The Clean Hydrogen Tax Credit: Why Induced Emissions Must be Considered

The Tax Law Center at NYU Law
7 min readFeb 28, 2024


By Taylor Cranor, Grace Henley, Mike Kaercher, and Kyle Sweeney

At the end of 2023, Treasury and the IRS released proposed regulations implementing the Inflation Reduction Act’s (IRA) clean hydrogen tax credit, and on Monday, the Tax Law Center submitted a comment on those regulations.

This blog explains that the statute requires Treasury and the IRS to take into account both direct and significant indirect greenhouse gas emissions related to hydrogen production when determining whether a project is eligible for the section 45V tax credit. We explain how the proposed regulations give effect to this statutory requirement, and why it matters for future decisions about how to implement even larger IRA “tech-neutral” tax credits.


Hydrogen holds serious potential as an alternative to fossil fuels that could help decarbonize heavy industry and other difficult-to-decarbonize sectors. For that reason, the IRA includes a production tax credit (PTC) for “clean hydrogen” produced under section 45V of the Internal Revenue Code. Section 45V bases the amount of the credit on the “lifecycle greenhouse gas emissions” (lifecycle GHG emissions) rate of hydrogen produced. Clean hydrogen with the lowest lifecycle GHG emissions rate receives a credit of up to $3 per kg of hydrogen produced (assuming prevailing wage and apprenticeship requirements are met), while hydrogen with a higher lifecycle GHG emissions rate may receive credits of $1.00, $0.75, or $0.60 per kg. Hydrogen that has a lifecycle GHG emissions rate that exceeds 4 kg of CO2e per kg of hydrogen produced is ineligible for the credit.

The 45V credit has received substantial attention during the implementation process (including over 29,000 comments on the proposed regulations to date) — much of it focused on the economic and overall climate stakes of the credit and its implementation. However, not enough of the discussion has focused on the statutory framework, which sets out some explicit requirements for how Treasury and the IRS must determine the lifecycle GHG emissions rate.

Statutory requirement to account for “significant indirect emissions” from hydrogen production

There are two key directions from legislators on how to perform a lifecycle analysis for purposes of the clean hydrogen tax credit. First, section 45V(c)(1)(A) gives the term “lifecycle GHG emissions” the same meaning as it has under subparagraph (H) of section 211(o)(1) of the Clean Air Act (CAA). Section 211(o)(1)(H) of the CAA defines lifecycle GHG emissions as “including direct emissions and significant indirect emissions.”

In addition to the CAA cross-reference, section 45V(c)(1)(B) provides that lifecycle GHG emissions only include emissions “through the point of production” under the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model developed by Argonne National Laboratory or a successor model as determined by Treasury. This provision provides Treasury and the IRS tools and methods for applying the general meaning of lifecycle GHG emissions that are administrable for hydrogen production.

The CAA definition of lifecycle GHG emissions includes emissions “related to the full fuel lifecycle.” This would be a “well-to-wheel” analysis that incorporates all greenhouse emissions from a fuel up to and including its final use and any transportation to that final use. However, since hydrogen has many uses, ranging from industrial to storage to transportation fuel, determining what happens “after the gate” (i.e., when it leaves a production facility) would be highly burdensome. The “through the point of production” language in section 45V bounds the lifecycle GHG emissions analysis to a more administrable “well-to-gate” approach. The statute also provides for a specific administrable tool for determining the lifecycle emissions from a project: they are to be estimated using a model, which is a simplified description of reality. The statute gives the Treasury Secretary the authority to choose between GREET (a longstanding model) or a successor.

Taken together, this statutory language shows that the section 45V lifecycle GHG emissions analysis must account for both direct and significant indirect emissions through the point of production. This conclusion is consistent with the EPA’s recent analysis of the CAA’s application to clean hydrogen.

What is the significance of the statutory requirement to account for significant indirect emissions?

Electrolytic hydrogen is a key example of why the statutory requirement to account for significant indirect emissions is important. Electrolytic hydrogen is produced using an electrolyzer powered by electricity to split water molecules into hydrogen and oxygen. Electrolysis is an energy intensive process, meaning the amount of electricity used for a project can be quite large.

Generally, the direct emissions of electrolytic hydrogen can be minimal if powered by clean electricity because there are typically no emissions that arise from the operation of the electrolyzer itself. However, depending on where the clean electricity for the electrolyzer comes from, and its systemwide effects, the production process could have significant indirect emissions. For example, if a hydrogen producer purchases electricity from a longstanding renewable energy source, effectively removing that clean energy from the regional grid, fossil fuel energy may fill the supply gap. The resulting hydrogen thus would have caused indirect emissions by increasing the amount of fossil fuel energy powering the grid. A technical white paper produced by the Department of Energy discusses at length how “new electricity loads, such as hydrogen production processes that use electricity, result in GHG emissions from the grid due to changes in generation and capacity.”

The clear directive in the statute to account for significant indirect emissions means that Treasury and the IRS must account for these emissions when calculating eligibility for — and the amounts of — 45V credits. And, as noted above, Treasury and the IRS had to do so within the statutory requirements (which reference the CAA definition of lifecycle GHG emissions), by using the most recent GREET or a successor model and counting emissions only through the point of production.

The Tax Law Center’s comment on the proposed regulations steps through this statutory requirement and its meaning in some detail.

How the proposed regulations satisfy the statutory mandate to account for “significant indirect emissions” from electrolytic hydrogen

Treasury and IRS satisfy these statutory requirements in the proposed regulations with respect to electrolytic hydrogen by adopting the “three pillars” emissions accounting concept. As explained in the preamble to the proposed regulations, the three pillars are designed to ensure electrolytic hydrogen production does not “significantly increase induced grid [greenhouse gas] emissions.” Generally, taxpayers may treat electricity used to produce electrolytic hydrogen as zero GHG-emitting electricity by purchasing “qualifying” energy attribute certificates (EACs) — which substantiate the purchase of clean electricity — that comply with the pillars. The three pillars are (1) incrementality; (2) temporal matching; and (3) deliverability.

The incrementality requirement is designed to ensure that existing clean electricity is not diverted to electrolytic hydrogen production and then replaced by electricity from fossil fuels. An EAC would satisfy incrementality if it is sourced from an electricity generating facility that began commercial operations no more than 36 months before the hydrogen production facility was placed in service.

The temporal matching requirement aims to avoid hydrogen producers claiming they used electricity from clean sources (through EACs) at times when clean electricity was not actually feeding the grid. An EAC would satisfy temporal matching if it represents electricity generated in the same calendar year (before January 1, 2028) or the same hour (beginning January 1, 2028) as the taxpayer’s hydrogen production.

Finally, the deliverability requirement ensures regional grids providing electricity to hydrogen producers are simultaneously being fed clean electricity in the same region. Otherwise, EACs may represent clean electricity from sources that could not feasibly be used by the clean hydrogen production facility. An EAC would generally satisfy deliverability if it is in the same balancing authority as the hydrogen production facility.

Under the proposed regulations, taxpayers purchasing qualifying EACs may treat their hydrogen facility’s use of electricity as being from a specific clean source rather than from the regional electricity grid, which would have higher associated emissions and would likely prohibit any access to section 45V credits for electrolytic hydrogen today. The regulations also require the use of the 45VH2-GREET model, which fulfills the statutory requirement to determine lifecycle GHG emissions “through the point of production” using the “most recent” GREET or a successor model.

Clean hydrogen regulations will inform coming high stakes “tech-neutral” credit regulations

The proposed regime to calculate the lifecycle GHG emissions of clean hydrogen has implications far beyond the hydrogen sector. The broader structure of the IRA’s clean energy tax credits regime is to move the US from a technology-specific approach to a “technology-neutral” (tech-neutral) approach to determining eligibility for clean fuel and clean generation credits. Beginning in 2025, most new projects will receive credits based on a GHG emissions analysis, not on rules that primarily depend on the type of technology generating the fuel or electricity.

These “tech-neutral” credits account for a large part of the IRA’s estimated cost — and a large part of its estimated reduction of GHG emissions.

Like the hydrogen credits, the tech-neutral credits require an analysis of the GHG emissions rate of any given investment or project. For tech-neutral generation credits, Treasury will publish a table annually that sets forth qualifying technologies that are considered “zero emission.” For tech-neutral fuel credits, Treasury will publish a table setting forth the emissions rate for similar types and categories of transportation fuels based on the amount of lifecycle GHG emissions.

The statutory similarities between section 45V and the tech-neutral credits mean that the hydrogen regulations will likely provide an important template for making these determinations. This will especially be the case for the tech-neutral ITC/PTC for clean electricity production using combustion or gasification and the clean fuel credit. This is because, like section 45V, the statutory provisions for those credits reference section 211(o)(1)(H) of the CAA, and, in the case of the clean fuel credit, the most recent GREET model or a successor model.

The regulations implementing these credits will need to ensure that the associated lifecycle GHG emissions analysis includes direct and significant indirect emissions, as in section 45V. Treasury will also have to make factual determinations regarding certain combustion or gasification technologies, including those using renewable natural gas (RNG), whose emissions profiles are highly dependent on the lifecycle methodology applied. For example, Treasury will need to consider how to account for fugitive methane emissions from RNG production (i.e., methane that escapes or is released as a result of fossil fuel production and transportation).

We will continue to monitor these regulatory developments to ensure the tech-neutral and clean fuel credit regulations satisfy the statutory requirements so that they do not lead to wasteful tax credits for projects that increase GHG emissions.

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The Tax Law Center at NYU Law

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