Clean Hydrogen Production and Investment Tax Credit Act of 2021
Bill: H.R.5192 | Sponsor: Rep. Larson, John B. (D-CT)
Policy area: Taxation

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.

To amend the Internal Revenue Code of 1986 to establish a credit for 
         production of clean hydrogen, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Clean Hydrogen Production and 
Investment Tax Credit Act of 2021''.

SEC. 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:

``SEC. 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' means--
                    ``(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' for `1992' in 
        subparagraph (B) thereof) for the calendar year in which the 
        qualified clean hydrogen is produced. If any amount as 
        increased 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.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Lifecycle greenhouse gas emissions.--For purposes of 
        this section, the term `lifecycle greenhouse gas emissions' has 
        the same meaning given such term under subparagraph (H) of 
        section 211(o)(1) of the Clean Air Act (42 U.S.C. 7545(o)(1)), 
        as in effect on the date of enactment of this section, as 
        related to the full fuel lifecycle through the point of 
        hydrogen production.
            ``(2) Qualified clean hydrogen.--
                    ``(A) In general.--The term `qualified clean 
                hydrogen' means 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 40 percent.
                    ``(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' means a facility owned by 
                the taxpayer which produces qualified clean hydrogen 
                and which meets the requirements of subparagraph (B).
                    ``(B) Termination.--The term `qualified clean 
                hydrogen production facility' shall not include any 
                facility the construction of which begins after 
                December 31, 2028.
            ``(4) Steam-methane reforming.--The term `steam-methane 
        reforming' means a hydrogen production process in which high-
        temperature steam is used to produce hydrogen from natural gas 
        (other than natural gas derived from biomass (as defined in 
        section 45K(c)(3)), without carbon capture and sequestration.
    ``(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'' 
                        at the end,
                            (ii) in paragraph (33), by striking the 
                        period at the end and inserting ``, plus'', and
                            (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' means 
                any qualified clean hydrogen production facility (as 
                defined in section 45U(d)(3)) or any portion of such 
                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' has 
                the meaning given such term by section 45U(d)(2).
                    ``(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) of the Internal Revenue 
        Code of 1986 (as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1990).
    (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)'' and inserting ``(E)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to fuel sold or used after December 31, 2021.
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