What is the IRA 45V Clean Hydrogen Tax Credit?

The Inflation Reduction Act (IRA) introduced a tax credit under Internal Revenue Code Section 45V to encourage the production of clean hydrogen within the United States. This incentive is designed to make hydrogen production more economically viable for processes with low greenhouse gas emissions. For the purposes of this credit, clean hydrogen is defined as hydrogen produced through a method that meets specific, tiered thresholds for lifecycle emissions. The credit provides a financial benefit for each kilogram of qualifying hydrogen produced.

Determining Facility and Taxpayer Eligibility

To qualify for the Section 45V credit, the hydrogen must be produced at a “qualified clean hydrogen production facility.” This is a facility owned by the taxpayer that produces qualified clean hydrogen. The construction of the facility must have begun before January 1, 2033, and the credit is available for a 10-year period starting from the date the facility is placed in service.

The credit is claimed by the taxpayer who owns the production facility and produces the hydrogen in their trade or business for sale or use within the United States. A taxpayer cannot claim both the Section 45V production credit and the Section 48 energy investment tax credit for the same facility. A taxpayer also cannot claim both the 45V credit and the Section 45Q credit for carbon capture equipment that is part of the same hydrogen production facility. This restriction does not prevent a facility from claiming the 45V credit if it sources inputs, like electricity, from a separate facility that claims the 45Q credit.

Calculating the Hydrogen Production Credit

The value of the Clean Hydrogen Production Credit is tied to the environmental performance of the production process, based on a tiered structure that rewards lower lifecycle greenhouse gas (GHG) emissions. The credit amount is determined by the kilograms of carbon dioxide equivalent (CO2e) emitted per kilogram of hydrogen (H2) produced. Hydrogen with emissions over 4 kg of CO2e per kg of H2 is ineligible. The four eligible tiers are:

• Less than 0.45 kg of CO2e per kg of H2
• 0.45 to less than 1.5 kg of CO2e per kg of H2
• 1.5 to less than 2.5 kg of CO2e per kg of H2
• 2.5 to less than 4 kg of CO2e per kg of H2

The credit has a base rate and a bonus rate. The base credit for the cleanest tier of hydrogen is $0.60 per kilogram, with lower amounts for other tiers. This amount is multiplied by five if the facility meets prevailing wage and apprenticeship labor requirements, increasing the maximum credit to $3.00 per kilogram. The base and bonus amounts are subject to annual inflation adjustments.

Lifecycle Emissions and Labor Requirements

The measurement of lifecycle greenhouse gas emissions must encompass the entire pathway, including feedstock sourcing and transportation. To standardize this complex calculation, the Treasury Department requires using the most recent 45VH2-GREET model from the Department of Energy. If a process lacks a determined emissions rate in the GREET model, the taxpayer can petition the Treasury for a provisional emissions rate (PER).

To qualify for the five-times bonus credit rate, producers must satisfy labor requirements. The prevailing wage rules mandate that laborers and mechanics involved in the facility’s construction, alteration, or repair are paid wages at or above local prevailing rates. This applies during the construction phase and for any alteration or repair work during the 10-year credit period.

The rules also require the use of qualified apprentices from registered apprenticeship programs. A specific percentage of the total labor hours for the facility’s construction, alteration, or repair must be performed by these apprentices.

Procedures for Claiming and Monetizing the Credit

The credit is claimed on the annual income tax return using IRS Form 7210, Clean Hydrogen Production Credit. A separate form must be filed for each qualified facility. The production and sale or use of the hydrogen must be verified by an unrelated third party, and this verification report is a mandatory attachment to the tax filing.

The IRA introduced new ways to monetize tax credits, such as the “direct pay” or elective pay option. This allows certain tax-exempt organizations and government entities to receive the credit amount as a direct cash payment from the IRS, even if they have no tax liability. Taxable entities can also elect direct pay for a limited period for certain credits.

Another option is “transferability,” which allows an eligible taxpayer to sell all or a portion of their earned credit to an unrelated taxpayer for cash. This creates a market for the credits, enabling producers who may not have enough tax liability to use the full credit value. Both direct pay and transferability require completing an IRS pre-filing registration process to validate the credit.