Clean H2 Production Act
Bill: S.1807 | Sponsor: Sen. Carper, Thomas R. (D-DE)
Policy area: Taxation

Summary:
Clean H2 Production Act
This bill provides tax incentives for the production of clean hydrogen and for investment in clean hydrogen production facilities. Specifically, it allows a new business-related tax credit for the production of specified amounts of qualified clean hydrogen. The bill defines qualified clean hydrogen as hydrogen that is produced through a process that, as compared to hydrogen produced by steam-methane reforming of nonrenewable natural gas, achieves a percentage reduction in life cycle greenhouse gas emissions that is not less than 50%.
The bill also expands the energy tax credit to include clean hydrogen production facilities.

To amend the Internal Revenue Code of 1986 to provide for a production 
 and investment tax credit related to the production of clean hydrogen.

    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 H2 Production Act''.

SEC. 2. TAX CREDIT FOR PRODUCTION OF CLEAN HYDROGEN.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 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--
                    ``(A) produced by the taxpayer at a qualified clean 
                hydrogen production facility during the 10-year period 
                beginning on the date the facility was placed in 
                service, and
                    ``(B)(i) sold by the taxpayer to an unrelated 
                person during the taxable year,
                    ``(ii) used by the taxpayer or a related person 
                during the taxable year, or
                    ``(iii) stored during the taxable year for 
                subsequent use by the taxpayer or a related person.
    ``(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 
        sale or use of the qualified clean hydrogen occurs. 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) Credit Reduction.--The amount of the credit determined under 
subsection (a) with respect to any qualified clean hydrogen production 
facility for any taxable year shall be reduced in a manner similar to 
the reduction applied under section 45(b)(3).
    ``(d) 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 of non-renewable natural gas, 
                achieves a percentage reduction in lifecycle greenhouse 
                gas emissions which is not less than 50 percent.
                    ``(B) Exclusion.--The term `qualified clean 
                hydrogen' shall not include any hydrogen for which a 
                credit is allowed for the taxable year--
                            ``(i) under section 38 which is properly 
                        allocable to any credit determined under this 
                        part (other than this section), or
                            ``(ii) under subchapter B of chapter 65 of 
                        subtitle F.
            ``(3) Qualified clean hydrogen production facility.--
                    ``(A) In general.--The term `qualified clean 
                hydrogen production facility' means--
                            ``(i) a facility owned by the taxpayer--
                                    ``(I) which produces qualified 
                                clean hydrogen which, with respect to 
                                any taxable year, is sold by the 
                                taxpayer to an unrelated person or used 
                                by the taxpayer,
                                    ``(II) which satisfies the 
                                requirements under subparagraphs (B) 
                                and (C), and
                                    ``(III) the construction of which 
                                begins before January 1, 2030, and
                            ``(ii) in connection with any facility 
                        described in clause (i), any property used to 
                        convert feedstock to hydrogen, including any 
                        equipment or supporting facility which--
                                    ``(I) accepts or receives 
                                feedstock,
                                    ``(II) conditions or stores 
                                feedstock or hydrogen, or
                                    ``(III) distributes or 
                                redistributes hydrogen.
                    ``(B) Wage requirements.--The requirements 
                described in this subparagraph with respect to any 
                facility are that the taxpayer shall ensure that any 
                laborers and mechanics employed by contractors and 
                subcontractors in--
                            ``(i) the construction of such facility, or
                            ``(ii) for any year during the period 
                        described in subsection (a)(2)(A) which begins 
                        after the date of the enactment of this 
                        section, the alteration or repair of such 
                        facility,
                shall be paid wages at rates not less than the 
                prevailing rates for construction, alteration, or 
                repair of a similar character in the locality as 
                determined by the Secretary of Labor, in accordance 
                with subchapter IV of chapter 31 of title 40, United 
                States Code.
                    ``(C) Labor requirements.--
                            ``(i) Apprenticeships.--The requirements 
                        described in this subparagraph with respect to 
                        any facility are that the taxpayer shall ensure 
                        that all contractors and subcontractors engaged 
                        in the performance of construction, alteration, 
                        or repair work on any facility shall, subject 
                        to clause (ii), ensure that not less than 15 
                        percent of the total labor hours of such work 
                        be performed by qualified apprentices.
                            ``(ii) Apprentice-to-journeyworker ratio.--
                        The requirement under clause (i) shall be 
                        subject to any applicable requirements for 
                        apprentice-to-journeyworker ratios of the 
                        Department of Labor or the applicable State 
                        apprenticeship agency.
                            ``(iii) Participation.--Each contractor and 
                        subcontractor described in clause (i) that 
                        employs 4 or more individuals to perform 
                        construction, alteration, or repair work on any 
                        facility shall employ 1 or more qualified 
                        apprentices to perform such work.
                            ``(iv) Exception.--Notwithstanding any 
                        other provision in this subparagraph, this 
                        subparagraph shall not apply in the case of a 
                        taxpayer who--
                                    ``(I) demonstrates a lack of 
                                availability of qualified apprentices 
                                in the geographic area of the 
                                construction, alteration, or repair 
                                work, and
                                    ``(II) makes a good faith effort, 
                                and its contractors and subcontractors 
                                make a good faith effort, to comply 
                                with the requirements of this 
                                subparagraph.
            ``(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, 
        without carbon capture and sequestration.
    ``(e) Special Rules.--
            ``(1) In general.--Rules similar to the rules of paragraphs 
        (3) and (4) of section 45(e) shall apply for purposes of this 
        section.
            ``(2) Production in the united states.--No credit shall be 
        allowed under this section with respect to any qualified clean 
        hydrogen which is produced outside of the United States (as 
        defined in section 638(1) or any possession of the United 
        States (as defined in section 638(2)).
    ``(f) Guidance.--Not later than 1 year after the date of enactment 
of this section, the Secretary, in consultation with the Secretary of 
Energy and Administrator of the Environmental Protection Agency, shall 
publish guidance prescribing methods for determining the credit based 
on lifecycle greenhouse gas emissions. For purposes of the preceding 
sentence, such methods shall consider the emissions associated with any 
feedstock or energy source which is not co-located at the qualified 
clean hydrogen production facility if--
            ``(1) such feedstock or energy source is contractually 
        obtained by the taxpayer,
            ``(2) the taxpayer provides sufficient legal assurances 
        that no other person can claim credit for the environmental 
        attributes of such feedstock or energy source, and
            ``(3) environmental attributes of the non co-located 
        feedstock or energy source are only considered to the extent 
        the taxpayer consumes an equivalent amount of the feedstock or 
        energy source in the production of hydrogen, whereas--
                    ``(A) in the case of electricity used to produce 
                hydrogen then only an equivalent amount of electricity 
                which is not co-located may be considered, and
                    ``(B) in the case of natural gas used to produce 
                hydrogen then only an equivalent amount of biogas which 
                is not co-located may be considered.''.
    (b) Conforming Amendments.--
            (1) Section 38(b) of the Internal Revenue Code of 1986 is 
        amended--
                    (A) in paragraph (32), by striking ``plus'' at the 
                end,
                    (B) in paragraph (33), by striking the period at 
                the end and inserting ``, plus'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(34) the clean hydrogen production credit determined 
        under section 45U(a).''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 of such Code is amended by adding at 
        the end the following new item:

``Sec. 45U. Credit for production of clean hydrogen.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to hydrogen used or sold after December 31, 2020.

SEC. 3. EXPANSION OF ENERGY CREDIT TO INCLUDE CLEAN HYDROGEN PRODUCTION 
              FACILITIES.

    (a) In General.--Section 48(a)(5) of the Internal Revenue Code of 
1986 is amended--
            (1) in subparagraph (A)(ii), by inserting ``subject to 
        subparagraph (G)(i),'' before ``the energy percentage'',
            (2) in subparagraph (B), by inserting ``or 45U'' after 
        ``section 45'',
            (3) in subparagraph (C)--
                    (A) in clause (i), by inserting ``or, subject to 
                subparagraph (G)(ii), a qualified clean hydrogen 
                production facility (as defined in section 45U(d)(3)) 
                which meets the requirements of section 45U(b)(2)(C)'' 
                after ``section 45(d)'',
                    (B) in clause (ii), by inserting ``(or, in the case 
                of a qualified clean hydrogen production facility, 
                which is placed in service after 2020 and the 
                construction of which begins before January 1, 2030)'' 
                after ``January 1, 2022'', and
                    (C) in clause (iii)(I), by inserting ``or 45U'' 
                after ``section 45'', and
            (4) by adding at the end the following:
                    ``(G) Qualified clean hydrogen production 
                facilities.--
                            ``(i) Energy percentage.--
                                    ``(I) In general.--For purposes of 
                                subparagraph (A)(ii), in the case of a 
                                qualified investment credit facility 
                                which is a qualified clean hydrogen 
                                production facility, the energy 
                                percentage with respect to such 
                                facility shall be an amount (expressed 
                                as a percentage) equal to--
                                            ``(aa) in the case of a 
                                        facility which is estimated to 
                                        produce qualified clean 
                                        hydrogen (as defined in 
                                        described in section 45U(d)(2)) 
                                        which is described in 
                                        subparagraph (A) of section 
                                        45U(b)(2), 20 percent of the 
                                        energy percentage otherwise 
                                        applicable under subparagraph 
                                        (A)(ii),
                                            ``(bb) in the case of a 
                                        facility which is estimated to 
                                        produce qualified clean 
                                        hydrogen which is described in 
                                        subparagraph (B) of section 
                                        45U(b)(2), 25 percent of the 
                                        energy percentage otherwise 
                                        applicable under subparagraph 
                                        (A)(ii),
                                            ``(cc) in the case of a 
                                        facility which is estimated to 
                                        produce qualified clean 
                                        hydrogen which is described in 
                                        subparagraph (C) of section 
                                        45U(b)(2), 34 percent of the 
                                        energy percentage otherwise 
                                        applicable under subparagraph 
                                        (A)(ii), and
                                            ``(dd) in the case of a 
                                        facility which is estimated to 
                                        produce qualified clean 
                                        hydrogen which is described in 
                                        subparagraph (D) of section 
                                        45U(b)(2), 100 percent of the 
                                        energy percentage otherwise 
                                        applicable under subparagraph 
                                        (A)(ii).
                                    ``(II) Recapture.--The Secretary 
                                shall, by regulations, provide for 
                                recapturing the benefit of any credit 
                                allowable under this section with 
                                respect to any qualified clean hydrogen 
                                production facility which significantly 
                                fails to produce qualified clean 
                                hydrogen consistent with the applicable 
                                percentage reduction in lifecycle 
                                greenhouse gas emissions described in 
                                section 45U(b)(2) which were estimated 
                                for such facility pursuant to subclause 
                                (I).
                            ``(ii) No double benefit.--For purposes of 
                        this paragraph, the term `qualified investment 
                        credit facility' shall not include any 
                        qualified clean hydrogen production facility 
                        for which a credit is allowed under section 38 
                        for the taxable year or any prior taxable year 
                        which is properly allocable to any credit 
                        determined under--
                                    ``(I) this section (other than 
                                pursuant to this paragraph), or
                                    ``(II) section 45, 45J, or 45Q.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2020.
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