Clean Hydrogen Production and Investment Tax Credit Act of 2021

To amend the Internal Revenue Code of 1986 to establish a credit for production of clean hydrogen, and for other purposes. 1. Short title This Act may be cited as the Clean Hydrogen Production and Investment Tax Credit Act of 2021 2. Clean hydrogen (a) Credit for production of clean hydrogen (1) In general Subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section: 45U. Credit for production of clean hydrogen (a) Amount of credit For purposes of section 38, the clean hydrogen production credit for any taxable year is an amount equal to the product of— (1) the applicable amount, multiplied by (2) 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. (b) Applicable amount (1) In general For purposes of subsection (a)(1), the applicable amount shall be an amount equal to the applicable percentage of $3.00. If any amount as determined under the preceding sentence is not a multiple of 0.1 cent, such amount shall be rounded to the nearest multiple of 0.1 cent. (2) Applicable percentage For purposes of paragraph (1), the term applicable percentage (A) in the case of any qualified clean hydrogen which is produced through a process that, as compared to hydrogen produced by steam-methane reforming, achieves a percentage reduction in lifecycle greenhouse gas emissions which is less than 75 percent, 20 percent, (B) in the case of any qualified clean hydrogen which is produced through a process that, as compared to hydrogen produced by steam-methane reforming, achieves a percentage reduction in lifecycle greenhouse gas emissions which is not less than 75 percent and less than 85 percent, 25 percent, (C) in the case of any qualified clean hydrogen which is produced through a process that, as compared to hydrogen produced by steam-methane reforming, achieves a percentage reduction in lifecycle greenhouse gas emissions which is not less than 85 percent and less than 95 percent, 34 percent, and (D) in the case of any qualified clean hydrogen which is produced through a process that, as compared to hydrogen produced by steam-methane reforming, achieves a percentage reduction in lifecycle greenhouse gas emissions which is not less than 95 percent, 100 percent. (3) Inflation adjustment The $3.00 amount in paragraph (1) shall be adjusted by multiplying such amount by the inflation adjustment factor (as determined under section 45(e)(2), determined by substituting 2020 1992 (c) Definitions For purposes of this section— (1) Lifecycle greenhouse gas emissions For purposes of this section, the term lifecycle greenhouse gas emissions 42 U.S.C. 7545(o)(1) (2) Qualified clean hydrogen (A) In general The term qualified clean hydrogen (B) Additional requirements Such term shall not include any hydrogen unless such hydrogen is produced— (i) in the United States (as defined in section 638(1) or a possession of the United States (as defined in section 638(2)), (ii) in the ordinary course of a trade or business of the taxpayer, and (iii) for sale or use. (3) Qualified clean hydrogen production facility (A) In general The term qualified clean hydrogen production facility (B) Termination The term qualified clean hydrogen production facility (4) Steam-methane reforming The term steam-methane reforming (d) Special rules (1) Treatment of facilities owned by more than 1 taxpayer Rules similar to the rules section 45(e)(3) shall apply for purposes of this section. (2) Coordination with credit for carbon oxide sequestration No credit shall be allowed under this section with respect to any qualified clean hydrogen produced at a facility which includes property for which a credit is allowed under section 45Q. (e) Regulations Not later than 1 year after the date of enactment of this section, the Secretary, after consultation with the Secretary of Energy and the Administrator of the Environmental Protection Agency, shall issue regulations or other guidance to carry out the purposes of this section, including regulations or other guidance— (1) for determining lifecycle greenhouse gas emissions, and (2) which require verification by unrelated third parties of the production and sale or use of qualified clean hydrogen with respect to which credit is otherwise allowed under this section. . (2) Conforming amendments (A) Section 38(b) is amended— (i) in paragraph (32), by striking plus (ii) in paragraph (33), by striking the period at the end and inserting , plus (iii) by adding at the end the following new paragraph: (34) the clean hydrogen production credit determined under section 45U(a). . (B) The table of sections for subpart D of part IV of subchapter A of chapter 1 amended by adding at the end the following new item: Sec. 45U. Credit for production of clean hydrogen. . (3) Effective date The amendments made by this subsection shall apply to hydrogen produced after December 31, 2021, at facilities placed in service before such date. (b) Credit for electricity produced from renewable resources allowed if electricity is used To produce clean hydrogen (1) In general Section 45(e) is amended by adding at the end the following new paragraph: (12) Special rule for electricity used at a qualified clean hydrogen production facility 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 (as defined in section 45U(d)(3)) to produce qualified clean hydrogen (as defined in section 45U(d)(2)) during the 10-year period after such facility is placed in service. The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to carry out the purposes of this paragraph, including regulations or other guidance to require verification by unrelated third parties of the production and use of electricity to which this paragraph applies. . (2) Effective date The amendment made by this subsection shall apply to electricity produced after December 31, 2021. (c) Election To treat clean hydrogen production facilities as energy property (1) In general Section 48(a) is amended by adding at the end the following new paragraph: (8) Election to treat clean hydrogen production facilities as energy property (A) In general In the case of any qualified property (as defined in paragraph (5)(D)) which is part of a specified clean hydrogen production facility— (i) such property shall be treated as energy property for purposes of this section, and (ii) the energy percentage with respect to such property is— (I) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (A) of section 45U(b)(2), 6 percent, (II) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (B) of such section, 7.5 percent, (III) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (C) of such section, 10.2 percent, and (IV) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (D) of such section, 30 percent. (B) Denial of production credit No credit shall be allowed under section 45U for any taxable year with respect to any specified clean hydrogen production facility. (C) Specified clean hydrogen production facility For purposes of this paragraph, the term specified clean hydrogen production facility (i) which is placed in service after December 31, 2021, and (ii) with respect to which— (I) no credit has been allowed under section 45U or 45Q, and (II) the taxpayer make an irrevocable election to have this paragraph apply. (D) Qualified clean hydrogen For purposes of this paragraph, the term qualified clean hydrogen (E) Regulations The Secretary shall issue such regulations or other guidance as the Secretary determines necessary or appropriate to carry out the purposes of this section, including regulations or other guidance which— (i) requires verification by unrelated third parties that the facility produces hydrogen which is consistent with the hydrogen that such facility was designed and expected to produce under subparagraph (A)(ii), and (ii) recaptures so much of any credit allowed under this section as exceeds the amount of the credit which 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). . (2) Effective date The amendments made by this section shall apply to periods after December 31, 2021, under rules similar to the rules of section 48(m) (d) Termination of excise tax credit for hydrogen (1) In general Section 6426(d)(2) is amended by striking subparagraph (D) and by redesignating subparagraphs (E), (F), and (G) as subparagraphs (D), (E), and (F), respectively. (2) Conforming amendment Section 6426(e)(2) is amended by striking (F) (E) (3) Effective date The amendments made by this subsection shall apply to fuel sold or used after December 31, 2021.

Summary: Clean Hydrogen Production and Investment Tax Credit Act of 2021 This bill allows a new tax credit for the production of qualified clean hydrogen. The bill defines qualified clean hydrogen as hydrogen produced through a process that, as compared to hydrogen produced by steam-methane reforming, achieves a percentage reduction in lifecycle greenhouse gas emissions that is not less than 40%. The bill also (1) expands the tax credit for electricity produced from renewable resources if the electricity is used to produce clean hydrogen, (2) allows an election to treat clean hydrogen production facilities as energy property for purposes of the energy tax credit, and (3) eliminates the excise tax credit for liquefied hydrogen.