grid emissions that would make 
the hydrogen production ineligible for the credit or a specific credit 
level. Because behind-the-meter electricity generating facilities have 
tradeable attributes that may be sold and because diversion of 
electricity from these facilities can result in induced emissions, 
imposing a uniform set of requirements that does not exempt these 
facilities is the most administrable way to mitigate the risk of double 
counting and ensure that any induced grid emissions relating to such 
facilities are addressed.
    With respect to requests for a reliance rule, such a rule would 
function as a limited or complete exemption to the qualifying EAC 
requirements, and thus would not appropriately address the risk of 
induced grid emissions for the facilities under such rule. For this 
reason and because such a reliance rule is contrary to the statute, 
these final regulations do not to adopt such a rule.
    However, as described in this Summary of Comments and Explanation 
of Revisions, the final regulations provide additional flexibilities 
within the framework established by the qualifying EAC requirements, 
consistent with statutory requirements. For example, as described in 
part III.D.3.c.ii of this Summary of Comments and Explanation of 
Revisions, these final regulations extend the transition rule regarding 
the temporal matching requirement to address administrative challenges 
raised by the comments, while still requiring annual matching during 
the transition period. Other additional flexibilities are described in 
parts III.D.3.b.ii through v, III.D.3.c.ii and v, and III.D.3.d.iii.
    Finally, comments requested clarification as to whether the 
qualifying EAC requirements are applicable only to electrolytic 
hydrogen production or if they also extend to processes that use 
electricity indirectly in the production of hydrogen, such as, for 
example, biogenic hydrogen production. In response, the Treasury 
Department and the IRS clarify that the acquisition and retirement of 
qualifying EACs is required whenever a taxpayer seeks to treat a 
hydrogen production facility's use of electricity as being from a 
specific electricity generating facility rather than being from the 
regional electricity grid, regardless of the specific production 
process.
b. Incrementality
i. In General
    Proposed Sec.  1.45V-4(d)(3)(i)(A) would have provided that an EAC 
meets the incrementality requirement if the electricity generating 
facility that produced the unit of electricity to which the EAC relates 
has a COD (as defined in proposed Sec.  1.45V-4(d)(2)(i)) that is no 
more than 36 months before the hydrogen production facility for which 
the EAC is retired was placed in service. Proposed Sec.  1.45V-
4(d)(3)(i)(B) would have provided an alternative test for establishing 
incrementality for electricity generating facilities that undergo an 
uprate. Proposed Sec.  1.45V-4(d)(3)(i)(C) would have provided an 
example to illustrate the application of the alternative test for 
establishing incrementality due to uprates.
    The Treasury Department and the IRS received numerous comments with 
respect to the incrementality requirement. To the extent that these 
comments concern the qualifying EAC requirements in general, they are 
addressed in part III.D.3.a of this Summary of Comments and Explanation 
of Revisions.
    A number of comments addressed the 36-month lookback period for 
incrementality. Several comments requested that the period be 
lengthened, to take into account supply chain delays, or otherwise be 
more flexible. These final regulations do not adopt such changes, which 
could significantly extend the lookback period. The lookback period 
rule was meant to balance the need for flexibility, recognizing that it 
may be hard to perfectly align the placed in service date of the 
hydrogen producer with the COD of the clean power generator, with the 
requirement that the lifecycle GHG emissions account for direct and 
significant indirect emissions, including induced grid emissions. 
Further extending that lookback period beyond 36 months risks induced 
grid emissions, as such clean power facilities may not be truly 
incremental. Furthermore, the Treasury Department and the IRS note that 
significant new clean power generation is being deployed each year, 
some of which may be available to hydrogen producers. While permitting 
and interconnection is time consuming, substantial amounts of new clean 
power have completed interconnection agreements, so a significant 
portion of such generation has largely already gone through that 
process. On balance, the 36-month lookback provides sufficient 
flexibility while providing a meaningful check against the risk of 
induced grid emissions and lifecycle GHG emission rates that would be 
in excess of those allowed by section 45V.
    Similarly, other comments stated that the lookback period should 
begin at the hydrogen production facility's beginning of construction 
date instead of the facility's placed in service date. The final 
regulations do not adopt these comments, as they would significantly 
lengthen the lookback period relative to the point at which the 
hydrogen production facility actually begins producing hydrogen. Other 
comments raised issues relating to the retrofitting or repowering of 
facilities or the 80/20 Rule. These comments are discussed part V.B of 
the of this Summary of Comments and Explanation of Revisions.
    The Treasury Department and the IRS received several comments that 
stated that the incrementality requirement is against the Congressional 
purpose of jumpstarting the clean hydrogen industry and is not 
supported by the statute. These comments also suggested that hydrogen 
produced using nuclear energy from a nuclear facility that might 
otherwise retire would mitigate the risk of induced grid emissions. The 
comments make several statutory arguments. First, they point to the 
section 45U credit, which was

[[Page 2258]]

established by the IRA and applies only to nuclear facilities placed in 
service prior to the enactment of the IRA. Section 45U(c)(2) 
incorporates rules set forth in section 45(e)(13) that allow nuclear 
facilities receiving credits under section 45U to treat the electricity 
such facilities generate as sold to an unrelated person during the 
taxable year if such electricity is used by the taxpayer or a person 
related to the taxpayer at a qualified clean hydrogen production 
facility to produce qualified clean hydrogen. The comments contend that 
the incrementality requirement renders section 45U(c)(2) superfluous, 
as it would prevent the electricity produced by a facility that is 
eligible for the section 45U credit from being treated as zero-
emissions electricity in the production of qualified clean hydrogen. 
Second, the comments state that an incrementality requirement is 
inconsistent with the definition of lifecycle GHG emissions in section 
45V(c)(1)(A) and section 211(o)(1)(H) of the Clean Air Act, and 
specifically assert that well-to-gate GHG emissions from nuclear-based 
hydrogen production are minimal. Third, the comments point out that 
section 45V contains two provisions that are explicitly limited to 
facilities of a particular age (section 45V(c)(3)(C) and (e)(2)(A)) and 
submit that the lack of such an explicit rule with respect to induced 
grid emissions suggests that the incrementality requirement violates 
Congressional intent. Fourth, the comments assert that the 
incrementality requirement violates the major questions doctrine. 
Finally, these comments state that the incrementality requirement 
discriminates against electricity produced from nuclear power and that 
it may jeopardize the viability of the Regional Clean Hydrogen Hubs 
initiative of the Infrastructure Investment and Jobs Act (Pub. L. 117-
58).
    In response to these comments, the Treasury Department and the IRS 
note that the incrementality requirement and qualifying EAC 
requirements are not mandatory under these final regulations. A 
taxpayer is not required to acquire and retire qualifying EACs. 
However, the taxpayer may only reflect in 45VH2-GREET or include in a 
PER the taxpayer's use of electricity as being from a specific 
electricity generating facility (rather than being from the regional 
electricity grid) if the taxpayer acquires and retires qualifying EACs 
that satisfy the qualifying EAC requirements. The Treasury Department 
and the IRS disagree with the arguments that the incrementality 
requirement is inconsistent with the statute. Instead, as explained in 
part III.D.3.a of this Summary of Comments and Explanation of 
Revisions, the qualifying EAC requirements, including incrementality, 
are a reasonable methodological proxy for quantifying induced grid 
emissions associated with new load from electrolytic hydrogen 
production being added to an existing grid. The lack of such 
requirements would fail to provide a method for addressing significant 
indirect emissions, as required by section 45V(c)(1)(A) and section 
211(o)(1)(H) of the Clean Air Act, and so would be inconsistent with 
section 45V. Furthermore, the incrementality requirement as modified 
under these final regulations does not render sections 45U(c)(2) and 
45(e)(13) superfluous, both because the qualifying EAC requirements are 
not mandatory, and because, under these final regulations, electricity 
from certain existing nuclear reactors provides an alternative pathway 
to incrementality, as discussed in part III.D.3.b.v of this Summary of 
Comments and Explanation of Revisions. The Treasury Department and the 
IRS likewise disagree that the incrementality requirement discriminates 
against nuclear power. As with other facilities, redirecting 
electricity produced by existing nuclear facilities to hydrogen 
production can result in induced emissions. For the reasons previously 
explained, electricity that meets the incrementality requirement does 
not pose the same risk of induced emissions. In addition, the two 
provisions in section 45V cited by the comments, which are limited to 
facilities of a particular age, are unrelated to determining lifecycle 
GHG emissions and therefore are irrelevant to Congressional intent on 
this issue. Finally, with respect to comments suggesting the 
incrementality requirement is incompatible with the major questions 
doctrine, the Treasury Department and the IRS note that section 45V, 
consistent with other parts of the IRA, contains several express grants 
of authority to the Secretary, including under section 45V(f), to issue 
regulations or other guidance to carry out the purposes of section 45V, 
including regulations or other guidance for determining lifecycle GHG 
emissions. As explained previously, the qualifying EAC requirements are 
integral to the assessment of lifecycle GHG emissions as mandated by 
section 45V(c)(1) and are thus clearly within the Secretary's 
authority, as several comments have noted.
    The Treasury Department and the IRS agree with the comments that 
suggest that the use of electricity generated by an existing nuclear 
facility may, in certain cases, have a limited risk of induced grid 
emissions. Accordingly, the final regulations adopt an additional 
incrementality pathway for electricity that is produced by an 
electricity generation facility that is a qualifying nuclear reactor, 
which is discussed in part III.D.3.b.v of this Summary of Comments and 
Explanation of Revisions. The Treasury Department and the IRS also note 
that a qualifying nuclear reactor that produces electricity used by a 
hydrogen production facility under this pathway may qualify for the 
section 45U credit if the requirements for the section 45U credit are 
otherwise met. One comment raised the issue of ``test'' energy--
electricity produced prior to COD. The comment asked that such 
electricity production be deemed incremental, noting that some EAC 
registries already issue certificates for test energy. The Treasury 
Department and the IRS affirm that EACs associated with test energy are 
allowed and may be considered incremental if the other requirements are 
met.
    In consideration of additional comments received and as discussed 
in the following parts III.D.3.b.ii through v of this Summary of 
Comments and Explanation of Revisions, these final regulations modify 
the general incrementality rule in proposed Sec.  1.45V-4(d)(3)(i)(A) 
to allow for electricity represented by an EAC that is produced by an 
electricity generating facility that has placed in service carbon 
capture and sequestration technology within a certain timeframe. In 
addition, the final regulations adopt the following additional ways to 
satisfy the incrementality requirement: (i) an alternative for 
electricity represented by an EAC that is produced by an electricity 
generation facility in a qualifying State; and (ii) an alternative for 
electricity represented by an EAC that is produced by an electricity 
generation facility that is a qualifying nuclear reactor.
ii. Carbon Capture and Sequestration
    The final regulations modify proposed Sec.  1.45V-4(d)(3)(i)(A) and 
provide that an EAC also meets the incrementality requirement if the 
electricity represented by the EAC is produced by an electricity 
generating facility that uses carbon capture and sequestration (CCS) 
technology and the carbon capture equipment has a placed in service 
date that is no more than 36 months before the hydrogen production 
facility for which the EAC is retired was placed in service (CCS 
retrofit rule). The definition of ``eligible EAC'' in proposed

[[Page 2259]]

Sec.  1.45V-4(d)(2)(iii) is amended to require that the EAC include the 
placed in service date of the carbon capture equipment used in the 
production of electricity. In addition, as further discussed in part 
III.G of this Summary of Comments and Explanation of Revisions, these 
final regulations add Sec.  1.45V-4(e), which provides that CCS may be 
taken into account only if the carbon is captured and disposed of in 
secure geological storage, pursuant to section 45Q(f)(2) and any 
regulations established thereunder, or utilized in a manner described 
in section 45Q(f)(5) and any regulations established thereunder. The 
Treasury Department and the IRS note that an electricity generating 
facility producing electricity that is represented by an EAC that 
utilizes the CCS retrofit rule to satisfy the incrementality 
requirement is subject to this requirement. The Treasury Department and 
the IRS received several comments on CCS generally, which are discussed 
in part III.G of this Summary of Comments and Explanation of Revisions. 
With respect to the incrementality requirement, the Treasury Department 
and the IRS noted in the proposed regulations that there are 
circumstances in which an existing higher-emitting electricity 
generating facility may make upgrades to subsequently deliver 
electricity with lower emissions. For example, an existing fossil-fuel 
electricity generating facility may add CCS capability, thereby 
reducing its emissions. The Treasury Department and the IRS requested 
comments on whether the electricity generated by such a facility should 
be considered incremental under circumstances such as if an existing 
fossil fuel electricity-generating facility after the addition of 
carbon capture equipment (after upgrade) had a COD that is no more than 
36 months before the relevant hydrogen production facility was placed 
in service. Comment also was requested on the related question whether, 
depending on its carbon dioxide capture rate, it would be appropriate 
to treat such a facility as a new source of minimal-emitting generation 
on the grid that would not be associated with induced grid emissions. 
Relevant to these questions, the Treasury Department and the IRS 
requested comments on what information would be needed to allow for 
qualifying EACs representing existing fossil fuel-powered electricity 
from facilities that have added carbon capture equipment, and whether 
there are safeguards that can ensure that a hydrogen producer's 
purchase and use of electricity from an existing fossil fuel-fired 
electricity generating facility that installs carbon capture equipment 
does not result in emissions due to the dynamics of the electricity 
market and electric grid. Finally, the Treasury Department and the IRS 
requested comments on the direct and indirect emissions impacts of 
making such a facility eligible, and whether and under what 
circumstances it would be appropriate to do so.
    The Treasury Department and the IRS received numerous comments in 
response to these requests. After consideration of these comments and 
in consultation with the DOE, these final regulations incorporate the 
CCS retrofit rule under the incrementality requirement. A number of 
comments supported the adoption of such a rule, many providing 
qualitative or quantitative arguments for why the induced grid 
emissions resulting from an existing generating facility retrofitted 
with CCS would be minimal. In contrast, comments opposed to a CCS 
retrofit rule stated that the emissions effect of such a rule was 
uncertain. One comment stated that hydrogen produced by an electricity 
source using a CCS retrofit would still need to be met by new 
generation. Another comment noted specifically that any CCS that is 
legally required should not be deemed incremental.
    These final regulations adopt the CCS retrofit rule because an 
electricity-generating facility retrofit with carbon capture equipment 
may be considered a new source of lower-carbon supply. Such a plant 
produces lower emissions by virtue of the addition of CCS, compared to 
one without CCS, and its EACs will reflect its relevant attributes, as 
discussed more in part III.D.3.a of this Summary of Comments and 
Explanation of Revisions.
    The Treasury Department and the IRS recognize that section 45V may 
create incentives for existing fossil fuel electricity generation to 
place in service carbon capture equipment. New CCS retrofits will 
generally reduce emissions even in the presence of increased load due 
to hydrogen production, in part because any increased grid electricity 
for such increased load is likely to be met by new sources of 
electricity generation with an equivalent or lower emissions profile 
than the existing electricity source prior to its retrofit with carbon 
capture technology. For simplicity and administrability, the CCS 
retrofit rule ties incrementality to the date the new carbon capture 
equipment is placed in service. Additionally, these final regulations 
do not adopt a rule that CCS retrofits mandated by law are not 
incremental. To do otherwise would be inconsistent with the 
requirements for other clean generation, which are treated as 
incremental based on the generating facility's COD regardless of 
whether that new generation is mandated by law. Determining what is 
mandated by law is not straightforward, which raises administrability 
concerns.
    Consistent with the comments' recommendations regarding the 
treatment of new power plants that are equipped with carbon capture 
equipment (new build CCS), EACs from plants retrofitted with new carbon 
capture equipment will not have a zero emissions rate, and this 
information would need to be reflected accordingly in 45VH2-GREET as 
part of the GHG emissions rate calculation. Rules for such EACs are 
discussed in part III.D.3.a of this Summary of Comments and Explanation 
of Revisions.
iii. Uprates
    Proposed Sec.  1.45V-4(d)(3)(i)(B) would have provided rules for 
determining uprated production. Specifically, proposed Sec.  1.45V-
4(d)(3)(i)(B) would have provided that an uprated electricity 
generating facility's production must be prorated to each hour or year, 
consistent with the requirements in proposed Sec.  1.45V-4(d)(3)(ii), 
of such facility's generation by multiplying each hour's production by 
the uprated production rate to determine the electricity to which the 
uprate relates. Proposed Sec.  1.45V-4(d)(3)(i)(B) would have defined 
key terms, including: (i) ``uprate,'' which means an increase in an 
electricity generating facility's rated nameplate capacity (in 
nameplate megawatts); (ii) ``pre-uprate capacity,'' which means the 
nameplate capacity of an electricity generating facility immediately 
before an uprate; (iii) ``post-uprate capacity,'' which means the 
nameplate capacity of an electricity-generating facility immediately 
after an uprate; (iv) ``incremental generation capacity,'' which means 
the increase in an electricity generating facility's rated nameplate 
capacity from the pre-uprate capacity to the post-uprate capacity; (v) 
``uprated production rate,'' which means the incremental generation 
capacity (in nameplate megawatts) divided by the post-uprate capacity 
(in nameplate megawatts); and (vi) ``uprated production,'' which means 
the uprated production rate of an electricity generating facility 
multiplied by its total generation output in a given hour (in megawatt 
hours). Thus, the uprated production gets pro-rated over the course of 
the year during each hour electricity is generated. Proposed Sec.  
1.45V-4(d)(3)(i)(C) would have

[[Page 2260]]

provided an example to illustrate the application of the alternative 
test for establishing incrementality due to uprates.
    The Treasury Department and the IRS received comments with respect 
to uprates. Some comments suggested that any uprate used to satisfy the 
incrementality requirement must be established through approval of an 
amended or modified operating license or similar approval by a 
governmental or quasi-governmental agency, such as the Nuclear 
Regulatory Commission (NRC), FERC, or a regional grid operator. These 
final regulations do not adopt this as a standalone measurement 
standard. A sole, general rule requiring modified or amended licenses, 
or for electricity generating facilities to obtain other forms of 
governmental approval, is not needed to reasonably capture additions to 
capacity. Because the uprated production represents new production 
capacity, it should satisfy the incrementality requirement. In 
addition, some uprates come from facilities that do not require 
approval from the NRC, the FERC, or a regional operator.
    One comment requested that guidance clarify that uprates or 
upgrades with respect to a nuclear facility or other zero-emission-
generating facility, such as hydropower, satisfy the incrementality 
requirement provided that the uprate or upgrade results in an 
incremental increase in the electricity generation output based on the 
actual productive capability of such facility, after considering 
degradation and other limitations on its original nameplate, licensed, 
or rated capacity. The Treasury Department and the IRS acknowledge that 
measuring capacity using nameplate capacity would, in some cases, not 
reflect age-based degradation in capacity or certain types of capacity 
increases.
    In response to these comments, these final regulations modify the 
uprate rules in Sec.  1.45V-4(d)(3)(i)(B) to account for potential 
differences in the nameplate capacity and the actual productive 
capacity of the facility. The final regulations provide that the term 
uprate means the increase in either an electricity generating 
facility's nameplate capacity (in nameplate megawatts) or its capacity 
measured by a standard other than nameplate capacity, which the final 
regulations define as specified capacity. Measurement of specified 
capacity may be determined using one of three standards: (1) a modified 
or amended facility license from FERC or NRC, or related reports 
prepared by FERC or NRC as part of the licensing process; (2) the ISO 
conditions to measure the nameplate capacity of the facility consistent 
with the definition of ``nameplate capacity'' provided in 40 CFR 
96.202; or (3) a measurement standard as determined by the Secretary in 
guidance published in the Internal Revenue Bulletin. See Sec.  1.45V-
4(d)(3)(i)(B)(3). The final regulations provide that if a taxpayer is 
able to determine a measurement standard based on a modified or amended 
license from FERC or the NRC as part of the licensing process, they may 
not use the standard based on ISO conditions. Such a rule should 
provide sufficient flexibility to taxpayers in determining uprated 
production. Similarly, the definitions of ``pre-uprate capacity'' and 
``post-uprate capacity'' are modified to include specified capacity.
    Another comment recommended that uprated production not be subject 
to a 36-month lookback period. However, as the absence of a lookback 
period would result in induced grid emissions that would need to be 
reflected in the lifecycle GHG emissions rate, these final regulations 
do not adopt this comment.
    The final regulations renumber the general rule as Sec.  1.45V-
4(d)(3)(i)(B)(1), include a new rule for restarts as Sec.  1.45V-
4(d)(3)(i)(B)(2), and retain the example as Sec.  1.45V-
4(d)(3)(i)(B)(4).
    The final regulations also delete the word ``immediately'' from the 
definitions of ``pre-uprate capacity'' and ``post-uprate capacity,'' in 
order to provide clarity. A time-period limitation is not necessary, 
and the word ``immediately'' might otherwise create uncertainty as to 
what capacity should be taken into account. Thus, under the final 
regulations, the term ``pre-uprate capacity'' means the nameplate 
capacity or specified capacity of an electricity generating facility 
before an uprate, and the term ``post-uprate capacity'' means the 
nameplate capacity or specified capacity of an electricity generating 
facility after an uprate.
    Some comments stated that an EAC should satisfy the incrementality 
requirement if it is produced from an electricity generation facility 
that has shut down and then restarted. Several of these comments gave 
the specific example of decommissioned and restarted nuclear 
facilities. In response to this, the Treasury Department and the IRS 
note that, unless the restarted electricity generation facility has a 
new COD, the incrementality requirement would generally not be 
satisfied, as the electricity generation facility that produced the 
unit of electricity to which the EAC relates would have a COD more than 
36 months before the hydrogen production facility for which the EAC is 
retired was placed in service. However, the Treasury Department and the 
IRS agree with comments asserting that the electricity generated from a 
restarted facility should be considered incremental production. To 
provide for this, the final regulations add Sec.  1.45V-
4(d)(3)(i)(B)(2), which clarifies that a facility that is 
decommissioned or in the process of decommissioning and restarts can be 
considered to have increased nameplate or specified capacity from a 
base of zero if the existing facility has ceased operations. 
Additionally, the facility must have a shutdown period of at least one 
calendar year during which it was not authorized to operate by its 
respective Federal regulatory authority (either the FERC or the NRC), 
and the increased capacity of the restarted facility must be eligible 
to restart based on an operating license issued by the regulatory 
authority. The existing facility must also not have ceased operations 
for the purpose of qualifying for the special rule for restarted 
facilities. This special rule for restarted facilities relies, in part, 
on operating authorizations provided by governmental or quasi-
governmental agencies to provide an administrable and verifiable means 
of distinguishing a restart that should be treated like an addition of 
incremental electricity-generating capacity from temporary cessations 
or interruptions in an electricity-generating facility's operations.
    Finally, the Treasury Department and the IRS remind taxpayers that 
a qualified hydrogen production facility is only able to claim 
incremental production associated with an uprate if the relevant EAC 
registry tracks it via EACs. The Treasury Department and the IRS expect 
that EAC registries will identify a proportional amount of EACs 
generated in every month--or, beginning in 2030--every hour as 
``incremental'' for purposes of 45V, based on the proportional increase 
in capacity due to the uprate.
iv. Qualifying States
    In the Explanation of Provisions to the proposed regulations, the 
Treasury Department and the IRS noted that, in certain circumstances, 
the diversion of existing minimal (that is, zero or near-zero) 
emissions power generation to hydrogen production may be unlikely to 
result in significant induced GHG emissions and noted as one such 
circumstance the generation from minimal-emitting power plants in 
locations where grid-electricity is 100 percent generated by minimal-
emitting generators or where increases in load do not increase grid 
emissions, for

[[Page 2261]]

example, due to State policy capping total GHG emissions.
    The Treasury Department and the IRS received numerous comments in 
support of a rule that accounts for such circumstances. In response to 
comments and after consultation with the DOE and the EPA, the final 
regulations provide an alternative pathway for establishing 
incrementality, under which an EAC meets the incrementality requirement 
if the electricity represented by the EAC is produced by an electricity 
generating facility that is physically located in a qualifying state 
(as defined in Sec.  1.45V-4(d)(2)(xii)), and the hydrogen production 
facility is also located in a qualifying state.\27\ The final 
regulations define qualifying State as a State which, as determined by 
the Secretary, has under its State law or regulations, a qualifying 
electricity decarbonization standard and a qualifying GHG cap program.
---------------------------------------------------------------------------

    \27\ Because this is an alternative pathway only to the 
incrementality requirement, the deliverability and temporal matching 
requirements still apply.
---------------------------------------------------------------------------

    A qualifying electricity decarbonization standard is defined as a 
standard that (i) contains a target that 100 percent of the State's 
retail sales of electricity from obligated entities be supplied by 
renewable, non-emitting, zero-emitting, or minimal-emitting sources, 
where obligated entities and eligible sources are defined by State 
policy, or a target for GHG emissions from the State's electricity 
sector that reflects an equivalent of such a retail sales target, by 
2050 or earlier; (ii) applies to the large majority of eligible 
electricity supplied to the State, as determined by the State; and 
(iii) includes policies that would achieve that target, a requirement 
that the State develop a plan to achieve the standard, or a requirement 
that entities subject to the standard are required to develop such a 
plan. A State RPS or CES that meets these requirements would be a 
qualifying electricity decarbonization standard.
    A qualifying GHG cap program is defined as a legally binding 
program that (i) creates a limitation (cap) on the quantity of GHG 
emissions from the electricity sector (either alone or along with other 
sectors) in the State through issuance of a limited number of 
allowances or other compliance instruments to covered entities for each 
compliance period; (ii) includes annual obligations under which an 
entity subject to the cap must provide information about such entity's 
GHG emissions and for which an entity must submit at least some 
compliance instruments to the State's regulatory authority; (iii) 
includes a cap on GHG emissions from covered entities that generally 
declines over time from the cap on GHG emissions in effect in calendar 
year 2025 (or the first calendar year in which the cap is in effect, if 
later), with adjustments as appropriate for expansions in the scope of 
the cap; (iv) applies to the large majority of in-state power-sector 
sources of emissions that emit greater than 25,000 metric tons of CO2e 
in a calendar year; (v) applies to the large majority of out-of-state 
electricity supplied to the State and to emissions associated with 
those imports, including emissions that arise from entities that emit 
greater than 25,000 metric tons of CO2e in a calendar year; (vi) 
generally ensures that the prices of allowances sold in a state-run 
auction cannot fall below $25 per metric ton of CO2e, adjusted for 
inflation from 2025 dollars using at a minimum the most recently 
available twelve month value of the Consumer Price Index for All Urban 
Consumers (CPI-U), as published by the United States Bureau of Labor 
Statistics (BLS); and (vii) generally ensures that the cap on GHG 
emissions cannot be exceeded for less than $90 per metric ton of CO2e, 
adjusted for inflation from 2025 dollars using at a minimum the most 
recently available twelve-month value of the CPI-U, as published by the 
BLS.
    The definition of qualifying State provides conditions under which 
State law is sufficiently effective and stringent to conclude with a 
reasonable degree of certainty that new load is highly unlikely to 
cause induced grid emissions. As further described in this part 
III.D.3.b.iv, a robust, legally binding State GHG emissions cap that 
satisfies the qualifying GHG cap requirements is the primary criterion, 
because it ensures that overall GHG emissions are effectively capped 
regardless of electricity demand growth. The qualifying electricity 
decarbonization standard provides a further protection to ensure that 
significant induced power grid emissions are avoided, even in the 
context of a multi-sector GHG emissions cap, by requiring a State to 
also maintain a statutory commitment to decarbonize its own power 
supply, such as a CES or RPS.
    Hydrogen production facilities located in qualifying States can 
therefore satisfy the incrementality requirement by using qualifying 
EACs from existing clean electricity sources located in qualifying 
States. Temporal matching and deliverability requirements will continue 
to apply for qualified EACs, as will the need to retire those EACs to 
ensure EACs and their energy and emissions attributes are not double 
counted or claimed by other electricity consumers.
    The requirement that a qualifying State have a qualifying GHG cap 
program and qualifying electricity decarbonization standard, and the 
requirements for such program and standard, are meant to identify 
circumstances under which new electricity load is highly unlikely to 
cause induced grid emissions. In consultation with the DOE, the 
Secretary has determined that, as of the date of publication of these 
final regulations, California and Washington are qualifying States 
under these final regulations. The requirements in these regulations to 
be a qualifying GHG cap program and meet the qualifying electricity 
decarbonization standard are based in part on those programs, which the 
DOE has advised have functioned in practice as robust caps.
    With respect to the definition of a qualifying GHG cap program, the 
Treasury Department and the IRS note that whether a State GHG cap is 
binding is influenced by many features, including but not limited to, 
the magnitude of the emissions cap relative to historical and projected 
emissions; definitions of and use limitations regarding carbon offsets; 
and the status of and procedures governing the withholding of and 
release of allowance reserves. As a check on the combined effect of 
these features on the stringency of the GHG policy and to ensure that 
they are not undermining the cap to the point where it is not 
sufficiently ensuring that new electricity load, such as from hydrogen 
production, will not result in induced grid emissions, requirements for 
a qualifying GHG cap program generally ensures a minimum allowance 
price set through statute or regulation. To determine the appropriate 
allowance price, the Treasury Department and the IRS, in consultation 
with the DOE, took into consideration observed allowance prices over 
the past several years in the existing State systems that the DOE has 
advised were robust over that period. Upon conclusion of that exercise, 
the minimum required allowance price of $25 per metric ton in 2025, and 
increasing with inflation each year after 2025, was determined to be 
high enough such that a GHG cap policy provides sufficient incentive to 
reduce emissions beyond what might occur without the program. In other 
words, the level is high enough to ensure the cap provides a meaningful 
constraint on emissions.
    The Treasury Department and the IRS are aware that GHG cap systems 
are often designed with ceiling prices, such as, for example, an 
alternative

[[Page 2262]]

compliance pathway wherein obligated entities are allowed emissions in 
excess of the stated GHG cap in the event that allowance prices reach 
the ceiling. If diversion of existing clean electricity to hydrogen 
production caused the ceiling price to be reached, that would 
effectively cause emissions to exceed the cap. Therefore, if a State 
system has a ceiling price set through statute or regulation, requiring 
that ceiling price to be set well above the maximum allowance price 
observed in existing systems is necessary to help ensure that a State 
is, in practice, unlikely to reach the ceiling price as a result of 
increased electricity demand for hydrogen production. These final 
regulations require this ceiling price to be established by statute or 
regulation at $90 per metric ton of CO2e or more in 2025, increasing 
with inflation each year after 2025. This level is more than two times 
higher than the average prices observed over the last several years in 
the two existing State systems the DOE advises were robust over that 
period.
    Collectively, these requirements help ensure that, in the context 
of this alternative incrementality pathway, any increased electricity 
load is highly unlikely to cause induced grid emissions. With the 
requirements specified here, qualified GHG cap policies will be 
enforceable by legal means, feature emissions targets and carbon 
allowance prices that provide a sufficient incentive to reduce 
emissions to meet those targets and achieve emissions reductions beyond 
what might occur without the program, enable carbon allowance prices to 
rise to ensure the cap is maintained, and minimize the risk of 
emissions leakage to other geographies and entities not obligated to 
comply with the program.
    The Treasury Department and the IRS note that a robust but a multi-
sectoral GHG cap program alone cannot, with sufficient certainty, 
ensure that induced grid emissions in States with such a program are 
insignificant. A multi-sectoral cap may allow emissions to rise in the 
power sector as a result of induced demand from hydrogen production 
while offsetting those emissions increases with reductions in other 
sectors.
    There are several reasons the Treasury Department, the IRS, the 
DOE, and the EPA have confidence that the risk of induced grid 
emissions will be limited in States with a qualifying GHG cap, as 
required by these final regulations. First, in the State with the 
longest experience with a robust multi-sector GHG cap, California, the 
electricity sector has been a leading source of emissions reductions 
over the last decade.\28\ Second, numerous studies have shown that in 
the context of effective GHG emission policies, the electricity sector 
is likely to remain a leading sector for decarbonization, in part given 
the availability of multiple low-cost clean electricity 
technologies.\29\ Third, as a result, it is unlikely in practice that a 
State could remain in compliance with its cap while experiencing a 
significant absolute increase in grid emissions due to new hydrogen 
production. Finally, as noted, States are also required to meet certain 
minimum requirements for an electricity decarbonization standard, 
providing additional assurance that the State is committed to ongoing 
reductions in power sector emissions.
---------------------------------------------------------------------------

    \28\ California Air Resources Board, California Greenhouse Gas 
Emissions from 2000 to 2022: Trends of Emissions and Other 
Indicators (Sept. 20, 2024), available at https://ww2.arb.ca.gov/sites/default/files/2024-09/nc-2000_2022_ghg_inventory_trends.pdf.
    \29\ See Morgan Browning, et al., Net-Zero CO2 by 2050 Scenarios 
for the United States in the Energy Modeling Forum 37 Study, 4 
Energy and Climate Change, Dec. 2023; John Bistline et al., 
Emissions and Energy Impacts of the Inflation Reduction Act, 380 
Science, no. 6652, Jun. 29, 2023, at 1324-27; James Williams, et 
al., Carbon-Neutral Pathways for the United States, 2 AGU Advances, 
no. 1, Mar. 2021, available at https://agupubs.onlinelibrary.wiley.com/doi/epdf/10.1029/2020AV000284; James 
R. McFarland, et al., Overview of the EMF 32 Study on U.S. Carbon 
Tax Scenarios, 9 Climate Change Economics, no. 1, Feb. 2018, 
available at https://www.worldscientific.com/doi/epdf/10.1142/S201000781840002X; Leon E. Clarke, et al., Technology and U.S. 
Emissions Reductions Goals: Results of the EMF 24 Modeling Exercise, 
35 The Energy Journal, no. 1, Jun. 2014.
---------------------------------------------------------------------------

    With respect to the qualifying electricity decarbonization 
standard, some comments suggested that a CES or RPS requirement, on its 
own, should be sufficient to ensure incrementality. However, a clean 
electricity target, absent a legally binding emissions cap, does not 
protect against induced grid emissions and ensure a lifecycle GHG 
emissions rate that is eligible for the section 45V credit; a State 
with such a target could still experience a significant increase in GHG 
emissions due to diverted grid electricity from out-of-state or 
increased electricity demand for hydrogen production, with no reliable 
mechanism to prevent these increases. Critically, unless a State policy 
requires 100 percent clean electricity in any year, including from 
imports, even a legally binding decarbonization standard would permit 
diverted clean electricity to be partially replaced with non-clean 
sources, increasing grid emissions that would need to be captured in 
the facility's lifecycle GHG emissions rate. Currently, no State has 
adopted a policy that requires 100 percent clean electricity in 2024 or 
2025.
    Hydrogen production facilities located in qualifying States can 
satisfy the incrementality requirement by using qualifying EACs from 
existing clean electricity generators located in those same or other 
qualifying States. Some comments requesting an exception based on State 
policies on qualifying GHG emissions caps and qualifying electricity 
decarbonization standards recommended expanding the exception to 
include all three qualifying EAC requirements. These final regulations 
do not adopt a broader rule, instead limiting the rule as an 
alternative way to satisfy the incrementality requirement only. The 
qualifying States pathway provides reasonable assurance that any 
existing clean electricity generation that is diverted from another end 
use will not result in an increase in grid emissions and will instead 
be replaced by more clean electricity. Notably, the fact that meeting 
these requirements adequately addresses the incrementality requirement 
does not obviate the temporal matching or geographic matching 
requirements, which must also be met to provide assurances that the 
electricity was available and deliverable to the hydrogen producer. 
Therefore, temporal matching and deliverability requirements will 
continue to apply, and producers will need to obtain and retire 
qualifying EACs to demonstrate that they meet these requirements and to 
thereby avoid the possible double crediting of energy and emissions 
attributes.
v. Qualifying Nuclear Reactors
    In the Explanation of Provisions to the proposed regulations, the 
Treasury Department and the IRS sought comments on whether to treat 
EACs from an existing electricity generating facility as satisfying the 
incrementality requirement if the facility is likely to mitigate its 
risk of retirement because of its relationship with a hydrogen 
production facility. The Treasury Department and the IRS also noted 
that the available data indicates there is an ongoing risk of certain 
clean power plants retiring. Some clean power plants, primarily nuclear 
plants, have retired in recent years. Based on data from the EIA, from 
2013 through 2022, 10,800 megawatts (MW) of nuclear have retired.\30\ 
Studies have shown that there is risk of continued retirement in the

[[Page 2263]]

years ahead.\31\ Plant owners may decide whether to retire based on the 
finances of continuing to operate. Additional revenue from selling EACs 
and electricity to hydrogen producers may improve the financial outlook 
of some plants enough to help avert retirement, thereby keeping the 
plant in operation and substantially reducing induced grid emissions 
compared to a scenario in which the plant retires.
---------------------------------------------------------------------------

    \30\ Preliminary Monthly Electric Generator Inventory (based on 
Form EIA-860M as a Supplement to Form EIA-860), U.S. Energy 
Information Administration, available at https://www.eia.gov/electricity/data/eia860m/.
    \31\ See John Bistline et al., Emissions and Energy Impacts of 
the Inflation Reduction Act, 380 Science, no. 6652, Jun. 29, 2023, 
at 1324-27; Annual Energy Outlook 2023, U.S. Energy Information 
Administration, available at https://www.eia.gov/outlooks/aeo/tables_ref.php (last updated Mar. 16, 2023).
---------------------------------------------------------------------------

    Several comments urged the Treasury Department and the IRS to 
consider an exception to the qualifying EAC requirements for hydrogen 
production facilities using electricity from existing nuclear 
facilities. After considering these comments, the final regulations 
adopt a rule under which an EAC may meet the incrementality requirement 
if the electricity represented by the EAC is produced by an electricity 
generating facility that is a qualifying nuclear reactor, as defined in 
Sec.  1.45V-4(d)(2)(x). For purposes of this rule, only up to 200 
megawatt hours (MWh) of electricity per operating hour per qualifying 
nuclear reactor may be considered incremental, subject to an integrated 
operations rule described in this part III.D.3.b.v of the Summary of 
Comments and Explanation of Revisions.
    The term qualifying nuclear reactor is defined as, with respect to 
an EAC, a nuclear reactor that: (i) is a merchant nuclear reactor, as 
defined in Sec.  1.45V-4(d)(2)(vi), or is a nuclear reactor that is not 
co-located with any other operating nuclear reactor (that is, the 
nuclear reactor is a single unit plant); (ii) meets a financial test 
related to that used for purposes of the section 45U credit for any two 
of the calendar years 2017 through 2021, as determined with respect to 
any one owner of the reactor; and (iii) either (A) has a behind-the-
meter physical electric connection with the hydrogen production 
facility that acquires and retires the EAC or (B) is the subject of a 
written binding contract, for a fixed term of at least 10 years 
beginning on the first date on which qualified EAC are acquired, under 
which the owner of the hydrogen production facility agrees to acquire 
and retire EACs from the nuclear reactor, and which manages the 
qualifying nuclear reactor's risk of price changes with respect to EACs 
or electricity. ``Merchant nuclear reactors'' are nuclear reactors that 
compete in a competitive electricity market through the sale of energy 
and, in some cases, other services, and for which over 50 percent of 
the reactor and its electricity production does not receive cost 
recovery through rate regulation or public ownership with related 
retail rate recovery. However, as provided in Sec.  1.45V-
4(d)(3)(i)(D)(5), to the extent the nuclear reactor satisfies the 
definition of a qualifying nuclear reactor because it is the subject of 
a written binding contract as provided in paragraph Sec.  1.45V-
4(d)(2)(x)(C)(2), only the megawatt hours of electricity for which the 
taxpayer acquires EACs from the nuclear reactor pursuant to the written 
binding contract--subject to the 200 MWh per hour per qualifying 
nuclear reactor limit--may be considered incremental.
    The Treasury Department and the IRS note that, among existing clean 
electricity generating facilities, nuclear plants have the most 
demonstrably significant risk of retirement based on historical trends 
and future projections. Nuclear generators are also the largest sources 
of clean electricity on an individual reactor basis, and therefore 
closure of any reactor represents significant potential emissions 
increases. While the total capacity of operational nuclear power has 
declined in the past decade, the capacity of most other clean energy 
sources has increased. Future retirement risk is also concentrated on 
nuclear power plants.\32\
---------------------------------------------------------------------------

    \32\ For example, a 2023 article in the journal Science 
highlights findings across nine different models, showing 
uncertainty but significant nuclear retirement risk across many 
assessments over the longer term. See John Bistline et al., 
Emissions and Energy Impacts of the Inflation Reduction Act, 380 
Science, no. 6652, Jun. 29, 2023, at 1324-27.
---------------------------------------------------------------------------

    The requirements defining a qualifying nuclear reactor identify 
those plants that are most at risk of retirement. First, the rule 
limits qualifying nuclear reactors to nuclear reactors that bear 
substantial wholesale electricity market price risk through merchant 
power sales, rather than cost-of-service (COS)-based guaranteed 
revenue, and to single-unit COS plants. Not all nuclear plants are at 
equal risk of retirement; plants with greatest risk are those with 
lower or more uncertain revenue and/or with higher operational costs, 
namely merchant plants and single-unit plants. Merchant plants are 
exposed to volatile and sometimes low wholesale market prices. Although 
such plants may have some power purchase agreements (PPAs) and hedges, 
those tend to be limited, and such plants are very exposed to changes 
in wholesale power markets. By contrast, COS plants are less exposed, 
as their ability to remain economic depends on periodic rate-cases and 
resultant cost-based rates. Competitive pressures remain but are 
mediated with more long-term planning considerations by plant owners as 
well as regulators and other stakeholders. Based on responses collected 
through its Form EIA-860, Annual Electric Generator Report, EIA reports 
the ``Regulatory Status'' of power plants in its Form EIA-860 data. 
Following consultation with the DOE, the Treasury Department and the 
IRS understand that those nuclear reactors that are part of nuclear 
power plants listed as ``NR'' (non-regulated) in the 2023 Final Form 
EIA-860 data are generally likely to meet the merchant plant definition 
in these final regulations.
    Single-unit COS plants are also at risk because they tend to have 
higher operating costs per MWh of production than multi-unit 
plants.\33\ The DOE has also surveyed past retirement patterns to 
identify the plant characteristics associated with the highest 
retirement rates, and its findings are consistent with the above 
proposed restrictions.
---------------------------------------------------------------------------

    \33\ For example, the Nuclear Energy Institute has estimated 
that single-unit plants' costs averaged $41/MWh in 2022, whereas 
multi-unit plants' costs average $29/MWh. See Nuclear Energy 
Institute, Nuclear Costs in Context (Dec. 2023), available at 
https://www.nei.org/CorporateSite/media/filefolder/resources/reports-and-briefs/2023-Costs-in-Context_r1.pdf.
---------------------------------------------------------------------------

    As part of identifying nuclear reactors most at risk of retirement, 
these final regulations provide a financial test. A nuclear reactor 
meets the financial test if the average annual gross receipts (as 
defined under section 45U) of the reactor were less than 4.375 cents 
per kilowatt hour for any two of the calendar years from 2017 through 
2021. This financial test reflects the framework adopted by Congress in 
the IRA in section 45U, which provides support for existing nuclear 
plants during periods in which their receipts are below a threshold 
level. The Treasury Department and the IRS anticipate releasing 
guidance under section 45U in the future, including on the definition 
of gross receipts. Rules under such guidance for calculating gross 
receipts would also apply for purposes of the financial test provided 
in Sec.  1.45V-4(d)(2)(x)(B). The threshold of 4.375 cents is the gross 
receipts amount per kilowatt hour at which the section 45U credit falls 
to zero in its first year. Calendar years 2017 through 2021 were chosen 
to make the test a retrospective one, spanning the five calendar years 
prior to the year of enactment of the IRA, allowing the financial test 
to serve as one of multiple indicators of retirement risk while 
enabling owners of nuclear reactors to

[[Page 2264]]

determine in advance whether their reactors meet it. If a single 
nuclear reactor has multiple owners, any co-owner of the reactor may 
qualify the reactor for the financial test. This would provide a 
simplified calculation that does not require averaging across different 
owners that may have different gross receipts calculations. Although 
the co-owner used to satisfy the financial test does not have to be the 
same co-owner from whom the hydrogen producer acquires the relevant 
EACs and electricity generated by the reactor, the same co-owner must 
be used for both of the two relevant years from 2017 to 2021 to satisfy 
the financial test with respect to the reactor.
    The rule includes two alternatives for demonstrating that the 
hydrogen production facility is materially contributing to the 
continued operation of the at-risk nuclear reactor over the long term. 
Under the first approach, a physical, behind-the-meter, connection and 
investment between hydrogen production facility and plant demonstrates 
a long-term commitment to operation of both, thereby enabling the 
hydrogen producer to reduce the risk of retirement for the nuclear 
reactor. The DOE has advised that hydrogen production facilities are 
capital-intensive, long-lived assets, so that a behind-the-meter 
arrangement of this type is expected to reduce retirement risk. Under 
the second approach, the long-term commitment is demonstrated by a 
written binding contract between the owner of the hydrogen production 
facility and the owner of the nuclear reactor, under which the owner of 
the hydrogen production facility agrees to acquire and retire EACs from 
the nuclear reactor. The written binding contract must be for at least 
10 years beginning on the first date on which qualified EAC are 
acquired and in effect during the time the EACs for which the 
incrementality requirement is being satisfied is being acquired. 
Further, only the megawatt hours of electricity for which the taxpayer 
acquires EACs from the nuclear reactor pursuant to the written binding 
contract may be considered incremental.
    The contract must also provide a means of managing the qualifying 
nuclear reactor's revenue risk. This could be satisfied by either a PPA 
or virtual PPA with respect to the electricity generated by the nuclear 
reactor, or by another provision in the contract that fixes the price 
of the electricity or allows the price of EACs to vary in a manner that 
hedges the seller's exposure to market price risk. EAC sales that lack 
a long-term binding contract do not reflect the same long-term 
investment and planning, so would not qualify for this allowance.
    For purposes of the written binding contract definition under Sec.  
1.45V-4(d)(2)(xi), a contract is a ``binding contract'' if it is 
enforceable under State law against the taxpayer or a predecessor and 
does not limit damages to a specified amount (for example, by use of a 
liquidated damages provision). For this purpose, a contractual 
provision that limits damages to an amount equal to at least five 
percent of the total contract price will not be treated as limiting 
damages to a specified amount. For additional guidance regarding the 
definition of a written binding contract, see Sec.  1.168(k)-
2(b)(5)(iii). In addition, in the case of a nuclear reactor that 
satisfies the definition of a qualifying nuclear reactor because it is 
the subject of a written binding contract, the MWh of electricity per 
hour per qualifying nuclear reactor that may be considered incremental 
are further limited to those megawatt hours of electricity for which 
the taxpayer acquires EACs from the nuclear reactor pursuant to the 
written binding contract.
    Finally, the final regulations cap the amount of electricity that 
is deemed incremental at 200 MWh per operating hour per nuclear 
reactor. See Sec.  1.45V-4(d)(3)(i)(D)(2). The Treasury Department and 
the IRS note that reducing retirement risk does not require the 
electrolyzer to be sized at the full capacity of the co-located nuclear 
plant, and sizing at full capacity significantly increases the risk of 
induced grid emissions. A hydrogen producer's purchases of electricity 
beyond the amounts needed to substantially reduce the retirement risk 
of the nuclear reactor would divert that electricity from other uses on 
the grid, requiring additional electricity generation with the 
substantial risk that it will be generated by emitting sources. A 200 
MWh per operating hour per nuclear reactor limit is consistent with the 
size of commercial scale electrolyzers, the deployment of which would 
demonstrate a significant long-term commitment, investment, and revenue 
stream, reducing the risk of the nuclear plant's retirement. In 
contrast, as advised by the DOE, a hydrogen producer's additional 
purchases of electricity beyond these amounts would not meaningfully 
provide for an additional reduction in the retirement risk of the 
nuclear reactor. Therefore, permitting the diversion of this 
electricity from other uses is likely to increase emissions.
    The 200 MWh per operating hour per reactor limit is subject to an 
integrated operations rule, which offers additional flexibility by 
providing an aggregate limit of 200 MWh per hour multiplied by the 
number of integrated nuclear reactors that have not permanently ceased 
operations. For example, two qualifying nuclear reactors treated as 
having integrated operations with each other would have an aggregate 
400 MWh per operating hour that may be considered incremental, which 
can be allocated across both reactors. A qualifying nuclear reactor is 
treated as having ``integrated operations'' with any other qualifying 
nuclear reactor if the reactors are: (i) owned by the same or related 
taxpayers and (ii) transmit electricity generated by the reactors 
through the same point of interconnection or, if the reactors are not 
grid-connected, or are delivering electricity directly to an end user 
behind a utility meter, are able to support the same end user, or, if 
the reactors have multiple points of interconnection, are co-located 
with each another. The term related taxpayers means members of a group 
of trades or businesses that are under common control (as defined in 
Sec.  1.52-1(b)). Related taxpayers are treated as one taxpayer in 
determining whether a qualifying nuclear reactor has integrated 
operations.
    Applying the 200 MWh per operating hour limit at the reactor level 
(rather than the plant level) is appropriate because project owners can 
vary across reactors at multi-reactor plants; so too can revenues and 
costs and therefore retirement decisions. Historically, there have been 
instances when a single reactor at a multi-reactor site has retired, 
indicating that decisions of whether to retire individual reactors 
could be made independent of other reactors in a facility. The Treasury 
Department and the IRS note that EAC registries would need to develop 
methods to identify incremental EACs consistent with the cap of 200 MWh 
of electricity per operating hour per nuclear reactor.
    Some comments supported allowing the entire capacity of any nuclear 
power plant that undergoes relicensing to qualify as incremental, with 
no other limitations on co-location or other qualifying criteria. These 
comments characterized the decision to undergo relicensing as a 
significant business decision that often requires significant capital 
and operational expenditures. Some comments suggest that both nuclear 
and hydropower plants should qualify on this basis. In response to 
these comments, the Treasury Department and the IRS note that, unlike 
the criteria for qualified nuclear plants provided in these final

[[Page 2265]]

regulations, a rule that were to treat the full capacity of any nuclear 
plant that undergoes relicensing as incremental would not be reasonably 
tailored to identify reactors with high retirement risk or to 
circumstances in which a hydrogen producer will meaningfully forestall 
retirement. It would fail to account for the likelihood that facilities 
in strong financial condition are just as, if not more, likely to seek 
relicensing as those at financial risk because, as the DOE has advised, 
nuclear plants have been consistently relicensed when they reach the 
end of a licensing period. Whether a plant is relicensed is primarily a 
function of the plant's age, not its retirement risk. While relicensing 
an older plant involves a significant business decision, and continued 
operation of a nuclear plant after relicensing will often require 
additional capital and operational expense, these expenses, alone, do 
not demonstrate that the plant is at risk of retirement. Such costs 
would be required and expended for facilities that are at little risk 
of retirement for economic reasons, such as those whose gross revenues 
from customers other than hydrogen producers significantly exceed these 
costs, or those who can rely on cost-of-service rate recovery. The DOE 
has further advised that past retirement decisions for nuclear reactors 
have often been tied to unfavorable economic conditions, but have not 
obviously been triggered by license renewal timelines. Many historic 
retirements have occurred after a plant sought, and in many cases 
received, a license renewal. This evidence further shows that 
relicensing is related to plant age but is not a strong indicator of 
retirement risk. Including all nuclear facilities that undergo 
relicensing under this rule, despite the fact that not all such plants 
are at significant risk of retirement and many would continue serving 
existing non-hydrogen customers after relicensing, would incorrectly 
result in a large amount of energy to be deemed incremental. Such a 
scenario presents a high risk of significant unaccounted for induced 
grid emissions, and so would be inconsistent with statutory 
requirements. Comments addressing hydropower electricity are addressed 
in part III.D.3.b.vi of this Summary of Comments and Explanation of 
Revisions.
    In response to comments, the Treasury Department and the IRS also 
considered whether to add relicensing as an additional requirement of 
the qualifying nuclear facility rule. However, adding such a 
requirement could unduly limit the ability of plants that have recently 
been relicensed or whose relicensing date is many years in the future, 
but that are nonetheless at risk of retirement and for which hydrogen 
production could significantly reduce that risk, from benefiting from 
the rule. These final regulations, therefore, do not adopt criteria 
related to nuclear plant relicensing recommended by comments.
vi. Other Proposed Alternatives
    The Treasury Department and the IRS received comments suggesting 
other, incrementality pathways. One comment recommended the use of 
locational marginal prices as a proxy for incrementality and temporal 
matching under certain price conditions. Locational marginal prices are 
not available on a nationwide basis and vary considerably from one year 
to the next--and even one hour to the next. Use of locational marginal 
prices would not provide a comprehensive or consistent measure for 
incrementality, and it is unclear how hydrogen production facilities 
could use such a proxy.
    In the Explanation of Provisions to the proposed regulations, the 
Treasury Department and the IRS sought specific comment with respect to 
formulaic approaches to incrementality. As described therein, one such 
approach deems five percent of the hourly generation from minimal-
emitting electricity generators (for example, wind, solar, nuclear, and 
hydropower facilities) placed in service before January 1, 2023, as 
satisfying the incrementality requirement. The Treasury Department and 
the IRS noted that this pathway may be appropriate because some 
circumstances during which incremental generation would be unlikely to 
result in significant indirect grid emissions (including periods of 
curtailment or times when generation from minimal-emitting electricity 
generation is on the margin) may be difficult to anticipate or 
identify, or because the process for identifying the circumstances 
(such as avoided retirement risk or modeling of minimal emissions) may 
be overly burdensome to evaluate for specific electricity generators or 
require data that is not available.
    In response to this, several comments recommended that the final 
regulations adopt an alternative incrementality pathway based on a 
proxy for curtailment. As one comment explained, if both demand and 
clean supply are in the same transmission region or pocket during a 
period when the marginal producer is a clean energy resource (such as 
during periods of curtailment), then incremental power demand for clean 
hydrogen production is met by existing clean electricity generators 
without increasing overall grid emissions. Following consultation with 
the DOE and the EPA, these final regulations do not adopt such an 
approach at this time, as identifying specific cases where incremental 
power demand is met with existing clean electricity would require 
determining the marginal source of electricity production for each time 
period and region, the data for which does not currently exist 
nationally. However, the Treasury Department and the IRS will continue 
to study the issue, in consultation with the DOE and the EPA.
    Other comments expressed support for a formulaic approach that 
deemed a certain percent of the hourly generation from minimal-emitting 
electricity generators as satisfying the incrementality requirement. 
Some expressed support for a five-percent threshold, while others 
suggested that the threshold should be ten percent or higher. Others 
disagreed with a specific percentage and suggested instead that a 
deemed amount of incrementality be determined based on market factors 
or average curtailment. Comments in support of a formulaic approach 
justified the approach as an appropriate proxy for curtailment, 
retirement risk, or other cases where additional use is likely to be 
met with clean electricity. On the other hand, many comments opposed a 
formulaic approach, asserting that it is an inadequate proxy for 
incrementality and would lead to induced grid emissions. Comments 
provided estimates indicating that the large majority of the generation 
exempt from incrementality requirements under a formulaic approach 
would not be generated during periods of curtailment and would be 
expected to result in induced emissions, even under an approach where 
proxy amounts varied based on regional curtailment rates. Comments also 
provided estimates of the impact of a five-percent formulaic proxy on 
induced emissions, contending that the result of this approach would be 
to provide the section 45V credit to substantial generation for which 
actual emissions exceeded statutory thresholds. In consideration of 
these comments and in consultation with the EPA, the Treasury 
Department and the IRS agree with those comments that oppose the 
formulaic approach for the reason that it is an inadequate proxy. The 
Treasury Department and the IRS understand that curtailment is very 
region and time dependent, and the precise timing of curtailment is 
hard to predict. A broad-

[[Page 2266]]

based formulaic approach would not likely align in time or geography 
with generation that would otherwise have been curtailed, which happens 
in temporally and geographically concentrated windows. These factors 
make the formulaic approach inadequate in mitigating induced grid 
emissions, while an approach that is based on real-time market factors 
would be difficult to administer and use. As a result, most generation 
exempt from incrementality requirements under the formulaic approach 
would be expected to result in significant indirect emissions. 
Therefore, the formulaic approach is in conflict with the statutory 
requirements regarding lifecycle GHG emissions. In contrast, these 
final regulations contain two additional alternative pathways, the 
qualifying States pathway and the qualifying nuclear reactor pathway, 
that are better tailored to circumstances in which the use of existing 
clean generation to produce hydrogen is unlikely to result in induced 
grid emissions. The addition of these more specific, alternative 
incrementality pathways casts further doubt on the need for and 
appropriateness of a percentage-based proxy that is not tailored to any 
specific conditions or circumstances that relate to the likelihood of 
induced grid emissions.
    Finally, several comments noted the prevalence and importance of 
hydropower as a clean electricity source in certain parts of the 
country and advocated for an across-the-board exception to the 
incrementality requirement for electricity derived from clean 
hydropower. Other comments, noting the long time period for the 
permitting and construction of a hydropower facility, stated that the 
36-month lookback period is too short. On the other hand, one comment 
noted the possibility that the section 45V credit could incentivize 
hydropower projects that are societally and ecologically detrimental 
and advocated that an additional requirement be placed on such 
projects, requiring them to obtain low-impact certification using 
science-based criteria. In response, these final regulations do not 
adopt a rule exempting hydropower from the incrementality requirement, 
as such a rule would fail to take into account significant indirect 
emissions, as required by section 45V(c)(1)(A) and section 211(o)(1)(H) 
of the Clean Air Act. In addition, the DOE has advised that the risk of 
retirement for hydropower is comparatively lower than the risk of 
retirement for nuclear power. Finally, certain hydropower plants may be 
able to utilize the qualifying State pathway or the uprates pathway to 
satisfy the incrementality requirement. These regulations also do not 
impose an additional requirement on hydropower, such as a low-impact 
certification requirement, as this is not required by the statute and 
would disadvantage incremental hydropower relative to other incremental 
sources of clean energy.
c. Temporal Matching
    Proposed Sec.  1.45V-4(d)(3)(ii) would provide that an EAC meets 
the temporal matching requirement if the electricity represented by the 
EAC is generated in the same hour that the taxpayer's hydrogen 
production facility uses electricity to produce hydrogen. It also would 
provide a transition rule for EACs representing electricity generated 
before January 1, 2028, stating that an EAC meets the temporal matching 
requirement if the electricity represented by the EAC is generated in 
the same calendar year that the taxpayer's hydrogen production facility 
uses electricity to produce hydrogen.
i. Hourly Matching
    Many comments expressed support for the proposed temporal matching 
rule, referred to as ``hourly matching.'' One comment noted that 
requiring hourly matching will lead EAC registries to quickly create 
hourly tracking mechanisms. Several comments suggested that delaying 
the implementation of hourly matching until 2028 was unnecessary, 
offering a variety of suggestions to move up the timeline.
    Other comments opposed the hourly matching rule for various 
reasons. Some comments opposed hourly matching because it does not 
account for the variability of wind and solar, which are prevalent 
sources of clean energy. Some comments noted that hourly matching leads 
to increased capital costs that decrease the viability of electricity-
intensive hydrogen production. One comment expressed concern that 
hourly matching increases costs more than the credit will reduce them. 
One comment noted that the increased costs would push the industry to 
shift to lower cost solutions, like purchasing foreign equipment that 
may be less expensive than higher cost domestic equipment. Another 
comment noted that these higher costs will specifically hinder 
investment in smaller regional facilities. Several comments expressed 
concern about the hourly matching rule as applied to the Regional Clean 
Hydrogen Hubs because hourly EAC requirements were not contemplated by 
hydrogen hub participants at the time they applied for funding from the 
DOE to be a hydrogen hub participant or because the requirement does 
not align with anticipated construction schedules. One comment 
contended that hourly matching is too difficult to administer because 
of poor infrastructure, software limitations, and regulatory hurdles.
    Several comments recommended alternative periods for matching, such 
as daily, monthly, quarterly, or annual. Comments advocating for 
monthly matching suggested that monthly matching would be more 
beneficial than hourly matching for electrolytic hydrogen producers 
because it would likely decrease the operational impact on 
electrolyzers by reducing the number of stoppages, which can lower 
costs and prolong the durability of the equipment. Other comments 
recommended monthly matching as a reasonable compromise between annual 
and hourly matching. One comment stated that the required timeline for 
matching should align with the battery electric vehicle standards. One 
comment maintained that hourly matching is unworkable based on current 
tracking practices.
    Temporal matching at an hourly level best mitigates the risk of 
induced grid emissions by requiring that the generation that created 
the EACs must occur at the same time as the EAC buyer's load. As noted 
in the DOE Technical Paper and studies cited by comments, the three 
qualifying EAC requirements address both operational (short-term) and 
structural (long-term) effects that can affect lifecycle emissions 
outcomes.\34\
---------------------------------------------------------------------------

    \34\ See DOE Technical Paper supra note 20; see also Michael A. 
Giovanniello, et al., The Influence of Additionality and Time-
Matching Requirements on the Emissions from Grid-Connected Hydrogen 
Production, 9 Nature Energy, Feb. 2024, at 197-207; Electric Power 
Research Institute, et al., Impacts of IRA's 45V Clean Hydrogen 
Production Tax Credit (2023), available at https://www.epri.com/research/products/000000003002028407; Evolved Energy Research, 45V 
Hydrogen Production Tax Credits: Three-Pillars Accounting Impact 
Analysis (2023), available at https://www.evolved.energy/post/45v-three-pillars-impact-analysis.
---------------------------------------------------------------------------

    The DOE Technical Paper noted that hourly matching is necessary to 
properly address induced grid emissions. Hourly matching of EACs will 
provide significantly greater certainty about mitigating the risk of 
induced grid emissions by ensuring actual alignment between load and 
generation. However, as noted in the preamble to the proposed 
regulations, the Treasury Department and the IRS acknowledge that 
hourly tracking of EACs is not yet widely available on a standardized 
basis. The DOE has advised the Treasury Department and

[[Page 2267]]

the IRS that tracking systems and related contractual structures for 
hourly matching will take some time to develop to an appropriate level 
of maturity. Accordingly, a transition rule that allows annual matching 
remains appropriate. The transition rule is intended to provide time 
for the EAC market to develop the hourly tracking capability necessary 
to verify compliance with this requirement, and for associated hourly 
EAC markets to develop. The transition rule, and associated comments, 
are discussed in part III.D.3.c.ii of this Summary of Comments and 
Explanation of Revisions.
    Several comments suggested the adoption of a provisional approach 
to hourly matching before hourly matching is integrated into EAC 
registries. One comment suggested that this proposed approach could use 
hourly generation and hydrogen production meter data merged with annual 
or monthly EACs to demonstrate hourly matching where hourly EACs are 
not available.
    The Treasury Department and the IRS note that nothing in this final 
regulation prohibits hydrogen producers from voluntarily implementing 
hourly matching prior to the phase-in date for hourly matching. Hence, 
no specific guidance is required on the allowed use of a provisional 
hourly matching approach prior to the end of the transition period. 
Allowing the provisional approach after the transition to hourly 
matching would place additional administrative burden on hydrogen 
producers and third-party verifiers and would complicate IRS 
administration. Moreover, allowing the provisional approach after the 
transition date may diminish the incentive for EAC registries to 
develop full hourly EAC tracking capability. Given these 
considerations, these final regulations neither explicitly allow nor 
require the provisional approach.
    Multiple comments suggested that the Treasury Department and the 
IRS should consider providing a degree of flexibility in meeting the 
hourly temporal requirement, such as through allowing a limited 
percentage of annual electricity supply to be exempt from hourly 
temporality requirements. As one example, a comment recommended 
flexibility with respect to temporal matching for hydrogen producers 
located in States where the production of certain renewable energy is 
highly seasonal. However, as previously described, hourly matching is 
necessary to properly address induced grid emissions and to ensure that 
a hydrogen producer can properly attribute its load to a specific 
electricity source. The DOE has advised that exceptions that would 
allow some fraction of EACs to not be matched hourly increase the risk 
of induced grid emissions that would undermine one of the purposes of 
section 45V. In addition, any such fractional exception would require 
detailed and granular regional analysis. Allowing such fractional 
exceptions is therefore inconsistent with the statutory requirements 
and is not readily administrable. These final regulations, therefore, 
do not provide for fractional exceptions.
    Along with the transition rule, these final regulations allow 
electricity storage to be used to shift the temporal profile of clean 
electricity supply as described in part III.D.3.c.v of this Summary of 
Comments and Explanation of Revisions. The Treasury Department and the 
IRS anticipate that these allowances may partially alleviate concerns 
with hourly temporal matching.
    One comment requested clarification regarding the applicability of 
the National Renewable Energy Laboratory's Regional Energy Deployment 
System (NREL-ReEDS), a capacity planning model, to tracking hourly 
matching. The comment was submitted by a stakeholder that belongs to 
multiple power regions and expressed a need to acquire capacity in the 
next few years. The comment indicated that NREL-ReEDS is a potentially 
helpful tool in this regard because it covers 134 balancing areas.
    The DOE has advised that NREL-ReEDS would not be an applicable tool 
for the purposes of compliance with hourly matching requirements or for 
providing detailed hourly grid carbon-intensity estimates. Hourly 
matching systems and hourly grid carbon-intensity estimates require 
detailed data of real-life plant-level generation patterns, whereas 
NREL-ReEDS is a forward-looking simulation tool that does not fully 
capture actual operations. Furthermore, NREL-ReEDs does not have the 
temporal resolution to characterize detailed operating behaviors of 
individual units,\35\ which would be required of an hourly matching 
system used for compliance with these final regulations.
---------------------------------------------------------------------------

    \35\ National Renewable Energy Laboratory, Regional Energy 
Deployment System (ReEDS) Model Documentation (2021), available at 
https://www.nrel.gov/docs/fy21osti/78195.pdf.
---------------------------------------------------------------------------

ii. Transition Period
    Comments expressed divergent views on the appropriate timing of the 
transition rule. Many comments supported the proposed rule to allow 
annual accounting until 2028 and did not want it extended. Some 
comments supported hourly matching sooner than 2028. Several comments 
noted that a transition date of January 1, 2028, would provide enough 
time for registries to test and scale hourly EAC tracking systems 
nationwide. These comments urged the Treasury Department and the IRS 
not to unnecessarily delay or extend the transition date. According to 
one comment, the implementation date of January 1, 2028, would align 
with EU member states that decide to transition to hourly matching by 
mid-2027. However, the rest of the EU is required to transition to 
hourly matching in 2030 without a reliance rule. According to this 
comment, such alignment would help ensure that clean hydrogen and 
hydrogen-derived products such as ammonia, steel, and fertilizer will 
be available in the European market without confused, disjointed, or 
weak claims of low-carbon status. One comment expressed support for the 
current length of the transition rule but has suggested that, if the 
Treasury Department and the IRS decide to extend the duration of the 
pre-transition period, it should not go beyond December 31, 2029, to 
match EU regulations. Some comments stated that the Treasury Department 
and the IRS could implement hourly matching at present, even if hourly 
EACs are not yet available, by allowing taxpayers to use hourly meter 
data and annual or monthly EACs. One comment further recommended that 
the Treasury Department and the IRS review tracking registries' 
progress in developing the needed software by 2026 or 2027 and, if 
necessary, delay the transition by one year at a time (rather than to 
preemptively assume systems will not be ready).
    Many other comments asked for a more extended timeframe before 
hourly matching is required. Generally, most comments supported 
extending the pre-transition period several years beyond 2027. Some 
comments recommended that the pre-transition period align with the EU's 
implementation of hourly matching in 2030. Additionally, while some 
comments did not specify a preferred duration of the pre-transition 
period, they did emphasize that hourly matching should be implemented 
only after the hourly EAC market is fully developed and ready for use, 
in particular for the relevant geographic region. Some of these 
comments expressed concerns about EAC registry and market readiness as 
well as the possible cost and operational burdens

[[Page 2268]]

for clean hydrogen producers. Separate from the precise timing of the 
transition, other comments suggested preconditions or triggers for the 
transition, for example, a future study assessing readiness before 
proceeding.
    Some comments recommending extension of the pre-transition period 
suggested allowing annual matching to continue for a longer duration 
before requiring hourly matching. Other comments recommended 
introducing quarterly or monthly matching, or some combination of 
annual and hourly matching, during an extended pre-transition period. 
Some comments also recommended extending the pre-transition period 
beyond the current end date, but on a facility-by-facility basis.
    Comments also expressed that the Treasury Department and the IRS 
have focused on the wrong metric--whether the technology and systems 
exist for tracking hourly EACs--for evaluating when hourly matching 
should be required. According to these comments, a better metric for 
evaluating whether to proceed with the implementation of hourly 
matching is whether there is a consistent need for and supply of 
electricity from renewable sources. Other comments argued that the 
phase-in of hourly matching is not feasible until the grid's 
infrastructure can support 24-hour clean energy production. These 
comments argued that while clean energy technologies continue to grow, 
the infrastructures are not developing fast enough to support hourly 
matching. One such comment suggested that if hourly matching is 
mandated, there should be a monthly netting of the hourly mismatch 
between the actual energy provided and the energy that was scheduled. 
This comment claimed that errors in clean energy scheduling would 
significantly harm hydrogen producers using hourly matching.
    Balancing these various comments and concerns, and as advised by 
the DOE and the EPA, the final regulations extend the transition period 
by two additional years, to 2030. Annual matching will be required 
through 2029, and hourly matching will be required thereafter. This 
requirement will apply to all production of qualified clean hydrogen 
represented by EACs starting in 2030, regardless of when the facility 
was placed in service.
    These additional two years are warranted to ensure tracking systems 
can achieve the necessary functionality for an hourly matching 
requirement, and to allow the market to develop for hourly-matched 
EACs. In a survey of nine existing tracking systems, two respondents 
indicated that their systems are tracking on an hourly basis, although 
software functionality remains limited.\36\ Fully developing the 
functionality of these systems will take time, as will creating and 
developing the functionality of hourly tracking infrastructure in other 
regions of the country. Of the other tracking systems, assuming that 
challenges are overcome, four respondents indicated that their systems 
will be able to adopt hourly matching in less than two years. One 
respondent indicated that their system will take from three to five 
years, noting that the timeline could be closer to three years if there 
is full State agency buy-in, clear instructions are received from 
Federal or State agencies, and funding for stakeholder participation is 
made available. Two respondents declined to give a timeline for how 
long it would take for their systems to develop this functionality. In 
the same survey, the respondents identified several challenges to 
hourly tracking that will need to be overcome, including cost, 
regulatory approval, interactions with state policy, sufficient 
stakeholder engagement, data availability and management, and user 
confusion. Among the issues that require resolution as EAC tracking 
systems move to hourly resolution is the treatment of electricity 
storage,\37\ which this final regulation will allow as a means of 
shifting the temporal profile of clean generation. Some comments 
expressed confidence in the rapid scaling of hourly EAC tracking, 
markets, and matching, and others were skeptical. The survey of EAC 
registries is particularly informative, and it indicates that the 
registries themselves are generally confident that they can achieve the 
required functionality comfortably within the transition period 
provided in these final regulations.
---------------------------------------------------------------------------

    \36\ Rachael Terada, Director, Technical Products, Center for 
Resource Solutions, Readiness for Hourly: U.S. Renewable Energy 
Tracking Systems (Jun. 15, 2023), available at https://resource-solutions.org/wp-content/uploads/2023/06/Readiness-for-Hourly-U.S.-Renewable-Energy-Tracking-Systems.pdf.
    \37\ See DOE Technical Paper supra note 20.
---------------------------------------------------------------------------

    In response to concerns raised by comments that the 2028 transition 
timeline proposed in Sec.  1.45V-4(d)(3)(ii)(B) offers relatively 
little flexibility should technological or institutional implementation 
issues or delays arise, these final regulations add an additional two 
years to the transition so as to provide more flexibility and high 
confidence that implementation deadlines will be met. With this 
additional time, EAC registries should have ample time to develop 
hourly tracking mechanisms, and associated trading markets and 
contractual mechanisms will have sufficient time to mature. Given this 
extension, it is not necessary to establish a future trigger-based 
approach wherein the timing of the transition would be based on a 
future study because such an approach would diminish the incentives to 
create hourly matching functionality, potentially further delaying the 
transition with the risk of induced grid emissions that would result in 
tax credit claims that are contrary to the statute.
iii. Reliance Rule
    Many comments requested a reliance rule or legacy allowance wherein 
facilities that have met a certain milestone by a certain date would be 
permitted to continue to satisfy the temporal matching rule by using 
annually-matched, instead of hourly-matched, EACs, for hydrogen 
produced after December 31, 2027. Recommended milestones include (1) 
beginning of construction; (2) placed in service; or (3) commencement 
of commercial operations. While most comments recommended requiring 
that the milestone be reached before January 1, 2028, some comments 
recommended that the Treasury Department and the IRS consider using 
later milestone dates.
    Additionally, there are differing views on the scope of the 
reliance rule. While many comments supported it for the entire duration 
of the 10-year credit period, one comment suggested that the rule 
should only apply to the first five years. Other comments suggested 
that the first 10 gigawatts of project capacity should be represented 
by annual EACs, and hourly EACs thereafter. Similarly, some comments 
suggested allowing annual EACs to be used after December 31, 2027, for 
either a percentage of hydrogen production or a percentage of the total 
electricity used to produce hydrogen. Finally, the comments included 
both individual recommendations and combinations of multiple 
recommendations.
    The comments provided various rationales for a reliance rule. One 
comment said that a reliance rule would enable the U.S. to become the 
global leader in green hydrogen, create jobs and a domestic supply 
chain, and ensure a reduction in GHG emissions in the industrial sector 
long term. Several comments indicated that a reliance rule would 
alleviate investment uncertainty during the 10-year credit period for 
certain projects (for example, early movers). Similarly, another 
comment claimed that a reliance rule would create consistent, ratable, 
and lower-cost volumes of hydrogen production.

[[Page 2269]]

Another comment said that, without a reliance rule, taxpayers will have 
to use hourly EACs for financial projection purposes beginning in year 
one, even though hourly EACs are not necessary until 2028. Another 
comment indicated that there is great uncertainty whether the industry 
can rely on hourly EACs and noted that the change from annual EACs to 
hourly EACs is too aggressive. For example, one comment said that 
hourly EACs effectively will restrict the operation of electrolyzers to 
times when renewable generation sources are available, which could 
increase the levelized cost of hydrogen for initial projects.
    Several comments specifically advocated against any reliance rule 
that would allow producers to avoid the phasing-in of hourly matching. 
Another comment recommended a temporary approach prior to the 2028 
phase-in that would utilize annual/monthly EACs so tracking systems 
like M-RETS will have an easier time transitioning to hourly matching. 
According to the comment, this temporary approach would also act as a 
provisional pathway if hourly matching were not feasible by 2028. 
Finally, one comment supported requiring a simulation of hourly 
matching in the years prior to 2028, beginning in 2026, which would 
facilitate a smoother transition to hourly matching. This would be in 
addition to the annual matching of EACs to actual hydrogen production 
for the purpose of calculating the section 45V credit.
    These final regulations do not adopt a reliance rule or legacy 
allowance whereby projects that reach a certain milestone prior to a 
certain date are allowed to maintain something more permissive than 
hourly matching for a specified period or for the duration of the 
credit period. The qualifying EAC requirements are essential to fulfill 
the statutory mandate in section 45V(c)(1)(A) and section 211(o)(1)(H) 
of the Clean Air Act to address significant indirect emissions, which 
includes induced grid emissions, in assessing lifecycle GHG emissions 
for purposes of section 45V. A reliance rule or legacy allowance would 
increase the risk of such significant indirect emissions that must, 
under the statute, be considered in assessing the lifecycle GHG 
emissions rate. It is imperative to apply each of the qualifying EAC 
requirements to qualifying clean hydrogen production as soon as 
practicable to implement the statutory requirements.
iv. Other Approaches
    Several comments recommended broader changes, alternatives, or 
exceptions to the proposed hourly matching framework. One comment 
suggested that, in the case of distributed renewable energy that is not 
connected to the grid, the final regulations should exempt such 
electricity from the hourly matching requirement and consider doing the 
same in the case of distributed renewable energy that is connected to 
the grid. Similarly, another comment requested that the Treasury 
Department and the IRS reconsider the hourly matching requirement and 
recommended alternative compliance methods, such as co-location with 
clean energy facilities or contractual pairing. Alternatively, one 
comment recommended that the final regulations employ a CO2 accounting 
approach to address significant indirect emissions. Another comment 
asserted that temporal matching makes hydrogen production during 
certain periods of the day or year uneconomical, which leads to a 
decrease in hydrogen, and so the final regulations should employ a net 
energy monitoring approach. Another comment requested that the final 
regulations allow projects to use ``low price'' market signals as a 
proxy for temporal matching because such an approach would create a 
transparent market signal for hydrogen production resources to 
efficiently capture surplus energy by locating and designing facilities 
to capture and store this excess renewable energy.
    Finally, one comment recommended an exception to the temporal 
matching requirement based on capacity where the final investment 
decision is made before 2028 with respect to a hydrogen production 
facility. Specifically, the comment recommended a 15 percent capacity 
exemption for all regions except California Independent System Operator 
(CAISO) and a 30 percent capacity exemption in solar intensive regions.
    As indicated in the proposed regulations, the three qualifying EAC 
requirements work together to mitigate the risk of induced grid 
emissions, as they constitute significant indirect emissions, 
consideration of which is required by section 45V(c)(1)(A) and section 
211(o)(1)(H) of the Clean Air Act. As noted in the DOE Technical Paper, 
and supported by multiple comments, the three requirements address both 
operational (short-term) and structural (long-term) effects that can 
cause induced grid emissions and thus affect lifecycle emissions 
outcomes. Further discussion as to why an exception to the qualifying 
EAC requirements for energy generation that is co-located or not 
connected to the grid is not viable is discussed in part III.D.1 in 
this Summary of Comments and Explanation of Revisions. Given these 
findings and upon the advice of the DOE and the EPA, these final 
regulations do not add any additional exceptions to the hourly matching 
requirement, with the exception for clarifying the use of energy 
storage, as explained in part III.D.3.c.v of this Summary of Comments 
and Explanation of Revisions. Any such exceptions increase the risk of 
significant indirect emissions in the form of induced grid emissions 
that must be taken into account under the statute in determining the 
lifecycle GHG emissions rate.
    Many comments stated that, if the Treasury Department and the IRS 
impose a temporal matching requirement, then hydrogen production 
facilities located in States with statutorily mandated clean energy 
policies should be deemed to have already met those Federal 
requirements. One comment recommended that hydrogen production 
facilities located in such States or regions should receive a waiver of 
the requirement for hourly matching. Other comments stated that, 
because hourly matching imposes a significant cost, section 45V 
accounting should instead require clean hydrogen production facilities 
in California and other similarly situated States to apply the same 
temporal matching system that those States apply to other carbon-free 
technologies, like batteries.
    As described in part III.D.3.b.iv of this Summary of Comments and 
Explanation of Revisions, the Treasury Department and the IRS agree 
with these comments that certain States have enacted policies that 
effectively address the risk of induced grid emissions. However, these 
State policies only address the incrementality requirement; temporal 
matching and deliverability requirements must still be met. Temporal 
matching on an hourly basis ensures that there is actual alignment 
between the timing of generation and the additional load created by the 
production of hydrogen. Put another way, the temporal matching and 
deliverability requirements together ensure that the hydrogen producer 
could consume the incremental generation it is claiming by virtue of 
such generation being deliverable to the producer at the same time the 
electricity is being consumed. These requirements enable the hydrogen 
producer to assert that its hydrogen production is utilizing 
electricity generation with no (or minimal) direct emissions, and to 
reduce the risk of induced grid emissions. The incrementality 
requirement is additionally necessary to ensure that use of zero- or 
minimal-

[[Page 2270]]

emitting generation does not indirectly lead to significant increases 
in emissions elsewhere on the grid. State policies that meet certain 
requirements can obviate the need for the incrementality requirement by 
providing certainty that use of any clean power generation will not 
indirectly lead to an increase in emitting generation. But to qualify 
for the section 45V credit, the facility still needs to demonstrate 
availability of the use of such generation to produce the qualified 
clean hydrogen in the first place, necessitating the purchase and 
retirement of EACs that meet the temporal matching and deliverability 
requirements. Accordingly, these final regulations do not adopt these 
comments.
    Another comment noted that there should be a Scope 2 attribute 
approach with a small amount of operational flexibility. The Scope 2 
approach, specifically referencing the Greenhouse Gas Protocol's 
market-based methodology, is based on the attributes of the electricity 
supply, accounting for the conveyance of those attributes via market-
based mechanisms such as EACs. The market-based methodology for 
calculation of Scope 2 emissions calculates hourly grid carbon 
intensity by deliverability region rather than the current location-
based methodology. The Treasury Department and the IRS are unsure of 
the nature of this request. However, the DOE has advised that the lack 
of consistent, comprehensive, real-time, national data on hourly 
marginal emissions prevents implementing hourly marginal emissions as 
the regional default rates employed in 45VH2-GREET. The DOE Technical 
Paper also notes the limits to solely relying on short-run marginal 
emissions rates that exclude structural effects. Additionally, it is 
difficult to envision how a clean hydrogen producer would utilize those 
data in real time were they available and implemented in 45VH2-GREET. 
As such, the Treasury Department and the IRS understand that 45VH2-
GREET will retain the regional, annual average grid emissions rate as 
the default emissions rate. The Treasury Department and the IRS 
reiterate, however, that a clean hydrogen producer may purchase 
qualifying EACs as a means to select an alternative to using 45VH2-
GREET's default emissions rate for the regional grid and may select the 
electricity source technology (for example, solar and wind) of the 
specific electricity generator(s) from which it has purchased 
qualifying EACs as part of the calculation determining its lifecycle 
GHG emissions.
v. Treatment of Energy Storage
    Several comments requested clarification on how the temporal 
matching requirement applies to energy storage. Some comments suggested 
a provision setting the temporal matching time stamp for stored green 
energy to the time of dispatch from the storage unit, not to the time 
of generation of the energy or the time of storage. Comments explained 
that this incentivizes renewable energy storage and will lead to 
greater levels of temporal matching.
    Some comments requested implementing a ``portfolio'' method to 
allow temporal matching from a ``portfolio'' of clean energy assets. 
Such comments advocated allowing temporal matching from both behind-
the-meter and front-of-the-meter energy storage. However, one comment 
expressed concern with implementing a ``portfolio'' method. This 
comment noted that tracking EACs of stored electricity over time is 
complicated by issues such as carbon-free energy content, round-trip 
efficiency loss, and nuances of energy storage operations including 
ancillary services.
    The Treasury Department and the IRS acknowledge the growth of 
electricity storage and the ability of such storage to shift the hourly 
temporal profile of clean generation. Similarly, storage sited at a 
clean hydrogen production facility may shift the hourly load of that 
facility. Therefore, these final regulations will allow temporal 
shifting of clean generation, but the ability of entities to claim and 
verify the use of energy storage is contingent on whether and when EAC 
registries can substantiate the effective tracking of electricity 
through that storage. Specifically, Sec.  1.45V-4(d)(3)(ii)(C) will 
allow hydrogen producers and their electricity suppliers to use 
electricity storage to shift the temporal profile of EACs based on the 
period of time in which the corresponding electricity is discharged 
from storage. However, such allowance is predicated on certain 
requirements. An EAC meets the requirements of Sec.  1.45V-
4(d)(3)(ii)(A) if the electricity represented by the EAC is discharged 
from a storage system in the same hour that the taxpayer's hydrogen 
production facility uses electricity to produce hydrogen. The storage 
system must also be located in the same region as both the hydrogen 
production facility and the facility generating the electricity to be 
stored. Storage systems need not themselves meet the incrementality 
requirement, but the EACs that represent electricity stored in such 
storage systems must meet the incrementality requirement based on the 
attributes of the generator of such electricity. EACs that represent 
the attributes of stored electricity for purposes of section 45V must 
be retired in EAC registries that ensure that such EACs support energy 
use claims without double counting; ensure that the volume of energy 
use substantiated by such EACs accounts for storage-related efficiency 
losses; develop frameworks that comprehensively address storage, that 
is, do not allow selective reporting of EACs of stored electricity; and 
develop frameworks for estimating the temporal profile of stored and 
discharged electricity represented by EACs, including when storage is 
charged with multiple electricity generators, not all of which produce 
sufficiently minimal emissions to produce hydrogen that qualifies for 
the section 45V credit. If an EAC satisfies these basic conditions and 
its acquisition and retirement can be substantiated by an EAC registry, 
then such EACs may meet the temporal matching requirement based on the 
time the stored electricity is discharged.
    Some comments asked that hydrogen producers also be allowed to 
contract with off-site electricity storage to shift their load profile. 
These final regulations do not offer this option as it adds an 
additional layer of administrative complexity. The previously described 
allowances for on-site energy storage to shift load (verifiable through 
meter readings) and off-site energy storage to shift clean power 
production profiles (verifiable via EAC registries that develop that 
capability) provide adequate flexibility for clean hydrogen producers 
without adding another administratively complex option.
    Another comment suggested that the Treasury Department and the IRS 
require EAC fractionalization to the nearest kilowatt hour (kWh) (0.001 
MWh) so credit calculations can be accurate and because, in some 
regions, a difference of a single kWh is enough to move a taxpayer from 
one section 45V credit tier to another tier. Concerning 
fractionalization of EACs, the technical details for tracking 
qualifying hourly EACs are best left to EAC registries. As described in 
part III.D.3.c.ii of this Summary of Comments and Explanation of 
Revisions, hourly matching of EACs is required by 2030. Other rules in 
these final regulations similarly will require EAC registries to 
develop new capabilities. The Treasury Department and the IRS encourage 
EAC registries to work together and with external

[[Page 2271]]

stakeholders to develop appropriate, common approaches to tackling 
these new issues. More broadly, some comments asked the Treasury 
Department and the IRS to establish a specific standard for hourly 
EACs, such as EnergyTag. While the Treasury Department and the IRS 
acknowledge that standardizing the approach to hourly matching across 
EAC registries would be valuable, these final regulations do not 
require such a comprehensive standard at this time given potential 
risks in doing so and the limited comment record.
vi. Temporal Matching and Interaction With Annual Emissions Averaging
    Several comments noted that 45VH2-GREET does not facilitate hourly 
data or calculations. One comment recommended that, if the Treasury 
Department and the IRS implement hourly matching on January 1, 2028, 
then 45VH2-GREET should be updated to reflect grid emissions on an 
hourly basis (rather than on an annual basis) to ensure the highest 
level of accuracy, incentivize the use of electrolysis during periods 
of low grid emissions, and better tie hydrogen production to periods of 
operations. Alternatively, one comment requested additional guidance on 
how data from hourly EACs should be aggregated and applied to create 
the required annual average grid mix for purposes of 45VH2-GREET. As 
support, the comment contended that aggregating data on a more granular 
basis to support the higher-level input into 45VH2-GREET would reduce 
administrative burden and achieve the same intended outcome. The same 
comment also asserted that 45VH2-GREET should not be performing hourly 
lifecycle calculations because doing so would be too tedious and 
provide little value.
    The Treasury Department and the IRS acknowledge that the current 
version of 45VH2-GREET does not represent grid emissions on an hourly 
basis. Carbon intensities of regional grids in the model are currently 
based on estimates of average generation mixes in a given year, as 
described in the 45VH2-GREET User Manual. The current model therefore 
reflects GHG emissions associated with regional grid electricity 
production and transmission on the basis of annual averages. The DOE 
has advised that representation of regional grid emissions on an hourly 
basis is not technically feasible within the current model and is not 
expected to be feasible in the near future, given lack of high-fidelity 
data and streamlined modeling capabilities available at this 
granularity. This is especially true given the need to account for both 
operational and structural effects in emissions modeling.
    Separately, as described in Sec.  1.45V-4(a)(2), qualified clean 
hydrogen production facilities will be permitted to perform sub-annual 
(hourly) accounting of their lifecycle GHG emissions associated with 
electricity used in a hydrogen production process for section 45V 
credit tier eligibility determinations, subject to certain conditions, 
once the hourly matching requirement begins in 2030. This sub-annual 
accounting approach will allow facilities to reflect emissions from 
electricity consumption on an hourly basis if the electricity is 
procured from a specific generator and the consumption of that 
electricity is verified via the purchase and retirement of qualifying 
EACs. 45VH2-GREET may require updates to enable this method. More 
information on methods to estimate emissions on a sub-annual basis will 
be available in future 45VH2-GREET supporting documentation.
d. Deliverability
    Proposed Sec.  1.45V-4(d)(3)(iii) would provide that an EAC meets 
the deliverability requirement if the electricity represented by the 
EAC is generated by a facility that is in the same grid region as the 
hydrogen production facility. ``Region'' would be defined in proposed 
Sec.  1.45V-4(d)(2)(vi) as a region derived from the National 
Transmission Needs Study that was released by the DOE on October 30, 
2023 (DOE Needs Study).\38\ Alaska, Hawaii, and each U.S. territory 
would be treated as separate regions.
---------------------------------------------------------------------------

    \38\ U.S. Department of Energy, National Transmission Needs 
Study, (Oct. 2023) available at https://www.energy.gov/gdo/national-transmission-needs-study (click ``Read the Full Report'').
---------------------------------------------------------------------------

i. Alternative Deliverability Regions
    While many comments supported the proposed rule's definition of 
geographic regions, some variously suggested larger, smaller, or 
different regions. Many comments requested that something other than 
the DOE Needs Study be used as the basis for the deliverability 
regions, such as the six North American Electric Reliability 
Corporation (NERC) regions, the FERC power markets, the Balancing 
Authority Areas, the existing tradeable REC markets, the three large 
interconnection regions (that is, Eastern, Western, and ERCOT), and the 
power pool boundaries and interregional transmission. There were 
several unique proposals made by individual comments. One comment 
argued that deliverability regions should reflect transmission links 
between NERC regional reliability councils and market alignment such as 
the Western Energy Imbalance Market (WEIM) with the Western Energy 
Imbalance Service Market (WEIS). Other comments asked for Independent 
System Operator (ISO) areas to be used as the deliverability regions, 
or that regions should accord with existing regional tracking systems 
(for example, the Western Electricity Coordinating Council (WECC) and 
WREGIS). Another comment proposed that Regional Transmission 
Organization (RTO)- or ISO-defined local areas be used to establish 
deliverability for EACs, offering Midcontinent Independent System 
Operator (MISO) Local Resource Zones as an example. One comment 
requested that co-location within the same RTO be treated as 
establishing deliverability. One comment stated that the final 
regulations should provide a correct and consistent definition of the 
MISO and Southwest Power Pool (SPP) grids where a facility is located 
in an area served by both. Another comment asked that the final 
regulations explicitly state that each U.S. balancing authority is 
linked to a DOE Needs Study region, claiming that this is already in 
the 45VH2-GREET User Manual. Finally, one comment argued that the 
location of an electricity generator and of a hydrogen production 
facility should be determined by the balancing authority with which the 
facility is interconnected, not strictly its geographic location.
    Regarding specific regions, some comments asked that the SPP region 
be considered its own deliverability region; that MISO be treated as 
one deliverability region, rather than as two; that the entire WECC be 
used as a deliverability region in the Western U.S.; and that WECC be 
treated as two regions based on the WEIM and the WEIS.
    The final regulations retain the proposed regulations' general 
framework for drawing the regional boundaries, which were derived from 
the DOE Needs Study. To clarify the regions, the final regulations add 
a table of balancing authorities and their corresponding regions. The 
table published in these final regulations is the definitive source for 
identifying the regions. A copy of this table is also reprinted in the 
forthcoming 45VH2-GREET User Manual (January 2025). In response to 
comments seeking clarification regarding how to determine the 
appropriate region, the final regulations provide in Sec.  1.45V-
4(d)(3)(iii)(A) that the electricity generating source and the hydrogen 
production facility are located in the same region if they are both 
electrically

[[Page 2272]]

interconnected to a balancing authority (or balancing authorities) that 
is located in the same region, as identified in the table provided in 
Sec.  1.45V-4(d)(2)(ix). For example, a hydrogen production facility 
that is electrically interconnected to the East Kentucky Power Coop, 
Inc. Balancing Authority and an electricity generating source that is 
electrically interconnected to the Ohio Valley Electric Corp. Balancing 
Authority are both in the Mid-Atlantic Region as reflected in the 
table. Accordingly, the hydrogen production facility and the 
electricity generating facility are in the same region for purposes of 
proposed Sec.  1.45V-4(d)(2)(vi) (now renumbered as Sec.  1.45V-
4(d)(2)(ix) and (3)(iii)(A).
    While the map shown in the 45VH2-GREET User Manual may be a useful 
visual guide, it is the table and the balancing authority (or 
authorities) to which the hydrogen production facility and electricity 
generating source are electrically interconnected that defines the 
section 45V region. The MISO balancing authority is split between MISO 
North/Central and MISO South, as described in the table published in 
these final regulations and as shown in the map in the 45VH2-GREET User 
Manual. Alaska, Hawaii, and each U.S. territory are treated as separate 
regions. To the extent modifications to the balancing authorities and 
their corresponding regions are made in the future based on additional 
analysis by the DOE, taxpayers may continue to use the table published 
in these final regulations. In addition, the Treasury Department and 
the IRS intend to issue a safe harbor that would be published in the 
Internal Revenue Bulletin that would allow taxpayers to use a modified 
table of balancing authorities and their corresponding regions instead 
of the table published in these final regulations.
    As described in the proposed regulations, the DOE has advised that 
these regions provide reasonable assurances of deliverability of 
electricity because they were developed by the DOE in consideration of 
transmission constraints and congestion and, in many cases, match 
power-systems operational regions. The DOE has also advised that they 
reasonably match market and transmission planning regional boundaries 
(for example, Southeastern Regional Transmission Planning, and PJM 
Interconnection), in line with many suggestions from comments. Because 
of this, these regions remain the best geographic representation of 
deliverability for purposes of the qualifying EAC requirements.
    The Treasury Department and the IRS recognize that transmission 
limitations also exist within these specified regions but are not aware 
of readily administrable options to reflect those grid constraints in a 
consistent fashion. The DOE Needs Study found that interregional 
transmission constraints tend to be greater than within-region 
constraints. With respect to establishing larger regions, whether based 
on the six NERC regions or otherwise, the DOE has advised that such 
regions would not reflect important transmission constraints and also 
do not reflect the primary geographic scope of current regional 
transmission planning processes. The DOE Needs Study regions more 
accurately reflect both considerations.
    Regarding the comments to treat MISO as one region, the DOE has 
advised that there are significant transmission constraints between the 
southern part of the MISO footprint and the central and northern parts; 
the DOE Needs Study regions track that reality. Accordingly, were a 
hydrogen producer located in the southern part of MISO to rely on EACs 
sourced from an electricity generating facility located in the northern 
part of MISO, for example, there is a significant risk that the 
hydrogen production would significantly increase induced grid emissions 
in the southern part of MISO that may not be offset by emissions 
reductions to the northern part of MISO.
    Regarding the comments on transmission planning and availability in 
the western U.S., the DOE has advised that the DOE Needs Study better 
reflects regions than do other stakeholder proposals. Use of market 
structures like the WEIS/WEIM are not currently recommended by the DOE 
because these boundaries are based on market operations--such as 
setting the wholesale price of energy production--that do not 
necessarily reflect transmission planning and availability. 
Furthermore, current WEIS/WEIM boundaries change year-to-year, with 
substantial changes also anticipated in the coming years based on 
voluntary utility participation decisions that are not centered on 
transmission availability. Although these comments are not adopted, the 
final regulations allow interregional delivery in certain 
circumstances, as described in Sec.  1.45V-4(d)(3)(iii)(B) and part 
III.D.3.d.iii of this Summary of Comments and Explanation of Revisions, 
which should address some of the concerns expressed in the comments.
    At least one comment noted possible inaccuracies in the 45VH2-GREET 
User Manual map, for example, a portion of Florida is shown as being in 
the Southeast region and not the Florida region. While the map 
contained in the 45VH2-GREET User Manual may be a useful visual guide, 
the table published in these final regulations is the authoritative 
source regarding the geographic regions used to determine satisfaction 
of the deliverability requirement. Further, the Treasury Department and 
the IRS emphasize that the location of an electricity generating source 
and the location of a hydrogen production facility is based on the 
balancing authority to which each is electrically interconnected (not 
the geographic location), with all but one balancing authority linked 
to a single region. In addition, the regions in the DOE Needs Study 
were used to derive the deliverability regions, but are not precisely 
those employed by these final regulations; the DOE Needs Study should 
therefore not be referenced for determining compliance with the 
deliverability requirement.
    Finally, some comments noted the discrepancy between the regions 
used in 45VH2-GREET for the default grid emission factors and those 
proposed for the deliverability requirement. The Treasury Department 
and the IRS acknowledge that discrepancy and understand that the DOE is 
planning to update the default grid emissions values in 45VH2-GREET in 
the near future to align with the regions required for deliverability.
ii. Dynamic Deliverability Regions
    Several comments offered ideas about dynamic deliverability rules. 
A few comments proposed using up-to-date locational marginal prices to 
infer deliverability and modify the deliverability region boundaries 
over time accordingly. One of these comments asked that market price 
differentials and coordination with ISOs and RTOs be used to create and 
administer smaller deliverability regions that can be adjusted over 
time. One comment requested that utilities be allowed to use utility-
specific GHG emissions information as an alternative to the balancing 
authority region approach. One comment proposed using contemporaneous 
balancing authorities as the deliverability regions. Another comment 
asked for locational marginal emissions to be used to establish 
deliverability. Another comment requested that deliverability regions 
be continually updated using the ongoing DOE Needs Study. One comment 
wrote that deliverability region boundaries should account for market 
expansion. Finally, one comment requested that deliverability regions 
be regularly

[[Page 2273]]

adjusted to reflect changes in transmission capacity and to resolve 
conceptual differences with EU deliverability rules.
    The deliverability regions are defined in these final regulations 
based on the balancing authorities they include and were derived from 
the DOE Needs Study. The Treasury Department and the IRS recognize that 
it may be appropriate to revise these regions in the future. For 
example, the geographic reach of a balancing area may change, or 
transmission expansion may lead to fewer constraints between the 
current regions. Comments to the proposed regulations expressed a 
desire to understand how regional boundaries might change in the 
future.
    To allow for reasonable changes to geographic regions, the Treasury 
Department and the IRS, in consultation with the DOE, intend to revise 
the regions in future safe harbor administrative guidance published in 
the Internal Revenue Bulletin. Updates to geographic regions would 
occur at most once each year, and likely less frequently. The types of 
changes that could occur through future updates include, for example, 
movements of individual balancing authorities that might modestly 
increase or decrease the footprint of affected deliverability regions. 
Taxpayers could continue to utilize the table published in these final 
regulations, or, alternatively, taxpayers potentially could utilize an 
updated table provided in guidance published in the Internal Revenue 
Bulletin, subject to any requirements contained in such guidance. In 
the event of more fundamental changes to the deliverability regions, 
the Treasury Department and the IRS would propose amendments to these 
final regulations.
    Regarding comments to use locational marginal prices, the Treasury 
Department and the IRS note that locational marginal prices are not 
available on a nationwide basis and vary considerably from one year to 
the next--and even one hour to the next. Use of locational marginal 
prices would likely lead to incomplete and unstable region definitions. 
It is therefore unclear how the Treasury Department and the IRS could 
administer such a process, and how hydrogen producers could then use 
the resulting regions. Regarding the comment to use utility-specific 
GHG emissions information, a consistent method for how to map generator 
facilities' emissions to the transmission system would be needed to 
implement this solution. While there are examples of this mapping in 
both industry research and practice, those methods are nascent and not 
widely applied across all transmission regions. Furthermore, the use of 
these techniques in establishing geographic boundaries for transmission 
deliverability have not been tested. Other comments suggesting various 
dynamic deliverability region benchmarks raise similar administrability 
concerns, for example, to automatically revise regions in certain 
circumstances (such as ISO expansion or publication of a new DOE Needs 
Study). For these reasons, the final regulations do not adopt these 
comments. To the extent needed, the Treasury Department and the IRS 
will announce revisions only after careful consideration and as 
informed by the DOE's technical expertise, to ensure that such 
revisions are appropriately measuring deliverability.
iii. Interregional Connections
    Many comments asked for means of satisfying the deliverability 
requirement so that certain cases where the electricity generator and 
the hydrogen production facility are located in separate deliverability 
regions would still be deemed deliverable. Some of these comments 
proposed instituting a process allowing individual hydrogen producers 
to make a showing of actual deliverability across regions, such as 
through a direct, interregional connection between generator and 
hydrogen production facility, generation that has secured ``firm or 
non-firm transmission'' or ``firm transmission rights,'' or that a 
``direct contract'' between generator and hydrogen producer should 
suffice for deliverability. Along similar lines, several comments 
requested loosening the deliverability requirement such that EACs from 
electricity generators located in regions adjacent to the hydrogen 
producer's region should also satisfy deliverability or that 
deliverability exemptions should be granted for projects located on the 
boundaries of deliverability regions. One comment wrote that 
deliverability rules should accommodate interregional transfers by 
allowing transfer of EACs between the deliverability regions in 
proportion to the annual, quarterly, or monthly capacity available on 
those interregional lines. Another comment said that a generator-
producer pairing spanning multiple regions should satisfy 
deliverability when the project's location reduces transmission need. 
Finally, a few comments requested that deliverability rules permit the 
use of EACs from outside the United States, with a few comments 
mentioning Canada and Mexico.
    As noted by comments, transmission often exists across regional 
boundaries. The DOE has advised that electricity trade across regions 
(and from Canada and Mexico to the United States) is common, with the 
level of trade varying regionally. The DOE has also advised that if 
such delivery of electricity and related EACs can be verified on a 
granular basis, there is no substantive reason to limit such 
transactions of qualified EACs. The DOE and the EPA have also advised 
that several EAC registries already have mechanisms to track near-real-
time electricity and related EACs that cross regions and are using 
those methods to reliably track imports. The fact that several EAC 
registries already validate cross-border transactions for electricity 
and related EACs on an hourly basis demonstrates administrability. 
Other EAC registries may also develop the capabilities to validate such 
cross-region electricity and EAC transactions, in concert with relevant 
grid system operators. Finally, the EPA has advised that there may be 
heightened risk of double sale or use of otherwise qualifying EACs in 
cases of international imports from Canada and Mexico.
    Based on these considerations, these final regulations adopt the 
suggestions of many comments by amending proposed Sec.  1.45V-
4(d)(3)(iii) to allow an eligible EAC to meet the deliverability 
requirement in certain instances of actual cross-region delivery where 
the deliverability of such generation can be tracked and verified. See 
Sec.  1.45V-4(d)(3)(iii)(B). First, such EACs will only qualify if the 
underlying electricity generation has transmission rights from the 
generator location to the region of the clean hydrogen producer and 
that generation is delivered to (that is, scheduled and then dispatched 
and settled in) such producer's region. Such electricity delivery must 
be demonstrated on an hour-to-hour or more frequent basis, with no 
direct counterbalancing reverse transactions, and must be verified with 
NERC E-tags or the equivalent. Second, tracking of transmission rights 
and electricity delivery must occur via the relevant EAC registry; if 
the relevant EAC registry lacks this capability, such cross-region 
transactions are not allowed. Third, and finally, imports from Canada 
and Mexico must additionally include an attestation from the generator 
that the attributes included in the eligible EACs are not being used 
for any other purpose, with that attestation included as an attachment 
to the verification report submitted with the taxpayer's return. These 
requirements collectively ensure delivery of qualifying EACs and 
electricity to the importing region, thus

[[Page 2274]]

ensuring local displacement of other generation consistent with the 
producer's load, accurate verification of delivery through EAC 
registries, and low risk of double counting or multiple use of EACs and 
their generation attributes.
    Some comments sought an individualized process that would allow 
hydrogen producers to make showings of deliverability on a case-by-case 
basis, to use transmission rights or direct contracts as an alternative 
basis for establishing deliverability, to use locational pricing 
differentials to demonstrate deliverability, or to demonstrate 
deliverability in other ways. Another comment suggested allowing 
delivery across regions based on available transmission capacity. Given 
administrability concerns, these final regulations do not include an 
individualized process to make a showing of deliverability. 
Additionally, the Treasury Department and the IRS note that the 
multiple criteria in Sec.  1.45V-4(d)(3)(iii)(B) to determine 
interregional deliverability are necessary to ensure that cross-region 
transactions involve the delivery of actual electricity and related 
EACs, and several EAC registries already employ such criteria to 
validate cross-region transactions. These final regulations, therefore, 
adopt the standardized process and interregional deliverability 
criteria in Sec.  1.45V-4(d)(3)(iii)(B), which ensure delivery of 
electricity and EACs as validated by EAC registries.
    Another comment asked for clarification as to how electricity 
generators located in one balancing authority area but treated 
operationally and financially as if in a different balancing authority 
area, are treated under the deliverability rules. As described in the 
Explanation of Provisions of the proposed regulations, the location of 
an electricity generating source and the location of a hydrogen 
production facility are based on the balancing authority to which each 
is electrically interconnected (not its geographic location), with each 
balancing authority (except MISO) linked to a single region. If the 
electricity generator is electrically connected to the receiving 
region, then such a project would be assigned to that region. If not 
electrically connected, it would need to meet the interregional 
deliverability requirements. As such, if there is a direct, single-use 
connection (for example, a high-voltage direct current transmission 
line) between an electricity generator and a hydrogen producer's region 
(or the hydrogen producer itself) such that the generator is 
electrically connected to the receiving region, then EACs reflecting 
the hydrogen production facility's use of this electricity would meet 
the deliverability requirement.
    Finally, one comment opined that the deliverability requirement is 
counterproductive to the interregional transmission goals of the DOE 
Needs Study. The Treasury Department and the IRS disagree with this 
comment but note that the allowance for cross-region delivery in these 
final regulations addresses this comment.
iv. Phase-In and Legacy Rules
    Several comments requested phase-in or legacy rules. Some comments 
suggested that projects beginning construction before 2030 should only 
be required to source EACs from within the same NERC region. Another 
comment proposed exempting the first 10 gigawatts placed in service 
before 2031 from the deliverability requirement. Another comment 
advocated for exempting all hydrogen facilities beginning construction 
before 2033 from the deliverability requirement. A comment that had 
proposed the use of tracking systems like WECC in setting 
deliverability region boundaries requested that, if tracking systems 
will not be used, then a transition rule should allow projects that 
have commercial agreements in place to acquire electricity from outside 
the project's region to meet deliverability until 2032. As described in 
part III.D.3.a of this Summary of Comments and Explanation of 
Revisions, the three qualifying EAC requirements, inclusive of 
deliverability, are necessary to reduce the risk of induced grid 
emissions in line with the statutory lifecycle emissions requirement, 
and phase-in or legacy rules would increase the risk of such emissions.
    Several comments expressed concern that regional boundaries might 
change in the future and asked for rules allowing reliance on the 
deliverability region boundaries as they are provided at the time a 
hydrogen production facility is either placed in service or its 
construction begins. The Treasury Department and the IRS agree with the 
comments that certainty regarding deliverability regions is important. 
Therefore, these final regulations adopt the table of regions in Sec.  
1.45V-4(d)(2)(ix) for the duration of the section 45V credit. If, in 
the future the Treasury Department and the IRS publish a revised table 
as a safe harbor in the Internal Revenue Bulletin, a clean hydrogen 
producer would be able to instead employ such regions prospectively, 
subject to requirements that may be contained in such guidance.
    Some comments sought various phase-in rules, whereby regions are, 
in effect, larger in the near term but become narrower over time. 
Multiple variants on this concept were proposed. These final 
regulations do not provide such a phase in. As previously discussed, 
the three qualifying EAC requirements, inclusive of deliverability, are 
necessary to reduce the risk of induced grid emissions in line with the 
statutory lifecycle emissions requirement. Accepting a phased-in 
approach with respect to deliverability would undermine this objective. 
By contrast to the temporal matching requirement, comments have not 
identified any technical or administrative reason why the 
deliverability requirement must be phased in. The Treasury Department 
and the IRS note, however, that several additional flexibilities are 
allowed in this final regulation that were not included in the proposed 
regulations, including allowance of interregional delivery and the 
ability to utilize the table of regions published in these final 
regulations over the life of the credit. Such additional flexibilities 
may partially ameliorate the concerns of some stakeholders.
v. Other Deliverability Comments
    Finally, comments described certain overarching concerns with the 
deliverability requirement. One comment expressed concern that, since 
deliverability regions do not align with EAC registry boundaries, 
deliverability could be incompatible in some way with temporality. The 
Treasury Department and the IRS do not agree with this comment. EAC 
registries will need to develop new capabilities to fully meet the 
qualifying EAC requirements, but overlapping or imperfect geographic 
coverage of the EAC registries should not be an issue. Two EAC 
registries will operate outside of their native regions, so even if a 
specific EAC registry is not able to meet all the qualifying EAC 
requirements, these other EAC registries are available to taxpayers.
    One comment asked that projects drawing power from zero- or near-
zero emissions grids be exempted from the deliverability requirements. 
Projects drawing power from zero- or near-zero emissions grids may use 
the grid average lifecycle GHG emissions rate in determining their 
section 45V credit eligibility and amount; the deliverability 
requirement only applies in the event the taxpayer is using EACs 
instead of the grid average emissions rate. If a taxpayer is using 
EACs, as described in part III.D.1 of this Summary of

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Comments and Explanation of Revisions, the Treasury Department and the 
IRS agree with comments that certain states have enacted policies that 
may address the risk of induced grid emissions. However, these state 
policies will only satisfy the incrementality requirement; temporal 
matching and deliverability requirements must still be met. 
Deliverability requirements ensure that the electricity generation that 
creates the EACs occurs in the same grid region or is otherwise 
physically deliverable to the EAC buyer's load, even where that 
generation is incremental or otherwise will not lead to induced grid 
emissions. Accordingly, these final regulations do not adopt this 
comment.

E. Underlying Substance of 45VH2-GREET

1. In General
    As described in the preamble to the proposed regulations, certain 
parameters in 45VH2-GREET are fixed assumptions, referred to as 
``background data'' in this document. Background data, such as upstream 
methane loss rates, emissions associated with power generation from 
specific generator types, and emissions associated with regional 
electricity grids, may not be changed by users of 45VH2-GREET. Many 
comments either requested or recommended changes to certain background 
data and requested clarification with respect to certain background 
data parameters. Additionally, many comments recommended the inclusion 
of more background data parameters not currently in 45VH2-GREET. Some 
comments requested or recommended that certain background data 
parameters become foreground data (that is, parameters that must be 
input by the user), or alternatively, that all background data 
parameters become foreground data.
    The Treasury Department and the IRS, in consultation with the DOE, 
reaffirm the importance of maintaining parameters as background data in 
cases where idiosyncratic values are difficult to estimate or verify. 
Examples of such scenarios include the carbon intensity of specific 
types of electricity generation, such as solar, wind, or nuclear 
generation. The 45VH2-GREET supporting documentation clearly defines 
each type of generator currently represented in the model and allows 
for user inputs in scenarios where independent verification of such 
inputs is realistically feasible. Certain types of electricity 
generation like solar and wind do not have emissions within the well-
to-gate system boundary, regardless of how they are operated. Such 
types of generation have been assigned a carbon intensity of zero 
within 45VH2-GREET. Other types of generation have non-zero emissions, 
but such emissions will not be transparent to a third-party verifier. 
For example, well-to-gate emissions from light-water nuclear reactors 
are largely due to the manner in which uranium is enriched and the 
countries from which it is sourced. Beyond the sector-wide trends 
already used to inform 45VH2-GREET, differentiation of such information 
at a facility-level and associated verification is likely to be 
infeasible. In other cases, traits of certain types of generation are 
likely to be verifiable and have therefore been incorporated as 
foreground data in 45VH2-GREET. One example is the rate of CCS 
integrated with a natural gas combined cycle turbine used for power 
generation. Supporting documentation for 45VH2-GREET provides 
information on how this rate must be calculated, and all aspects of the 
calculation (for example, the amount of CO2 sequestration reported to 
the EPA's Greenhouse Gas Reporting Program (GHGRP), and the amount of 
CO2 generated by the facility) are expected to be verifiable. If a 
taxpayer utilizes a method of electricity generation that is not yet 
represented in 45VH2-GREET, then such taxpayer's pathway is not 
considered to be represented in the model, and the taxpayer may be 
eligible to petition the DOE for a PER (subject to the requirements of 
the PER petition process).
    Other than background data, aspects of 45VH2-GREET that users may 
not change include the calculation methods embedded within the model, 
for example, co-product accounting techniques, and assumptions of 
global warming potential that are used to calculate lifecycle 
emissions. The approaches for accounting used in 45VH2-GREET are 
essential features that define the model itself; if these methods were 
subject to modifications by a user, different taxpayers with identical 
hydrogen production pathways could achieve different lifecycle GHG 
rates. Such inconsistency would violate fair administration of section 
45V. Consistent with advice received from the DOE, the methodologies 
and assumptions embedded in 45VH2-GREET are necessary and appropriate 
for the accurate and fair administration of the section 45V credit.
    The Treasury Department and the IRS had solicited feedback on 
conditions, if any, under which the methane loss rate may in future 
releases become foreground data (such as certificates that verifiably 
demonstrate different methane loss rates for natural gas feedstocks). 
In response, one comment recommended the use of MiQ certificates, which 
evidence the emissions intensity of gas production, including methane 
loss rates. Further, the comment noted that the EPA also has methods 
available to assess methane loss rates. The DOE had previously 
indicated in the 45VH2-GREET User Manual that methane emissions 
monitoring and mitigation is quickly changing. The DOE also had 
acknowledged certain relevant EPA reporting requirements that could be 
helpful in mitigating methane emissions, alongside DOE-funded research 
on mitigation approaches, and together, had indicated that it expected 
the quality of upstream data to improve and methane emissions rates to 
change in future versions of 45VH2-GREET.
    Methane emissions that occur upstream of the hydrogen production 
facility can materially affect the well-to-gate emissions associated 
with hydrogen production. Comments have noted that rates of upstream 
methane emissions within distinct supply chains vary widely, depending 
on parameters such as mitigation measures within the basin that natural 
gas is sourced from, length of pipeline transmission, number of leak 
sources, and leakage rates from individual point sources. Comments also 
noted that because of this variation, the default national average 
leakage rate for natural gas contained as background data in 45VH2-
GREET in many cases likely underestimates actual methane emissions 
associated with producing hydrogen and that the default rate should be 
updated based on improved science and empirical data. Additionally, the 
DOE has advised that supply chains and contractual agreements for 
natural gas are complex and varied, such that some taxpayers may be 
capable of identifying all upstream suppliers while others may not. The 
DOE has also advised that measurement, monitoring, reporting, and 
verification (MMRV) capabilities of upstream methane losses are rapidly 
advancing.
    The EPA's recently updated GHGRP rule in 40 CFR part 98 Subpart W 
(89 FR 42062, May 14, 2024) prescribes methods that facilities in the 
natural gas supply chain must use to account for their methane 
emissions for reporting under the GHGRP and ensures that the reporting 
of methane emissions to the GHGRP is based on empirical data and 
accurately reflects total methane emissions from applicable facilities, 
as required by section 136(h) of the Clean

[[Page 2276]]

Air Act. Among these recent updates to the GHGRP are updates to 
calculation methodologies and the addition of several new emissions 
sources, including one referred to as ``other large release events,'' 
to capture emission events that had not been accounted for under the 
prior version of the program. The GHGRP also collects data related to 
GHG emissions from combustion of natural gas under Subpart C and 
production of hydrogen under Subpart P of 40 CFR part 98. The EPA's 
recently finalized regulations for methane emissions from the oil and 
gas sector under section 111 of the Clean Air Act, including the 
creation of the Super Emitter Program and its corresponding publication 
and notification requirements, expanded leak detection and repair 
requirements, and flare efficiency measurement and monitoring 
requirements, will directly inform methane emissions reported to the 
GHGRP under Subpart W and provide for improved assessments of supply 
chain methane emissions associated with hydrogen production. See 
Standards of Performance for New, Reconstructed, and Modified Sources 
and Emissions Guidelines for Existing Sources: Oil and Natural Gas 
Sector Climate Review, 89 FR 16820 (March 8, 2024).
    Applicable natural gas supply chain facilities are required to 
report to the GHGRP under the revised Subpart W rules beginning in 2026 
for emissions occurring in calendar year 2025. As advised by the DOE 
and the EPA, the accuracy of lifecycle GHG emissions rates for purposes 
of section 45V will improve once data from the updated GHGRP Subpart W 
reporting are available from and have been verified by the EPA and 
incorporated into the determination of such rates for methane. Once 
these data are available, the DOE will update 45VH2-GREET to allow 
differentiated methane emissions rate reporting, subject to the 
requirements described in the following paragraphs.\39\ Until 45VH2-
GREET is updated to include user-defined emissions based on Subpart W 
reporting, the DOE has advised the Treasury Department and the IRS that 
it anticipates keeping the national average upstream methane emissions 
rate in 45VH2-GREET consistent with the value used in the initial 2023 
release of the model.
---------------------------------------------------------------------------

    \39\ The DOE also expects to update 45VH2-GREET to similarly 
allow differentiated reporting of other upstream emissions 
associated with the natural gas supply chain to the extent these are 
similarly reported in the GHGRP and verified by EPA.
---------------------------------------------------------------------------

    Giving taxpayers discretion to selectively use either the default 
national average estimate or a differentiated rate depending on which 
is more taxpayer favorable would systematically understate the actual 
upstream production and transportation emissions from methane used to 
produce hydrogen. Therefore, when 45VH2-GREET is updated to enable 
input of differentiated upstream methane rates, it will require 
taxpayers to use data from all relevant subparts of GHGRP for all 
facilities in the taxpayer's natural gas supply chain that are required 
to report under Subpart W, while prescribing the use of default 
segment-specific emissions rates for petroleum and natural gas systems 
not otherwise reporting their GHG emissions under the revised rules 
under the GHGRP to more accurately reflect leakage rates of these 
facilities. These default segment-specific emissions rates will be 
developed by the DOE and the EPA based on data for each segment 
reported to the GHGRP, as well as peer-reviewed scientific literature.
    To ensure the accuracy and integrity of the information used to 
claim the section 45V credit, taxpayers must meet the requirements of 
section 45V and these final regulations, including the requirement to 
obtain verification from an accredited third-party verifier. In 
particular, consistent with Sec.  1.45V-5(c), verification is required 
for the data the taxpayer enters into the 45VH2-GREET Model to 
determine the lifecycle GHG emissions rate, which in the case of 
differentiated methane rates must include identification of all 
facilities in the natural gas supply chain, identification of the 
facilities in the natural gas supply chain that are required to report 
to the GHGRP, accurate reporting of verified GHGRP data for these 
facilities, accurate throughput data, and appropriate application of 
any segment-specific default rates.
    The EPA's revised Subpart W and Clean Air Act section 111 rules, 
together, are essential to the determination that differentiated 
upstream methane rates are appropriate and robust because they provide 
accurate, detailed, and particularized data on a facility's natural gas 
supply chain methane emissions. To maintain accuracy in determining the 
section 45V credit, upstream methane emissions rates must be maintained 
as background data in 45VH2-GREET until the verified GHGRP data 
collected under the revised GHGRP rules are available. Additionally, if 
those rules are rescinded, or revised in a manner that reduces the 
scope, stringency, accuracy, or reliability of emissions reporting 
under Subpart W, Subpart C, or Subpart P, if the EPA does not maintain 
the current requirements of the Super Emitter Program or does not take 
necessary implementation steps--including continuing to receive data on 
super emitters from third party notifiers, publishing that data on the 
web, and sending notifications of super emitter events to responsible 
owners and operators \40\--then upstream methane emissions rates would 
need to be maintained as background data in 45VH2-GREET to maintain 
accuracy in determining the section 45V credit.
---------------------------------------------------------------------------

    \40\ The determination that the current Subpart W and section 
111 rules are adequate to support facility-specific upstream methane 
leakage calculations is based on the following rules: Greenhouse Gas 
Reporting Rule: Revisions and Confidentiality Determinations for 
Petroleum and Natural Gas Systems, 89 FR 42062 (May 14, 2024), as 
corrected by 89 FR 71838 (Sept. 4, 2024); Standards of Performance 
for New, Reconstructed and Modified Sources and Emissions Guidelines 
for Existing Sources: Oil and Natural Gas Sector Climate Review, 89 
FR 16820 (Mar. 8, 2024), as corrected by 89 FR 62872 (Aug. 1, 2024). 
Amendments to the Subpart W rule and Standards of Performance and 
Emissions Guideline rule made pursuant to specific grants of 
reconsideration announced for Subpart W in December 2024 and for the 
section 111 rule in May 2024, will not be considered a rescission or 
revision as described herein.
---------------------------------------------------------------------------

    As stated in the Explanation of Provisions to the proposed 
regulations, future versions of 45VH2-GREET may include additional 
hydrogen production pathways, such as geologic hydrogen, as sufficient 
technical information becomes available to provide consistent treatment 
in 45VH2-GREET. Numerous comments either requested or recommended that 
certain hydrogen production pathways be included in or excluded from 
future versions of 45VH2-GREET. Similarly, many comments also either 
requested or recommended that future versions of 45VH2-GREET modify 
existing feedstocks and include additional feedstocks and power sources 
for hydrogen production.
    The Treasury Department and the IRS understand, based on feedback 
received from the DOE, that some technologies and feedstocks were not 
included in the initial version of 45VH2-GREET because they required 
further analyses. The Treasury Department and the IRS anticipate 45VH2-
GREET will be updated on at least an annual basis and that such updates 
are expected to include additional technologies and feedstocks. 
Finally, several comments expressed a desire for more transparency with 
respect to the initial development and implementation of 45VH2-GREET, 
as well as future updates to the model, including requests that future 
updates to 45VH2-GREET be submitted for notice and comment. For 
purposes of determining

[[Page 2277]]

lifecycle GHG emissions as generally defined in section 45V(c)(1)(A), 
the Treasury Department and the IRS have relied extensively on the DOE, 
which has the scientific expertise necessary to develop GREET models, 
and through the Argonne National Laboratory developed 45VH2-GREET 
pursuant to section 45V(c)(1)(B). The comments' request that all future 
updates to 45VH2-GREET be put through notice and comment is not 
applicable to these final regulations, which are limited to focusing on 
the Treasury Department's designation of 45VH2-GREET as the operative 
model for the purposes of the section 45V credit. The Treasury 
Department and the IRS have shared these comments with the DOE to 
determine the best way to address comments related to future updates to 
45VH2-GREET.
2. Valorized Co-Products
    As noted in the Explanation of Provisions to the proposed 
regulations, 45VH2--GREET allows users to input the quantity of 
valorized co-products (that is, co-products from the hydrogen 
production process that are separately productively utilized or sold) 
and allocate emissions to those co-products (rather than to the 
hydrogen production). The Explanation of Provisions to the proposed 
regulations also described that 45VH2-GREET utilizes the ``system 
expansion'' approach for all co-products, if possible, but restricts 
the amount of steam co-products that producers can claim based on the 
quantity of steam that an optimally designed reformer is expected to be 
capable of producing according to modeling from the National Energy 
Technology Laboratory (NETL).
    The Treasury Department and the IRS had solicited feedback on this 
approach, including whether alternative conventions for co-product 
accounting, such as physical allocation or allocation based on other 
characteristics, would better ensure that well-to-gate carbon intensity 
of hydrogen production is robustly represented. Comments received in 
response to this request were generally supportive of the restriction 
on steam co-products described above. Some comments, however, expressed 
concern that 45VH2-GREET fails to account for steam co-products if a 
reformer is capturing and sequestering the CO2 it produces.
    The DOE has advised that steam co-products were not represented for 
reformers with CCS in the initial release of 45VH2-GREET because the 
model did not yet represent CCS technologies wherein steam co-products 
were feasible. The DOE has advised that cryogenic CCS technologies have 
been included in the forthcoming January 2025 release of 45VH2-GREET, 
and that steam co-products can be represented from reformers with 
cryogenic CCS. The DOE intends to continue to expand 45VH2-GREET with 
additional CCS technologies, and to allow for steam co-products to be 
represented if it is feasible with such technologies. However, 45VH2-
GREET will not allow reformers (with or without CCS) claiming steam co-
products to claim co-products in excess of 17.6 percent of the total 
energy content of all steam and hydrogen produced (using the lower 
heating value of hydrogen). This limit of 17.6 percent is based on 
independent modeling of optimally designed reformers from the NETL and 
is described further in the 45VH2-GREET User Manual.
    Additionally, the DOE has advised that system expansion may not be 
an appropriate accounting approach for all co-products that may be 
produced at hydrogen production facilities, and that physical 
allocation should be utilized where system expansion is inappropriate. 
Specifically, system expansion may be inappropriate if it yields 
artificially low lifecycle GHG emission values for hydrogen in 
scenarios that include but are not limited to scenarios where incumbent 
methods of co-product generation have highly variable or uncertain 
lifecycle GHG emission values or scenarios where the market for the co-
product is sufficiently small that the magnitude of the co-product 
generated by hydrogen producers is likely to expand the market size of 
the co-product rather than displacing an incumbent technology. 
Therefore, in scenarios wherein system expansion may not be 
appropriate, 45VH2-GREET will utilize physical allocation.
    As previously noted, 45VH2-GREET allows users to allocate emissions 
to co-products, rather than to the hydrogen production. The DOE has 
also advised that a co-product under 45VH2-GREET does not include a gas 
or output that is not separate from (that is, is mixed in with) the 
hydrogen gas stream, even if the mixed gas is valorized as part of the 
stream. Nor does it include an output that has been separated from a 
hydrogen gas stream if the taxpayer or a customer downstream of the 
taxpayer will later mix such output back into the hydrogen gas stream. 
In such cases, the user must evaluate the emissions of the hydrogen 
production process before the output was separated out, and account for 
the output as a mixed gas or impurity.
    An example where output may not be treated as a co-product is the 
scenario where a taxpayer uses natural gas to produce a hydrogen gas 
stream that includes carbon monoxide, and separates the carbon monoxide 
from the hydrogen gas stream. The taxpayer sells the carbon monoxide to 
Customer A, sells the hydrogen to Customer B, and intends to account 
for the carbon monoxide in 45VH2-GREET as a co-product. Later, Customer 
A sells the carbon monoxide to Customer B, and Customer B combines such 
carbon monoxide with the hydrogen to produce methanol. Because the 
carbon monoxide will be reintroduced to the hydrogen after it is 
separated, the carbon monoxide may not be treated as a co-product.

F. Non-Zero-Emitting Sources of Electricity

    In the Explanation of Provisions to the proposed regulations, the 
Treasury Department and the IRS requested comments with respect to 
sources of electricity other than zero GHG-emitting electricity, 
including minimal-emitting and non-minimal-emitting sources. The 
Treasury Department and the IRS received comments in support of the use 
of such sources, many of which proposed extensive verification 
requirements. On the other hand, one comment stated that the final 
regulations should require that minimal-emitting electricity generating 
facilities submit a full lifecycle analysis before any EACs with 
respect to such facilities are allowed to be issued to hydrogen 
producers because the qualifying EAC requirements generally are not 
reflected in the attributes of the EACs of such facilities. In 
consultation with the DOE, the Treasury Department and the IRS intend 
to allow the use of EACs with respect to sources of electricity other 
than zero GHG-emitting electricity. Hydrogen produced using minimal-
emitting electricity sources may qualify for the section 45V credit if 
the lifecycle GHG emissions rate of the process by which the hydrogen 
was produced satisfies statutory requirements. Moreover, the Treasury 
Department and the IRS intend for the EAC framework and the qualifying 
EAC requirements that apply to these electricity sources to provide one 
framework for the determination of when electricity from a specific 
electricity generating facility can be taken into account for purposes 
of 45VH2-GREET or a PER. These final regulations amend the definition 
of ``eligible EAC'' in Sec.  1.45V-4(d)(2)(iii) to require attributes 
that are required by 45VH2-GREET or in the determination of a PER to 
accurately reflect the

[[Page 2278]]

emissions associated with the source of electricity.
    In addition, the Treasury Department and the IRS, in consultation 
with the DOE, note that 45VH2-GREET currently includes certain minimal-
emitting electricity source options, including allowing hydrogen 
production facilities to account for electricity generation using CCS, 
and it may include additional minimal-generating options in the future. 
These final regulations also include requirements limiting when carbon 
capture may be taken into account, which are discussed in part III.G of 
this Summary of Comments and Explanation of Revisions. Hydrogen 
production facilities using types of electricity generation not 
represented in 45VH2-GREET will be eligible to submit petitions for 
PERs. To the extent that a non-zero, minimal-emitting electricity 
source is used to power hydrogen production, the direct and significant 
indirect emissions from the minimal-emitting source of electricity must 
be reflected in 45VH2-GREET or as part of an Emissions Value Request 
Application. Foreground data parameters relevant to electricity sources 
(for example, the amount of CCS) must be verified by a third-party 
verifier. The Treasury Department and the IRS expect that verifiers 
will develop tools to verify the feedstock sources and related energy 
attributes represented by the EACs.

G. Carbon Capture and Sequestration

    Hydrogen production facilities may employ carbon capture equipment 
and engage in CCS. Several comments stressed the importance of 
verification of carbon capture rates reported by hydrogen producers 
claiming the section 45V credit. One comment asked that requirements 
for the verification of CO2 capture rates and the permanence of CO2 
sequestration be as rigorous as those of the California Air Resource 
Board's (CARB) Carbon Capture and Sequestration Protocol for the CA 
LCFS. Another comment requested (1) that verification requirements for 
carbon oxide transport, permanent storage or use, or monitoring under 
section 45V be at least as stringent as those under section 45Q; (2) 
that proof of at least three years of injection site monitoring by an 
independent geologist or petroleum engineer should be required in the 
case of CO2 sequestered or used for enhanced oil recovery; and (3) that 
the final regulations include provisions specifying proper verification 
of carbon management, including sequestration and prevention of CO2 
leaks, and also include a clawback mechanism in the case of CO2 leaks. 
In cases where electricity, fuel, or a feedstock is used to produce 
hydrogen, the issue of carbon capture rate verification also arises if 
the source of electricity, fuel, or feedstock is engaged in CCS. Thus, 
in response to these comments, the final regulations add Sec.  1.45V-
4(e), which provides that for purposes of the section 45V credit, if a 
taxpayer determines a lifecycle GHG emissions rate for hydrogen 
produced at a hydrogen production facility using the 45VH2-GREET Model 
or the Secretary determines a PER for hydrogen produced at a hydrogen 
production facility subject to a PER petition, then CCS may be taken 
into account only if the carbon capture occurs in the production of 
qualified clean hydrogen (for subsequent sequestration) or occurs in 
the production of electricity, fuel, or feedstock that is used by such 
facility to produce hydrogen and is captured and, pursuant to section 
45Q(f)(2) and any regulations established thereunder, disposed of in 
secure geological storage, or utilized in a manner described in section 
45Q(f)(5) and any regulations established thereunder. Such CCS that 
occurs in the production of qualified clean hydrogen (rather than in 
the production of electricity, fuel, or feedstock) may only be taken 
into account if the carbon capture equipment is part of the qualified 
clean hydrogen production facility. Any CCS that does not meet such 
section 45Q requirements will appropriately be considered to be 
emissions from the production of hydrogen within the well-to-gate 
system boundary and be attributed to the lifecycle GHG emissions of 
such hydrogen. Because CCS rates are reported and verified on an annual 
basis for purposes of section 45Q or reporting under the EPA's GHGRP 
program, the annual average CCS rate at a given electricity generating 
plant can be applied to any EACs that are sourced from that generating 
resource when it is represented in 45VH2-GREET or an Emissions Value 
Request Application. Power sourced from facilities with CCS must meet 
all other requirements for qualifying EACs in these final regulations.
    In addition, the Treasury Department and the IRS note that the 
amount of CO2 sequestered by an electricity source generator or by a 
hydrogen production facility using carbon capture equipment is 
foreground data within 45VH2-GREET and therefore also is subject to 
third-party verification.

H. Use of Natural Gas Alternatives

    The Treasury Department and the IRS announced in the preamble to 
the proposed regulations an intent to provide final regulations 
addressing hydrogen production pathways that use biogas, renewable 
natural gas (RNG), and fugitive sources of methane (collectively, 
natural gas alternatives), for purposes of the section 45V credit. The 
assessment of lifecycle GHG emissions with respect to such natural gas 
alternatives presents a complex set of technical questions. Thus, the 
preamble to the proposed regulations described various rules related to 
the use of natural gas alternatives in the production of hydrogen that 
the Treasury Department and the IRS were considering for inclusion in 
these final regulations. The preamble to the proposed regulations also 
included detailed comment requests about various aspects of the use of 
natural gas alternatives to inform the development of these final 
regulations. After careful consideration of the numerous comments 
submitted in response to these proposals and the proposed regulations' 
specific requests for comment, the final regulations provide rules in 
Sec.  1.45V-4(f) related to the use of natural gas alternatives in the 
production of hydrogen and the assessment of lifecycle GHG emissions 
with respect to natural gas alternatives. As further described in part 
III.H.2.c of this Summary of Comments and Explanation of Revisions, 
rather than provide rules that would specify a single, generic 
alternative fate for all natural gas alternatives (for example, capture 
and flaring), the Treasury Department and the IRS have, in consultation 
with interagency technical experts from the DOE and the EPA, considered 
the technical characteristics of types of sources of natural gas 
alternatives and sought to apply the approach most appropriate for each 
type of source to provide an administrable and robust alternative fate 
for each sector.
1. Definitions
a. Alternative Fate
    The preamble to the proposed regulations asked for comments on what 
counterfactual assumptions and data should be used to assess the 
lifecycle GHG emissions of hydrogen production pathways that rely on 
natural gas alternatives. The preamble to the proposed regulations did 
not offer a definition of the term ``counterfactual,'' which is 
referred to in these final regulations as an ``alternative fate.'' In 
the interest of completeness and clarity, Sec.  1.45V-4(f)(2)(i) 
clarifies that the term ``alternative fate'' means a set of informed 
assumptions (for example, production processes, material outcomes, and 
market-mediated effects)

[[Page 2279]]

used to estimate the emissions from the use or disposal of each 
feedstock were it not for the feedstock's new use due to the 
implementation of policy (that is, to produce hydrogen).
b. Biogas
    The preamble to the proposed regulations noted that the term biogas 
means ``gas resulting from the decomposition of organic matter under 
anaerobic conditions, and the principal constituent is methane (50-75 
percent).'' Some comments noted that biogas may contain a percentage of 
methane that is outside of the range noted in the proposed regulations. 
In order to be inclusive of all gases that may be considered biogas, 
Sec.  1.45V-4(f)(2)(ii) does not specify a range of percentages of 
methane that a gas must contain to be considered biogas. These final 
regulations define biogas as gas containing methane that results from 
the decomposition of organic matter under anaerobic conditions.
c. Coal Mine Methane
    The preamble to the proposed regulations did not offer a definition 
of the term ``coal mine methane,'' but, in the interest of completeness 
and clarity, Sec.  1.45V-4(f)(2)(iii) clarifies that the term ``coal 
mine methane'' means methane that is stored within coal seams and is 
liberated as a result of current or past mining activities. 
``Liberated'' coal mine methane can be released intentionally by the 
mine for safety purposes, such as through mine degasification boreholes 
or underground mine ventilation systems, or it may leak out of the mine 
through vents, fissures, or boreholes. For the purpose of these 
regulations, the term coal mine methane does not include methane 
removed from virgin coal seams (for example, coal bed methane).
d. Fugitive Methane
    The preamble to the proposed regulations would have defined the 
term ``fugitive methane'' to mean the release of methane through, for 
example, equipment leaks, or venting during the extraction, processing, 
transformation, and delivery of fossil fuels to the point of final use, 
such as coal mine methane. Comments did not recommend alternatives to 
this definition. The proposed definition is adopted in these final 
regulations without substantive change in Sec.  1.45V-4(f)(2)(iv). One 
comment asserted that the proposed definition creates a distorted 
baseline assumption that methane would have been leaked or vented, such 
that the captured methane could improperly be assessed as having 
negative lifecycle GHG emissions. The Treasury Department and IRS 
understand this concern and note that the baseline and alternative 
fates relevant to certain sources of fugitive methane are further 
discussed at part III.H.2.c of this Summary of Comments and Explanation 
of Revisions.
e. Renewable Natural Gas
    The preamble to the proposed regulations would have defined the 
term ``renewable natural gas'' (RNG) to mean ``biogas that has been 
upgraded to be equivalent in nature to fossil natural gas.'' One 
comment asserted that the term ``renewable natural gas'' is misleading 
and should be replaced with the term ``biomethane.'' This comment noted 
that referring to biomethane as a ``renewable'' resource falsely 
implies that it is easily replaced although biomethane is scarce and 
its supplies are often depleted upon use. Although the Treasury 
Department and the IRS recognize these concerns, Sec.  1.45V-
4(f)(2)(iv) does not adopt the suggested change in terminology because 
the term ``renewable natural gas'' is sufficiently clear, is a commonly 
used term in other regulatory programs and in commerce, and is unlikely 
to result in confusion. The term ``renewable natural gas'' and its 
proposed definition is therefore adopted without substantive change.
2. Considerations Regarding the Lifecycle GHG Emissions Associated With 
the Production of Hydrogen Using Methane From Natural Gas Alternatives
    The preamble to the proposed regulations explained that the rules 
provided in the final regulations regarding natural gas alternatives 
would apply to all natural gas alternatives used for purposes of the 
section 45V credit and would provide conditions that must be met before 
certificates for natural gas alternatives (that is, representations of 
the energy and emissions attributes of the methane) and the attributes 
they are meant to represent may be taken into account in determining 
lifecycle GHG emissions rates for purposes of the section 45V credit. 
The preamble to the proposed regulations indicated that such conditions 
would be logically consistent with, but not identical to, the 
incrementality, temporal matching, and deliverability requirements for 
electricity-derived EACs, in that the conditions would be designed to 
reflect the ways in which additional demand for natural gas 
alternatives can impact lifecycle GHG emissions and also to address the 
differences between electricity and methane, including, but not limited 
to, the different sources of emissions, markets, infrastructure, 
available tracking and verification methods, and potential for perverse 
incentives.
    The preamble to the proposed regulations described and requested 
comment on several provisions the Treasury Department and the IRS were 
considering adopting in the final regulations to address the risk of 
significant indirect emissions and induced emissions from the use of 
natural gas alternatives in the production of hydrogen. This risk of 
significant indirect emissions and induced emissions can arise when 
natural gas alternatives are diverted from another productive use. In 
these situations, such productive uses may be backfilled with a 
different source that is not a natural gas alternative, such as fossil 
natural gas, which could result in associated emissions. For example, a 
facility that previously used its biogas for heat and power generation 
may opt to import grid electricity and/or fossil natural gas to satisfy 
its on-site energy needs. There is also a risk of significant indirect 
emissions or induced emissions or inappropriate claims of the section 
45V credit with respect to hydrogen that does not meet statutory 
emissions requirements, if the incentives provided by the section 45V 
credit result in the creation of new or expanded methane or other GHG 
sources that would not have existed otherwise, or additional methane 
that would not have been created or would have remained sequestered, 
which could increase lifecycle GHG emissions. By reference to section 
211(o)(1)(H) of the Clean Air Act, section 45V(c)(1)(A) requires 
consideration of direct and significant indirect emissions.
a. Lifecycle GHG Emissions Associated With the Use of Natural Gas 
Alternatives
    The accurate assessment of lifecycle GHG emissions is vital to 
determining both eligibility for and the amount of the section 45V 
credit. Lifecycle GHG emissions assessments that underestimate the 
emissions associated with different hydrogen production pathways would 
mean that the section 45V credit could be claimed even if lifecycle GHG 
emissions in fact exceed the statutory eligibility threshold or credit 
tier thresholds established by Congress. In order to ensure that 
hydrogen producers claiming the section 45V credit are using processes 
with lifecycle GHG emissions that do not exceed the statutorily 
prescribed eligibility threshold or credit tier thresholds, the final 
regulations necessarily include certain guardrails to address the risk 
of such credit claims.

[[Page 2280]]

    The preamble to the proposed regulations requested comments on the 
lifecycle analysis considerations for methane derived from natural gas 
alternatives. To account for direct and significant indirect emissions, 
these considerations include, among other things, appropriate 
alternative fate scenarios and the assessment of current feedstock 
management practices. The preamble to the proposed regulations noted 
that the requested comments may inform future versions of the 45VH2-
GREET model. After consideration of the comments received, the final 
regulations address certain aspects of the lifecycle GHG emissions 
analysis for natural gas alternatives used in the production of 
hydrogen. Parts III.H.2.b. and c. of this Summary of Comments and 
Explanation of Revisions address first productive use and general 
alternative fate assumptions ranging from venting to responsible 
avoidance of methane.
    The Treasury Department and the IRS agree with comments that assert 
that accurately estimating lifecycle GHG emissions rates for processes 
that rely on methane from natural gas alternatives to produce hydrogen 
requires taking a wide range of factors into account in establishing 
the alternative fate against which the use of methane to produce 
hydrogen should be assessed. Section 45V(c)(1)(A) requires any 
lifecycle GHG emissions analysis under section 45V to address direct 
and significant indirect emissions associated with the use of methane 
for the production of hydrogen, including emissions resulting from the 
diversion of methane from a prior alternative productive use or from 
the expansion of existing sources or creation of new sources of natural 
gas alternatives.
b. First Productive Use
    The preamble to the proposed regulations provided notice that the 
Treasury Department and the IRS intended to require that, for natural 
gas alternatives to receive an emissions value consistent with that gas 
(and not fossil natural gas), the natural gas alternative used during 
the hydrogen production process must originate from the first 
productive use of the relevant methane. The preamble to the proposed 
regulations further noted that for any specific source, productive use 
would generally be defined as any valuable application of the relevant 
methane (for example, providing heat or cooling, generating 
electricity, or upgrading to RNG). In addition, the preamble noted that 
productive use would specifically exclude venting to the atmosphere or 
capture and flaring. The preamble further proposed to define ``first 
productive use'' as the time when a producer of the relevant methane 
first begins using or selling it for productive use in the same taxable 
year as (or after) the relevant hydrogen production facility was placed 
in service. Under this proposal, RNG produced from any source of 
methane, where the methane had been productively used in a taxable year 
prior to the taxable year in which the relevant hydrogen production 
facility was placed in service, would not have received an emission 
value consistent with biogas-based RNG, for example, but would instead 
have received a value consistent with fossil natural gas. This proposal 
was intended to address emissions associated with the diversion of 
natural gas alternatives from other productive uses and the risk of 
emissions associated with creation of new or expansion of existing 
sources of natural gas alternatives.
    The preamble to the proposed regulations noted that, for existing 
biogas or fugitive methane sources that typically productively use or 
sell a portion of the biogas and flare or vent the remainder, the 
flared or vented portion may be eligible for first productive use as 
described earlier if the flaring or venting volume can be adequately 
demonstrated and verified. The Treasury Department and the IRS 
requested comment on these and other potential conditions on the use of 
natural gas alternatives in the production of hydrogen.
    After full consideration of the comments and as further explained 
in this part III.H.2.b. of the Summary of Comments and Explanation of 
Revisions, these final regulations do not impose a first productive use 
requirement. Although a first productive use requirement could 
effectively address important considerations in the determination of a 
lifecycle GHG emissions rate, the Treasury Department and the IRS 
acknowledge that the requirement may be difficult for taxpayers to 
substantiate and to verify independently. Establishing compliance with 
a first productive use requirement could involve obtaining detailed, 
often unavailable, historical documentation of the operations of the 
methane source, including historical production levels, material 
changes in waste source composition and volume, use of capture 
equipment and capture rates, sales or uses of captured methane, and 
waste management practices. Moreover, challenges in the administration 
of a first productive use requirement raise questions about the 
practical ability of a first productive use requirement to address the 
risk of direct or significant indirect emissions effectively. Instead 
of a first productive use requirement, for determining emission rates 
associated with the use of methane from natural gas alternatives, the 
more appropriate approach is to take the likelihood of alternative 
productive use into account in assessing the alternative fate of such 
gas, as discussed in part III.H.2.c. of this Summary of Comments and 
Explanation of Revisions.
    The Treasury Department and the IRS received many comments 
addressing the first productive use requirement. Many comments 
questioned the legal and technical basis of a first productive use 
requirement. Several comments asserted that a first productive use 
requirement is not authorized by statute, overly restricts otherwise 
eligible biogas and RNG feedstocks that could support clean hydrogen 
production and ignores the fact that there are numerous reasons an 
existing biogas facility may switch productive uses, including, but not 
limited to, the expiration of existing contracts, like power purchase 
agreements. Other comments asserted that there is no evidence that RNG-
to-hydrogen pathways will result in the induced emissions that appear 
to underlie the first productive use requirement and that such 
emissions are not included in the 45VH2-GREET model, which the comments 
asserted is the only basis allowed for assessing lifecycle GHG 
emissions.
    One comment contended that industry data suggests that domestic 
production of biogas and RNG can support both new hydrogen production 
and current end uses like compressed natural gas (CNG) transportation 
vehicles; thus, within the timeframe that section 45V credit will be 
available, there is ample capacity to serve demand in many sectors, 
without causing induced emissions. Similarly, several comments stated 
that much of the RNG produced in the United States is used in the 
transportation sector for compliance with the RFS and/or State clean 
fuel programs like the CA LCFS. These comments explain that since these 
programs drive deployment of a specific amount of compliant fuels, if 
an existing RNG supplier leaves these transportation markets to supply 
RNG as a feedstock to a new hydrogen production facility, the prior end 
use of such RNG will be backfilled with other compliant fuels (for 
example, those that meet the RFS's GHG requirements).
    In response to these comments, the Treasury Department and the IRS 
acknowledge that these existing transportation fuel programs, chiefly 
the RFS and the CA LCFS, have been the primary drivers for deployment 
of RNG

[[Page 2281]]

domestically. The Treasury Department and the IRS agree that the 
existence of these programs mitigates the risk that RNG currently 
produced for such programs will be redirected to hydrogen production, 
although there could be incentives for such use if any such hydrogen 
could itself qualify to claim credits under these programs. Despite 
this, there still remains a risk that RNG (or biogas) could be 
redirected to hydrogen production from other current uses, such as heat 
and power generation. Additionally, because RNG currently comprises the 
vast majority of cellulosic biofuel credits generated under the RFS 
program, it is not necessarily the case that RNG previously used in 
this program would be backfilled with other compliant fuels should 
insufficient RNG be available for use as U.S. transportation fuel. As 
discussed previously, however, these final regulations do not impose a 
first productive use requirement at this time, but instead take an 
alternate approach to addressing these concerns.
    One comment suggested that the Treasury Department could adopt a 
mid-program ``check-in'' to evaluate whether clean hydrogen produced 
using RNG is leading to unintended increases in emissions. Facilities 
that have achieved commercial operation during this period could 
qualify as ``additional'' for purposes of tax credit eligibility. 
Moreover, any biogas sources that are newly converted from electricity 
generation to RNG production should be credit-eligible regardless of 
whether the agency adopts the proposed ``first productive use'' 
requirement. Several comments suggested that a robust assessment of any 
induced emissions associated with redirecting RNG from its prior use to 
hydrogen production would demonstrate that such consideration would not 
result in an increase in the emissions rate and, therefore, such 
emissions need not be considered due to the speculative nature of the 
initial premise. Some comments noted that a potential alternative would 
be to add an indirect emission charge equal to the emissions associated 
with the extraction, processing, and delivery of fossil natural gas to 
backfill the prior demand for such gas. Another comment stated that 
while the intent of the first productive use requirement is logical, it 
would be more efficient and cost effective to assign production values 
to the RNG inputs used in hydrogen production because this would allow 
hydrogen producers to factor output costs given the RNG feedstocks used 
to create the hydrogen they offer to the marketplace. Several comments 
stated that fugitive methane should not be considered incremental if 
such methane comes from the fossil fuel system, as this is already 
accounted for under the current GREET model.
    In response to these comments, the Treasury Department and the IRS 
acknowledge that the first productive use requirement, which is not 
required as part of these final regulations due to the difficulties in 
proving and verifying first productive use, would address two aspects 
of lifecycle GHG emissions assessments, both of which must be 
considered under section 45V(c)(1)(A). First, a first productive use 
requirement would mitigate the risk of emissions associated with the 
diversion of natural gas alternatives from a productive use other than 
the production of hydrogen. Although methane from natural gas 
alternatives could be used for different productive uses, the potential 
emissions associated with changes in use are nonetheless relevant in 
the determination of a lifecycle GHG emissions rate. Second, a first 
productive use requirement aids in the determination of the appropriate 
alternative fate of natural gas alternatives used in the production of 
hydrogen. Comments questioning a first productive use requirement 
because of a lack of evidence of induced emissions arising from shifts 
in behavior due to the availability of the section 45V credit are not 
dispositive. Section 45V(c)(1)(A) does not require empirical evidence 
of direct and significant indirect emissions associated with a newly 
available incentive like the section 45V credit before the likelihood 
of such emissions may be considered, and such a restriction would 
systematically underestimate such emissions. As further explained 
below, it is necessary for a lifecycle GHG emissions assessment that is 
consistent with the statutory definition of lifecycle emissions in 
45V(c)(1)(A) to reflect the emissions effects that can be reasonably 
expected to occur based on current or future market trends and drivers, 
inclusive of incentives and regulation.
    Some comments suggested that a first productive use requirement 
should not be imposed for purposes of the section 45V credit because 
there already exist established frameworks for other incentive programs 
involving methane from natural gas alternatives, which may be relied 
upon to determine lifecycle GHG emissions. One comment stated that 
producers should be allowed to use the emissions data collection 
methods and book-and-claim framework that have been established under 
the RFS program to incorporate Renewable Identification Numbers (RINs) 
in the natural gas supply chain and demonstrate CO2 reduction. Another 
comment asserted that the first productive use rule must be eliminated 
because RNG is already regulated under the RFS program, which should 
continue to serve as the regulatory authority for RNG. In response to 
these comments, the Treasury Department and the IRS note that the RFS 
program does not regulate the use of RNG. Rather, the RFS program 
allows RNG used as transportation fuel to generate RINs under certain 
conditions. The Treasury Department and the IRS acknowledge that 
programs such as the RFS program have considered and established 
frameworks for addressing issues relevant to the implementation of 
section 45V, but section 45V has its own statutory requirements that 
diverge from those of other programs.
    Key distinguishing features include the structures of these 
incentive programs, which influence how lifecycle analysis is 
conducted. The RFS program, for example, determines credit values based 
on whether a given renewable fuel achieves a threshold reduction of GHG 
emissions relative to petroleum, where the threshold is defined by the 
statute that enacted the RFS program. For this reason, the RFS program 
is not designed to estimate specific lifecycle GHG emissions values, 
which is statutorily required to determine eligibility for and the 
amount of the section 45V credit. In addition, section 45V requires 
that emissions be accounted for on a well-to-gate basis (versus the 
well-to-wheel basis for the RFS program), and the statute does not 
permit accounting for the emissions of the fuel being displaced by 
hydrogen use. These final regulations, therefore, do not adopt any of 
those frameworks for other incentive programs involving methane.
    Many comments raised concerns about the effect a first productive 
use requirement would have on deployment of hydrogen production 
technologies that rely on natural gas alternatives and suggested it 
could also have other undesirable effects on the market for certain 
methane sources. Several comments suggested the first productive use 
rule limits RNG pathways by creating a de facto strict additionality 
requirement that is even more onerous than that proposed for 
electricity and EACs. Several comments suggested the first productive 
use rule should be eliminated to incentivize raw biogas to be upgraded 
to RNG, which ensures that harmful air pollutants are not released into 
the atmosphere by burning raw biogas (as in electricity production from

[[Page 2282]]

biogas, for example). Another comment argued a first productive use 
requirement is not feasible because RNG is delivered through national 
and interstate common carrier pipelines from multiple sources. One 
comment stated that the first productive use requirement is overly 
burdensome and will unnecessarily restrict opportunities to decarbonize 
hydrogen production as well as curtail methane abatement at scale. 
Several comments contended that the proposed ``first productive use'' 
requirement would cause a significant value discrepancy for new 
projects creating a market distortion, greater risk of stranded gas for 
existing projects, added complexity, and higher prices for end-
consumers. Several comments cautioned that adding a first productive 
use rule creates potential unintended consequences of RNG plants 
sitting idle if hydrogen production facilities do not coincide with the 
RNG plant completion dates. One comment noted that one possible 
scenario is if a hydrogen production facility is initially 
conservatively sized and cannot use the full amount of RNG being 
produced at a specific project until a later date, the excess RNG would 
either sit idle so as to not trigger a first productive use or would 
have to enter less lucrative markets, which could put the project in 
jeopardy. Another comment stated that there are limited options for 
large-scale RNG production in certain areas and that requiring a 
hydrogen production facility to be the first productive use of a RNG 
facility, and have a pipeline connection, presents a significant 
logistical barrier to the development of a clean hydrogen project in 
certain areas. One comment asserted that the proposed first productive 
use requirement would effectively prevent section 45V credit 
eligibility for hydrogen projects using RNG. The comment noted that 
even if a project uses RNG in a low- to no-carbon way, if that RNG was 
previously used productively or sold at any time, the proposed rules 
imply that it could not be used in a project that would result in a 
lower carbon intensity.
    Assuming the implementation of the first productive use 
requirement, many comments requested modifications, changes to, or 
transitional relief to the first productive use requirement outlined in 
the preamble to the proposed regulations. One comment suggested that 
the first productive use rule may be overly restrictive and that it 
could be beneficial to relax the first productive use requirement, so 
long as the new use of the RNG delivers overall lower net emissions 
than its original fate. Another comment suggested that if the first 
productive use requirement is not eliminated, then a legacy reliance 
rule and a transitional period through 2032 should be included in these 
final regulations. Several comments suggested there should be no 
restrictions on RNG; however, if the first productive use rule is 
implemented, then it should apply a look-back period of 36 months, not 
by taxable year but by when the hydrogen is produced. Another comment 
argued that there should not be a default fossil-based carbon intensity 
score for RNG that had been productively used before being used to 
produce hydrogen because doing so fails to recognize the carbon 
intensity reduction benefit of RNG compared to fossil natural gas that 
is realized regardless of whether the methane was previously captured 
and used at the project host. One comment requested that ``first 
productive use'' be defined as RNG that is produced based on an offtake 
agreement signed within 48 months of the beginning of hydrogen 
production, rather than within the same or later taxable year as the 
relevant hydrogen production facility's placed in service date. Several 
comments stated the first productive use requirement should be 
eliminated as it relates to the production of clean hydrogen with coal 
mine methane. Several comments supported that each individual borehole 
for coal mine methane be seen as additional and as a first productive 
use of supply due to each of them being a unique investment decision 
requiring incremental capital expenditure to mitigate leaking methane. 
Several comments stated that the definition of first productive use was 
unclear, and that the definition should focus on ensuring that RNG used 
for hydrogen is not displacing a previous productive use. One comment 
argued that ``low-carbon'' gas should also qualify as first productive 
use if it is from additional methane abatement, even if it is 
conditioned at a pre-existing facility. In other words, any gas from 
newly constructed capture infrastructure for fugitive methane, a newly 
covered lagoon, newly constructed digester, or newly contracted 
feedstock source for RNG production should count as first productive 
use, since these are all individual investment decisions that lead to 
incremental methane abatement. One comment asserted that the presence 
or use of flaring in appropriate circumstances (for example, safety or 
compliance with State or local regulations) should not disqualify a 
facility from eligibility, especially in light of the fact that 
commercial operations must comply with mandatory but potentially 
conflicting Federal, State, and local regulatory requirements. Several 
comments recommended that if the first productive use requirement is 
adopted, the final regulations should allow existing gas sources to 
qualify through 2030 to ensure adequate supply. These comments further 
noted that after 2030 any induced emissions that occurred could be 
quantified and, if applicable, included in the lifecycle GHG emissions 
assessment of existing low-carbon gas facilities, as opposed to being 
grounds for disqualification from the section 45V credit. A comment 
asserted that if the first productive use requirement is adopted, it 
must be applied to each methane source--that is, at the digester or 
lagoon-level for RNG and borehole-level for coal mine methane--so as to 
reflect how investment decisions are made. Once a low-carbon gas source 
is accepted as meeting a first productive use requirement (if adopted) 
under the program, it should not be exclusively tied to a particular 
hydrogen production facility, according to the comments.
    As explained in part III.H.2.c. of this Summary of Comments and 
Explanation of Revisions, these final regulations are taking into 
account the lack of a first productive use requirement in the 
development of alternative fates for certain sources of natural gas 
alternative, so modifications, changes to, and transitional relief are 
not necessary. The Treasury Department and the IRS will continue to 
consider these recommendations raised by these comments in evaluating 
whether imposing a first productive use requirement, with potential 
modifications, may be appropriate in future guidance under section 45V.
    Many comments supported imposing a first productive use 
requirement. One comment stated that the proposed first productive use 
rule would help direct biomethane that is otherwise vented (or, in some 
cases, flared) to hydrogen production, rather than creating an 
additional demand for methane by taking from other sources that may 
meet that demand through dirtier sources of energy. According to the 
comment, a first productive use requirement is important to avoid 
significant indirect emissions associated with hydrogen produced from 
biomethane. The comment noted that avoiding significant indirect 
emissions is especially important for agricultural methane emissions, 
which have risen over the last few decades despite overall declines in 
national methane emissions. Several comments supported the proposed 
regulations and argued that enforcing

[[Page 2283]]

the first productive use rule and narrowly tailoring the definition of 
first productive use are critical to prevent the significant amount of 
RNG production today shifting to producing ostensibly clean hydrogen. 
The comments posited that diversion of currently produced and used RNG 
to hydrogen production would be backfilled with fossil natural gas and 
contended this is especially true for existing RNG heat applications 
and CNG powered vehicles. Thus, any existing RNG diverted to hydrogen 
production would be filled on a one-for-one basis with fossil natural 
gas. One comment stated that the proposed rule requiring the first 
productive use be matched to the same taxable year as (or after) the 
hydrogen production facility is placed in service would help to limit 
any diversion of biogas or RNG from other pre-existing uses, which 
might otherwise increase overall emissions. One comment stated that the 
first productive use rule is logically consistent with incrementality 
requirements imposed for EACs representing electricity generation to be 
considered qualifying. Several comments supported prohibiting crediting 
of biomethane or fugitive methane that has previously been put to 
productive use and stated that a first productive use requirement would 
ensure emissions reductions claimed under section 45V are indeed 
additional to the climate system overall. The Treasury Department and 
the IRS agree with many of the observations made in these comments. 
While these final regulations do not adopt a first productive use 
requirement for the reasons stated earlier in this Summary of Comments 
and Explanation of Revisions, the Treasury Department and the IRS have 
considered these observations regarding alternative productive use of 
natural gas alternatives when establishing the alternative fates.
c. Alternative Fates
    These final regulations establish general requirements for 
lifecycle GHG emissions determinations for processes that use methane 
derived from natural gas alternatives to produce hydrogen, requiring 
such determinations to consider the alternative fates of that methane, 
including avoided emissions and alternative productive uses of that 
methane, the risk that the availability of section 45V credits creates 
incentives to produce additional methane or otherwise induces 
additional emissions, and observable trends and anticipated changes in 
waste management and disposal practices over time as they are 
applicable to methane generation and uses. The emissions risks that 
would have been addressed by a first productive use requirement are 
addressed in the development of the appropriate alternative fates for 
certain sources of natural gas alternatives, thereby reflecting an 
accurate assessment of lifecycle GHG emissions pursuant to section 
45V(c)(1)(A). The factors considered in establishing the appropriate 
alternative fate are interrelated and must account for other aspects of 
these final regulations. For example, because these final regulations 
do not impose a first productive use requirement, there may be a 
greater likelihood that the appropriate alternative fate for certain 
sources of natural gas alternatives should be productive use.
    As discussed previously, analytical decisions regarding the 
alternative fate of natural gas alternatives are critical in the 
assessment of their carbon intensity. Comments suggested a range of 
broadly applicable alternative fate assumptions for methane from 
natural gas alternatives used in hydrogen production. Recommendations 
included venting, flaring, productive use, and responsible avoidance of 
waste-stream-generated methane.
    Rather than adopting a single alternative fate for all natural gas 
alternatives, these final regulations instead address specific 
considerations for each major source of natural gas alternatives. This 
part III.H.2.c of this Summary of Comments and Explanation of Revisions 
addresses comments recommending broadly applicable alternative fates, 
while comments addressing alternative fates for specific sources of 
methane are discussed in parts III.H.2.c.i through vi of this Summary 
of Comments and Explanation of Revisions.
    Comments supported and opposed a venting alternative fate (that is, 
assuming the methane in question would have been released directly to 
the atmosphere rather than flared or productively used) for a range of 
reasons. One comment recommended that avoided emissions crediting 
should be allowable for fugitive methane feedstocks. The comment stated 
that, in most instances, alternative fates are not necessary as these 
are not hypothetical emissions, but measurable real-world fugitives and 
valuing abatement is straightforward. The comment posited that if a 
base case is needed, it should be venting or uncontrolled release of 
100 percent of the methane potential of the feedstock to the 
atmosphere. Several comments recommended that biomethane should not 
receive a negative carbon intensity score by claiming a ``business-as-
usual case'' of venting methane. The comments suggested that, at the 
most generous, this methane should be considered to be captured and 
flared, which would make the use of this methane for hydrogen 
production--with the waste stream of carbon dioxide--receive at best a 
carbon intensity score of zero. One comment stated that there is ample 
evidence that pre-IRA policies already support the capture of vented 
methane where possible, for both RNG and fossil gas, and that remaining 
methane emissions are likely to be mitigated even in the absence of 
hydrogen projects supported by the section 45V credit. The comment 
further suggested that allowance of venting as an alternative fate for 
the purposes of calculating net hydrogen carbon intensity would 
incentivize hydrogen producers to claim offsets based on an inaccurate 
assumed alternative fate against real emissions from production and 
upstream methane leakage in order to establish eligibility for the most 
generous section 45V credit tier. As a result, the comment recommended 
that requiring flaring be used as the baseline condition for all 
pathways including RNG is a simple way to prevent crediting of pathways 
with GHG reductions based on unrealistic alternative fate scenarios. 
Several comments stated that venting is not an appropriate alternative 
fate assumption for biomethane because it is an irresponsible practice 
and would result in the greatest credit value with respect to gas 
producers who are investing the least in the environmental quality and 
emissions reduction technologies at their facilities. Several comments 
stated that lifecycle analysis should be used to compare the overall 
environmental impacts of using biogas and fugitive emissions for 
hydrogen production versus current flaring practices; alternative fates 
assumptions should be updated to reflect the given tax year's 
regulatory requirements so, for example, if venting is prohibited, then 
it is no longer a valid alternative fate scenario.
    A number of comments recommended that capture and flaring would be 
an appropriate alternative fate for certain sources of natural gas 
alternatives, such as methane from landfills and wastewater treatment 
plants.
    Several comments suggested using conservative assumptions, 
alternative fates and formulas, and allowing taxpayers to propose and 
prove alternatives. Many comments requested the adoption of 
conservative approaches to determining alternative fates. Several 
comments recommended that any methane that can be captured should, at

[[Page 2284]]

minimum, be assigned a baseline alternative fate of being captured and 
flared. One reason provided by the comments was that flaring 
appropriately reflects a consistent treatment of pollution sources, 
recognizing the cost of methane pollution and thus the need for methane 
abatement.
    In response to these comments, the Treasury Department and the IRS 
agree that venting is not an appropriate alternative fate to apply 
across all sources of natural gas alternatives, because it does not 
account for the prevalence of flaring and productive use, nor does it 
address the risk of induced emissions due to the incentives provided by 
the section 45V credit. The Treasury Department and the IRS also 
anticipate that a venting baseline would become increasingly 
inappropriate over time, due to anticipated changes in regulations and 
operational practices. The section 45V credit is in effect for 
facilities beginning construction through 2032 and remains available 
for a 10-year period after the hydrogen production facility is 
originally placed in service. The final regulations also generally 
allow taxpayers to rely for the duration of a hydrogen production 
facility's 10-year credit period on the version of the 45VH2-GREET 
model that is available on the date the facility began construction, as 
is further discussed in part III.B of the Summary of Comments and 
Explanation of Revisions. Therefore, the final regulations provide that 
the lifecycle GHG emissions rate of a process (as defined in Sec.  
1.45V-1(a)(11)) that uses methane derived from biogas, RNG, or coal 
mine methane as a feedstock molecule to produce hydrogen, must take 
into account anticipated changes in waste disposal practices or use of 
that methane over the relevant timeframe.
    In the case of venting, the Treasury Department and the IRS expect 
venting prohibitions to expand in future years, as local, State, and 
Federal policy restrictions on venting are becoming increasingly 
common.
    While the policy landscape for specific methane sources is 
discussed in parts III.H.2.c.i. through vi. of this Summary of Comments 
and Explanation of Revisions, a range of current and prospective State 
policies limiting venting of different RNG sources or encouraging more 
responsible methane management practices indicates the trajectory of 
State action in this area. For example, California, Colorado, Maryland, 
Michigan, Oregon, and Washington have all recently taken or imminently 
plan to take action to restrict venting and require more responsible 
methane management practices, in some cases beyond the Federal 
standards currently in place.
    As discussed in more detail regarding the specific sources of 
natural gas alternatives, there are also significant voluntary Federal 
incentives to encourage responsible methane management practices. There 
is also evidence of ongoing growth in methane capture through 
proliferation of landfill gas capture and anaerobic digesters. For 
example, as shown in updated project database files from EPA's Landfill 
Methane Outreach Program (LMOP), as of September 2024 there were 1,245 
landfills with operational gas collection and control systems, as 
compared to 1,187 in 2014.\41\ Additionally, LMOP data shows growth in 
the number of landfill gas energy projects upgrading landfill gas to 
RNG. As of September 2024, there are 110 operational RNG projects (as 
compared to 63 projects in 2019) and 102 planned or under 
construction.\42\ In addition, as subsequently discussed in this 
Summary of Comments and Explanation of Revisions, there has been rapid 
growth in the construction of animal waste digesters, largely as a 
result of policy incentives, with data from AgSTAR showing an 
additional 172 operational anaerobic digesters accepting livestock 
manure in 2024 relative to 2019 (267 digesters).\43\ AgSTAR data also 
demonstrates rapid growth in RNG projects (including pipeline injection 
and CNG for vehicle fuel or other uses), with 191 RNG projects in 2024 
compared to 32 in 2019, and only 8 in 2017.\44\ As of 2023, CNG has 
surpassed Combined Heat and Power (CHP) as the most common end use of 
biogas from manure-based anaerobic digestion systems in AgSTAR.\45\ In 
light of all these trends, a methane venting baseline across all 
natural gas alternatives is inaccurate today, and, over time, the 
assumptions and inputs will likely become increasingly erroneous as 
regulations, markets, and resource management practices evolve during 
the period over which the section 45V credit is available. This 
supports the use of reasonably conservative alternative fates in the 
face of uncertainty to provide greater assurance that statutory 
emissions thresholds provided in section 45V(b)(2) will not be 
exceeded, as described in more detail subsequently in this Summary of 
Comments and Explanation of Revisions.
---------------------------------------------------------------------------

    \41\ LMOP Landfill and Project Database, U.S. Environmental 
Protection Agency, available at https://www.epa.gov/lmop/lmop-landfill-and-project-database (last updated Sept. 20, 2024).
    \42\ Id.
    \43\ AgSTAR Data and Trends, Biogas Data and Trends, U.S. 
Environmental Protection Agency, available at https://www.epa.gov/agstar/agstar-data-and-trends#biogasfacts (last updated Nov. 27, 
2024).
    \44\ Id.
    \45\ Id.
---------------------------------------------------------------------------

    The Treasury Department and the IRS also agree that conservative 
approaches to assessing alternative fates of natural gas alternatives 
may be an appropriate response to challenges in documenting and 
verifying alternative fates applicable to specific sources of natural 
gas alternatives in order to better ensure compliance with the 
statutory emissions thresholds in section 45V. However, such 
conservative approaches should consider the distinct characteristics of 
each source or type of source, to the extent reasonably practicable. 
Thus, although a capturing and flaring alternative fate may be 
generally appropriate for some categories of sources of natural gas 
alternatives, it is not appropriate for all sources of natural gas 
alternatives.
    Some comments suggested that the alternative fate assumption for 
all methane derived from waste streams should be alternative productive 
use. One comment recommended that an alternative fate approach should 
address the risk of indirect emissions by taking into account the 
alternative fate and the emissions associated with replacing this fate. 
The comment further suggested that if the hydrogen producer has data 
and evidence of the alternative fate, for example from the RNG 
supplier, this should always be used in the first instance, in 
preference to a market or average assumption provided by the DOE. In 
addition, the comment stated that venting may be the appropriate 
alternative fate in some instances, but that it is unlikely to be the 
appropriate primary alternative fate due to the adverse effects RNG 
venting has on the climate. The Treasury Department and the IRS note 
that the recommendations in these comments would significantly increase 
the complexity in estimating lifecycle GHG emissions associated with 
the use of natural gas alternatives in the production of hydrogen. 
Permitting taxpayers to apply bespoke alternative fates for each source 
of natural gas alternative would increase the burden on taxpayers and 
on tax administration because substantiation and verification of such 
bespoke alternative fates would be challenging. As further explained 
later in this Summary of Comments and Explanation of Revisions, the 
significant and in some cases growing rates of productive use of 
methane from certain waste streams is an important consideration in 
establishing alternative fate assumptions for estimating lifecycle

[[Page 2285]]

GHG emissions rates. Because not all methane from waste streams is used 
productively, however, the comment's suggested assumption that the 
alternative fate assumption for all methane derived from waste streams 
should be alternative productive use would understate the potential 
emissions benefits of using such gas in hydrogen production. The final 
regulations, therefore, do not adopt these comments.
    Some comments suggested that the alternative fate assumption for 
all waste stream-generated methane should be responsible avoidance of 
such methane production by applying practices that minimize its 
production. These comments highlighted the risk that incentives created 
by the section 45V credit would lead to the production of more, new 
methane than would have otherwise occurred. The Treasury Department and 
the IRS agree that this is an important consideration.
    For new methane that would not have been produced in the absence of 
the section 45V credit, use of such methane for hydrogen production 
must not be reflected as avoided methane emissions in the lifecycle GHG 
emissions assessment. For certain waste streams, the volumes of waste-
stream-generated methane produced by a certain practice can be affected 
by operator actions, such as a change in manure management practices 
from land disposal to lagoon disposal, or heating an anaerobic digester 
to increase the amount of methane produced. Moreover, in some cases, 
the cost of generating additional methane may be small compared to the 
value of the section 45V credit. Several comments asserted that 
fugitive methane and methane from animal lagoon-based manure are both 
examples of avoidable waste streams that exist solely because of 
discretionary industry practices; as a result, these comments asserted 
that methane streams are always GHG positive. Comments asserted that 
treating this methane consistent with fossil natural gas is a generous 
approach because biomethane production is associated with higher 
methane leakage rates. One comment stated that allowing previously 
flared or vented biogas to be considered as ``incremental'' as a first 
productive use also brings significant emissions risks by encouraging 
the expansion of facilities' waste methane streams over prior years to 
qualify that methane waste for hydrogen production in the future. The 
comment argued that for landfill gas, considering an ``above average'' 
approach for incrementality when considering a facility that has no 
established energy project could be one way of encouraging investment 
in greater capture rates.
    As these comments note, the availability of the section 45V credit 
may lead to generation of methane in the form of natural gas 
alternatives for the purpose of producing qualified clean hydrogen that 
is eligible for the section 45V credit. In those instances, the 
appropriate alternative fate is that the methane generated from waste 
streams, or increments of it, would not have been created in the first 
place or that it would have remained sequestered. In such scenarios, it 
would be inappropriate to credit hydrogen production with avoided 
emissions because the analysis must address methane leakage and 
combustion emissions that otherwise would not have occurred, and 
crediting these scenarios with avoided emissions would likely result in 
providing a section 45V credit for the production of hydrogen that is 
ineligible for the credit based on the statutory emissions 
requirements. This is a particularly important consideration for 
certain types of methane-producing practices and materials and for 
determining the appropriateness of alternative fates that can result in 
highly negative lifecycle GHG emissions rate estimates if emissions 
from additional methane generation are not accounted for, which would 
create potentially large incentives for additional waste production 
(potentially resulting in highly inaccurate lifecycle emissions 
assessments).
    In light of the substantial venting and flaring of methane that 
currently occurs, an alternative fate of avoidance would in many 
instances understate the emissions benefits of capturing such gas and 
using it to produce hydrogen. In order to meet statutory requirements, 
however, incentives for methane creation must be considered in the 
determination of a lifecycle GHG emissions rate.
    It is not possible for the Treasury Department and the IRS to 
ascertain which specific waste-stream-generated methane would not exist 
absent the incentives provided by section 45V credit, nor is it 
possible to precisely estimate the market-mediated emissions of such an 
incentive effect. In order to ensure that these emissions are not 
merely ignored, which would not be permissible under the statute, and 
also that the approach is both administrable and appropriate, after 
consultation with the DOE, these final regulations take the economic 
incentives for additional waste production into account in establishing 
the alternative fates that apply in general to particular feedstocks. 
Specifically, in settings where a significant but non-identifiable 
share of methane from some sources could be produced in response to 
incentives provided by the section 45V credit or other programs, 
alternative fate assumptions that result in highly negative emissions 
estimates are likely to be inaccurate and understate the real-world 
lifecycle GHG emissions. These final regulations require that 
determinations of alternative fates for methane derived from biogas, 
RNG, or fugitive methane consider the risk that the availability of tax 
credits creates incentives to produce additional methane.
i. Alternative Fate Considerations for Methane From Certain Waste 
Streams
    Informed by the considerations discussed earlier, Sec.  1.45V-
4(f)(3)(ii) through (vi) specifically addresses the alternative fate 
considerations for methane from landfill sources, wastewater, coal mine 
methane, animal waste sources, and fugitive methane other than coal 
mine methane. The following parts of this Summary of Comments and 
Explanation of Revisions address these specific types of sources of 
natural gas alternatives in further detail. These final regulations 
have developed alternative fates on a sector-by-sector basis because 
determining and validating alternative fates on an entity-by-entity 
basis would not be administrable. As discussed earlier, identifying an 
appropriate alternative fate for specific sources of natural gas 
alternatives would depend not only on the specific facts and 
circumstances (for example, whether methane from the source was already 
being productively used), but would also require an entity-by-entity 
assessment of the applicability of alternative fate scenarios with many 
complex factors potentially relevant to that assessment (for example, 
financial incentives absent the section 45V credit, regulatory 
considerations, or trends in waste management or disposal practices). 
It would be highly burdensome for taxpayers to demonstrate, and 
impractical to confirm as a matter of tax administration, that a 
specific methane source had certain historic practices and whether in 
the future that source would have had a certain disposition of relevant 
materials other than the one that actually occurred. Quantities of 
methane from an individual source could even have different alternative 
fates. For example, assuming a situation where, absent tax incentives, 
a source capturing and using methane would have produced a lesser 
amount of methane and vented it, the alternative fate for that amount 
of

[[Page 2286]]

methane (venting) would differ dramatically from the alternative fate 
of the additional methane produced due to the tax incentive (no methane 
produced or emitted). Moreover, these administrative challenges are 
even greater for situations where hydrogen producers are seeking to use 
a book-and-claim system to assign attributes to natural gas 
alternatives purchased from an intermediary, such as a common carrier 
pipeline. In such situations, book-and-claim registries would in theory 
need to verify and track not only the type of natural gas alternative 
source but also any additional information relevant to assessing the 
alternative fate of the methane from the specific source. Given these 
significant administrative challenges, the alternative fates are 
assessed and applied on a sector-by-sector basis in these final 
regulations.
ii. Alternative Fate Considerations for Methane from Landfill Gas
    The preamble to the proposed regulations recognized a pathway 
within 45VH2-GREET for determining a lifecycle GHG emissions rate using 
an alternative fate of flaring for the production of hydrogen using RNG 
derived from landfill gas. The final regulations continue to recognize 
a hydrogen production pathway in 45VH2-GREET that applies an 
alternative fate of flaring in assessing the use of RNG produced from 
landfill gas in the production of hydrogen.
    A number of comments highlighted competing considerations in 
determining the appropriate alternative fate for methane from landfill 
gas. One comment stated that venting is the correct alternative fate 
for landfill gas in some instances, such as jurisdictions without 
flaring regulations in place. Several comments recommended conservative 
default parameters paired with alternative fate assumptions that would 
reflect a high potential of leakage at landfills, given that landfills 
can generate super-emitting plumes and studies suggest collection 
efficiency can be overestimated. Several comments noted the 45VH2-GREET 
model properly includes avoided emissions with respect to landfill gas. 
The comments state that the RNG industry supports and agrees that any 
methodology assessing RNG's lifecycle emissions must measure avoided 
emissions. Several comments proposed that for purposes of calculating 
the emissions rate for RNG from municipal solid waste landfills, the 
45VH2-GREET model must utilize the correct and latest scientific data 
from the EPA, which the comment asserted shows the national average 
landfill methane capture rate is 39 percent. However, the EPA data for 
2022 shows significantly higher methane recovery rates.\46\ Moreover, 
regulations increasingly require flaring of landfill gas, and, as 
discussed previously, anticipated changes in regulatory requirements 
and operational practice are an important consideration in determining 
appropriate alternative fates.
---------------------------------------------------------------------------

    \46\ U.S. Environmental Protection Agency, Inventory of U.S. 
Greenhouse Gas Emissions and Sinks: 1990-2022 (2024), at 725, 
available at https://www.epa.gov/system/files/documents/2024-04/us-ghg-inventory-2024-main-text_04-18-2024.pdf.
---------------------------------------------------------------------------

    The EPA currently regulates emissions (in the form of landfill gas 
using non-methane organic compound (NMOC) emissions as a surrogate) 
from landfills under section 111 of the Clean Air Act. EPA regulations 
under the Solid Waste Disposal Act (commonly known as the Resource 
Conservation and Recovery Act, or RCRA) mandate certain landfill 
management practices that also affect methane emissions from landfills. 
As noted elsewhere in this Summary of Comments and Explanation of 
Revisions, several States have adopted additional more stringent 
requirements for landfill methane emissions. The EPA has also announced 
that it intends to update and strengthen its existing landfill 
regulations under section 111 of the Clean Air Act in 2025.\47\ The 
current rules for landfill gas emissions were finalized in 2016. 
Pursuant to the EPA's regulatory plan, the EPA plans to revisit the 
rule to understand how new technologies and approaches could be 
incorporated into updated New Source Performance Standards (NSPS) and 
Emissions Guidelines to reduce emissions from municipal solid waste 
landfills and to protect the environment and the health of people that 
live nearby.\48\
---------------------------------------------------------------------------

    \47\ Non-regulatory Public Docket: Municipal Solid Waste 
Landfills, U.S. Environmental Protection Agency, available at 
https://www.epa.gov/stationary-sources-air-pollution/non-regulatory-public-docket-municipal-solid-waste-landfills (last updated Dec. 9, 
2024); Press Release, The White House, Fact Sheet: Biden-Harris 
Administration Announces New Actions to Detect and Reduce Climate 
Super Pollutants (Jul. 23, 2024), available at https://www.whitehouse.gov/briefing-room/statements-releases/2024/07/23/fact-sheet-biden-harris-administration-announces-new-actions-to-detect-and-reduce-climate-super-pollutants; Keaton Peters, Is the 
EPA About to get Serious About Methane Pollution from Landfills?, 
Canary Media (Jul. 10, 2024), available at https://www.canarymedia.com/articles/methane/is-the-epa-about-to-get-serious-about-methane-pollution-from-landfills.
    \48\ Reconsideration of Standards of Performance and Emissions 
Guidelines for Municipal Solid Waste Landfills (RIN 2060-AU24) 
available at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202404&RIN=2060-AU24.
---------------------------------------------------------------------------

    In particular, certain landfills are subject to NSPS (40 CFR part 
60, subpart XXX) and Emissions Guidelines (40 CFR part 60, subpart Cf) 
under section 111 of the Clean Air Act (collectively, NSPS/EG Rules). 
The listed regulated pollutant under these regulations is ``landfill 
gas.'' The EPA has also promulgated National Emissions Standards for 
Hazardous Air Pollutants (40 CFR part 63, subpart AAAA) in 2020 that 
regulate the emissions of Hazardous Air Pollutants (HAP) from 
landfills. The NESHAP regulates HAP emissions by requiring landfills 
that exceed the size and NMOC emission thresholds to install and 
operate a landfill gas collection and control system (GCCS). As in the 
NSPS/EG, the GCCS is required to include a control device capable of 
reducing NMOC emissions by 98 percent. This system will also reduce 
emissions of methane since methane makes up approximately 50 percent of 
the landfill gas.
    The EPA's current Clean Air Act section 111 NSPS provide emissions 
control requirements for new (since 2014) municipal solid waste 
landfills. See 40 CFR part 60 subpart WWW and subpart XXX. The section 
111 emissions guidelines (EG) cover existing (pre-2014) municipal solid 
waste landfills through requirements that are adopted by States through 
State plans, or by the EPA in the event a State does not submit an 
approvable plan. See 40 CFR part 60 subpart Cf. Both new and existing 
landfills that exceed specified size and emissions thresholds must 
install landfill gas GCCS and use, sell, or flare (combust) the gas. 
The EPA estimated that 846 landfills would be required to collect and 
control landfill gas under these regulations by 2025.\49\ In addition, 
landfills covered by these regulations and that have GCCS installed 
must conduct quarterly surface monitoring for leaks. In the States with 
more stringent State requirements, the requirements commonly apply to 
smaller landfills, landfills with lower emissions levels, and/or apply 
more stringent emissions control measures compared to the Federal 
requirements. A number of other landfills that are not subject to 
emissions control regulations nevertheless have installed landfill GCCS 
and are either flaring, combusting the gas for energy generation, or 
upgrading it and injecting it in the

[[Page 2287]]

pipeline system for sale.\50\ The LMOP tracks voluntary GCCS 
installation based on available data reported by program partners. As 
of 2024, at least 450 landfills operate a GCCS without being required 
by regulation. Many of the landfills that are not currently regulated 
or voluntarily collecting gas may be required to collect and control 
landfill gas emissions during the timeframe in which the section 45V 
credit is available, as additional regulation is expected at both the 
Federal and State level.\51\
---------------------------------------------------------------------------

    \49\ U.S. Environmental Protection Agency, Final Updates to 
Performance Standards for New, Modified and Reconstructed Landfills, 
and Updated to Emission Guidelines for Existing Landfills: Fact 
Sheet (Sept. 2016), available at https://www.epa.gov/sites/default/files/2016-09/documents/landfills-final-nsps-eg-factsheet.pdf.
    \50\ Landfill Methane Outreach Program (LMOP), U.S. 
Environmental Protection Agency, available at https://www.epa.gov/lmop (last updated Dec. 5, 2024).
    \51\ In addition to upcoming EPA regulations, additional states 
are also contemplating regulations. See, for example, Landfill 
Methane Reductions in Colorado, Colorado Department of Public Health 
and Environment, available at https://cdphe.colorado.gov/landfill-methane-reductions-in-colorado; New York Department of Environmental 
Conservation et al., Methane Reduction Plan (May 2017), available at 
https://extapps.dec.ny.gov/docs/administration_pdf/mrpfinal.pdf.
---------------------------------------------------------------------------

    Given that landfill gas collection and use or flaring is 
widespread, as it is required by regulation for an increasing number of 
landfills and often supported by GHG credit programs when not required, 
an assumption that absent the section 45V credit the typical practice 
would be uncontrolled venting is not supportable. Although landfill gas 
is increasingly put to productive use, and there are some landfills 
where capture and flaring or productive use is not yet occurring, since 
collection and flaring is required by law for the largest sources of 
landfill gas and is increasingly being required for smaller sources as 
well, collection and flaring is the most appropriate alternative fate 
assumption for the sector as a whole given its prevalence. Although a 
flaring alternative fate will result in an underestimate of lifecycle 
GHG emissions for landfills with current productive use, the fact that 
there are some landfills where capture and flaring or productive use is 
not yet occurring, in combination with the prevalence of flaring, makes 
a flaring alternative fate the most robust approach for the sector as a 
whole. Based on all the considerations noted previously, Sec.  1.45V-
4(f)(3)(ii) of the final regulations provides that, for purposes of 
determining the lifecycle greenhouse gas emissions rate of a process 
(as defined Sec.  1.45V-1(a)(11)) that uses methane derived from 
landfill sources, flaring of such gas using an efficiency determined in 
45VH2-GREET must be used as the alternative fate. Flaring efficiency is 
specified as background data in 45VH2-GREET because bespoke values are 
likely to be unavailable or inaccurate, since it is not common practice 
to measure the flare gas chemical composition or to have continuous 
monitoring of flares at landfills.
iii. Alternative Fate Considerations for Methane From Wastewater
    The proposed regulations did not recognize a pathway for 
determining a lifecycle GHG emissions rate for the production of 
hydrogen using methane produced from wastewater, but the preamble to 
the proposed regulations sought comment on the treatment of various 
sources of RNG. These final regulations support providing a pathway in 
45VH2-GREET to determine the lifecycle GHG emissions rate for the 
production of hydrogen that applies a flaring alternative fate for 
biogas and related RNG from wastewater sources in concert with default 
wastewater treatment practices defined in the forthcoming, January 2025 
version of 45VH2-GREET and described in this part III.H.2.c.ii of these 
Summary of Comments and Explanation of Revisions.
    Several comments stated that it would be incorrect to presume that 
most wastewater treatment plants have operational biogas/anaerobic 
digester systems and that operational biogas systems are flaring their 
gas. At least one comment asserted that, based on the American Biogas 
Council's database of wastewater facilities maintained under a 
memorandum of understanding with the Water Environment Federation, the 
vast majority of operational digester systems at wastewater plants are 
using such biogas to produce renewable electricity, RNG, or heat, 
which, according to the comment, offsets fossil fuel use and its 
related emissions. Another comment opposed a venting baseline for 
instances like wastewater treatment on the basis there is no 
administrable system that credibly enables producers to distinguish the 
gas that would be vented if not for the existence of the section 45V 
credit.
    National-level data on anaerobic digestion at wastewater treatment 
plants and the use of biogas produced is limited. There are more than 
16,000 wastewater treatment plants in the U.S. While most wastewater 
treatment plants in the U.S. serve small populations and do not process 
sufficiently large wastewater flows to justify the installation of 
anaerobic digesters, which are capital-intensive, anaerobic digesters 
are very prevalent among the smaller number of large wastewater 
treatment facilities that process the large majority of wastewater: the 
largest 8 percent of facilities (1,132 facilities that each handle 
greater than 5 million gallons per day) process 77 percent of total 
national wastewater flow, according to Argonne National Laboratory. 
Among the 1,100 generally large wastewater treatment plants that have 
anaerobic digesters, 860 have the equipment to use their biogas on 
site, according to the DOE's Alternative Fuels Data Center. 
Additionally, nearly all biogas-producing wastewater treatment plants 
surveyed in 2018 reported flaring at least some of their biogas, based 
on the Nationwide Survey of WRRF Biosolids Programs released in 2022. 
Venting practices are not reported in any national datasets, although 
vents are required to prevent overpressurization events in biogas 
storage systems and local regulators may require facilities to track 
and report venting events. Some facilities combust biogas to heat their 
digesters and some also take advantage of the additional heat 
availability for use in on-site biosolids drying.
    Given that use or flaring of methane from wastewater is generally 
applied to the majority of wastewater generated domestically, an 
assumption that absent the section 45V credit the typical practice 
would be uncontrolled venting is not supportable. Section 1.45V-
4(f)(3)(i) of the final regulations therefore provides that, for 
purposes of determining the lifecycle greenhouse gas emissions rate of 
a process (as defined Sec.  1.45V-1(a)(11)) that uses methane derived 
from wastewater sources, the alternative fate of such gas must assume 
flaring and use the flaring efficiency and other factors as determined 
by 45VH2-GREET, including accounting for the proportion of the gas 
typically used to heat the anaerobic digester.
    For the large majority of biogas from wastewater treatment plants, 
this is either consistent with current practice, or modestly 
overestimates avoided emissions in cases where the portion of biogas 
not needed to satisfy on-site heat requirements would otherwise have 
been productively used. Although a flaring alternative fate for this 
additional biogas will result in an over-estimate of avoided lifecycle 
GHG emissions for wastewater treatment plans with current productive 
use beyond satisfying on-site heat demands, this potential 
overestimation of GHG emissions avoidance is counterbalanced by the 
existence of wastewater treatment plants where capture and flaring or 
productive use is not yet occurring, thus making default wastewater 
treatment practices the most appropriate approach for the sector as a 
whole.

[[Page 2288]]

iv. Alternative Fate Considerations for Coal Mine Methane
    The proposed regulations did not recognize a pathway within 45VH2-
GREET for determining lifecycle GHG emissions rates for the production 
of hydrogen using coal mine methane (CMM), but the preamble to the 
proposed regulations invited comment on the treatment of various 
sources of fugitive methane. The final regulations support providing a 
pathway in 45VH2-GREET to determine the lifecycle GHG emissions rate 
for the production of hydrogen that applies a flaring alternative fate 
for CMM.
    The Treasury Department and the IRS recognize that fossil sources 
of fugitive methane can be utilized for hydrogen production. Many 
comments specifically noted the feasibility of transforming CMM into 
hydrogen and identified venting as a common alternative fate. One 
comment noted concerns associated with allowing for the use of fugitive 
methane from sources such as coal mines until robust lifecycle 
analysis, verifiability, incrementality, and other principles related 
to the emissions impacts of this gas are demonstrated.
    The DOE has advised that drainage gas is the subset of CMM that can 
be used for hydrogen production, due to its high methane content. 
Drainage systems are a mechanism of recovering methane from underground 
mines to maintain safe operating conditions.\52\ These systems are 
typically installed when ventilation systems are insufficient to 
maintain underground methane concentrations within permissible limits. 
Unlike drainage gas, ventilation gas is typically dilute in methane 
content and therefore cannot be used for hydrogen production.
---------------------------------------------------------------------------

    \52\ Active underground mines that liberate more than 36,500,000 
actual cubic feet of methane per year report annually to GHGRP on 
whether their drainage gas is vented or destroyed.
---------------------------------------------------------------------------

    Based on consultation with the DOE and the EPA, the Treasury 
Department and the IRS understand that the EPA's GHGRP is the only 
national public database with historical information provided annually 
by large active underground mines regarding their treatment of drainage 
gas. Review of data submitted by coal mines to GHGRP under section 
98.326 of Subpart FF indicates that, while the majority of ventilation 
gas liberated by coal mines over the past decade has been vented, the 
majority of drainage gas has been productively used or flared. Mine 
practices have fluctuated, with some mines transitioning from 
predominantly venting drainage gas to predominantly using or destroying 
such gas. Factors that can affect the extent to which a mine vents, 
flares, and/or productively uses such gas in a given year include the 
amount of methane required by onsite equipment (for example, engines); 
proximity to offsite infrastructure (for example, pipelines); and the 
lucrativeness of programs incentivizing the capture of CMM. Incentives 
for CMM destruction and utilization that are currently available 
include State offset programs, State renewable portfolio standards, and 
voluntary offsets, some of which specifically do not allow for pipeline 
injection.
    The DOE and the EPA have advised that there is considerable 
uncertainty associated with establishing the appropriate alternative 
fate scenarios for CMM for the 10-year duration over which a hydrogen 
production facility may be able to claim the section 45V credit. Coal 
mines that are currently injecting CMM into pipelines may transition to 
flaring if natural gas prices fall or may exercise flaring at future 
boreholes if those boreholes are distant from existing pipeline 
infrastructure. Mines that are currently predominantly venting may 
transition to productive use if pipeline infrastructure is built in 
their vicinity. A flaring baseline is therefore the most appropriate 
approach for CMM given the uncertainty with respect to these emissions 
and because it reduces the risk of inappropriately attributing 
extremely negative lifecycle emissions rates to the capture of CMM 
which would have already been captured and productively used.
    Accordingly, Sec.  1.45V-4(f)(3)(iv) of these final regulations 
provides that for purposes of determining the lifecycle GHG emissions 
rate of a process (as defined Sec.  1.45V-1(a)(11)) that uses coal mine 
methane, flaring of such gas must be used as the alternative fate. This 
alternative fate accounts for the uncertainties associated with future 
practices, as described above, while recognizing that most drainage gas 
is destroyed today.
v. Alternative Fate Considerations for Animal Waste
    The proposed regulations did not recognize a pathway to determine 
lifecycle GHG emissions rates for hydrogen production processes that 
use RNG produced from biogas from animal waste and invited comment on 
the treatment of various sources of RNG. The final regulations support 
providing a pathway in 45VH2-GREET to determine the lifecycle GHG 
emissions rate for the production of hydrogen that applies an 
alternative fate derived from the national average of current animal 
waste management practices.
    Comments suggested a variety of alternative fate assumptions for 
purposes of estimating lifecycle greenhouse gas emissions for these 
sources of RNG, including venting, alternative productive use, and 
responsible waste management, with some comments recommending a single 
alternative fate for RNG produced from these sources and others 
recommending differentiated alternative fates. There is no national 
database that tracks farm-level methane emissions, capture, and usage 
in the agricultural sector. Additionally, there are no nationally 
applicable reporting requirements for animal waste management practices 
at livestock and poultry farms, which differ substantially on a farm-
to-farm basis, and state-level reporting animal waste management 
reporting requirements vary. Therefore, lack of data and heterogeneity 
of animal waste management practices are limiting factors in 
establishing a single specific alternative fate for methane generated 
from animal waste.
    Many comments highlighted competing considerations in determining 
the appropriate alternative fate for methane derived from animal waste. 
Several comments recommended the 45VH2-GREET model calculate the 
avoided emissions from anerobic digestion and the associated RNG 
project using site-specific baseline manure management practices. The 
comments suggested the model could be modified to offer a menu that 
enables the user to identify what fraction of the manure was handled 
using each of these pre-project practices. The comments noted that each 
RNG project's emissions reduction benefit may vary significantly based 
on the pre-existing manure management practices, and therefore it is 
crucial to have a drop-down selection in order to accurately calculate 
the lifecycle GHG emissions. Several comments suggested that for biogas 
produced from livestock manure, the alternative fate should be that 
methane would continue venting from manure handling facilities until 
such time as that venting is no longer permissible by law or 
regulation. The comments note that this alternative fate is similar to 
what the comments assert is appropriate for the landfill gas industry, 
where once regulations are in place that require landfill gas to be 
captured and destroyed, then flaring becomes the appropriate 
alternative fate. One comment recommended that a minimum utilization or 
flare rate of 80 percent of recoverable methane emissions be adopted as 
the basis in the

[[Page 2289]]

alternative fate case for determining the carbon intensity of RNG that 
is utilized in the production of clean hydrogen. One comment noted that 
although the primary precedent for crediting avoided methane emissions 
is the CA LCFS's treatment of biomethane from manure lagoons, this 
precedent serves to illustrate the inappropriateness of its adoption in 
section 45V. The comment stated that it is widely understood that the 
avoided methane calculation was specifically incorporated within the 
LCFS as a means of subsidizing investments in anaerobic digesters to 
address pollution from California's dairies, not to reduce emissions 
from transportation fuel. Several comments noted that R&D GREET 
recognizes avoided emissions benefits in its lifecycle modeling for RNG 
where the manure and other wastes would otherwise release GHGs into the 
atmosphere. The comments state that the RNG industry agrees that any 
methodology assessing RNG's lifecycle emissions must measure avoided 
emissions.
    Determining the appropriate alternative fate and emissions 
intensity for RNG produced from animal waste sources presents several 
challenges. First, the emissions intensity of biogas and ensuing RNG 
produced from animal waste can vary widely based on the specific waste 
practices used by individual producers. These practices are not 
comprehensively tracked and, in many cases, would be extremely 
difficult to effectively verify. Different waste disposal practices 
produce very different quantities of methane per unit of manure, as 
methane generation is much higher in wet anaerobic conditions. As one 
example, EPA GHG Inventory data indicates that uncovered anaerobic 
lagoons produce roughly one hundred times the amount of methane as 
daily spread. Even among farms credited with methane venting 
counterfactuals under the CA LCFS, the resulting RNG GHG emissions 
intensities vary widely depending on specific practices. Factors 
impacting the emissions intensity calculations for that program 
include, but are not limited to, the type of animals producing waste 
for the digester, type(s) of feed provided for the animals, the 
digester technology, and ambient conditions at the digester. As 
discussed further below, none of these practices are comprehensively 
tracked or reported at a national level. Comments also noted the 
further uncertainty and variation introduced by a range of leakage 
rates from operations capturing and upgrading manure-derived methane, 
including the high likelihood that there are ``super emitter'' sources 
(consistent with the patterns seen in other fugitive methane streams). 
This could introduce additional uncertainty and risk of over crediting 
in estimating a GHG emissions rate.
    Second, there is substantial and growing alternative productive use 
of methane from animal waste. There are 400 operational animal waste 
anaerobic digesters in the U.S. and 73 additional digesters under 
construction as of 2024, according to the AgSTAR Digester Database. 
Based on data from the AgSTAR Digester Database on the number of 
livestock (by head) feeding anaerobic digesters as of 2024, it is 
estimated that the waste from roughly 8 percent of dairy cattle and 2 
percent of swine (by head) is currently sent to anaerobic digesters and 
these numbers increase to 10 percent and 3 percent, respectively, if 
digesters currently under construction are included.\53\ The percentage 
of waste being sent to anaerobic digesters has been rising rapidly 
since 2019, with 400 operational projects and 73 under construction, 
and with the majority of new projects upgrading their biogas to RNG, 
due, in part, to incentives provided by the RFS, LCFS, and a California 
grant program. The digesters listed as newly operational and under 
construction as of 2023-2024 in the AgSTAR database represent a 28 
percent increase in the dairy cattle waste and 50 percent increase in 
swine waste (by head) sent to anaerobic digesters relative to 2022 
levels. While there has been some variation in the profitability of 
installing anaerobic digesters as credit values have fluctuated,\54\ 
the financial incentives provided by the RFS and LCFS programs appear 
to be sufficient to incentivize some installations of anaerobic 
digesters at existing lagoons, which reduces emissions without any 
additional incentive from the section 45V credit. There are also other 
possible sources of revenue from anaerobic digester systems including 
net-metering in the case of electricity generation, tipping fees from 
local food production, or the sale of secondary products such as 
digestate-based fertilizer or phosphorus pellets.
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    \53\ Values were calculated using data from the AgSTAR Digester 
Database. Livestock Anaerobic Digester Database, U.S. Environmental 
Protection Agency, available at https://www.epa.gov/agstar/livestock-anaerobic-digester-database (last updated Oct. 1, 2024). 
The sum of dairy cattle reported as feeding operational digesters in 
the AgSTAR database as of June 2024 was calculated to be 1.55 
million. The sum of swine reported as feeding operational digesters 
was calculated to be 1.68 million. The total values including 
digesters that are under construction are 1.87 million dairy cattle 
and 2.08 million swine. Percentages are calculated by dividing these 
values by the most up-to-date data on dairy cattle and swine head: 
total dairy cattle head in 2022 (18.6 million) and swine head (73.4 
million) as reported in the EPA GHG Inventory. See also U.S. 
Environmental Protection Agency, ``Inventory of U.S. Greenhouse Gas 
Emissions and Sinks,'' available at https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks (Last 
updated November 22, 2024).
    \54\ Aaron Smith, How Much Should Dairy Farms Get Paid for 
Trapping Methane?, Energy Institute at Haas, Energy Institute Blog 
(Oct. 14, 2024), available at https://energyathaas.wordpress.com/2024/10/14/how-much-should-dairy-farms-get-paid-for-trapping-methane/.
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    Complementing these incentives are a range of other voluntary 
programs that encourage capture and productive use of methane emissions 
from animal waste. For example, the United States Department of 
Agriculture (USDA) is leveraging its authority under a variety of 
existing programs to encourage farmers and ranchers to install or 
upgrade equipment and adopt new practices that improve manure 
management and can substantially reduce methane emissions. One such 
program, AgSTAR, is a collaborative program sponsored by the EPA and 
USDA that promotes the use of biogas recovery systems, such as 
anaerobic digester systems, to reduce methane emissions from animal 
waste. Likewise, USDA Natural Resources Conservation Service programs--
including the Environmental Quality Incentives Program (EQIP) and the 
Conservation Stewardship Program (CSP)--provide incentives for 
upgrading existing anaerobic lagoons, anaerobic digesters, and solid 
separators and covers to collect methane for use or destruction; 
installing solid separators that reduce methane-producing slurries; and 
providing conservation assistance for transitions to alternative manure 
management systems, such as deep pits, composting, transitions to 
pasture, or other practices that have a lower GHG emissions profile. 
The Rural Energy for America Program (REAP) has offered more than $160 
million in grants and loans to incentivize anaerobic digesters and 
biogas projects to control methane and biogas from dairy and other 
farms.
    Given rapid recent and continuing growth and multiple existing 
incentive programs, it is reasonable to assume continued growth in the 
share of large dairies and confined animal feeding operations with 
anaerobic digesters, even absent an additional incentive under the 
section 45V credit. Redirecting biogas and ensuing RNG that comes from 
these sources to hydrogen production will mean less displacement of 
natural gas elsewhere in the economy, and could therefore result in 
significant indirect emissions

[[Page 2290]]

that must be taken into account under the section 45V(c)(1)(A) and (B).
    Third, the magnitude of the incentive provided by the section 45V 
credit itself creates a significant risk of additional waste production 
in response to the credit, with emissions that must be accounted for in 
the LCA. Additional waste production could result in additional 
emissions; moreover, even if emissions from additional production are 
captured, crediting the additional waste with avoided emissions would 
result in inaccurate credit determinations. For RNG produced from 
animal waste, there are several potential routes that may increase 
methane production:
     Shifting management practices for existing quantities of 
manure from land application to lagoon, thereby significantly 
increasing methane generation;
     On the margin, making new or expanded concentrated animal 
feeding operations (CAFOs) more profitable (whether by increasing the 
overall numbers of animals raised, or by consolidating smaller existing 
operations) and thereby inducing additional manure and methane 
generation; and
     Using management practices at biodigesters to produce more 
methane than would have been produced otherwise (for example, 
increasing the temperature at an anaerobic digester).
    To the extent producers adopt these practices in response to 
incentives created by the section 45V credit, failure to take this into 
account could lead to allocating the section 45V credit to hydrogen 
that does not meet statutory GHG emissions requirements. This would be 
a particular concern with a venting alternative fate because it would 
result in a very negative estimated lifecycle GHG emissions rate, 
creating strong incentives to produce additional methane that is used 
by hydrogen producers to claim the section 45V credit inappropriately.
    In light of these challenges and in consultation with the DOE 
regarding the most appropriate approach to determining the GHG 
intensity of biogas and ensuing RNG derived from animal waste, these 
final regulations use an alternative fate for the sector as a whole 
that is derived from the national average of all animal waste 
management practices. The rule provided in Sec.  1.45V-4(f)(3)(v) uses 
a best estimate of the nationwide average methane emissions from manure 
based on currently available data. As detailed in a technical analysis 
from the DOE, this results in a carbon intensity score of -51g of CO2e 
per megajoule (MJ), where the MJ basis refers to the lower heating 
value of the methane contained in the biogas prior to upgrading. This 
emissions attribute for the methane contained in biogas from animal 
waste can be subsequently used to calculate the carbon intensity of RNG 
by accounting for the lifecycle GHG emissions associated with the 
biogas upgrading, transportation, and compressing process.
    As further explained in the DOE's analysis of animal waste sources, 
this carbon intensity of RNG derived from methane contained in biogas 
from animal waste has been calculated using a weighted average of U.S. 
manure management practices across manure from all types of livestock 
and poultry.\55\ Averaging over the full set of animal-waste management 
practices nationwide is an administrable way to take into account the 
range of existing waste management practices and represent emissions 
reductions that result from additional methane capture and use. It is a 
reasonable and administrable representation of the carbon intensity of 
RNG from manure-based sources in light of the significant limitations 
of available data and verification mechanisms, the uncertainties 
associated with estimation of the GHG emissions, the benefits of 
different manure management systems, and the risks of perverse 
incentives. At the same time, it provides taxpayers certainty and 
clarity regarding the carbon intensity of methane from certain animal 
waste sources.
---------------------------------------------------------------------------

    \55\ U.S. Department of Energy, A Generic Counterfactual 
Greenhouse Gas Emissions Factor for Life-Cycle Assessment of Manure-
Derived Biogas and Renewable Natural Gas, Washington, DC (2025), 
available at https://www.energy.gov/45vresources.
---------------------------------------------------------------------------

    The Treasury Department and the IRS considered alternative 
approaches, in particular whether to provide differentiated alternative 
fates, for example based on a producer's prior waste management 
practices and methane production levels or the mix of animal types used 
to generate biogas. Differentiated alternative fates, however, is not 
feasible because it would not be administrable or practicable to set up 
a reporting and verification system to determine the prior practices 
and quantities of manure and biogas at each individual participating 
livestock and poultry operation that generates and sends biogas to an 
RNG upgrader. Such an approach would be infeasible given the large 
number of such operations and the lack of nationally applicable 
reporting requirements regarding numbers of animals or manure 
management practices by livestock and poultry operation (and wide 
variation in State reporting requirements). Additionally, 104 of the 
473 digesters operational or under construction in the AgSTAR database 
report co-digesting their primary manure type with one or more other 
wastes, including other types of manure, food waste, agricultural 
residues, and dairy/food processor waste. These tracking and 
verification challenges are of particular concern because differences 
in waste disposal practices or specific waste sources can result in 
large differences in avoided emissions, meaning that highly specific 
prior waste management practices would need to be consistently reported 
and verified to support accurate differentiated alternative fates. In 
addition, as discussed previously, differentiated alternative fates 
that allow for highly negative emissions values raise concerns about 
incentives for additional waste production that could result in 
inappropriate claims of the section 45V credit. The Treasury Department 
and the IRS, in consultation with the DOE, will continue to monitor 
reporting and tracking systems and study the feasibility of introducing 
differentiated pathways in the future.
    The Treasury Department and the IRS also considered whether the 
emissions values for RNG produced from animal waste should be adjusted 
to reflect the risk of additional waste production in response to the 
incentives provided by the section 45V credit. While the emissions 
values resulting from the DOE technical analysis could provide 
incentives to generate new waste, this concern is ameliorated to a 
degree by the requirement in these final regulations to assess each 
hydrogen production process by grouping major inputs with similar 
attributes, rather than allowing blends of feedstocks with different 
attributes to be evaluated as a single production process. The Treasury 
Department and the IRS will continue to study this issue to determine 
whether adjustments are needed in the future.
vi. Alternative Fate Considerations for Fugitive Methane From Fossil 
Fuel Activities Other Than Coal Mining
    The proposed regulations did not recognize a pathway within 45VH2-
GREET for determining lifecycle GHG emissions rates for the production 
of hydrogen using fugitive methane, but the preamble to the proposed 
regulations invited comment on the treatment of various sources of 
fugitive methane. In consultation with the DOE and the EPA and 
considering that fossil fuel activities other than coal mining are 
overwhelmingly comprised of oil and gas operations, these final 
regulations use productive use as the applicable

[[Page 2291]]

alternative fate for fugitive methane from these activities.
    While some comments viewed the alternative fate of fugitive 
emissions to be venting, others noted the extensive existing regulatory 
requirements and additional incentives for avoiding fugitive emissions 
from oil and gas operations and argued that productive use is the 
appropriate alternative fate for this source of methane. The Treasury 
Department and the IRS note that the EPA's regulations under section 
111 of the Clean Air Act seek to limit volatile organic compounds and 
methane emissions from oil and gas operations through a variety of 
requirements including performance standards as well as operational 
practices and leak detection and repair programs. See 40 CFR part 60 
(Subparts OOOO, OOOOa, OOOOb, and OOOOc). For example, the EPA's latest 
rules for new sources require use of zero emitting process controllers 
in most scenarios. The EPA's previous rules allowed low bleed and 
intermittent bleed controllers, which emit pollutants to the atmosphere 
by discharging natural gas. The EPA's new rules keep that gas in the 
system instead of allowing it to be released. The EPA's new rules also 
phase out routine flaring of associated gas from most new oil wells, 
establish strong performance standards for emissions from storage 
tanks, include requirements for the efficiency of flares, and 
strengthen requirements for regular leak monitoring and deadline for 
repairs at well sites. The EPA's leak detection and repair program at 
well sites requires frequent monitoring of oil and gas equipment with 
approved technology and methods to look for leaks. If a leak is found, 
then it must be repaired quickly so that the equipment stops leaking 
fugitive emissions to the atmosphere. This program will reduce the 
amount of emissions coming from leaking components. The EPA's rules 
also require owners and operators of new wells to use best management 
practices to minimize or eliminate venting of emissions from gas well 
liquids unloading.
    As discussed in part III.E.1, while some of the compliance 
deadlines under each of the updated regulations under section 111 of 
the Clean Air Act and updated reporting requirements in 40 CFR part 98 
Subpart W have not yet passed, operators must plan for timely 
compliance with those requirements and must already comply with other 
requirements such as the new source requirements under section 111. 
Thus, operators have significant incentives to make certain compliance 
investments now and are required to do so well within the period of the 
section 45V credit. In addition, the Bureau of Land Management and most 
oil and gas producing States also regulate the waste of gas through 
venting and flaring, and some, such as New Mexico and Colorado, have 
regulations equally or more stringent than EPA requirements in many 
respects.\56\ As a consequence, the majority of the actions that an oil 
or gas operator could take to avoid fugitive emissions are already, or 
during the life of the section 45V credit will be, required by law.
---------------------------------------------------------------------------

    \56\ See, for example, Waste Prevention, Production Subject to 
Royalties, and Resource Conservation, 89 FR 25378 (Apr. 10, 2024).
---------------------------------------------------------------------------

    Given the extensive regulatory environment already in place 
requiring oil and gas operators to minimize GHG emissions from oil and 
gas operations, and the strong incentive and existing infrastructure to 
sell gas that is not lost through venting or flaring, the generally 
applicable alternative fate for fugitive emissions from fossil fuel 
activities other than coal mining is productive use. Accordingly, the 
final regulations provide that for purposes of determining the 
lifecycle GHG emissions rate of a process that uses fugitive methane 
other than coal mine methane, such as fugitive methane from oil and gas 
operations, productive use of such gas must be used as the alternative 
fate, which would result in emissions equivalent to the carbon 
intensity of using fossil natural gas. For example, the production of 
methane from virgin coal seams, which is commonly referred to as 
``coalbed methane,'' (CBM) may be for the purpose of natural gas 
production or may result from pre-mining activities. Since it is 
typically of a comparable methane content as other natural gas sources, 
it is commonly sold for use. Nationwide, emissions that result from CBM 
extraction are currently reported to EPA's Greenhouse Gas Reporting 
Program under Subpart W, which informs background estimates of upstream 
methane emissions for the natural gas supply chain in 45VH2-GREET. 
Accordingly, lifecycle GHG emissions analyses conducted for purposes of 
section 45V would represent CBM with a carbon intensity that is 
equivalent to that of other sources of fossil natural gas.
d. Book and Claim
    The Explanation of Provisions to the proposed regulations noted 
that hydrogen producers using natural gas alternatives would be 
required to acquire and retire corresponding attribute certificates 
through a book-and-claim system that can verify in an electronic 
tracking system that all applicable requirements are met. Hydrogen 
producers would also be required to have a pipeline interconnection and 
measurement using a revenue grade meter. These rules would apply to the 
use of certificates with both direct and indirect claims of use of 
natural gas alternatives. Direct use would involve the production of 
hydrogen with a direct exclusive pipeline connection to a facility that 
generates RNG or from which fugitive methane is being sourced, while 
non-direct use would involve producing hydrogen using RNG or fugitive 
methane sourced from a commercial or common-carrier natural gas 
pipeline. In all cases, attribute certificates would need to document 
the RNG or fugitive methane procurement for qualified clean hydrogen 
production claims and ensure that the environmental attributes of the 
RNG or fugitive methane being used are not sold to other parties or 
used for compliance with other policies or programs.
    The Explanation of Provisions to the proposed regulations stated 
that before final regulations addressing the section 45V credit are 
issued, taxpayers will use 45VH2-GREET or the PER process to determine 
a lifecycle GHG emissions rate for hydrogen production facilities that 
rely on direct use of landfill gas or any fugitive methane feedstock, 
provided they meet the requirement that the gas being used results from 
the first productive use of methane from the landfill source or 
fugitive methane source. The term ``direct use'' means that there is a 
direct, exclusive pipeline connection between the hydrogen production 
facility and the source of the gas that is procured (for example, the 
upgrading or processing facility that produces RNG from landfill gas). 
Relative to a book-and-claim system, the direct connection between a 
gas supplier and a hydrogen production facility can reduce the 
uncertainty of pipeline leakage, tracking, and verification.
    The Explanation of Provisions to the proposed regulations explained 
that the Treasury Department and the IRS are considering providing a 
rule that taxpayers would need to provide and maintain documentation to 
substantiate that (i) the gas being used results from the first 
productive use of the methane at the landfill source and is not 
displacing a previous productive use; and (ii) the environmental 
attributes of the gas being used, including those of the underlying 
biogas, are not sold to other parties or used for compliance with other 
policies or programs. When additional conditions addressing

[[Page 2292]]

hydrogen production pathways that use natural gas alternatives for 
purposes of the section 45V credit are determined, taxpayers would also 
be required to maintain documentation that the natural gas alternative 
being used meets those requirements and to acquire and retire any 
certificates that are established. The proposed regulations further 
explained that the Treasury Department and IRS were also considering 
providing rules for using certificates and documentation required in 
the event additional conditions for use of natural gas sources are 
later imposed.
    The Explanation of Provisions to the proposed regulations further 
noted that tracking and verification mechanisms for RNG or fugitive 
methane specific to the needs of the section 45V credit are not yet 
available, and existing systems have limited capabilities for tracking 
and verifying pathways for natural gas alternatives, especially in the 
part of the production process before the methane has been reformed to 
RNG. The Explanation of Provisions to the proposed regulations 
indicated that existing tracking and verification systems do not 
clearly distinguish between inputs, verify or require verification of 
underlying practices claimed by RNG production sources, require proof 
of generator interconnection or revenue-quality metering, provide 
validation of generation methodology, include exclusively United States 
based-generation, verify generator registration, and track the vintage 
of generator interconnection. In the proposed regulations, the Treasury 
Department and IRS indicated that they were considering providing rules 
to address whether or how book-and-claim systems with sufficient 
tracking and verification mechanisms may be used to attribute the 
environmental benefits of RNG or fugitive methane to hydrogen producers 
in the final regulations. Additional certainty was also needed to 
accurately account for emissions from pathways that do not yet exist in 
45VH2-GREET and from gas from natural gas alternatives that is injected 
into a commercial or common-carrier pipeline.
    A range of comments advocating in favor of or against allowing the 
use of book-and-claim systems for natural gas alternatives were 
received in response to the proposed regulations. Several comments 
discussed how book-and-claim systems were commonplace within the RNG 
industry. In addition, several comments expressed concern about the 
viability of the RNG industry if the use of book-and-claim were not 
permitted under section 45V. Several comments stated that, because 
sources of natural gas alternatives are unevenly distributed throughout 
the United States and may not be located near prospective hydrogen 
projects, book-and-claim allows entities that do not have access to 
regional RNG sources to participate in the clean hydrogen economy. 
Several comments suggested there was clear Congressional intent to 
allow book-and-claim. One comment suggested that a ``mass balance'' 
model or an ``identity preservation'' model could be adopted if a book-
and-claim system were disallowed.
    Some comments expressed concerns about allowing book-and-claim. One 
comment suggested that there would be a mismatch between the support 
offered by the section 45V credit and the clean hydrogen-specific 
investment required of producers using a book-and-claim system; 
allowing section 45V credits for new or recently constructed hydrogen 
production facilities claiming production of qualifying hydrogen solely 
on the basis of RNG certificates, despite no meaningful change in 
operations compared to current ``business as usual'' practice, would 
not contribute to the development of new clean hydrogen technology and 
would therefore be contrary to the intention of the IRA. Several 
comments noted that any tracking system would not ensure that 
biomethane is not produced for the purpose of meeting demand for the 
biomethane market.
    In response to these comments, after consultation with the DOE and 
the EPA, the Treasury Department and the IRS agree that, subject to 
certain conditions, safeguards, and requirements described later, a 
book-and-claim system is an acceptable mechanism for establishing 
claims to certain attributes of RNG or coal mine methane that is used 
in a hydrogen production process. Similar systems have been used in 
other programs for similar purposes. Although certificates that are 
acquired and retired in a book-and-claim system may not necessarily 
reflect the feedstocks in fact used by a hydrogen production facility, 
such systems can serve as an effective proxy for the use of certain 
feedstocks if certain conditions are required, and the acquisition and 
retirement of certificates would contribute to the development of the 
hydrogen production market. Both EPA's RFS and the CA LCFS employ a 
form of book-and-claim (sometimes referred to as ``mass balance''), and 
the DOE has advised that both programs have driven methane capture and 
productive use. The DOE has also advised that EACs used for electricity 
have demonstrably supported new clean power plants. When such systems 
meet the conditions and requirements described later, book-and-claim 
systems can be appropriate tools for RNG and coal mine methane 
verification, supporting the establishment of lifecycle emissions as 
required under section 45V and these final regulations. The acquisition 
and retirement of certificates meeting certain requirements establishes 
claims to the attributes represented by such certificates that are 
considered part of the hydrogen production process and the lifecycle 
GHG emissions associated with the process.
    Some comments highlighted design challenges that should be 
addressed if the use of a book-and-claim system is allowed for purposes 
of section 45V. Several comments recommended that if a book-and-claim 
system were allowed, then such system should take measures to avoid 
double-counting of the same environmental attributes. Other comments 
suggested that any tracking system should be able to allocate emissions 
based on different levels of gas blending from different feedstocks, 
enable the differentiation of carbon capture rates to those different 
feedstock production pathways, and determine credit values based on 
these evaluations.
    The Treasury Department and the IRS agree with many of these 
comments and have taken them into account in establishing the 
requirements for a book-and-claim system that taxpayers may use for 
purposes of section 45V. Before a tracking system is suitable for use 
for purposes of section 45V, it must be capable of robustly tracking 
claims to the use of attributes and protecting against double counting. 
In consultation with the DOE and the EPA, the Treasury Department and 
the IRS agree that book-and-claim systems must enable users to 
distinguish between feedstocks as relevant to determining lifecycle GHG 
emissions rates for purposes of section 45V, but the Treasury 
Department and the IRS do not view it as appropriate to require 
tracking systems to allocate emissions or otherwise calculate emissions 
associated with the RNG or coal mine methane represented by a 
certificate. The carbon intensity associated with the RNG or coal mine 
methane used to produce hydrogen may be determined in 45VH2-GREET or a 
PER using the attributes represented by certificates for such 
feedstocks.
    Following consultation with the DOE and the EPA, and in 
consideration of the comments received and the requirements specified 
in these regulations regarding RNG and coal mine methane, these final 
regulations define in Sec.  1.45V-4(f)(2)(vi) a ``gas energy attribute 
certificate'' (gas EAC) to

[[Page 2293]]

mean a tradeable contractual instrument, issued through a qualified gas 
EAC registry or accounting system (as defined in in Sec.  1.45V-
4(f)(2)(viii)), that represents the attributes of a specific unit of 
RNG or coal mine methane. A gas EAC may be traded with or separately 
from the underlying gas it represents. A gas EAC can be retired by or 
on behalf of its owner, which is the party that has the right to claim 
the underlying attributes represented by a gas EAC. These final 
regulations in Sec.  1.45V-4(f)(2)(vii) define the term ``eligible gas 
EAC'' to mean a gas EAC that represents the quantity of RNG or coal 
mine methane that is produced by a facility that is registered on only 
one qualified gas EAC registry or accounting system (as defined in 
Sec.  1.45V-4(f)(2)(viii)) and that, with respect to the RNG or coal 
mine methane to which the gas EAC relates, provides, at a minimum, the 
information specified in Sec.  1.45V-4(f)(2)(vii)(A) through (F). The 
information specified in Sec.  1.45V-4(f)(2)(vii)(A) through (F) will 
enable the attributes of the RNG or coal mine methane represented by a 
gas EAC to be appropriately evaluated in determining a lifecycle GHG 
emissions rate for purposes of section 45V. For example, the 
requirement in Sec.  1.45V-4(f)(2)(vii)(E) for gas EACs to reflect the 
source or sources of the gas that comprises the RNG or coal mine 
methane associated with each gas EAC and any attributes required by 
45VH2-GREET, or in the determination of a PER, to accurately determine 
the emissions associated with such RNG or coal mine methane is intended 
to require gas EACs in a book-and-claim system to form the basis for 
any material distinctions that are relevant to the determination of a 
lifecycle GHG emissions rate as those distinctions are reflected in 
45VH2-GREET and may evolve over time.
    In consultation with the DOE and the EPA, and in consideration of 
the comments received and the requirements specified in these 
regulations regarding RNG and coal mine methane, these final 
regulations provide that a qualified gas EAC registry or accounting 
system for RNG or coal mine methane is an electronic tracking system 
that (A) assigns a unique identification number to each certificate 
associated with RNG and coal mine methane tracked by such system; (B) 
requires independent verification of the source or sources of the gas 
that comprises the RNG or coal mine methane and any other factual 
considerations relevant to the lifecycle GHG emissions assessment for 
purposes of section 45V for tracking and verification purposes (self-
reported data without independent verification are not allowed); (C) 
requires use of a revenue grade meter, with production volumes reported 
to the registry via an application programming interface (API) or with 
independent reporting to ensure accurate accounting for production 
volumes (self-reported data are not allowed); (D) enables verification 
that only one certificate is associated with each unit of RNG or coal 
mine methane; (E) verifies that each certificate is claimed and retired 
only once; (F) identifies the owner of each certificate and provides 
for documentation of the chain-of-custody of any transfers of 
certificates; (G) requires an attestation that a producer has not 
registered the RNG or coal mine methane with other registries; (H) 
provides a publicly accessible view (for example, through an 
application programming interface) of all currently registered RNG or 
coal mine methane production facilities in the tracking system to 
prevent the duplicative registration of such production facilities; and 
(I) requires verification of pipeline interconnection, if applicable. 
Such a qualified book-and-claim system would need to be accompanied by 
a robust third-party verification system or systems of the related 
production processes.
e. Qualifying Gas EAC Requirements
    The Explanation of Provisions to the proposed regulations indicated 
that the temporal matching and deliverability requirements as applied 
to RNG and coal mine methane would be logically consistent with but not 
identical to the temporal matching and deliverability requirements for 
electricity-derived EACs. The Explanation of Provisions to the proposed 
regulations further indicated that any such requirements would be 
designed to reflect the ways in which additional RNG or demand for 
fugitive methane can impact lifecycle GHG emissions and also to address 
the differences between electricity and methane, including but not 
limited to the different sources of emissions, markets, available 
tracking and verification methods, and potential for perverse 
incentives.
    A wide range of comments were received on temporal matching and 
deliverability requirements for natural gas alternatives. As relates to 
temporal matching, comments expressed differing views on whether to 
include a temporal matching requirement and, if so, over what timeframe 
the matching should be required. One comment argued against requiring 
temporal matching because the natural gas pipeline system operates on a 
displacement basis, where all injections are balanced with consumption 
and storage. The comment noted that physical volumes do not necessarily 
move but rather balance. Several comments noted that, unlike 
electricity, RNG has more steady flow year-round and has substantial 
storage available that can be used to address seasonal differences in 
demand. One comment also noted that, unlike electricity, natural gas 
and RNG production does not instantaneously rise and fall with natural 
gas and RNG demand. Therefore, the comment asserted that increased 
demand for RNG does not necessarily yield an immediate, simultaneous 
increase in natural gas production and related emissions.
    Many comments discussed the appropriate timeframe for matching if a 
temporal matching requirement is included in the final regulations. One 
comment argued that biogas, RNG, and fugitive methane production are 
not weather dependent on a minute, hourly, daily, weekly, monthly, or 
quarterly basis, and therefore should be matched on an annual basis. 
Others noted that hourly time matching would be unworkable because the 
industry typically balances supply and demand on at least a monthly 
basis, and hydrogen production is often tracked quarterly. One comment 
stated that due to the large storage capacity for gas in the United 
States, it would be appropriate to allow use of any RNG produced in the 
same year or one year prior to the year the clean hydrogen was 
produced. Another comment requested that if an hourly matching 
requirement was put in place to consider grandfathering in facilities 
that begin construction prior to December 31, 2029, allowing such 
facilities to use annual temporal matching. One comment noted that 
temporally matching RNG production and RNG use does little to improve 
the accuracy of carbon intensity scores, that time matching with a 
period shorter than monthly would create an arbitrary burden with 
little benefit, and that matching on a monthly basis would make sense 
after a transition period. Other comments also supported monthly 
matching.
    With respect to deliverability, the comments included a range of 
opinions about the size of the geographic regions under a 
deliverability requirement. One comment noted that the United States' 
natural gas pipeline network is sufficiently interconnected and has the 
proper infrastructure to permit inter-regional trade of natural gas, 
thus justifying either not having a matching

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requirement or having one equivalent to the size of the contiguous 
United States. Another comment noted that such a requirement would be 
appropriate so as not to disadvantage specific regions of the country. 
One comment noted that book-and-claim accounting combined with an 
attestation requirement obviates the need for strict geographic or 
deliverability requirements. One comment noted that the risk of 
undesirable indirect emissions effects from geographic or temporal 
mismatches between sources and uses is very low for RNG because the 
marginal source of gas on the natural gas grid is the same at all times 
of the day, in all seasons of the year and in all regions of North 
America.
    Other comments disagreed with treating the entire United States as 
a single, interconnected system. Some comments noted that any RNG 
claimed by a hydrogen producer should be required to be delivered into 
the same natural gas transmission network as the hydrogen producer 
claiming the utilization of the RNG in alignment with the 
deliverability requirement for electricity. One comment noted that a 
national approach fails to reckon with real-world system constraints 
that result in differentiated pricing, uneven emissions rates, and 
pipeline capacity limits, all of which can shape investment decisions 
in the broader energy system. Another comment stated that any RNG fed 
into the gas grid to be utilized by hydrogen producers should be fed 
into the same local gas distribution system where the clean hydrogen 
facility operates to fulfill the deliverability requirement. The 
comment asserted that such a measure could help ensure that GHG 
emissions from transport of the RNG or fugitive methane feedstock to 
the hydrogen production facility can be accounted for with some degree 
of certainty. Another comment noted that any biomethane claimed for 
hydrogen production for purposes of section 45V compliance should be 
physically deliverable to the hydrogen production plant to ensure a 
robust book and claim system with climate integrity, and that while 
much of the North American gas system is considered connected, there 
are key considerations to consider when designing rules for qualifying 
gas pathways. Several other comments requested that book-and-claim 
accounting include deliverability constraints that are consistent with 
accounting for the direct and indirect emissions of producing hydrogen 
with methane feedstocks. Likewise, some comments noted that the 
Treasury Department should further research the need for geographic 
boundary requirements on RNG book-and-claim to confirm whether there 
would be different emissions impacts across geographies.
    Section 45V requires a determination of lifecycle GHG emissions 
rates to address direct and significant indirect emissions, and this 
requirement applies to the use of RNG or coal mine methane in a 
hydrogen production process. Other requirements applied to RNG and coal 
mine methane included in these final regulations address some of these 
emissions. As relates to deliverability and temporal matching, many 
comments indicate that, unlike electricity EACs, temporal matching and 
deliverability requirements for RNG and coal mine methane have less 
direct salience because of their different nature and market 
characteristics. The DOE has advised, for example, that while 
electricity markets are highly regionalized with marginal emissions 
varying substantially over space and time, the same is not as true for 
the delivery infrastructure related to natural gas. Natural gas travels 
over regional and inter-regional pipelines and, while constraints exist 
on that network, as does methane leakage, there are fewer obvious 
regional boundaries to those pipelines as compared to the electricity 
grid. Additionally, the DOE has advised that the marginal emissions 
rate of using natural gas from the interstate pipeline network does not 
vary dramatically over time, and certainly not on an hourly basis. In 
part, this is because there is considerable storage in the natural gas 
delivery infrastructure, again unlike electricity networks.
    In light of all these considerations, the final regulations provide 
in Sec.  1.45V-4(f)(4)(iii)(B) that deliverability requires geographic 
matching within the pipeline network in a region. For this purpose, the 
pipeline network in the contiguous United States is treated as a single 
region. Hydrogen producers located in and connected to a natural gas 
pipeline in the contiguous United States must purchase an eligible gas 
EAC for RNG or coal mine methane that was injected into the pipeline 
network in the contiguous United States for such eligible gas EAC to be 
considered a qualifying gas EAC. Alaska, Hawaii, and each U.S. 
territory will be treated as separate regions for this purpose. A 
hydrogen producer located in and connected to a natural gas pipeline in 
any of these regions is required to purchase and retire gas EACs from 
RNG or coal mine methane producers whose pipeline injection is located 
in the same region to meet the requirement provided in Sec.  1.45V-
4(f)(4)(iii)(B). The DOE has advised that delivery can occur within the 
national natural gas pipeline network. These final regulations further 
confirm that the deliverability requirement is met if the RNG or coal 
mine methane represented by the eligible gas EAC was delivered to the 
hydrogen production facility from the RNG or coal mine methane producer 
through a direct pipeline connection or other physical method of 
exclusive delivery.
    With respect to temporal matching, in consultation with the DOE, 
these final regulations in Sec.  1.45V-4(f)(4)(iii)(A) require monthly 
matching. Eligible gas EACs used to document RNG or coal mine methane 
inputs by a qualified hydrogen producer need to be time-stamped such 
that the calendar month of the pipeline injection is the same calendar 
month in which the qualified hydrogen producer uses the underlying gas. 
As with electricity EACs, the third-party verifier is required to 
validate the matching requirement. A monthly matching requirement is 
appropriate for at least three reasons. First, the DOE has advised that 
pipeline flow and embedded storage in the natural gas delivery 
infrastructure means that the flow of gas from source to sink is 
variable but that one month is a reasonable approximation. A monthly 
matching requirement therefore ensures that temporal matching 
approximates the physics of actual delivery. Second, the DOE has 
advised that there would be little or no benefit in terms of mitigating 
the risk of significant indirect emissions if the temporal matching 
requirement were to be more granular, for example daily or hourly. 
Third, unlike renewable sources of electricity, the volume of RNG or 
coal mine methane produced by a specific source is unlikely to vary 
substantially over the course of a day but may vary seasonally over the 
course of a year. A monthly matching requirement will appropriately 
capture these potential seasonal differences in the quantity of RNG and 
coal mine methane production. These final regulations further confirm 
that the temporal matching requirement is met if the RNG or coal mine 
methane represented by the eligible gas EAC was delivered to the 
hydrogen production facility from the RNG or coal mine methane 
producer, through a direct pipeline connection or other physical method 
of exclusive delivery.
    Section 1.45V-4(f)(4)(iii) requires both temporal and 
deliverability requirements to be met for an eligible gas EAC to be 
considered a qualifying gas EAC that establishes a claim to the

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attributes of the eligible gas EAC for purposes of section 45V.
    Several comments suggested that existing systems, such as M-RETS, 
the EPA's RFS program, or the CA LCFS program, might have sufficient 
capabilities to enable book and claim accounting for purposes of 
section 45V. The EPA has advised that the tracking system used for the 
RFS is purpose-built for that program and would not be appropriate for 
use in the implementation of section 45V. Further, the EPA's RFS 
tracking system is not designed to differentiate among types of RNG by 
carbon intensity score and would not be usable for such a purpose even 
if it were otherwise appropriate to do so. The CA LCFS program uses 
what some stakeholders call a ``mass balance'' approach to tracking 
RNG, which is focused on tracking chain of custody based on review of 
contracts and related attestations, not via an electronic registry. The 
Treasury Department and the IRS, in consultation with the DOE, are 
concerned that a mass balance approach similar to the one employed by 
the CA LCFS program would be difficult to administer and is therefore 
not well suited for administration of the section 45V credit. M-RETS 
were identified by a number of stakeholders as an electronic registry 
that tracks RNG and that has been approved by several States in the 
administration of their programs.
    In consultation with the DOE and the EPA, the Treasury Department 
and the IRS confirm that, under these final regulations, hydrogen 
producers using RNG or coal mine methane will be allowed to acquire and 
retire corresponding attribute certificates through a book-and-claim 
system that can verify in an electronic tracking system that all 
applicable requirements are met. As discussed further below, such an 
electronic tracking system must be robust, establish unique claims to 
the attributes of RNG and coal mine methane, and utilize a qualified 
third-party registry that meets certain requirements after such 
registries become available.
    These final regulations establish requirements for certificates 
associated with RNG and coal mine methane, as well as qualification 
criteria for electronic book-and-claim registries. These requirements 
will help ensure that registries understand and will be capable of 
meeting the specific needs of these final regulations in a comparable 
fashion as qualified EACs, ensuring credible claims and no double 
counting while enabling assessments of certain emissions associated 
with RNG and coal mine methane. The Treasury Department and the IRS 
recognize, however, that the final regulations establish and announce 
specific requirements for gas EACs for the first time, and it may take 
time for systems and practices to adjust to meet these requirements. 
The Treasury Department and the IRS further note that experience with 
electronic registries for natural gas alternatives is less extensive 
than with EACs for electricity. The Treasury Department and the IRS are 
particularly concerned with the ability of systems to develop 
sufficient capability to robustly verify the waste sources generating 
biogas from which RNG is derived because such sources must be 
separately evaluated within 45VH2-GREET or in the determination of a 
PER. For example, use of RNG derived from biogas generated by animal 
waste and wastewater would be treated as distinct processes under these 
final regulations. Thus, tracking systems must verify the distinct 
upstream sources of biogas for RNG in a manner that allows the 
attributes of each source to be assessed in separate processes.
    Based on the comments received and in consultation with the DOE, 
the Treasury Department and the IRS understand that book-and-claim 
registries will, in the future, be able to meet the requirements 
provided in these final regulations. While the Treasury Department and 
the IRS cannot predict precisely when one or more electronic registries 
will be able to fully meet the requirements provided by these 
regulations, upon consultation with the DOE, the Treasury Department 
and the IRS expect that two years after the date the requirements for 
such systems have been announced will allow time for an entity or 
entities to modify existing systems, or design and build new systems, 
sufficient to meet the requirements specified in these final 
regulations. If and when systems that can meet the requirements of 
these final regulations become available, but no earlier than January 
1, 2027, the Secretary will determine whether an existing system meets 
the requirements established in these final regulations, and that such 
system may then be used to acquire and retire qualifying gas EACs under 
these final regulations. The use of book-and-claim accounting for RNG 
and coal mine methane will not be permitted until the Secretary makes 
this determination.
    Until the use of book-and-claim accounting for RNG and coal mine 
methane is permitted, taxpayers will be required to substantiate their 
use of RNG and coal mine methane in the production of hydrogen through 
a direct pipeline connection to a supplier of natural gas alternatives 
or documentation of other physical methods of exclusive delivery. In 
such cases of direct physical delivery, the attributes of the RNG and 
coal mine methane must be conveyed to the qualified hydrogen producer 
in a way that ensures no double counting of such attributes.
    Once book-and-claim is allowed via qualified tracking registries, 
electronic certificates issued by such registries will be required for 
both direct and indirect claims of use of RNG and coal mine methane. 
Direct use involves the production of hydrogen with a direct exclusive 
pipeline connection to a facility that generates RNG or from which coal 
mine methane is being sourced (or other physical method of exclusive 
delivery), while non-direct use would involve producing hydrogen using 
RNG and coal mine methane sourced from a natural gas pipeline. In the 
latter case, hydrogen producers would be required to have a pipeline 
interconnection and would need to measure pipeline injections via a 
revenue grade meter. In all cases, qualifying gas EACs would need to be 
acquired and retired pursuant to these final regulations to document 
the RNG and coal mine methane procurement for qualified clean hydrogen 
production claims and that the attributes of the RNG and coal mine 
methane being used are not sold to other parties.

IV. Verification

    Section 45V(c)(2)(B)(ii) provides that no hydrogen is qualified 
clean hydrogen unless its production and sale or use is verified by an 
unrelated party.
    Proposed Sec.  1.45V-5 would have provided the procedures necessary 
for section 45V credit claimants to fulfill the statutory verification 
requirement of section 45V(c)(2)(B)(ii). Comments addressed many 
aspects of these proposed rules, which are discussed in this part IV of 
the Summary of Comments and Explanation of Revisions. These final 
regulations adopt the rules as proposed, with the modifications 
described in this part IV.

A. In General

    Proposed Sec.  1.45V-5(a) would have provided that a verification 
report must be attached to a taxpayer's Form 7210 for each qualified 
clean hydrogen production facility and for each taxable year in which 
the taxpayer claims the section 45V credit.
    One comment argued that qualified verifiers should be required to 
directly report their verification findings to the IRS, saying it is 
necessary for public

[[Page 2296]]

confidence in the administration of section 45V.
    While drafting both the proposed regulations and these final 
regulations, the Treasury Department and the IRS, in consultation with 
the DOE and the EPA, considered adopting a verification regime that 
would require such direct reporting. The final regulations do not adopt 
this provision because direct reporting by verifiers to the IRS is not 
reasonably administrable.
    Another comment requested the creation of a ``streamlined'' 
verification process that small businesses that engage in self-use of 
produced hydrogen could elect into. Section 45V does not make any 
distinction based on the size of the hydrogen producer, and the 
importance of verification is the same regardless of producer's size. 
Accordingly, no additional, ``streamlined'' verification process is 
needed or appropriate.
    A few comments requested that the verification report requirement 
be suspended for the 2023 tax year. Because the verification 
requirement is statutory and begins in 2023, these final regulations do 
not adopt this comment.
    Some comments recommended that taxpayers be permitted to obtain 
verification reports on a quarterly instead of annual basis. While 
unclear, these comments appear to be recommending that the section 45V 
credit be determined on a quarterly basis. The period of time for which 
the credit is determined and for which the taxpayer must obtain a 
verification report is established by statute. Section 45V(a) provides 
that the section 45V credit is determined for ``any taxable year,'' 
meaning that the credit is determined on an annual basis. Allowing 
taxpayers to determine the credit on a quarterly basis would contravene 
the statute, and therefore this recommendation is not adopted.
    The final regulations amend Sec.  1.45V-5(a), however, to clarify 
that the taxpayer's Form 7210, or any successor form(s), are filed with 
the taxpayer's Federal income tax return or information return, which 
is consistent with the instructions to that form, and also make 
clarifying edits to the text of the regulation to eliminate redundant 
text.

B. Requirements for Verification Reports

    Proposed Sec.  1.45V-5(b) would have provided the general rule that 
a verification report specified in paragraph (a) of the same section 
must be prepared by a qualified verifier under penalties of perjury and 
must contain a production attestation, a sale or use attestation, a 
conflict attestation, a qualified verifier statement, certain general 
information about the taxpayer's hydrogen production facility, and any 
documentation necessary to substantiate the verification process given 
the standards and best practices of the qualified verifier's 
accrediting body and the taxpayer's circumstances and its hydrogen 
production facility.
    Comments addressed many aspects of the specific rules governing the 
contents of the verification report, and these are addressed in the 
succeeding paragraphs of this Summary of Comments and Explanation of 
Revisions. Comments did not address the general rule of proposed Sec.  
1.45V-5(b), but these final regulations include an additional 
requirement that a verification report must include any other 
information required by IRS forms or instructions. This additional 
requirement ensures that the IRS is able to effectively administer the 
section 45V credit and meet the statutory requirement of section 
45V(c)(2)(B)(ii).

C. Requirements for the Production Attestation

    Proposed Sec.  1.45V-5(c) would have provided the rules dictating 
the content of the production attestation within a verification report. 
Proposed Sec.  1.45V-5(c)(1) would have provided that the production 
attestation must be an attestation that the qualified verifier 
performed a verification sufficient to determine that the operation of 
the taxpayer's hydrogen production facility and any EACs applied 
pursuant to Sec.  1.45V-4(d) are accurately reflected in the amount of 
qualified clean hydrogen claimed on the taxpayer's Form 7210 and either 
the data the taxpayer entered into the most recent GREET model to 
determine the emissions rate claimed on the taxpayer's Form 7210, or 
the data the taxpayer submitted in the PER petition relating to the 
taxpayer's hydrogen and which was provided to the DOE to obtain the 
emissions value provided in the PER petition.
    Some comments requested that the final regulations provide specific 
rules for verification of facility-specific data, including in the PER 
process, to ensure that emissions data is independently collected using 
objective quantification methods and that the data trail is immutable, 
auditable, transparent, and accessible by third parties.
    The Treasury Department and the IRS agree that clarification is 
needed regarding verification of data specific to the facility. 
Accordingly, Sec.  1.45V-5(c)(1) is modified to reflect that a 
verification report must reflect ``reasonable assurance'' in the 
operation of the hydrogen production facility and any EACs applied. The 
``reasonable assurance'' standard is defined within the ISO 14064-3, 
and is reflected in other greenhouse gas regulations, such as the CA 
LCFS. Additionally, as discussed in part IV.H of this Summary of 
Comments and Explanation of Revisions, Sec.  1.45V-5(h) is modified to 
reflect that a qualified verifier accredited under the American 
National Standards Institute National Accreditation Board must be 
accredited to conduct validation and verification in accordance with 
the requirements of ISO 14065:2020 and ISO 14064-3:2019. This clarifies 
that the verification report must be performed in accordance with those 
standards, or similar standards in the case of a verifier accredited 
under the CA LCFS program.
    In addition, the production attestation requirements are modified 
to include an additional requirement in the case of any EACs applied 
pursuant to Sec.  1.45V-4(d). Under this modification, verifiers must 
confirm that the electricity generator or generators associated with 
such EACs are not registered on multiple qualifying EAC registries, or, 
in the event such generators are registered on multiple qualifying EAC 
registries, each EAC undergoing verification from each such generator 
registered on multiple qualifying EAC registries is being issued by 
only one qualifying EAC registry. See Sec.  1.45V-5(c)(2). Because 
qualifying EAC registries must provide a publicly accessible view of 
all currently registered generators in the tracking system to prevent 
the duplicative registration of generators, this verification 
requirement provides further guardrails against the risk of double 
counting EACs. The final regulations also make corresponding 
modifications to Sec.  1.45V-5(b)(1) and (c)(1) regarding the accuracy 
of the inputs used to determine the lifecycle GHG emissions rate of 
hydrogen production processes.
    Proposed Sec.  1.45V-5(c)(2) and (3) would have required production 
attestations to specify the emissions rate and amount of qualified 
clean hydrogen produced that are claimed on the taxpayer's Form 7210, 
as well as the emissions value received from the DOE during the EVRP, 
if applicable. No comments addressed these provisions, so these final 
regulations adopt them as proposed, with renumbering.

D. Requirements for the Sale or Use Attestation

    Proposed Sec.  1.45V-5(d) would have provided rules governing the 
content of the sale or use attestation within a verification report. 
Proposed Sec.  1.45V-5(d)(1) would have provided that the

[[Page 2297]]

sale or use attestation must be an attestation that the qualified 
verifier performed a verification sufficient to determine that the 
amount of qualified clean hydrogen that is specified in the production 
attestation and that is claimed on the taxpayer's Form 7210 has been 
sold, or has been used by a person who makes a verifiable use of such 
hydrogen.
    Proposed Sec.  1.45V-5(d)(2) would have provided a definition of 
verifiable use indicating that a verifiable use can occur within or 
outside the U.S., can be made by the taxpayer or another person; 
includes tolling arrangements; and does not include the generation of 
electricity for subsequent rounds of hydrogen production, venting, or 
flaring.
    The proposed regulations requested comments on whether the 
regulations could adopt additional safeguards to prevent the use of 
hydrogen to generate electricity that is then directly or indirectly 
used to produce more hydrogen, the venting or flaring of hydrogen, and 
similar types of abusive section 45V credit claims, including claims 
from circular arrangements coordinating among multiple parties.
    Comments construable as responding to this request focused on the 
anti-abuse rule of proposed Sec.  1.45V-2(b), so these comments are 
addressed in part II.B of this Summary of Comments and Explanation of 
Revisions.
    One comment asked for the final regulations to include broadly 
applicable examples of verifiable use, such as usage that replaces 
natural gas in production facilities or other industrial uses, or to 
specify what constitutes a verifiable use. Another comment recommended 
that the verifiable use rule not address indirect use of electricity 
generated from produced hydrogen to produce further hydrogen, citing 
the recycling of waste heat as a benign example of such indirect use.
    The Treasury Department and the IRS agree that the operation of the 
verifiable use rule should be clarified and should not apply to the use 
to which byproducts of hydrogen use are put. Accordingly, these final 
regulations provide a clarifying modification to the text of the 
verifiable use rule in Sec.  1.45V-5(d)(2)(i) and an example in 
renumbered Sec.  1.45V-5(d)(3), which illustrates the application of 
Sec.  1.45V-5(d)(2).
    One comment asked that binding written offtake agreements be 
construed as sales for purposes of the sale or use attestation. 
However, in the absence of a regulatory definition of sale for section 
45V purposes alone, whether a particular agreement constitutes a sale 
would be determined under general tax principles. There is insufficient 
justification for an exception to this result and thus these final 
regulations do not adopt the proposal. To the extent such an agreement 
is a sale for Federal income tax purposes, the taxpayer would not be 
eligible to claim the section 45V credit with respect to the hydrogen 
it sold until all relevant requirements, including the verification 
requirement, have been satisfied.
    With respect to the comment's request for examples, or a specific 
definition of, verifiable use, these final regulations do not provide 
specific examples or specify a definition of verifiable use. The 
verifiable use rule is intended to prohibit abusive or wasteful uses of 
hydrogen that do not further the purpose of section 45V while providing 
flexibility in what constitutes a verifiable use. It is not meant to 
limit the universe of creditable uses of qualified clean hydrogen, and 
defining verifiable use could lead to that unintended result. However, 
to clarify some verifiable uses of qualified clean hydrogen, examples 
could include using qualified clean hydrogen in a fuel cell to produce 
electricity, or using qualified clean hydrogen to manufacture steel, 
among many other uses.

E. Requirements for the Conflict Attestation

    Proposed Sec.  1.45V-5(e) would have provided rules governing the 
content of the conflict attestation within a verification report. 
Proposed Sec.  1.45V-5(e)(1) would have provided five representations 
the verifier must make in the conflict attestation, while proposed 
Sec.  1.45V-5(e)(2) would have provided a special rule in the elections 
made under section 6418(a) with respect to the section 45V credit.
    One comment expressed concern that the verifier conflict 
attestation, specifically the language at proposed Sec.  1.45V-
5(e)(1)(iii) reading, ``[t]he qualified verifier is not related, within 
the meaning of section 267(b) or 707(b)(1) of the Code, to, or an 
employee of, the taxpayer[,]'' appears to require hydrogen producers to 
test for conflict attribution with every employee of the qualified 
verifier, given the definition of ``related'' in sections 267(b) and 
707(b)(1).
    These final regulations do not adopt this comment. The language of 
proposed Sec.  1.45V-5(e)(1)(iii) only requires testing whether the 
qualified verifier is related, within the meaning of section 267(b) or 
707(b)(1), to the taxpayer, and whether the qualified verifier is an 
employee of the taxpayer. Proposed Sec.  1.45V-5(e)(1)(iii) does not 
require application of any attribution or constructive ownership rules.
    Proposed Sec.  1.45V-5(e)(2) would have provided a special rule in 
the case of taxpayers making an election to transfer the credit under 
section 6418 to require the conflict attestation to attest that the 
verifier is independent of both the eligible taxpayer and the 
transferee. Because the identity of the transferee might not be known 
in time for the verifier to complete the conflict attestation, this 
special rule could create issues with timely preparing the conflict 
attestation. Proposed Sec.  1.45V-5(e)(2) is therefore removed from 
these final regulations, and accordingly, Sec. Sec.  1.45V-5(e)(1)(i) 
through (v) are renumbered as Sec.  1.45V-5(e)(1) through (5). 
Correlative edits have also been made to proposed Sec.  1.48-15(e)(2).

F. Requirements for the Qualified Verifier Statement

    Proposed Sec.  1.45V-5(f) would have provided rules governing the 
content of the qualified verifier statement within a verification 
report. No comments addressed this provision, so these final 
regulations adopt it as proposed.

G. General Information on the Taxpayer's Hydrogen Production Facility

    Proposed Sec.  1.45V-5(g) would have required certain information 
regarding the hydrogen production facility undergoing verification to 
be included in the verification report. No comments addressed this 
provision, so these final regulations adopt it as proposed.

H. Qualified Verifier

    Proposed Sec.  1.45V-5(h) would have defined a qualified verifier 
as any individual or organization with active accreditation as a 
validation and verification body from the American National Standards 
Institute National Accreditation Board (ANAB), or as a verifier, lead 
verifier, or verification body under the CA LCFS.
    Some comments, including one from one of the accreditation bodies 
named in the proposed regulations, suggested that the final regulations 
specify the type of accreditation needed from the two named 
accreditation bodies to include International Organization for 
Standardization (ISO) standard 14065 and 14064-3. One of these comments 
noted that the CA LCFS program, one of the two named accreditation 
bodies, draws from ISO 14065 and 14064-3.
    The Treasury Department and the IRS agree that, in the case of 
ANAB-accredited validation and verification bodies, the proposed 
regulations lack needed specificity. Accordingly, these

[[Page 2298]]

final regulations adopt the proposed regulations with a modification to 
limit the pool of ANAB-accredited qualified verifiers to those 
accredited under the ANAB Accreditation Program for Greenhouse Gas 
Validation and Verification Bodies.

I. Unrelated Party

    Proposed Sec.  1.45V-5(i) would have defined, for purposes of 
section 45V(c)(2)(B)(ii), the term ``unrelated party'' to mean a 
qualified verifier who meets the requirements of proposed Sec.  1.45V-
5(e). No comments addressed this provision, so these final regulations 
adopt it as proposed.

J. Requirements for Taxpayers Claiming Both the Section 45V Credit and 
the Section 45 Credit or the Section 45U Credit

    Section 45(e)(13) provides that electricity produced by the 
taxpayer shall be treated as sold by such taxpayer to an unrelated 
person during the taxable year if such electricity is used during such 
taxable year by the taxpayer or a person related to the taxpayer at a 
qualified clean hydrogen production facility to produce qualified clean 
hydrogen, and such use and production is verified (in such form or 
manner as the Secretary may prescribe) by an unrelated third party.
    Section 45U(c)(2) provides, among other things, that rules similar 
to the rules of section 45(e)(13) shall apply for purposes of section 
45U.
    Proposed Sec.  1.45V-5(j) would have provided requirements for 
taxpayers claiming the section 45V credit concurrently with either the 
section 45 credit or the section 45U credit. No comments addressed this 
provision, so these final regulations adopt it as proposed with a minor 
clarification to Sec.  1.45V-5(j)(3) that electricity represented by an 
EAC must be both acquired and retired.

K. Timely Verification Report

    Proposed Sec.  1.45V-5(k) would have provided that a verification 
report must be signed and dated by the qualified verifier no later than 
(i) the due date, including extensions, of the Federal income tax 
return or information return for the taxable year during which the 
hydrogen undergoing verification is produced; or (ii) in the case of a 
section 45V credit first claimed on an amended return or AAR, the date 
on which the amended return or AAR is filed.
    Some comments expressed concern that a late verification report, 
filed with a taxpayer's return after the extended return filing due 
date for the taxable year of hydrogen production, would preclude 
taxpayers from making an elective payment election under section 6417 
or a transferability election under section 6418. These comments were 
addressed in part I.C of this Summary of Comments and Explanation of 
Revisions.
    One comment said the final regulations should allow for a late 
verification report to be filed with an amended return, reading the 
proposed regulations as allowing this in the first year only. While not 
entirely clear, the comment appeared to be requesting clarification 
that, for purposes of section 45V, a taxpayer may submit a late 
verification report with an amended return or AAR for any taxable year 
during the 10-year credit period, and not just the first year.
    The Treasury Department and the IRS agree that further 
clarification is needed. As written, the proposed regulations could be 
read to suggest that a taxpayer may only file a late verification 
report on an amended return in the first taxable year of production. 
That result was not intended. Accordingly, Sec.  1.45V-5(k)(2) is 
modified to provide that, in the case of a credit first claimed for the 
taxable year on an amended return or AAR, the verification report must 
be filed by the date on which the amended return or AAR is filed. This 
modification is intended to clarify that a late-filed verification 
report may be filed on an amended return for any taxable year during 
the 10-year credit period and not just the first taxable year of 
production.

V. Rules for Determining the Placed in Service Date for an Existing 
Facility That is Modified To Produce Qualified Clean Hydrogen

A. Modification of an Existing Facility

    Under section 45V(d)(4), in the case of any facility that was 
originally placed in service before January 1, 2023, and, prior to the 
modification (described in section 45V(d)(4)(B)), did not produce 
qualified clean hydrogen, and after the date the facility was 
originally placed in service (i) is modified to produce qualified clean 
hydrogen, and (ii) amounts paid or incurred with respect to the 
modification are properly chargeable to the taxpayer's capital account, 
the facility will be deemed to have been originally placed in service 
as of the date the property required to complete the modification is 
placed in service. The rule in section 45V(d)(4) for modification of 
existing facilities applies to modifications made after December 31, 
2022. See Sec.  13204(a)(5)(C) of the IRA.
    Proposed Sec.  1.45V-6(a)(1) would have incorporated the statutory 
provisions of section 45V(d)(4). Proposed Sec.  1.45V-6(a)(2) would 
have provided that an existing facility will not be deemed to have been 
originally placed in service as of the date the property required to 
complete the modification is placed in service unless the modification 
is made for the purpose of enabling the facility to produce qualified 
clean hydrogen and the taxpayer pays or incurs an amount with respect 
to such modification that is properly chargeable to the taxpayer's 
capital account for the facility. Proposed Sec.  1.45V-6(a)(2) would 
also have provided that a modification is made for the purpose of 
enabling the facility to produce qualified clean hydrogen if the 
facility could not produce hydrogen with a lifecycle GHG emissions rate 
that is less than or equal to 4 kilograms of CO2e per kilogram hydrogen 
but for the modification. Changing inputs to the hydrogen production 
facility, such as switching from conventional natural gas to renewable 
natural gas, would not qualify as a facility modification for purposes 
of proposed Sec.  1.45V-6(a)(2). Proposed Sec.  1.45V-6(c) would have 
provided three examples illustrating the application of the rules 
provided by section 45V(d)(4) and Sec.  1.45V-6(a).
    Several comments were received on proposed Sec.  1.45V-6(a)(1) and 
(2). Some comments requested that the final regulations provide that 
changing the fuel input in the hydrogen production process, such as 
changing from natural gas to renewable natural gas, qualifies as a 
facility modification for purposes of section 45V(d)(4). These comments 
further suggested that acquiring new feedstocks for the purpose of 
enabling the hydrogen production facility to produce qualified clean 
hydrogen should constitute a facility modification. Several other 
comments suggested that the final regulations should clarify that 
acquiring new feedstocks and the associated components needed to 
process such feedstocks, or constructing a new facility to produce such 
feedstocks, for the purpose of enabling the facility to produce 
qualified clean hydrogen, constitutes a facility modification, provided 
the amounts paid or incurred with respect to such modification are 
properly chargeable to the capital account of the taxpayer.
    It is not appropriate to provide a special rule that changing fuel 
inputs or investing in new feedstock production technology is a 
modification under section 45V(d)(4). Section 45V(d)(4)(B)(ii) 
specifically requires that expenditures made with respect to a 
modification must be properly

[[Page 2299]]

chargeable to the taxpayer's capital account. Changing fuel inputs, 
without more, would not satisfy this statutory requirement. However, to 
the extent new components are installed in the hydrogen production 
facility in order to enable the facility to consume a different type of 
fuel that would enable the facility to produce qualified clean 
hydrogen, and to the extent such components are chargeable to the 
capital account of the taxpayer, then the installation of such new 
components would qualify as a modification under section 45V(d)(4), 
assuming all other requirements of Sec.  1.45V-6(a)(2) are met. 
Regarding investing in new feedstock production technology, such 
investment would not constitute a modification under section 45V(d)(4) 
because it is not a modification to the hydrogen production facility, 
but instead a modification to the feedstock production facility.
    Accordingly, these regulations retain the proposed approach and 
have clarified in Sec.  1.45V-6(a)(2) that merely changing fuel inputs 
does not constitute a modification under section 45V(d)(4). 
Additionally, Sec.  1.45V-1(a)(7)(ii)(B) is modified to clarify that 
feedstock production equipment is not part of the facility for purposes 
of section 45V(c)(3).
    Several other comments requested that the final regulations clarify 
that there is no monetary threshold required for any capital 
expenditure paid or incurred with respect to modifications made to an 
existing facility originally placed in service before January 1, 2023, 
in order to enable the facility to produce qualified clean hydrogen, 
assuming all other requirements are met, for such facility to qualify 
under section 45V(d)(4) for a new deemed originally placed in service 
date.
    These final regulations do not provide a rule specifying a monetary 
threshold. The relevant inquiry under section 45V(d)(4) and Sec. Sec.  
1.45V-6(a)(1) and (2) is whether the modification is made for the 
purpose of enabling the facility to produce qualified clean hydrogen 
and whether the taxpayer pays or incurs an amount with respect to such 
modification that is properly chargeable to the taxpayer's capital 
account. As set forth in Sec.  1.45V-6(a)(2), the taxpayer must make a 
capital expenditure with respect to the modification, but there is no 
requirement that such expenditure satisfies a certain monetary 
threshold. To the extent the capital expenditure is for a modification 
that enables the facility to produce qualified clean hydrogen and the 
facility would not otherwise be able to produce qualified clean 
hydrogen but for the modification, such expenditure would satisfy the 
requirements of Sec.  1.45V-6(a)(2), regardless of amount. Because 
section 45V(d)(4) and Sec.  1.45V-6(a)(2) are sufficiently clear to 
enable taxpayers to determine whether their expenditure satisfies the 
requirements for the facility to receive a new deemed originally placed 
in service date, any further rules regarding a monetary threshold 
beyond the statutory text are unnecessary.
    Finally, one comment requested that the final regulations provide 
that an existing facility that is modified to capture hydrogen that 
would have been flared or released but that is instead put to 
productive use is deemed to have been originally placed in service as 
of the date the modifications were placed in service. Although unclear, 
this comment appears to be requesting that an existing facility that 
previously produced qualified clean hydrogen before it was modified to 
capture such hydrogen be entitled to a new originally placed in service 
date under section 45V(d)(4). It would be inappropriate to provide such 
a rule. To the extent a facility produced qualified clean hydrogen 
before it was modified to capture such hydrogen, such modification 
would not meet the requirements of Sec.  1.45V-6(a)(2) because the 
modification was not for the purpose of enabling the facility to 
produce qualified clean hydrogen. If, on the other hand, the facility 
did not produce qualified clean hydrogen before it was modified to 
capture hydrogen, then such modification could meet the requirements of 
Sec.  1.45V-6(a)(2), provided that the modification enables the 
facility to produce qualified clean hydrogen. Whether the facility 
produces qualified clean hydrogen would depend on the lifecycle GHG 
emissions rate of the hydrogen production process. Because such inquiry 
would depend on the lifecycle GHG emissions rate of the hydrogen 
production process and is fact specific, these final regulations do not 
include a special rule for this scenario in the regulatory text.

B. Retrofit of an Existing Facility

    Proposed Sec.  1.45V-6(b) would have provided that an existing 
facility may establish a new date on which it is considered originally 
placed in service for purposes of section 45V, even though the facility 
contains some used property, provided the fair market value of the used 
property is not more than 20 percent of the facility's total value (the 
cost of the new property plus the value of the used property) (80/20 
Rule). Proposed Sec.  1.45V-6(b) would have further provided that for 
purposes of the 80/20 Rule, the cost of new property includes all 
properly capitalized costs of the new property included within the 
facility. Proposed Sec.  1.45V-6(b) would have provided that, if a 
facility satisfies the requirements of the 80/20 Rule, then the date on 
which such facility is considered originally placed in service for 
purposes of section 45V(a)(1) is the date on which the new property 
added to the facility is placed in service. Proposed Sec.  1.45V-6(b) 
would also have provided that the 80/20 Rule applies to any existing 
facility, regardless of whether the facility previously produced 
qualified clean hydrogen and regardless of when the facility was 
originally placed in service (before application of proposed Sec.  
1.45V-6(b)). Examples 4 and 5 of proposed Sec.  1.45V-6(c) would have 
provided examples illustrating the application of the 80/20 Rule.
    Several comments were received on the 80/20 Rule and proposed Sec.  
1.45V-6(b). Some comments requested clarification on what is included 
in the definition of an ``existing facility'' for purposes of the 80/20 
Rule and whether the 80/20 Rule applies only to existing hydrogen 
production facilities, or whether it applies to all existing facilities 
regardless of whether they previously produced hydrogen. Similarly, one 
comment suggested that the term ``existing facility'' could mean a 
purchased facility or an already existing facility owned by the 
taxpayer. Other comments requested clarification as to whether a 
facility that otherwise meets the modification rule of section 
45V(d)(4) would also be required to meet the 80/20 Rule in order to 
receive a new originally placed in service date. One comment requested 
that the 80/20 Rule only be applied to existing hydrogen production 
facilities. This comment further suggested that the final regulations 
should clarify that, for purposes of the 80/20 Rule, the unit of 
property to which the 80/20 Rule applies is a single production line as 
defined in proposed Sec.  1.45V-1(a)(7)(i). For example, with respect 
to a project with multiple production lines that are capable of 
independently producing qualified clean hydrogen, this comment 
requested that the final regulations clarify that the 80/20 Rule would 
apply separately to each such production line.
    One comment requested clarification on the extent to which used 
components of property owned by another person that function 
interdependently with components of property owned by the taxpayer to 
produce qualified clean hydrogen must be taken into consideration for 
purposes of the 80/20 Rule. This comment provided the example of 
transmission pipelines not

[[Page 2300]]

owned by the taxpayer but that are used to import methane to the 
hydrogen production facility, and asked whether such components would 
need to be taken into consideration for purposes of the 80/20 Rule.
    One comment requested clarification on the extent to which roads, 
fences, buildings, land, and other ancillary property may be considered 
part of a qualified clean hydrogen production facility that must be 
taken into account for purposes of the 80/20 Rule.
    Finally, one comment requested that proposed Sec.  1.45V-6(b) be 
modified to allow taxpayers to exclude the cost of any maintenance, 
repairs, or upgrades when determining the value of used property for 
purposes of the 80/20 Rule.
    The Treasury Department and the IRS agree that further 
clarification of the 80/20 Rule is appropriate. The proposed 80/20 Rule 
could have been interpreted to apply to all existing facilities, 
including those that satisfy the modification requirements of section 
45V(d)(4) to receive a new deemed originally placed in service date. 
This was not the intent of proposed Sec.  1.45V-6(b). Accordingly, the 
final regulations clarify in Sec.  1.45V-6(a)(3) that a facility that 
satisfies the requirements of section 45V(d)(4) does not also need to 
meet the 80/20 Rule in order to be deemed to be originally placed in 
service as of the date that the property required for the modification 
is placed in service. Proposed Sec.  1.45V-6(b) is also modified to 
clarify the scope of the 80/20 Rule. The final regulations under Sec.  
1.45V-6(b) now provide that the 80/20 Rule applies to retrofitted 
hydrogen production facilities and that the 80/20 Rule applies 
separately to each single production line containing used property.
    These final regulations do not provide further rules addressing the 
extent to which used property owned by another person must be taken 
into consideration for purposes of the 80/20 Rule because existing 
Federal income tax concepts are sufficient to address the question 
posed in the comment. Likewise, these final regulations do not clarify 
whether roads, fences, buildings, land, or other ancillary property are 
part of the qualified clean hydrogen production facility for purposes 
of the 80/20 Rule. Existing Federal income tax concepts are sufficient 
to address this question. In determining the value of old or existing 
equipment as compared to new equipment, the general principles of 
Revenue Ruling 94-31 apply. Revenue Ruling 94-31 provides that a 
facility would qualify as originally placed in service even though it 
contains some used property, provided the fair market value of the used 
property is not more than 20 percent of the facility's total value (the 
cost of the new property plus the value of the used property). Some 
changes to the definition of ``facility'' are needed to clarify that 
feedstock transportation or feedstock transmission equipment, such as 
electricity transmission equipment, is not part of the qualified clean 
hydrogen production facility. Accordingly, proposed Sec.  1.45V-
1(a)(7)(ii)(B) is revised to exclude feedstock transmission equipment 
from the definition of ``facility.''
    Finally, regarding whether proposed Sec.  1.45V-6(b) should be 
modified to allow taxpayers to exclude the cost of maintenance, 
repairs, or upgrades from the value of used equipment for purposes of 
the 80/20 Rule, the final regulations do not adopt these suggestions 
because they are inconsistent with Federal income tax principles 
underlying the 80/20 Rule.

VI. Election To Treat Clean Hydrogen Production Facility as Energy 
Property

A. Overview

    Section 48(a)(15) allows a taxpayer that owns and places in service 
a specified clean hydrogen production facility (as defined in section 
48(a)(15)(C)) to make an irrevocable election to claim the section 48 
credit in lieu of the section 45V credit for any qualified property (as 
defined in section 48(a)(5)(D)) that is part of the facility. Section 
13204(c)(3) of the IRA provides that this provision is effective for 
property placed in service after December 31, 2022. For any property 
that is placed in service after December 31, 2022, and the construction 
of which begins before January 1, 2023, Sec.  13204(c)(3) of the IRA 
provides that section 48(a)(15) applies only to the extent of the basis 
of such property that is attributable to construction, reconstruction, 
or erection occurring after December 31, 2022.
    Proposed Sec.  1.48-15(a) would have provided that a taxpayer that 
owns and places in service a specified clean hydrogen production 
facility (as defined in section 48(a)(15)(C) and proposed Sec.  1.48-
15(b)) can make an irrevocable election under section 
48(a)(15)(C)(ii)(II) to treat any qualified property (as defined in 
section 48(a)(5)(D)) that is part of the facility as energy property 
for purposes of section 48.
    Proposed Sec.  1.48-15(b) would have defined the term ``specified 
clean hydrogen production facility'' to mean any qualified clean 
hydrogen production facility (within the meaning of section 45V(c)(3) 
and proposed Sec.  1.45V-1(a)(10)): (i) that is placed in service after 
December 31, 2022; (ii) with respect to which no section 45V credit or 
section 45Q credit has been allowed, and for which the taxpayer makes 
an irrevocable election to have section 48(a)(15) apply; and (iii) for 
which an unrelated party has verified in the manner specified in 
proposed Sec.  1.48-15(e) that such facility produces hydrogen through 
a process that results in lifecycle GHG emissions that are consistent 
with the hydrogen that such facility was designed and expected to 
produce under section 48(a)(15)(A)(ii) and proposed Sec.  1.48-15(c).
    Proposed Sec.  1.48-15(c)(1) would have provided the energy 
percentage (used by a taxpayer to calculate a section 48 credit) for a 
specified clean hydrogen production facility that is designed and 
reasonably expected to produce qualified clean hydrogen through a 
process that results in a lifecycle GHG emissions rate of not greater 
than 4 kilograms of CO2e per kilogram of hydrogen. Proposed Sec.  1.48-
15(c)(2) would have further provided that ``designed and reasonably 
expected to produce'' means hydrogen produced through a process that 
results in the lifecycle GHG emissions rate specified in the annual 
verification report for the taxable year in which the section 48(a)(15) 
election is made.
    The Treasury Department and the IRS solicited feedback on the 
proposed definition of the term ``designed and reasonably expected to 
produce'' and whether there are any challenges to using the lifecycle 
GHG emissions rate achieved in the taxable year in which the section 
48(a)(15) election is made to determine the facility's energy 
percentage for purposes of calculating the section 48 credit amount. No 
comment addressed the definition of the term ``designed and reasonably 
expected to produce'' or the challenges of using the lifecycle GHG 
emissions rate determined in the year the election takes place. 
However, one comment recommended that the final regulations allow for 
taxpayers that make the section 48(a)(15) election to determine their 
energy percentage by using a lifecycle GHG emissions rate achieved in a 
later taxable year. Section 48(a)(1) generally provides that the energy 
credit for any taxable year is the energy percentage of the basis of 
each energy property placed in service during such taxable year. This 
means that while a taxpayer is required to determine the lifecycle GHG 
emissions rate of the hydrogen undergoing verification each year of the 
recapture period specified in proposed Sec.  1.48-15(f)(3), the credit 
amount may only be determined based on the lifecycle GHG emissions rate 
of the hydrogen produced in the year the

[[Page 2301]]

specified clean hydrogen production facility is placed in service. 
Allowing the use of a lifecycle GHG emissions rate achieved in a later 
taxable year is inconsistent with section 48(a)(1), since the section 
48 credit is claimed only in the taxable year in which energy property 
is placed in service. Therefore, these final regulations adopt these 
proposed rules without change on these issues.
    The proposed regulations would have required for each facility an 
annual assessment of the lifecycle GHG emissions rate for purposes of 
determining the rate at which a facility is designed and reasonably 
expected to produce qualified clean hydrogen, for verification 
purposes, and in determining whether a recapture event has occurred. In 
determining the amount of the section 45V credit and whether hydrogen 
is qualified clean hydrogen, the final regulations require a 
determination of lifecycle GHG emissions for each hydrogen production 
process conducted by a facility during a taxable year. However, 
applying a process-by-process-based approach to determining lifecycle 
GHG emissions rates for hydrogen production in the context of the 
section 48(a)(15) election could lead to a facility producing hydrogen 
in processes that result in multiple different emissions rates within a 
taxable year, which is inconsistent with the statutory scheme 
applicable to specified clean hydrogen production facilities and would 
be difficult to administer. Thus, the final regulations retain the 
single annual lifecycle GHG emissions rate assessment requirement for 
specified clean hydrogen production facilities for purposes of the 
section 48(a)(15) election by requiring, in the case of a facility that 
produces hydrogen through multiple processes, that the lifecycle GHG 
emissions rate be determined using the weighted average of the 
lifecycle GHG emissions rates of all hydrogen production processes. An 
annual assessment for each qualified clean hydrogen production facility 
best implements the statutory directive in section 48(a)(15)(A)(ii)(I) 
through (IV) and (C)(iii) to determine eligibility for and the amount 
of the section 48 credit based on the ``lifecycle greenhouse gas 
emissions which are consistent with the hydrogen that such facility was 
designed and expected to produce.''

B. Election Procedures

1. Time and Manner of Making Election
    Proposed Sec.  1.48-15(d)(1) would have provided rules for making 
an election under section 48(a)(15)(C)(ii)(II). To make such an 
election, a taxpayer must claim the section 48 credit with respect to a 
specified clean hydrogen production facility on a Form 3468, Investment 
Credit, or any successor form(s), and file the form with the taxpayer's 
Federal income tax return or information return for the taxable year in 
which the specified clean hydrogen production facility is placed in 
service. The taxpayer must also attach a statement to its Form 3468, or 
any successor form(s), filed with its Federal income tax return or 
information return that includes all the information required by the 
instructions to Form 3468, or any successor form(s), for each specified 
clean hydrogen production facility subject to an election. Proposed 
Sec.  1.48-15(d)(1) would have provided that a separate election must 
be made for each specified clean hydrogen production facility that 
meets the requirements provided in section 48(a)(15) to treat the 
qualified property that is part of the facility as energy property.
    Proposed Sec.  1.48-15(d)(1) would have further provided that, if 
any taxpayer owning an interest in a specified clean hydrogen 
production facility makes an election with respect to the facility, 
then that election would be binding on all taxpayers that directly or 
indirectly own an interest in the facility. Thus, consistent with 
section 48(a)(15)(B), if a taxpayer owning an interest in a specified 
clean hydrogen production facility makes an election under section 
48(a)(15)(C)(ii)(II), then no other taxpayer owning an interest in the 
same facility will be allowed a section 45V credit or section 45Q 
credit with respect to the facility or any carbon capture equipment 
included at such facility.
    The Treasury Department and the IRS requested comments on whether, 
in the context of a specified clean hydrogen production facility that 
is directly owned through an arrangement properly treated as a tenancy-
in-common for Federal income tax purposes or through an organization 
that has made a valid election under section 761(a) of the Code, each 
co-owner's or member's undivided ownership share of the qualified 
property comprised in the facility should be treated for purposes of 
section 48(a)(15)(C)(ii)(II) as a separate facility owned by such co-
owner or member, with each such co-owner or member eligible to make a 
separate election under section 48(a)(15)(C)(ii)(II) to claim the 
section 48 credit in lieu of the section 45V credit with respect to its 
undivided ownership interest in the facility or share of the underlying 
qualified property. No comments were received in response to this 
request.
    One comment requested that the Treasury Department and the IRS 
clarify how to allocate costs and benefits of a qualified clean 
hydrogen production facility for purposes of determining the section 
45V and section 48 credit amounts. To the extent the comment sought 
clarification on how one taxpayer can claim both credits on the same 
facility, the election to claim the section 48 credit in lieu of the 
section 45V credit is made on the entire specified clean hydrogen 
production facility. If a taxpayer makes the election with respect to a 
specified clean hydrogen production facility, then no section 45V 
credit is allowed to the taxpayer with respect to such facility. 
Therefore, no allocation between the two credits for the same facility 
is allowed. Alternatively, to the extent the comment sought 
clarification on how to allocate the section 45V credit amount to co-
owners of the same qualified clean hydrogen production facility, 
sections 45V(d)(1) and 45(e)(3) provide rules for how to allocate the 
section 45V credit amount to co-owners. As set forth in section 
45(e)(3), in the case of a facility in which more than one person has 
an ownership interest, production from the facility is allocated among 
such persons in proportion to their ownership interests in the gross 
sales from such facility. No clarification is needed under proposed 
Sec.  1.48-15(d)(1) and thus, these final regulations adopt this 
provision without change.
2. Special Rule for Partnerships and S Corporations
    Proposed Sec.  1.48-15(d)(2) would have provided that, in the case 
of a specified clean hydrogen production facility owned by a 
partnership or an S corporation, the election under section 
48(a)(15)(C)(ii)(II) would be made by the partnership or S corporation 
and would be binding on all ultimate credit claimants (as defined in 
Sec.  1.50-1(b)(3)(ii)). Proposed Sec.  1.48-15(d)(2) further provided 
procedures for a partnership or S corporation to make an election with 
respect to a specified clean hydrogen production facility under section 
48(a)(15)(C)(ii)(II). No comments were received on proposed Sec.  1.48-
15(d)(2), and the final regulations adopt this provision without 
substantive change.
3. Election Revocability
    Proposed Sec.  1.48-15(d)(3) would have provided that the election 
to treat any qualified property that is part of a specified clean 
hydrogen production facility as energy property would be irrevocable. 
No comments were received on proposed Sec.  1.48-15(d)(3), and this

[[Page 2302]]

provision is adopted without change in these final regulations.
4. Election Availability Date
    Proposed Sec.  1.48-15(d)(4) would have provided that the election 
to treat any qualified property that is part of a specified clean 
hydrogen production facility as energy property would be available for 
property placed in service after December 31, 2022, and, for any 
property that began construction before January 1, 2023, only to the 
extent of the basis thereof attributable to the construction, 
reconstruction, or erection after December 31, 2022. No comments were 
received on proposed Sec.  1.48-15(d)(4), and these final regulations 
adopt this provision without change.
5. Beginning of Construction Safe Harbor
    These final regulations add Sec.  1.48-15(d)(5), which provides 
that a taxpayer may, in its discretion, make an irrevocable election 
effective for the remaining taxable years within the period described 
in Sec.  1.48-15(f)(3), to treat the latest version of 45VH2-GREET that 
was publicly available on the date when construction of the specified 
clean hydrogen production facility began as the 45VH2-GREET Model. In 
the case of a facility owned by the taxpayer that began construction 
prior to December 26, 2023, Sec.  1.48-15(d)(5) provides that taxpayers 
may make an irrevocable election to treat the first publicly-available 
version of 45VH2-GREET (that is, the version of 45VH2-GREET released in 
December 2023) as the 45VH2-GREET Model for the remaining taxable years 
within the period described in Sec.  1.48-15(f)(3). In the case of a 
facility that is modified to produce qualified clean hydrogen under 
section 45V(d)(4) or a facility that is retrofitted in a manner that 
entitles the facility to a new placed in service date under Sec.  
1.45V-6(b), the date when construction of the facility began is the 
date when construction of such modification or retrofit began. Under 
Sec.  1.48-15(d)(5)(ii), a taxpayer makes this election by attaching a 
statement to the Form 3468 or any successor form(s). The taxpayer must 
make this election no later than the due date for filing its Federal 
income tax return or information return (including extensions) for the 
taxable period in which such facility is placed in service. A taxpayer 
who placed its facility in service before January 1, 2024, must make 
the election by no later than the close of the period of limitation on 
filing a claim for credit or refund under section 6511(a) for the 
taxable period in which such facility is placed in service.
6. Provisional Emissions Rate
    Neither section 48 nor the proposed regulations contain a specific 
provision addressing a PER for energy credit purposes, leaving a 
procedural gap for obtaining a PER should a taxpayer that owns and 
places in service a specified clean hydrogen production facility (as 
defined in section 48(a)(15)(C) and Sec.  1.48-15) make an irrevocable 
election under section 48(a)(15)(C)(ii)(II) to treat any qualified 
property (as defined in section 48(a)(5)(D)) that is part of the 
facility as energy property for purposes of section 48. To address this 
procedural gap, these final regulations add Sec.  1.48-15(d)(6), which 
provides the procedures for obtaining a PER for such taxpayers. This 
provision largely tracks the PER rules of Sec.  1.45V-4(c).
    Section 1.48-15(d)(6)(i) provides that a taxpayer files a petition 
with the Secretary for a PER by following the procedures stated in 
Sec.  1.45V-4(c)(3) through (5), except, in lieu of attaching the PER 
petition to the Form 7210 in the first taxable year of production as 
specified in Sec.  1.45V-4(c)(3), the taxpayer must attach the PER 
petition to the Form 3468, Investment Credit, or a successor form, 
attached to the taxpayer's Federal income tax return for the taxable 
year in which the specified clean hydrogen production facility is 
placed in service. A taxpayer may use such PER to calculate the amount 
of the section 48 credit with respect to a specified clean hydrogen 
production facility, provided that (1) the lifecycle GHG emissions rate 
of the hydrogen produced at the specified clean hydrogen production 
facility has not been determined (for purposes of section 45V(c)(2)(C)) 
under the 45VH2-GREET Model, (2) there are no material changes to the 
information about the taxpayer's hydrogen production process from the 
information provided to the DOE to obtain an emissions value pursuant 
to Sec.  1.45V-4(c)(2)(i), and (3) all other requirements of section 
48(a)(15) are met. These final regulations further provide that a 
``material change'' means any change that would cause a qualified 
verifier (as defined Sec.  1.45V-5(h)) to be unable to complete a 
verification under Sec.  1.48-15(e).
    Further, Sec.  1.48-15(d)(6)(iii) is added to provide that a 
taxpayer may, in its discretion, make an irrevocable election, 
effective for the remaining taxable years within the period described 
in Sec.  1.48-15(f)(3), to treat the first version of 45VH2-GREET that 
includes the taxpayer's specified clean hydrogen production facility's 
hydrogen production pathway (as described in Sec.  1.45V-4(c)(2)(i)) as 
the 45VH2-GREET Model. A taxpayer makes this election by attaching a 
statement to the Form 3468 or any successor form(s). The taxpayer must 
make this election by no later than the due date for filing its Federal 
income tax return or information return (including extensions) for the 
taxable period in which the taxpayer's facility is placed in service. A 
taxpayer who placed its specified clean hydrogen production facility in 
service before January 1, 2024, must make this election by no later 
than the close of the period of limitation for filing a claim for 
credit or refund under section 6511(a) for the taxable period in which 
such facility is placed in service.
    Further, Sec.  1.48-15(d)(6)(iv) is added to provide that, 
notwithstanding the requirement of Sec.  1.48-15(d)(6)(i)(A), a 
taxpayer who received an emissions value from the DOE with respect to a 
specified clean hydrogen production facility (pursuant to Sec.  1.45V-
4(c)(2)(i)) before the date when construction of the facility began 
may, in its discretion, continue to use the PER determined by the 
Secretary and the associated emissions value to calculate the lifecycle 
GHG emissions rate of the hydrogen produced at the specified clean 
hydrogen production facility for the remainder of the period described 
in Sec.  1.48-15(f)(3), provided that the taxpayer continues to satisfy 
the requirements of Sec. Sec.  1.48-15(d)(6)(i)(B) and (C).
    Finally, Sec.  1.48-15(d)(6)(v) is added to provide that the 
Secretary's PER determination is not an examination or inspection of 
books of account for purposes of section 7605(b) of the Code and does 
not preclude or impede the IRS (under section 7605(b) or any 
administrative provisions adopted by the IRS) from later examining a 
return or inspecting books or records with respect to any taxable year 
for which the section 48 credit is claimed. For example, the annual 
verification report submitted under section 48(a)(15)(C)(iii) and Sec.  
1.48-15(e)(2) and any information, representations, or other data 
provided to the DOE in support of the request for an emissions value 
are still subject to examination. Further, a PER determination does not 
signify that the IRS has determined that the requirements of section 
48, including the cross-references to section 45V, have been satisfied 
for any taxable year.

C. Third-Party Verification

    Proposed Sec.  1.48-15(e)(1) would have provided that, in the case 
of a taxpayer that makes an election under section 48(a)(15)(c)(ii)(II) 
to treat any qualified property that is part of a specified clean

[[Page 2303]]

hydrogen production facility as energy property for purposes of the 
section 48 credit, the taxpayer must obtain an annual verification 
report for the taxable year in which the election is made and for each 
taxable year thereafter of the recapture period specified in proposed 
Sec.  1.48-15(f)(3). Proposed Sec.  1.48-15(e)(1) would have further 
provided that the taxpayer must also submit the annual verification 
report as an attachment to the Form 3468, or any successor form(s), for 
the taxable year in which the election is made.
    Proposed Sec.  1.48-15(e)(2) would have provided procedures for the 
annual verification report, including where a transfer election has 
been made under section 6418(a) of the Code with respect to the section 
48 credit for a specified clean hydrogen production facility.
    No comments were received on proposed Sec.  1.48-15(e). These final 
regulations adopt this provision without substantive change, other than 
conforming changes to modifications previously noted.

D. Credit Recapture

    Section 48(a)(15)(E) directs the Secretary to issue such 
regulations or other guidance as determined necessary to carry out the 
purposes of section 48, including regulations or other guidance 
addressing recapture of so much of the credit allowed under section 48 
as exceeds the amount of the credit that would have been allowed if the 
expected production were consistent with the actual verified production 
or all of the credit so allowed in the absence of such verification.
1. Emissions Tier Recapture Events Under Section 48(a)(15)(E)
    Proposed Sec.  1.48-15(f)(1) would have provided that, for purposes 
of section 48(a)(15)(E), in any taxable year of the recapture period 
specified in proposed Sec.  1.48-15(f)(3) in which an emissions tier 
recapture event (as defined in proposed Sec.  1.48-15(f)(2)) occurs, 
the tax imposed on the taxpayer under chapter 1 of the Code for the 
taxable year of the emissions tier recapture event is increased by the 
recapture amount specified in proposed Sec.  1.48-15(f)(4).
    Proposed Sec.  1.48-15(f)(2) would have provided that an emissions 
tier recapture event under section 48(a)(15)(E) occurs during any 
taxable year of the recapture period specified in proposed Sec.  1.48-
15(f)(3) under the following circumstances: (i) the taxpayer fails to 
obtain an annual verification report by the deadline for filing its 
Federal income tax return or information return (including extensions) 
for any taxable year in which an annual verification report was 
required under proposed Sec.  1.48-15(e)(1); (ii) the specified clean 
hydrogen production facility actually produced hydrogen through a 
process that results in a lifecycle GHG emissions rate that can only 
support a lower energy percentage than the energy percentage used to 
calculate the amount of the section 48 credit for such facility for the 
year in which the facility is placed in service; or (iii) the specified 
clean hydrogen production facility actually produced hydrogen through a 
process that results in a lifecycle GHG emissions rate of greater than 
4 kilograms of CO2e per kilogram of hydrogen.
    No comments were received on proposed Sec.  1.48-15(f)(1) and (2). 
These final regulations adopt these provisions without substantive 
change.
2. Recapture Period Under Section 48(a)(15)(E)
    Proposed Sec.  1.48-15(f)(3) would have provided that the recapture 
period begins on the first day of the first taxable year after the 
taxable year in which the facility was placed in service and ends on 
the last day of the fifth taxable year after the close of the taxable 
year in which the facility was placed in service. For example, if a 
calendar-year taxpayer places in service a specified clean hydrogen 
production facility on June 1, 2023, then the last day of the fifth 
taxable year following the close of the taxable year in which the 
facility was placed in service is December 31, 2028. Therefore, the 
recapture period is January 1, 2024, through December 31, 2028.
    No comments were received on proposed Sec.  1.48-15(f)(3). These 
final regulations adopt this provision without change.
3. Recapture Amount
    Proposed Sec.  1.48-15(f)(4) would have provided rules for 
computing the amount recaptured under section 48(a)(15)(E). Proposed 
Sec.  1.48-15(f)(5) would have provided an example illustrating the 
application of proposed Sec.  1.48-15(f)(1) through (4).
    The preamble to the proposed regulations provided that, unless 
modified in future guidance, any reporting of emissions tier recapture 
under proposed Sec.  1.48-15(f) is made on the taxpayer's annual tax 
return. The preamble further provided that, the Secretary may issue 
future guidance and/or prescribe tax forms and instructions to address 
the reporting of emissions tier recapture under proposed Sec.  1.48-
15(f) and any additional annual reporting obligations. The Treasury 
Department and the IRS solicited feedback on the reporting of recapture 
and any additional annual reporting obligations. No comments were 
received in response to this request, or on proposed Sec.  1.48-
15(f)(4) or (5) in general. These provisions are adopted as proposed 
with minor clarifications to the example in Sec.  1.48-15(f)(5) to 
account for, among other things, the passage of time. However, as a 
clarification, the reporting of an emissions tier recapture event is 
reported using Form 4255, Recapture of Investment Credit, or any 
successor form(s), and the associated tax liability reported on the 
taxpayer's annual return.
4. Coordination With Recapture Rules Under Sections 50 and 48(a)(10)(C)
    Proposed Sec.  1.48-15(f)(6) would have provided that, during any 
taxable year of the recapture period for any credit allowed under 
section 48(a) with respect to qualified property that is part of a 
specified clean hydrogen production facility, the recapture rules would 
be applied, if applicable, in the following order: (i) section 50(a) 
(recapture in case of dispositions, etc.); (ii) section 48(a)(10)(C) 
(recapture relating to the prevailing wage requirements); and (iii) 
section 48(a)(15)(E) (emissions tier recapture).
    There were no comments received on proposed Sec.  1.48-15(f)(6). 
These final regulations adopt the provision without substantive change. 
The final regulations also add two examples to illustrate the 
application of Sec.  1.48-15(f)(6).

E. Recordkeeping

    Proposed Sec.  1.48-15(g) would have provided that, consistent with 
section 6001 of the Code, a taxpayer making the election under section 
48(a)(15)(C)(ii)(II) with respect to a specified clean hydrogen 
production facility must maintain and preserve records sufficient to 
establish the amount of the section 48 credit claimed by the taxpayer. 
Further, proposed Sec.  1.48-15(g) would have provided that, at a 
minimum, those records include records to substantiate the information 
required to be included in the annual verification report under 
proposed Sec.  1.48-15(e)(2), records establishing that the facility 
meets the definition of a specified clean hydrogen production facility 
under section 48(a)(15)(C) and proposed Sec.  1.48-15(b), and records 
establishing the date the specified clean hydrogen production facility 
was placed in service. Finally, proposed Sec.  1.48-15(g) would have 
provided that, if the increased section 48 credit amount was allowed 
under

[[Page 2304]]

section 48(a)(9), then the taxpayer must also maintain records in 
accordance with Sec.  1.45-12.
    No comments were received with respect to proposed Sec.  1.48-
15(g). However, the intent of proposed Sec.  1.48-15(g) was to conform 
the recordkeeping requirements for making the election under section 
48(a)(15) with the recordkeeping requirements for claiming the credit 
under section 45V. Some of the recordkeeping requirements provided in 
proposed Sec.  1.45V-2(c) were not provided in proposed Sec.  1.48-
15(g). For example, records of past credit claims under section 45Q by 
any taxpayer with respect to carbon capture equipment included at the 
facility, and the requirement that taxpayers retain all raw data used 
for submission of a request for an emissions value to the DOE for at 
least six years after the due date (including extensions) for filing 
the Federal income tax return or information return to which the PER is 
ultimately attached, were unintentionally omitted from proposed Sec.  
1.48-15(g). Accordingly, conforming changes have been made to Sec.  
1.48-15(g) to include these items in the list of recordkeeping 
materials required to be maintained for taxpayers making the election 
under section 48(a)(15). Additionally, the final regulations add a 
requirement to retain the annual verification report required under 
Sec.  1.48-15(e)(2).

VII. Additional Comments

A. Interaction With Other Tax Credits

    Some comments requested clarification on the interaction of section 
45V with other tax credits. One comment requested clarification that a 
renewable fuel facility that relies on a hydrogen production facility 
to produce renewable fuel is not part of the hydrogen production 
facility under proposed Sec.  1.45V-1(a)(7).
    These final regulations do not specify the interaction of section 
45V with other tax credits except as it relates to section 45V(d)(2) 
and the prohibition on claiming the section 45Q credit. The Code 
sections themselves specify the interaction of section 45V with other 
tax credits. To the extent the statutes do not specify the interaction, 
imposing rules governing or restricting the section 45V credit on 
account of other tax credits whose statutes contain no such restriction 
would also not be applicable to this rulemaking.
    Regarding the request for clarification on whether a renewable fuel 
facility that relies on a hydrogen production facility to produce 
renewable fuel is not part of the hydrogen production facility, this 
comment appears to be requesting clarification on the scope of the 
definition of facility under section 45Z. The definition of facility 
under section 45Z is beyond the scope of this rulemaking, and, 
therefore, is not addressed further herein.

B. Additional Reporting and Disclosure Requirements

    Some comments requested that the final regulations impose 
additional reporting requirements on section 45V credit claimants, 
including to require claimants to publicize that they claimed the 
section 45V credit, the extent to which they engaged with the 
community, the amount of any emissions reductions associated with their 
section 45V credit claim, and various other hydrogen production 
activities such as water withdrawals, non-greenhouse gas air pollution, 
hydrogen leaks, and safety incidents. Similarly, some comments 
requested that the IRS disclose information about section 45V credit 
claims and the effect of section 45V credit claimants' hydrogen 
production activities.
    Additional reporting and disclosure requirements are not 
incorporated into these final regulations. Section 45V does not impose 
any requirements on taxpayers to publicly disclose information about 
their section 45V credit claims or their hydrogen production 
activities. Further, section 6103 of the Code prohibits the IRS from 
disclosing information about section 45V credit claims, except as 
expressly authorized under another provision of the Code. Accordingly, 
imposing such additional reporting requirements, or disclosing 
information about section 45V credit claims, would contravene the Code 
and is not adopted in these final regulations.
    Some comments requested that the Treasury Department and the IRS 
engage with environmental groups, industry participants, and the public 
in the implementation of the section 45V credit. Other comments 
requested that the Treasury Department and the IRS engage certain 
population groups, such as minorities, women, or veterans, to ensure 
meaningful participation by those groups. The Treasury Department and 
the IRS confirm that members of the public have been engaged on a broad 
basis through the notice and comment process and that public comments 
have been considered in issuing these final regulations.

C. Additional Procedural Requirements

    One comment suggested that the Treasury Department and the IRS's 
identification of 45VH2-GREET as the most recent GREET model under 
section 45V(c)(1)(B) is an ``incorporation by reference'' and that, as 
such, modifications to 45VH2-GREET should be published in the Federal 
Register for notice and comment. This same comment noted that 
incorporation by reference generally refers to incorporating outside 
rules or sources into government regulations but posited that 
incorporation by reference can also apply to 45VH2-GREET. On this 
point, the comment did not request changes to the regulatory text. 
Furthermore, future events such as updates to 45VH2-GREET will not 
affect the text of these final regulations.
    Regarding incorporation by reference, the Secretary's designation 
of 45VH2-GREET as a successor model under section 45V(c)(1)(B) is not 
an incorporation by reference. Incorporation by reference derives from 
5 U.S.C. 552(a)(1), which requires regulatory rules to be published in 
the Federal Register. Incorporation by reference of matters published 
outside of the Federal Register provides an exception to this 
requirement by deeming those matters as published in the Federal 
Register. See 5 U.S.C. 551(a)(1).
    In this case, 45VH2-GREET is not required to be published in the 
Federal Register because it is a statutory requirement. Section 
45V(c)(1)(B) provides that lifecycle GHG emissions ``shall only include 
emissions through the point of production (well-to-gate), as determined 
under the most recent Greenhouse gases, Regulated Emissions, and Energy 
use in Transportation model (commonly referred to as the `GREET model') 
developed by Argonne National Laboratory, or a successor model (as 
determined by the Secretary).'' As described in the Summary of Comments 
and Explanation of Revisions to these final regulations, the Secretary 
designated 45VH2-GREET as a successor model pursuant to that statutory 
directive, and 45VH2-GREET may also be appropriately considered the 
most recent GREET model. Because statutes may refer to matters that are 
not published in the Federal Register, the statutorily designated use 
of 45VH2-GREET as a successor model by the Secretary (or as the most 
recent GREET model) provides authorization, if not a direct mandate, to 
require the model's use and therefore eliminates the need for 
incorporating it by reference. See United States v. Jackson, No. 1:07-
CR-108-ODE-GGB, 2007 WL 9735479, at *3 (N.D. Ga. Sept. 12, 2007), 
report and recommendation adopted, No. 1:07-CR-108-ODE, 2007 WL 9735481 
(N.D. Ga. Oct. 23, 2007) (incorporation of

[[Page 2305]]

consumer price index as an inflation adjustor was not an APA 
violation); Clarry v. United States, 891 F. Supp. 105, aff'd 85 F.3d 
1041 (2d Cir. 1995) (``[T]he APA's notice requirements apply to rules 
formulated and adopted by an agency, not the application [of] a statute 
created by Congress.''); Malkan FM Associates v. FCC, 935 F.2d 1313 
(D.C. Cir. 1991) (agency not required to publish in the Federal 
Register notices that radio tower height limit near Mexican border was 
lower than that prescribed by Federal Communication Commission's 
(FCC's) general rules; limit on tower height near border was set by 
international agreement and not by ``rule'' of the FCC).

D. Comments Regarding Impacts on Specific Communities

    The Treasury Department and the IRS received several comments on 
the potential impact of the proposed regulations on specific 
communities, including Tribal communities, low-income communities, and 
other communities with environmental justice concerns. The Treasury 
Department and the IRS take seriously concerns expressed by comments 
that relate to issues of environmental justice, consistent with the 
directives contained in previously issued Executive Orders. See, for 
example, E.O. 14096, Revitalizing Our Nation's Commitment for 
Environmental Justice for All, (88 FR 25251, April 21, 2023) and E.O. 
12898, Federal Actions to Address Environmental Justice in Minority 
Populations and Low-Income Populations, (59 FR 7629, February 16, 
1994).
    One comment stated that hydrogen projects were often developed 
without consent from or consideration of or toward impacted 
communities, including Tribes. The comment recommended that the 
Treasury Department and the IRS implement a rule that requires 
taxpayers that claim the section 45V credit to show that they obtained 
consent from impacted communities, including Tribal nations, and that 
such consent was freely given prior to the start of any projects. 
Requiring applicants to show free, prior, and informed consent would 
reduce harms and the loss of resources that result from such subsidized 
hydrogen production, according to the comment.
    Other comments noted that the regulations might affect the hydrogen 
industry in ways harmful to certain communities, by incentivizing dirty 
production in those communities, increasing demand for water, or by 
failing to provide full incentives to hydrogen production that could be 
produced in certain communities, like so-called ``blue'' hydrogen. A 
comment suggested that the U.S. government is failing its trust 
responsibility with a particular Tribe by discouraging the production 
of blue hydrogen, which the comment states is a Tribal trust asset.
    The final regulations do not adopt these comments. Unlike some 
other IRA provisions, section 45V does not include rules that target 
investment in particular communities, on Indian land, or in any other 
specified geography. Compare section 45(b)(11) (relating to an increase 
in the production tax credit for qualified facilities located in energy 
communities), section 48(a)(14) (relating to increased investment tax 
credit rate for energy projects placed in service in energy 
communities), section 48(e) (relating to special rules for certain 
solar and wind facilities placed in service in connection with low-
income communities), section 45Y(g)(7) (relating to an increase in the 
clean energy production credit for qualified facilities located in 
energy communities), section 48E(a)(3)(A) (relating to an increase in 
credit rate of the clean electricity investment credit for qualified 
facilities or energy storage technologies placed in service in energy 
communities), and section 48E(h) (relating to special rules for the 
clean electricity investment credit for certain facilities placed in 
service in connection with low-income communities).
    Nor does section 45V provide rules to specifically require a 
taxpayer to obtain the consent of impacted communities, or rules that 
would provide additional incentives for activity in those communities. 
Such regulation of actions between private parties related to the 
process for the production of clean hydrogen is not specifically 
authorized in section 45V. Moreover, for the reasons described in this 
Summary of Comments and Explanation of Revisions, these final 
regulations provide appropriate rules for clean hydrogen production 
regarding adequate safeguards, emissions determinations, and 
verification, consistent with the statute. With respect to comments 
stating concern regarding the lower section 45V credit amount for the 
production of certain types of qualified clean hydrogen, the statutory 
text of section 45V(b) unambiguously provides the applicable amount and 
applicable percentage for the section 45V credit, which is based on 
lifecycle GHG emissions rates.
    With respect to Tribes, the Treasury Department and the IRS will 
continue to consider issues that may affect Tribes and Tribal 
stakeholders, including, for example, whether Tribes may regulate GHG 
emissions and how such regulations may affect the emissions 
determinations for qualified clean hydrogen.

VIII. Applicability Date

    These final regulations apply to taxable years beginning after 
December 26, 2023, the date the proposed regulations were published in 
the Federal Register. For taxable years beginning after December 31, 
2022, and on or before December 26, 2023, taxpayers may choose to apply 
the rules of Sec. Sec.  1.45V-1, -2, and -4 through -6, provided that 
taxpayers apply the rules in their entirety and in a consistent manner.
    One comment requested clarification on the applicability date of 
these final regulations for facilities that were placed in service 
prior to the effective date of these final regulations. As provided in 
the Explanation of Provisions to the proposed regulations, taxpayers 
may choose to rely upon the proposed regulations for taxable years 
beginning after December 31, 2022, and before the date these final 
regulations are published in the Federal Register, provided that 
taxpayers follow the proposed regulations in their entirety and in a 
consistent manner. Also, as provided in the preceding paragraph, 
taxpayers may choose to apply the final rules of Sec. Sec.  1.45V-1, -
2, and -4 through -6, provided that taxpayers apply the rules in their 
entirety and in a consistent manner.

IX. Severability

    If any provision in this rulemaking is held to be invalid or 
unenforceable facially, or as applied to any person or circumstance, it 
shall be severable from the remainder of this rulemaking, and shall not 
affect the remainder thereof, or the application of the provision to 
other persons not similarly situated or to other dissimilar 
circumstances.

Effect on Other Documents

    None.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally

[[Page 2306]]

requires that a Federal agency obtain the approval of the Office of 
Management and Budget (OMB) before collecting information from the 
public, whether such collection of information is mandatory, voluntary, 
or required to obtain or retain a benefit. A Federal agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection of information displays 
a valid control number.
    The collections of information in these final regulations contain 
reporting, third-party disclosure, and recordkeeping requirements. 
These collections are necessary for taxpayers to claim the section 45V 
credit, or the section 48 credit with respect to a specified clean 
hydrogen production facility, and for the IRS to validate that 
taxpayers have met the regulatory requirements and are entitled to 
claim either credit.
    The recordkeeping requirements in these final regulations include 
the requirement that taxpayers claiming the section 45V credit, or the 
section 48 credit with respect to a specified clean hydrogen production 
facility, need to meet the general recordkeeping provisions under 
section 6001 necessary to substantiate the amount of the section 45V 
credit or section 48 credit claimed by the taxpayer as detailed in 
proposed Sec. Sec.  1.45V-2(c) and 1.48-15(g). These recordkeeping 
requirements are considered general tax records under Sec.  1.6001-
1(e). For PRA purposes, general tax records are already approved by OMB 
under 1545-0074 for individuals/sole proprietors, 1545-0123 for 
business entities, and 1545-0047 for tax-exempt organizations, and 
1545-0092 for trust and estate filers.
    The final regulations reference the DOE's process for applicants to 
request an emissions value from the DOE that can then be used to file a 
petition with the Secretary for a PER determination as detailed in 
proposed Sec.  1.45V-4. The petition made to IRS will be performed by 
attaching the emissions value obtained from the DOE to the filing of 
Form 7210, Clean Hydrogen Production Credit. The burden for these 
requirements is included within the Form and Instructions for 7210. 
Form 7210 was approved by OMB, in accordance with 5 CFR 1320.10, under 
the following OMB Control Numbers: 1545-0074 for individuals, 1545-0123 
for businesses, 1545-0047 for tax-exempt organizations, and 1545-2321 
for trust and estate filers.
    The final regulations mention the collection of information 
associated with the process for taxpayers to request an emissions value 
from the DOE, which is reflected in the Treasury Department and IRS's 
Paperwork Reduction Act Supplemental NPRM dated April 11, 2024 (89 FR 
29551), relating to such process. The OMB approved the DOE's Submission 
related to the DOE's emissions value request process on September 27, 
2024, under Control Number 1910-5208. These final regulations are not 
creating or changing any of the collection requirements approved by OMB 
under Control Number 1910-5208.
    The final regulations include reporting requirements that taxpayers 
claiming the section 45V credit provide a verification report with 
their annual Federal income tax return or information return for each 
taxable year in which they claim the section 45V credit as detailed in 
proposed Sec.  1.45V-5. The final regulations also include a third-
party disclosure requirement that a verification report must be 
certified by an unrelated third party. The verification report must 
contain an attestation regarding the taxpayer's production of qualified 
clean hydrogen for sale or use, the amount of qualified clean hydrogen 
sold or used by the taxpayer, conflicts of interest, the verifier's 
qualifications, and documentation necessary to substantiate the 
verification process. The taxpayer must submit the verification report 
to the IRS by attaching it to Form 7210, or any successor form(s). The 
burden for these requirements is included within the Form and 
Instructions for Form 7210. Form 7210 was approved by OMB, in 
accordance with 5 CFR 1320.10, under the following OMB Control Numbers: 
1545-0074 for individuals, 1545-0123 for businesses, 1545-0047 for tax-
exempt organizations, and 1545-2321 for trust and estate filers.
    The final regulations include reporting, third-party disclosure, 
and recordkeeping requirements that taxpayers making the election under 
section 48(a)(15) to claim the energy credit under section 48 with 
respect to a specified clean hydrogen production facility. The 
reporting requirement is that taxpayers submit an annual verification 
report with their Federal income tax return or information return for 
the year in which they claim the section 48 credit. The third-party 
disclosure requirement is that the annual verification report must be 
certified by an unrelated third-party. The annual verification report 
must contain an attestation regarding the taxpayer's production of 
qualified clean hydrogen for sale or use during the taxable year, the 
amount of such qualified clean hydrogen sold or used by the taxpayer, 
conflicts of interest, the verifier's qualifications, the lifecycle GHG 
emissions rate of the hydrogen that the specified clean hydrogen 
production facility produced, and documentation necessary to 
substantiate the verification process. The final regulations also 
include a requirement that the taxpayer obtain and retain an annual 
verification report for each taxable year of the recapture period. The 
taxpayer must obtain the annual verification report by the return 
filing due date (including extensions) for the taxable year to which 
the annual verification report relates. The annual verification report 
for the taxable year in which the section 48(a)(15) election is made 
will be attached to Form 3468, Investment Credit. The annual 
verification report for each taxable year of the recapture period will 
be retained by the taxpayer for at least six years after the due date 
(including extensions) for filing the Federal income tax return or 
information return for the year to which the report relates. The burden 
for these requirements is included within the Form and Instructions for 
Form 3468. The revisions to Form 3468 have been approved by OMB, in 
accordance with 5 CFR 1320.10, under the following OMB Control Numbers: 
1545-0074 for individuals, 1545-0123 for businesses, 1545-0047 for tax-
exempt organizations, and 1545-0155 for trust and estate filers.
    No public comments were received by the IRS directed specifically 
at the PRA or on the collection requirements, but comments generally 
articulated the burdens associated with the documentation requirements 
in the proposed regulations. As described in the relevant portions of 
this preamble, the Treasury Department and the IRS have determined that 
the documentation requirements are necessary to administer the 
provisions of sections 45V and 48(a)(15).

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present a final 
regulatory flexibility analysis (FRFA) of the final regulations. The 
Treasury Department

[[Page 2307]]

and the IRS have not determined whether the final regulations will 
likely have a significant economic impact on a substantial number of 
small entities. This determination requires further study. Because 
there is a possibility of significant economic impact on a substantial 
number of small entities, a FRFA is provided in these final 
regulations.
    Pursuant to section 7805(f) of the Code, the proposed regulations 
were submitted to the Chief Counsel of the Office of Advocacy of the 
Small Business Administration (SBA) for comment on their impact on 
small business, and no comments were received.

A. Need for and Objectives of the Rule

    The final regulations provide guidance to taxpayers intending to 
claim the section 45V credit for the production of qualified clean 
hydrogen or make the election under section 48(a)(15) to treat 
qualified property that is part of a specified clean hydrogen 
production facility as energy property and claim the section 48 credit. 
The final regulations provide needed guidance for taxpayers on use of 
the 45VH2-GREET model to determine the lifecycle GHG emissions rate 
resulting from the hydrogen production process, procedures for 
petitioning the Secretary for a PER determination, requirements for the 
verification of the production and sale or use of the hydrogen, 
requirements for modifications to an existing hydrogen production 
facility, and procedures for making the election under section 
48(a)(15).

B. Affected Small Entities

    The RFA directs agencies to provide a description of, and if 
feasible, an estimate of, the number of small entities that may be 
affected by the proposed rules, if adopted. The SBA's Office of 
Advocacy estimates in its 2023 Frequently Asked Questions that 99.9 
percent of American businesses meet the definition of a small business. 
The applicability of these final regulations does not depend on the 
size of the business, as defined by the SBA.
    As described more fully in the Summary of Comments and Explanation 
of Revisions to this final regulation and in this FRFA, sections 45V 
and 48(a)(15) and these final regulations may affect a variety of 
different businesses across several different industries. Because the 
potential credit claimants can vary widely, it is difficult to estimate 
at this time the impact of these final regulations, if any, on small 
businesses. Although there is uncertainty as to the exact number of 
small businesses within this group, the current estimated number of 
respondents to these final regulations is between 400 and 600 
taxpayers. Based on further analysis of announced clean hydrogen 
projects and the number of projects eligible for the section 45V credit 
that have registered for elective pay or transferability in the IRS 
Energy Credits Online portal, the estimated number of entities claiming 
the section 45V credit has been revised from the 800 to 1,000 taxpayers 
estimated in the Special Analyses section of the proposed regulations. 
This revision is not based on any changes made between the proposed 
regulations and the final regulations.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses when taxpayers start 
using the guidance and procedures provided in these final regulations 
to claim the section 45V credit, or the section 48 credit with respect 
to a specified clean hydrogen production facility.

C. Impact of the Rules

    The final regulations provide rules for how taxpayers can claim the 
section 45V credit, or the section 48 credit with respect to a 
specified clean hydrogen production facility. Taxpayers that claim the 
section 45V credit, or the section 48 credit with respect to a 
specified clean hydrogen production facility, will have administrative 
costs related to reading and understanding the rules as well as 
recordkeeping and reporting requirements because of the verification 
and Federal income tax return or information return requirements. The 
costs will vary across different-sized entities and across the type of 
project(s) in which such entities are engaged.
    To claim a section 45V credit, a taxpayer must determine the 
lifecycle GHG emissions rate for all hydrogen produced at a qualified 
clean hydrogen production facility during the taxable year. If the 
hydrogen production technology or feedstock used by the taxpayer to 
produce hydrogen is addressed in 45VH2-GREET, the taxpayer must use 
45VH2-GREET to determine the emissions rate for the hydrogen produced 
during that taxable year at the qualified clean hydrogen production 
facility. If the hydrogen production technology or feedstock used by 
the taxpayer to produce hydrogen is not included in 45VH2-GREET, the 
taxpayer must petition the Secretary for a provisional emissions rate 
(PER). As part of the process for a taxpayer to petition for a PER, a 
taxpayer must submit an application to the DOE for an emissions value 
that it may use to claim the section 45V credit.
    In addition to determining the lifecycle GHG emissions rate for 
hydrogen produced by the taxpayer at a qualified clean hydrogen 
production facility during the taxable year, before claiming the 
section 45V credit, a taxpayer must submit a verification report, 
certified by an unrelated third party, attesting to the taxpayer's 
production of qualified clean hydrogen for sale or use, the amount of 
qualified clean hydrogen sold or used by the taxpayer, conflicts of 
interest, the verifier's qualifications, and documentation necessary to 
substantiate the verification process. The process for claiming the 
section 48 credit with respect to a specified clean hydrogen production 
facility requires a taxpayer to submit an annual verification report 
with its Federal income tax return or information return for the 
taxable year in which it claims the section 48 credit, as well as to 
obtain an annual verification report for the five taxable years 
following the taxable year in which the section 48(a)(15) election is 
made. Additionally, the taxpayer would need to retain records 
sufficient to establish compliance with these proposed regulations for 
as long as may be relevant.
    Although the Treasury Department and the IRS do not have sufficient 
data to determine precisely the likely extent of the increased costs of 
compliance, the estimated burden of complying with the recordkeeping 
and reporting requirements are described in the PRA section of the 
Special Analyses to these final regulations.

D. Alternatives Considered

    The Treasury Department and the IRS considered alternatives to 
these final regulations. These final regulations were designed to 
minimize burdens for taxpayers while ensuring that the statutory 
requirements of sections 45V and 48(a)(15) are met. For example, in 
providing rules related to the information required to be submitted to 
claim the section 45V credit, or the section 48 credit with respect to 
a specified hydrogen production facility, the Treasury Department and 
the IRS considered whether the production and sale or use of the 
hydrogen could be verified by an unrelated party without requiring the 
unrelated party to possess certain qualifications or conflict of 
interest characteristics. Such an option would, however, increase the 
opportunity for fraud or abuse under section 45V or section 48. Section 
45V(f) specifically authorizes the IRS to promulgate regulations or 
other

[[Page 2308]]

guidance providing for requirements for recordkeeping or information 
reporting for purposes of administering the requirements of section 
45V. As described in the preamble to these final regulations, these 
final rules carry out that Congressional intent as the verification 
requirements allow the IRS to verify the taxpayer's entitlement to the 
section 45V credit.
    Additionally, the Treasury Department and the IRS considered 
whether to require taxpayers to submit an annual verification report 
with their Federal income tax returns or information returns claiming 
the section 45V credit. Section 45V requires the taxpayer to obtain an 
annual verification report, and the Treasury Department and the IRS 
determined that requiring the taxpayer to attach such a report to their 
Federal income tax return or information return is the most efficient 
way of ensuring the completion and accuracy of the report.
    Additionally, the Treasury Department and the IRS considered 
allowing taxpayers to treat the section 45V credit as determined in the 
taxable year of hydrogen production or verification. However, such an 
option would create administrability issues and potentially a mismatch 
between the taxable year in which the hydrogen is produced and the 
taxable year in which the section 45V credit for such production is 
claimed. Thus, the final regulations would require the credit to be 
determined in the taxable year of production.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The final regulations do not duplicate, overlap, or conflict with 
any relevant Federal rules. As discussed above, the final regulations 
merely provide procedures and definitions to allow taxpayers to claim 
the section 45V credit, or the section 48 credit with respect to a 
specified clean hydrogen production facility. The Treasury Department 
and the IRS invite input from interested members of the public on 
identifying and avoiding overlapping, duplicative, or conflicting 
requirements.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). These final 
regulations do not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments, or by the private 
sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These final regulations do not have 
federalism implications and do not impose substantial direct compliance 
costs on State and local governments or preempt State law within the 
meaning of the Executive order.

VI. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 (Consultation and Coordination with Indian 
Tribal governments) prohibits an agency from publishing any rule that 
has Tribal implications if the rule either imposes substantial, direct 
compliance costs on Indian Tribal governments, and is not required by 
statute, or preempts Tribal law, unless the agency meets the 
consultation and funding requirements of section 5 of the Executive 
order. This final rule does not have substantial direct effects on one 
or more federally recognized Indian tribes and does not impose 
substantial direct compliance costs on Indian Tribal governments within 
the meaning of the Executive order.

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs has determined that 
this rule meets the criteria set forth in 5 U.S.C. 804(2).

VIII. Immediate Effective Date

    These final regulations have an effective date of January 10, 2025. 
To the extent that a good cause statement is necessary, the Treasury 
Department and the IRS find that there would be good cause to make this 
rule immediately effective upon publication in the Federal Register.
    Section 45V was added to the Code by the IRA, and generally is 
applicable for facilities placed in service after December 31, 2022. 
The provision provides a new tax credit for the production of clean 
hydrogen produced by a taxpayer at a qualified clean hydrogen 
production facility during the 10-year period beginning on the date 
such facility is placed in service. The credit amount is based on the 
lifecycle GHG emissions rate of the qualified clean hydrogen and is 
increased for taxpayers satisfying prevailing wage and apprenticeship 
requirements. The IRA also amended section 48 to provide for an 
election to treat qualified property which is part of a specified clean 
hydrogen production facility as energy property for purposes of 
claiming the section 48 investment tax credit in lieu of the section 
45V credit.
    Following the enactment of section 45V, many stakeholders and 
members of Congress expressed the need for prompt guidance on section 
45V, in particular to provide investment certainty given that the 
credit became effective shortly after enactment and expires for 
facilities beginning construction after December 31, 2032. After 
publication of the proposed regulations in December 2023, the Treasury 
Department and the IRS received more than 30,000 comments, reflecting 
the high level of interest in the provision and the continued 
expression of a need for certainty. In addition, hydrogen production 
facilities are capital intensive and require significant lead time to 
address financial, regulatory, and other issues before such facilities 
can begin construction. At the time of publication of these final 
regulations, more than two years have passed from the date that section 
45V was enacted. For facilities that were placed in service prior to 
publication of these final regulations, delaying the effective date of 
these final regulations would only further delay or hinder their 
ability to realize the full benefit of the credit. In addition, 
taxpayers already have been provided notice of the general contents of 
the rules in the proposed regulations and their proposed applicability 
to taxable years beginning after December 26, 2023, the date of 
publication of the proposed regulations. Furthermore, taxpayers have 
been able to rely on the proposed regulations for taxable years 
beginning after December 31, 2022, until the date of publication of 
these final regulations. For these reasons, the Treasury Department and 
the IRS have determined that an immediate effective date of the final 
regulations is appropriate to provide certainty to taxpayers and that 
delaying action on the provisions would disserve taxpayers.
    Consistent with Executive Order 14008, ``Tackling the Climate 
Crisis at Home and Abroad,'' (86 FR 7619, January 27, 2021), letters 
from Members of Congress urging expeditious

[[Page 2309]]

publication of final regulations, and comments' request for finalized 
rules, the Treasury Department and the IRS have determined that an 
expedited effective date of the final regulations is appropriate here 
to provide certainty to taxpayers considering investments to build 
qualified clean hydrogen production facilities before eligibility for 
the provisions expires. The final regulations provide needed rules on 
what the law requires for taxpayers to begin job-generating 
construction of capital-intensive projects qualifying for section 45V 
credits. Accordingly, the rules in this Treasury decision will take 
effect on the date of publication in the Federal Register.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal authors of these final regulations are James Rider, 
Courtney Hutson, Alan Tilley, and Glenn Kats, Office of the Associate 
Chief Counsel (Passthroughs and Special Industries), IRS. However, 
other personnel from the Treasury Department and the IRS participated 
in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS amend 26 CFR part 
1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  1.45V-1, 1.45V-2, 1.45V-4 
through 1.45V-6, and 1.48-15 to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.45V-1 also issued under 26 U.S.C. 45V(c)(1)(B) and 
45V(f).
    Section 1.45V-2 also issued under 26 U.S.C. 45V(c)(1)(B) and 
45V(f).
* * * * *
    Section 1.45V-4 also issued under 26 U.S.C. 45V(c)(1)(B) and 
45V(f).
    Section 1.45V-5 also issued under 26 U.S.C. 45V(c)(1)(B) and 
45V(f).
    Section 1.45V-6 also issued under 26 U.S.C. 45V(c)(1)(B) and 
45V(f).
* * * * *
    Section 1.48-15 also issued under 26 U.S.C. 48(a)(15)
* * * * *

0
Par. 2. Section 1.45V-0 through 1.45V-6 are added to read as follows:
Sec.
* * * * *
1.45V-0 Table of contents.
1.45V-1 Credit for production of qualified clean hydrogen.
1.45V-2 Special rules.
1.45V-4 Procedures for determining the lifecycle greenhouse gas 
emissions rates for qualified clean hydrogen.
1.45V-5 Procedures for verification of qualified clean hydrogen 
production and sale or use.
1.45V-6 Rules for determining the placed in service date for an 
existing facility that is modified to produce qualified clean 
hydrogen.
* * * * *


Sec.  1.45V-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.45V-1, 
1.45V-2, and 1.45V-4 through 1.45V-6.

Sec.  1.45V-1 Credit for production of clean hydrogen.

    (a) Overview.
    (b) Amount of credit.
    (c) Determination of credit.
    (d) Applicability date.

Sec.  1.45V-2 Special rules.

    (a) Coordination with credit for carbon oxide sequestration.
    (b) Anti-abuse rule.
    (c) Recordkeeping.
    (d) Applicability date.

Sec.  1.45V-4 Procedures for determining lifecycle greenhouse gas 
emissions rates for qualified clean hydrogen.

    (a) Overview.
    (b) Use of the 45VH2-GREET Model.
    (c) Provisional emissions rate (PER).
    (d) Use of energy attribute certificates (EACs).
    (e) Carbon capture and sequestration.
    (f) Use of methane from certain sources to produce hydrogen.
    (g) Applicability date.

Sec.  1.45V-5 Procedures for verification of qualified clean 
hydrogen production and sale or use.

    (a) In general.
    (b) Requirements for verification reports.
    (c) Requirements for the production attestation.
    (d) Requirements for the sale or use attestation.
    (e) Requirements for the conflict attestation.
    (f) Requirements for the qualified verifier statement.
    (g) General information on the taxpayer's hydrogen production 
facility.
    (h) Qualified verifier.
    (i) Unrelated party.
    (j) Requirements for taxpayers claiming both the section 45V 
credit and the section 45 credit or the section 45U credit.
    (k) Timely verification report.
    (l) Applicability date.

Sec.  1.45V-6 Rules for determining the placed-in-service date for 
an existing facility that is modified or retrofitted to produce 
qualified clean hydrogen.

    (a) Modification of an existing facility.
    (b) Retrofit of an existing facility (80/20 Rule).
    (c) Examples.
    (d) Applicability date.


Sec.  1.45V-1  Credit for production of clean hydrogen.

    (a) Overview--(1) In general. For purposes of section 38 of the 
Internal Revenue Code (Code), the clean hydrogen production credit is 
determined under section 45V of the Code, so much of sections 6417 and 
6418 of the Code that relate to section 45V, and the section 45V 
regulations (as defined in paragraph (a)(17) of this section). 
Paragraphs (a)(2) through (17) of this section provide generally 
applicable definitions of terms that, unless otherwise provided, apply 
for purposes of section 45V, the section 45V regulations, and any 
provision of the Code or this chapter that expressly refers to any 
provision of section 45V or the section 45V regulations. Paragraph (b) 
of this section provides rules for determining the amount of the 
section 45V credit for any taxable year, which generally depends on the 
kilograms of qualified clean hydrogen produced during the taxable year 
and the emissions intensity of the process used to produce such 
hydrogen, as well as whether certain requirements, including the 
requirements under Sec.  1.45V-3, are satisfied. Paragraph (c) of this 
section provides rules regarding the taxable year for which a section 
45V credit is determined. See Sec.  1.45V-2 for special rules, 
including rules to coordinate the section 45V credit with the credit 
for carbon oxide sequestration determined under section 45Q of the 
Code, an anti-abuse rule, and recordkeeping requirements. See Sec.  
1.45V-3 for rules relating to the increased credit amount for 
satisfying the prevailing wage and apprenticeship requirements. See 
Sec.  1.45V-4 for procedures to determine lifecycle greenhouse gas 
(GHG) emissions rates for qualified clean hydrogen and Sec.  1.45V-5 
for procedures for verification of qualified clean hydrogen production 
and sale or use. See Sec.  1.45V-6 for rules to determine the placed in 
service date for an existing facility that is modified or retrofitted 
to produce qualified clean hydrogen. See also Sec.  1.48-15 for 
procedures to elect to treat any qualified property that is part of a 
specified clean hydrogen production facility as energy property for 
purposes of section 48 of the Code.
    (2) Applicable amount--(i) In general. The term applicable amount 
means the

[[Page 2310]]

amount equal to the applicable percentage of $0.60, provided that if 
any such amount is not a multiple of 0.1 cent, such amount is rounded 
to the nearest multiple of 0.1 cent.
    (ii) Inflation adjustment. The $0.60 amount specified in section 
45V(b)(1) and paragraph (a)(2)(i) of this section is adjusted annually 
by multiplying such amount by the inflation adjustment factor (as 
determined under section 45(e)(2) of the Code, determined by 
substituting ``2022'' for ``1992'' in section 45(e)(2)(B)) for the 
calendar year in which the qualified clean hydrogen is produced, 
provided that if any such amount as adjusted is not a multiple of 0.1 
cent, such amount is rounded to the nearest multiple of 0.1 cent.
    (3) Applicable percentage. The term applicable percentage means the 
percentage set forth in paragraphs (a)(3)(i) through (iv) of this 
section, which is determined according to the lifecycle GHG emissions 
rate of the process by which the qualified clean hydrogen is produced:
    (i) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of not 
greater than 4 kilograms of carbon dioxide equivalent (CO2e) per 
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per 
kilogram of hydrogen, the applicable percentage is 20 percent.
    (ii) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of 
less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less 
than 1.5 kilograms of CO2e per kilogram of hydrogen, the applicable 
percentage is 25 percent.
    (iii) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of 
less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less 
than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable 
percentage is 33.4 percent.
    (iv) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of 
less than 0.45 kilograms of CO2e per kilogram of hydrogen, the 
applicable percentage is 100 percent.
    (4) Claim. With respect to the section 45V credit determined for 
qualified clean hydrogen produced by the taxpayer at a qualified clean 
hydrogen production facility, the term claim means the filing of a 
completed Form 7210, Clean Hydrogen Production Credit, or any successor 
form(s), with the taxpayer's Federal income tax return or annual 
information return for the taxable year in which the credit is 
determined, and includes the making of an election under section 6417 
or 6418 and the regulations in this chapter under section 6417 or 6418, 
as applicable, with respect to such section 45V credit on the 
applicable entity's or eligible taxpayer's timely filed (including 
extensions) Federal income tax return or annual information return.
    (5) Code. The term Code means the Internal Revenue Code.
    (6) DOE. The term DOE means the U.S. Department of Energy.
    (7) Facility--(i) In general. For purposes of the definition of 
qualified clean hydrogen production facility provided at section 
45V(c)(3) and paragraph (a)(14) of this section, unless otherwise 
specified, the term facility means a single production line that is 
used to produce qualified clean hydrogen. For this purpose, a single 
production line includes all components of property that function 
interdependently to produce qualified clean hydrogen through a process 
that results in the lifecycle GHG emissions rate used to determine the 
credit. Components of property function interdependently to produce 
qualified clean hydrogen if the placing in service of each component is 
dependent upon the placing in service of each of the other components 
to produce qualified clean hydrogen. A facility includes carbon capture 
equipment if such carbon capture equipment contributes to the lifecycle 
GHG emissions rate of the process by which the qualified clean hydrogen 
for which the credit is determined is produced.
    (ii) Treatment of certain indirect production and post-production 
equipment. The term facility does not include--
    (A) Equipment that is used to condition or transport hydrogen 
beyond the point of production; or
    (B) Notwithstanding paragraph (a)(7)(iii) of this section, 
feedstock-related equipment, including production, purification, 
recovery, transportation, or transmission equipment; or electricity 
production equipment used to power the hydrogen production process, 
including any carbon capture equipment associated with the electricity 
production process.
    (iii) Multipurpose components. Components that have a purpose in 
addition to the production of qualified clean hydrogen may be part of a 
facility if such components function interdependently with other 
components to produce qualified clean hydrogen.
    (iv) Example. The following example illustrates the definition of 
facility provided in this paragraph (a)(7).
    (A) Facts. Taxpayer owns a hydrogen production facility that is 
equipped with carbon capture equipment (as defined in Sec.  1.45Q-
2(c)), as distinguished from the carbon capture equipment described in 
paragraph (a)(7)(ii)(B) of this section. One purpose of this equipment 
is the capture of carbon oxides. The facility produces hydrogen through 
a process that results in a lifecycle GHG emissions rate of less than 
0.45 kilograms of CO2e per kilogram of hydrogen. Without the carbon 
capture equipment, the facility could not produce hydrogen through a 
process that results in a lifecycle GHG emissions rate of less than 
0.45 kilograms of CO2e per kilogram of hydrogen. Taxpayer determines 
the section 45V credit using a lifecycle GHG emissions rate of less 
than 0.45 kilograms of CO2e per kilogram of hydrogen.
    (B) Analysis. Because the carbon capture equipment is functionally 
interdependent with other components of property to produce qualified 
clean hydrogen through a process that results in the lifecycle GHG 
emissions rate that Taxpayer uses to determine the credit, the carbon 
capture equipment is part of the facility for purposes of section 
45V(c)(3) and the section 45V regulations, along with all other 
components of property that function interdependently with the carbon 
capture equipment to produce such hydrogen.
    (8) Hydrogen gas stream. The term hydrogen gas stream means a flow 
of gases that includes hydrogen, either alone or with one or more other 
gases.
    (9) Lifecycle GHG emissions--(i) In general. Subject to section 
45V(c)(1)(B) and paragraphs (a)(9)(ii) through(iv) of this section, and 
unless otherwise specified in the section 45V regulations, the term 
lifecycle GHG emissions has the meaning given the term lifecycle 
greenhouse gas emissions by 42 U.S.C. 7545(o)(1)(H), as in effect on 
August 16, 2022. For purposes of section 45V, lifecycle GHG emissions 
include emissions only through the point of production (well-to-gate), 
as determined under the 45VH2-GREET Model.
    (ii) 45VH2-GREET Model. Unless otherwise specified in the section 
45V regulations, for purposes of the section 45V credit, the term 
45VH2-GREET Model means the latest publicly available version of 45VH2-
GREET developed by Argonne National Laboratory and published by the 
DOE, as provided in the instructions to the latest version of Form 
7210, Clean

[[Page 2311]]

Hydrogen Production Credit, or any successor form(s), on the first day 
of the taxable year during which the qualified clean hydrogen for which 
the taxpayer is claiming the section 45V credit was produced. If a 
version of 45VH2-GREET becomes publicly available after the first day 
of the taxable year of production (but still within such taxable year), 
then the taxpayer may, in its discretion, treat such later version of 
45VH2-GREET as the 45VH2-GREET Model.
    (iii) Emissions through the point of production (well-to-gate). The 
term emissions through the point of production (well-to-gate) means the 
aggregate lifecycle GHG emissions related to hydrogen produced at a 
hydrogen production facility during the taxable year through the point 
of production. It includes emissions associated with growth, gathering, 
extraction, processing, and delivery of feedstocks to a hydrogen 
production facility. It also includes the emissions associated with the 
hydrogen production process, inclusive of the production of a mixed gas 
or impurity, and the electricity used by the hydrogen production 
facility and any capture and sequestration of carbon dioxide generated 
by the hydrogen production facility. Examples of emissions outside of 
the well-to-gate boundary generally include, but are not limited to, 
emissions from the liquefaction, storage, or transport of hydrogen.
    (iv) Certain emissions related to purification treated as through 
point of production. If the taxpayer knows or has reason to know the 
purification of a hydrogen gas stream (that is, removal of a mixed gas 
or impurity) is necessary for a hydrogen gas stream to be productively 
used, or to be sold for productive use, any lifecycle GHG emissions 
relating to such purification (for example, emissions from electricity 
used in purification, or carbon dioxide that is separated from a 
hydrogen gas stream and then vented as part of purification) are 
treated as emissions through the point of production (well-to-gate). 
Additionally, if the taxpayer knows or has reason to know that a 
hydrogen gas stream contains less than 99 percent hydrogen and will be 
combusted without purification, any lifecycle GHG emissions relating to 
the purification needed to purify the hydrogen gas stream to contain 99 
percent hydrogen are treated as emissions through the point of 
production (well-to-gate).
    (v) Example. The following example illustrates the rule of 
paragraph (a)(9)(iv) of this section.
    (A) Facts. Taxpayer is a C corporation that has a calendar year 
taxable year. In 2025, Taxpayer places Facility in service in the 
United States. Facility's hydrogen production process produces a 
hydrogen gas stream containing mixed gases or impurities, and the 
stream is subsequently sold to Customer without removing the mixed 
gases or impurities. Taxpayer knows or has reason to know that the 
purity of the hydrogen gas stream is materially different from what the 
Customer requires for productive use, and Customer will need to remove 
the mixed gases or impurities in order for the hydrogen gas stream to 
be productively used. Because Taxpayer refrains from removing the mixed 
gases or impurities at the hydrogen production facility, 45VH2-GREET 
reflects a lower lifecycle GHG emissions rate for the hydrogen 
production process than it would have reflected had the mixed gases or 
impurities been removed at Facility.
    (B) Analysis. The Taxpayer has not accurately reflected well-to-
gate emissions in 45VH2-GREET because the emissions associated with 
purification that was necessary for productive use have not been 
reflected. All lifecycle GHG emissions relating to the purification of 
the hydrogen gas stream to be productively used are emissions through 
the point of production (well-to-gate) and therefore must be taken into 
account as part of the emissions within the well-to-gate boundary.
    (10) Mixed gas or impurity. The term mixed gas or impurity means a 
non-hydrogen gas that is part of a hydrogen gas stream.
    (11) Process. The term process means the operations conducted by a 
facility to produce hydrogen (for example, electrolysis or steam 
methane reforming) during a taxable year using a primary feedstock. The 
term primary feedstock means a hydrogen-containing chemical that is 
transformed to produce hydrogen at a hydrogen production facility and 
has uniform or similar attributes distinguished by the source from 
which it is derived, if such source materially affects the lifecycle 
GHG emissions associated with use of the chemical to produce hydrogen.
    (12) Productive use. The term productive use means, with respect to 
a hydrogen gas stream, a consumption of the hydrogen gas stream in a 
manner that generates positive economic value, which is determined 
without regard to the availability of the section 45V credit. The term 
productive use means, with respect to qualified clean hydrogen, a 
consumption of the qualified clean hydrogen in a manner that generates 
positive economic value, which is determined without regard to the 
availability of the section 45V credit.
    (13) Qualified clean hydrogen--(i) In general. The term qualified 
clean hydrogen means hydrogen that is produced through a process that 
results in a lifecycle GHG emissions rate of not greater than 4 
kilograms of CO2e per kilogram of hydrogen. Such term does not include 
any hydrogen unless the production and sale or use of such hydrogen is 
verified by an unrelated party in accordance with, and satisfying the 
requirements of, Sec.  1.45V-5, and such hydrogen is produced--
    (A) In the United States (as defined in section 638(1) of the Code) 
or a U.S. territory, which, for purposes of section 45V and the section 
45V regulations, has the meaning of the term possession provided in 
section 638(2) of the Code;
    (B) In the ordinary course of a trade or business of the taxpayer; 
and
    (C) For sale or use.
    (ii) For sale or use. The term for sale or use means for the 
primary purpose of making ready and available for sale or use. Storage 
of hydrogen following production does not disqualify such hydrogen from 
being considered produced for sale or use.
    (14) Qualified clean hydrogen production facility. The term 
qualified clean hydrogen production facility means a facility--
    (i) Owned by the taxpayer;
    (ii) That produces qualified clean hydrogen; and
    (iii) The construction of which begins before January 1, 2033.
    (15) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (16) Section 45V credit. The term section 45V credit means the 
credit for production of clean hydrogen determined under section 45V of 
the Code, so much of sections 6417 and 6418 of the Code that relate to 
section 45V, and the section 45V regulations.
    (17) Section 45V regulations. The term section 45V regulations 
means this section, Sec. Sec.  1.45V-2 through 1.45V-6, and the 
regulations in this chapter under sections 6417 and 6418 of the Code 
that relate to the section 45V credit.
    (b) Amount of credit--(1) In general. The amount of the section 45V 
credit determined under section 45V(a) and the section 45V regulations 
for any taxable year is the product of the kilograms of qualified clean 
hydrogen produced by the taxpayer during such taxable year at a 
qualified clean hydrogen production facility during the 10-year period 
beginning on the date such facility was originally placed in service, 
multiplied by the applicable amount with respect to each process used 
to produce such hydrogen.

[[Page 2312]]

    (2) Producer of qualified clean hydrogen. For purposes of section 
45V(a)(1) and paragraph (b)(1) of this section, the term taxpayer means 
the taxpayer that owns the qualified clean hydrogen production facility 
at the time of the facility's production of hydrogen for which the 
section 45V credit is claimed, regardless of whether such taxpayer is 
treated as a producer under section 263A of the Code or under any other 
provision of law with respect to such hydrogen.
    (3) Increased credit amount for qualified clean hydrogen production 
facilities. Pursuant to section 45V(e)(1), Sec.  1.45V-3 provides rules 
that permit the amount of the section 45V credit determined under 
section 45V(a) and paragraph (b)(1) of this section to be multiplied by 
five if certain prevailing wages and apprenticeship requirements are 
met. See Sec.  1.45V-3(a).
    (c) Determination of credit. Subject to any applicable sections of 
the Code that may limit the section 45V credit amount, the section 45V 
credit for any taxable year of a taxpayer who produces qualified clean 
hydrogen and claims such credit is determined with respect to the 
qualified clean hydrogen produced by the taxpayer during that taxable 
year, regardless of whether the verification of the production and sale 
or use of that hydrogen occurs in a later taxable year. Although the 
section 45V credit is determined with respect to the taxable year in 
which the qualified clean hydrogen is produced, a taxpayer is not 
eligible to claim the section 45V credit with respect to the production 
of that hydrogen until all relevant verification requirements, and the 
verification itself, have been completed for both the production of the 
hydrogen and the sale or use of that hydrogen. Accordingly, although 
the sale or use of the hydrogen and the verification thereof may occur 
in a taxable year after the taxable year of production, the section 45V 
credit is properly claimed with respect to the taxable year of 
production and is subject to the general period of limitations for 
filing a claim for credit or refund under section 6511(a) and other 
applicable provisions of the Code.
    (d) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


1.45V-2  Special rules.

    (a) Coordination with credit for carbon oxide sequestration. In the 
case of any qualified clean hydrogen produced at a qualified clean 
hydrogen production facility that includes carbon capture equipment for 
which a credit is allowed to any taxpayer under section 45Q of the Code 
(section 45Q credit) for the taxable year or any prior taxable year, no 
section 45V credit is allowed under section 45V of the Code. However, 
if the 80/20 Rule provided in Sec.  1.45Q-2(g)(5) is satisfied with 
respect to such carbon capture equipment, and no new section 45Q credit 
has been allowed to any taxpayer for such carbon capture equipment, 
then the unit of carbon capture equipment (as defined in Sec.  1.45Q-
2(c)(3)) for which the 80/20 Rule is satisfied will not be treated as 
carbon capture equipment for which a section 45Q credit was allowed to 
any taxpayer for any prior taxable year for purposes of section 
45V(d)(2) and this paragraph (a).
    (b) Anti-abuse rule--(1) In general. The rules of section 45V of 
the Code (and so much of sections 6417 and 6418 of the Code related to 
the section 45V credit) and the section 45V regulations (as defined in 
Sec.  1.45V-1(a)(17)) must be applied in a manner consistent with the 
purposes of section 45V and the section 45V regulations. A purpose of 
section 45V is to provide taxpayers an incentive to produce qualified 
clean hydrogen for a productive use. Accordingly, the section 45V 
credit is not allowable if the primary purpose of the sale or use of 
qualified clean hydrogen is to obtain the benefit of the section 45V 
credit in a manner that is wasteful, such as when a taxpayer claims the 
section 45V credit for qualified clean hydrogen that the taxpayer knows 
or has reason to know will, in excess of standard commercial practices, 
be vented, flared, used to produce heat or power that is then directly 
used to produce hydrogen, or otherwise used to produce hydrogen. For 
example, venting or flaring for safety or maintenance reasons in the 
ordinary course of business is a non-abusive commercial industry 
practice. While not abusive, such venting or flaring is also not a 
verifiable use under Sec.  1.45V-5(d)(2)(ii), and therefore any such 
hydrogen that is vented or flared for safety reasons is not eligible 
for the section 45V credit. A determination of whether the sale or use 
of qualified clean hydrogen is inconsistent with the purposes of 
section 45V is based on all relevant facts and circumstances.
    (2) Example. The following example illustrates the application of 
paragraph (b)(1).
    (i) Example 1--(A) Facts. Taxpayer is a C corporation that has a 
calendar year taxable year. In 2031, Taxpayer places Facility in 
service in the United States. Facility produces qualified clean 
hydrogen that qualifies for the highest applicable amount of the 
section 45V credit at a production cost of $2 per kilogram of hydrogen 
(assuming Taxpayer also claims the increased credit under section 
45V(e), excluding any future inflation adjustment, the amount of the 
section 45V credit would be $3 per kilogram of qualified clean 
hydrogen). The cost of producing each kilogram of qualified clean 
hydrogen is less than the amount of the section 45V credit that would 
be available if Taxpayer qualified for the section 45V credit. In 2031, 
Taxpayer sells all the qualified clean hydrogen produced at Facility 
that year to Customer at a price that is well below the current market 
price. Taxpayer knows or reasonably expects that Customer will vent or 
flare the qualified clean hydrogen it purchased from Taxpayer, in 
excess of standard commercial practices. In addition, Taxpayer intends 
to obtain the benefit of the section 45V credit by claiming such credit 
itself or monetizing such credit through an election under section 6417 
or 6418 of the Code.
    (B) Analysis. Based on all the facts and circumstances, the primary 
purpose of Taxpayer's sale of qualified clean hydrogen is to obtain the 
benefit of the section 45V credit in a manner that is wasteful. 
Taxpayer is not eligible for the section 45V credit with respect to the 
qualified clean hydrogen that Taxpayer produced and sold in 2031 to 
Customer that is subsequently vented or flared by Customer.
    (c) Recordkeeping. Consistent with section 6001 of the Code, a 
taxpayer claiming the section 45V credit for qualified clean hydrogen 
produced at a qualified clean hydrogen production facility must 
maintain and preserve records sufficient to establish the amount of the 
section 45V credit claimed by the taxpayer. At a minimum, those records 
must include records to substantiate the information required to be 
included in the verification report under Sec.  1.45V-5, records 
establishing that the facility meets the definition of a qualified 
clean hydrogen production facility under section 45V(c)(3) and Sec.  
1.45V-1(a)(14), records of past credit claims under section 45Q by any 
taxpayer with respect to carbon capture equipment included at the 
facility, and records establishing the date the qualified clean 
hydrogen production facility was placed in service. If the requirements 
under section 45V(e) and Sec.  1.45V-3(b) for the increased credit 
amount were satisfied, then the taxpayer must also maintain records in 
accordance with Sec.  1.45-12. Taxpayers must also retain all raw data 
used for submission of a request for an emissions value to the DOE for 
at least six years after the due date (including extensions) for filing 
the Federal income tax return or information return to which the

[[Page 2313]]

provisional emissions rate (PER) (as defined in Sec.  1.45V-4(c)(1)) 
petition is ultimately attached.
    (d) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-4  Procedures for determining lifecycle greenhouse gas 
emissions rates for qualified clean hydrogen.

    (a) Overview--(1) In general. Except as provided in paragraph 
(a)(2) of this section, the amount of the section 45V credit is 
determined under section 45V(a) of the Code and Sec.  1.45V-1(b) 
according to the lifecycle GHG emissions rate of each hydrogen 
production process conducted at a hydrogen production facility during 
the taxable year. The lifecycle GHG emissions rate of each process is 
determined under the 45VH2-GREET Model. In the case of any hydrogen 
production pathway, as described in paragraph (c)(2)(i) of this 
section, for which a lifecycle GHG emissions rate has not been 
determined under the 45VH2-GREET Model for purposes of section 45V, a 
taxpayer producing hydrogen via such a pathway may file a petition for 
a provisional emissions rate (PER) with the IRS for the Secretary's 
determination of the lifecycle GHG emissions rate with respect to such 
hydrogen.
    (2) Lifecycle GHG emissions rate of hourly electricity consumption. 
In the case of a facility's use of electricity generated on or after 
January 1, 2030, for which the taxpayer acquires and retires a 
qualifying EAC (as defined in paragraph (d)(2)(vii) of this section) 
that represents electricity that is generated in the same hour 
(Coordinated Universal Time (UTC)) that the taxpayer's process uses 
electricity to produce hydrogen, the taxpayer may determine the 
lifecycle GHG emissions associated with the use of such electricity by 
the taxpayer's process during such hour using the attributes of such 
qualifying EAC rather than using an annual average of the lifecycle GHG 
emissions associated with the use of electricity in the taxpayer's 
process. If a taxpayer determines the lifecycle GHG emissions 
associated with the use of electricity on an hourly basis in the manner 
provided in this paragraph (a)(2), such taxpayer must determine the 
lifecycle GHG emissions associated with the use of electricity on an 
hourly basis for the entire taxable year. In the case of hydrogen 
produced at a facility using electricity for which the taxpayer does 
not acquire and retire qualifying EACs that represent electricity that 
is generated in the same hour that the taxpayer's hydrogen production 
facility uses electricity to produce hydrogen on or after January 1, 
2030, the lifecycle GHG emissions rate of such hydrogen is determined 
using the regional annual average emissions rate of such electricity 
usage as reflected in 45VH2-GREET. The taxpayer may determine the 
lifecycle GHG emissions associated with the use of electricity on an 
hourly basis only if the annual average lifecycle GHG emissions rate of 
the hydrogen production process during the taxable year is not greater 
than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of 
hydrogen for all hydrogen produced pursuant to that process during the 
taxable year.
    (3) Examples. The following examples illustrate the application of 
paragraphs (a)(1) and (2) of this section.
    (i) Example 1: Annual emissions accounting--(A) Facts. Taxpayer, 
which files its Federal income tax return based on the calendar year, 
owns a hydrogen production facility, Facility, that constantly produces 
hydrogen through electrolysis during all 24 hours of each day of 
taxable year 2031. Facility's only inputs are water and electricity. 
For the first 23 of the 24 hours of each day of 2031, Facility acquires 
and retires qualifying EACs that represent electricity that is 
generated in the same hour that the taxpayer's hydrogen production 
facility uses electricity to produce hydrogen. The qualifying EACs 
reflect electricity from wind power, a uniform source of zero-emission 
electricity depicted in 45VH2-GREET. During the last hour of each day 
in 2031, Facility sources electricity from a regional grid. During 
taxable year 2031, Taxpayer produces 2,402,145.12 kilograms of a 
hydrogen gas stream (an annual total of 2,302,055.74 kilograms produced 
during the first 23 hours of each day, and 100,089.38 kilograms 
produced during the remaining one hour of each day). To produce such a 
stream, Facility consumes 132,000 MWh of electricity. Of the 132,000 
MWh of electricity consumed, 126,500 MWh of the electricity is from 
wind power, and 5,500 MWh of the electricity is from the regional 
electricity grid. On average, of the 2,402,145.12 kilograms produced, 
99.99 percent by mol is pure hydrogen and 0.01 percent is water vapor 
(this translates to 99.9107 percent pure hydrogen and 0.0893 percent 
water vapor by mass). Thus, Facility produced an annual total of 
2,400,000 kilograms of pure hydrogen by mass. In 2031, the Facility 
produces 10,000,000 kilograms of oxygen co-product. The pressure at 
which Facility produces the hydrogen gas stream is 300 psi.
    (B) Analysis. To determine the annual average lifecycle GHG 
emissions rate of the process by which the 2,400,000 kilograms of pure 
hydrogen were produced in 2031, Taxpayer must account for the total 
amount of electricity consumed by Facility in taxable year 2031 
(132,000 MWh), the annual average share of electricity that is from 
each source depicted in 45VH2-GREET (95.8333 percent wind power, 4.1667 
percent regional electricity grid), the total amount of hydrogen gas 
stream produced in that year (2,402,145.12 kilograms), the average 
share of mixed gases in the hydrogen gas stream over the year (99.99 
percent hydrogen by mol, 0.01 percent water by mol), the total amount 
of oxygen co-product produced in that year (10,000,000 kilograms); and 
the pressure at which the hydrogen gas stream is produced (300 psi). 
Assuming that, using these inputs, 45VH2-GREET reflects that the 
average annual lifecycle GHG emissions rate of the process by which the 
2,400,000 kilograms of hydrogen were produced in 2031 not greater than 
4 kilograms of CO2e per kilogram of hydrogen, then the hydrogen 
produced by Facility in 2031 is qualified clean hydrogen. Further, 
assuming that, using these inputs, 45VH2-GREET reflects that Facility 
produces hydrogen through a process that results in an annual lifecycle 
GHG emissions rate of less than 2.5 but not less 1.5 kilograms of CO2e 
per kilogram of hydrogen, the applicable percentage under section 
45V(b)(2) is 25 percent. Accordingly, assuming all other requirements 
to claim the section 45V credit are met, and assuming prevailing wage 
and apprenticeship requirements under section 45V(e) are met, Taxpayer 
may claim the section 45V credit for the 2,400,000 kilograms of 
qualified clean hydrogen in the amount of $1,800,000 (2,400,000 
kilograms of qualified clean hydrogen produced by Taxpayer at Facility 
during taxable year 2031 multiplied by $0.75 with respect to such 
hydrogen) (unadjusted for inflation).
    (ii) Example 2: Hourly emissions accounting--(A) Facts. The facts 
are the same as in paragraph (a)(3)(i)(A) of this section (Example 1), 
except that Taxpayer opts to determine the lifecycle GHG emissions rate 
of electricity used to produce hydrogen on an hourly basis pursuant to 
paragraph (a)(2) of this section.
    (B) Analysis. To determine whether Taxpayer is eligible to use 
hourly accounting, Taxpayer must first complete an analysis on an 
annual basis, as described in Example 1. Assuming that the lifecycle 
GHG emissions rate associated with pure hydrogen production at Facility 
during the taxable year is not greater than 4

[[Page 2314]]

kilograms of CO2e per kilogram of hydrogen, Taxpayer is eligible to use 
hourly accounting. To determine the hourly lifecycle GHG emissions 
rate, Taxpayer must first determine the average share of mixed gases in 
the hydrogen gas stream over taxable year 2031 (99.99 percent hydrogen 
by mol, 0.01 percent water vapor by mol) and the average amount of 
oxygen co-product produced for every kilogram of hydrogen gas stream 
produced in taxable year 2031 (10,000,000 kilograms of oxygen divided 
by 2,402,145.12 kilograms of hydrogen gas stream equals 4.163 kilograms 
of oxygen per kilogram of hydrogen gas stream). Then, for each hour, 
Taxpayer must account for the following inputs in 45VH2-GREET: the 
total kilograms of hydrogen gas stream produced in that hour, the 
product of the annual average oxygen co-product rate (4.163 kilograms 
of oxygen co-product per kilogram of hydrogen gas stream) and the total 
kilograms of hydrogen gas stream produced in that hour, the average 
impurity content of the hydrogen gas stream produced in that hour, the 
total amount of electricity consumed in that hour, and the source of 
the electricity used in that hour, as depicted in 45VH2-GREET (for 
example, wind power, regional electricity grid). Assuming that, using 
these inputs, 45VH2-GREET reflects that the lifecycle GHG emissions 
rate of the process by which the hydrogen was produced in each hour of 
the first 23 hours of each day in taxable year 2031 is less than 0.45 
kilograms of CO2e per kilogram of hydrogen, then for purposes of 
section 45V(b)(2), the applicable percentage for such hydrogen produced 
in each hour of the first 23 hours of each day of taxable year 2031 is 
100 percent. For the hydrogen produced during the last hour of each day 
of taxable year 2031, assuming that 45VH2-GREET reflects that the 
lifecycle GHG emissions rate of the process exceeded 4 kilograms of 
CO2e per kilogram of hydrogen, the applicable percentage for such 
hydrogen is zero percent (that is, the hydrogen produced is not 
qualified clean hydrogen). Assuming all other requirements of section 
45V are met, including the prevailing wage and apprenticeship 
requirements of section 45V(e), Taxpayer is entitled to a section 45V 
credit equal to $3 (not adjusted for inflation) per kilogram of 
qualified clean hydrogen produced in the first 23 hours of each day of 
taxable year 2031 and no credit for the hydrogen produced in the last 
hour of each day of taxable year 2031. As described in Example 1, in 
taxable year 2031, Taxpayer produced 2,400,000 kilograms of pure 
hydrogen by mass at a constant rate. Accordingly, during the first 23 
hours of each day of taxable year 2031, Taxpayer produced 2,300,000 
kilograms of pure hydrogen. Taxpayer may therefore claim a section 45V 
credit of $6,900,000 (2,300,000 kilograms of qualified clean hydrogen 
produced by Taxpayer during the first 23 hours of each day of taxable 
year 2031 at Facility multiplied by $3 with respect to such hydrogen).
    (b) Use of the 45VH2-GREET Model--(1) In general. For each taxable 
year during the period described in section 45V(a)(1), a taxpayer 
claiming the section 45V credit determines the lifecycle GHG emissions 
rate of each hydrogen production process conducted at a hydrogen 
production facility under the 45VH2-GREET Model separately for each 
process. This determination is made following the close of each such 
taxable year and, subject to paragraph (a)(2) of this section, must 
include all of a process's hydrogen production during the taxable year. 
In using the 45VH2-GREET Model to calculate the lifecycle GHG emissions 
rate for purposes of determining the amount of the section 45V credit 
under section 45V(a) and Sec.  1.45V-1(b), the taxpayer must accurately 
enter all information about its facility requested within the interface 
of 45VH2-GREET (as described in Sec.  1.45V-1(a)(9)(ii)). Information 
regarding where taxpayers may access 45VH2-GREET and accompanying 
documentation will be included in the instructions to the Form 7210, 
Clean Hydrogen Production Credit, or any successor form(s).
    (2) Beginning of construction safe harbor--(i) In general. A 
taxpayer may, in its discretion, make an irrevocable election effective 
for the remaining taxable years within the period described in section 
45V(a)(1), to treat the latest version of 45VH2-GREET that was publicly 
available on the date when construction of the qualified clean hydrogen 
facility began as the 45VH2-GREET Model. In the case of a facility 
owned by the taxpayer that began construction prior to December 26, 
2023, such taxpayer may, in its discretion, make an irrevocable 
election effective for the remaining taxable years within the period 
described in section 45V(a)(1), to treat the first publicly-available 
version of 45VH2-GREET (that is, the version of 45VH2-GREET released in 
December 2023) as the 45VH2-GREET Model. For purposes of this paragraph 
(b)(2), in the case of a facility that is modified to produce qualified 
clean hydrogen under section 45V(d)(4) and Sec.  1.45V-6(a), or a 
facility that is retrofitted in a manner that entitles the facility to 
a new placed in service date under Sec.  1.45V-6(b), the date when 
construction of the facility began is the date when construction of 
such modification or retrofit began. An election under this paragraph 
(b)(2)(i) relates to the version of 45VH2-GREET and does not alter any 
other rules provided in this section and in Sec. Sec.  1.45V-1, -2, -3, 
-5, and -6.
    (ii) Time and manner of making election. The taxpayer makes the 
election described in paragraph (b)(2)(i) of this section with respect 
to a qualified clean hydrogen production facility's hydrogen production 
process on Form 7210 or any successor form(s). The taxpayer must make 
the election by no later than the due date for filing its Federal 
income tax return or information return (including extensions) for a 
taxable period ending no later than December 31, 2025, or the due date 
for filing its Federal income tax return or information return 
(including extensions) for the taxable period in which such facility is 
placed in service, whichever due date is later.
    (c) Provisional emissions rate (PER)--(1) In general. For purposes 
of section 45V(c)(2)(C) and paragraph (a) of this section, the term 
provisional emissions rate or PER means the lifecycle GHG emissions 
rate of the hydrogen produced through a process at a hydrogen 
production facility as determined by the Secretary under this paragraph 
(c).
    (2) Rate not determined--(i) In general. For purposes of section 
45V(c)(2)(C), a taxpayer may not file a petition for a PER unless a 
lifecycle GHG emissions rate has not been determined under the 45VH2-
GREET Model with respect to hydrogen produced through a process by the 
taxpayer at a hydrogen production facility. A lifecycle GHG emissions 
rate has not been determined under the 45VH2-GREET Model with respect 
to hydrogen produced through a process by the taxpayer at a hydrogen 
production facility if either the feedstock used in such process or the 
facility's hydrogen production technology, together referred to as the 
facility's ``hydrogen production pathway,'' is not included in the 
45VH2-GREET Model. If a taxpayer's request for an emissions value 
pursuant to paragraph (c)(5) of this section with respect to the 
hydrogen produced through a process by the taxpayer at a hydrogen 
production facility is pending at the time such facility's hydrogen 
production pathway becomes included in an updated version of 45VH2-
GREET, the taxpayer's request for an emissions value will be 
automatically denied. In such case, the taxpayer must

[[Page 2315]]

determine the lifecycle GHG emissions rate with respect to such 
hydrogen under paragraph (c)(2)(ii) of this section.
    (ii) Subsequent inclusion in 45VH2-GREET. Notwithstanding the 
definition of the 45VH2-GREET Model provided at Sec.  1.45V-
1(a)(9)(ii), for the taxable year in which the hydrogen production 
facility's hydrogen production pathway is first included in an updated 
version of 45VH2-GREET, the updated version of 45VH2-GREET will be 
considered the 45VH2-GREET Model with respect to the hydrogen produced 
through a process by the taxpayer at the hydrogen production facility 
during such taxable year, and for purposes of section 45V(c)(2)(C), a 
lifecycle GHG emissions rate for such hydrogen will be considered to 
have been determined.
    (3) Process for filing a PER petition. To file a PER petition with 
the Secretary, a taxpayer must submit a PER petition attached to the 
taxpayer's Federal income tax return (or information return) for the 
first taxable year of hydrogen production ending within the 10-year 
period described in section 45V(a)(1) for which the taxpayer claims the 
section 45V credit for hydrogen to which the PER petition relates and 
for which a lifecycle GHG emissions rate has not been determined, as 
defined under paragraph (c)(2)(i) of this section. A PER petition must 
contain the letter received from the DOE stating the emissions value 
the DOE determined with respect to the facility's hydrogen production 
pathway, and the control number the DOE assigned to the emissions value 
request application. If the taxpayer obtained more than one emissions 
value from the DOE, the PER petition must contain the emissions value 
setting forth the lifecycle GHG emissions rate of the hydrogen for 
which the section 45V credit is claimed on the Form 7210, Clean 
Hydrogen Production Credit, or any successor form(s), to which the PER 
petition is attached.
    (4) PER determination. Upon the taxpayer's filing of its Federal 
income tax return (or information return) containing a PER petition in 
a manner consistent with paragraph (c)(3) of this section, the 
emissions value of the hydrogen determined by the DOE will be deemed 
accepted. The taxpayer may rely upon an emissions value provided by the 
DOE for purposes of calculating and claiming a section 45V credit, 
provided that any information, representations, or other data provided 
to the DOE in support of the request for an emissions value are 
accurate. The IRS's deemed acceptance of such emissions value is the 
Secretary's determination of the PER. However, the production, 
including the data the taxpayer submitted in the PER petition and the 
data provided to the DOE in support of the taxpayer's request for an 
emissions value, and sale or use of such hydrogen must be verified by 
an unrelated party under section 45V(c)(2)(B)(ii) and Sec.  1.45V-5. 
Such verification and any information, representations, or other data 
provided to the DOE in support of the request for an emissions value 
are subject to later examination by the IRS.
    (5) Department of Energy (DOE) emissions value request process 
(EVRP). An applicant that submits a request for an emissions value must 
follow the procedures specified by the DOE to request and obtain such 
emissions value. Emissions values will be evaluated using the same 
well-to-gate system boundary that is employed in 45VH2-GREET. 
Additionally, background data parameters in 45VH2-GREET will also be 
treated as background data (fixed values that an applicant cannot 
change) in the emissions value request process. Treatment of qualifying 
EACs and other sources of emissions addressed in the section 45V 
regulations will be consistently applied in the EVRP. An applicant may 
request an emissions value from the DOE only after a Class 3 front-end 
engineering and design (FEED) study or similar indication of project 
maturity, as determined by the DOE, such as project specification and 
cost estimation sufficient to inform a final investment decision, has 
been completed for the hydrogen production facility. The DOE may 
decline to review applications that are not responsive, including those 
applications that use a hydrogen production technology and feedstock 
already in 45VH2-GREET or applications that are incomplete. Applicants 
seeking a new emissions value for a given hydrogen production facility 
after the DOE has completed its analysis may reapply only if they wish 
to resubmit their application with new or revised technical information 
or clarifications related to the information previously submitted. 
Guidance and procedures for applicants to request and obtain an 
emissions value from the DOE will be published by the DOE.
    (6) Effect of PER--(i) In general. A taxpayer may use a PER 
determined by the Secretary to calculate the amount of the section 45V 
credit under section 45V(a) and Sec.  1.45V-1(b) with respect to 
qualified clean hydrogen produced at a qualified clean hydrogen 
production facility, provided--
    (A) The lifecycle GHG emissions rate of such hydrogen has not been 
determined (for purposes of section 45V(c)(2)(C)) under the 45VH2-GREET 
Model;
    (B) There are no material changes to the information about the 
taxpayer's hydrogen production process from the information provided to 
the DOE to obtain an emissions value pursuant to paragraph (c)(5) of 
this section; and
    (C) All other requirements of section 45V are met.
    (ii) Material change. For purposes of paragraph (c)(6)(i)(B) of 
this section, a material change means any change that would cause a 
qualified verifier (as defined in Sec.  1.45V-5(h)) to be unable to 
complete a production attestation under section 45V(c)(2)(B)(ii) of the 
Code and Sec.  1.45V-5(c).
    (iii) Subsequent inclusion safe harbor--(A) In general. The 
taxpayer may, in its discretion, make an irrevocable election, 
effective for the remaining taxable years within the period described 
in section 45V(a)(1), to treat the first version of 45VH2-GREET that 
includes the taxpayer's qualified clean hydrogen production facility's 
hydrogen production pathway as the 45VH2-GREET Model.
    (B) Time and manner of making election. The taxpayer makes the 
election described in paragraph (c)(6)(iii)(A) of this section with 
respect to a qualified clean hydrogen production facility on Form 7210 
or any successor form(s). The taxpayer must make the election by no 
later than the due date for filing its Federal income tax return or 
information return (including extensions) for a taxable period ending 
no later than December 31, 2025, or the due date for filing its Federal 
income tax return or information return (including extensions) for the 
taxable period in which the taxpayer's qualified clean hydrogen 
production facility's hydrogen production pathway is first included in 
45VH2-GREET, whichever due date is later.
    (iv) Special rule for facilities that receive an emissions value 
prior to the beginning of construction. Notwithstanding the requirement 
of paragraph (c)(6)(i)(A) of this section, a taxpayer who received an 
emissions value from the DOE with respect to a qualified clean hydrogen 
production facility (pursuant to paragraph (c)(5) of this section) 
before the date when construction of the facility began, may, in its 
discretion, use the PER determined by the Secretary and the associated 
emissions value to calculate the amount of section 45V credit with 
respect to qualified clean hydrogen produced at the qualified clean 
hydrogen production facility for the entirety of the period described 
in section 45V(a)(1), provided that the

[[Page 2316]]

taxpayer continues to satisfy the requirements of paragraphs 
(c)(6)(i)(B) and (C) of this section.
    (v) Not an examination of books and records. The Secretary's PER 
determination is not an examination or inspection of books of account 
for purposes of section 7605(b) of the Code and does not preclude or 
impede the IRS (under section 7605(b) or any administrative provisions 
adopted by the IRS) from later examining a return or inspecting books 
or records with respect to any taxable year for which the section 45V 
credit is claimed. For example, the verification report submitted under 
section 45V(c)(2)(B)(ii) and Sec.  1.45V-5 and any information, 
representations, or other data provided to the DOE in support of the 
request for an emissions value are still subject to examination. 
Further, a PER determination does not signify that the IRS has 
determined that the requirements of section 45V have been satisfied for 
any taxable year.
    (d) Use of energy attribute certificates (EACs)--(1) In general. 
For purposes of the section 45V credit, if a taxpayer determines a 
lifecycle GHG emissions rate for hydrogen produced at a hydrogen 
production facility using the 45VH2-GREET Model or the Secretary 
determines a PER for hydrogen produced at a hydrogen production 
facility subject to a PER petition, then the taxpayer may treat such 
hydrogen production facility's use of electricity as being from a 
specific electricity generating facility rather than as electricity 
with the annual average lifecycle GHG emissions of the regional 
electricity grid (as represented in 45VH2-GREET) only if the taxpayer 
acquires and retires qualifying EACs (as defined in paragraph 
(d)(2)(vii) of this section) for each unit of electricity that the 
taxpayer claims from such source. For example, one megawatt-hour of 
electricity used to produce hydrogen would need to be matched with one 
megawatt-hour of qualifying EACs. Further, to satisfy this requirement, 
a taxpayer's acquisition and retirement of qualifying EACs must also be 
recorded in a qualified EAC registry or accounting system (as defined 
in paragraph (d)(2)(viii) of this section) so that the acquisition and 
retirement of such EACs may be verified by a qualified verifier (as 
defined in Sec.  1.45V-5(h)). The requirements of this paragraph (d)(1) 
apply regardless of whether the electricity generating facility is grid 
connected, directly connected, or co-located with the hydrogen 
production facility.
    (2) Definitions. For purposes of this section--
    (i) Commercial operations date. The term commercial operations date 
or COD means the date on which a facility that generates electricity 
begins commercial operations.
    (ii) Energy attribute certificate. The term energy attribute 
certificate (EAC) means a tradeable contractual instrument, issued 
through a qualified EAC registry or accounting system (as defined in 
paragraph (d)(2)(viii) of this section), that represents the energy 
attributes of a specific unit of energy produced. An EAC may be traded 
with or separately from the underlying energy it represents. An EAC can 
be retired by or on behalf of its owner, which is the party that has 
the right to claim the underlying attributes represented by an EAC. 
Renewable energy certificates (RECs) and other similar energy 
certificates issued through a registry or accounting system are forms 
of EACs.
    (iii) Eligible EAC. The term eligible EAC means an EAC that 
represents electricity that is produced by an electricity generating 
facility that is registered on only one qualified EAC registry or 
accounting system and that, with respect to the electricity to which 
the EAC relates, provides, at a minimum, the information described in 
paragraphs (d)(2)(iii)(A) through (H) of this section--
    (A) A description of the facility, including the technology and 
feedstock used to generate the electricity;
    (B) The amount and units of electricity;
    (C) The COD of the facility that generated the electricity;
    (D) For electricity that is generated before January 1, 2030, the 
calendar year in which such electricity was generated;
    (E) For electricity that is generated after December 31, 2029, the 
date and hour (including time zone, or in UTC) in which such 
electricity was generated;
    (F) Other attributes required by 45VH2-GREET or in the 
determination of a PER to accurately determine the emissions associated 
with such electricity;
    (G) For electricity generating sources that use carbon capture 
equipment, the placed in service date of such equipment; and
    (H) The project identification number or assigned identifier.
    (iv) Qualifying electricity decarbonization standard. A qualifying 
electricity decarbonization standard is a standard that--
    (A) Contains a target that 100 percent of the State's retail sales 
of electricity from obligated entities be supplied by renewable, non-
emitting, zero-emitting, or minimal-emitting sources, where obligated 
entities and eligible sources are defined by State policy, or a target 
for GHG emissions from the State's electricity sector that reflects an 
equivalent of such a retail sales target, by 2050 or earlier;
    (B) Applies to the large majority of eligible electricity supplied 
to the state, as determined by the State; and
    (C) Includes policies that would achieve the target, a requirement 
that the state develop a plan to achieve the standard, or a requirement 
that entities subject to the standard are required to develop such a 
plan.
    (v) Qualifying GHG cap program. A qualifying GHG cap program is a 
legally binding program that meets the following minimum criteria--
    (A) Creates a limitation (cap) on the quantity of GHG emissions 
from the electricity sector (either alone or along with other sectors) 
in a State through issuance of a limited number of allowances or other 
compliance instruments to covered entities for each compliance period;
    (B) Includes annual obligations (even if part of multi-year 
compliance periods) under which an entity subject to the cap must 
provide information about such entity's GHG emissions and for which an 
entity must submit at least some compliance instruments to the State's 
regulatory authority;
    (C) Includes a cap on GHG emissions from covered entities that 
generally declines over time from the cap on GHG emissions in effect in 
calendar year 2025 (or the first calendar year in which the cap is in 
effect, if later), with adjustments as appropriate for expansions in 
the scope of the cap;
    (D) Applies to the large majority of in-state electricity sources 
of emissions that emit greater than 25,000 metric tons of CO2e in a 
calendar year;
    (E) Applies to the large majority of out-of-state electricity 
supplied to the State and to emissions associated with those imports, 
including emissions that arise from entities that emit greater than 
25,000 metric tons of CO2e in a calendar year;
    (F) Generally ensures that the prices of allowances sold in a 
state-run auction cannot fall below $25 per metric ton of CO2e, 
adjusted for inflation from 2025 dollars using at a minimum the most 
recently available twelve-month value of the Consumer Price Index for 
All Urban Consumers (CPI-U), as published by the United States Bureau 
of Labor Statistics (BLS); and
    (G) Generally ensures that the cap on greenhouse gas emissions 
cannot be exceeded for less than $90 per metric ton of CO2e, adjusted 
for inflation from 2025 dollars using at a minimum the

[[Page 2317]]

most recently available twelve-month value of the CPI-U, as published 
by the BLS.
    (vi) Merchant nuclear reactor. The term merchant nuclear reactor 
means a nuclear reactor that competes in a competitive electricity 
market through the sale of energy and, in some cases, other services 
and for which over 50 percent of the reactor and its electricity 
production does not receive cost recovery through rate regulation or 
public ownership with related retail rate recovery.
    (vii) Qualifying EAC. The term qualifying EAC means an eligible EAC 
that meets the requirements of paragraph (d)(3) of this section and for 
which the satisfaction of those requirements has been verified by a 
qualified verifier (as defined in Sec.  1.45V-5(h)).
    (viii) Qualified EAC registry or accounting system. The term 
qualified EAC registry or accounting system means a tracking system 
that--
    (A) Assigns a unique identification number to each EAC tracked by 
such system;
    (B) Enables verification that only one EAC is associated with each 
unit of electricity;
    (C) Verifies that each EAC is claimed and retired only once;
    (D) Identifies the owner of each EAC; and
    (E) Provides a publicly accessible view (for example, through an 
application programming interface) of all currently registered 
generators in the tracking system to prevent the duplicative 
registration of generators.
    (ix) Region. The term region means a Region that corresponds to a 
Balancing Authority, as identified in the following table. Alaska, 
Hawaii, and each U.S. territory will be treated as separate regions. 
Future versions of this table may be provided as a safe harbor in 
guidance published in the Internal Revenue Bulletin.

                     Table 1 to Paragraph (d)(2)(ix)
------------------------------------------------------------------------
               Balancing Authority                        Region
------------------------------------------------------------------------
Balancing Authority of Northern California......  California.
California Independent System Operator            California.
 (Balancing Authority).
Imperial Irrigation District....................  California.
Los Angeles Dept of Water & Power...............  California.
Turlock Irrigation District.....................  California.
Midcontinent ISO (Balancing Authority): South...  Delta.
Duke Energy Florida Inc.........................  Florida.
Florida Municipal Power Pool....................  Florida.
Florida Power & Light...........................  Florida.
Gainesville Regional Utilities..................  Florida.
Homestead (City of).............................  Florida.
JEA.............................................  Florida.
New Smyrna Beach Utilities Commission...........  Florida.
Reedy Creek Improvement District................  Florida.
Seminole Electric Coop Inc......................  Florida.
Tallahassee FL (City of)........................  Florida.
Tampa Electric Co...............................  Florida.
East Kentucky Power Coop Inc....................  Mid-Atlantic.
LG&E & KU Services Co...........................  Mid-Atlantic.
Ohio Valley Electric Corp.......................  Mid-Atlantic.
PJM Interconnection.............................  Mid-Atlantic.
Associated Electric Coop Inc....................  Midwest.
Electric Energy Inc.............................  Midwest.
Gridliance Heartland............................  Midwest.
Midcontinent ISO (Balancing Authority): North     Midwest.
 and Central.
NaturEner Power Watch LLC (GWA).................  Mountain.
NaturEner Wind Watch LLC........................  Mountain.
Nevada Power Co.................................  Mountain.
Northwestern Energy.............................  Mountain.
PacifiCorp East.................................  Mountain.
Public Service Co of Colorado...................  Mountain.
WAPA Rocky Mountain Region......................  Mountain.
WAPA Upper Great Plains West....................  Mountain.
New England ISO (Balancing Authority)...........  New England.
Northern Maine..................................  New England.
New York ISO (Balancing Authority)..............  New York.
Avangrid Renewables LCC.........................  Northwest.
Avista Corp.....................................  Northwest.
Bonneville Power Administration.................  Northwest.
Gridforce Energy Management LLC.................  Northwest.
Idaho Power Co..................................  Northwest.
PacifiCorp West.................................  Northwest.
Portland General Electric.......................  Northwest.
PUD No 1 of Chelan County.......................  Northwest.
PUD No 1 of Douglas County......................  Northwest.
PUD No 2 of Grant County........................  Northwest.
Puget Sound Energy Inc..........................  Northwest.
Seattle City Light..............................  Northwest.
Tacoma Power....................................  Northwest.
Southwest Power Pool (Balancing Authority)......  Plains.
Southwestern Power Administration...............  Plains.
Alcoa Power Generating Inc Yadkin Division......  Southeast.

[[Page 2318]]

 
Duke Energy Carolinas LLC.......................  Southeast.
Duke Energy Progress East.......................  Southeast.
Duke Energy Progress West.......................  Southeast.
PowerSouth Energy Coop..........................  Southeast.
South Carolina Electric & Gas Co................  Southeast.
South Carolina Public Service Authority.........  Southeast.
Southeastern Power Administration (Southern)....  Southeast.
Southern Co Services Inc........................  Southeast.
Tennessee Valley Authority......................  Southeast.
Arizona Public Service Co.......................  Southwest.
Arlington Valley LLC............................  Southwest.
El Paso Electric................................  Southwest.
Gila River Power LLC............................  Southwest.
Griffith Energy LLC.............................  Southwest.
New Harquahala Generating Co LLC................  Southwest.
Public Service Co of New Mexico.................  Southwest.
Salt River Project..............................  Southwest.
Tucson Electric Power Co........................  Southwest.
WAPA Desert Southwest Region....................  Southwest.
ERCOT ISO (Balancing Authority).................  Texas.
------------------------------------------------------------------------

    (x) Qualifying nuclear reactor. The term qualifying nuclear reactor 
means, with respect to an EAC, a nuclear reactor--
    (A) That is a merchant nuclear reactor, as defined in paragraph 
(d)(2)(vi) of this section, or is a nuclear reactor that is not co-
located with any other operating nuclear reactor,
    (B) For which the average annual gross receipts within the meaning 
of section 45U(b)(2)(A)(ii)(I) of the reactor are less than 4.375 cents 
per kilowatt hour, for any two of the calendar years 2017 through 2021, 
as determined with respect to any one owner of the reactor, and
    (C) That either
    (1) Has a physical electrical connection with the hydrogen 
production facility which acquires and retires the EAC, which is on the 
reactor's side of a utility service meter before the reactor or the 
hydrogen production facility connect to a distribution or transmission 
system, or
    (2) Is the subject of a written binding contract, as defined in 
paragraph (d)(2)(xi) of this section, for a fixed term of at least 10 
years beginning on the first date on which qualified EACs are acquired, 
under which the owner of the hydrogen production facility agrees to 
acquire and retire EACs from the nuclear reactor, and which manages the 
qualifying nuclear reactor's revenue risk.
    (xi) Written binding contract. For purposes of this paragraph 
(d)(2)(xi), a contract is a written binding contract if it is 
enforceable under state law against the taxpayer or a predecessor and 
does not limit damages to a specified amount (for example, by use of a 
liquidated damages provision). For this purpose, a contractual 
provision that limits damages to an amount equal to at least five 
percent of the total contract price will not be treated as limiting 
damages to a specified amount. For additional guidance regarding the 
definition of a written binding contract, see Sec.  1.168(k)-
2(b)(5)(iii).
    (xii) Qualifying State. The term qualifying State means a state 
which, as determined by the Secretary, has under its state law or 
regulations a qualifying electricity decarbonization standard as 
defined in paragraph (d)(2)(iv) of this section and a qualifying GHG 
cap program as defined in paragraph (d)(2)(v) of this section. For 
purposes of this rule, the District of Columbia, Commonwealth of Puerto 
Rico, Guam, the U.S. Virgin Islands, American Samoa, and the 
Commonwealth of the Northern Mariana Islands are treated as states.
    (3) Qualifying EAC requirements. An eligible EAC meets the 
requirements of this paragraph (d)(3) if it meets the requirements of 
paragraphs (d)(3)(i) through (iii) of this section.
    (i) Incrementality. An EAC meets the requirements of this paragraph 
(d)(3)(i) if it meets the requirements of paragraph (d)(3)(i)(A), (B), 
(C), or (D) of this section. Paragraph (d)(3)(i)(B)(4) of this section 
provides an example that illustrates the application of paragraph 
(d)(3)(i)(B) of this section.
    (A) In general. An EAC meets the requirements of this paragraph 
(d)(3)(i)(A) if the electricity generating facility that produced the 
unit of electricity to which the EAC relates has a COD that is no more 
than 36 months before the hydrogen production facility for which the 
EAC is retired was placed in service, or, if the electricity 
represented by the EAC is produced by an electricity generating 
facility that uses carbon capture and sequestration (CCS) technology, 
such technology has a placed in service date that is no more than 36 
months before the hydrogen production facility for which the EAC is 
retired was placed in service.
    (B) Uprates--(1) In general. An EAC meets the requirements of this 
paragraph (d)(3)(i)(B) if the electricity represented by the EAC is 
produced by an electricity generating facility that had an uprate no 
more than 36 months before the hydrogen production facility with 
respect to which the EAC is retired was placed in service and such 
electricity is part of such electricity generating facility's uprated 
production. The term uprate means an increase in an electricity 
generating facility's rated nameplate capacity (in nameplate megawatts) 
or capacity measured by a standard other than nameplate capacity 
(specified capacity) meeting the requirements of the measurement 
standard described in paragraph (d)(3)(i)(B)(3) of this section. The 
term pre-uprate capacity means the nameplate capacity or specified 
capacity of an electricity generating facility before an uprate. The 
term post-uprate capacity means the nameplate capacity or specified 
capacity of an electricity generating facility after an uprate. The 
term incremental generation capacity means the increase in an 
electricity generating facility's rated nameplate capacity or specified 
capacity from the pre-uprate capacity to the post-uprate capacity. The 
term uprated production rate means the incremental generation

[[Page 2319]]

capacity (in nameplate megawatts) divided by the post-uprate capacity 
(in nameplate megawatts). The term uprated production means the uprated 
production rate of an electricity generating facility multiplied by its 
total generation output (in megawatt hours). An electricity generating 
facility's uprated production must be prorated to each hour of such 
facility's generation by multiplying the production for each hour or 
each year, consistent with the requirements in paragraph (d)(3)(ii) of 
this section, by the uprated production rate to determine the 
electricity to which the uprate relates.
    (2) Special rule for restarted facilities. For purposes of this 
paragraph (d)(3)(i)(B), a facility that is decommissioned or in the 
process of decommissioning and restarts can be considered to have 
increased nameplate or specified capacity from a base of zero if the 
following conditions are met:
    (i) The existing facility must have ceased operations;
    (ii) The existing facility must have a shutdown period of at least 
one calendar year during which it was not authorized to operate by its 
respective Federal regulatory authority (that is, the Federal Energy 
Regulatory Commission (FERC) or the Nuclear Regulatory Commission 
(NRC));
    (iii) The increased capacity of the restarted facility must be 
eligible to restart based on an operating license issued by either FERC 
or NRC; and
    (iv) The existing facility must not have ceased operations for the 
purpose of qualifying for the special rule for restarted facilities.
    (3) Measurement standard. For purposes of paragraph (d)(3)(i)(B)(1) 
of this section, taxpayers must use one of the following measurement 
standards described in paragraph (d)(3)(i)(B)(3)(i), (ii), or (iii) of 
this section to measure the capacity and change in capacity of a 
facility, except a taxpayer cannot use the measurement standard 
described in paragraph (d)(3)(i)(B)(3)(ii) of this section if the 
taxpayer is able to use the measurement standard described in paragraph 
(d)(3)(i)(B)(3)(i) of this section:
    (i) Modified or amended facility operating licenses from FERC or 
NRC, or related reports prepared by FERC or NRC as part of the 
licensing process;
    (ii) The International Standard Organization (ISO) conditions to 
measure the nameplate capacity of the facility consistent with the 
definition of nameplate capacity provided in 40 CFR 96.202; or
    (iii) A measurement standard prescribed by the Secretary in 
guidance published in the Internal Revenue Bulletin (see Sec.  601.601 
of this chapter).
    (4) Example. The following example illustrates the application of 
paragraph (d)(3)(i)(B) of this section.
    (i) Facts. Power Plant undergoes an uprate that expands its rated 
nameplate capacity from a pre-uprate capacity of 10 megawatts (MW) to a 
post-uprate capacity of 12 MW. After the uprate, its generation output 
increases to a total of 40,000 megawatt hours (MWh) for the year.
    (ii) Analysis. Power Plant's incremental generation capacity is 2 
MW, its uprated production rate is 0.167 (2 MW divided by 12 MW), and 
its total uprated production for the year is 6,667 MWh (2 MW divided by 
12 MW multiplied by 40,000 MWh). Two-twelfths (0.167) of each hour of 
Power Plant's production may be considered uprated production.
    (C) Electricity produced in qualifying States. An EAC meets the 
requirements of this paragraph (d)(3)(i)(C) if the electricity 
represented by the EAC is produced by an electricity generating 
facility that is located in a qualifying State, as defined in paragraph 
(d)(2)(xii) of this section, and the hydrogen production facility 
acquiring and retiring such EAC is also located in a qualifying State.
    (D) Electricity produced by certain nuclear facilities--(1) In 
general. An EAC meets the requirements of this paragraph (d)(3)(i)(D) 
if the electricity represented by the EAC is produced by an electricity 
generating facility that is a qualifying nuclear reactor, as defined in 
paragraph (d)(2)(x).
    (2) For purposes of paragraph (d)(3)(i) of this section, only 200 
megawatt hours of electricity per operating hour per qualifying nuclear 
reactor may be considered incremental, except that, if a qualifying 
nuclear reactor has integrated operations with one or more other 
qualifying nuclear reactors, the amount of electricity from those 
integrated reactors deemed incremental shall instead be subject to an 
aggregate limit of 200 megawatt hours per operating hour multiplied by 
the number of integrated nuclear reactors that have not permanently 
ceased operations.
    (3) A qualifying nuclear reactor is treated as having integrated 
operations with any other qualifying nuclear reactor if the reactors--
    (i) Are owned by the same or related taxpayers; and
    (ii) Transmit electricity generated by the reactors through the 
same point of interconnection or, if the reactors are not grid-
connected, or are delivering electricity directly to an end user behind 
a utility meter, are able to support the same end user, or, if the 
reactors have multiple points of interconnection, are co-located with 
each another.
    (4) For purposes of paragraph (d)(3)(i)(D)(3)(i) of this section, 
the term related taxpayers means members of a group of trades or 
businesses that are under common control (as defined in Sec.  1.52-
1(b)). Related taxpayers are treated as one taxpayer in determining 
whether a qualifying nuclear reactor has integrated operations.
    (5) In the case of a nuclear reactor that satisfies the definition 
of a qualifying nuclear reactor because it is the subject of a written 
binding contract as provided in paragraph (d)(2)(x)(C)(2) of this 
section, the megawatt hours of electricity per hour per qualifying 
nuclear reactor that may be considered incremental are further limited 
to those megawatt hours of electricity for which the taxpayer acquires 
EACs from the nuclear reactor pursuant to the written binding contract.
    (ii) Temporal matching--(A) In general. An EAC meets the 
requirements of this paragraph (d)(3)(ii) if the electricity 
represented by the EAC is generated in the same hour that the 
taxpayer's hydrogen production facility uses electricity to produce 
hydrogen.
    (B) Transition rule. For EACs that represent electricity generated 
before January 1, 2030, the EAC will be considered generated in the 
same hour that the taxpayer's hydrogen production facility uses 
electricity to produce hydrogen as required in paragraph (d)(3)(ii)(A) 
of this section if the electricity represented by the EAC is generated 
in the same calendar year that the taxpayer's hydrogen production 
facility uses electricity to produce hydrogen.
    (C) Use of energy storage. For purposes of meeting the requirements 
of paragraph (d)(3)(ii)(A) of this section, an EAC meets such 
requirements if the electricity represented by the EAC is discharged 
from a storage system in the same hour that the taxpayer's hydrogen 
production facility uses electricity to produce hydrogen. The storage 
system must be located in the same region as both the hydrogen 
production facility and the facility generating the stored electricity. 
To use the rule described in this paragraph (d)(3)(ii)(C), the volume 
of electricity use substantiated by each EAC representing stored 
electricity must account for storage-related efficiency losses. In 
addition, to use the rule described in this paragraph (d)(3)(ii)(C), 
EACs representing stored electricity must comprehensively address the 
storage of electricity by reflecting the energy attributes of the 
electricity

[[Page 2320]]

generating facility that provided electricity to the storage facility, 
reflecting the temporal attributes regarding when the electricity is 
discharged from energy storage, and ensuring that paragraph 
(d)(2)(viii)(C) of this section relating to verification that each EAC 
is claimed and retired only once applies to EACs representing stored 
electricity.
    (iii) Deliverability--(A) In general. An EAC meets the requirements 
of this paragraph (d)(3)(iii) if the electricity represented by the EAC 
is generated by a facility that is in the same region (as defined in 
paragraph (d)(2)(ix) of this section) as the hydrogen production 
facility. Whether the electricity generating source and the hydrogen 
production facility are located in the same region is determined by the 
balancing authority to which each is electrically interconnected, not 
the geographic location.
    (B) Interregional delivery. For purposes of meeting the 
requirements of paragraph (d)(3)(iii)(A) of this section, an EAC meets 
such requirements if the electricity generation represented by the EAC 
has transmission rights from the generator location to the region in 
which the hydrogen production facility is located and that generation 
is delivered to (i.e., scheduled and dispatched or settled in) such 
facility's region. Such delivery must be demonstrated on at least an 
hour-to-hour basis, with no direct counterbalancing reverse 
transactions, and must be verified with NERC E-tags or the equivalent. 
In addition, to use the rule described in this paragraph 
(d)(3)(iii)(B), the qualified EAC registry or accounting system for 
each eligible EAC representing delivered electricity must track such 
delivery. Finally, to use the rule described in this paragraph 
(d)(3)(iii)(B), in the case of electricity imported from Canada or 
Mexico, the electricity generator must provide an attestation to the 
hydrogen production facility for purposes of the verification process 
described in Sec.  1.45V-5 that the use or attributes of the 
electricity represented by each EAC are not being claimed for any other 
purpose.
    (e) Carbon capture and sequestration. For purposes of the section 
45V credit, if a taxpayer determines a lifecycle GHG emissions rate for 
hydrogen produced at a hydrogen production facility using the 45VH2-
GREET Model or the Secretary determines a PER for hydrogen produced at 
a hydrogen production facility subject to a PER petition, then carbon 
capture and sequestration may be taken into account only if the carbon 
capture occurs in the production of qualified clean hydrogen (for 
subsequent sequestration) or occurs in the production of electricity, 
fuel, or feedstock that is used by such facility to produce hydrogen 
and is captured and disposed of in secure geological storage, pursuant 
to section 45Q(f)(2) and any regulations established thereunder, or 
utilized in a manner described in section 45Q(f)(5) and any regulations 
established thereunder. Such carbon capture and sequestration that 
occurs in the production of qualified clean hydrogen (rather than in 
the production of electricity, fuel, or feedstock) may only be taken 
into account if the carbon capture equipment is part of the qualified 
clean hydrogen production facility.
    (f) Use of methane from certain sources to produce hydrogen--(1) In 
general. The requirements provided by this paragraph (f) apply to a 
process (as defined in Sec.  1.45V-1(a)(11)) that uses methane derived 
from biogas, renewable natural gas (RNG) derived from biogas, or 
fugitive sources of methane.
    (2) Definitions. The following definitions apply for purposes of 
this paragraph (f):
    (i) Alternative fate. The term alternative fate means a set of 
informed assumptions (for example, production processes, material 
outcomes, and market-mediated effects) used to estimate the emissions 
from the use or disposal of each feedstock were it not for the 
feedstock's new use due to the implementation of policy (that is, to 
produce hydrogen).
    (ii) Biogas. The term biogas means gas containing methane that 
results from the decomposition of organic matter under anaerobic 
conditions.
    (iii) Coal mine methane. The term coal mine methane means methane 
that is stored within coal seams and is liberated as a result of 
current or past mining activities. Liberated coal mine methane can be 
released intentionally by the mine for safety purposes, such as through 
mine degasification boreholes or underground mine ventilation systems, 
or it may leak out of the mine through vents, fissures, or boreholes. 
The term coal mine methane does not include methane removed from virgin 
coal seams (for example, coal bed methane).
    (iv) Fugitive methane. The term fugitive methane means methane 
released from equipment leaks or venting during the extraction, 
processing, transformation, or delivery of fossil fuels and other 
gaseous fuels to the point of final use.
    (v) Renewable natural gas. The term renewable natural gas (RNG) 
means biogas that has been upgraded to remove water, CO2, and other 
impurities such that it is interchangeable with fossil natural gas.
    (vi) Gas energy attribute certificate. The term gas energy 
attribute certificate (gas EAC) means a tradeable contractual 
instrument, issued through and retired within a qualified gas EAC 
registry or accounting system (as defined in paragraph (f)(2)(ix) of 
this section), that represents the attributes of a specific unit of RNG 
or coal mine methane. A gas EAC may be traded with or separately from 
the underlying gas it represents. A gas EAC can be retired by or on 
behalf of its owner, which is the party that has the right to claim the 
underlying attributes represented by a gas EAC.
    (vii) Eligible gas EAC. The term eligible gas EAC means a gas EAC 
that represents the quantity of RNG or coal mine methane that is 
produced by a producing facility that is registered on only one 
qualified gas EAC registry or accounting system (as defined in 
paragraph (f)(2)(ix) of this section) and that, with respect to the RNG 
or coal mine methane to which the gas EAC relates, provides, at a 
minimum, the following information:
    (A) A description of the production facility, including the 
technology or practice and feedstock used to produce RNG or coal mine 
methane;
    (B) The amount (and units) of RNG or coal mine methane;
    (C) The month and year in which the RNG or coal mine methane is 
produced;
    (D) The location at which the RNG or coal mine methane is injected 
into a natural gas pipeline (or the location of the production facility 
if directly used without injection into a natural gas pipeline);
    (E) The source or sources of the gas that comprises the RNG or coal 
mine methane associated with each certificate as well as other 
attributes required by 45VH2-GREET, or in the determination of a PER, 
to determine the emissions associated with such RNG or coal mine 
methane; and
    (F) A project identification number or assigned identifier.
    (viii) Qualifying gas EAC. The term qualifying gas EAC means an 
eligible gas EAC that meets the requirements of paragraph (f)(4)(iii) 
of this section and for which the satisfaction of those requirements 
has been verified by a qualified verifier (as defined in Sec.  1.45V-
5(h)).
    (ix) Qualified gas EAC registry or accounting system. The term 
qualified gas EAC registry or accounting system means an electronic 
tracking system that--
    (A) Assigns a unique identification number to each certificate 
associated

[[Page 2321]]

with RNG and coal mine methane tracked by such system;
    (B) Requires independent verification of the source or sources of 
the gas that comprises the RNG or coal mine methane and any other 
factual considerations relevant to the lifecycle GHG emissions 
assessment for purposes of section 45V for tracking and verification 
purposes (self-reported data without independent verification are not 
allowed);
    (C) Requires use of a revenue grade meter, with production volumes 
reported to the registry via an application programming interface (API) 
or with independent reporting to ensure accurate accounting for 
production volumes (self-reported data are not allowed);
    (D) Enables verification that only one certificate is associated 
with each unit of RNG or coal mine methane;
    (E) Verifies that each certificate is claimed and retired only 
once;
    (F) Identifies the owner of each certificate and provides for 
documentation of the chain-of-custody of any transfers of certificates;
    (G) Requires an attestation that a producer has not registered the 
RNG or coal mine methane with other registries;
    (H) Provides a publicly accessible view (for example, through an 
application programming interface) of all currently registered RNG or 
coal mine methane production facilities in the tracking system to 
prevent the duplicative registration of such production facilities; and
    (I) Requires verification of pipeline interconnection, if 
applicable.
    (3) Considerations regarding the lifecycle greenhouse gas emissions 
associated with the production of hydrogen using methane from certain 
sources--(i) In general. For purposes of determining the lifecycle GHG 
emissions rate of a process (as defined Sec.  1.45V-1(a)(11)) that uses 
methane derived from biogas, RNG, or fugitive methane to produce 
hydrogen, estimates of lifecycle GHG emissions must consider all the 
direct and significant indirect emissions from the hydrogen production 
process. Such determinations must consider the alternative fates of 
that methane, including avoided emissions and alternative productive 
uses of that methane; the risk that the availability of tax credits 
creates incentives resulting in the production of additional methane or 
otherwise induces additional emissions; and observable trends and 
anticipated changes in waste management and disposal practices over 
time as they are applicable to methane generation and uses.
    (ii) Methane from landfill sources. For purposes of determining the 
lifecycle GHG emissions rate of a process (as defined Sec.  1.45V-
1(a)(11)) that uses methane derived from landfill sources, the 
alternative fate of such gas must be flaring using an efficiency 
determined by 45VH2-GREET.
    (iii) Methane from wastewater sources. For purposes of determining 
the lifecycle GHG emissions rate of a process (as defined Sec.  1.45V-
1(a)(11)) that uses methane derived from wastewater sources, the 
alternative fate of such gas must assume flaring and use the flaring 
efficiency and other factors as determined by 45VH2-GREET, including 
accounting for the proportion of the gas typically used to heat the 
anaerobic digester.
    (iv) Coal mine methane. For purposes of determining the lifecycle 
GHG emissions rate of a process (as defined Sec.  1.45V-1(a)(11)) that 
uses coal mine methane, flaring of such gas must be used as the 
alternative fate.
    (v) Methane from animal waste. For purposes of determining the 
lifecycle GHG emissions rate of a process (as defined Sec.  1.45V-
1(a)(11)) that uses methane derived from biogas sourced from animal 
waste, the emissions associated with producing and transporting such 
biogas to the point where it is fed into an upgrader must use an 
alternative fate derived from the national average of all animal waste 
management practices, which results in a carbon intensity score of -51 
grams of CO2e per megajoule (MJ), where the MJ basis refers to the 
lower heating value of the methane contained in the biogas prior to 
upgrading.
    (vi) Fugitive methane other than coal mine methane. For purposes of 
determining the lifecycle GHG emissions rate of a process (as defined 
Sec.  1.45V-1(a)(11)) that uses fugitive methane other than coal mine 
methane, such as fugitive methane from oil and gas operations, 
productive use of such gas must be used as the alternative fate, which 
would result in emissions equivalent to the carbon intensity of using 
fossil natural gas.
    (4) Use of gas EACs--(i) In general. Subject to paragraph 
(f)(4)(ii) of this section, for purposes of the section 45V credit, if 
a taxpayer determines a lifecycle GHG emissions rate for hydrogen 
produced at a hydrogen production facility using the 45VH2-GREET model 
or the Secretary determines a PER for hydrogen produced at a hydrogen 
production facility subject to a PER petition, then the taxpayer may 
treat such hydrogen production facility's use of RNG (as defined in 
paragraph (f)(2)(v) of this section) or coal mine methane (as defined 
in paragraph (f)(2)(iii) of this section) as being from a specific 
source of such gas rather than fossil natural gas only if the taxpayer 
acquires and retires qualifying gas EACs (as defined in paragraph 
(f)(2)(viii) of this section) for each unit of such gas that the 
taxpayer claims from such source. To satisfy this requirement, a 
taxpayer's acquisition and retirement of qualifying gas EACs must also 
be recorded in a qualified gas EAC registry or accounting system (as 
defined in paragraph (f)(2)(ix) of this section) so that the 
acquisition and retirement of such gas EACs may be verified by a 
qualified verifier (as defined in Sec.  1.45V-5(h)). The requirements 
of this paragraph (f)(4) apply regardless of whether the source of the 
RNG or coal mine methane is connected to a pipeline network, directly 
connected to a hydrogen production facility, or co-located with the 
hydrogen production facility.
    (ii) System readiness. Paragraph (f)(4)(i) of this section applies 
only if the Secretary determines that one or more electronic tracking 
systems meet the definition of a qualified gas EAC registry or 
accounting system (as defined in paragraph (f)(2)(ix) of this section). 
The Secretary may make this determination no earlier than January 1, 
2027. Prior to the Secretary making a determination described in this 
paragraph (f)(4)(ii), a taxpayer using RNG or coal mine methane in a 
hydrogen production process must substantiate the use of such gas by 
maintaining a direct pipeline connection to a supplier of such gas or 
documentation of other physical methods of exclusive delivery of such 
gas. Prior to the Secretary making a determination described in this 
paragraph (f)(4)(ii), a taxpayer must ensure that attributes of the RNG 
or coal mine methane used in a hydrogen production process are not 
double counted by obtaining attestations from the RNG or coal mine 
methane producers that there has been and will be no double counting of 
such attributes. The taxpayer must provide such attestations to the 
taxpayer's qualified verifier (as defined in Sec.  1.45V-5(h)).
    (iii) Qualifying gas EAC requirements. An eligible gas EAC meets 
the requirements of this paragraph (f)(4)(iii) if it meets the 
requirements of paragraphs (f)(4)(iii)(A) and (B) of this section.
    (A) Temporal matching. An eligible gas EAC meets the requirements 
of this paragraph (f)(4)(iii)(A) if the RNG or coal mine methane 
represented by the eligible gas EAC was injected into a pipeline 
described in paragraph

[[Page 2322]]

(f)(4)(iii)(B) of this section in the same calendar month that the 
hydrogen production facility uses the RNG or coal mine methane in the 
production of hydrogen or, if the RNG or coal mine methane represented 
by the eligible gas EAC was delivered to the hydrogen production 
facility from the RNG or coal mine methane producer, through a direct 
pipeline connection or other physical method of exclusive delivery.
    (B) Deliverability. An eligible gas EAC meets the requirements of 
this paragraph (f)(4)(iii)(B) if the RNG or coal mine methane 
represented by the eligible gas EAC is injected into a natural gas 
pipeline in the contiguous United States and the hydrogen production 
facility is also located in and connected to a natural gas pipeline in 
the contiguous United States. Alaska, Hawaii, and each U.S. territory 
are separate regions, such that an eligible gas EAC meets the 
requirements of this paragraph (f)(4)(iii)(B) if the RNG or coal mine 
methane represented by the eligible gas EAC is injected into a natural 
gas pipeline in one of these regions and the hydrogen production 
facility is located in and connected to a natural gas pipeline in the 
same region. An eligible gas EAC also meets the requirements of this 
paragraph (f)(4)(iii)(B) if the RNG or coal mine methane represented by 
the eligible gas EAC was delivered to the hydrogen production facility 
from the RNG or coal mine methane producer through a direct pipeline 
connection or other physical method of exclusive delivery.
    (g) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-5  Procedures for verification of qualified clean hydrogen 
production and sale or use.

    (a) In general. A verification report must be attached to a 
taxpayer's Form 7210, Clean Hydrogen Production Credit, or any 
successor form(s), with the taxpayer's Federal income tax return or 
information return for each qualified clean hydrogen production 
facility and for each taxable year in which the taxpayer claims the 
section 45V credit.
    (b) Requirements for verification reports. A verification report 
specified in paragraph (a) of this section must be prepared by a 
qualified verifier under penalties of perjury and must contain--
    (1) An attestation from the qualified verifier regarding the 
taxpayer's production of qualified clean hydrogen for sale or use, 
including an attestation that the inputs used to determine the 
lifecycle GHG emissions rate of the hydrogen production process are 
accurate (production attestation);
    (2) An attestation from the qualified verifier regarding the amount 
of qualified clean hydrogen sold or used (sale or use attestation);
    (3) An attestation from the qualified verifier regarding conflicts 
of interest (conflict attestation);
    (4) Information regarding the qualified verifier, including 
documentation of the qualified verifier's qualifications (qualified 
verifier statement);
    (5) Certain general information about the taxpayer's hydrogen 
production facility where the hydrogen production undergoing 
verification occurred;
    (6) Any documentation necessary to substantiate the verification 
process given the standards and best practices prescribed by the 
qualified verifier's accrediting body and the circumstances of the 
taxpayer and the taxpayer's hydrogen production facility; and
    (7) Any other information required by IRS forms or instructions.
    (c) Requirements for the production attestation. The following 
requirements apply to the production attestation:
    (1) The production attestation must be an attestation, made under 
penalties of perjury, that the qualified verifier performed a 
verification sufficient to determine that the operation, during the 
applicable taxable year, of the hydrogen production facility that 
produced the hydrogen for which the section 45V credit is claimed, any 
lifecycle GHG emissions data inputs, and any energy attribute 
certificates (EACs) applied pursuant to Sec.  1.45V-4(d) for the 
purpose of accounting for such facility's emissions, are accurately 
reflected with reasonable assurance in--
    (i) The amount of qualified clean hydrogen produced by the taxpayer 
that is claimed on the Form 7210, Clean Hydrogen Production Credit, or 
any successor form(s), to which the verification report is attached; 
and
    (ii) Either--
    (A) The data the taxpayer entered into the 45VH2-GREET Model to 
determine the lifecycle GHG emissions rate that is claimed on the Form 
7210, Clean Hydrogen Production Credit, or any successor form(s), to 
which the verification report is attached; or
    (B) The data the taxpayer submitted in the PER petition relating to 
the hydrogen for which the section 45V credit is claimed, and the data 
provided to the DOE in support of the taxpayer's request for the 
emissions value provided in the PER petition.
    (2) If the production attestation attests that qualifying EACs were 
acquired and retired pursuant to Sec.  1.45V-4(d), then the production 
attestation must confirm that the electricity generator or generators 
associated with such EACs were not registered on multiple qualifying 
EAC registries, or, in the event such generators are registered on 
multiple qualifying EAC registries, that each EAC undergoing 
verification from each such generator registered on multiple qualifying 
EAC registries is being issued by only one qualifying EAC registry.
    (3) If the production attestation attests to the information 
specified in paragraph (c)(1)(ii)(B) of this section, then the 
production attestation must also specify the emissions value received 
from the DOE that was calculated using such data, expressed in 
kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen.
    (4) The production attestation must specify the lifecycle GHG 
emissions rate(s) (expressed in kilograms of CO2e per kilogram of 
hydrogen) and the amount of qualified clean hydrogen produced by the 
taxpayer (expressed in kilograms), that are claimed on the Form 7210, 
Clean Hydrogen Production Credit, or any successor form(s), to which 
the verification report is attached.
    (d) Requirements for the sale or use attestation--(1) In general. 
The sale or use attestation must be an attestation, made under 
penalties of perjury, that the qualified verifier performed a 
verification sufficient to determine that the amount of qualified clean 
hydrogen that is specified in the production attestation pursuant to 
paragraph (c)(1)(i) of this section, and that is claimed on the Form 
7210, Clean Hydrogen Production Credit, or any successor form(s), to 
which the verification report is attached, has been sold, or has been 
used by a person who makes a verifiable use of such hydrogen.
    (2) Verifiable use. For purposes of section 45V(c)(2)(B)(ii) of the 
Code and the section 45V regulations (as defined in Sec.  1.45V-
1(a)(17)), a person's verifiable use of the hydrogen specified in 
paragraph (d)(1) of this section can occur within or outside the United 
States. A verifiable use can be made by the taxpayer or a person other 
than the taxpayer. For example, a verifiable use includes a tolling 
arrangement pursuant to which a service recipient provides raw 
materials or inputs, such as water or electricity, to a toller (that 
is, a third-party service provider that owns a hydrogen production 
facility), and the toller produces hydrogen for the service recipient 
using the service recipient's raw materials or inputs in exchange for a 
fee. In such a case, use of the hydrogen by the service recipient would 
be a verifiable use. However, a verifiable use does not include--

[[Page 2323]]

    (i) Use of hydrogen to generate heat or power that is then directly 
used in the production of more hydrogen (except when such heat or power 
is derived from a byproduct of hydrogen use); or
    (ii) Venting or flaring of hydrogen.
    (3) The following example illustrates the application of paragraph 
(d)(2) of this section.
    (i) Example--(A) Facts. In 2025, Taxpayer A produces 100 kilograms 
of hydrogen through a process that results in an emissions rate of not 
greater than four kilograms of CO2e per kilogram of hydrogen produced. 
However, throughout the year, Taxpayer A feeds two kilograms of the 
hydrogen back into its facility's process train to replace what would 
otherwise be externally sourced energy inputs directly supplying the 
hydrogen production process. Taxpayer A also flares two kilograms of 
the hydrogen for testing and maintenance purposes. Taxpayer A puts 96 
kilograms of the hydrogen to use in a separate facility that produces 
fertilizer. Additionally, Taxpayer A recovers waste heat from the 
fertilizer production process to generate electricity used to power 
both facilities.
    (B) Analysis. Taxpayer A has made a verifiable use of 96 kilograms 
of qualified clean hydrogen and may claim the section 45V credit for 
that amount, assuming all other requirements for claiming the section 
45V credit are met. The two kilograms of hydrogen that are flared have 
not been verifiably used, and therefore Taxpayer A may not determine 
the section 45V credit with respect to such two kilograms of hydrogen. 
The two kilograms of hydrogen that are directly supplied back into the 
hydrogen process have also not been verifiably used because the 
hydrogen is being consumed to produce heat or power that will then 
directly be used to produce more hydrogen. Consumption of hydrogen in 
this manner (to generate heat or power that is then directly used to 
produce hydrogen) is not a verifiable use under paragraph (d)(2) of 
this section.
    (e) Requirements for the conflict attestation. The conflict 
attestation must include attestations, made under penalties of perjury, 
that--
    (1) The qualified verifier has not received a fee based to any 
extent on the value of any section 45V credit that has been or is 
expected to be claimed by any taxpayer and no arrangement has been made 
for such fee to be paid at some time in the future;
    (2) The qualified verifier has not been a party to any transaction 
in which the taxpayer sold qualified clean hydrogen it had produced or 
in which the taxpayer purchased inputs for the production of such 
hydrogen;
    (3) The qualified verifier is not related, within the meaning of 
section 267(b) or 707(b)(1) of the Code, to, or an employee of, the 
taxpayer;
    (4) The qualified verifier is not married to an individual 
described in paragraph (e)(3) of this section; and
    (5) If the qualified verifier is acting in his or her capacity as a 
partner in a partnership, an employee of any person, whether an 
individual, corporation, or partnership, or an independent contractor 
engaged by a person other than the taxpayer, the attestations under 
paragraphs (e)(1) through (4) of this section must also be made with 
respect to the partnership or the person who employs or engages the 
qualified verifier.
    (f) Requirements for the qualified verifier statement. The 
qualified verifier statement must include the following--
    (1) The qualified verifier's name, address, and taxpayer 
identification number;
    (2) The qualified verifier's qualifications to conduct the 
verification, including a description of the qualified verifier's 
education and experience and a photocopy of the qualified verifier's 
certificate received from their accrediting body;
    (3) If the qualified verifier is acting in his or her capacity as a 
partner in a partnership, an employee of any person, whether an 
individual, corporation, or partnership, or an independent contractor 
engaged by a person other than the taxpayer, the name, address, and 
taxpayer identification number of the partnership or the person who 
employs or engages the qualified verifier;
    (4) The signature of the qualified verifier and the date signed by 
the qualified verifier; and
    (5) A statement that the verification was conducted for Federal 
income tax purposes.
    (g) General information on the taxpayer's hydrogen production 
facility. The verification report must include the following 
information for the taxpayer's hydrogen production facility where the 
hydrogen production undergoing verification occurred:
    (1) The location of the hydrogen production facility;
    (2) A description of the hydrogen production facility, including 
its method of producing hydrogen;
    (3) The type(s) of feedstock(s) used by the hydrogen production 
facility during the taxable year of production;
    (4) The amount(s) of feedstock(s) used by the hydrogen production 
facility during the taxable year of production; and
    (5) A list of the metering devices used to record any data used by 
the qualified verifier to support the production attestation under 
paragraph (c) of this section along with a statement that the qualified 
verifier is reasonably assured that the device(s) underwent industry-
appropriate quality assurance and quality control, and the accuracy and 
calibration of the device has been tested in the last year.
    (h) Qualified verifier. The term qualified verifier means any 
individual or organization with active accreditation--
    (1) From the American National Standards Institute National 
Accreditation Board to conduct validation and verification in 
accordance with the requirements of ISO 14065:2020 and ISO 14064-
3:2019; or
    (2) As a verifier, lead verifier, or verification body under the 
California Air Resources Board Low Carbon Fuel Standard program.
    (i) Unrelated party. For purposes of section 45V(c)(2)(B)(ii), the 
term unrelated party means a qualified verifier who meets the 
requirements of paragraph (e) of this section.
    (j) Requirements for taxpayers claiming both the section 45V credit 
and the section 45 credit or the section 45U credit. In the case of a 
taxpayer who produces electricity for which either the section 45 or 
section 45U credit is claimed and the taxpayer or a related person uses 
such electricity to produce hydrogen for which the section 45V credit 
is claimed, the verification report must also contain attestations that 
the qualified verifier performed a verification sufficient to determine 
that--
    (1) The electricity used to produce such hydrogen was produced at 
the relevant facility for which a section 45 or section 45U credit is 
claimed;
    (2) The given amount of electricity (in kilowatt hours) used to 
produce such hydrogen at the relevant hydrogen production facility is 
reasonably assured of being accurate; and
    (3) The electricity for which a section 45 or section 45U credit 
was claimed is represented by EACs that are acquired and retired in 
connection with the production of such hydrogen.
    (k) Timely verification report. A verification report must be 
signed and dated by the qualified verifier no later than--
    (1) The due date, including extensions, of the Federal income tax 
return or information return for the

[[Page 2324]]

taxable year during which the hydrogen undergoing verification is 
produced; or
    (2) In the case of a credit first claimed for the taxable year on 
an amended return or administrative adjustment request, the date on 
which the amended return or administrative adjustment request is filed.
    (l) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-6  Rules for determining the placed in service date for an 
existing facility that is modified or retrofitted to produce qualified 
clean hydrogen.

    (a) Modification of an existing facility--(1) In general. Under 
section 45V(d)(4) of the Code, in the case of an existing facility 
that--
    (i) Was originally placed in service before January 1, 2023, and, 
prior to the modification described in this paragraph (a), did not 
produce qualified clean hydrogen, and after the date such facility was 
originally placed in service--
    (A) Is modified to produce qualified clean hydrogen; and
    (B) Amounts paid or incurred with respect to such modification are 
properly chargeable to the taxpayer's capital account for the facility,
    (ii) Such facility will be deemed to have been originally placed in 
service as of the date the property required to complete the 
modification described in this paragraph (a) is placed in service.
    (2) Modification requirements. For purposes of section 45V(d)(4) 
and paragraph (a)(1) of this section, an existing facility will not be 
deemed to have been originally placed in service as of the date the 
property required to complete the modification is placed in service 
unless the modification is made for the purpose of enabling the 
facility to produce qualified clean hydrogen and amounts paid or 
incurred with respect to the modification are properly chargeable to 
the taxpayer's capital account. A modification is made for the purpose 
of enabling the facility to produce qualified clean hydrogen if the 
facility could not produce hydrogen with a lifecycle GHG emissions rate 
that is less than or equal to 4 kilograms of carbon dioxide equivalent 
(CO2e) per kilogram of hydrogen but for the modification. For example, 
if a taxpayer solely pays or incurs capital expenses to modify existing 
components of a hydrogen production facility that are not necessary for 
the production of hydrogen with a lifecycle GHG emissions rate that is 
less than or equal to 4 kilograms of CO2e per kilogram of hydrogen, 
such modification does not entitle the facility to a new placed in 
service date. A modification does not include changing fuel inputs to 
the hydrogen production facility. For example, changing from using 
conventional natural gas to using renewable natural gas as a feedstock, 
is not a modification under this paragraph.
    (3) Interaction with 80/20 Rule. An existing facility that 
satisfies the requirements of section 45V(d)(4) and paragraphs (a)(1) 
and (2) of this section is deemed to be originally placed in service as 
of the date that the property required to complete the modification 
described in section 45V(d)(4)(B) is placed in service regardless of 
whether such facility satisfies the requirements of paragraph (b) of 
this section.
    (b) Retrofit of an existing facility (80/20 Rule). For purposes of 
section 45V(a)(1), a retrofitted hydrogen production facility may 
establish a new date on which it is considered originally placed in 
service, even though the facility contains some used components of 
property of a single production line, provided the fair market value of 
the used property is not more than 20 percent of the facility's total 
value, calculated by adding the cost of the new property to the value 
of the used property (80/20 Rule). For purposes of the 80/20 Rule, the 
cost of new property includes all properly capitalized costs of the new 
property included within the facility. If a facility satisfies the 
requirements of the 80/20 Rule, then the date on which such facility is 
considered originally placed in service for purposes of section 
45V(a)(1) is the date on which the new property added to the facility 
is placed in service.
    (c) Examples. The following examples illustrate the application of 
paragraphs (a) and (b) of this section:
    (1) Example 1: Modification of an existing facility--(i) Facts. 
Facility X, a hydrogen production facility that was originally placed 
in service on January 1, 2018, could not produce qualified clean 
hydrogen as described in section 45V(c)(2). After January 1, 2023, 
Facility X was modified to produce qualified clean hydrogen, and all 
amounts paid or incurred with respect to such modifications were 
properly chargeable to the taxpayer's capital account for Facility X. 
The property required to complete the modification was placed in 
service on June 1, 2023.
    (ii) Analysis. Under section 45V(d)(4) and paragraph (a) of this 
section, because Facility X was originally placed in service before 
January 1, 2023, and before the modification could not produce 
qualified clean hydrogen, it is deemed to be originally placed in 
service as of the date the property required to complete the 
modification is placed in service. Accordingly, for purposes of section 
45V(a)(1) and (d)(4), Facility X is deemed to have been originally 
placed in service on June 1, 2023.
    (2) Example 2: Modification of an existing facility; coordination 
with the section 45Q credit previously allowed--(i) Facts. The facts 
are the same as in paragraph (c)(1) of this section (Example 1), except 
that taxpayer was allowed a section 45Q credit with respect to carbon 
capture equipment (CCE) included at Facility X before June 1, 2023.
    (ii) Analysis. Under paragraph (a) of this section and Sec.  1.45V-
2(a), although Facility X is deemed to have been originally placed in 
service on June 1, 2023, because taxpayer had previously been allowed a 
section 45Q credit with respect to the CCE included at Facility X, no 
section 45V credit is allowable for qualified clean hydrogen produced 
at Facility X, despite the modification. The result would be the same 
if the section 45Q credit with respect to the CCE included at Facility 
X were allowed to a person other than the taxpayer.
    (3) Example 3: Modification of an existing facility and 
coordination with section 45Q credit not previously allowed--(i) Facts. 
Facility Y, a hydrogen production facility that was originally placed 
in service on February 1, 2020, could not previously produce qualified 
clean hydrogen as described in section 45V(c)(2). On February 1, 2026, 
Facility Y was modified to produce qualified clean hydrogen by adding 
new CCE to allow Facility Y to capture, process, and prepare carbon 
dioxide for transport for disposal, injection, or utilization. All 
amounts paid or incurred with respect to such modifications were 
properly chargeable to the taxpayer's capital account for Facility Y. 
The property required to complete the modification of Facility Y was 
placed in service on February 1, 2026, and as a result, Facility Y, 
including the new CCE, is deemed to be originally placed in service on 
February 1, 2026, for purposes of sections 45V and 45Q. No section 45Q 
credit has been allowed to any taxpayer with respect to the new CCE 
located at Facility Y.
    (ii) Analysis. Under paragraph (a) of this section and Sec.  1.45V-
2(a), because no section 45Q credit has been allowed to any taxpayer 
with respect to the new CCE located at Facility Y, a section 45V credit 
is allowable for the qualified clean hydrogen produced at Facility Y, 
assuming all other requirements of section 45V are met.
    (4) Example 4: Retrofit of an existing facility (80/20 Rule)--(i) 
Facts. Facility

[[Page 2325]]

Z, a hydrogen production facility that was originally placed in service 
on February 1, 2023, does not produce qualified clean hydrogen as 
described in section 45V(c)(2). On January 1, 2026, Facility Z was 
retrofitted to produce qualified clean hydrogen. After the retrofit, 
the cost of the new property included in Facility Z is greater than 80 
percent of Facility Z's total value.
    (ii) Analysis. Even though Facility Z does not satisfy the 
requirements of section 45V(d)(4) because Facility Z was not originally 
placed in service before January 1, 2023, under paragraph (b) of this 
section, Facility Z is deemed to be originally placed in service on 
January 1, 2026, because Facility Z meets the 80/20 Rule. Thus, a 
section 45V credit is allowable for qualified clean hydrogen produced 
at Facility Z during the 10-year period beginning on January 1, 2026, 
assuming all other requirements of section 45V are met.
    (5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and 
coordination with section 45Q credit previously allowed--(i) Facts. The 
facts are the same as in paragraph (c)(4) of this section (Example 4), 
except that before the retrofit, Facility Z included CCE for which a 
section 45Q credit was allowed to a taxpayer.
    (ii) Analysis. Under paragraph (b) of this section and Sec.  1.45V-
2(a), Facility Z is deemed to be originally placed in service on 
January 1, 2026, because Facility Z meets the 80/20 Rule. However, a 
section 45V credit is not allowable for qualified clean hydrogen 
produced at Facility Z during the 10-year period beginning on January 
1, 2026, because a section 45Q credit has been allowed to a taxpayer 
with regard to the CCE included in Facility Z.
    (d) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.

0
Par. 3. Section 1.48-15 is added to read as follows:


Sec.  1.48-15  Election to treat clean hydrogen production facility as 
energy property.

    (a) In general. Under section 48(a)(15) of the Internal Revenue 
Code (Code), a taxpayer that owns and places in service a specified 
clean hydrogen production facility (as defined in section 48(a)(15)(C) 
and paragraph (b) of this section) can make an irrevocable election 
under section 48(a)(15)(C)(ii)(II) to treat any qualified property (as 
defined in section 48(a)(5)(D)) that is part of the facility as energy 
property for purposes of section 48.
    (b) Specified clean hydrogen production facility. The term 
specified clean hydrogen production facility means any qualified clean 
hydrogen production facility--
    (1) That is placed in service after December 31, 2022;
    (2) With respect to which no credit has been allowed under section 
45V or 45Q of the Code, and for which the taxpayer makes an irrevocable 
election to have section 48(a)(15) apply; and
    (3) For which an unrelated party has verified in the manner 
specified in paragraph (e) of this section that such facility produces 
hydrogen through a process or processes that results in lifecycle GHG 
emissions that are consistent with the hydrogen that such facility was 
designed and expected to produce under section 48(a)(15)(A)(ii) and 
paragraph (c) of this section.
    (c) Energy percentage--(1) In general. In the case of a specified 
clean hydrogen production facility that is designed and reasonably 
expected to produce qualified clean hydrogen through a process or 
processes that results in a lifecycle GHG emissions rate of:
    (i) Not greater than 4 kilograms of carbon dioxide equivalent 
(CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of 
CO2e per kilogram of hydrogen, the energy percentage is 1.2 percent;
    (ii) Less than 2.5 kilograms of CO2e per kilogram of hydrogen, and 
not less than 1.5 kilograms of CO2e per kilogram of hydrogen, the 
energy percentage is 1.5 percent;
    (iii) Less than 1.5 kilograms of CO2e per kilogram of hydrogen, and 
not less than 0.45 kilograms of CO2e per kilogram of hydrogen, the 
energy percentage is 2 percent; and
    (iv) Less than 0.45 kilograms of CO2e per kilogram of hydrogen, the 
energy percentage is 6 percent.
    (2) Designed and reasonably expected to produce. Hydrogen that a 
facility is designed and reasonably expected to produce means hydrogen 
produced through a process or processes that result in the lifecycle 
GHG emissions rate specified in the annual verification report 
described in paragraph (e)(2) of this section for the taxable year in 
which the election is made. In the case of a facility that is designed 
and reasonably expected to produce hydrogen through multiple processes, 
the lifecycle GHG emissions rate must be determined using the weighted 
average of the lifecycle GHG emissions rates of all hydrogen production 
processes.
    (d) Time and manner of making the election--(1) In general. To make 
an election under section 48(a)(15)(C)(ii)(II), a taxpayer must claim 
the section 48 credit with respect to a specified clean hydrogen 
production facility on a completed Form 3468, Investment Credit, or any 
successor form(s), and file the form with the taxpayer's Federal income 
tax return or information return for the taxable year in which the 
specified clean hydrogen production facility is placed in service. The 
taxpayer must also attach a statement to its Form 3468, or any 
successor form(s), filed with its Federal income tax return or 
information return that includes the information required by the 
instructions to Form 3468, or any successor form(s), for each specified 
clean hydrogen production facility subject to an election. A separate 
election must be made for each specified clean hydrogen production 
facility that meets the requirements provided in section 48(a)(15) to 
treat the qualified property that is part of the facility as energy 
property. If any taxpayer owning an interest in a specified clean 
hydrogen production facility makes an election under section 
48(a)(15)(C)(ii)(II) with respect to the specified clean hydrogen 
production facility, then that election is binding on all taxpayers 
that directly or indirectly own an interest in the specified clean 
hydrogen production facility.
    (2) Special rule for partnerships and S corporations. In the case 
of a specified clean hydrogen production facility owned by a 
partnership or an S corporation, the election under section 
48(a)(15)(C)(ii)(II) is made by the partnership or S corporation and is 
binding on all ultimate credit claimants (as defined in Sec.  1.50-
1(b)(3)(ii)). The partnership or S corporation must file a Form 3468, 
or any successor form(s), with its partnership or S corporation return 
for the taxable year in which the specified clean hydrogen production 
facility is placed in service to indicate that it is making the 
election, and attach a statement that includes all the information 
required by the instructions to Form 3468, or any successor form(s), 
for each specified clean hydrogen production facility subject to the 
election. The ultimate credit claimant must claim the section 48 credit 
on a completed Form 3468, or any successor form(s), and file such form 
on a timely filed (including extensions) Federal income tax return for 
the taxable year in which the ultimate credit claimant's distributive 
share or pro rata share of the section 48 credit is taken into account 
under section 706(a) of the Code or section 1366(a) of the Code, 
respectively. The partnership or S corporation making the election must 
provide the ultimate credit claimants with the necessary information to

[[Page 2326]]

complete Form 3468, or any successor form(s), to claim the section 48 
credit.
    (3) Election irrevocable. The election to treat qualified property 
that is part of a specified clean hydrogen production facility as 
energy property is irrevocable.
    (4) Election availability date. The election to treat qualified 
property that is part of a specified clean hydrogen production facility 
as energy property is available for property placed in service after 
December 31, 2022. In the case of any property placed in service after 
December 31, 2022, for which construction began before January 1, 2023, 
the election under section 48(a)(15)(C)(ii)(II) applies only to the 
extent of the basis of such property that is attributable to 
construction, reconstruction, or erection occurring after December 31, 
2022.
    (5) Beginning of construction safe harbor--(i) In general. A 
taxpayer may, in its discretion, make an irrevocable election effective 
for the remaining taxable years within the period described in 
paragraph (f)(3) of this section, to treat the latest version of 45VH2-
GREET that was publicly available on the date when construction of the 
specified clean hydrogen facility began as the 45VH2-GREET Model. In 
the case of a facility owned by a taxpayer that began construction 
prior to December 26, 2023, such taxpayer may, in its discretion, make 
an irrevocable election effective for the remaining taxable years 
within the period described in paragraph (f)(3) of this section, to 
treat the first publicly-available version of 45VH2-GREET (that is, the 
version of 45VH2-GREET that was released in December 2023) as the 
45VH2-GREET Model. For purposes of this paragraph (d)(5), in the case 
of a facility that is modified to produce qualified clean hydrogen 
under section 45V(d)(4) or a facility that is retrofitted in a manner 
that entitles the facility to a new placed in service date under Sec.  
1.45V-6(b), the date when construction of the facility began is the 
date when construction of such modification or retrofit began. An 
election under this paragraph (d)(5)(i) relates to the version of 
45VH2-GREET and does not alter any other rules provided in this 
section.
    (ii) Time and manner of making election--(A) In general. The 
taxpayer makes the election described in paragraph (d)(5)(i) of this 
section with respect to a specified clean hydrogen production facility 
by attaching a statement to the Form 3468 or any successor form(s). The 
taxpayer must make the election by no later than the due date for 
filing its Federal income tax return or information return (including 
extensions) for the taxable period in which such facility is placed in 
service.
    (B) Special rule for facilities placed in service prior to January 
1, 2024. In the case of a taxpayer that places in service a specified 
clean hydrogen production facility prior to January 1, 2024, the 
taxpayer must make the election described in paragraph (d)(5)(i) of 
this section by no later than the period of limitation on filing a 
claim for credit or refund under section 6511(a) for the taxable period 
in which such facility is placed in service.
    (6) Provisional emissions rate--(i) In general. A taxpayer files a 
petition with the Secretary for a provisional emissions rate (PER) by 
following the procedures stated in Sec.  1.45V-4(c)(3) through (5), 
except, in lieu of attaching the PER petition to the Form 7210 in the 
first taxable year of production as specified in Sec.  1.45V-4(c)(3), 
the taxpayer must attach the PER petition to the Form 3468, or a 
successor form(s), attached to the taxpayer's Federal income tax return 
for the taxable year in which the specified clean hydrogen production 
facility is originally placed in service. A taxpayer may use such PER 
to calculate the amount of the section 48 credit with respect to a 
specified clean hydrogen production facility, provided--
    (A) The lifecycle GHG emissions rate of the hydrogen produced at 
the specified clean hydrogen production facility has not been 
determined (for purposes of section 45V(c)(2)(C)) under the 45VH2-GREET 
Model;
    (B) There are no material changes to the information about the 
taxpayer's hydrogen production process from the information provided to 
the DOE to obtain an emissions value pursuant to Sec.  1.45V-4(c)(5); 
and
    (C) All other requirements of section 48(a)(15) are met.
    (ii) Material change. For purposes of paragraph (d)(6)(i)(B), a 
material change means any change that would cause a qualified verifier 
(as defined in Sec.  1.45V-5(h)) to be unable to complete a 
verification under paragraph (e) of this section.
    (iii) Subsequent inclusion safe harbor--(A) In general. The 
taxpayer may, in its discretion, make an irrevocable election, 
effective for the remaining taxable years within the period described 
in paragraph (f)(3) of this section, to treat the first version of 
45VH2-GREET that includes the taxpayer's specified clean hydrogen 
production facility's hydrogen production pathway, as described in 
Sec.  1.45V-4(c)(2)(i), as the 45VH2-GREET Model.
    (B) Time and manner of making election. The taxpayer makes the 
election described in paragraph (d)(6)(iii) of this section with 
respect to a specified clean hydrogen production facility by attaching 
a statement to the Form 3468 or any successor form(s). The taxpayer 
must make the election by no later than the due date for filing its 
Federal income tax return or information return (including extensions) 
for the taxable period in which such facility is placed in service.
    (C) Special rule for facilities placed in service prior to January 
1, 2024. In the case of a taxpayer that places in service a specified 
clean hydrogen production facility prior to January 1, 2024, the 
taxpayer must make the election described in paragraph (d)(6)(iii)(A) 
of this section by no later than the close of the period of limitation 
for filing a claim for credit or refund under section 6511(a) for the 
taxable period in which such facility is placed in service.
    (iv) Special rule for facilities that receive an emissions value 
prior to the beginning of construction. Notwithstanding the requirement 
of paragraph (d)(6)(i)(A) of this section, a taxpayer who received an 
emissions value from the DOE with respect to a specified clean hydrogen 
production facility (pursuant to Sec.  1.45V-4(c)(5)) before the date 
when construction of the facility began, may, in its discretion, 
continue to use the PER determined by the Secretary and the associated 
emissions value to calculate the lifecycle GHG emissions rate of the 
hydrogen produced at the specified clean hydrogen production facility 
for the remainder of the period described in paragraph (f)(3) of this 
section, provided that the taxpayer continues to satisfy the 
requirements of paragraphs (d)(6)(i)(B) and (C) of this section.
    (v) Not an examination of books and records. The Secretary's PER 
determination is not an examination or inspection of books of account 
for purposes of section 7605(b) of the Code and does not preclude or 
impede the IRS (under section 7605(b) or any administrative provisions 
adopted by the IRS) from later examining a return or inspecting books 
or records with respect to any taxable year for which the section 48 
credit is claimed. For example, the annual verification report 
submitted under section 48(a)(15)(C)(iii) and paragraph (e)(2) of this 
section and any information, representations, or other data provided to 
the DOE in support of the request for an emissions value are still 
subject to examination. Further, a PER determination does not signify 
that the IRS has determined that the requirements of section 48(a)(15),

[[Page 2327]]

including the cross-references to section 45V, have been satisfied for 
any taxable year.
    (e) Third-party verification--(1) In general. In the case of a 
taxpayer that makes an election under section 48(a)(15)(C)(ii)(II) to 
treat any qualified property that is part of a specified clean hydrogen 
production facility as energy property for purposes of the section 48 
credit, the taxpayer must obtain an annual verification report for the 
taxable year in which the election under section 48(a)(15)(C)(ii)(II) 
is made for the facility and for each taxable year thereafter during 
the recapture period specified in paragraph (f)(3) of this section. The 
taxpayer must also submit the annual verification report as an 
attachment to the Form 3468, or any successor form(s), for the taxable 
year in which the election under section 48(a)(15)(C)(ii)(II) is made 
for the facility.
    (2) Annual verification report--(i) In general. For purposes of 
paragraph (e)(1) of this section, the annual verification report must 
be signed under penalties of perjury by a qualified verifier (as 
defined in Sec.  1.45V-5(h)) and contain an attestation providing all 
of the following--
    (A) The information specified in Sec.  1.45V-5(b) and (d) through 
(h);
    (B) A statement attesting to the lifecycle GHG emissions rate of 
the hydrogen produced through a process (determined under section 
45V(c) and Sec.  1.45V-4), or the weighted average of the lifecycle GHG 
emissions rate of the hydrogen produced through processes, by which all 
hydrogen was produced at the specified clean hydrogen production 
facility for the taxable year to which the annual verification report 
relates and that the operation, during such taxable year, of the 
specified clean hydrogen production facility, and any qualifying energy 
attribute certificates applied pursuant to Sec.  1.45V-4(d) for the 
purpose of accounting for such facility's emissions, are accurately 
reflected in the data that the taxpayer entered into the 45VH2-GREET 
Model (as defined in Sec.  1.45V-1(a)(9)(ii)) (or that the taxpayer 
provided to the Department of Energy (DOE) in support of the taxpayer's 
request for an emissions value), to determine the lifecycle GHG 
emissions rate of the hydrogen undergoing verification; and
    (C) A statement attesting that the facility produced hydrogen 
through a process or processes that results in a lifecycle GHG 
emissions rate that is consistent with, or lower than, the lifecycle 
GHG emissions rate of the hydrogen that such facility was designed and 
expected to produce.
    (ii) Inconsistent lifecycle GHG emissions. In the event the 
facility produces hydrogen through a process (or processes) that 
results in a lifecycle GHG emissions rate that is greater than the 
lifecycle GHG emissions rate that such facility was designed and 
expected to produce (and thus the qualified verifier cannot provide the 
attestation specified in paragraph (e)(2)(i)(C) of this section), 
resulting in a reduced energy percentage under section 48(a)(15)(A)(ii) 
with respect to such facility, an emissions tier recapture event under 
paragraph (f)(2) of this section will occur.
    (iii) Designed and expected to produce. Hydrogen that the facility 
was designed and expected to produce means hydrogen specified in 
paragraph (c)(2) of this section.
    (iv) Timely annual verification report. The annual verification 
report must be signed and dated by the qualified verifier no later than 
the due date, including extensions, of the Federal income tax return 
for the taxable year in which the hydrogen undergoing verification was 
produced.
    (v) Records retention. In addition to the recordkeeping 
requirements set forth in paragraph (g) of this section, the taxpayer 
must retain the annual verification report for at least six years after 
the due date, with extensions, for filing the Federal income tax return 
for the taxable year in which the hydrogen undergoing verification was 
produced.
    (f) Recapture--(1) In general. Pursuant to of section 48(a)(15)(E), 
in any taxable year of the recapture period specified in paragraph 
(f)(3) of this section in which an emissions tier recapture event (as 
defined in paragraph (f)(2) of this section) occurs, the tax imposed on 
the taxpayer under chapter 1 of the Code for the taxable year of the 
emissions tier recapture event is increased by the recapture amount 
specified in paragraph (f)(4) of this section.
    (2) Emissions tier recapture event. For purposes of paragraph 
(f)(1) of this section, an emissions tier recapture event is any of the 
following occurrences--
    (i) The taxpayer fails to obtain an annual verification report by 
the deadline for filing its Federal income tax return or information 
return (including extensions) for any taxable year in which an annual 
verification report is required under paragraph (e)(1) of this section;
    (ii) The specified clean hydrogen production facility actually 
produced hydrogen through a process (or processes) that results in a 
lifecycle GHG emissions rate that can only support a lower energy 
percentage than the energy percentage used to calculate the amount of 
the section 48 credit for the facility for the taxable year in which 
the facility is placed in service; or
    (iii) The specified clean hydrogen production facility actually 
produced hydrogen through a process (or processes) that results in a 
lifecycle GHG emissions rate of greater than 4 kilograms of CO2e per 
kilogram of hydrogen.
    (3) Recapture period. For purposes of paragraph (f) of this 
section, the recapture period begins on the first day of the taxable 
year after the taxable year in which the facility was placed in service 
and ends on the close of the fifth taxable year following the close of 
the taxable year in which the facility was placed in service.
    (4) Recapture amount--(i) In general. In the case of an emissions 
tier recapture event under paragraph (f)(2) of this section, the 
recapture amount for the taxable year in which the emissions tier 
recapture event occurred is equal to 20 percent of the excess of the 
section 48 credit allowed to the taxpayer for the specified clean 
hydrogen production facility for the taxable year in which the facility 
was placed in service, over the section 48 credit that would have been 
allowed to the taxpayer for the facility if the taxpayer had used the 
energy percentage supported by the actual production to calculate the 
amount of the section 48 credit.
    (ii) Carrybacks and carryovers. In the case of any emissions tier 
recapture event described in paragraph (f)(2) of this section, the 
carrybacks and carryovers under section 39 must be adjusted by reason 
of the emissions tier recapture event.
    (iii) Recapture amount in case of recapture events under paragraph 
(f)(2)(i) or (iii) of this section. For purposes of paragraph (f)(4)(i) 
of this section, in the case of an emissions tier recapture event under 
paragraph (f)(2)(i) or (iii) of this section, the amount of the section 
48 credit that would have been allowed to the taxpayer for the 
specified clean hydrogen production facility if the taxpayer had used 
the energy percentage supported by the actual production is zero. 
Accordingly, the recapture amount in the taxable year of an emissions 
tier recapture event under paragraph (f)(2)(i) or (iii) of this 
section, is 20 percent of the section 48 credit allowed to the taxpayer 
for such specified clean hydrogen production facility.
    (5) Example. The following example illustrates the application of 
paragraphs (f)(1) through (4) of this section.
    (i) Facts. On June 1, 2024, Taxpayer, a calendar-year taxpayer, 
originally

[[Page 2328]]

places in service Facility X, a specified clean hydrogen production 
facility. At such time, Taxpayer's basis in qualified property that is 
part of Facility X is $100,000,000. In the taxable year in which 
Facility X was originally placed in service (taxable year 2024), 
Facility X produces qualified clean hydrogen through a process that 
results in a lifecycle GHG emissions rate of 0.44kg of CO2e per 
kilogram of hydrogen. Taxpayer submits with its 2024 Federal income tax 
return an annual verification report attesting that, for the taxable 
year 2024, Facility X produced hydrogen through a process that resulted 
in a lifecycle GHG emissions rate of 0.44kg of CO2e per kilogram of 
hydrogen, which is consistent with the lifecycle GHG emissions rate of 
the hydrogen that the facility was designed and expected to produce. 
Taxpayer makes a valid election under section 48(a)(15)(C)(ii)(II) with 
respect to Facility X on its Federal income tax return for the taxable 
year 2024. In the first year of the recapture period (taxable year 
2025), Taxpayer fails to obtain an annual verification report by the 
deadline (including extensions) for filing its 2025 Federal income tax 
return. In the second year of the recapture period (taxable year 2026), 
Facility X produces qualified clean hydrogen through a process that 
results in a lifecycle GHG emissions rate of 1.4kg of CO2e per kilogram 
of hydrogen and obtains an annual verification report attesting to such 
lifecycle GHG emissions rate. In the third, fourth, and fifth years of 
the recapture period (taxable years 2027, 2028, and 2029), Facility X 
produces qualified clean hydrogen through a process that results in a 
lifecycle GHG emissions rate of 0.44kg of CO2e per kilogram of hydrogen 
and obtains an annual verification report attesting to such lifecycle 
GHG emissions rate, and attesting that such lifecycle GHG emissions 
rate is consistent with the lifecycle GHG emissions rate of the 
hydrogen that the facility was designed and expected to produce, by the 
deadline (including extensions) for filing its 2027, 2028, and 2029 
Federal income tax returns, respectively.
    (ii) Analysis. Facility X is designed and reasonably expected to 
produce hydrogen through a process that results in a lifecycle GHG 
emissions rate of 0.44kg of CO2e per kilogram of hydrogen, which is the 
rate specified in Taxpayer's annual verification report submitted with 
Taxpayer's Federal income tax return for the taxable year in which the 
election under section 48(a)(15)(C)(ii)(II) with respect to Facility X 
was made. Under paragraph (c)(1)(iv) of this section, Facility X's 
energy percentage is therefore 6 percent. For the taxable year 2024, 
the year in which Taxpayer places in service Facility X, Taxpayer 
claims a section 48 credit for its basis in qualified property that is 
part of Facility X in the amount of $6,000,000 (6 percent of 
$100,000,000). In taxable year 2025 there is an emissions tier 
recapture event under paragraph (f)(2)(i) of this section because 
Taxpayer failed to obtain an annual verification report. Under 
paragraph (f)(4)(i) of this section, the amount of the section 48 
credit recaptured in 2025 is $1,200,000. This reflects 20 percent of 
the section 48 credit allowed ($6,000,000) for Facility X. In taxable 
year 2026, there is an emissions tier recapture event under paragraph 
(f)(2)(ii) of this section because Facility X produced hydrogen through 
a process that resulted in a lifecycle GHG emissions rate that could 
only support an energy percentage of 2 percent, which is lower than the 
energy percentage used to calculate the amount of the section 48 credit 
for Facility X. Under paragraph (f)(4)(i) of this section, the amount 
of the section 48 credit recaptured in 2026 is $800,000. This reflects 
20 percent of the difference between the amount of the section 48 
credit allowed ($6,000,000) and the amount of the section 48 credit 
that would have been allowed for Facility X if Taxpayer had used the 
energy percentage supported by the actual production ($2,000,000). 
There is no emissions tier recapture event in taxable years 2027, 2028, 
or 2029 because, in those years, Facility X produced hydrogen through a 
process that resulted in a lifecycle GHG emissions rate that was 
consistent with the lifecycle GHG emissions rate of the hydrogen that 
Facility X was designed and expected to produce, and Taxpayer obtained 
an annual verification report attesting to such by the deadline (with 
extensions) for filing its Federal income tax return for each of those 
taxable years.
    (6) Coordination with sections 50(a) and 48(a)(10)(C) of the Code--
(i) In general. In each taxable year of the recapture period specified 
in paragraph (f)(3) of this section for any credit allowed under 
section 48 with respect to a specified clean hydrogen production 
facility, the recapture rules, if applicable, apply in the following 
order:
    (A) Section 50(a);
    (B) Section 48(a)(10)(C), as provided in Sec.  1.48-13; and
    (C) Section 48(a)(15)(E).
    (ii) The following examples illustrate the application of paragraph 
(f)(6) of this section.
    (A) Example 1--(1) Facts. The facts are the same as in paragraph 
(f)(5)(i) of this section (Example), except that, in addition to 
failing to obtain an annual verification report by the deadline 
(including extensions) for filing its 2025 Federal income tax return, 
on August 1, 2025, Taxpayer disposes of Facility X. Taxpayer has not 
been allowed any other credits under section 38.
    (2) Analysis. For taxable year 2025, under section 50(a)(1)(B)(ii), 
because the period of time between when Facility X was placed in 
service is more than 1, but less than 2 full years, the applicable 
recapture percentage is 80 percent. Taxpayer has an increase in tax for 
taxable year 2025 under section 50(a) of $4,800,000 ($6,000,000 
aggregate decrease in credit allowed multiplied by 0.80). Under 
paragraph (f)(6) of this section, because the credit was recaptured 
under section 50(a), no further amounts would be recaptured under 
either section 48(a)(10)(C) (had Taxpayer claimed the increased credit 
amount under section 48(a)(9)) or section 48(a)(15)(E) (on account of 
Taxpayer's failure to obtain an annual verification report).
    (B) Example 2--(1) Facts. The facts are the same as in paragraph 
(f)(5)(i) of this section (Example), except that, in taxable year 2025, 
Facility X produces qualified clean hydrogen through a process that 
results in a lifecycle GHG emissions rate of 1.4 kilograms of CO2e per 
kilogram of hydrogen and obtains an annual verification report 
attesting to such lifecycle GHG emissions rate. On August 1, 2026, 
Taxpayer disposes of Facility X. Taxpayer has not been allowed any 
other credits under section 38.
    (2) Analysis. In taxable year 2025, there is an emissions tier 
recapture event under paragraph (f)(2)(ii) of this section because 
Facility X produced hydrogen through a process that resulted in a 
lifecycle GHG emissions rate that could only support an energy 
percentage of 2 percent, which is lower than the energy percentage used 
to calculate the amount of the section 48 credit for Facility X. Under 
paragraph (f)(4)(i) of this section, the amount of the section 48 
credit recaptured in 2025 is $800,000. In taxable year 2026, under 
section 50(a)(1)(B)(iii), because the period of time between when 
Facility X was placed in service is more than 2, but less than 3 full 
years, the applicable recapture percentage is 60 percent. Taxpayer has 
an increase in tax under section 50(a) of $3,120,000 ($5,200,000 
aggregate decrease in credit allowed

[[Page 2329]]

($6,000,000 credit allowed minus $800,000 amount recaptured under 
paragraph (f)(2)(ii) of this section in taxable year 2025) multiplied 
by 0.60).
    (g) Recordkeeping. Consistent with section 6001 of the Code, a 
taxpayer making the election under section 48(a)(15)(C)(ii)(II) with 
respect to a specified clean hydrogen production facility must maintain 
and preserve records sufficient to establish the amount of the section 
48 credit claimed by the taxpayer. At a minimum, those records include 
the annual verification report required under paragraph (e)(2) of this 
section, records to substantiate the information required to be 
included in the annual verification report, records establishing that 
the facility meets the definition of a specified clean hydrogen 
production facility under section 48(a)(15)(C) and paragraph (b) of 
this section, records of past credit claims under section 45Q by any 
taxpayer with respect to carbon capture equipment included at the 
facility, and records establishing the date the specified clean 
hydrogen production facility was placed in service. If the increased 
section 48 credit amount was allowed under section 48(a)(9), then the 
taxpayer must also maintain records in accordance with Sec.  1.45-12. 
Taxpayers must also retain all raw data used for submission of a 
request for an emissions value to the DOE for at least six years after 
the due date (including extensions) for filing the Federal income tax 
return or information return to which the provisional emissions rate 
(PER) (as defined in Sec.  1.45V-4(c)(1)) petition is ultimately 
attached.
    (h) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.

Douglas W. O'Donnell,
Deputy Commissioner.
    Approved: December 25, 2024.
Aviva R. Aron-Dine,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-31513 Filed 1-3-25; 8:45 am]
BILLING CODE 4830-01-P`