Section 45V Credit for Production of Clean Hydrogen; Section 48(a)(15) Election To Treat Clean Hydrogen Production Facilities as Energy Property, 89220-89255 [2023-28359]

Download as PDF 89220 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG–117631–23] RIN 1545–BQ97 Section 45V Credit for Production of Clean Hydrogen; Section 48(a)(15) Election To Treat Clean Hydrogen Production Facilities as Energy Property Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. AGENCY: This document contains proposed regulations relating to the credit for production of clean hydrogen (clean hydrogen production credit) and the energy credit, as established and amended by the Inflation Reduction Act of 2022, respectively. The proposed regulations would provide rules for: determining lifecycle greenhouse gas emissions rates resulting from hydrogen production processes; petitioning for provisional emissions rates; verifying production and sale or use of clean hydrogen; modifying or retrofitting existing qualified clean hydrogen production facilities; using electricity from certain renewable or zeroemissions sources to produce qualified clean hydrogen; and electing to treat part of a specified clean hydrogen production facility instead as property eligible for the energy credit. The proposed regulations would affect all taxpayers who produce qualified clean hydrogen and claim the clean hydrogen production credit, elect to treat part of a specified clean hydrogen production facility as property eligible for the energy credit, or produce electricity from certain renewable or zeroemissions sources used by taxpayers or related persons to produce qualified clean hydrogen. This document also provides notice of a public hearing on the proposed regulations. DATES: Written or electronic comments must be received by February 26, 2024. The public hearing on these proposed regulations is scheduled to be held on March 25, 2024, at 10 a.m. (ET). Requests to speak and outlines of topics to be discussed at the public hearing must be received by March 4, 2024. If no outlines are received by March 4, 2024, the public hearing will be cancelled. Requests to attend the public hearing must be received by March 18, 2024. The public hearing will be made accessible to people with disabilities. khammond on DSKJM1Z7X2PROD with PROPOSALS3 SUMMARY: VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 Requests for special assistance during the hearing must be received by March 18, 2024. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at https:// www.regulations.gov (indicate IRS and REG–117631–23) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the ‘‘Comments and Requests for a Public Hearing’’ section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted to the IRS’s public docket. Send paper submissions to: CC:PA:LPD:PR (REG–117631–23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations, the Office of Chief Counsel (Passthroughs and Special Industries) at (202) 317–6853 (not a toll-free number); concerning submissions of comments or the public hearing, Vivian Hayes at (202) 317–6901 (not a toll-free number) or by email to publichearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: Background This document contains proposed regulations to amend the Income Tax Regulations (26 CFR part 1) under sections 45V and 48(a)(15) of the Internal Revenue Code (Code), as added to the Code by section 13204 of Public Law 117–169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). The IRA added several provisions to the Code related to the production of, and investment in, clean hydrogen, which, along with the provisions of sections 45V and 48(a)(15), are described in part I of this Background section. Part II of this Background section describes a previous request for public comment on these provisions. I. IRA Provisions for Clean Hydrogen Production and Investment This part I describes the credit for production of clean hydrogen as determined under section 45V (section 45V credit) and the irrevocable election to claim an energy credit under section 48 (section 48 credit) in lieu of the section 45V credit. Also described are statutory exceptions to the requirement that electricity be sold to an unrelated PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 person to be eligible for the renewable electricity production credit determined under section 45 (section 45 credit) or the zero-emission nuclear power production credit determined under section 45U (section 45U credit). Under these exceptions, electricity produced by a taxpayer from a qualified facility under section 45(d) or a qualified nuclear power facility under section 45U(b)(1) may be treated as sold by the taxpayer to an unrelated person during the taxable year if the electricity is used by the taxpayer or a related person at a qualified clean hydrogen production facility to produce qualified clean hydrogen. A. Section 45V 1. Amount of Credit Section 45V provides a tax credit for the production of qualified clean hydrogen. For purposes of section 38 of the Code, section 45V(a) provides that the clean hydrogen production credit for any taxable year is an amount equal to the product of (i) 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, and (ii) the applicable amount as determined under section 45V(b) with respect to such hydrogen. Section 45V(b)(1) provides that, for purposes of section 45V(a)(2), the applicable amount is an amount equal to the applicable percentage of $0.60. If the amount so determined is not a multiple of 0.1 cent, then such amount is rounded to the nearest multiple of 0.1 cent. Section 45V(b)(2) provides that, for purposes of section 45V(b)(1), the applicable percentage is determined based on the lifecycle greenhouse gas emissions (lifecycle GHG emissions) rate of the process to produce any qualified clean hydrogen as follows: (i) if the lifecycle GHG emissions rate is not greater than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 20 percent; (ii) if the lifecycle GHG emissions rate is less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 25 percent; (iii) if the lifecycle GHG emissions rate is less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 hydrogen, then the applicable percentage is 33.4 percent; and (iv) if the lifecycle GHG emissions rate is less than 0.45 kilograms of CO2e per kilogram of hydrogen, then the applicable percentage is 100 percent. Section 45V(b)(3) provides that the $0.60 amount in section 45V(a)(1) is adjusted by multiplying such amount by the inflation adjustment factor (as determined under section 45(e)(2), determined by substituting ‘‘2022’’ for ‘‘1992’’ in section 45(e)(2)(B)) for the calendar year in which the qualified clean hydrogen is produced. If any amount as increased under section 45V(b)(3) is not a multiple of 0.1 cent, such amount is rounded to the nearest multiple of 0.1 cent.1 Section 45V(e)(1) provides that, in the case of any qualified clean hydrogen production facility that satisfies the requirements of section 45V(e)(2), the amount of the section 45V credit with respect to qualified clean hydrogen described in section 45V(b)(2) is equal to the amount determined under section 45V(a) (determined without regard to section 45V(e)(1)) multiplied by five. A qualified clean hydrogen production facility meets the requirements of section 45V(e)(2) if: (i) the facility began construction before January 29, 2023, and with respect to any taxable year, for any period of such taxable year that is within the 10-year period beginning on the date the facility is originally placed in service, the prevailing wage requirements of section 45V(e)(3)(A) are met for any alteration or repair of the facility that occurs after January 29, 2023 (to the extent applicable); 2 or (ii) the facility satisfies the prevailing wage and apprenticeship (PWA) requirements of sections 45V(e)(3)(A) and (4).3 Generally, the prevailing wage requirements under section 45V(e)(3)(A) with respect to any qualified clean hydrogen production facility require the taxpayer to ensure that any laborers and 1 The IRS will publish the inflation-adjusted section 45V applicable amount annually. For the calendar year 2023, the section 45V(b)(3) inflation adjustment factor is equal to one, so the inflationadjusted applicable amount remains $0.60 for the calendar year 2023. 2 Section 45V(e)(3)(A)(ii) requires the payment of wages at prevailing rates ‘‘with respect to any taxable year, for any portion of such taxable year which is within the period described in subsection (a)(2)’’, with respect to the alteration or repair of the facility. There is no ‘‘period described in subsection (a)(2).’’ The Treasury Department and the IRS interpret the reference to ‘‘subsection (a)(2)’’ as a reference to section 45V(a)(1) where the 10-year credit period is identified. 3 See proposed §§ 1.45–7, 1.45–8, 1.45–12, and 1.45V–3 as proposed in the notice of proposed rulemaking (REG–100908–23) published in the Federal Register (88 FR 60018) on August 30, 2023, and corrected at 88 FR 73807 on October 27, 2023. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 mechanics employed by the taxpayer or by any contractor or subcontractor in (i) the construction of such facility, and (ii) with respect to any taxable year, for any portion of such taxable year that is within the 10-year period beginning on the date such facility was originally placed in service, the alteration or repair of such facility, are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40 of the United States Code, commonly known as the Davis-Bacon Act. Correction and penalty rules similar to the rules of section 45(b)(7)(B) also apply. Section 45V(e)(4) provides that rules similar to the apprenticeship requirements of section 45(b)(8) apply for purposes of section 45V(e)(2).4 For purposes of section 45V(a), in the case of a qualified clean hydrogen production facility that does not satisfy the requirements of section 45(e)(2), the amount of the clean hydrogen production credit for any taxable year is $0.12, $0.15, $0.20, or $0.60 per kilogram of qualified clean hydrogen produced (before taking into account any inflation adjustment under section 45V(b)(3)), depending on the lifecycle GHG emissions rate associated with the facility’s hydrogen production process. For facilities meeting the requirements of section 45V(e)(2), the credit amount determined under section 45V(a) (as adjusted for inflation subject to section 45V(b)(3)) is multiplied by five. 2. Definitions a. Lifecycle Greenhouse Gas Emissions Section 45V(c)(1)(A) provides that, subject to section 45V(c)(1)(B), the term ‘‘lifecycle greenhouse gas emissions’’ has the same meaning given such term under section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022. Under section 45V(c)(1)(B), the term ‘‘lifecycle greenhouse gas emissions’’ includes emissions only through the point of production (well-to-gate), as determined 4 Under proposed § 1.45V–3, the PWA requirements for purposes of section 45V(e)(2) would be satisfied if a facility meets the prevailing wage requirements of section 45(b)(7) and proposed § 1.45–7, the apprenticeship requirements of section 45(b)(8) and proposed § 1.45–8, and the recordkeeping and reporting requirements of proposed § 1.45–12. Those proposed regulations are outside the scope of this notice of proposed rulemaking and proposed § 1.45V–3 is addressed only to the extent necessary for purposes of formatting the proposed regulations that are the subject of this notice of proposed rulemaking in accordance with CFR standards. PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 89221 under the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation model, referred to as the ‘‘GREET model’’ commonly and in this document, developed by Argonne National Laboratory, or a successor model as determined by the Secretary of the Treasury or her delegate (Secretary). b. Qualified Clean Hydrogen Section 45V(c)(2)(A) provides that the term ‘‘qualified clean hydrogen’’ means hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Section 45V(c)(2)(B) further provides that the term ‘‘qualified clean hydrogen’’ does not include any hydrogen unless (i) such hydrogen is produced (A) in the United States (as defined in section 638(1) of the Code) or a United States territory (having the meaning of the term ‘‘possession’’ as defined in section 638(2)), (B) in the ordinary course of a trade or business of the taxpayer, and (C) for sale or use; and (ii) the production and sale or use of such hydrogen is verified by an unrelated party. c. Provisional Emissions Rate Section 45V(c)(2)(C) provides that, in the case of any hydrogen for which a lifecycle GHG emissions rate has not been determined for purposes of section 45V, a taxpayer producing such hydrogen may file a petition with the Secretary for a determination of the lifecycle GHG emissions rate with respect to such hydrogen, which is referred to as a ‘‘provisional emissions rate’’ or PER in the proposed regulations. d. Qualified Clean Hydrogen Production Facility Section 45V(c)(3) provides that the term ‘‘qualified clean hydrogen production facility’’ means a facility (i) owned by the taxpayer, (ii) that produces qualified clean hydrogen, and (iii) the construction of which begins before January 1, 2033.5 5 Section 45V does not specify an earliest date on which a qualified clean hydrogen production facility must begin construction or be placed in service to be eligible to claim the section 45V credit. However, the section 45V credit is available for qualified clean hydrogen produced after December 31, 2022. Section 13204(a)(5)(A) of the IRA. Thus, the owner of a qualified clean hydrogen production facility originally placed in service after December 31, 2012, could claim the section 45V credit for qualified clean hydrogen produced during at least some portion of the 10-year period described in section 45V(a)(1), provided all other requirements are met. E:\FR\FM\26DEP3.SGM 26DEP3 89222 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules 3. Special Rules a. Treatment of Facilities Owned by More Than One Taxpayer Section 45V(d)(1) provides that rules similar to the rules of section 45(e)(3) apply for purposes of section 45V. Section 45(e)(3) provides that, in the case of a facility in which more than one person has an ownership interest, except to the extent provided in regulations prescribed by the Secretary, production from the facility is allocated among such persons in proportion to their respective ownership interests in the gross sales from such facility. khammond on DSKJM1Z7X2PROD with PROPOSALS3 b. Coordination With Section 45Q Section 45V(d)(2) provides that no section 45V credit is allowed with respect to any qualified clean hydrogen produced at a facility that includes carbon capture equipment for which a credit is allowed to any taxpayer as determined under section 45Q (section 45Q credit) for the taxable year or any prior taxable year. c. Credit Reduced for Tax-Exempt Bonds Section 45V(d)(3) provides that rules similar to the rules under section 45(b)(3) (credit reduced for tax-exempt bonds) apply for purposes of section 45V. Section 45V(d)(3) is effective for facilities that begin construction after August 16, 2022. Section 13204(a)(5)(B) of the IRA. Section 45(b)(3) provides that the amount of the credit determined under section 45(a) with respect to any facility for any taxable year (determined after the application of section 45(b)(1) and (2) regarding phaseout and inflation adjustment rules) is reduced by the amount that is the product of the amount so determined for such year and the lesser of 15 percent or a fraction (A) the numerator of which is the sum, for the taxable year and all prior taxable years, of proceeds of an issue of any obligations the interest on which is exempt from tax under section 103 and that is used to provide financing for the qualified facility, and (B) the denominator of which is the aggregate amount of additions to the capital account for the qualified facility for the taxable year and all prior taxable years. Section 45(b)(3) further provides that the amounts determined under section 45(b)(3) for any taxable year are determined as of the close of the taxable year. d. Modification of Existing Facilities Section 45V(d)(4) provides that for purposes of section 45V(a)(1), in the case of any facility that (A) was originally placed in service before VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 January 1, 2023, and, prior to the modification described in section 45V(d)(4)(B), did not produce qualified clean hydrogen, and (B) after the date such facility was originally placed in service (i) is modified to produce qualified clean hydrogen, and (ii) amounts paid or incurred with respect to such modification are properly chargeable to the capital account of the taxpayer, such facility is deemed to have been originally placed in service as of the date the property required to complete the modification described in section 45V(d)(4)(B) is placed in service. Section 45V(d)(4) is effective for modifications made after December 31, 2022. See section 13204(a)(5)(C) of the IRA. B. Electricity Used at a Qualified Clean Hydrogen Production Facility Section 45(e)(13) provides that electricity produced by the taxpayer is treated as sold by such taxpayer to an unrelated person during the taxable year if (i) 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 45V(c)(3)) to produce qualified clean hydrogen (as defined in section 45V(c)(2)); and (ii) such use and production is verified (in such form or manner as the Secretary may prescribe) by an unrelated party. Section 45(e)(13) is effective for electricity produced after December 31, 2022. See section 13204(b)(3) of the IRA. Section 45U(c)(2) provides that rules similar to the rules of section 45(e)(13) apply for purposes of section 45U. Generally, section 45U is effective for electricity produced at a qualified nuclear power facility and sold after December 31, 2023, in taxable years beginning after that date. C. Election To Treat Clean Hydrogen Production Facilities as Energy Property Section 48(a)(15)(A)(i) provides that, in the case of any qualified property (as defined in section 48(a)(5)(D)) that is part of a specified clean hydrogen production facility, such property is treated as energy property. Section 48(a)(15)(A)(ii) provides that the energy percentage of the basis of any qualified property that is treated as energy property is, for a facility that is designed and reasonably expected to produce qualified clean hydrogen with a lifecycle GHG emissions rate that is: (i) not greater than 4 kilograms of CO2e per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, 1.2 percent; (ii) less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 kilograms of CO2e per kilogram of hydrogen, 1.5 percent; (iii) less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of hydrogen, 2 percent; and (iv) less than 0.45 kilograms of CO2e per kilogram of hydrogen, 6 percent. Under section 48(a)(9), the amount of the section 48 credit determined for a specified clean hydrogen production facility under section 48(a)(15) is multiplied by five if the facility meets the requirements of section 48(a)(9)(B) (regarding application of certain maximum net output levels of electrical or thermal energy or prevailing wage and apprenticeship requirements). However, the domestic content and energy communities bonuses under section 48(a)(12) and (a)(14) do not apply to a specified clean hydrogen production facility. Section 48(a)(15) is effective for property placed in service after December 31, 2022, and for any property the construction of which began before January 1, 2023, only to the extent of the basis thereof attributable to construction, reconstruction, or erection after December 31, 2022. See section 13204(c)(3) of the IRA. 1. Denial of Production Credit Section 48(a)(15)(B) provides that no section 45V credit or section 45Q credit is allowed for any taxable year with respect to any specified clean hydrogen production facility or any carbon capture equipment included at such facility. 2. Specified Clean Hydrogen Production Facility Section 48(a)(15)(C) provides that the term ‘‘specified clean hydrogen production facility’’ means any qualified clean hydrogen production facility (as defined in section 45V(c)(3)) (i) that is placed in service after December 31, 2022, (ii) with respect to which (I) no section 45V credit or section 45Q credit has been allowed, and (II) the taxpayer makes an irrevocable election to have section 48(a)(15) apply, and (iii) for which an unrelated third party has verified (in such form or manner as the Secretary may prescribe) that such facility produces hydrogen through a process that results in lifecycle GHG emissions that are consistent with the hydrogen that such facility was designed and expected to produce under section 48(a)(15)(A)(ii). 3. Qualified Clean Hydrogen Section 48(a)(15)(D) provides that, for purposes of section 48(a)(15), the term E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules ‘‘qualified clean hydrogen’’ has the meaning given such term by section 45V(c)(2). 4. Regulations Section 48(a)(15)(E) provides the Secretary authority to issue regulations or other guidance as she determines necessary to carry out the purposes of section 48, including regulations or other guidance that recaptures so much of any section 48 credit allowed as exceeds the amount of the credit that 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 verification). II. Previous Request for Comments On November 3, 2022, the Treasury Department and the IRS published Notice 2022–58, 2022–47 I.R.B. 483. The notice requested general comments on issues arising under section 45V and the associated clean hydrogen production and investment incentives in sections 45 and 48. The notice also requested specific comments concerning (i) definitions; (ii) boundaries of the wellto-gate analysis for determining the lifecycle GHG emissions rate; (iii) the PER process; (iv) recordkeeping and reporting; (v) verification by unrelated parties; and (vi) coordination with sections 45, 48, and 45Q. The Treasury Department and the IRS received over 200 comments from industry participants, environmental groups, individuals, and other stakeholders. The Treasury Department and the IRS appreciate the commenters’ interest and engagement on these issues. These comments have been carefully considered in the development of these proposed regulations. Explanation of Provisions khammond on DSKJM1Z7X2PROD with PROPOSALS3 I. Overview Proposed § 1.45V–1 would provide guidance, including definitions of key terms used in proposed §§ 1.45V–1 through 1.45V–6 and 1.48–15, to determine the eligibility for, and the amount of, the section 45V credit for the production of qualified clean hydrogen. The term ‘‘section 45V credit’’ would be provided at § 1.45V–1(a)(12) and mean the credit for production of clean hydrogen determined under section 45V, so much of sections 6417 and 6418 that relate to section 45V, and the section 45V regulations. The term ‘‘section 45V regulations’’ would be provided at proposed § 1.45V–1(a)(13) to mean the provisions of §§ 1.45V–1 through 1.45V–6 and so much of the regulations under sections 6417 and VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 6418 that relate to the section 45V credit. Proposed § 1.45V–2 would provide special rules for purposes of the section 45V credit. Proposed § 1.45V–4 would provide procedures for determining lifecycle GHG emissions rates for qualified clean hydrogen. Proposed § 1.45V–5 would provide procedures for verification of qualified clean hydrogen production and sale or use. Proposed § 1.45V–6 would provide rules for determining the placed in service date for an existing facility that is modified or retrofitted to produce qualified clean hydrogen. Additionally, proposed § 1.48–15 would provide procedures for a taxpayer to elect to treat any qualified property that is part of a specified clean hydrogen production facility as energy property for purposes of the section 48 credit. II. Definitions Proposed § 1.45V–1(a)(2) through (13) would provide generally applicable definitions of terms for purposes of section 45V, so much of sections 6417 and 6418 of the Code that relate to the section 45V credit, and the section 45V regulations. The definitions for applicable amount, applicable percentage, and qualified clean hydrogen production facility would generally reflect the statutory definitions without additional elaboration on the terms. See proposed § 1.45V–1(a)(2), (3), and (10). This part II discusses those definitions in the proposed regulations that provide additional clarity beyond the statutory language. A. Facility Proposed § 1.45V–1(a)(7)(i) would provide that, for purposes of the definition of a qualified clean hydrogen production facility provided at section 45V(c)(3), the term ‘‘facility’’ means a single production line that is used to produce qualified clean hydrogen. A ‘‘single production line’’ would include all components of property that function interdependently to produce qualified clean hydrogen. Components of property are functionally interdependent if the placing in service of each component is dependent upon the placing in service of each of the other components to produce qualified clean hydrogen. Proposed § 1.45V– 1(a)(7)(ii) would provide that a facility does not include equipment used to condition or transport hydrogen beyond the point of production. A facility would also not include electricity production equipment used to power the hydrogen production process, including any carbon capture PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 89223 equipment associated with the electricity production process. Proposed § 1.45V–1(a)(7)(iii) would provide that components that have a purpose in addition to the production of qualified hydrogen may be part of a facility if such components function interdependently with other components to produce qualified clean hydrogen. Proposed § 1.45V–1(a)(7)(iv) would provide an example to illustrate the definition of facility for purposes of section 45V. B. Lifecycle Greenhouse Gas Emissions Proposed § 1.45V–1(a)(8)(i) would incorporate the statutory definition of the term ‘‘lifecycle greenhouse gas emissions’’ under section 45V(c)(1)(A) and (B), specifically providing that the term has the same meaning as that in 42 U.S.C. 7545(o)(1)(H) as in effect on August 16, 2022, and includes emissions only through the point of production (well-to-gate) as determined under the most recent GREET model. C. Most Recent GREET Model Proposed § 1.45V–1(a)(8)(ii) would provide that the term ‘‘most recent GREET model’’ means the latest version of 45VH2–GREET developed by Argonne National Laboratory (ANL) that is publicly available on the first day of the taxpayer’s taxable year in which the qualified clean hydrogen for which the taxpayer is claiming the section 45V credit was produced.6 After consultation with the Department of Energy (DOE), the Treasury Department and the IRS believe that the use of the latest version of 45VH2–GREET would be appropriate because it is tailored to the administration of the section 45V tax credit and includes features that make it easy to use for taxpayers. Use of the latest version of 45VH2–GREET would also ensure that the pathways and approaches provided for determining well-to-gate emissions for various hydrogen production processes are of sufficient methodological certainty to be appropriate for determining eligibility of tax credits. The latest version of 45VH2–GREET is the only variant of GREET that is suitable for use and may be used to determine emissions rates for purposes of the section 45V credit. Further, proposed § 1.45V–1(a)(8)(ii) would provide that, if a version of 6 45VH2–GREET is a user interface designed to accept input related to a hydrogen production facility, execute GREET calculations in the background, and display the well-to-gate carbon intensity of produced hydrogen in kg of CO2e/kg of H2. 45VH2–GREET is currently available at www.energy.gov/45vresources. Successor locations for 45V–H2GREET will be provided in IRS forms and instructions. E:\FR\FM\26DEP3.SGM 26DEP3 89224 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules 45VH2–GREET becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer may, in its discretion, treat such version of 45VH2–GREET as the most recent GREET model. Instead of defining ‘‘most recent GREET model’’ to be the latest version of 45VH2–GREET that is publicly available on the first day of the taxpayer’s taxable year, an alternative approach would be for the Secretary to determine that the latest version of 45VH2–GREET is an appropriate ‘‘successor model,’’ as provided by section 45V(c)(1)(B), for the purpose of administering the section 45V tax credit. The Treasury Department and the IRS request comment on these approaches. khammond on DSKJM1Z7X2PROD with PROPOSALS3 D. Emissions Through the Point of Production (Well-to-Gate) Proposed § 1.45V–1(a)(8)(iii) would provide that, for purposes of section 45V(c)(1)(B) and proposed § 1.45V– 1(a)(8)(i), the term ‘‘emissions through the point of production (well-to-gate)’’ means the aggregate lifecycle GHG emissions related to hydrogen produced at a hydrogen production facility during the taxable year through the point of production. It includes emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. It also includes the emissions associated with the hydrogen production process, inclusive of the electricity used by the hydrogen production facility and any capture and sequestration of carbon dioxide generated by the hydrogen production facility. E. Qualified Clean Hydrogen Proposed § 1.45V–1(a)(9)(i) would incorporate the statutory definition of the term ‘‘qualified clean hydrogen’’ provided at section 45V(c)(2)(A) and (B), including the requirement that the hydrogen be produced (i) in the United States or a U.S. territory (meaning possession as provided in section 638(2)); (ii) in the ordinary course of a trade or business of the taxpayer; and (iii) for sale or use. Proposed § 1.45V– 1(a)(9)(i)(B) would provide that, to qualify as qualified clean hydrogen, the production and sale or use of such hydrogen must be verified by an unrelated party (as required by section 45V(c)(2)(B)(ii)). See also proposed § 1.45V–5. Proposed § 1.45V–1(a)(9)(ii) would provide that for purposes of section 45V(c)(2)(B)(i)(III) and proposed § 1.45V–1(a)(9)(i)(C) the term ‘‘for sale or use’’ means for the primary purpose VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 of making such hydrogen ready and available for sale or use. Storage of hydrogen before its sale or use would not disqualify such hydrogen from being considered produced for sale or use. III. Rules of General Applicability Proposed § 1.45V–1(b)(1) would provide the general rules for calculating the amount of the section 45V credit. Proposed § 1.45V–1(b)(2) would provide that, for purposes of section 45V(a)(1) and proposed § 1.45V–1(b)(1), the term ‘‘taxpayer’’ means the taxpayer that owns the qualified clean hydrogen production facility at the time of the facility’s production of qualified clean hydrogen with respect to which the section 45V credit is claimed, regardless of whether such taxpayer is treated as a producer under section 263A of the Code or under any other provision of law with respect to such qualified clean hydrogen. This rule is intended to avoid unintended consequences that could arise with respect to contract manufacturing and tolling arrangements under § 1.263A–2(a)(1)(ii)(A) and (a)(1)(ii)(B)(1) in the context of the section 45V credit, as well as to simplify the administration of the section 45V credit and provide clarity for taxpayers. Proposed § 1.45V–1(c) would provide that, subject to any applicable Code sections that may limit the section 45V credit amount, the section 45V credit for any taxable year is determined with respect to the qualified clean hydrogen produced by the taxpayer during that taxable year although the verification of the production and sale or use of such hydrogen may occur in a later taxable year. However, the taxpayer would not be eligible to claim the section 45V credit until all relevant verification requirements, and the verification itself, have been completed. Therefore, despite such verification occurring in a later taxable year, the section 45V credit would be properly claimed with respect to the taxable year of hydrogen production and subject to the general period of limitations for filing a claim for credit or refund. Thus, if verification occurred after the extended return filing deadline for the taxable year in which the hydrogen was produced, the taxpayer would need to file an amended return or administrative adjustment request (AAR) to claim the section 45V credit for such hydrogen. The Treasury Department and the IRS request comments on this proposed rule, specifically whether taxpayers anticipate they will be able to complete all the requirements for claiming the section 45V credit, including the proposed requirements for verification specified below, by the extended return PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 filing deadline for the taxable year of hydrogen production. If taxpayers anticipate that they will not be able to complete all the requirements by such filing deadline, comments are also requested on what specific alternatives to the proposed rule, if any, should be considered and their rationale. IV. Special Rules Proposed § 1.45V–2(a) would address the coordination between the section 45V credit and the section 45Q credit. Proposed § 1.45V–2(b)(1) would provide an anti-abuse rule that would make the section 45V credit unavailable in extraordinary circumstances in which, based on a consideration of all the relevant facts and circumstances, the primary purpose of the production and sale or use of qualified clean hydrogen is to obtain the benefit of the section 45V credit in a manner that is wasteful, such as the production of qualified clean hydrogen that the taxpayer knows or has reason to know will be vented, flared, or used to produce hydrogen. If the cost of producing qualified clean hydrogen were to be less than the amount of the section 45V credit that would be available with respect to such hydrogen, the Treasury Department and the IRS are concerned that taxpayers may have an incentive to produce qualified clean hydrogen solely for the purpose of exploiting the section 45V credit in a manner that is inconsistent with a purpose of section 45V, which is to provide an incentive to produce qualified clean hydrogen for a productive use. Producing and selling or using qualified clean hydrogen with the primary purpose of obtaining the benefit of the section 45V credit in a wasteful manner would not, in certain circumstances, satisfy the requirement in section 45V(c)(2)(B)(i)(II) for hydrogen to be produced in the ordinary course of a trade or business of the taxpayer. Proposed § 1.45V–2(b)(2) would provide an example illustrating this anti-abuse rule. V. Procedures for Determining Lifecycle Greenhouse Gas Emissions Rates for Qualified Clean Hydrogen. Proposed § 1.45V–4(a) would provide that the amount of the section 45V credit is determined under section 45V(a) and proposed § 1.45V–1(b) based upon the lifecycle GHG emissions rate (as defined in proposed § 1.45V– 1(a)(8)(i)) of all hydrogen produced at a qualified clean hydrogen production facility (as defined in proposed § 1.45V– 1(a)(10)) during the taxable year. This determination is made following the close of each such taxable year and must include all hydrogen production from E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 the year. Further, proposed § 1.45V–4(a) would provide that the lifecycle GHG emissions rate for purposes of section 45V is determined under the most recent GREET model (as defined in proposed § 1.45V–1(a)(8)(ii)). Additionally, proposed § 1.45V–4(a) would provide that in the case of any hydrogen for which a lifecycle GHG emissions rate has not been determined under the most recent GREET model for purposes of section 45V, a taxpayer producing such hydrogen may file a petition with the Secretary for a determination of the lifecycle GHG emissions rate with respect to such hydrogen (a provisional emissions rate (PER)). A. GREET Model Proposed § 1.45V–4(b) would provide procedures to calculate the lifecycle GHG emissions rate of hydrogen produced at a hydrogen production facility using the most recent GREET model as defined in proposed § 1.45V– 1(a)(8)(ii) (referring to 45VH2–GREET). Proposed § 1.45V–4(b) would provide that for each taxable year during the period described in section 45V(a)(1), a taxpayer claiming the section 45V credit determines the lifecycle GHG emissions rate of hydrogen produced at a hydrogen production facility using the most recent GREET model. Such a determination is made separately for each hydrogen production facility the taxpayer owns and as of the close of each respective taxable year in which such production occurs (that is, such a determination is made for that taxable year’s total hydrogen production at a hydrogen production facility). Proposed § 1.45V–4(b) would provide that in calculating the lifecycle GHG emissions rate for purposes of determining the amount of the section 45V credit, the taxpayer must accurately enter all information about its qualified clean hydrogen production facility requested within the interface of 45VH2–GREET in compliance with the most recent version of the Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using 45VH2–GREET (GREET User Manual), which currently can be found at: www.energy.gov/45vresources. Current 45VH2–GREET, previous versions of 45VH2–GREET, and subsequent updates to 45VH2–GREET can be found at www.energy.gov/ 45vresources. Proposed § 1.45V–4(b) would provide that information for the location of 45VH2–GREET and accompanying documentation will be included in the instructions to the Form 7210, Clean Hydrogen Production Credit. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 45VH2–GREET includes various hydrogen production pathways. As of the publication date of these proposed regulations, 45VH2–GREET includes the following hydrogen production pathways— (1) Steam methane reforming (SMR) of natural gas, with potential carbon capture and sequestration (CCS); (2) Autothermal reforming (ATR) of natural gas, with potential CCS; (3) SMR of landfill gas with potential CCS; (4) ATR of landfill gas with potential CCS; (5) Coal gasification with potential CCS; (6) Biomass gasification with corn stover and logging residue with no significant market value with potential CCS; (7) Low-temperature water electrolysis using electricity; and (8) High-temperature water electrolysis using electricity and potential heat from nuclear power plants. As described in Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using 45VH2– GREET (GREET User Manual), certain parameters in 45VH2–GREET are fixed assumptions, referred to as ‘‘background data’’ in this document. Users of 45VH2–GREET may not change background data. Examples of background data include upstream methane loss rates, emissions associated with power generation from specific generator types, and emissions associated with regional electricity grids. Background data are parameters for which bespoke inputs from hydrogen producers are unlikely to be independently verifiable with high fidelity, given the current status of verification mechanisms. The Treasury Department and the IRS seek comment on the readiness of verification mechanisms that could be utilized for certain background data in 45VH2– GREET if it were reverted to foreground data in future releases. For example, the upstream methane loss rate is background data in 45VH2–GREET, and the Treasury Department and the IRS seek comment on conditions, if any, under which the methane loss rate may in future releases become foreground data (such as certificates that verifiably demonstrate different methane loss rates for natural gas feedstocks, sometimes described as responsibly sourced natural gas). 45VH2–GREET allows users to input the quantity of valorized co-products (that is, co-products from the hydrogen production process that are PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 89225 productively utilized or sold) and allocates emissions to those co-products (rather than to the hydrogen production) as described in Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using 45VH2–GREET 2023. As described in that document, 45VH2– GREET utilizes the ‘‘system expansion’’ approach for all co-products if possible, but restricts the amount of steam coproduct that reformers can claim based on the quantity of steam that an optimally designed reformer is expected to be capable of producing based on modeling from the National Energy Technology Laboratory.7 This restriction is included within the model to avoid incentivizing generation or overproduction of hydrogen co-products like steam to enable access to a higher tax credit value by artificially reducing the calculated carbon intensity of the hydrogen (for example, by combustion of fuel onsite that is unnecessary for hydrogen production). The Treasury Department and the IRS seek comments on this approach, including whether alternative co-product accounting methods, such as physical allocation (for example, energy allocation or mass allocation) or allocation based on other characteristics, would better ensure well-to-gate carbon intensity of hydrogen production is accurately represented. B. Provisional Emissions Rate Proposed § 1.45V–4(c)(1) would provide that, for purposes of section 45V(c)(2)(C) and proposed § 1.45V–4(a), the term ‘‘provisional emissions rate’’ or ‘‘PER’’ means the lifecycle GHG emissions rate of the process by which qualified clean hydrogen is produced by the taxpayer at a qualified clean hydrogen production facility as determined by the Secretary under proposed § 1.45V–4(c). Proposed § 1.45V–4(c)(2)(i) would provide that a taxpayer may not file a petition with the Secretary for a PER unless a lifecycle GHG emissions rate has not been determined under the most recent GREET model (as defined in proposed § 1.45V–1(a)(8)(ii) as 45VH2– GREET) for hydrogen produced by the taxpayer at a hydrogen production facility. Proposed § 1.45V–4(c)(2)(i) would further provide that a lifecycle GHG emissions rate has not been determined under the most recent GREET model with respect to hydrogen 7 National Energy Technology Laboratory, DOE, ‘‘Comparison of Commercial, State-of-the-Art, Fossil-Based Hydrogen Production Technologies,’’ April 12, 2022, available at https://www.netl.doe. gov/energy-analysis/details?id=ed4825aa-8f044df7-abef-60e564f636c9. E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89226 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules produced by the taxpayer at a hydrogen production facility if it uses a hydrogen production pathway that is not included in the most recent GREET model—that is, if either the feedstock used by such facility or the facility’s hydrogen production technology is not included in the most recent GREET model. For example, the initial version of 45VH2–GREET does not model every possible biomass fuel as a feedstock nor does it represent all hydrogen production technologies that are currently of commercial interest or that may be commercially viable in the future, including geologic hydrogen, trigeneration, or other technologies if sufficient technical analysis had not been completed at the time the model was published. A taxpayer with one of these types of hydrogen production pathways may use the PER process to obtain carbon intensities because such hydrogen production technologies or feedstocks are not currently in 45VH2– GREET. To use the PER process, the hydrogen production pathway that the taxpayer is utilizing must either be consuming a feedstock that is not represented in 45VH2–GREET (for example, a type of biomass that is not represented in the model) or using a hydrogen production technology that is not represented in 45VH2–GREET (for example, technologies used to drill for geologic hydrogen or trigeneration that can use a fuel cell to co-produce hydrogen, heat, and power). A taxpayer may not use the PER process if its feedstock and hydrogen production technology are represented in 45VH2– GREET, even if the taxpayer disagrees with the underlying assumptions (that is, background data) or calculation approach used by the most recent 45VH2–GREET. Future versions of 45VH2–GREET may include additional hydrogen production pathways, such as geologic hydrogen, as sufficient technical information becomes available to provide consistent treatment in 45VH2–GREET. Proposed § 1.45V–4(c)(2)(i) would also provide that, if a taxpayer’s request for an emissions value from the DOE under proposed § 1.45V–4(c)(5) with respect to the hydrogen produced by the taxpayer at a hydrogen production facility is pending at the time such hydrogen production facility’s pathway is included in an updated version of 45VH2–GREET, the taxpayer’s request for an emissions value will be automatically denied. Proposed § 1.45V–4(c)(2)(ii) would specify that, notwithstanding proposed § 1.45V–1(a)(8)(ii), for the taxable year in which the hydrogen production pathway the taxpayer uses to produce VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 hydrogen at a qualified clean hydrogen production facility is first included in an updated version of 45VH2–GREET, the updated version of 45VH2–GREET will be considered the most recent GREET model with respect to the hydrogen produced by the taxpayer at the hydrogen production facility. 1. Process for Filing a Provisional Emissions Rate Petition Proposed § 1.45V–4(c)(3) would provide that a taxpayer petitions the Secretary for a PER by attaching a PER petition to its Federal income tax return or information return for the first taxable year of hydrogen production ending within the 10-year period described in section 45V(a)(1) for which the taxpayer claims the section 45V credit for hydrogen to which the PER petition relates and for which a lifecycle GHG emissions rate has not been determined, as defined under proposed § 1.45V–4(c)(2)(i). Proposed § 1.45V– 4(c)(3) would provide that a PER petition must contain (i) an emissions value obtained from the DOE setting forth the DOE’s analytical assessment of the lifecycle GHG emissions rate associated with the facility’s hydrogen production pathway, and (ii) a copy of the taxpayer’s request to the DOE for an emissions value, including any information that the taxpayer provided to the DOE pursuant to the emissions value request process specified in proposed § 1.45V–4(c)(5). Proposed § 1.45V–4(c)(3) would further provide that, if the taxpayer obtained more than one emissions value from the DOE, then the PER petition must contain the emissions value setting forth the lifecycle GHG emissions rate of the hydrogen for which the section 45V credit is claimed on the Form 7210, Clean Hydrogen Production Credit, to which the PER petition is attached. 2. Provisional Emissions Rate Determination Proposed § 1.45V–4(c)(4) would provide that upon the IRS’s acceptance of the taxpayer’s Federal income tax return or information return containing a PER petition, the emissions value specified on such PER petition will be deemed accepted. Proposed § 1.45V– 4(c)(4) would provide that a taxpayer would be able to rely upon an emissions value provided by the DOE for purposes of calculating and claiming a section 45V credit, provided that any information, representations, or other data provided to the DOE in support of the request for an emissions value are accurate. Proposed § 1.45V–4(c)(4) would also state that the IRS’s deemed acceptance of such emissions value is PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 the Secretary’s determination of the PER. Proposed § 1.45V–4(c)(4) would state, however, that the production and sale or use of such hydrogen must be verified by an unrelated party under section 45V(c)(2)(B)(ii) and in compliance with the procedures provided in proposed § 1.45V–5. Proposed § 1.45V–4(c)(4) would state that such verification and any information, representations, or other data provided to the DOE in support of the request for an emissions value are subject to later examination by the IRS. 3. Department of Energy Emissions Value Request Process Proposed § 1.45V–4(c)(5) would provide that, in order to obtain an emissions value, an applicant must submit a request for an emissions value following procedures that will be specified by the DOE. The emissions value request process will open on April 1, 2024. Proposed § 1.45V–5 would also provide that emissions values will be evaluated using the same well-to-gate system boundary that is employed in 45VH2–GREET, as proposed in § 1.45V– 1(a)(8)(iii). Additionally, proposed § 1.45V–5 would also provide that if applicable, background data parameters in 45VH2–GREET would also be treated as background data (with fixed values that an applicant cannot change) in the emissions value request process. The emissions value request process would be subject to any guidance issued under section 45V, including any guidance related to the use of EACs. Proposed § 1.45V–4(c)(5) would also provide that an applicant may request an emissions value from the DOE only after a front-end engineering and design (FEED) study or similar indication of project maturity, such as project specification and cost estimation sufficient to inform a final investment decision, has been completed for the hydrogen production facility. Forthcoming guidance from the DOE, which will be published prior to the April 1, 2024, opening of the emissions value request process, will specify criteria the DOE intends to consider in evaluating whether a FEED study has been completed or that a similar indicator of project readiness has been achieved. The Treasury Department and the IRS seek comments on appropriate indicators of project readiness that should be in place before an applicant requests an emissions value to ensure that requests correspond to hydrogen production facilities with significant commercial interest, and standards against which these indicators could be measured. E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 Additionally, proposed § 1.45V– 4(c)(5) would provide that the DOE may decline to review applications that are not responsive, including those applications that use a hydrogen production technology and feedstock already in GREET or applications that are incomplete. Guidance and procedures for applicants to request and obtain an emissions value from the DOE will be published by the DOE,8 including a process for, under limited circumstances, a revision to the DOE’s initial analytical assessment of an emissions value, such as to address revised technical information or facility design and operation. 4. Effect of Provisional Emissions Rate Proposed § 1.45V–4(c)(6) would provide that a taxpayer may use a PER determined by the Secretary to calculate the amount of the clean hydrogen production credit under section 45V(a) and proposed § 1.45V–1(b) with respect to qualified clean hydrogen produced by the taxpayer at a qualified clean hydrogen production facility beginning with the first taxable year in which a PER determined by the Secretary has been obtained and for any subsequent taxable year during the 10-year period beginning on the date such facility was originally placed in service, provided all other requirements of section 45V are met, and until the lifecycle GHG emissions rate of such hydrogen has been determined (for purposes of section 45V(c)(2)(C)) under the most recent GREET model (as defined in proposed § 1.45V–1(a)(8)(ii)). Proposed § 1.45V–4(c)(6) would provide that the Secretary’s PER determination is not an examination or an inspection of books of account for purposes of section 7605(b) of the Code, and would not preclude or impede the IRS (under section 7605(b) or any administrative provisions adopted by the IRS) from later examining a return or inspecting books or records with respect to any taxable year for which the section 45V credit is claimed. Proposed § 1.45V–4(c)(6) would provide that a verification report submitted under section 45V(c)(2)(B)(ii) and § 1.45V–5 and any information, representations, or other data provided to the DOE in support of an emissions value request would still be subject to IRS examination. Further, proposed § 1.45V–4(c)(6) would state that a PER determination would not mean that the IRS has determined that all the requirements of section 45V have been satisfied for any taxable year, nor would 8 DOE will provide guidance and procedures at www.energy.gov/45vresources. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 it create an inference that such a presumption exists. C. Use of Energy Attribute Certificates The Treasury Department and the IRS, in consultation with the United States Environmental Protection Agency (EPA) and the DOE, have preliminarily determined that energy attribute certificates (EACs) may be considered under certain conditions in documenting purchased electricity inputs and assessing emissions impacts of electricity used in the production of hydrogen for purposes of the section 45V credit.9 For purposes of these proposed regulations, the term ‘‘EACs’’ refers solely to EACs that represent attributes of electricity generated by a specific facility or source. The EPA has advised that EACs are an established mechanism for substantiating the purchase of electricity from zero GHGemitting sources and that the use of EACs with attributes that meet certain criteria is an appropriate way for the Treasury Department and the IRS to document electricity inputs to electrolytic hydrogen production. Such EACs can also serve as a reasonable methodological proxy for quantifying certain indirect emissions associated with electricity for purposes of the section 45V credit. Similarly, the EPA and the DOE have advised that it would be appropriate for EACs with attributes that meet certain criteria to be included as part of the basis for assessing emissions for purposes of the section 45V credit. The Treasury Department and the IRS have preliminarily determined that the use of certain EACs, which satisfy the qualifying EAC requirements (as specified in proposed § 1.45V–4(d)(3)), is consistent with the references to subparagraph (H) of section 211(o)(1) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)) and the most recent GREET Model, as specified in section 45V(c)(1). Proposed § 1.45V–4(d)(1) would provide that for purposes of section 45V, if a taxpayer determines a lifecycle GHG emissions rate for hydrogen produced at a hydrogen production facility using the most recent GREET model (as defined in proposed § 1.45V– 1(a)(8)(ii)) or a PER (as defined in proposed § 1.45V–4(c)(1)), then the taxpayer may reflect in GREET or include in a PER such hydrogen 9 EPA Letter, available at https://home. treasury.gov/system/files/136/45V-NPRM-EPAletter.pdf; DOE. 2023. ‘‘Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit.’’ Washington, DC: U.S. Department of Energy available at www.energy.gov/ 45vresources. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 89227 production facility’s use of electricity as being from a specific electricity generating facility rather than the being from the regional electricity grid (as represented in 45VH2–GREET) only if the taxpayer acquires and retires a qualifying EAC (as defined in proposed § 1.45V–4(d)(2)(iv)) for each unit of electricity that the taxpayer claims from such source. For example, one megawatt-hour of electricity used to produce hydrogen would need to be matched with one megawatt-hour of qualifying EACs. The Treasury Department and the IRS seek comments on whether a different treatment would be more appropriate to account for transmission and distribution line losses. Further, proposed § 1.45V–4(d)(1) would provide that to satisfy this requirement, a taxpayer’s acquisition and retirement of qualifying EACs must also be recorded in a qualified EAC registry or accounting system (as defined in proposed § 1.45V–4(d)(2)(v)) so that the acquisition and retirement of such EACs may be verified by a qualified verifier (as defined in proposed § 1.45V–5(h)). The double counting of EACs and their underlying attributes would undermine the integrity of lifecycle GHG emissions rate determinations that incorporate EACs. A double counting occurs if two different parties claim the same environmental benefits from the same generated energy.10 Uniformly requiring claims of using electricity generated from specific sources to be evidenced by EACs that meet the requirements of proposed § 1.45V– 4(d)(1) would mitigate the risk of double counting. Thus, proposed § 1.45V– 4(d)(1) would provide that certain requirements must be met regardless of whether the electricity generating facility giving rise to the qualifying EAC is grid connected, directly connected, or co-located with the hydrogen production facility (that is, regardless of whether the underlying source of the qualifying EAC physically supplies electricity through a direct connection to the hydrogen production facility). 1. Definitions Related To Use of Energy Attribute Certificates Proposed § 1.45V–4(d)(2)(i) would define the term ‘‘commercial operations date’’ or ‘‘COD’’ as the date on which a facility that generates electricity begins commercial operations. The COD, as defined here, is the first date of the operation of the relevant electricity 10 EPA, ‘‘Double Counting,’’ last updated Feb. 5, 2023, available at https://www.epa.gov/greenpower-markets/double-counting. E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89228 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules generating facility. The general rules for determining an electricity generating facility’s placed in service date for Federal income tax purposes would not apply in determining its COD. Proposed § 1.45V–4(d)(2)(ii) would define the term ‘‘energy attribute certificate’’ or ‘‘EAC’’ to mean a tradeable contractual instrument, issued through a qualified EAC registry or accounting system (as defined in proposed § 1.45V–4(d)(2)(v)), that represents the energy attributes of a specific unit of energy produced. An EAC may be acquired with or separately from the underlying energy it represents. An EAC can be retired by or on behalf of its owner, which is the party that has the right to claim the underlying attributes represented by an EAC. Renewable energy certificates (RECs) and other similar energy certificates issued through a registry or accounting system are forms of EACs. Proposed § 1.45V–4(d)(2)(iii) would define the term ‘‘eligible EAC’’ to mean an EAC that, with respect to the electricity to which the EAC relates, provides, at minimum, the following information: (i) a description of the electricity generating facility, including the technology and feedstock used to generate the electricity; (ii) the amount and units of electricity; (iii) the date on which the facility that generated the electricity first began commercial operations (referred to as the commercial operations date (COD)) (as defined in proposed § 1.45V–4(d)(2)(i)); (iv) for electricity that is generated before January 1, 2028, the calendar year in which such electricity was generated; (v) for electricity that is generated after December 31, 2027, the date and hour in which such electricity was generated; and (vi) a unique project identification number or assigned identifier for each EAC that can be used to cross reference any additional electricity generating facility information that may be needed, such as location. Proposed § 1.45V–4(d)(2)(iv) would define the term ‘‘qualifying EAC’’ to mean an eligible EAC (as defined in proposed § 1.45V–4(d)(2)(iii)) that meets the requirements of proposed § 1.45V– 4(d)(3) and for which the satisfaction of those requirements has been verified by a qualified verifier (as defined in proposed § 1.45V–5(h)). Proposed § 1.45V–4(d)(2)(v) would define the term ‘‘qualified EAC registry or accounting system’’ to mean a tracking system that (i) assigns a unique identification number to each EAC tracked by such system, (ii) enables verification that only one EAC is associated with each unit of electricity, (iii) verifies that the underlying VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 attributes of each EAC is claimed and retired only once, (iv) identifies the owner of each EAC, and (v) provides a publicly accessible view (for example, through an application programming interface) of all currently registered electricity generators in the tracking system to prevent the duplicative registration of such generators. Qualified EAC registries currently include, but are not limited to, the following: Electric Reliability Council of Texas (ERCOT); Michigan Renewable Energy Certification System (MIRECS); Midwest Renewable Energy Tracking System, Inc. (M–RETS); North American Registry (NAR); New England Power Pool Generation Information System (NEPOOL–GIS); New York Generation Attribute Tracking System (NYGATS); North Carolina Renewable Energy Tracking System (NC–RETS); PJM Generation Attribute Tracking System (PJM–GATS); and Western Electric Coordinating Council (WREGIS). Proposed § 1.45V–4(d)(2)(vi) would define the term ‘‘region’’ to mean a United States region derived from the National Transmission Needs Study (DOE Needs Study) that was released by the DOE on October 30, 2023.11 The DOE has mapped the DOE Needs Study regions to actual balancing authorities. The data file and map of the resulting United States regions can be found in Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using 45VH2–GREET (GREET User Manual) as of December 26, 2023. The location of an electricity generation source and the location of a hydrogen production facility will be based on the balancing authority to which it is electrically interconnected (not its geographic location), with each balancing authority linked to a single region. The MISO balancing authority is an exception because it is split into two U.S. regions as shown in the map located at GREET User Manual as of December 26, 2023. Alaska, Hawaii, and each U.S. territory will be treated as separate regions. 2. Eligible Energy Attribute Certificate Requirements Proposed § 1.45V–4(d)(3) would provide that an EAC meets the requirements to be a qualifying EAC if it meets the requirements for incrementality, temporal matching, and deliverability. The incrementality requirement in proposed § 1.45V– 4(d)(3)(i) would require qualifying EACs 11 DOE, National Transmission Needs Study, Oct. 2023, available at https://www.energy.gov/sites/ default/files/2023-10/National_Transmission_ Needs_Study_2023.pdf. PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 to represent incremental source electricity, such as electricity from an electricity generating facility that has a recent COD. As discussed in more detail later in this section, the Treasury Department and the IRS are requesting comments on whether and under what circumstances electricity generated by an existing electricity generating facility (that is, with a less recent COD) that is dedicated to hydrogen production may be treated as satisfying the incrementality requirement. The temporal matching requirement in proposed § 1.45V–4(d)(3)(ii) would require that qualifying EACs are retired that represent electricity produced in the same time period in which the hydrogen production facility consumes electricity in the production of hydrogen. The deliverability requirement in proposed § 1.45V– 4(d)(3)(iii) would require qualifying EACs to represent electricity that was produced by an electricity generating facility that is in the same region as the relevant hydrogen production facility. The Treasury Department and the IRS, in consultation with the EPA and the DOE, have preliminarily determined that these qualifying EAC requirements are consistent with the requirements of section 45V(c)(1)(A) and (B) of the Code.12 The EPA has advised that, based on its prior implementation of section 211(o)(1)(H) of the Clean Air Act in other contexts, it would be reasonable and consistent with the EPA’s precedent for the Treasury Department and the IRS to determine that induced grid emissions are an anticipated real-world result of electrolytic hydrogen production that must be considered in lifecycle GHG analyses for purposes of the section 45V credit. Such interpretation would be consistent with the EPA’s long-standing interpretation and application of section 211(o)(1)(H) of the Clean Air Act in the context of the Renewable Fuel Standard (RFS) program. The EPA has also noted that EACs are an established means for documentation and verification of the electricity generation and purchase of zero-GHG electricity. Moreover, the EPA has advised that it believes it would be reasonable for the Treasury Department and the IRS to use EACs that possess specific attributes that meet certain criteria as a means of reducing the risk of induced grid emissions resulting from 12 EPA Letter, available at https:// home.treasury.gov/system/files/136/45V-NPRMEPA-letter.pdf; DOE. 2023. ‘‘Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit.’’ Washington, DC: U.S. Department of Energy, available at www.energy.gov/ 45vresources. E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules new load from electrolytic hydrogen production being added to an existing grid. Such requirements would mitigate the risk of inappropriately crediting hydrogen production that does not meet the lifecycle GHG levels required by section 45V. DOE has published a technical paper, Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit, which the Treasury Department and the IRS have reviewed, and which has informed the development of the proposed regulations. As discussed therein, incrementality, temporal matching, and deliverability requirements are important guardrails to ensure that hydrogen producers’ electricity use can be reasonably deemed to reflect the emissions associated with the specific generators from which the EACs were purchased and retired. If hydrogen producers rely on EACs without attributes that meet these three criteria there is a significant risk that hydrogen production would significantly increase induced grid GHG emissions beyond the allowable levels required to qualify for the section 45V credit. Electricity from a specific generator will have a GHG emissions profile that results from both its direct and indirect emissions. EACs with attributes that meet the three criteria are intended to address indirect GHG emissions resulting from the dynamics of the electricity market and the electric grid. If a hydrogen producer purchases zero GHG-emitting electricity that is represented by such EACs it is relatively straightforward to verify both the direct and indirect emissions resulting from such purchase and use. However, for minimal-emitting sources of electricity, additional considerations may be necessary to verify the full range of direct and indirect emissions. The Treasury Department and the IRS request comment on what information is needed to document and verify GHG emissions related to minimal-emitting electricity generation that is purchased and used for hydrogen production for purposes of claiming the section 45V credit. While the Treasury Department and the IRS are soliciting comment on the type of information that hydrogen producers must provide in order to document and verify the direct and indirect GHG emissions associated with purchased electricity generally, we are also seeking input on two specific types of electricity generation for which GHG emissions can be highly variable or uncertain: fossil fuel-powered electricity generation with CCS and biomass- VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 powered electricity generation. With regard to non-minimally emitting electricity generation, and fossil fuelpowered generation and biomass powered generation with or without CCS in particular, the Treasury Department and the IRS request comment on mechanisms to verify accurately real-world emissions related to hydrogen production. This includes mechanisms for, among other things, verification of the origin of the feedstock, rate of carbon capture, and other parameters that are relevant to accurate lifecycle analysis, as well as the ability of EAC instruments to represent accurately such attributes. The Treasury Department and the IRS also request comment on specific lifecycle GHG emissions considerations, including the use of counterfactual scenarios, that should be considered in evaluating direct and indirect emissions associated with specific types of biomass and its consumption. The Treasury Department and the IRS also request comment on the extent and manner in which incrementality, temporal matching, and deliverability should be applied in accounting for existing or new electricity generation from biomass or fossil feedstock. These comments may inform future versions of 45VH2–GREET. a. Incrementality Proposed § 1.45V–4(d)(3)(i)(A) would provide that an EAC meets the incrementality requirement if the electricity generating facility that produced the unit of electricity to which the EAC relates has a COD (as defined in proposed § 1.45V–4(d)(2)(i)) that is no more than 36 months before the hydrogen production facility for which the EAC is retired was placed in service. The Treasury Department and the IRS understand that EAC tracking systems capture the COD of each electricity generating facility during the registration process (often using data also reported to the Energy Information Administration), inclusive of month and year, which can be cross-referenced based on project identification codes included on those EACs. That COD should represent the initial date of operation for the relevant electricity generating facility. Third-party verifiers should use this data to confirm the eligibility of purchased and retired EACs. The Treasury Department and the IRS note that there are circumstances in which an existing higher-emitting electricity generating facility may make upgrades to subsequently deliver minimal-emitting electricity. For example, an existing fossil-fuel PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 89229 electricity generating facility may add CCS capability, thereby reducing its lifecycle emissions rate as determined in 45VH2–GREET. The Treasury Department and the IRS request comments on whether the electricity generated by such a facility should be considered incremental under circumstances such as if an existing fossil fuel electricity-generating facility after the addition of CCS (after upgrade), had a COD that is no more than 36 months before the relevant hydrogen production facility was placed in service. Comment is also requested on the related question of whether, depending on its carbon dioxide capture rate, it would be appropriate to treat such a facility as a new source of minimal-emitting generation on the grid that would not be associated with induced grid emissions. Relevant to these questions, the Treasury Department and the IRS additionally request comment on what information would be needed to allow for qualifying EACs representing existing fossil fuelpowered electricity from facilities that have added CCS. In particular, comment is requested on whether there are safeguards that can ensure that a hydrogen producer’s purchase and use of electricity from an existing fossil fuelfired electricity generating facility that installs CCS does not result in indirect GHG emissions due to the dynamics of the electricity market and electric grid. The Treasury Department and the IRS request comment on the direct and induced emissions impacts of making such a facility eligible, and whether and under what circumstances it would be appropriate to do so. Proposed § 1.45V–4(d)(3)(i)(B) would provide an alternative test for establishing incrementality for electricity generating facilities that undergo an uprate. Proposed § 1.45V– 4(d)(3)(i)(B) would provide that an EAC satisfies this alternative test if the electricity represented by the EAC is produced by an electricity generating facility that had an uprate no more than 36 months before the hydrogen production facility with respect to which the EAC is retired was placed in service and such electricity is part of such electricity generating facility’s uprated production. Proposed § 1.45V–4(d)(3)(i)(B) would provide rules for determining uprated production. Specifically, proposed § 1.45V–4(d)(3)(i)(B) would provide that an uprated electricity generating facility’s production must be prorated to each hour or year, consistent with the requirements in proposed § 1.45V– 4(d)(3)(ii), of such facility’s generation by multiplying each hour’s production E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89230 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules by the uprated production rate to determine the electricity to which the uprate relates. Proposed § 1.45V– 4(d)(3)(i)(B) would define key terms, including: (i) ‘‘uprate,’’ which means an increase in an electricity generating facility’s rated nameplate capacity (in nameplate megawatts); (ii) ‘‘pre-uprate capacity,’’ which means the nameplate capacity of an electricity generating facility immediately before an uprate; (iii) ‘‘post-uprate capacity,’’ which means the nameplate capacity of an electricity generating facility immediately after an uprate; (iv) ‘‘incremental generation capacity,’’ which means the increase in an electricity generating facility’s rated nameplate capacity from the pre-uprate capacity to the post-uprate capacity; (v) ‘‘uprated production rate,’’ which means the incremental generation capacity (in nameplate megawatts) divided by the post-uprate capacity (in nameplate megawatts); and (vi) ‘‘uprated production,’’ which means the uprated production rate of an electricity generating facility multiplied by its total generation output in a given hour (in megawatt hours). Proposed § 1.45V– 4(d)(3)(i)(C) would provide an example to illustrate the application of the alternative test for establishing incrementality due to uprates. The DOE has advised that there are circumstances during which diversion of existing minimal (that is, zero or near-zero) emissions power generation to hydrogen production is unlikely to result in significant induced GHG emissions.13 Such circumstances may include generation from minimalemitting power plants (i) that would retire absent the ability to sell electricity for qualified clean hydrogen production, (ii) during periods in which minimalemitting generation would have otherwise been curtailed, if marginal emissions rates are minimal, or (iii) in locations where grid-electricity is 100 percent generated by minimal-emitting generators or where increases in load do not increase grid emissions, for example, due to State policy capping total GHG emissions such that new load must be met with minimal-emitting generators. The Treasury Department and the IRS seek comments on whether and how to provide alternative approaches to identifying circumstances in which there is minimal risk of significant induced grid emissions for 13 DOE. 2023. ‘‘Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit.’’ Washington, DC: U.S. Department of Energy, available at www.energy.gov/45vresources. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 certain existing electricity generating facilities. The Treasury Department and the IRS are considering providing, in the final regulations, alternative circumstances under which an EAC may be deemed to satisfy the incrementality requirement. The Treasury Department and the IRS request comments on these specific circumstances as described in part V.C.2.a.i through iii of this Explanation of Provisions. i. Avoided Retirements Approach The Treasury Department and the IRS seek comments on whether to recognize an avoided retirements approach that would treat EACs from an existing electricity generating facility as satisfying the incrementality requirement if the facility is likely to avoid retirement because of its relationship with a hydrogen production facility. With respect to this potential approach, the Treasury Department and the IRS request comments on the following: (i) the appropriate criteria that should be considered to assess retirement risk; (ii) the extent to which demonstration of financial loss, projected or actual local electricity market conditions, presence of out-of-market financial support (which could potentially include financial support driven by Federal or State policy, bilateral contracts for EACs or above-market electricity sales, or revenue provided by cost-of-service regulation), or upcoming relicensing decisions, in combination, are appropriate criteria to assess risk; (iii) industry best practices for estimating financial loss and the documentation necessary to support those estimates; (iv) the appropriate criteria that should be taken into account to assess the likelihood that an electricity generator’s relationship with a hydrogen production facility avoids retirement of the generator (for example, size of electrolyzer, co-location, contract length, or otherwise); (v) the appropriate criteria that should be taken into account to ensure that only electricity generation supplying the minimum hydrogen production necessary to avoid retirement is counted as incremental, and, in particular, whether there should be a cap on the amount of generation from a given facility that qualifies as incremental and how such a cap should be determined; (vi) the period during which any determination of incrementality of existing electricity generators would be maintained before a new showing would be required; (vii) the process by which eligibility for this approach should be determined and any related administrability considerations; PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 and (viii) what role, if any, EAC tracking systems should play in the verification or tracking of eligible EACs from such electricity generators. With respect to processes that may be used to implement this approach, the Treasury Department and the IRS request comments on whether such approach should allow existing minimal-emitting generators that wish to provide EACs to hydrogen producers to demonstrate incrementality through submission to the IRS or another Federal agency, such as the DOE, specific information that supports a conclusion that the electricity generator is at risk of retirement that may be mitigated by sales to hydrogen producers, and, if so, what information and information submission process should be required. The available data on retirement risk indicates this approach may be warranted. Some clean power plants, primarily nuclear plants, have retired in recent years. Based on data from the Energy Information Administration (EIA), from 2013 through 2022, 10,800 megawatts (MW) of nuclear, 1,700 MW of wind, 950 MW of hydropower, and 360 MW of solar have retired.14 Studies have shown that there is risk of continued retirement in the years ahead.15 The EIA, for example, estimates that an additional 4,600 MW of existing nuclear plants may retire through 2032, equivalent to five percent of the existing nuclear fleet (1,900 gigawatts (GW) of renewable power plants may retire as well).16 Some of these plant owners (primarily owners of nuclear plants) may decide whether to retire the plants based on the finances of continuing to operate the plants. It is likely that for some plants, additional revenue from selling EACs and electricity to hydrogen producers may improve the financial outlook of the plant and help avert retirement, thereby keeping the minimal-emitting power plant in operation and not resulting in induced grid emissions compared to a scenario in which the plant retires. 14 Monthly Generator Report Based on Form 860 available at https://www.eia.gov/electricity/data/ eia860m/. 15 See John Bistline et al, ‘‘Emissions and energy impacts of the Inflation Reduction Act’’, 380Science, 1324–27, June 29, 2023, available at https://www.science.org/doi/10.1126/ science.adg3781; U.S. Energy Information Administration, Annual Energy Outlook 2023, March 16, 2023, available at https://www.eia.gov/ outlooks/aeo/tables_ref.php. 16 U.S. Energy Information Administration, Annual Energy Outlook 2023, March 16, 2023, available at https://www.eia.gov/outlooks/aeo/ tables_ref.php. E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules ii. Zero or Minimal Induced Grid Emissions Through Modeling or Other Evidence The Treasury Department and the IRS seek comments on whether to provide an opportunity to demonstrate zero or minimal induced grid emissions through modeling or other evidence under specific circumstances. A demonstrated or modeled minimalemission approach could treat electricity produced by certain existing electricity generating facilities under certain circumstances as satisfying the incrementality requirement if it is demonstrated that such sources and circumstances would not give rise to significant induced grid emissions. Such a showing could be based on modeling or potentially be deemed to be made in certain circumstances based on regional grid characteristics, state policy, or facility history. The Treasury Department and the IRS request comments on this demonstrated or modeled minimal-emission approach, including: (i) the circumstances in which it should be available and the criteria that are appropriate to evaluate and determine whether those circumstances occur; (ii) who should apply under this approach, the electricity generation facility, the hydrogen producer, or both; (iii) what data or modeling should be submitted; (iv) best practices for making such demonstrations, including for ensuring the impartiality and replicability of calculation approaches; (v) how an administrator of such a program would validate the accuracy of applicant submissions; (vi) under what circumstances, if any, it would be appropriate to deem generation to satisfy the incrementality requirement without modeling, and what documentation should be provided in these cases; (vii) the process by which eligibility for this approach should be determined and any related administrability considerations; (viii) the period during which any determination of incrementality would be maintained before a new showing would be required; and (ix) the circumstances and capability of EACs and tracking systems to track and verify energy attributes from such sources. There are several circumstances that may be covered under this pathway. Periods of curtailment or zero or negative pricing is one such circumstance. Hydropower plants sometimes ‘‘spill’’ water, a form of curtailment. Curtailment of minimalemitting electricity generation tends to occur during times when wholesale electricity prices are zero or negative on VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 a system-wide basis. Purchasing EACs from existing minimal-emitting electricity generators under these conditions would have limited or no induced grid emissions as these are times during which increased load would tend to be met by the otherwise curtailed minimal-emitting electricity generators rather than inducing increased generation from emitting electricity generators, and so is unlikely to significantly increase induced grid emissions. Similarly, if in a particular region, all generation—including imported generation—comes from minimalemitting electricity generators, then increased load is unlikely to significantly increase induced grid emissions. The same may be true if a region is subject to a state or local policy that ensures that new load is met with minimal-emitting electricity generation. There may be limited risk of significant induced GHG emissions for islanded generation systems. Diversion of generation from a minimal-emitting electricity generator that has never been connected to the grid generally may not have the same induced GHG emissions effects as diversion from an electricity generator that is connected to the grid. Induced GHG emissions could occur, however, if the energy demand that the existing minimal-emitting electricity generator previously met is instead met by a different, emitting, energy source. For example, an onsite minimalemitting electricity generator that powers an industrial facility could be diverted for hydrogen production, in which case the induced GHG emissions would depend on what happens at the site to meet the power needs of the industrial facility (unless the industrial facility ceases operation). iii. Formulaic Approaches To Addressing Incrementality From Existing Clean Generators The Treasury Department and the IRS recognize the difficulty in reliably identifying the specific electricity generators and specific times and places in which the circumstances described in part V.C.2.a.i and ii of this Explanation of Provisions might occur. Therefore, the Treasury Department and the IRS are also considering alternative approaches that would serve as proxy for all the pathways described in part V.C.2.a.i and part V.C.2.a.ii of this Explanation of Provisions. EACs that satisfy the incrementality requirement through this pathway would still be required to meet temporal matching and deliverability requirements. One such approach would deem five percent of the hourly generation from PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 89231 minimal-emitting electricity generators (for example, wind, solar, nuclear, and hydropower facilities) placed in service before January 1, 2023, as satisfying the incrementality requirement. This pathway may be appropriate because some circumstances (including periods of curtailment or times when generation from minimal-emitting electricity generation is on the margin) may make the resulting incremental generation difficult to anticipate or identify, or because the process for identifying the circumstances (such as avoided retirement risk or modeling of minimalemissions) may be overly burdensome to evaluate for specific electricity generators or require data that is not available. In some instances, for example, in determining whether EACs come from electricity generation that would otherwise have been curtailed, these circumstances require understanding of counterfactual ‘‘what if’’ scenarios that depend on numerous assumptions. In other circumstances, for example, in determining whether EACs come from minimal-emitting electricity generators that otherwise would have retired or if policy regimes restrict increases in grid emissions in the face of growing electricity demand, they may require detailed assessment and prequalification based on applicantsubmitted information and forecasts with related concerns about information accuracy. In still other cases, they may require complex geographically and temporally granular modeling and data (such as for marginal emission rates that consider operational and structural effects 17) in concert with hourly EAC tracking infrastructure that is not yet widely available. The Treasury Department and the IRS are mindful of the risk that an allowance without further temporal, spatial, and circumstantial precision results in hydrogen production facilities receiving credits for which they should not be eligible given their induced emissions rates. Given the risks of induced GHG emissions, the Treasury Department and the IRS believe that a broadly available allowance that is not tailored to specific geographic or other conditions should not be greater than the national average rate of the occurrence of the above circumstances and instead should be a conservative lower bound of the national average. The DOE reports that wind curtailment in 2022 averaged 5.3 percent of total wind generation 17 DOE 2023. ‘‘Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit.’’ Washington, DC: U.S. Department of Energy, available at www.energy.gov/45vresources. E:\FR\FM\26DEP3.SGM 26DEP3 89232 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 nationwide (data are only available for Independent System Operator (ISO) regions),18 and Lawrence Berkeley National Laboratory reports curtailment rates for solar photovoltaics at over 10 percent of solar generation in ERCOT and over 3 percent in California Independent System Operator (CAISO). Purchasing EACs from existing minimal-emission electricity generators, whether or not from the electricity generators that would otherwise curtail their output, under these conditions would have limited risk of induced grid emissions. As noted earlier, curtailment is most likely to occur in the face of negative wholesale electricity prices if the marginal grid emissions rate is minimal or zero. Based on a data tool developed by Lawrence Berkeley National Laboratory that considers over 50,000 wholesale pricing nodes across the nation, negative wholesale prices occurred during roughly five percent of hours over the last several years (6.3 percent of hours in 2022, 5.8 percent in 2021, 4.8 percent in 2020, 3.3 percent in 2019, and 2.3% in 2018).19 These are times during which increased load is unlikely to increase significantly induced grid emissions.20 Modeled data from the National Renewable Energy Laboratory (NREL) is broadly consistent with these trends. Specifically, NREL’s Cambium data set for 2024 shows that long-run marginal emissions rates on a national basis are projected to be at or near zero for about five percent of hours, times during which minimal-emitting electricity generators are on the margin and often curtailed.21 In addition, some minimal-emitting electricity generators are at risk of retirement, including about five percent of the nuclear fleet according to EIA estimates. A percentage allowance can also serve as proxy for avoided retirements. The Treasury Department and the IRS seek comments on this five percent18 Office of Energy Efficiency & Renewable Energy, DOE, ‘‘Land-Based Wind Market Report: 2023 Edition,’’ Aug. 24, 2023, available at https:// www.energy.gov/eere/wind/articles/land-basedwind-market-report-2023-edition. 19 Berkeley Lab, Electricity Markets & Policy, The Renewables and Wholesale Electricity Prices (ReWEP) Tool, available at https://emp.lbl.gov/ renewables-and-wholesale-electricity-prices-rewep. 20 For example, see New York State Energy Research and Development Authority (NYSERDA). 2022 ‘‘Projected Emission Factors for New York State Grid Electricity,’’ NYSERDA Report Number 22–18, available at https://www.nyserda.ny.gov/-/ media/Project/Nyserda/Files/Publications/EnergyAnalysis/22-18-Projected-Emission-Factors-forNew-York-Grid-Electricity.pdf. 21 See National Renewable Energy Laboratory, Energy Analysis, Cambium, available at https:// www.nrel.gov/analysis/cambium.html. Long-run marginal emissions rates at or near zero defined as under 25 kg CO2e/MWh. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 allowance approach, including the merits of this approach compared to the targeted pathways described, particularly with respect to balancing administrative feasibility and burden with accuracy of identifying circumstances with a low risk of induced grid emissions. The Treasury Department and the IRS also seek comments on whether 5 percent is the appropriate magnitude for an allowance. In particular, as noted earlier, data show that curtailment rates have increased in recent years, and NREL’s Cambium model predicts additional increases going forward. In light of these data and projections, the Treasury Department and the IRS seek comments on whether a higher amount, such as up to 10 percent, would be appropriate, either in general or in certain cases or circumstances. The Treasury Department and the IRS also seek comments on: (i) how a five-percent allowance should be tracked, allocated, and administered and how feasible it is for EAC tracking systems to incorporate data on such an allowance; (ii) whether the five percent should apply to all existing minimal-emitting electricity generators in all locations or a subset and for what reasons; (iii) whether such an allowance should be assessed at the individual plant level or across an operator’s fleet within the same deliverability region; and (iv) any other administrability considerations. The Treasury Department and the IRS seek comments specifically on whether and how the ‘‘averaging’’ approach of a proxy appropriately captures the circumstances in which generation is incremental or does not generate induced grid emissions. The Treasury Department and the IRS also seek comments on how and whether the targeted alternative approaches or the other proxy approaches described subsequently in this part V.C.2.a.iii of this Explanation of Provisions might replace the five-percent allowance or might be coordinated with the allowance. The Treasury Department and the IRS invite comments on alternative formulaic, proxy approaches that might better capture conditions under which using existing minimal-emitting electricity generation to produce hydrogen does not significantly impact induced grid emissions. The Treasury Department and the IRS request comments on whether there would be an appropriate, more formulaic approach to capturing retirement risk, instead of the application-based process or the five-percent allowance. Comments are specifically requested on PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 whether such an alternative approach should be limited to facilities with specific technical, market, or geographic characteristics corresponding with a greater risk of retirement (for example, participation in a wholesale market, lack of state support for a facility, nuclear plants with a single reactor) and higher likelihood that using a subset of electricity generation and related EACs for hydrogen production would minimize the risk. In particular, the Treasury Department and the IRS seek comments on whether existing nuclear and hydroelectric facilities that need to undertake a relicensing process are generally at higher risk of retirement without additional financial assistance and, if so, what considerations should be integrated into a potential formulaic approach. Comments are further requested on whether there are particular characteristics of hydrogen production facilities associated with existing generators at risk of retirement that should be considered (i) to demonstrate that the hydrogen production reduces retirement risk, such as co-location of hydrogen production with an existing generator and (ii) to assess the minimum hydrogen production necessary to reduce retirement risk, such as limitations on project size, electrolyzer capacity, or percent of generation used by the hydrogen production. Comments are further requested on how to determine the portion of such electricity generation and related EACs, which is generally likely to be sufficient to minimize that risk. Similarly, with respect to the modeled or demonstrated approach described in part V.C.2.a.ii of this Explanation of Provisions, the Treasury Department and the IRS request comments on whether there are formulaic approaches that might be used instead of an application-based pre-qualification process and the broad five-percent allowance. For each of these possible alternative approaches to establish incrementality, the Treasury Department and the IRS request comments on how eligibility for the approach may be reliably verified by an unrelated party and administered by the IRS. b. Temporal Matching Proposed § 1.45V–4(d)(3)(ii)(A) would provide the general rule that an EAC satisfies the temporal matching requirement if the electricity represented by the EAC is generated in the same hour that the taxpayer’s hydrogen production facility uses electricity to produce hydrogen. Proposed § 1.45V–4(d)(3)(ii)(B) would E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 provide a transition rule to allow an EAC that represents electricity generated before January 1, 2028 to fall within the general rule provided in proposed § 1.45V–4(d)(3)(ii)(A) if the electricity represented by the EAC is generated in the same calendar year that the taxpayer’s hydrogen production facility uses electricity to produce hydrogen. The DOE has advised that hourly matching is necessary to properly address significant indirect emissions from electricity use and that the tracking systems and related contractual structures for hourly matching will take some time to develop to an appropriate level of maturity.22 This transition rule is intended to provide time for the EAC market to develop the hourly tracking capability necessary to verify compliance with this requirement. Hourly tracking systems for EACs are not yet broadly available across the country and will take some time to develop.23 In a recent survey of nine existing tracking systems,24 two of the tracking systems indicated that they are already tracking on an hourly basis, although software functionality in these two systems remains limited. Fully developing the functionality of these systems will take time, as will creating and developing the functionality of hourly tracking infrastructure in other regions of the country. Of the other tracking systems, assuming that challenges are overcome, four gave a timeline of less than one year to two years, and one gave a timeline of three to five years; in the latter case, the respondent noted that the timeline could be closer to three years if there is full state agency buy-in, clear instructions are received from federal or state agencies, and funding for stakeholder participation is made available. Two tracking systems declined to give a timeline to develop this functionality. In the same survey, tracking systems identified a number of challenges to hourly tracking that will need to be overcome, including cost, regulatory approval, interactions with state policy, sufficient stakeholder 22 DOE. 2023. ‘‘Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit,’’ Washington, DC: U.S. Department of Energy, available at www.energy.gov/45vresources. 23 Electric Power Research Institute, ‘‘24/7 Carbon-free Energy: Matching Carbon-free Energy Procurement to Hourly Electric Load,’’ Dec. 15, 2022, available at https://www.epri.com/research/ products/000000003002025290. 24 Center for Research Solutions, ‘‘Readiness for Hourly: U.S. Renewable Energy Tracking Systems,’’ June 15, 2023, available at https://resourcesolutions.org/wp-content/uploads/2023/06/ Readiness-for-Hourly-U.S.-Renewable-EnergyTracking-Systems.pdf. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 engagement, data availability and management, and user confusion. Moreover, once the tracking software infrastructure is in place nationally, it may take additional time for transactional structures and efficient hourly EAC markets to develop. Among the issues that require resolution as EAC tracking systems move to hourly resolution is the treatment of electricity storage.25 Given the state of tracking systems, the expected responses to this proposed rule, and the impact of demand to drive development of the tracking systems, the Treasury Department and the IRS anticipate that the proposed duration of the transition rule would allow sufficient time for systems to develop hourly tracking mechanisms and for the associated trading markets to develop. The Treasury Department and the IRS acknowledge uncertainty in the timing of implementing an hourly matching requirement, however, and request comments on the appropriate duration of this transition rule to hourly matching, including specific data regarding current industry practices, the predicted timelines for development of hourly tracking mechanisms, and the predicted timeline for market development for hourly EACs. c. Deliverability Proposed § 1.45V–4(d)(3)(iii) would provide that an EAC meets the deliverability requirements if the electricity represented by the EAC is generated by a source that is in the same region (as defined in proposed § 1.45V– 4(d)(2)(vi)) as the relevant hydrogen production facility. This approach provides reasonable assurances of deliverability of electricity because the regions, as defined earlier, were developed by the DOE in consideration of transmission constraints and congestion and, in many cases, match power-systems operation. The Treasury Department and the IRS recognize that transmission limitations also exist within these specified regions but are not aware of readily administrable options to reflect those grid constraints. The DOE has generally found that interregional transmission constraints tend to be greater than within-region constraints.26 The Treasury Department and the IRS request comments on 25 DOE. 2023. ‘‘Assessing Lifecycle Greenhouse Gas Emissions Associated with Electricity Use for the Section 45V Clean Hydrogen Production Tax Credit,’’ Washington, DC: U.S. Department of Energy, available at: www.energy.gov/45vresources. 26 DOE, National Transmission Needs Study, Oct. 2023, available at https://www.energy.gov/sites/ default/files/2023-10/National_Transmission_ Needs_Study_2023.pdf. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 89233 whether there are additional ways to establish deliverability, such as circumstances indicating that electricity is actually deliverable from an electricity generating facility to a hydrogen production facility, even if the two are not located in the same region or if the clean electricity generator is located outside of the United States. VI. Procedures for Verification of Qualified Clean Hydrogen Production and Sale or Use Section 45V(c)(2)(B)(ii) provides that hydrogen is not qualified clean hydrogen unless ‘‘the production and sale or use of such hydrogen is verified by an unrelated party.’’ A. Requirements for Verification Reports Proposed § 1.45V–5(a) would provide that a verification report must be attached to the taxpayer’s Form 7210, Clean Hydrogen Production Credit, or any successor form(s), and included with the taxpayer’s Federal income tax return or information return for each qualified clean hydrogen production facility and for each taxable year in which the taxpayer claims the section 45V credit. Proposed § 1.45V–5(b) would provide that the verification report specified in § 1.45V–5(a) must be prepared by a qualified verifier (as defined in § 1.45V–5(h)) under penalties of perjury. Proposed § 1.45V–5(b)(1) through (6) would describe the following information that a verification report must contain: (i) an attestation from the qualified verifier regarding the taxpayer’s production of qualified clean hydrogen for sale or use during the taxable year (production attestation), (ii) an attestation from the qualified verifier regarding the amount of such qualified clean hydrogen sold or used (sale or use attestation), (iii) an attestation from the qualified verifier regarding conflicts of interest (conflict attestation), (iv) certain information regarding the qualified verifier, including documentation of the qualified verifier’s qualifications (qualified verifier statement), (v) certain general information about the taxpayer’s hydrogen production facility where the hydrogen production undergoing verification occurred, and (vi) any documentation necessary to substantiate the verification process given the standards and best practices prescribed by the qualified verifier’s accrediting body and the circumstances of the taxpayer and the taxpayer’s hydrogen production facility. E:\FR\FM\26DEP3.SGM 26DEP3 89234 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 B. Requirements for Production Attestation Proposed § 1.45V–5(c)(1) would provide that a production attestation must state, under penalties of perjury, that the qualified verifier performed a verification sufficient to determine that the operation, during the applicable taxable year, of the hydrogen production facility that produced the hydrogen for which the section 45V credit is claimed, and any EACs applied pursuant to proposed § 1.45V–4(d), are accurately reflected in: (i) the amount of qualified clean hydrogen produced by the taxpayer that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached; and (ii) either the data the taxpayer entered into the most recent GREET model (as defined in proposed § 1.45V–1(a)(8)(ii)) to determine the lifecycle GHG emissions rate that is claimed on the Form 7210, or the data the taxpayer submitted in the PER petition relating to the hydrogen for which the section 45V credit is claimed, and which was provided to the DOE in support of the taxpayer’s request for the emissions value provided in the PER petition. For any acquisition and retirement of qualifying EACs, the verification must include validation that any purchases of EACs from specified sources as entered into the most recent GREET model or used as part of a PER application meet all requirements for being qualifying EACs, and that any required technical parameters of the generating source (for example, CCS capture rate, or sources of biomass) as entered into 45VH2–GREET or as part of a PER application are accurate. Proposed § 1.45V–5(c)(2) would provide that, if the production attestation attests to the information specified in proposed § 1.45V– 5(c)(1)(ii)(B), then the production attestation must also specify the emissions value received from the DOE that was calculated using such data, expressed in kilograms of CO2e per kilogram of hydrogen. Proposed § 1.45V–5(c)(3) would provide that the production attestation must specify the lifecycle GHG emissions rate (expressed in kilograms of CO2e per kilogram of hydrogen) and the amount of qualified clean hydrogen produced by the taxpayer, (expressed in kilograms), that are claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 C. Requirements for Sale or Use Attestation Proposed § 1.45V–5(d)(1) would provide that the sale or use attestation must be an attestation, made under penalties of perjury, that the qualified verifier performed a verification sufficient to determine that the amount of qualified clean hydrogen that is specified in the production attestation (described in proposed § 1.45V–5(c)), and that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached, has been sold or used. Proposed § 1.45V–5(d)(2) would provide that, for purposes of section 45V(c)(2)(B)(ii) and § 1.45V–1(a)(9)(ii), the hydrogen specified in proposed § 1.45V–5(d)(1) has been used if a person makes a verifiable use of such hydrogen. Section 45V does not deny a section 45V credit if the hydrogen is sold or used outside the United States (as defined in section 638(1) or a United States territory (having the meaning of the term ‘‘possession’’ as defined in section 638(2)). Thus, a verifiable use can occur within or outside the United States. A verifiable use can be made by the taxpayer or a person other than the taxpayer. For example, in a tolling arrangement pursuant to which a service recipient provides raw materials or inputs such as water or electricity to a third-party service provider that owns a hydrogen production facility (the toller), and the toller produces hydrogen for the service recipient using the service recipient’s raw materials or inputs in exchange for a fee, use of the hydrogen by the service recipient would be a verifiable use. However, a verifiable use includes neither (i) use of hydrogen to generate electricity that is then directly or indirectly used in the production of more hydrogen, nor (ii) venting or flaring hydrogen. Excluding those activities from qualifying as a verifiable use is intended to prevent the wasteful production of hydrogen and abusive section 45V credit generation schemes. For example, without this restriction, the section 45V credit could be exploited through the production of qualified clean hydrogen that is used to generate electricity that is, in turn, used to produce additional qualified clean hydrogen. The primary purpose of these arrangements would be the exploitation of the section 45V credit and possibly other Federal income tax credits. Such arrangements are inconsistent with the intent of section 45V and with the statutory ‘‘use’’ requirement because they would incentivize the inefficient production of PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 qualified clean hydrogen for unproductive use and would result in excessive claims of the section 45V credit. The Treasury Department and the IRS request comments on whether there are additional safeguards that the regulations could adopt to prevent this or similar types of abusive section 45V credit claims, including section 45V credit claims arising if such circular arrangements are coordinated among multiple parties. D. Requirements for Conflict Attestation Proposed § 1.45V–5(e)(1) would provide that the verification report must also include a conflict attestation, made under penalties of perjury, that (i) the qualified verifier has not received a fee based to any extent on the value of any section 45V credit that has been or is expected to be claimed by any taxpayer and no arrangement has been made for such fee to be paid at some time in the future; (ii) the qualified verifier was not a party to any transaction in which the taxpayer sold qualified clean hydrogen it had produced or in which the taxpayer purchased inputs for the production of such hydrogen; (iii) the qualified verifier is not related, within the meaning of section 267(b) or 707(b)(1), to, or an employee of, the taxpayer; (iv) the qualified verifier is not married to an individual described in proposed § 1.45V–5(e)(1)(iii); and (v) if the qualified verifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the attestations under proposed § 1.45V–5(e)(1)(i) through (iv) must be made with respect to the partnership or the person who employs or engages the qualified verifier. Proposed § 1.45V–5(e)(2) would provide that, if a transfer election has been made under section 6418(a) of the Code with respect to the section 45V credit, then the attestation requirements under proposed § 1.45V–5(e)(1) would need to be made with respect to the qualified verifier’s independence from both the eligible taxpayer (as defined in section 6418(f)(2) and § 1.6418–1(b)) and the transferee taxpayer (as described in section 6418(a) and defined in § 1.6418–1(m)). E. Requirements for Qualified Verifier Statement Proposed § 1.45V–5(f) would provide that the qualified verifier statement must contain (i) the qualified verifier’s name, address, and taxpayer identification number; (ii) the qualified verifier’s qualifications to conduct the E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules verification, including the qualified verifier’s education and experience and a photocopy of the qualified verifier’s certificate received from their accrediting body; (iii) if the qualified verifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the name, address, and taxpayer identification number of the partnership or the person who employs or engages the qualified verifier; (iv) the signature of the qualified verifier and the date signed by the qualified verifier; and (v) a statement that the verification was conducted for Federal income tax purposes. khammond on DSKJM1Z7X2PROD with PROPOSALS3 F. General Information Required To Be Included in Verification Report Proposed § 1.45V–5(g) would provide that the verification report must include (i) the location of the hydrogen production facility; (ii) a description of the hydrogen production facility, including its method of producing hydrogen; (iii) the type(s) of feedstock(s) used by the hydrogen production facility during the taxable year of production; (iv) the amount(s) of feedstock(s) used by the hydrogen production facility during the taxable year of production; and (v) a list of the metering devices used to record any data used by the qualified verifier to support the production attestation along with a statement that the qualified verifier is reasonably assured that the device(s) underwent industryappropriate quality assurance and quality control, and that the accuracy and calibration of the device has been tested in the last year. G. Definitions Related to Verifications Proposed § 1.45V–5(h) would define the term ‘‘qualified verifier’’ to mean any individual or organization with active accreditation (i) as a validation and verification body from the American National Standards Institute National Accreditation Board; or (ii) as a verifier, lead verifier, or verification body under the California Air Resources Board Low Carbon Fuel Standard program. The Treasury Department and the IRS request comment on this definition of ‘‘qualified verifier,’’ including on whether additional accreditations that demonstrate sufficient expertise for verification of lifecycle analysis for the section 45V credit should be included. Proposed § 1.45V–5(i) would define the term ‘‘unrelated party’’ (as described in section 45V(c)(2)(B)(ii)) to mean a VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 qualified verifier who meets the conflict attestation requirements as provided in proposed § 1.45V–5(e). H. Requirements for Taxpayers Claiming Both the Section 45V Credit and the Section 45 Credit or the Section 45U Credit Proposed § 1.45V–5(j) would provide requirements that, in the case of a taxpayer who produces electricity for which either the section 45 credit or section 45U credit is claimed and the taxpayer or a related person (as defined in section 45(e)(4)) uses such electricity (and related EACs) to produce hydrogen for which the section 45V credit is claimed, the verification report must also contain attestations that the qualified verifier performed a verification sufficient to determine that (i) the electricity used to produce hydrogen was produced at the relevant facility for which either the section 45 credit or section 45U credit was claimed, (ii) the given amount of such electricity (in kilowatt hours) used to produce hydrogen at the relevant qualified clean hydrogen production facility is reasonably assured of being accurate, and (iii) the electricity for which a section 45 or section 45U credit was claimed is represented by EACs that are retired in connection with the production of such hydrogen. I. Required Time for Filing a Verification Report Proposed § 1.45V–5(k) would provide that a verification report must be signed and dated by the qualified verifier no later than (i) the due date, including extensions, of the Federal income tax return or information return for the taxable year during which the hydrogen undergoing verification is produced; or (ii) in the case of a section 45V credit first claimed on an amended return or administrative adjustment request (AAR), the date on which the amended return or AAR is filed. VII. Placed in Service Date for Existing Facility That Is Modified or Retrofitted To Produce Qualified Clean Hydrogen A. Modification of an Existing Facility Under section 45V(d)(4), in the case of any facility that was originally placed in service before January 1, 2023, and, prior to the modification (described in section 45V(d)(4)(B)), did not produce qualified clean hydrogen, and after the date the facility was originally placed in service (i) is modified to produce qualified clean hydrogen, and (ii) amounts paid or incurred with respect to the modification are properly chargeable to the taxpayer’s capital PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 89235 account, the facility will be deemed to have been originally placed in service as of the date the property required to complete the modification is placed in service. The rule in section 45V(d)(4) for modification of existing facilities applies to modifications made after December 31, 2022. See section 13204(a)(5)(C) of the IRA. Proposed § 1.45V–6(a)(1) would incorporate the statutory provisions of section 45V(d)(4). Proposed § 1.45V– 6(a)(2) would further provide that an existing facility will not be deemed to have been originally placed in service as of the date the property required to complete the modification is placed in service unless the modification is made for the purpose of enabling the facility to produce qualified clean hydrogen and the taxpayer pays or incurs an amount with respect to such modification that is properly chargeable to the taxpayer’s capital account for the facility. Proposed § 1.45V–6(a)(2) would also provide that a modification is made for the purpose of enabling the facility to produce qualified clean hydrogen if the facility could not produce hydrogen with a lifecycle GHG emissions rate that is less than or equal to 4 kilograms of CO2e per kilogram hydrogen but for the modification. Changing fuel inputs to the hydrogen production process, such as switching from conventional natural gas to renewable natural gas, would not qualify as a facility modification for purposes of proposed § 1.45V–6(a)(2). Examples 1, 2, and 3 of proposed § 1.45V–6(c) would provide examples illustrating the application of the rules provided by section 45V(d)(4) and proposed § 1.45V–6(a). B. Retrofit of an Existing Facility (80/20 Rule) Proposed § 1.45V–6(b) would provide that an existing facility may establish a new date on which it is considered originally placed in service for purposes of section 45V, even though the facility contains some used property, provided the fair market value of the used property is not more than 20 percent of the facility’s total value (the cost of the new property plus the value of the used property) (80/20 Rule). Proposed § 1.45V–6(b) would further provide that for purposes of the 80/20 Rule, the cost of new property includes all properly capitalized costs of the new property included within the facility. Proposed § 1.45V–6(b) would provide that, if a facility satisfies the requirements of the 80/20 Rule, then the date on which such facility is considered originally placed in service for purposes of section 45V(a)(1) is the date on which the new property added to the facility is placed E:\FR\FM\26DEP3.SGM 26DEP3 89236 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules in service. Proposed § 1.45V–6(b) would also provide that the 80/20 Rule applies to any existing facility, regardless of whether the facility previously produced qualified clean hydrogen and regardless of when the facility was originally placed in service (before application of proposed § 1.45V–6(b)). Examples 4 and 5 of proposed § 1.45V– 6(c) would provide examples illustrating the application of the 80/20 Rule. khammond on DSKJM1Z7X2PROD with PROPOSALS3 VIII. Election To Treat a Clean Hydrogen Production Facility as Energy Property for Purposes of the Section 48 Credit A. Overview Section 48(a)(15) allows a taxpayer that owns and places in service a specified clean hydrogen production facility (as defined in section 48(a)(15)(C)) to make an irrevocable election to claim the section 48 credit in lieu of the section 45V credit for any qualified property (as defined in section 48(a)(5)(D)) that is part of the facility. This provision is effective for property placed in service after December 31, 2022. For any property that is placed in service after December 31, 2022, and the construction of which begins before January 1, 2023, section 13204(c)(3) of the IRA provides that section 48(a)(15) applies only to the extent of the basis of such property that is attributable to construction, reconstruction, or erection occurring after December 31, 2022. Proposed § 1.48–15(a) would provide that a taxpayer that owns and places in service a specified clean hydrogen production facility (as defined in section 48(a)(15)(C) and proposed § 1.48–15(b)) can make an irrevocable election under section 48(a)(15)(C)(ii)(II) to treat any qualified property (as defined in section 48(a)(5)(D)) that is part of the facility as energy property for purposes of section 48. Proposed § 1.48–15(b) would define the term ‘‘specified clean hydrogen production facility’’ to mean any qualified clean hydrogen production facility (within the meaning of section 45V(c)(3)) and proposed § 1.45V– 1(a)(10)): (i) that is placed in service after December 31, 2022; (ii) with respect to which no section 45V credit or section 45Q credit has been allowed, and for which the taxpayer makes an irrevocable election to have section 48(a)(15) apply; and (iii) for which an unrelated party has verified in the manner specified in proposed § 1.48– 15(e) that such facility produces hydrogen through a process that results in lifecycle GHG emissions that are consistent with the hydrogen that such VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 facility was designed and expected to produce under section 48(a)(15)(A)(ii) and proposed § 1.48–15(c). Proposed § 1.48–15(c)(1) would provide the energy percentage (used by a taxpayer to calculate a section 48 credit) for a specified clean hydrogen production facility that is designed and reasonably expected to produce qualified clean hydrogen through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Proposed § 1.48–15(c)(2) would further provide that ‘‘designed and reasonably expected to produce’’ means hydrogen produced through a process that results in the lifecycle GHG emissions rate specified in the annual verification report for the taxable year in which the section 48(a)(15) election is made. The Treasury Department and the IRS request comments on this proposed rule and whether there are any challenges to using the lifecycle GHG emissions rate achieved in the taxable year in which the section 48(a)(15) election is made to determine the facility’s energy percentage for purposes of calculating the section 48 credit amount. B. Election Procedures 1. Time and Manner of Making Election Proposed § 1.48–15(d)(1) would provide that, to make an election under section 48(a)(15)(c)(ii)(II), a taxpayer must claim the section 48 credit with respect to a specified clean hydrogen production facility on a Form 3468, Investment Credit, or any successor form(s), and file the form with the taxpayer’s Federal income tax return or information return for the taxable year in which the specified clean hydrogen production facility is originally placed in service. Proposed § 1.48–15(d)(1) would provide that the taxpayer must also attach a statement to its Form 3468, Investment Credit, or any successor form(s), filed with its Federal income tax return or information return that includes all the information required by the instructions to Form 3468, Investment Credit, or any successor form(s), for each specified clean hydrogen production facility subject to an election. Proposed § 1.48–15(d)(1) would provide that a separate election must be made for each specified clean hydrogen production facility that meets the requirements provided in section 48(a)(15) to treat the qualified property that is part of the facility as energy property. Proposed § 1.48–15(d)(1) would further provide that, if any taxpayer owning an interest in a specified clean PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 hydrogen production facility makes an election with respect to the facility, then that election would be binding on all taxpayers that directly or indirectly own an interest in the facility. Thus, consistent with section 48(a)(15)(B), if a taxpayer owning an interest in a specified clean hydrogen production facility makes an election under section 48(a)(15)(C)(ii)(II), then no other taxpayer owning an interest in the same facility will be allowed a section 45V credit or section 45Q credit with respect to the facility. The Treasury Department and the IRS request comments on whether, in the context of a specified clean hydrogen production facility that is directly owned through an arrangement properly treated as a tenancy-in-common for Federal income tax purposes or through an organization that has made a valid election under section 761(a) of the Code, each co-owner’s or member’s undivided ownership share of the qualified property comprised in the facility should be treated for purposes of section 48(a)(15)(C)(ii)(II) as a separate facility owned by such co-owner or member, with each such co-owner or member eligible to make a separate election under section 48(a)(15)(C)(ii)(II) to claim the section 48 credit in lieu of the section 45V credit with respect to its undivided ownership interest in the facility or share of the underlying qualified property. 2. Special Rule for Partnerships and S Corporations Proposed § 1.48–15(d)(2) would provide that, in the case of a specified clean hydrogen production facility owned by a partnership or an S corporation, the election under section 48(a)(15)(C)(ii)(II) would be made by the partnership or S corporation and would be binding on all ultimate credit claimants (as defined in § 1.50– 1(b)(3)(ii)). Proposed § 1.48–15(d)(2) would provide that the partnership or S corporation must file a Form 3468, Investment Credit, or any successor forms(s), with its partnership or S corporation return for the taxable year in which the specified clean hydrogen production facility is placed in service to indicate that it is making the election, and attach a statement that includes all the information required by the instructions to Form 3468, Investment Credit, or any successor form(s), for each specified clean hydrogen production facility subject to the election. Proposed § 1.48–15(d)(2) would provide that the ultimate credit claimant’s section 48 must be based on each claimant’s share of the basis (as defined in § 1.46–3(f)) of the specified E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules clean hydrogen production facility on a completed Form 3468, Investment Credit, or any successor forms(s), and file such form with a Federal income tax return or information return for the taxable year that ends with or within the taxable year in which the partnership or S corporation made the election. Proposed § 1.48–15(d)(2) would provide that the partnership or S corporation making the election must provide the ultimate credit claimants with the necessary information to complete Form 3468, Investment Credit, or any successor forms(s), to claim the section 48 credit. 3. Election Irrevocable Proposed § 1.48–15(d)(3) would provide that the election to treat any qualified property that is part of a specified clean hydrogen production facility as energy property would be irrevocable. khammond on DSKJM1Z7X2PROD with PROPOSALS3 4. Election Availability Date Proposed § 1.48–15(d)(4) would provide that the election to treat any qualified property that is part of a specified clean hydrogen production facility as energy property would be available for property placed in service after December 31, 2022, and, for any property that began construction before January 1, 2023, only to the extent of the basis thereof attributable to the construction, reconstruction, or erection after December 31, 2022. C. Third-Party Verification Proposed § 1.48–15(e)(1) would provide that, in the case of a taxpayer that makes an election under section 48(a)(15)(c)(ii)(II) to treat any qualified property that is part of a specified clean hydrogen production facility as energy property for purposes of the section 48 credit, the taxpayer must obtain an annual verification report for the taxable year in which the election is made and for each taxable year thereafter of the recapture period specified in proposed § 1.48–15(f)(3). Proposed § 1.48–15(e)(1) would further provide that the taxpayer must also submit the annual verification report as an attachment to the Form 3468, Investment Credit, or any successor form(s), for the taxable year in which the election is made. Further, proposed § 1.48–15(e)(2)(i) would provide that the annual verification report must be signed under penalties of perjury by a qualified verifier (as defined in proposed § 1.45V– 5(h)) and contain (i) the information specified in §§ 1.45V–5(b) and 1.45V– 5(d) through § 1.45V–5(h); (ii) a statement attesting to the lifecycle GHG emissions rate (determined under VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 section 45V(c) and § 1.45V–4) of the hydrogen produced at the specified clean hydrogen production facility for the taxable year to which the annual verification report relates and that the operation, during such taxable year, of the specified clean hydrogen production facility, and any EACs applied pursuant to § 1.45V–4(d) for the purpose of accounting for such facility’s emissions, are accurately reflected in the data the taxpayer entered into the most recent GREET model (as defined in § 1.45V– 1(a)(8)(ii)) (or in the data the taxpayer provided to the DOE in support of the taxpayer’s request for an emissions value), to determine the lifecycle GHG emissions rate of the hydrogen undergoing verification; and (iii) an attestation that the facility produced hydrogen through a process that results in a lifecycle GHG emissions rate that is consistent with, or lower than, the lifecycle GHG emissions rate of the hydrogen that such facility was designed and expected to produce. Proposed § 1.48–15(e)(2)(ii) would provide that if a transfer election has been made under section 6418(a) of the Code with respect to the section 48 credit for a specified clean hydrogen production facility, then the conflict attestation containing the information specified in proposed § 1.45V–5(e)(1) must be made with respect to the qualified verifier’s independence from both the eligible taxpayer (as defined in section 6418(f)(2) and § 1.6418–1(b)) and the transferee taxpayer (as described in section 6418(a) and defined in § 1.6418–1(m)), and without regard to the requirements under proposed § 1.45V–5(e)(2). Proposed § 1.48–15(e)(2)(iii) would provide that in the event the facility produces qualified clean hydrogen through a process that results in a lifecycle GHG emissions rate greater than the lifecycle GHG emissions rate such facility was designed and expected to produce (and thus the qualified verifier cannot provide the attestation specified in proposed § 1.48– 15(e)(2)(i)(B)), resulting in a reduced energy percentage under section 48(a)(15)(A)(ii) with respect to such facility, an emissions tier recapture event under proposed § 1.48–15(f)(2) will occur. Proposed § 1.48–15(e)(2)(iv) would provide that the hydrogen a facility was ‘‘designed and expected to produce’’ would mean hydrogen produced through a process that results in the lifecycle GHG emissions rate specified in proposed § 1.48–15(c)(2). Additionally, proposed § 1.48– 15(e)(2)(v) would require that the annual verification report must be signed and dated by the qualified PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 89237 verifier no later than the due date, including extensions, of the Federal income tax return or information return for the taxable year in which the hydrogen undergoing verification was produced. Proposed § 1.48–15(e)(2)(vi) would provide that in addition to the recordkeeping requirements set forth in § 1.48–15(g), the taxpayer must retain the annual verification report for at least six years after the due date, with extensions, for filing the Federal income tax return or information return for the taxable year in which the hydrogen undergoing verification was produced. D. Credit Recapture Section 48(a)(15)(E) directs the Secretary to issue such regulations or other guidance as determined necessary to carry out the purposes of section 48, including regulations or other guidance addressing recapture of so much of the credit allowed under section 48 as exceeds the amount of the credit that 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. 1. Emissions Tier Recapture Events Under Section 48(a)(15)(E) Proposed § 1.48–15(f)(1), would provide that, for purposes of section 48(a)(15)(E), in any taxable year of the recapture period specified in proposed § 1.48–15(f)(3) in which an emissions tier recapture event (as defined in proposed § 1.48–15(f)(2)) occurs, the tax imposed on the taxpayer under chapter 1 of the Code for the taxable year of the emissions tier recapture event is increased by the recapture amount specified in proposed § 1.48–15(f)(4). Proposed § 1.48–15(f)(2) would provide that an emissions tier recapture event under section 48(a)(15)(E) occurs during any taxable year of the recapture period specified in proposed § 1.48– 15(f)(3) under the following circumstances: (i) the taxpayer fails to obtain an annual verification report by the deadline for filing its Federal income tax return or information return (including extensions) for any taxable year in which an annual verification report was required under proposed § 1.48–15(e)(1); (ii) the specified clean hydrogen production facility actually produced hydrogen through a process that results in a lifecycle GHG emissions rate that can only support a lower energy percentage than the energy percentage used to calculate the amount of the section 48 credit for such facility for the year in which the facility is placed in service; or (iii) the specified clean hydrogen production facility E:\FR\FM\26DEP3.SGM 26DEP3 89238 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules actually produced hydrogen through a process that results in a lifecycle GHG emissions rate of greater than 4 kilograms of CO2e per kilogram of hydrogen. khammond on DSKJM1Z7X2PROD with PROPOSALS3 2. Recapture Period Under Section 48(a)(15)(E) Proposed § 1.48–15(f)(3) would provide that the recapture period begins on the first day of the first taxable year after the taxable year in which the facility was placed in service and ends on the last day of the fifth taxable year after the close of the taxable year in which the facility was placed in service. For example, if a calendar-year taxpayer places in service a specified clean hydrogen production facility on June 1, 2023, then the last day of the fifth taxable year following the close of the taxable year in which the facility was placed in service is December 31, 2028. Therefore, the recapture period is January 1, 2024, through December 31, 2028. 3. Recapture Amount Proposed § 1.48–15(f)(4) would provide that, if an emissions tier recapture event has occurred under proposed § 1.48–15(f)(2), the recapture amount for the taxable year in which the emissions tier recapture event occurred is equal to 20 percent of the excess of (i) the section 48 credit allowed to the taxpayer for the specified clean hydrogen production facility for the taxable year in which the facility was placed in service, over (ii) the section 48 credit that would have been allowed to the taxpayer for the facility if the taxpayer had used the energy percentage supported by the actual production to calculate the amount of the section 48 credit. Proposed § 1.48–15(f)(4)(ii) would provide that, in the case of any emissions tier recapture event described in proposed § 1.48–15(f)(2), the carrybacks and carryovers under section 39 must be adjusted by reason of the emissions tier recapture event. Proposed § 1.48–15(f)(4)(iii) would further provide that, if the specified clean hydrogen production facility produced hydrogen through a process that results in a lifecycle GHG emissions rate of greater than 4 kilograms of CO2e per kilogram of hydrogen, or if the taxpayer fails to submit an annual verification report with its Federal income tax return or information return with respect to a specified clean hydrogen production facility for any taxable year of the recapture period, then the section 48 credit that would have been allowed to the taxpayer for the facility would be zero. Thus, in that case, the recapture amount in the taxable year of the VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 emissions tier recapture event would be 20 percent of the section 48 credit allowed to the taxpayer with respect to such specified clean hydrogen production facility. Proposed § 1.48– 15(f)(5) would provide an example illustrating the application of proposed § 1.48–15(f)(1) through (4). Unless modified in future guidance, any reporting of emissions tier recapture under proposed § 1.48–15(f) is made on the taxpayer’s annual tax return. The Secretary may issue future guidance and/or prescribe tax forms and instructions to address the reporting of emissions tier recapture under proposed § 1.48–15(f) and any additional annual reporting obligations. The Treasury Department and IRS therefore request comments on the reporting of recapture and any additional annual reporting obligations. 4. Coordination With Recapture Rules Under Sections 50 and 48(a)(10)(C) Proposed § 1.48–15(f)(6) would provide that, during any taxable year of the recapture period for any credit allowed under section 48(a) with respect to qualified property that is part of a specified clean hydrogen production facility, the recapture rules would be applied, if applicable, in the following order: (i) section 50(a) (recapture in case of dispositions, etc.); (ii) section 48(a)(10)(C) (recapture relating to the prevailing wage requirements); and (iii) section 48(a)(15)(E) (emissions tier recapture). E. Recordkeeping Requirements Proposed § 1.45V–2(c) would provide that a taxpayer claiming the section 45V credit would need to meet the general recordkeeping requirements under section 6001 necessary to substantiate the amount of the section 45V credit claimed by the taxpayer. Section 6001 provides that every person liable for any tax imposed by the Code, or for the collection thereof, must keep such records as the Secretary may from time to time prescribe. Section 1.6001–1(a) provides that any person subject to income tax must keep such permanent books of account or records as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax. Section 1.6001–1(e) provides that the books and records required by § 1.6001– 1 must be retained so long as the contents thereof may become material in the administration of any internal revenue law. Proposed § 1.45V–2(c) would also provide that taxpayers must retain all raw data used for submission of the PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 request for an emissions value to the DOE for at least six years after the due date (including extensions) for filing the Federal income tax return or information return to which the PER petition is ultimately attached. Proposed § 1.48–15(g) would provide corresponding recordkeeping rules. IX. Renewable Natural Gas and Fugitive Sources of Methane The Treasury Department and the IRS intend to provide rules addressing hydrogen production pathways that use renewable natural gas (RNG) or other fugitive sources of methane (for example, from coal mine operations) for purposes of the section 45V credit. In the context of this guidance, the term RNG refers to biogas that has been upgraded to be equivalent in nature to fossil natural gas. Fugitive methane refers to the release of methane through, for example, equipment leaks, or venting during the extraction, processing, transformation, and delivery of fossil fuels to the point of final use, such as coal mine methane or coal bed methane. Such rules would apply to all RNG used for the purposes of the section 45V credit and would provide conditions that must be met before certificates for RNG or fugitive methane (representations of the environmental attributes of the methane) and the GHG emissions benefits they are meant to represent may be taken into account in determining lifecycle GHG emissions rates for purposes of the section 45V credit. Such conditions would be logically consistent with but not identical to the incrementality, temporal matching, and deliverability requirements for electricity derived EACs, in that they would be designed to reflect the ways in which additional RNG or demand for fugitive methane can impact lifecycle GHG emissions and also to address the differences between electricity and methane, including but not limited to the different sources of emissions, markets, available tracking and verification methods, and potential for perverse incentives. The Treasury Department and the IRS anticipate requiring that for purposes of the section 45V credit, for biogas or biogas-based RNG to receive an emissions value consistent with that gas (and not standard natural gas), the RNG used during the hydrogen production process must originate from the first productive use of the relevant methane. For any specific source of biogas,27 27 Biogas is gas resulting from the decomposition of organic matter under anaerobic conditions, and the principal constituent is methane (50–75 percent). E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules productive use is generally defined as any valuable application of biogas (including to provide heat or cooling, generate electricity, or upgraded to RNG), and specifically excludes venting to the atmosphere or capture and flaring. The Treasury Department and the IRS further propose to define ‘‘first productive use’’ of the relevant methane as the time when a producer of that gas first begins using or selling it for productive use in the same taxable year as (or after) the relevant hydrogen production facility was placed in service. The implication of this proposal is that biogas from any source that had been productively used in a taxable year prior to taxable year in which the relevant hydrogen production facility was placed in service would not receive an emission value consistent with biogas-based RNG but would instead receive a value consistent with natural gas in the determination of the emissions value for that specific hydrogen production pathway. This proposal would limit emissions associated with the diversion of biogas or RNG from other pre-existing productive uses. For existing biogas sources that typically productively use or sell a portion of the biogas and flare or vent the remaining excess, the flared or vented portion may be eligible for first productive use as defined above if the flaring or venting volume can be adequately demonstrated and verified. In such circumstances, the flared or vented volume may be determined based on the previous taxable year’s flared or vented volume as demonstrated via reported data to programs such as the Greenhouse Gas Reporting Program. Requirements would be established to reduce the risk that entities will deliberately generate additional biogas for purposes of the section 45V credit, above historic and expected future levels or an equivalent metric, for example by generating biogas through the intentional generation of waste, and to ensure that other factors affecting the emissions rate of hydrogen produced with biogas-based RNG or RNG procurement via RNG certificates are taken into account. The Treasury Department and the IRS request comment on these and other potential conditions. Any fugitive sources of methane would be treated in the same fashion as described above for RNG. For purposes of the section 45V credit, hydrogen producers using RNG or fugitive methane would be required to acquire and retire corresponding attribute certificates through a bookand-claim system that can verify in an electronic tracking system that all VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 applicable requirements are met. Hydrogen producers would also be required to have a pipeline interconnection and measurement using a revenue grade meter. These rules would apply to the use of certificates with both direct and non-direct claims of RNG or fugitive methane use. Direct use would involve the production of hydrogen with a direct exclusive pipeline connection to a facility that generates RNG or from which fugitive methane is being sourced, while nondirect use would involve producing hydrogen using RNG or fugitive methane sourced from a commercial or common-carrier natural gas pipeline. In all cases, attribute certificates would need to document the RNG or fugitive methane procurement for qualified clean hydrogen production claims and that the environmental attributes of the RNG or fugitive methane being used are not sold to other parties or used for compliance with other policies or programs. The Treasury Department and the IRS request comments on these and other rules related to RNG and fugitive methane. Regarding fugitive methane, the Treasury Department and the IRS request comment on the appropriate lifecycle analysis considerations associated with specific fugitive methane sources, such as counterfactual scenarios, to account for direct and significant indirect emissions, and also the manner in which to assess methane from these sources if the current practice is flaring. These comments may inform future versions of 45VH2– GREET. In particular, the Treasury Department and the IRS request comments on the following questions: (1) What data sources and peer reviewed studies provide information on RNG production systems (including biogas production and reforming systems), markets, monitoring, reporting, and verification processes, and GHG emissions associated with these production systems and markets? (2) What conditions for the use of biogas and RNG would ensure that emissions accounting for purposes of the section 45V credit reflects and reduces the risk of indirect emissions effects from hydrogen production using biogas and RNG? How can taxpayers verify that they have met these requirements? (3) How broadly available and reliable are existing electronic tracking systems for RNG certificates in book and claim systems? What developments may be required, if any, before such systems are appropriate for use with RNG certificates used to claim the section 45V credit? PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 89239 (4) How should RNG or fugitive methane resulting from the first productive use of methane be defined, documented, and verified? What industry best practices or alternative methods would enable such verification to be reflected in an RNG or methane certificate or other documentation? What additional information should be included in RNG certificates to help certify compliance? (5) What are the emissions associated with different methods of transporting RNG or fugitive methane to hydrogen producers (for example, vehicular transport, pipeline)? (6) How can the section 45V regulations reflect and mitigate indirect emissions effects from the diversion of biogas or RNG or fugitive methane from potential future productive uses? What other new uses of biogas or RNG or fugitive methane could be affected in the future if more gas from new capture and productive use of methane from these sources is used in the hydrogen production process? (7) How can the potential for the generation of additional emissions from the production of additional waste, waste diversion from lower-emitting disposal methods, and changes in waste management practices be limited through emissions accounting or rules for biogas and RNG use established for purposes of the section 45V credit? (8) To limit the additional production of waste, should the final regulations limit eligibility to methane sources that existed as of a certain date or waste or waste streams that were produced before a certain date, such as the date that the IRA was enacted? If so, how can that be documented or verified? How should any changes in volumes of waste and waste capacity at existing methane sources be documented and treated for purposes of the section 45V credit? How should additional capture of existing waste or waste streams be documented and treated? (9) Are geographic or temporal deliverability requirements needed to reflect and reduce the risk of indirect emissions effects from biogas and RNG or fugitive methane use in the hydrogen production process? If so, what should these requirements be and are electronic tracking systems able to capture these details? (10) How should variation in methane leakage across the existing natural gas pipeline system be taken into account in estimating the emissions from the transportation of RNG or fugitive methane or establishing rules for RNG or fugitive methane use? How should methane leakage rates be estimated based on factors such as the location E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89240 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules where RNG or fugitive methane is injected and withdrawn, the distance between the locations where RNG or fugitive methane is injected and withdrawn, season of year, age of pipelines, or other factors? Are data or analysis available to support this? (11) What counterfactual assumptions and data should be used to assess the lifecycle GHG emissions of hydrogen production pathways that rely on RNG? Is venting an appropriate counterfactual assumption for some pathways? If not, what other factors should be considered? (12) What criteria should be used in assessing biogas and RNG-based PERs? What practices should be put in place to reduce the risk of unintended consequences (for example, gaming)? Should conservative default parameters and counterfactuals be used unless proven otherwise by a third party? The Treasury Department and the IRS understand that, before final regulations addressing the section 45V credit are issued, taxpayers will use 45VH2– GREET or the PER process to determine a lifecycle GHG emissions rate for hydrogen production facilities that rely on direct use of landfill gas or any fugitive methane feedstock, provided they meet the requirement that the gas being used results from the first productive use of methane from the landfill source or fugitive methane source. The term ‘‘direct use’’ means that there is a direct, exclusive pipeline connection between the hydrogen production facility and the source of the gas that is procured (for example, the upgrading or processing facility that produces RNG from landfill gas). Relative to a book-and-claim system, the direct connection between a gas supplier and a hydrogen production facility can reduce the uncertainty of pipeline leakage, tracking, and verification. The Treasury Department and the IRS are considering providing a rule that taxpayers would need to provide and maintain documentation to substantiate that (i) the RNG being used results from the first productive use of the methane at the landfill source and is not displacing a previous productive use; and (ii) the environmental attributes of the RNG being used, including those of the underlying biogas, are not sold to other parties or used for compliance with other policies or programs. When additional conditions addressing hydrogen production pathways that use RNG or fugitive methane for purposes of the section 45V credit are determined at a later date, taxpayers would also be required to maintain documentation that the RNG or fugitive methane being VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 used meets those requirements and to acquire and retire any RNG or fugitive methane certificates that are established. The Treasury Department and IRS are also considering providing rules for using RNG certificates and documentation required in the event additional conditions for use of RNG are later imposed. Tracking and verification mechanisms for RNG or fugitive methane specific to the needs of the section 45V credit are not yet available, and existing systems have limited capabilities for tracking and verifying RNG pathways, especially in the part of the production process before the methane has been reformed to RNG. Existing tracking and verification systems do not clearly distinguish between inputs, verify or require verification of underlying practices claimed by RNG production sources, require proof of generator interconnection or revenue-quality metering, provide validation of generation methodology, include exclusively United States basedgeneration, verify generator registration, and track the vintage of generator interconnection. The Treasury Department and IRS are considering providing rules to address whether or how book-and-claim systems with sufficient tracking and verification mechanisms may be used to attribute the environmental benefits of RNG or fugitive methane to hydrogen producers in the final regulations. Additional certainty is also needed to accurately account for emissions from pathways that do not yet exist in 45VH2–GREET and from RNG that is injected into a commercial or common-carrier pipeline. The Treasury Department and IRS understand that, before final regulations are issued, taxpayers will determine a lifecycle GHG emissions rate for hydrogen production pathways using landfill gas by using 45VH2–GREET in cases in which the hydrogen production facility is receiving RNG through a direct dedicated pipeline connection and measurement using a revenue grade meter. The PER process will not address other hydrogen production pathways using biogas and RNG until after the final regulations are issued. Proposed Applicability Dates These regulations are proposed to apply to taxable years beginning after these proposed regulations are published in the Federal Register. Taxpayers may rely on these proposed regulations for taxable years beginning after December 31, 2022, and before the date the final regulations are published in the Federal Register, provided the taxpayers follow the proposed PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 regulations in their entirety and in a consistent manner. Special Analyses I. Regulatory Planning and Review Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. II. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520) (PRA) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The collections of information in these proposed regulations would include reporting, third-party disclosure, and recordkeeping requirements. These collections are necessary for taxpayers to claim the section 45V credit, or the section 48 credit with respect to a specified clean hydrogen production facility, and for the IRS to validate that taxpayers have met the regulatory requirements and are entitled to claim either credit. The recordkeeping requirements in these proposed regulations would include the requirement that taxpayers claiming the section 45V credit, or the section 48 credit with respect to a specified clean hydrogen production facility, need to meet the general recordkeeping provisions under section 6001 necessary to substantiate the amount of the section 45V credit or section 48 credit claimed by the taxpayer as detailed in proposed §§ 1.45V–2(c) and 1.48–15(g). These recordkeeping requirements are considered general tax records under § 1.6001–1(e). For PRA purposes, general tax records are already approved by OMB under 1545–0074 for individuals/sole proprietors, 1545–0123 for business entities, and 1545–0047 for tax-exempt organizations, and 1545– 0092 for trust and estate filers. The proposed regulations would reference the DOE’s process for applicants to request an emissions value from the DOE that could then be used E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules to file a petition with the Secretary for a PER determination as detailed in proposed § 1.45V–4. The petition made to IRS will be performed by attaching the emissions value obtained from the DOE to the filing of Form 7210. The burden for these requirements will be included within the Form and Instructions for 7210. Form 7210 will be approved by OMB, in accordance with 5 CFR 1320.10, under the following OMB Control Numbers: 1545–0074 for individuals, 1545–0123 for businesses, 1545–0047 for tax-exempt organizations, and 1545–NEW for trust and estate filers. The proposed regulations mention the collection of information associated with the process for taxpayers to request an emissions value from the DOE and is reflected in the DOE’s Paperwork Reduction Act Submission relating to such process. These proposed regulations are not creating or changing any of the collection requirements submitted by DOE to OMB for approval. Approval of the DOE’s Paperwork Reduction Act Submission is pending with OMB. These proposed regulations are not creating or changing any of the collection requirements being approved by OMB under the DOE OMB Control Number 1910–XXXX. The proposed regulations would include reporting requirements that taxpayers claiming the section 45V credit provide a verification report with their annual Federal income tax return or information return for each taxable year in which they claim the section 45V credit as detailed in proposed § 1.45V–5. The proposed regulation also includes a third-party disclosure requirement that a verification report must be certified by an unrelated third party. The verification report must contain an attestation regarding the taxpayer’s production of qualified clean hydrogen for sale or use, the amount of qualified clean hydrogen sold or used by the taxpayer, conflicts of interest, the verifier’s qualifications, and documentation necessary to substantiate the verification process. The taxpayer must submit the verification report to the IRS by attaching it to Form 7210, Clean Hydrogen Production Credit, or any successor form(s). The burden for these requirements will be included within the Form and Instructions for Form 7210. Form 7210 will be approved by OMB, in accordance with 5 CFR 1320.10, under the following OMB Control Numbers: 1545–0074 for individuals, 1545–0123 for businesses, 1545–0047 for tax-exempt organizations, and 1545–NEW for trust and estate filers. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 The proposed regulations include reporting, third-party disclosure, and recordkeeping requirements that taxpayers making the election under section 48(a)(15) to claim the energy credit under section 48 with respect to a specified clean hydrogen production facility. The reporting requirement is that taxpayers submit an annual verification report with their Federal income tax return or information return for the year in which they claim the section 48 credit. The third-party disclosure requirement is that an annual verification report must be certified by an unrelated third-party. The annual verification report must contain an attestation regarding the taxpayer’s production of qualified clean hydrogen for sale or use, the amount of qualified clean hydrogen sold or used by the taxpayer, conflicts of interest, the verifier’s qualifications, the lifecycle GHG emissions rate of the hydrogen that the specified clean hydrogen production facility produced, and documentation necessary to substantiate the verification process. The proposed regulations also include a requirement that the taxpayer obtain and retain an annual verification report for each taxable year of the recapture period. The taxpayer must obtain the annual verification report by the return filing deadline (with extensions) for the taxable year to which the annual verification report relates. The annual verification report must contain an attestation regarding the taxpayer’s production of qualified clean hydrogen for sale or use during the taxable year, the amount of qualified clean hydrogen sold or used by the taxpayer during the taxable year, the lifecycle GHG emissions rate of the hydrogen that the specified clean hydrogen production facility produced during the taxable year, conflicts of interest, the verifier’s qualifications, and documentation necessary to substantiate the verification process. The annual verification report for the taxable year in which the section 48(a)(15) election is made will be attached to Form 3468. The annual verification report for each taxable year of the recapture period will be retained by the taxpayer for at least six years after the due date (with extensions) for filing the Federal income tax return or information return for the year to which the report relates. The burden for these requirements will be included within the Form and Instructions for 3468. The revisions to Form 3468 will be approved by OMB, in accordance with 5 CFR 1320.10, under the following OMB Control Numbers: 1545–0074 for individuals, 1545–0123 for businesses, 1545–0047 for tax- PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 89241 exempt organizations, and 1545–0155 for trust and estate filers. III. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely to have a significant economic impact on a substantial number of small entities. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to present an initial regulatory flexibility analysis (IRFA) of the proposed rule. The Treasury Department and the IRS have not determined whether the proposed rule, when finalized, will likely have a significant economic impact on a substantial number of small entities. This determination requires further study. However, because there is a possibility of significant economic impact on a substantial number of small entities, an IRFA is provided in these proposed regulations. The Treasury Department and the IRS invite comments on both the number of entities affected and the economic impact on small entities. Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel of the Office of Advocacy of the Small Business Administration for comment on its impact on small business. A. Need for and Objectives of the Rule The proposed regulations provide guidance to taxpayers intending to claim the section 45V credit for the production of qualified clean hydrogen or make the election under section 48(a)(15) to treat qualified property that is part of a specified clean hydrogen production facility as energy property and claim the section 48 credit. The proposed regulations would provide needed guidance for taxpayers on use of the GREET model to determine the lifecycle GHG emissions rate resulting from the hydrogen production process, procedures for petitioning the Secretary for a PER determination, requirements for the verification of the production and sale or use of the hydrogen, requirements for modifications to an existing hydrogen production facility, and procedures for making the election under section 48(a)(15). E:\FR\FM\26DEP3.SGM 26DEP3 89242 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules B. Affected Small Entities The RFA directs agencies to provide a description of, and if feasible, an estimate of, the number of small entities that may be affected by the proposed rules, if adopted. The Small Business Administration’s Office of Advocacy estimates in its 2023 Frequently Asked Questions that 99.9 percent of American businesses meet the definition of a small business. The applicability of these proposed regulations does not depend on the size of the business, as defined by the Small Business Administration. As described more fully in the preamble to this proposed regulation and in this IRFA, sections 45V and 48(a)(15) and these proposed regulations may affect a variety of different businesses across several different industries. Because the potential credit claimants can vary widely, it is difficult to estimate at this time the impact of these proposed regulations, if any, on small businesses. Although there is uncertainty as to the exact number of small businesses within this group, the current estimated number of respondents to these proposed rules is between 800 and 1000 taxpayers. The Treasury Department and the IRS expect to receive more information on the impact on small businesses through comments on these proposed rules and again when taxpayers start using the guidance and procedures provided in these proposed regulations to claim the section 45V credit, or the section 48 credit with respect to a specified clean hydrogen production facility. khammond on DSKJM1Z7X2PROD with PROPOSALS3 C. Impact of the Rules The proposed regulations provide rules for how taxpayers can claim the section 45V credit, or the section 48 credit with respect to a specified clean hydrogen production facility. Taxpayers that claim the section 45V credit, or the section 48 credit with respect to a specified clean hydrogen production facility, will have administrative costs related to reading and understanding the rules as well as recordkeeping and reporting requirements because of the verification and Federal income tax return or information return requirements. The costs will vary across different-sized entities and across the type of project(s) in which such entities are engaged. To claim a section 45V credit, a taxpayer must determine the lifecycle GHG emissions rate for all hydrogen produced at a qualified clean hydrogen production facility during the taxable year. If the hydrogen production technology or feedstock used by the taxpayer to produce hydrogen is VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 addressed in the most recent 45VH2– GREET, the taxpayer must use 45VH2– GREET to determine the emissions rate for the hydrogen produced during that taxable year at the qualified clean hydrogen production facility. If the hydrogen production technology or feedstock used by the taxpayer to produce hydrogen is not included in the most recent 45VH2–GREET, the taxpayer must petition the Secretary for a provisional emissions rate (PER). As part of the process for a taxpayer to petition for a PER, a taxpayer must submit an application to the DOE for an emissions value that it may use to claim the section 45V credit. In addition to determining the lifecycle GHG emissions rate for hydrogen produced by the taxpayer at a qualified clean hydrogen production facility during the taxable year, before claiming the section 45V credit, a taxpayer must submit a verification report, certified by an unrelated third party, attesting to the taxpayer’s production of qualified clean hydrogen for sale or use, the amount of qualified clean hydrogen sold or used by the taxpayer, conflicts of interest, the verifier’s qualifications, and documentation necessary to substantiate the verification process. The process for claiming the section 48 credit with respect to a specified clean hydrogen production facility requires a taxpayer to submit an annual verification report with its Federal income tax return or information return for the taxable year in which it claims the section 48 credit, as well as to obtain an annual verification report for the five taxable years following the taxable year in which the section 48(a)(15) election is made. Additionally, the taxpayer would need to retain records sufficient to establish compliance with these proposed regulations for as long as may be relevant. Although the Treasury Department and the IRS do not have sufficient data to determine precisely the likely extent of the increased costs of compliance, the estimated burden of complying with the recordkeeping and reporting requirements are described in the Paperwork Reduction Act section of the preamble. D. Alternatives Considered The Treasury Department and the IRS considered alternatives to the proposed regulations. The proposed regulations were designed to minimize burdens for taxpayers while ensuring that the statutory requirements of sections 45V and 48(a)(15) are met. For example, in providing rules related to the information required to be submitted to PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 claim the section 45V credit, or the section 48 credit with respect to a specified hydrogen production facility, the Treasury Department and the IRS considered whether the production and sale or use of the hydrogen could be verified by an unrelated party without requiring the unrelated party to possess certain qualifications or conflict of interest characteristics. Such an option would, however, increase the opportunity for fraud or excessive payments under section 45V or section 48. Section 45V(f) specifically authorizes the IRS to promulgate regulations or other guidance providing for requirements for recordkeeping or information reporting for purposes of administering the requirements of section 45V. As described in the preamble to these proposed regulations, these proposed rules carry out that Congressional intent as the verification requirements allow the IRS to verify the taxpayer’s entitlement to the section 45V credit. Additionally, the Treasury Department and the IRS considered whether to require taxpayers to submit an annual verification report with their Federal income tax returns or information returns claiming the section 45V credit. Section 45V requires the taxpayer to obtain an annual verification report, and the Treasury Department and the IRS determined that requiring the taxpayer to attach such a report to their federal income tax return or information return is the most efficient way of ensuring the completion and accuracy of the report. Additionally, the Treasury Department and the IRS considered allowing taxpayers to treat the section 45V credit as determined in the taxable year of hydrogen production or verification. However, such an option would create administrability issues and potentially a mismatch between the taxable year in which the hydrogen is produced and the taxable year in which the section 45V credit for such production is claimed. Thus, the proposed regulations would require the credit to be determined in the taxable year of production. Comments are requested on the requirements in the proposed regulations, including specifically whether there are less burdensome alternatives that do not increase the risk of duplication, fraud, or improper payments under section 45V. E. Duplicative, Overlapping, or Conflicting Federal Rules The proposed regulations would not duplicate, overlap, or conflict with any relevant Federal rules. As discussed E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules above, the proposed regulations would merely provide procedures and definitions to allow taxpayers to claim the section 45V credit, or the section 48 credit with respect to a specified clean hydrogen production facility. The Treasury Department and the IRS invite input from interested members of the public on identifying and avoiding overlapping, duplicative, or conflicting requirements. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This proposed rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold. khammond on DSKJM1Z7X2PROD with PROPOSALS3 V. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to comments regarding the notice of proposed rulemaking that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All comments will be made available at https:// www.regulations.gov. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. A public hearing has been scheduled for March 25, 2024, beginning at 10 a.m. (ET), in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 must enter at the Constitution Avenue entrance. In additional, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by March 4, 2024. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. If no outline of the topics to be discussed at the hearing is received by March 4, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register. Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG–117631–23 and the language TESTIFY in Person. For example, the subject line may say: Request to TESTIFY in Person at Hearing for REG– 117631–23. Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number RE–117631–23 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG–117631–23. Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG– 117631–23 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing in Person for REG–117631–23. Requests to attend the public hearing must be received by 5:00 p.m. EST on March 18, 2024. Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 89243 Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317–6901 (not a tollfree number) by at least March 18, 2024. Statement of Availability of IRS Documents IRS guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Drafting Information The principal author of these proposed regulations is the Office of the Associate Chief Counsel (Passthroughs and Special Industries). However other personnel from the Treasury Department, the DOE, the EPA, and the IRS participated in the development of the proposed regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order for §§ 1.45V–1 through 1.45V–6 and 1.48–15 to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.45V–1 also issued under 26 U.S.C. 45V(f). Section 1.45V–2 also issued under 26 U.S.C. 45V(f). Section 1.45V–3 also issued under 26 U.S.C. 45V(e) and (f). Section 1.45V–4 also issued under 26 U.S.C. 45V(f). Section 1.45V–5 also issued under 26 U.S.C. 45V(f). Section 1.45V–6 also issued under 26 U.S.C. 45V(c) and (d). * * * * * Section 1.48–15 also issued under 26 U.S.C. 48(a)(15). * * * * * Par. 2. Sections 1.45V–0 through 1.45V–6 are added to read as follows: ■ Sec. * * * * * 1.45V–0 Table of contents. 1.45V–1 Credit for production of qualified clean hydrogen. 1.45V–2 Special rules. E:\FR\FM\26DEP3.SGM 26DEP3 89244 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules 1.45V–3 [Reserved] 1.45V–4 Procedures for determining lifecycle greenhouse gas emissions rates for qualified clean hydrogen. 1.45V–5 Procedures for verification of qualified clean hydrogen production and sale or use. 1.45V–6 Rules for determining the placed in service date for an existing facility that is modified to produce qualified clean hydrogen. * * § 1.45V–0 * * * Table of contents. khammond on DSKJM1Z7X2PROD with PROPOSALS3 This section lists the captions contained in §§ 1.45V–1 through 1.45V– 6. § 1.45V–1 Credit for production of qualified clean hydrogen. (a) Overview. (1) In general. (2) Applicable amount. (i) In general. (ii) Inflation adjustment. (3) Applicable percentage. (4) Claim. (5) Code. (6) DOE. (7) Facility. (i) In general. (ii) Treatment of certain indirect production and post-production equipment. (iii) Multipurpose components. (iv) Example. (8) Lifecycle GHG emissions. (i) In general. (ii) Most recent GREET model. (iii) Emissions through the point of production (well-to-gate). (9) Qualified clean hydrogen. (i) In general. (ii) For sale or use. (10) Qualified clean hydrogen production facility. (11) Secretary. (12) Section 45V credit. (13) Section 45V regulations. (b) Amount of credit. (1) In general. (2) Producer of qualified clean hydrogen. (3) Increased credit amount for qualified clean hydrogen production facilities. (c) Determination of credit. (d) Applicability date. § 1.45V–2 Special rules. (a) Coordination with credit for carbon oxide sequestration. (b) Anti-abuse rule. (1) In general. (2) Example. (i) Facts. (ii) Analysis. (c) Recordkeeping. (d) Applicability date. § 1.45V–3 [Reserved] § 1.45V–4 Procedures for determining lifecycle greenhouse gas emissions rates for qualified clean hydrogen. (a) In general. (b) Use of the most recent GREET model. (c) Provisional emissions rate (PER). (1) In general. (2) Rate not determined. (i) In general. (ii) Subsequent inclusion in 45VH2– GREET. VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 (3) Process for filing a PER petition. (4) PER determination. (5) Department of Energy emissions value request process. (6) Effect of PER. (d) Use of Energy Attribute Certificates (EACs). (1) In general. (2) Definitions. (i) Commercial operations date. (ii) Energy attribute certificate. (iii) Eligible EAC. (iv) Qualifying EAC. (v) Qualified EAC registry or accounting system. (vi) Region. (3) Qualifying EAC requirements. (i) Incrementality. (ii) Temporal matching. (iii) Deliverability. (e) Applicability date. § 1.45V–5 Procedures for verification of qualified clean hydrogen production and sale or use. (a) In general. (b) Requirements for verification reports. (c) Requirements for the production attestation. (d) Requirements for the sale or use attestation. (1) In general. (2) Verifiable use. (e) Requirements for the conflict attestation. (1) In general. (2) Special rule for transfer elections. (f) Requirements for the qualified verifier statement. (g) General information on the taxpayer’s hydrogen production facility. (h) Qualified verifier. (i) Unrelated party. (j) Requirements for taxpayers claiming both the section 45V credit and the section 45 credit or the section 45U credit. (k) Timely verification report. (l) Applicability date. § 1.45V–6 Rules for determining the placed in service date for an existing facility that is modified to produce qualified clean hydrogen. (a) Modification of an existing facility. (1) In general. (2) Modification requirements. (b) Retrofit of an Existing Facility (80/20 Rule). (c) Examples. (1) Example 1: Modification of an existing facility. (i) Facts. (ii) Analysis. (2) Example 2: Modification of an existing facility; coordination with the section 45Q credit previously allowed. (i) Facts. (ii) Analysis. (3) Example 3: Modification of an existing facility and coordination with section 45Q credit not previously allowed. (i) Facts. (ii) Analysis. (4) Example 4: Retrofit of an Existing Facility (80/20 Rule) and coordination with section 45Q credit previously allowed. (i) Facts. (ii) Analysis. PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 (5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and coordination with section 45Q credit previously allowed. (i) Facts. (ii) Analysis. (d) Applicability date. § 1.45V–1 Credit for production of clean hydrogen. (a) Overview—(1) In general. For purposes of section 38 of the Code, the section 45V credit is determined under section 45V of the Code, so much of sections 6417 and 6418 of the Code that relate to section 45V, and the section 45V regulations (as defined in paragraph (a)(13) of this section). Paragraphs (a)(2) through (13) of this section provide generally applicable definitions of terms that, unless otherwise provided, apply for purposes of section 45V, the section 45V regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 45V or the section 45V regulations. Paragraph (b) of this section provides rules for determining the amount of the section 45V credit for any taxable year, which generally depends on the kilograms of qualified clean hydrogen produced during the taxable year and the emissions intensity of the process used to produce such hydrogen, as well as whether certain requirements, including the requirements under § 1.45V–3, are satisfied. Paragraph (c) of this section provides rules regarding the taxable year for which a section 45V credit is determined. See § 1.45V–2 for special rules, including rules to coordinate the section 45V credit with the credit for carbon oxide sequestration determined under section 45Q of the Code, an antiabuse rule, and recordkeeping requirements. See § 1.45V–3 for rules relating to the increased credit amount for satisfying the prevailing wage and apprenticeship requirements. See § 1.45V–4 for procedures to determine lifecycle greenhouse gas (GHG) emissions rates for qualified clean hydrogen and § 1.45V–5 for procedures for verification of qualified clean hydrogen production and sale or use. See § 1.45V–6 for rules to determine the placed in service date for an existing facility that is modified or retrofitted to produce qualified clean hydrogen. See also § 1.48–15 for procedures to elect to treat any qualified property that is part of a specified clean hydrogen production facility as energy property for purposes of section 48 of the Code. (2) Applicable amount—(i) In general. The term applicable amount means the amount equal to the applicable percentage of $0.60, provided that if any such amount is not a multiple of 0.1 E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules cent, such amount is rounded to the nearest multiple of 0.1 cent. (ii) Inflation adjustment. The $0.60 amount specified in section 45V(b)(1) and paragraph (a)(2)(i) of this section is adjusted annually by multiplying such amount by the inflation adjustment factor (as determined under section 45(e)(2) of the Code, determined by substituting ‘‘2022’’ for ‘‘1992’’ in section 45(e)(2)(B)) for the calendar year in which the qualified clean hydrogen is produced, provided that if any such amount as adjusted is not a multiple of 0.1 cent, such amount is rounded to the nearest multiple of 0.1 cent. (3) Applicable percentage. The term applicable percentage means the percentage set forth in paragraphs (a)(3)(i) through (iv) of this section, which is determined according to the lifecycle GHG emissions rate of the process by which the qualified clean hydrogen is produced: (i) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 20 percent. (ii) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 25 percent. (iii) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 33.4 percent. (iv) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of less than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 100 percent. (4) Claim. With respect to the section 45V credit determined for qualified clean hydrogen produced by the taxpayer at a qualified clean hydrogen production facility, the term claim means the filing of a completed Form 7210, Clean Hydrogen Production Credit, or any successor form(s), with the taxpayer’s Federal income tax return or annual information return for the taxable year in which the credit is determined, and includes the making of an election under section 6417 or 6418 VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 and the regulations in this chapter under section 6417 or 6418, as applicable, with respect to such section 45V credit on the applicable entity’s or eligible taxpayer’s timely filed (including extensions) Federal income tax return or annual information return. (5) Code. The term Code means the Internal Revenue Code. (6) DOE. The term DOE means the U.S. Department of Energy. (7) Facility—(i) In general. For purposes of the definition of qualified clean hydrogen production facility provided at section 45V(c)(3) and paragraph (a)(10) of this section, unless otherwise specified, the term facility means a single production line that is used to produce qualified clean hydrogen. A single production line includes all components of property that function interdependently to produce qualified clean hydrogen. Components of property function interdependently to produce qualified clean hydrogen if the placing in service of each component is dependent upon the placing in service of each of the other components to produce qualified clean hydrogen. (ii) Treatment of certain indirect production and post-production equipment. The term facility does not include— (A) Equipment that is used to condition or transport hydrogen beyond the point of production; or (B) Notwithstanding paragraph (a)(7)(iii) of this section, electricity production equipment used to power the hydrogen production process, including any carbon capture equipment associated with the electricity production process. (iii) Multipurpose components. Components that have a purpose in addition to the production of qualified hydrogen may be part of a facility if such components function interdependently with other components to produce qualified clean hydrogen. (iv) Example. The following example illustrates the definition of facility provided in this paragraph (a)(7). A hydrogen production facility is equipped with carbon capture equipment (as defined in § 1.45Q–2(c)), as distinguished from the carbon capture equipment described in paragraph (a)(7)(ii)(B) of this section. One purpose of this equipment is the capture of carbon oxides. The facility produces hydrogen through a process that results in a lifecycle GHG emissions rate falling within the range specified in section 45V(b)(2)(C). Without the carbon capture equipment, the facility could not produce hydrogen through a process PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 89245 that results in a lifecycle GHG emissions rate falling within the range specified in section 45V(b)(2)(C). Because the carbon capture equipment is functionally interdependent with other components of property to produce qualified clean hydrogen within the meaning of paragraph (a)(9)(i) of this section, the carbon capture equipment is part of the facility for purposes of section 45V(c)(3) and the regulations in this part under section 45V, along with all other components of property that function interdependently with the carbon capture equipment to produce qualified clean hydrogen. (8) Lifecycle GHG emissions—(i) In general. Subject to section 45V(c)(1)(B) and paragraphs (a)(8)(ii) and (iii) of this section, and unless otherwise specified in the section 45V regulations, the term lifecycle GHG emissions has the meaning given the term lifecycle greenhouse gas emissions by 42 U.S.C. 7545(o)(1)(H), as in effect on August 16, 2022. For purposes of section 45V, lifecycle GHG emissions include emissions only through the point of production (well-to-gate), as determined under the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (GREET model) developed by Argonne National Laboratory, or a successor model. (ii) Most recent GREET model. Unless otherwise specified in the section 45V regulations, for purposes of the section 45V credit, the term most recent GREET model means the latest version of 45VH2–GREET developed by Argonne National Laboratory that is publicly available, as provided in the instructions to the latest version of Form 7210, Clean Hydrogen Production Credit, or any successor form(s), on the first day of the taxable year during which the qualified clean hydrogen for which the taxpayer is claiming the section 45V credit was produced. If a version of 45VH2–GREET becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer may, in its discretion, treat such later version of 45VH2–GREET as the most recent GREET model. (iii) Emissions through the point of production (well-to-gate). The term emissions through the point of production (well-to-gate) means the aggregate lifecycle GHG emissions related to hydrogen produced at a hydrogen production facility during the taxable year through the point of production. It includes emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. It also includes the emissions E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89246 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules associated with the hydrogen production process, inclusive of the electricity used by the hydrogen production facility and any capture and sequestration of carbon dioxide generated by the hydrogen production facility. (9) Qualified clean hydrogen—(i) In general. The term qualified clean hydrogen means hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Such term does not include any hydrogen unless the production and sale or use of such hydrogen is verified by an unrelated party in accordance with, and satisfying the requirements of, § 1.45V–5, and such hydrogen is produced— (A) In the United States (as defined in section 638(1) of the Code) or a United States territory, which, for purposes of section 45V and the regulations in this part under section 45V, has the meaning of the term possession provided in section 638(2) of the Code; (B) In the ordinary course of a trade or business of the taxpayer; and (C) For sale or use. (ii) For sale or use. The term for sale or use means for the primary purpose of making ready and available for sale or use. Storage of hydrogen following production does not disqualify such hydrogen from being considered produced for sale or use. (10) Qualified clean hydrogen production facility. The term qualified clean hydrogen production facility means a facility— (i) Owned by the taxpayer; (ii) That produces qualified clean hydrogen; and (iii) The construction of which begins before January 1, 2033. (11) Secretary. The term Secretary means the Secretary of the Treasury or her delegate. (12) Section 45V credit. The term section 45V credit means the credit for production of clean hydrogen determined under section 45V of the Code, so much of sections 6417 and 6418 of the Code that relate to section 45V, and the section 45V regulations. (13) Section 45V regulations. The term section 45V regulations means this section, §§ 1.45V–2 through 1.45V–6, and the regulations in this chapter under sections 6417 and 6418 of the Code that relate to the section 45V credit. (b) Amount of credit—(1) In general. The amount of the section 45V credit determined under section 45V(a) and the section 45V regulations for any taxable year is the product of the kilograms of qualified clean hydrogen VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 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, multiplied by the applicable amount with respect to such hydrogen. (2) Producer of qualified clean hydrogen. The term taxpayer means the taxpayer that owns the qualified clean hydrogen production facility at the time of the facility’s production of hydrogen for which the section 45V credit is claimed, regardless of whether such taxpayer is treated as a producer under section 263A of the Code or under any other provision of law with respect to such hydrogen. (3) Increased credit amount for qualified clean hydrogen production facilities. Pursuant to section 45V(e)(1), § 1.45V–3 provides rules that permit the amount of the section 45V credit determined under section 45V(a) and paragraph (b)(1) of this section to be multiplied by five if certain requirements related to prevailing wages and apprenticeships are met. See § 1.45V–3(a). (c) Determination of credit. Subject to any applicable sections of the Code that may limit the section 45V credit amount, the section 45V credit for any taxable year of a taxpayer who produces qualified clean hydrogen and claims such credit is determined with respect to the qualified clean hydrogen produced by the taxpayer during that taxable year, regardless of whether the verification of the production and sale or use of that hydrogen occurs in a later taxable year. Although the section 45V credit is determined with respect to the taxable year in which the qualified clean hydrogen is produced, a taxpayer is not eligible to claim the section 45V credit with respect to the production of that hydrogen until all relevant verification requirements, and the verification itself, have been completed for both the production of the hydrogen and the sale or use of that hydrogen. Accordingly, although the sale or use of the hydrogen and the verification thereof may occur in a taxable year after the taxable year of production, the section 45V credit is properly claimed with respect to the taxable year of production and is subject to the general period of limitations for filing a claim for credit or refund under section 6511 and other applicable provisions of the Code. (d) Applicability date. This section applies to taxable years beginning after December 26, 2023. PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 § 1.45V–2 Special rules. (a) Coordination with credit for carbon oxide sequestration. In the case of any qualified clean hydrogen produced at a qualified clean hydrogen production facility that includes carbon capture equipment for which a credit is allowed to any taxpayer under section 45Q of the Code (section 45Q credit) for the taxable year or any prior taxable year, no section 45V credit is allowed under section 45V of the Code. However, if the 80/20 Rule provided in § 1.45Q–2(g)(5) is satisfied with respect to such carbon capture equipment, and no new section 45Q credit has been allowed to any taxpayer for such carbon capture equipment, then the unit of carbon capture equipment (as defined in § 1.45Q–2(c)(3)) for which the 80/20 rule is satisfied will not be treated as carbon capture equipment for which a section 45Q credit was allowed to any taxpayer for any prior taxable year for purposes of section 45V(d)(2) and this paragraph (a). (b) Anti-abuse rule—(1) In general. The rules of section 45V of the Code (and so much of sections 6417 and 6418 of the Code related to the section 45V credit) and the section 45V regulations (as defined in § 1.45V–1(a)(13)) must be applied in a manner consistent with the purposes of section 45V and the section 45V regulations. A purpose of section 45V and the regulations in this part under section 45V (and so much of sections 6417 and 6418 and the regulations in this chapter under sections 6417 and 6418 related to the section 45V credit) is to provide taxpayers an incentive to produce qualified clean hydrogen for a productive use. Accordingly, the section 45V credit is not allowable if the primary purpose of the production and sale or use of qualified clean hydrogen is to obtain the benefit of the section 45V credit in a manner that is wasteful, such as the production of qualified clean hydrogen that the taxpayer knows or has reason to know will be vented, flared, or used to produce hydrogen. A determination of whether the production and sale or use of qualified clean hydrogen is inconsistent with the purposes of section 45V and the regulations in this part under section 45V of the Code is based on all facts and circumstances. (2) Example—(i) Facts. Taxpayer is a C corporation that has a calendar year taxable year. In 2031, Taxpayer places Facility in service in the United States. Facility produces qualified clean hydrogen that qualifies for the highest applicable amount of the section 45V credit at a production cost of $2 per E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules kilogram of hydrogen (assuming Taxpayer also claims the increased credit under section 45V(e), without taking into account any future inflation adjustment, the amount of the section 45V credit would be $3 per kilogram of qualified clean hydrogen). The cost of producing each kilogram of qualified clean hydrogen is less than the amount of the section 45V credit that would be available if Taxpayer qualified for the section 45V credit. In 2031, Taxpayer sells all the qualified clean hydrogen produced at Facility that year to Customer at a price that is well below the current market price. Taxpayer knows or reasonably expects that Customer will vent or flare a portion of the qualified clean hydrogen it purchased from Taxpayer. In addition, Taxpayer intends to obtain the benefit from the section 45V credit by claiming such credit itself or monetizing such credits through an election under section 6417 or 6418 of the Code. (ii) Analysis. Based on all the facts and circumstances, the primary purpose of Taxpayer’s production and sale of qualified clean hydrogen is to obtain the benefit of the section 45V credit in a manner that is wasteful. Taxpayer is not eligible for the section 45V credit with respect to the qualified clean hydrogen that Taxpayer produced and sold in 2031 to Customer that is subsequently vented or flared by Customer. (c) Recordkeeping. Consistent with section 6001 of the Code, a taxpayer claiming the section 45V credit for qualified clean hydrogen produced at a qualified clean hydrogen production facility must maintain and preserve records sufficient to establish the amount of the section 45V credit claimed by the taxpayer. At a minimum, those records must include records to substantiate the information required to be included in the verification report under § 1.45V–5, records establishing that the facility meets the definition of a qualified clean hydrogen production facility under section 45V(c)(3) and § 1.45V–1(a)(10), records of past credit claims under section 45Q by any taxpayer with respect to carbon capture equipment included at the facility, and records establishing the date the qualified clean hydrogen production facility was placed in service. If the requirements under section 45V(e) and § 1.45V–3(b) for the increased credit amount were satisfied, then the taxpayer must also maintain records in accordance with § 1.45–12. Taxpayers must also retain all raw data used for submission of a request for an emissions value to the DOE for at least six years after the due date (including extensions) for filing the Federal income tax return VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 or information return to which the provisional emissions rate (PER) (as defined in § 1.45V–4(c)(1)) petition is ultimately attached. (d) Applicability date. This section applies to taxable years beginning after December 26, 2023. § 1.45V–3 [Reserved] § 1.45V–4 Procedures for determining lifecycle greenhouse gas emissions rates for qualified clean hydrogen. (a) In general. The amount of the section 45V credit is determined under section 45V(a) of the Code and § 1.45V– 1(b) according to the lifecycle GHG emissions rate of all hydrogen produced at a hydrogen production facility during the taxable year. The lifecycle GHG emissions rate of such hydrogen is determined under the most recent GREET model. In the case of any hydrogen for which a lifecycle GHG emissions rate has not been determined under the most recent GREET model for purposes of section 45V, a taxpayer producing such hydrogen may file a petition for a provisional emissions rate (PER) with the IRS for the Secretary’s determination of the lifecycle GHG emissions rate with respect to such hydrogen. (b) Use of the most recent GREET model. For each taxable year during the period described in section 45V(a)(1), a taxpayer claiming the section 45V credit determines the lifecycle GHG emissions rate of hydrogen produced at a hydrogen production facility under the most recent GREET model separately for each hydrogen production facility the taxpayer owns. This determination is made following the close of each such taxable year and must include all hydrogen production during the taxable year. In using the most recent GREET model to calculate the lifecycle GHG emissions rate for purposes of determining the amount of the section 45V credit under section 45V(a) and § 1.45V–1(b), the taxpayer must accurately enter all information about its facility requested within the interface of 45VH2–GREET (as described in § 1.45V–1(a)(8)(ii)). Information regarding where taxpayers may access 45VH2–GREET and accompanying documentation will be included in the instructions to the Form 7210, Clean Hydrogen Production Credit, or any successor form(s). (c) Provisional emissions rate (PER)— (1) In general. For purposes of section 45V(c)(2)(C) and paragraph (a) of this section, the term provisional emissions rate or PER means the lifecycle GHG emissions rate of the process by which qualified clean hydrogen is produced by PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 89247 the taxpayer at a hydrogen production facility as determined by the Secretary under this paragraph (c). (2) Rate not determined—(i) In general. For purposes of section 45V(c)(2)(C), a taxpayer may not file a petition for a PER unless a lifecycle GHG emissions rate has not been determined under the most recent GREET model with respect to hydrogen produced by the taxpayer at a hydrogen production facility. A lifecycle GHG emissions rate has not been determined under the most recent GREET model with respect to hydrogen produced by the taxpayer at a hydrogen production facility if either the feedstock used by such facility or the facility’s hydrogen production technology is not included in the most recent GREET model. A facility’s hydrogen production pathway is not included in the most recent GREET model if the feedstock used by such facility or the facility’s hydrogen production technology is not included in the most recent GREET model. If a taxpayer’s request for an emissions value pursuant to paragraph (c)(5) of this section with respect to the hydrogen produced by the taxpayer at a hydrogen production facility is pending at the time such facility’s hydrogen production pathway becomes included in an updated version of 45VH2– GREET, the taxpayer’s request for an emissions value will be automatically denied. In such case, the taxpayer must determine the lifecycle GHG emissions rate with respect to such hydrogen under paragraph (c)(2)(ii) of this section. (ii) Subsequent inclusion in 45VH2– GREET. Notwithstanding the definition of the most recent GREET model provided at § 1.45V–1(a)(8)(ii), for the taxable year in which the hydrogen production facility’s hydrogen production pathway is first included in an updated version of 45VH2–GREET, the updated version of 45VH2–GREET will be considered the most recent GREET model with respect to the hydrogen produced by the taxpayer at the hydrogen production facility during such taxable year, and for purposes of section 45V(c)(2)(C), a lifecycle GHG emissions rate for such hydrogen will be considered to have been determined. (3) Process for filing a PER petition. To file a PER petition with the Secretary, a taxpayer must submit a PER petition attached to the taxpayer’s Federal income tax return for the first taxable year of hydrogen production ending within the 10-year period described in section 45V(a)(1) for which the taxpayer claims the section 45V credit for hydrogen to which the PER petition relates and for which a lifecycle GHG emissions rate has not been E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89248 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules determined, as defined under paragraph (c)(2)(i) of this section. A PER petition must contain an emissions value obtained from the DOE setting forth DOE’s analytical assessment of the lifecycle GHG emissions associated with the facility’s hydrogen production pathway, which must be consistent with the lifecycle GHG emissions framework provided in the section 45V regulations, and a copy of the taxpayer’s request to the DOE for an emissions value, including any information provided by the taxpayer to the DOE pursuant to the emissions value request process provided in paragraph (c)(5) of this section. If the taxpayer obtained more than one emissions value from the DOE, the PER petition must contain the emissions value setting forth the lifecycle GHG emissions rate of the hydrogen for which the section 45V credit is claimed on the Form 7210, Clean Hydrogen Production Credit, to which the PER petition is attached. (4) PER determination. Upon the IRS’s acceptance of the taxpayer’s Federal income tax return containing a PER petition, the emissions value of the hydrogen specified on such petition will be deemed accepted. A taxpayer would be able to rely upon an emissions value provided by the DOE for purposes of calculating and claiming a section 45V credit, provided that any information, representations, or other data provided to the DOE in support of the request for an emissions value are accurate. The IRS’s deemed acceptance of such emissions value is the Secretary’s determination of the PER. However, the production and sale or use of such hydrogen must be verified by an unrelated party under section 45V(c)(2)(B)(ii) and § 1.45V–5. Such verification and any information, representations, or other data provided to the DOE in support of the request for an emissions value are subject to later examination by the IRS. (5) Department of Energy (DOE) emissions value request process. An applicant that submits a request for an emissions value must follow the procedures specified by the DOE to request and obtain such emissions value. Emissions values will be evaluated using the same well-to-gate system boundary that is employed in 45VH2–GREET. Additionally, if applicable, background data parameters in 45VH2–GREET will also be treated as background data (with fixed values that an applicant cannot change) in the emissions value request process. Treatment of EACs and other proposals outlined in the regulations in this part under section 45V will be consistently applied in the emissions value request VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 process. An applicant may request an emissions value from the DOE only after a front-end engineering and design (FEED) study or similar indication of project maturity, as determined by the DOE, such as project specification and cost estimation sufficient to inform a final investment decision has been completed for the hydrogen production facility. The DOE may decline to review applications that are not responsive, including those applications that use a hydrogen production technology and feedstock already in 45VH2–GREET or applications that are incomplete. Guidance and procedures for applicants to request and obtain an emissions value from the DOE will be published by the DOE, including a process for, under limited circumstances, a revision to the DOE’s initial analytical assessment of an emissions value on the basis of revised technical information or facility design and operation. (6) Effect of PER. A taxpayer may use a PER determined by the Secretary to calculate the amount of the section 45V credit under section 45V(a) and § 1.45V–1(b) with respect to qualified clean hydrogen produced at a qualified clean hydrogen production facility, provided all other requirements of section 45V are met, until the lifecycle GHG emissions rate of such hydrogen has been determined (for purposes of section 45V(c)(2)(C)) under the most recent GREET model. The Secretary’s PER determination is not an examination or inspection of books of account for purposes of section 7605(b) of the Code and does not preclude or impede the IRS (under section 7605(b) or any administrative provisions adopted by the IRS) from later examining a return or inspecting books or records with respect to any taxable year for which the section 45V credit is claimed. For example, the verification report submitted under section 45V(c)(2)(B)(ii) and § 1.45V–5 and any information, representations, or other data provided to the DOE in support of the request for an emissions value are still subject to examination. Further, a PER determination does not signify that the IRS has determined that the requirements of section 45V have been satisfied for any taxable year. (d) Use of Energy Attribute Certificates (EACs)—(1) In general. For purposes of the section 45V credit, if a taxpayer determines a lifecycle GHG emissions rate for hydrogen produced at a hydrogen production facility using the most recent GREET model or the Secretary determines a provisional emissions rate for hydrogen produced at a hydrogen production facility subject to a PER petition, then the taxpayer may PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 treat such hydrogen production facility’s use of electricity as being from a specific electricity generating facility rather than being from the regional electricity grid (as represented in 45VH2–GREET) only if the taxpayer acquires and retires qualifying EACs (as defined in paragraph (d)(2)(iv) of this section) for each unit of electricity that the taxpayer claims from such source. For example, one megawatt-hour of electricity use to produce hydrogen would need to be matched with one megawatt-hour of qualifying EACs. Further, to satisfy this requirement, a taxpayer’s acquisition and retirement of qualifying EACs must also be recorded in a qualified EAC registry or accounting system (as defined in paragraph (d)(2)(v) of this section) so that the acquisition and retirement of such EACs may be verified by a qualified verifier (as defined in § 1.45V– 5(h)). The requirements of this paragraph (d)(1) apply regardless of whether the electricity generating facility is grid connected, directly connected, or co-located with the hydrogen production facility. (2) Definitions. For purposes of this section— (i) Commercial operations date. The term commercial operations date or COD means the date on which a facility that generates electricity begins commercial operations. (ii) Energy attribute certificate. The term energy attribute certificate (EAC) means a tradeable contractual instrument, issued through a qualified EAC registry or accounting system (as defined in paragraph (d)(2)(v) of this section), that represents the energy attributes of a specific unit of energy produced. An EAC may be traded with or separately from the underlying energy it represents. An EAC can be retired by or on behalf of its owner, which is the party that has the right to claim the underlying attributes represented by an EAC. Renewable energy certificates (RECs) and other similar energy certificates issued through a registry or accounting system are forms of EACs. (iii) Eligible EAC. The term eligible EAC means an EAC that, with respect to the electricity to which the EAC relates, provides, at a minimum, the information described in paragraphs (d)(2)(iii)(A) through (F) of this section— (A) A description of the facility, including the technology and feedstock used to generate the electricity; (B) The amount and units of electricity; (C) The COD of the facility that generated the electricity; E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules (D) For electricity that is generated before January 1, 2028, the calendar year in which such electricity was generated; (E) For electricity that is generated after December 31, 2027, the date and hour in which such electricity was generated; and (F) The project identification number or assigned identifier. (iv) Qualifying EAC. The term qualifying EAC means an eligible EAC that meets the requirements of paragraph (d)(3) of this section and for which the satisfaction of those requirements has been verified by a qualified verifier (as defined in § 1.45V– 5(h)). (v) Qualified EAC registry or accounting system. The term qualified EAC registry or accounting system means a tracking system that— (A) Assigns a unique identification number to each EAC tracked by such system; (B) Enables verification that only one EAC is associated with each unit of electricity; (C) Verifies that each EAC is claimed and retired only once; (D) Identifies the owner of each EAC; and (E) Provides a publicly accessible view (for example, through an application programming interface) of all currently registered generators in the tracking system to prevent the duplicative registration of generators. (vi) Region. The term region means a region derived from the National Transmission Needs Study that was released by the DOE on October 30, 2023. Alaska, Hawaii, and each U.S. territory will be treated as separate regions. (3) Qualifying EAC requirements. An eligible EAC meets the requirements of this paragraph (d)(3) if it meets the requirements of paragraphs (d)(3)(i) through (iii) of this section. (i) Incrementality. An EAC meets the requirements of this paragraph (d)(3)(i) if it meets the requirements of paragraph (d)(3)(i)(A) or (B) of this section. Paragraph (d)(3)(i)(C) of this section provides an example that illustrates the application of paragraph (d)(3)(i)(B) of this section. (A) An EAC meets the requirements of this paragraph (d)(3)(i)(A) if the electricity generation facility that produced the unit of electricity to which the EAC relates has a COD that is no more than 36 months before the hydrogen production facility for which the EAC is retired was placed in service. (B) Uprates. An EAC meets the requirements of this paragraph (d)(3)(i)(B) if the electricity represented by the EAC is produced by an electricity VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 generating facility that had an uprate no more than 36 months before the hydrogen production facility with respect to which the EAC is retired was placed in service and such electricity is part of such electricity generating facility’s uprated production. The term uprate means an increase in an electricity generating facility’s rated nameplate capacity (in nameplate megawatts). The term pre-uprate capacity means the nameplate capacity of an electricity generating facility immediately before an uprate. The term post-uprate capacity means the nameplate capacity of an electricity generating facility immediately after an uprate. The term incremental generation capacity means the increase in an electricity generating facility’s rated nameplate capacity from the pre-uprate capacity to the post-uprate capacity. The term uprated production rate means the incremental generation capacity (in nameplate megawatts) divided by the post-uprate capacity (in nameplate megawatts). The term uprated production means the uprated production rate of an electricity generating facility multiplied by its total generation output (in megawatt hours). An uprated electricity generating facility’s production must be prorated to each hour of such facility’s generation by multiplying the production for each hour or each year, consistent with the requirements in paragraph (d)(3)(ii) of this section, by the uprated production rate to determine the electricity to which the uprate relates. (C) Example. Power Plant undergoes an uprate that expands its rated nameplate capacity from a pre-uprate capacity of 10 megawatts (MW) to a post-uprate capacity of 12 MW. After the uprate, its generation output increases to a total of 40,000 MW hours for the year. Power Plant’s incremental generation capacity is 2 MW, its uprated production rate is 0.167 (2 MW divided by 12 MW), and its total uprated production for the year is 6,667 megawatt hours (MWh) (2 megawatts divided by 12 MW multiplied by 40,000 MWh). Two-twelfths (0.167) of each hour of the Power Plant’s production may be considered uprated production. (ii) Temporal matching—(A) In general. An EAC meets the requirements of this paragraph (d)(3)(ii) if the electricity represented by the EAC is generated in the same hour that the taxpayer’s hydrogen production facility uses electricity to produce hydrogen. (B) Transition rule. For EACs that represent electricity generated before January 1, 2028, the EAC will be considered generated in the same hour that the taxpayer’s hydrogen production PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 89249 facility uses electricity to produce hydrogen as required in paragraph (d)(3)(ii)(A) of this section if the electricity represented by the EAC is generated in the same calendar year that the taxpayer’s hydrogen production facility uses electricity to produce hydrogen. (iii) Deliverability. An EAC meets the requirements of this paragraph (d)(3)(iii) if the electricity represented by the EAC is generated by a facility that is in the same region (as defined in paragraph (d)(2)(vi) of this section) as the hydrogen production facility. (e) Applicability date. This section applies to taxable years beginning after December 26, 2023. § 1.45V–5 Procedures for verification of qualified clean hydrogen production and sale or use. (a) In general. For each qualified clean hydrogen production facility for which a taxpayer claims a section 45V credit, a verification report must be attached to the taxpayer’s Form 7210, Clean Hydrogen Production Credit, or any successor form(s), for each qualified clean hydrogen production facility and for each taxable year in which the taxpayer claims the section 45V credit. (b) Requirements for verification reports. A verification report specified in paragraph (a) of this section must be prepared by a qualified verifier under penalties of perjury and must contain— (1) An attestation from the qualified verifier regarding the taxpayer’s production of qualified clean hydrogen for sale or use (production attestation); (2) An attestation from the qualified verifier regarding the amount of qualified clean hydrogen sold or used (sale or use attestation); (3) An attestation from the qualified verifier regarding conflicts of interest (conflict attestation); (4) Certain information regarding the qualified verifier, including documentation of the qualified verifier’s qualifications (qualified verifier statement); (5) Certain general information about the taxpayer’s hydrogen production facility where the hydrogen production undergoing verification occurred; and (6) Any documentation necessary to substantiate the verification process given the standards and best practices prescribed by the qualified verifier’s accrediting body and the circumstances of the taxpayer and the taxpayer’s hydrogen production facility. (c) Requirements for the production attestation. The following requirements apply to the production attestation. (1) The production attestation must be an attestation, made under penalties of E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89250 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules perjury, that the qualified verifier performed a verification sufficient to determine that the operation, during the applicable taxable year, of the hydrogen production facility that produced the hydrogen for which the section 45V credit is claimed, and any energy attribute certificates (EACs) applied pursuant to § 1.45V–4(d) for the purpose of accounting for such facility’s emissions, are accurately reflected in— (i) The amount of qualified clean hydrogen produced by the taxpayer that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached; and (ii) Either— (A) The data the taxpayer entered into the most recent GREET model to determine the lifecycle GHG emissions rate that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached; or (B) The data the taxpayer submitted in the PER petition relating to the hydrogen for which the section 45V credit is claimed, and which was provided to the DOE in support of the taxpayer’s request for the emissions value provided in the PER petition. (2) If the production attestation attests to the information specified in paragraph (c)(1)(ii)(B) of this section, then the production attestation must also specify the emissions value received from the DOE that was calculated using such data, expressed in kilograms of CO2e per kilogram of hydrogen. (3) The production attestation must specify the lifecycle GHG emissions rate (expressed in kilograms of CO2e per kilogram of hydrogen) and the amount of qualified clean hydrogen produced by the taxpayer (expressed in kilograms), that are claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached. (d) Requirements for the sale or use attestation—(1) In general. The sale or use attestation must be an attestation, made under penalties of perjury, that the qualified verifier performed a verification sufficient to determine that the amount of qualified clean hydrogen that is specified in the production attestation pursuant to paragraph (c)(1)(i) of this section, and that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached, has been sold or used by a person who makes a verifiable use of such hydrogen. (2) Verifiable use. For purposes of section 45V(c)(2)(B)(ii) of the Code and VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 the section 45V regulations (as defined in § 1.45V–1(a)(13)), a person’s verifiable use of the hydrogen specified in paragraph (d)(1) of this section can occur within or outside the United States. A verifiable use can be made by the taxpayer or a person other than the taxpayer. For example, a verifiable use includes a tolling arrangement pursuant to which a service recipient provides raw materials or inputs, such as water or electricity, to a toller (that is, a thirdparty service provider that owns a hydrogen production facility), and the toller produces hydrogen for the service recipient using the service recipient’s raw materials or inputs in exchange for a fee, use of the hydrogen by the service recipient would be a verifiable use. However, a verifiable use does not include— (i) Use of hydrogen to generate electricity that is then directly or indirectly used in the production of more hydrogen; or (ii) Venting or flaring of hydrogen. (e) Requirements for the conflict attestation—(1) In general. The conflict attestation must include attestations, made under penalties of perjury, that— (i) The qualified verifier has not received a fee based to any extent on the value of any section 45V credit that has been or is expected to be claimed by any taxpayer and no arrangement has been made for such fee to be paid at some time in the future; (ii) The qualified verifier was not a party to any transaction in which the taxpayer sold qualified clean hydrogen it had produced or in which the taxpayer purchased inputs for the production of such hydrogen; (iii) The qualified verifier is not related, within the meaning of section 267(b) or 707(b)(1) of the Code, to, or an employee of, the taxpayer; (iv) The qualified verifier is not married to an individual described in paragraph (e)(1)(iii) of this section; and (v) If the qualified verifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the attestations under paragraphs (e)(1)(i) through (iv) of this section must also be made with respect to the partnership or the person who employs or engages the qualified verifier. (2) Special rule for transfer elections. If an election has been made under section 6418(a) of the Code with respect to the section 45V credit, then the attestations under paragraph (e)(1) of this section must be made with respect to the qualified verifier’s independence PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 from both the eligible taxpayer and the transferee taxpayer (as those terms are defined in section 6418 and the regulations in this chapter thereunder). (f) Requirements for the qualified verifier statement. The qualified verifier statement must include the following— (1) The qualified verifier’s name, address, and taxpayer identification number; (2) The qualified verifier’s qualifications to conduct the verification, including a description of the qualified verifier’s education and experience and a photocopy of the qualified verifier’s certificate received from their accrediting body; (3) If the qualified verifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the name, address, and taxpayer identification number of the partnership or the person who employs or engages the qualified verifier; (4) The signature of the qualified verifier and the date signed by the qualified verifier; and (5) A statement that the verification was conducted for Federal income tax purposes. (g) General information on the taxpayer’s hydrogen production facility. The verification report must include the following information for the taxpayer’s hydrogen production facility where the hydrogen production undergoing verification occurred: (1) The location of the hydrogen production facility; (2) A description of the hydrogen production facility, including its method of producing hydrogen; (3) The type(s) of feedstock(s) used by the hydrogen production facility during the taxable year of production; (4) The amount(s) of feedstock(s) used by the hydrogen production facility during the taxable year of production; and (5) A list of the metering devices used to record any data used by the qualified verifier to support the production attestation under paragraph (c) of this section along with a statement that the qualified verifier is reasonably assured that the device(s) underwent industryappropriate quality assurance and quality control, and the accuracy and calibration of the device has been tested in the last year. (h) Qualified verifier. The term qualified verifier means any individual or organization with active accreditation— E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS3 (1) As a validation and verification body from the American National Standards Institute National Accreditation Board; or (2) As a verifier, lead verifier, or verification body under the California Air Resources Board Low Carbon Fuel Standard program. (i) Unrelated party. For purposes of section 45V(c)(2)(B)(ii), the term unrelated party means a qualified verifier who meets the requirements of paragraph (e) of this section. (j) Requirements for taxpayers claiming both the section 45V credit and the section 45 credit or the section 45U credit. In the case of a taxpayer who produces electricity for which either the section 45 or section 45U credit is claimed and the taxpayer or a related person uses such electricity to produce hydrogen for which the section 45V credit is claimed, the verification report must also contain attestations that the qualified verifier performed a verification sufficient to determine that— (1) The electricity used to produce such hydrogen was produced at the relevant facility for which a section 45 or section 45U credit is claimed; (2) The given amount of electricity (in kilowatt hours) used to produce such hydrogen at the relevant hydrogen production facility is reasonably assured of being accurate; and (3) The electricity for which a section 45 or 45U credit was claimed is represented by EACs that are retired in connection with the production of such hydrogen. (k) Timely verification report. A verification report must be signed and dated by the qualified verifier no later than— (1) The due date, including extensions, of the Federal income tax return or information return for the taxable year during which the hydrogen undergoing verification is produced; or (2) In the case of a credit first claimed on an amended return or administrative adjustment request, the date on which the amended return or administrative adjustment request is filed. (l) Applicability date. This section applies to taxable years beginning after December 26, 2023. § 1.45V–6 Rules for determining the placed in service date for an existing facility that is modified or retrofitted to produce qualified clean hydrogen. (a) Modification of an existing facility—(1) In general. Under section 45V(d)(4) of the Code, in the case of an existing facility that— (i) Was originally placed in service before January 1, 2023, and, prior to the VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 modification described in this paragraph (a), did not produce qualified clean hydrogen, and after the date such facility was originally placed in service— (A) Is modified to produce qualified clean hydrogen; and (B) Amounts paid or incurred with respect to such modification are properly chargeable to the taxpayer’s capital account for the facility. (ii) Such facility will be deemed to have been originally placed in service as of the date the property required to complete the modification described in this paragraph (a) is placed in service. (2) Modification requirements. For purposes of section 45V(d)(4) and paragraph (a)(1) of this section, an existing facility will not be deemed to have been originally placed in service as of the date the property required to complete the modification is placed in service unless the modification is made for the purpose of enabling the facility to produce qualified clean hydrogen and the taxpayer pays or incurs an amount that is properly chargeable to the taxpayer’s capital account with respect to the facility. A modification is made for the purpose of enabling the facility to produce qualified clean hydrogen if the facility could not produce hydrogen with a lifecycle greenhouse gas (GHG) emissions rate that is less than or equal to 4 kilograms of CO2e per kilogram of hydrogen but for the modification. For example, if a taxpayer solely pays or incurs capital expenses to modify existing components of a hydrogen production facility that are not necessary for the production of hydrogen with a lifecycle GHG emissions rate that is less than or equal to 4 kilograms of CO2e per kilogram of hydrogen, such modification does not entitle the facility to a new placed in service date. (b) Retrofit of an Existing Facility (80/ 20 Rule). For purposes of section 45V(a)(1), a facility may establish a new date on which it is considered originally placed in service, even though the facility contains some used property, provided the fair market value of the used property is not more than 20 percent of the facility’s total value, calculated by adding the cost of the new property to the value of the used property (80/20 Rule). For purposes of the 80/20 Rule, the cost of new property includes all properly capitalized costs of the new property included within the facility. The 80/20 Rule applies to any existing facility, regardless of whether the facility previously produced qualified clean hydrogen and regardless of when the facility was originally placed in service (before application of PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 89251 this paragraph (b)). If a facility satisfies the requirements of the 80/20 Rule, then the date on which such facility is considered originally placed in service for purposes of section 45V(a)(1) is the date on which the new property added to the facility is placed in service. (c) Examples. The following examples illustrate the application of paragraphs (a) and (b) of this section: (1) Example 1: Modification of an existing facility—(i) Facts. Facility X, a hydrogen production facility that was originally placed in service on January 1, 2018, could not produce qualified clean hydrogen as described in section 45V(c)(2). After January 1, 2023, Facility X was modified to produce qualified clean hydrogen, and all amounts paid or incurred with respect to such modifications were properly chargeable to the taxpayer’s capital account for Facility X. The property required to complete the modification was placed in service on June 1, 2023. (ii) Analysis. Under section 45V(d)(4) and paragraph (a) of this section, because Facility X was originally placed in service before January 1, 2023, and before the modification could not produce qualified clean hydrogen, it is deemed to be originally placed in service as of the date the property required to complete the modification is placed in service. Accordingly, for purposes of section 45V(a)(1) and (d)(4), Facility X is deemed to have been originally placed in service on June 1, 2023. (2) Example 2: Modification of an existing facility; coordination with the section 45Q credit previously allowed— (i) Facts. The facts are the same as in paragraph (c)(1) of this section (Example 1), except that taxpayer was allowed a section 45Q credit with respect to carbon capture equipment (CCE) included at Facility X before June 1, 2023. (ii) Analysis. Under paragraph (a) of this section and § 1.45V–2(a), although Facility X is deemed to have been originally placed in service on June 1, 2023, because taxpayer had previously been allowed a section 45Q credit with respect to the CCE included at Facility X, no section 45V credit is allowable for qualified clean hydrogen produced at Facility X, despite the modification. (3) Example 3: Modification of an existing facility and coordination with section 45Q credit not previously allowed—(i) Facts. Facility Y, a hydrogen production facility that was originally placed in service on February 1, 2020, could not previously produce qualified clean hydrogen as described in section 45V(c)(2). On February 1, 2026, Facility Y was modified to produce E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89252 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules qualified clean hydrogen by adding new CCE to allow Facility Y to capture, process, and prepare carbon dioxide for transport for disposal, injection, or utilization. All amounts paid or incurred with respect to such modifications were properly chargeable to the taxpayer’s capital account for Facility Y. The property required to complete the modification of Facility Y was placed in service on February 1, 2026, and as a result, Facility Y, including the new CCE, is deemed to be originally placed in service on February 1, 2026, for purposes of sections 45V and 45Q. No section 45Q credit has been allowed to any taxpayer with respect to the new carbon capture equipment located at Facility Y. (ii) Analysis. Under paragraph (a) of this section and § 1.45V–2(a), because no section 45Q credit has been allowed to any taxpayer with respect to the new CCE located at Facility Y, a section 45V credit is allowable for the qualified clean hydrogen produced at Facility Y, assuming all other requirements of section 45V are met. (4) Example 4: Retrofit of an Existing Facility (80/20 Rule)—(i) Facts. Facility Z, a hydrogen production facility that was originally placed in service on February 1, 2023, does not produce qualified clean hydrogen as described in section 45V(c)(2). On January 1, 2026, Facility Z was retrofitted to produce qualified clean hydrogen. After the retrofit, the cost of the new property included in Facility Z is greater than 80 percent of Facility Z’s total value. (ii) Analysis. Even though Facility Z does not satisfy the requirements of section 45V(d)(4) because Facility Z was not originally placed in service before January 1, 2023, under paragraph (b) of this section, Facility Z is deemed to be originally placed in service on January 1, 2026, because Facility Z meets the 80/ 20 Rule. Thus, a section 45V credit is allowable for qualified clean hydrogen produced at Facility Z during the 10year period beginning on January 1, 2026, assuming all other requirements of section 45V are met. (5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and coordination with section 45Q credit previously allowed—(i) Facts. The facts are the same as in paragraph (c)(4) of this section (Example 4), except that before the retrofit, Facility Z included CCE for which a section 45Q credit was allowed to a taxpayer. (ii) Analysis. Under paragraph (b) of this section and § 1.45V–2(a), Facility Z is deemed to be originally placed in service on January 1, 2026, because Facility Z meets the 80/20 Rule. However, a section 45V credit is not VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 allowable for qualified clean hydrogen produced at Facility Z during the 10year period beginning on January 1, 2026, because a section 45Q credit has been allowed to a taxpayer with regard to the CCE included in Facility Z. (d) Applicability date. This section applies to taxable years beginning after December 26, 2023. ■ Par. 3. Section 1.48–15 is added to read as follows: § 1.48–15 Election to treat clean hydrogen production facility as energy property. (a) In general. Under section 48(a)(15) of the Internal Revenue Code (Code), a taxpayer that owns and places in service a specified clean hydrogen production facility (as defined in section 48(a)(15)(C) and paragraph (b) of this section) can make an irrevocable election under section 48(a)(15)(C)(ii)(II) to treat any qualified property (as defined in section 48(a)(5)(D)) that is part of the facility as energy property for purposes of section 48. (b) Specified clean hydrogen production facility. The term specified clean hydrogen production facility means any qualified clean hydrogen production facility— (1) That is placed in service after December 31, 2022; (2) With respect to which no credit has been allowed under section 45V or 45Q of the Code, and for which the taxpayer makes an irrevocable election to have section 48(a)(15) apply; and (3) For which an unrelated party has verified in the manner specified in paragraph (e) of this section that such facility produces hydrogen through a process that results in lifecycle greenhouse gas (GHG) emissions that are consistent with the hydrogen that such facility was designed and expected to produce under section 48(a)(15)(A)(ii) and paragraph (c) of this section. (c) Energy percentage—(1) In general. In the case of a specified clean hydrogen production facility that is designed and reasonably expected to produce qualified clean hydrogen through a process that results in a lifecycle GHG emissions rate of: (i) Not greater than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, the energy percentage is 1.2 percent; (ii) Less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per kilogram of hydrogen, the energy percentage is 1.5 percent; (iii) Less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 kilogram of hydrogen, the energy percentage is 2 percent; and (iv) Less than 0.45 kilograms of CO2e per kilogram of hydrogen, the energy percentage is 6 percent. (2) Designed and reasonably expected to produce. Hydrogen that a facility is designed and reasonably expected to produce means hydrogen produced through a process that results in the lifecycle GHG emissions rate specified in the annual verification report described in paragraph (e)(2) of this section for the taxable year in which the election is made. (d) Time and manner of making the election—(1) In general. To make an election under section 48(a)(15)(C)(ii)(II), a taxpayer must claim the section 48 credit with respect to a specified clean hydrogen production facility on a completed Form 3468, Investment Credit, or any successor form(s), and file the form with the taxpayer’s Federal income tax return or information return for the taxable year in which the specified clean hydrogen production facility is placed in service. The taxpayer must also attach a statement to its Form 3468, Investment Credit, or any successor form(s), filed with its Federal income tax return or information return that includes the information required by the instructions to Form 3468, Investment Credit, or any successor form(s), for each specified clean hydrogen production facility subject to an election. A separate election must be made for each specified clean hydrogen production facility that meets the requirements provided in section 48(a)(15) to treat the qualified property that is part of the facility as energy property. If any taxpayer owning an interest in a specified clean hydrogen production facility makes an election under section 48(a)(15)(C)(ii)(II) with respect to the specified clean hydrogen production facility, then that election is binding on all taxpayers that directly or indirectly own an interest in the specified clean hydrogen production facility. (2) Special rule for partnerships and S corporations. In the case of a specified clean hydrogen production facility owned by a partnership or an S corporation, the election under section 48(a)(15)(C)(ii)(II) is made by the partnership or S corporation and is binding on all ultimate credit claimants (as defined in § 1.50–1(b)(3)(ii)). The partnership or S corporation must file a Form 3468, Investment Credit, or any successor forms(s), with its partnership or S corporation return for the taxable year in which the specified clean hydrogen production facility is placed E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules in service to indicate that it is making the election, and attach a statement that includes all the information required by the instructions to Form 3468, Investment Credit, or any successor form(s), for each specified clean hydrogen production facility subject to the election. The ultimate credit claimant’s section 48 credit must be based on each claimant’s share of the basis (as defined in § 1.46–3(f)) of the specified clean hydrogen production facility on a completed Form 3468, Investment Credit, or any successor form(s), and file such form with a Federal income tax return for the taxable year that ends with or within the taxable year in which the partnership or S corporation made the election. The partnership or S corporation making the election must provide the ultimate credit claimants with the necessary information to complete Form 3468, Investment Credit, or any successor form(s), to claim the section 48 credit. (3) Election irrevocable. The election to treat qualified property that is part of a specified clean hydrogen production facility as energy property is irrevocable. (4) Election availability date. The election to treat qualified property that is part of a specified clean hydrogen production facility as energy property is available for property placed in service after December 31, 2022. In the case of any property placed in service after December 31, 2022, for which construction began before January 1, 2023, the election under section 48(a)(15)(C)(ii)(II) applies only to the extent of the basis of such property that is attributable to construction, reconstruction, or erection occurring after December 31, 2022. (e) Third party verification—(1) In general. In the case of a taxpayer that makes an election under section 48(a)(15)(C)(ii)(II) to treat any qualified property that is part of a specified clean hydrogen production facility as energy property for purposes of the section 48 credit, the taxpayer must obtain an annual verification report for the taxable year in which the election under section 48(a)(15)(C)(ii)(II) is made for the facility and for each taxable year thereafter during the recapture period specified in paragraph (f)(3) of this section. The taxpayer must also submit the annual verification report as an attachment to the Form 3468, Investment Credit, or any successor form(s), for the taxable year in which the election under section 48(a)(15)(C)(ii)(II) is made for the facility. (2) Annual verification report—(i) In general. For purposes of paragraph (e)(1) of this section, the annual verification VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 report must be signed under penalties of perjury by a qualified verifier (as defined in § 1.45V–5(h)) and contain an attestation providing all of the following— (A) The information specified in § 1.45V–5(b) and (d) through (h); (B) A statement attesting to the lifecycle GHG emissions rate (determined under section 45V(c) and § 1.45V–4) of the hydrogen produced at the specified clean hydrogen production facility for the taxable year to which the annual verification report relates and that the operation, during such taxable year, of the specified clean hydrogen production facility, and any energy attribute certificates (EACs) applied pursuant to § 1.45V–4(d) for the purpose of accounting for such facility’s emissions, are accurately reflected in the data that the taxpayer entered into the most recent GREET model (as defined in § 1.45V–1(a)(8)(ii)) (or that the taxpayer provided to the Department of Energy (DOE) in support of the taxpayer’s request for an emissions value), to determine the lifecycle GHG emissions rate of the hydrogen undergoing verification; and (C) A statement attesting that the facility produced hydrogen through a process that results in a lifecycle GHG emissions rate that is consistent with, or lower than, the lifecycle GHG emissions rate of the hydrogen that such facility was designed and expected to produce. (ii) Conflict attestation in the case of a transfer election. If a transfer election has been made under section 6418(a) of the Code with respect to the section 48 credit for a specified clean hydrogen production facility, then a conflict attestation containing the information specified in § 1.45V–5(e)(1), must be made with respect to the qualified verifier’s independence from both the eligible taxpayer (as defined in section 6418(f)(2) and § 1.6418–1(b)) and the transferee taxpayer (as described in section 6418(a) and defined in § 1.6418– 1(m)), and without regard to the requirements under § 1.45V–5(e)(2). (iii) Inconsistent lifecycle GHG emissions. In the event the facility produces hydrogen through a process that results in a lifecycle GHG emissions rate that is greater than the lifecycle GHG emissions rate that such facility was designed and expected to produce (and thus the qualified verifier cannot provide the attestation specified in paragraph (e)(2)(i)(C) of this section), resulting in a reduced energy percentage under section 48(a)(15)(A)(ii) with respect to such facility, an emissions tier recapture event under paragraph (f)(2) of this section will occur. PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 89253 (iv) Designed and expected to produce. Hydrogen that the facility was designed and expected to produce means hydrogen specified in paragraph (c)(2) of this section. (v) Timely annual verification report. The annual verification report must be signed and dated by the qualified verifier no later than the due date, including extensions, of the Federal income tax return for the taxable year in which the hydrogen undergoing verification was produced. (vi) Records retention. In addition to the recordkeeping requirements set forth in paragraph (g) of this section, the taxpayer must retain the annual verification report for at least six years after the due date, with extensions, for filing the Federal income tax return for the taxable year in which the hydrogen undergoing verification was produced. (f) Recapture—(1) In general. For purposes of section 48(a)(15)(E), in any taxable year of the recapture period specified in paragraph (f)(3) of this section in which an emissions tier recapture event (as defined in paragraph (f)(2) of this section) occurs, the tax imposed on the taxpayer under chapter 1 of the Code for the taxable year of the emissions tier recapture event is increased by the recapture amount specified in paragraph (f)(4) of this section. (2) Emissions tier recapture event. For purposes of paragraph (f)(1) of this section, an emissions tier recapture event occurs in any taxable year of the recapture period specified in paragraph (f)(3) of this section under the following circumstances— (i) The taxpayer fails to obtain an annual verification report by the deadline for filing its Federal income tax return (including extensions) for any taxable year in which an annual verification report is required under paragraph (e)(1) of this section; (ii) The specified clean hydrogen production facility actually produced hydrogen through a process that results in a lifecycle GHG emissions rate that can only support a lower energy percentage than the energy percentage used to calculate the amount of the section 48 credit for the facility for the taxable year in which the facility is placed in service; or (iii) The specified clean hydrogen production facility actually produced hydrogen through a process that results in a lifecycle GHG emissions rate of greater than 4 kilograms of CO2e per kilogram of hydrogen. (3) Recapture period. For purposes of paragraph (f) of this section, the recapture period begins on the first day of the taxable year after the taxable year E:\FR\FM\26DEP3.SGM 26DEP3 khammond on DSKJM1Z7X2PROD with PROPOSALS3 89254 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules in which the facility was placed in service and ends on the close of the fifth taxable year following the close of the taxable year in which the facility was placed in service. (4) Recapture amount—(i) In general. In the case of an emissions tier recapture event under paragraph (f)(2) of this section, the recapture amount for the taxable year in which the emissions tier recapture event occurred is equal to 20 percent of the excess of the section 48 credit allowed to the taxpayer for the specified clean hydrogen production facility for the taxable year in which the facility was placed in service, over the section 48 credit that would have been allowed to the taxpayer for the facility if the taxpayer had used the energy percentage supported by the actual production to calculate the amount of the section 48 credit. Such increase in tax is the recapture amount. (ii) Carrybacks and carryovers. In the case of any emissions tier recapture event described in paragraph (f)(2) of this section, the carrybacks and carryovers under section 39 must be adjusted by reason of the emissions tier recapture event. (iii) Recapture amount in case of recapture events under paragraph (f)(2)(i) or (iii) of this section. For purposes of paragraph (f)(4)(i) of this section, in the case of an emissions tier recapture event under paragraph (f)(2)(i) or (iii), the amount of the section 48 credit that would have been allowed to the taxpayer for the specified clean hydrogen production facility if the taxpayer had used the energy percentage supported by the actual production is zero. Accordingly, the recapture amount in the taxable year of an emissions tier recapture event under paragraph (f)(2)(i) or (iii) is 20 percent of the section 48 credit allowed to the taxpayer for such specified clean hydrogen production facility. (5) Example. The following example illustrates the application of paragraphs (f)(1) through (4) of this section. (i) Facts. On June 1, 2023, Taxpayer, a calendar-year taxpayer, originally places in service Facility X, a specified clean hydrogen production facility. At such time, Taxpayer’s basis in qualified property that is part of Facility X is $100,000,000. In the taxable year in which Facility X was originally placed in service (taxable year 2023), Facility X produces qualified clean hydrogen through a process that results in a lifecycle GHG emissions rate of 0.44kg/ CO2e per kilogram of hydrogen. Taxpayer submits with its 2023 Federal income tax return an annual verification report attesting that, for the taxable year 2023, Facility X produced hydrogen VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 through a process that resulted in a lifecycle GHG emissions rate of 0.44kg/ CO2e, which is consistent with the lifecycle GHG emissions rate of the hydrogen that the facility was designed and expected to produce. Taxpayer makes a valid election under section 48(a)(15)(C)(ii)(II) with respect to Facility X on its Federal income tax return for the taxable year 2023. In the first year of the recapture period (taxable year 2024), Taxpayer fails to obtain an annual verification report by the deadline (including extensions) for filing its 2024 Federal income tax return. In the second year of the recapture period (taxable year 2025), Facility X produces qualified clean hydrogen through a process that results in a lifecycle GHG emissions rate of 1.4kg/CO2e per kilogram of hydrogen and obtains an annual verification report attesting to such lifecycle GHG emissions rate. In the third, fourth, and fifth years of the recapture period (taxable years 2026, 2027, and 2028), Facility X produces qualified clean hydrogen through a process that results in a lifecycle GHG emissions rate of 0.44kg/CO2e per kilogram of hydrogen and obtains an annual verification report attesting to such lifecycle GHG emissions rate, and attesting that such lifecycle GHG emissions rate is consistent with the lifecycle GHG emissions rate of the hydrogen that the facility was designed and expected to produce, by the deadline (including extensions) for filing its 2026, 2027, and 2028 Federal income tax returns, respectively. (ii) Analysis. Facility X is designed and reasonably expected to produce hydrogen through a process that results in a lifecycle GHG emissions rate of 0.44kg/CO2e, which is the rate specified in Taxpayer’s annual verification report submitted with Taxpayer’s Federal income tax return for the taxable year in which the election under section 48(a)(15)(C)(ii)(II) with respect to Facility X was made. Under paragraph (c)(1)(iv) of this section, Facility X’s energy percentage is therefore 6 percent. For the taxable year 2023, the year in which Taxpayer places in service Facility X, Taxpayer claims a section 48 credit for its basis in qualified property that is part of Facility X in the amount of $6,000,000 (6 percent of $100,000,000). In taxable year 2024, there is an emissions tier recapture event under paragraph (f)(2)(i) of this section because Taxpayer failed to obtain an annual verification report. Under paragraph (f)(4)(i) of this section, the amount of the section 48 credit recaptured in 2024 is $1,200,000. This PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 reflects 20 percent of the section 48 credit allowed ($6,000,000) for Facility X. In taxable year 2025, there is an emissions tier recapture event under paragraph (f)(2)(ii) of this section because Facility X produced hydrogen through a process that resulted in a lifecycle GHG emissions rate that could only support an energy percentage of 2 percent, which is lower than the energy percentage used to calculate the amount of the section 48 credit for Facility X. Under paragraph (f)(4)(i) of this section, the amount of the section 48 credit recaptured in 2025 is $800,000. This reflects 20 percent of the difference between the amount of the section 48 credit allowed ($6,000,000) and the amount of the section 48 credit that would have been allowed for Facility X if Taxpayer had used the energy percentage supported by the actual production ($2,000,000). There is no emissions tier recapture event in taxable years 2026, 2027, or 2028 because, in those years, Facility X produced hydrogen through a process that resulted in a lifecycle GHG emissions rate that was consistent with the lifecycle GHG emissions rate of the hydrogen that Facility X was designed and expected to produce, and Taxpayer obtained an annual verification report attesting to such by the deadline (with extensions) for filing its Federal income tax return for each of those taxable years. (6) Coordination with sections 50(a) and 48(a)(10)(C) of the Code. In each taxable year of the recapture period specified in paragraph (f)(3) of this section for any credit allowed under section 48 with respect to a specified clean hydrogen production facility, the recapture rules, if applicable, apply in the following order: (i) Section 50(a); (ii) Section 48(a)(10)(C); and (iii) Section 48(a)(15)(E). (g) Recordkeeping. Consistent with section 6001 of the Code, a taxpayer making the election under section 48(a)(15)(C)(ii)(II) with respect to a specified clean hydrogen production facility must maintain and preserve records sufficient to establish the amount of the section 48 credit claimed by the taxpayer. At a minimum, those records include records to substantiate the information required to be included in the annual verification report under paragraph (e)(2) of this section, records establishing that the facility meets the definition of a specified qualified clean hydrogen production facility under section 48(a)(15)(C) and paragraph (b) of this section, and records establishing the date the specified clean hydrogen production facility was placed in E:\FR\FM\26DEP3.SGM 26DEP3 Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Proposed Rules service. If the increased section 48 credit amount was allowed under section 48(a)(9), then the taxpayer must also maintain records in accordance with § 1.45–12. 89255 (h) Applicability date. This section applies to taxable years beginning after December 26, 2023. Douglas W. O’Donnell, Deputy Commissioner for Services and Enforcement. [FR Doc. 2023–28359 Filed 12–22–23; 8:45 am] khammond on DSKJM1Z7X2PROD with PROPOSALS3 BILLING CODE 4830–01–P VerDate Sep<11>2014 18:45 Dec 22, 2023 Jkt 262001 PO 00000 Frm 00037 Fmt 4701 Sfmt 9990 E:\FR\FM\26DEP3.SGM 26DEP3

Agencies

[Federal Register Volume 88, Number 246 (Tuesday, December 26, 2023)]
[Proposed Rules]
[Pages 89220-89255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28359]



[[Page 89219]]

Vol. 88

Tuesday,

No. 246

December 26, 2023

Part IV





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Section 45V Credit for Production of Clean Hydrogen; Section 48(a)(15) 
Election To Treat Clean Hydrogen Production Facilities as Energy 
Property; Proposed Rule

Federal Register / Vol. 88 , No. 246 / Tuesday, December 26, 2023 / 
Proposed Rules

[[Page 89220]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-117631-23]
RIN 1545-BQ97


Section 45V Credit for Production of Clean Hydrogen; Section 
48(a)(15) Election To Treat Clean Hydrogen Production Facilities as 
Energy Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
credit for production of clean hydrogen (clean hydrogen production 
credit) and the energy credit, as established and amended by the 
Inflation Reduction Act of 2022, respectively. The proposed regulations 
would provide rules for: determining lifecycle greenhouse gas emissions 
rates resulting from hydrogen production processes; petitioning for 
provisional emissions rates; verifying production and sale or use of 
clean hydrogen; modifying or retrofitting existing qualified clean 
hydrogen production facilities; using electricity from certain 
renewable or zero-emissions sources to produce qualified clean 
hydrogen; and electing to treat part of a specified clean hydrogen 
production facility instead as property eligible for the energy credit. 
The proposed regulations would affect all taxpayers who produce 
qualified clean hydrogen and claim the clean hydrogen production 
credit, elect to treat part of a specified clean hydrogen production 
facility as property eligible for the energy credit, or produce 
electricity from certain renewable or zero-emissions sources used by 
taxpayers or related persons to produce qualified clean hydrogen. This 
document also provides notice of a public hearing on the proposed 
regulations.

DATES: Written or electronic comments must be received by February 26, 
2024. The public hearing on these proposed regulations is scheduled to 
be held on March 25, 2024, at 10 a.m. (ET). Requests to speak and 
outlines of topics to be discussed at the public hearing must be 
received by March 4, 2024. If no outlines are received by March 4, 
2024, the public hearing will be cancelled. Requests to attend the 
public hearing must be received by March 18, 2024. The public hearing 
will be made accessible to people with disabilities. Requests for 
special assistance during the hearing must be received by March 18, 
2024.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-117631-23) by following the 
online instructions for submitting comments. Requests for a public 
hearing must be submitted as prescribed in the ``Comments and Requests 
for a Public Hearing'' section. Once submitted to the Federal 
eRulemaking Portal, comments cannot be edited or withdrawn. The 
Department of the Treasury (Treasury Department) and the IRS will 
publish for public availability any comments submitted to the IRS's 
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-117631-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations, 
the Office of Chief Counsel (Passthroughs and Special Industries) at 
(202) 317-6853 (not a toll-free number); concerning submissions of 
comments or the public hearing, Vivian Hayes at (202) 317-6901 (not a 
toll-free number) or by email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed regulations to amend the Income Tax 
Regulations (26 CFR part 1) under sections 45V and 48(a)(15) of the 
Internal Revenue Code (Code), as added to the Code by section 13204 of 
Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as 
the Inflation Reduction Act of 2022 (IRA).
    The IRA added several provisions to the Code related to the 
production of, and investment in, clean hydrogen, which, along with the 
provisions of sections 45V and 48(a)(15), are described in part I of 
this Background section. Part II of this Background section describes a 
previous request for public comment on these provisions.

I. IRA Provisions for Clean Hydrogen Production and Investment

    This part I describes the credit for production of clean hydrogen 
as determined under section 45V (section 45V credit) and the 
irrevocable election to claim an energy credit under section 48 
(section 48 credit) in lieu of the section 45V credit. Also described 
are statutory exceptions to the requirement that electricity be sold to 
an unrelated person to be eligible for the renewable electricity 
production credit determined under section 45 (section 45 credit) or 
the zero-emission nuclear power production credit determined under 
section 45U (section 45U credit). Under these exceptions, electricity 
produced by a taxpayer from a qualified facility under section 45(d) or 
a qualified nuclear power facility under section 45U(b)(1) may be 
treated as sold by the taxpayer to an unrelated person during the 
taxable year if the electricity is used by the taxpayer or a related 
person at a qualified clean hydrogen production facility to produce 
qualified clean hydrogen.
A. Section 45V
1. Amount of Credit
    Section 45V provides a tax credit for the production of qualified 
clean hydrogen. For purposes of section 38 of the Code, section 45V(a) 
provides that the clean hydrogen production credit for any taxable year 
is an amount equal to the product of (i) 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, 
and (ii) the applicable amount as determined under section 45V(b) with 
respect to such hydrogen.
    Section 45V(b)(1) provides that, for purposes of section 45V(a)(2), 
the applicable amount is an amount equal to the applicable percentage 
of $0.60. If the amount so determined is not a multiple of 0.1 cent, 
then such amount is rounded to the nearest multiple of 0.1 cent.
    Section 45V(b)(2) provides that, for purposes of section 45V(b)(1), 
the applicable percentage is determined based on the lifecycle 
greenhouse gas emissions (lifecycle GHG emissions) rate of the process 
to produce any qualified clean hydrogen as follows: (i) if the 
lifecycle GHG emissions rate is not greater than 4 kilograms of carbon 
dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than 
2.5 kilograms of CO2e per kilogram of hydrogen, then the applicable 
percentage is 20 percent; (ii) if the lifecycle GHG emissions rate is 
less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less 
than 1.5 kilograms of CO2e per kilogram of hydrogen, then the 
applicable percentage is 25 percent; (iii) if the lifecycle GHG 
emissions rate is less than 1.5 kilograms of CO2e per kilogram of 
hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of

[[Page 89221]]

hydrogen, then the applicable percentage is 33.4 percent; and (iv) if 
the lifecycle GHG emissions rate is less than 0.45 kilograms of CO2e 
per kilogram of hydrogen, then the applicable percentage is 100 
percent.
    Section 45V(b)(3) provides that the $0.60 amount in section 
45V(a)(1) is adjusted by multiplying such amount by the inflation 
adjustment factor (as determined under section 45(e)(2), determined by 
substituting ``2022'' for ``1992'' in section 45(e)(2)(B)) for the 
calendar year in which the qualified clean hydrogen is produced. If any 
amount as increased under section 45V(b)(3) is not a multiple of 0.1 
cent, such amount is rounded to the nearest multiple of 0.1 cent.\1\
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    \1\ The IRS will publish the inflation-adjusted section 45V 
applicable amount annually. For the calendar year 2023, the section 
45V(b)(3) inflation adjustment factor is equal to one, so the 
inflation-adjusted applicable amount remains $0.60 for the calendar 
year 2023.
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    Section 45V(e)(1) provides that, in the case of any qualified clean 
hydrogen production facility that satisfies the requirements of section 
45V(e)(2), the amount of the section 45V credit with respect to 
qualified clean hydrogen described in section 45V(b)(2) is equal to the 
amount determined under section 45V(a) (determined without regard to 
section 45V(e)(1)) multiplied by five.
    A qualified clean hydrogen production facility meets the 
requirements of section 45V(e)(2) if: (i) the facility began 
construction before January 29, 2023, and with respect to any taxable 
year, for any period of such taxable year that is within the 10-year 
period beginning on the date the facility is originally placed in 
service, the prevailing wage requirements of section 45V(e)(3)(A) are 
met for any alteration or repair of the facility that occurs after 
January 29, 2023 (to the extent applicable); \2\ or (ii) the facility 
satisfies the prevailing wage and apprenticeship (PWA) requirements of 
sections 45V(e)(3)(A) and (4).\3\
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    \2\ Section 45V(e)(3)(A)(ii) requires the payment of wages at 
prevailing rates ``with respect to any taxable year, for any portion 
of such taxable year which is within the period described in 
subsection (a)(2)'', with respect to the alteration or repair of the 
facility. There is no ``period described in subsection (a)(2).'' The 
Treasury Department and the IRS interpret the reference to 
``subsection (a)(2)'' as a reference to section 45V(a)(1) where the 
10-year credit period is identified.
    \3\ See proposed Sec. Sec.  1.45-7, 1.45-8, 1.45-12, and 1.45V-3 
as proposed in the notice of proposed rulemaking (REG-100908-23) 
published in the Federal Register (88 FR 60018) on August 30, 2023, 
and corrected at 88 FR 73807 on October 27, 2023.
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    Generally, the prevailing wage requirements under section 
45V(e)(3)(A) with respect to any qualified clean hydrogen production 
facility require the taxpayer to ensure that any laborers and mechanics 
employed by the taxpayer or by any contractor or subcontractor in (i) 
the construction of such facility, and (ii) with respect to any taxable 
year, for any portion of such taxable year that is within the 10-year 
period beginning on the date such facility was originally placed in 
service, the alteration or repair of such facility, are paid wages at 
rates not less than the prevailing rates for construction, alteration, 
or repair of a similar character in the locality in which such facility 
is located as most recently determined by the Secretary of Labor, in 
accordance with subchapter IV of chapter 31 of title 40 of the United 
States Code, commonly known as the Davis-Bacon Act. Correction and 
penalty rules similar to the rules of section 45(b)(7)(B) also apply.
    Section 45V(e)(4) provides that rules similar to the apprenticeship 
requirements of section 45(b)(8) apply for purposes of section 
45V(e)(2).\4\
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    \4\ Under proposed Sec.  1.45V-3, the PWA requirements for 
purposes of section 45V(e)(2) would be satisfied if a facility meets 
the prevailing wage requirements of section 45(b)(7) and proposed 
Sec.  1.45-7, the apprenticeship requirements of section 45(b)(8) 
and proposed Sec.  1.45-8, and the recordkeeping and reporting 
requirements of proposed Sec.  1.45-12. Those proposed regulations 
are outside the scope of this notice of proposed rulemaking and 
proposed Sec.  1.45V-3 is addressed only to the extent necessary for 
purposes of formatting the proposed regulations that are the subject 
of this notice of proposed rulemaking in accordance with CFR 
standards.
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    For purposes of section 45V(a), in the case of a qualified clean 
hydrogen production facility that does not satisfy the requirements of 
section 45(e)(2), the amount of the clean hydrogen production credit 
for any taxable year is $0.12, $0.15, $0.20, or $0.60 per kilogram of 
qualified clean hydrogen produced (before taking into account any 
inflation adjustment under section 45V(b)(3)), depending on the 
lifecycle GHG emissions rate associated with the facility's hydrogen 
production process. For facilities meeting the requirements of section 
45V(e)(2), the credit amount determined under section 45V(a) (as 
adjusted for inflation subject to section 45V(b)(3)) is multiplied by 
five.
2. Definitions
a. Lifecycle Greenhouse Gas Emissions
    Section 45V(c)(1)(A) provides that, subject to section 
45V(c)(1)(B), the term ``lifecycle greenhouse gas emissions'' has the 
same meaning given such term under section 211(o)(1)(H) of the Clean 
Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022. 
Under section 45V(c)(1)(B), the term ``lifecycle greenhouse gas 
emissions'' includes emissions only through the point of production 
(well-to-gate), as determined under the most recent Greenhouse gases, 
Regulated Emissions, and Energy use in Transportation model, referred 
to as the ``GREET model'' commonly and in this document, developed by 
Argonne National Laboratory, or a successor model as determined by the 
Secretary of the Treasury or her delegate (Secretary).
b. Qualified Clean Hydrogen
    Section 45V(c)(2)(A) provides that the term ``qualified clean 
hydrogen'' means hydrogen that is produced through a process that 
results in a lifecycle GHG emissions rate of not greater than 4 
kilograms of CO2e per kilogram of hydrogen. Section 45V(c)(2)(B) 
further provides that the term ``qualified clean hydrogen'' does not 
include any hydrogen unless (i) such hydrogen is produced (A) in the 
United States (as defined in section 638(1) of the Code) or a United 
States territory (having the meaning of the term ``possession'' as 
defined in section 638(2)), (B) in the ordinary course of a trade or 
business of the taxpayer, and (C) for sale or use; and (ii) the 
production and sale or use of such hydrogen is verified by an unrelated 
party.
c. Provisional Emissions Rate
    Section 45V(c)(2)(C) provides that, in the case of any hydrogen for 
which a lifecycle GHG emissions rate has not been determined for 
purposes of section 45V, a taxpayer producing such hydrogen may file a 
petition with the Secretary for a determination of the lifecycle GHG 
emissions rate with respect to such hydrogen, which is referred to as a 
``provisional emissions rate'' or PER in the proposed regulations.
d. Qualified Clean Hydrogen Production Facility
    Section 45V(c)(3) provides that the term ``qualified clean hydrogen 
production facility'' means a facility (i) owned by the taxpayer, (ii) 
that produces qualified clean hydrogen, and (iii) the construction of 
which begins before January 1, 2033.\5\
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    \5\ Section 45V does not specify an earliest date on which a 
qualified clean hydrogen production facility must begin construction 
or be placed in service to be eligible to claim the section 45V 
credit. However, the section 45V credit is available for qualified 
clean hydrogen produced after December 31, 2022. Section 
13204(a)(5)(A) of the IRA. Thus, the owner of a qualified clean 
hydrogen production facility originally placed in service after 
December 31, 2012, could claim the section 45V credit for qualified 
clean hydrogen produced during at least some portion of the 10-year 
period described in section 45V(a)(1), provided all other 
requirements are met.

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[[Page 89222]]

3. Special Rules
a. Treatment of Facilities Owned by More Than One Taxpayer
    Section 45V(d)(1) provides that rules similar to the rules of 
section 45(e)(3) apply for purposes of section 45V. Section 45(e)(3) 
provides that, in the case of a facility in which more than one person 
has an ownership interest, except to the extent provided in regulations 
prescribed by the Secretary, production from the facility is allocated 
among such persons in proportion to their respective ownership 
interests in the gross sales from such facility.
b. Coordination With Section 45Q
    Section 45V(d)(2) provides that no section 45V credit is allowed 
with respect to any qualified clean hydrogen produced at a facility 
that includes carbon capture equipment for which a credit is allowed to 
any taxpayer as determined under section 45Q (section 45Q credit) for 
the taxable year or any prior taxable year.
c. Credit Reduced for Tax-Exempt Bonds
    Section 45V(d)(3) provides that rules similar to the rules under 
section 45(b)(3) (credit reduced for tax-exempt bonds) apply for 
purposes of section 45V. Section 45V(d)(3) is effective for facilities 
that begin construction after August 16, 2022. Section 13204(a)(5)(B) 
of the IRA. Section 45(b)(3) provides that the amount of the credit 
determined under section 45(a) with respect to any facility for any 
taxable year (determined after the application of section 45(b)(1) and 
(2) regarding phaseout and inflation adjustment rules) is reduced by 
the amount that is the product of the amount so determined for such 
year and the lesser of 15 percent or a fraction (A) the numerator of 
which is the sum, for the taxable year and all prior taxable years, of 
proceeds of an issue of any obligations the interest on which is exempt 
from tax under section 103 and that is used to provide financing for 
the qualified facility, and (B) the denominator of which is the 
aggregate amount of additions to the capital account for the qualified 
facility for the taxable year and all prior taxable years. Section 
45(b)(3) further provides that the amounts determined under section 
45(b)(3) for any taxable year are determined as of the close of the 
taxable year.
d. Modification of Existing Facilities
    Section 45V(d)(4) provides that for purposes of section 45V(a)(1), 
in the case of any facility that (A) was originally placed in service 
before January 1, 2023, and, prior to the modification described in 
section 45V(d)(4)(B), did not produce qualified clean hydrogen, and (B) 
after the date such facility was originally placed in service (i) is 
modified to produce qualified clean hydrogen, and (ii) amounts paid or 
incurred with respect to such modification are properly chargeable to 
the capital account of the taxpayer, such facility is deemed to have 
been originally placed in service as of the date the property required 
to complete the modification described in section 45V(d)(4)(B) is 
placed in service. Section 45V(d)(4) is effective for modifications 
made after December 31, 2022. See section 13204(a)(5)(C) of the IRA.

B. Electricity Used at a Qualified Clean Hydrogen Production Facility

    Section 45(e)(13) provides that electricity produced by the 
taxpayer is treated as sold by such taxpayer to an unrelated person 
during the taxable year if (i) 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 
45V(c)(3)) to produce qualified clean hydrogen (as defined in section 
45V(c)(2)); and (ii) such use and production is verified (in such form 
or manner as the Secretary may prescribe) by an unrelated party. 
Section 45(e)(13) is effective for electricity produced after December 
31, 2022. See section 13204(b)(3) of the IRA.
    Section 45U(c)(2) provides that rules similar to the rules of 
section 45(e)(13) apply for purposes of section 45U. Generally, section 
45U is effective for electricity produced at a qualified nuclear power 
facility and sold after December 31, 2023, in taxable years beginning 
after that date.

C. Election To Treat Clean Hydrogen Production Facilities as Energy 
Property

    Section 48(a)(15)(A)(i) provides that, in the case of any qualified 
property (as defined in section 48(a)(5)(D)) that is part of a 
specified clean hydrogen production facility, such property is treated 
as energy property. Section 48(a)(15)(A)(ii) provides that the energy 
percentage of the basis of any qualified property that is treated as 
energy property is, for a facility that is designed and reasonably 
expected to produce qualified clean hydrogen with a lifecycle GHG 
emissions rate that is: (i) not greater than 4 kilograms of CO2e per 
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per 
kilogram of hydrogen, 1.2 percent; (ii) less than 2.5 kilograms of CO2e 
per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per 
kilogram of hydrogen, 1.5 percent; (iii) less than 1.5 kilograms of 
CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e 
per kilogram of hydrogen, 2 percent; and (iv) less than 0.45 kilograms 
of CO2e per kilogram of hydrogen, 6 percent. Under section 48(a)(9), 
the amount of the section 48 credit determined for a specified clean 
hydrogen production facility under section 48(a)(15) is multiplied by 
five if the facility meets the requirements of section 48(a)(9)(B) 
(regarding application of certain maximum net output levels of 
electrical or thermal energy or prevailing wage and apprenticeship 
requirements). However, the domestic content and energy communities 
bonuses under section 48(a)(12) and (a)(14) do not apply to a specified 
clean hydrogen production facility.
    Section 48(a)(15) is effective for property placed in service after 
December 31, 2022, and for any property the construction of which began 
before January 1, 2023, only to the extent of the basis thereof 
attributable to construction, reconstruction, or erection after 
December 31, 2022. See section 13204(c)(3) of the IRA.
1. Denial of Production Credit
    Section 48(a)(15)(B) provides that no section 45V credit or section 
45Q credit is allowed for any taxable year with respect to any 
specified clean hydrogen production facility or any carbon capture 
equipment included at such facility.
2. Specified Clean Hydrogen Production Facility
    Section 48(a)(15)(C) provides that the term ``specified clean 
hydrogen production facility'' means any qualified clean hydrogen 
production facility (as defined in section 45V(c)(3)) (i) that is 
placed in service after December 31, 2022, (ii) with respect to which 
(I) no section 45V credit or section 45Q credit has been allowed, and 
(II) the taxpayer makes an irrevocable election to have section 
48(a)(15) apply, and (iii) for which an unrelated third party has 
verified (in such form or manner as the Secretary may prescribe) that 
such facility produces hydrogen through a process that results in 
lifecycle GHG emissions that are consistent with the hydrogen that such 
facility was designed and expected to produce under section 
48(a)(15)(A)(ii).
3. Qualified Clean Hydrogen
    Section 48(a)(15)(D) provides that, for purposes of section 
48(a)(15), the term

[[Page 89223]]

``qualified clean hydrogen'' has the meaning given such term by section 
45V(c)(2).
4. Regulations
    Section 48(a)(15)(E) provides the Secretary authority to issue 
regulations or other guidance as she determines necessary to carry out 
the purposes of section 48, including regulations or other guidance 
that recaptures so much of any section 48 credit allowed as exceeds the 
amount of the credit that 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 verification).

II. Previous Request for Comments

    On November 3, 2022, the Treasury Department and the IRS published 
Notice 2022-58, 2022-47 I.R.B. 483. The notice requested general 
comments on issues arising under section 45V and the associated clean 
hydrogen production and investment incentives in sections 45 and 48. 
The notice also requested specific comments concerning (i) definitions; 
(ii) boundaries of the well-to-gate analysis for determining the 
lifecycle GHG emissions rate; (iii) the PER process; (iv) recordkeeping 
and reporting; (v) verification by unrelated parties; and (vi) 
coordination with sections 45, 48, and 45Q. The Treasury Department and 
the IRS received over 200 comments from industry participants, 
environmental groups, individuals, and other stakeholders. The Treasury 
Department and the IRS appreciate the commenters' interest and 
engagement on these issues. These comments have been carefully 
considered in the development of these proposed regulations.

Explanation of Provisions

I. Overview

    Proposed Sec.  1.45V-1 would provide guidance, including 
definitions of key terms used in proposed Sec. Sec.  1.45V-1 through 
1.45V-6 and 1.48-15, to determine the eligibility for, and the amount 
of, the section 45V credit for the production of qualified clean 
hydrogen. The term ``section 45V credit'' would be provided at Sec.  
1.45V-1(a)(12) and mean the credit for production of clean hydrogen 
determined under section 45V, so much of sections 6417 and 6418 that 
relate to section 45V, and the section 45V regulations. The term 
``section 45V regulations'' would be provided at proposed Sec.  1.45V-
1(a)(13) to mean the provisions of Sec. Sec.  1.45V-1 through 1.45V-6 
and so much of the regulations under sections 6417 and 6418 that relate 
to the section 45V credit.
    Proposed Sec.  1.45V-2 would provide special rules for purposes of 
the section 45V credit. Proposed Sec.  1.45V-4 would provide procedures 
for determining lifecycle GHG emissions rates for qualified clean 
hydrogen. Proposed Sec.  1.45V-5 would provide procedures for 
verification of qualified clean hydrogen production and sale or use. 
Proposed Sec.  1.45V-6 would provide rules for determining the placed 
in service date for an existing facility that is modified or 
retrofitted to produce qualified clean hydrogen. Additionally, proposed 
Sec.  1.48-15 would provide procedures for a taxpayer to elect to treat 
any qualified property that is part of a specified clean hydrogen 
production facility as energy property for purposes of the section 48 
credit.

II. Definitions

    Proposed Sec.  1.45V-1(a)(2) through (13) would provide generally 
applicable definitions of terms for purposes of section 45V, so much of 
sections 6417 and 6418 of the Code that relate to the section 45V 
credit, and the section 45V regulations. The definitions for applicable 
amount, applicable percentage, and qualified clean hydrogen production 
facility would generally reflect the statutory definitions without 
additional elaboration on the terms. See proposed Sec.  1.45V-1(a)(2), 
(3), and (10). This part II discusses those definitions in the proposed 
regulations that provide additional clarity beyond the statutory 
language.
A. Facility
    Proposed Sec.  1.45V-1(a)(7)(i) would provide that, for purposes of 
the definition of a qualified clean hydrogen production facility 
provided at section 45V(c)(3), the term ``facility'' means a single 
production line that is used to produce qualified clean hydrogen. A 
``single production line'' would include all components of property 
that function interdependently to produce qualified clean hydrogen. 
Components of property are functionally interdependent if the placing 
in service of each component is dependent upon the placing in service 
of each of the other components to produce qualified clean hydrogen. 
Proposed Sec.  1.45V-1(a)(7)(ii) would provide that a facility does not 
include equipment used to condition or transport hydrogen beyond the 
point of production. A facility would also not include electricity 
production equipment used to power the hydrogen production process, 
including any carbon capture equipment associated with the electricity 
production process. Proposed Sec.  1.45V-1(a)(7)(iii) would provide 
that components that have a purpose in addition to the production of 
qualified hydrogen may be part of a facility if such components 
function interdependently with other components to produce qualified 
clean hydrogen. Proposed Sec.  1.45V-1(a)(7)(iv) would provide an 
example to illustrate the definition of facility for purposes of 
section 45V.
B. Lifecycle Greenhouse Gas Emissions
    Proposed Sec.  1.45V-1(a)(8)(i) would incorporate the statutory 
definition of the term ``lifecycle greenhouse gas emissions'' under 
section 45V(c)(1)(A) and (B), specifically providing that the term has 
the same meaning as that in 42 U.S.C. 7545(o)(1)(H) as in effect on 
August 16, 2022, and includes emissions only through the point of 
production (well-to-gate) as determined under the most recent GREET 
model.
C. Most Recent GREET Model
    Proposed Sec.  1.45V-1(a)(8)(ii) would provide that the term ``most 
recent GREET model'' means the latest version of 45VH2-GREET developed 
by Argonne National Laboratory (ANL) that is publicly available on the 
first day of the taxpayer's taxable year in which the qualified clean 
hydrogen for which the taxpayer is claiming the section 45V credit was 
produced.\6\ After consultation with the Department of Energy (DOE), 
the Treasury Department and the IRS believe that the use of the latest 
version of 45VH2-GREET would be appropriate because it is tailored to 
the administration of the section 45V tax credit and includes features 
that make it easy to use for taxpayers. Use of the latest version of 
45VH2-GREET would also ensure that the pathways and approaches provided 
for determining well-to-gate emissions for various hydrogen production 
processes are of sufficient methodological certainty to be appropriate 
for determining eligibility of tax credits. The latest version of 
45VH2-GREET is the only variant of GREET that is suitable for use and 
may be used to determine emissions rates for purposes of the section 
45V credit.
---------------------------------------------------------------------------

    \6\ 45VH2-GREET is a user interface designed to accept input 
related to a hydrogen production facility, execute GREET 
calculations in the background, and display the well-to-gate carbon 
intensity of produced hydrogen in kg of CO2e/kg of H2. 
45VH2-GREET is currently available at www.energy.gov/45vresources. 
Successor locations for 45V-H2GREET will be provided in IRS forms 
and instructions.
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    Further, proposed Sec.  1.45V-1(a)(8)(ii) would provide that, if a 
version of

[[Page 89224]]

45VH2-GREET becomes publicly available after the first day of the 
taxable year of production (but still within such taxable year), then 
the taxpayer may, in its discretion, treat such version of 45VH2-GREET 
as the most recent GREET model.
    Instead of defining ``most recent GREET model'' to be the latest 
version of 45VH2-GREET that is publicly available on the first day of 
the taxpayer's taxable year, an alternative approach would be for the 
Secretary to determine that the latest version of 45VH2-GREET is an 
appropriate ``successor model,'' as provided by section 45V(c)(1)(B), 
for the purpose of administering the section 45V tax credit. The 
Treasury Department and the IRS request comment on these approaches.
D. Emissions Through the Point of Production (Well-to-Gate)
    Proposed Sec.  1.45V-1(a)(8)(iii) would provide that, for purposes 
of section 45V(c)(1)(B) and proposed Sec.  1.45V-1(a)(8)(i), the term 
``emissions through the point of production (well-to-gate)'' means the 
aggregate lifecycle GHG emissions related to hydrogen produced at a 
hydrogen production facility during the taxable year through the point 
of production. It includes emissions associated with feedstock growth, 
gathering, extraction, processing, and delivery to a hydrogen 
production facility. It also includes the emissions associated with the 
hydrogen production process, inclusive of the electricity used by the 
hydrogen production facility and any capture and sequestration of 
carbon dioxide generated by the hydrogen production facility.
E. Qualified Clean Hydrogen
    Proposed Sec.  1.45V-1(a)(9)(i) would incorporate the statutory 
definition of the term ``qualified clean hydrogen'' provided at section 
45V(c)(2)(A) and (B), including the requirement that the hydrogen be 
produced (i) in the United States or a U.S. territory (meaning 
possession as provided in section 638(2)); (ii) in the ordinary course 
of a trade or business of the taxpayer; and (iii) for sale or use. 
Proposed Sec.  1.45V-1(a)(9)(i)(B) would provide that, to qualify as 
qualified clean hydrogen, the production and sale or use of such 
hydrogen must be verified by an unrelated party (as required by section 
45V(c)(2)(B)(ii)). See also proposed Sec.  1.45V-5.
    Proposed Sec.  1.45V-1(a)(9)(ii) would provide that for purposes of 
section 45V(c)(2)(B)(i)(III) and proposed Sec.  1.45V-1(a)(9)(i)(C) the 
term ``for sale or use'' means for the primary purpose of making such 
hydrogen ready and available for sale or use. Storage of hydrogen 
before its sale or use would not disqualify such hydrogen from being 
considered produced for sale or use.

III. Rules of General Applicability

    Proposed Sec.  1.45V-1(b)(1) would provide the general rules for 
calculating the amount of the section 45V credit.
    Proposed Sec.  1.45V-1(b)(2) would provide that, for purposes of 
section 45V(a)(1) and proposed Sec.  1.45V-1(b)(1), the term 
``taxpayer'' means the taxpayer that owns the qualified clean hydrogen 
production facility at the time of the facility's production of 
qualified clean hydrogen with respect to which the section 45V credit 
is claimed, regardless of whether such taxpayer is treated as a 
producer under section 263A of the Code or under any other provision of 
law with respect to such qualified clean hydrogen. This rule is 
intended to avoid unintended consequences that could arise with respect 
to contract manufacturing and tolling arrangements under Sec.  1.263A-
2(a)(1)(ii)(A) and (a)(1)(ii)(B)(1) in the context of the section 45V 
credit, as well as to simplify the administration of the section 45V 
credit and provide clarity for taxpayers.
    Proposed Sec.  1.45V-1(c) would provide that, subject to any 
applicable Code sections that may limit the section 45V credit amount, 
the section 45V credit for any taxable year is determined with respect 
to the qualified clean hydrogen produced by the taxpayer during that 
taxable year although the verification of the production and sale or 
use of such hydrogen may occur in a later taxable year. However, the 
taxpayer would not be eligible to claim the section 45V credit until 
all relevant verification requirements, and the verification itself, 
have been completed. Therefore, despite such verification occurring in 
a later taxable year, the section 45V credit would be properly claimed 
with respect to the taxable year of hydrogen production and subject to 
the general period of limitations for filing a claim for credit or 
refund. Thus, if verification occurred after the extended return filing 
deadline for the taxable year in which the hydrogen was produced, the 
taxpayer would need to file an amended return or administrative 
adjustment request (AAR) to claim the section 45V credit for such 
hydrogen. The Treasury Department and the IRS request comments on this 
proposed rule, specifically whether taxpayers anticipate they will be 
able to complete all the requirements for claiming the section 45V 
credit, including the proposed requirements for verification specified 
below, by the extended return filing deadline for the taxable year of 
hydrogen production. If taxpayers anticipate that they will not be able 
to complete all the requirements by such filing deadline, comments are 
also requested on what specific alternatives to the proposed rule, if 
any, should be considered and their rationale.

IV. Special Rules

    Proposed Sec.  1.45V-2(a) would address the coordination between 
the section 45V credit and the section 45Q credit.
    Proposed Sec.  1.45V-2(b)(1) would provide an anti-abuse rule that 
would make the section 45V credit unavailable in extraordinary 
circumstances in which, based on a consideration of all the relevant 
facts and circumstances, the primary purpose of the production and sale 
or use of qualified clean hydrogen is to obtain the benefit of the 
section 45V credit in a manner that is wasteful, such as the production 
of qualified clean hydrogen that the taxpayer knows or has reason to 
know will be vented, flared, or used to produce hydrogen.
    If the cost of producing qualified clean hydrogen were to be less 
than the amount of the section 45V credit that would be available with 
respect to such hydrogen, the Treasury Department and the IRS are 
concerned that taxpayers may have an incentive to produce qualified 
clean hydrogen solely for the purpose of exploiting the section 45V 
credit in a manner that is inconsistent with a purpose of section 45V, 
which is to provide an incentive to produce qualified clean hydrogen 
for a productive use. Producing and selling or using qualified clean 
hydrogen with the primary purpose of obtaining the benefit of the 
section 45V credit in a wasteful manner would not, in certain 
circumstances, satisfy the requirement in section 45V(c)(2)(B)(i)(II) 
for hydrogen to be produced in the ordinary course of a trade or 
business of the taxpayer. Proposed Sec.  1.45V-2(b)(2) would provide an 
example illustrating this anti-abuse rule.

V. Procedures for Determining Lifecycle Greenhouse Gas Emissions Rates 
for Qualified Clean Hydrogen.

    Proposed Sec.  1.45V-4(a) would provide that the amount of the 
section 45V credit is determined under section 45V(a) and proposed 
Sec.  1.45V-1(b) based upon the lifecycle GHG emissions rate (as 
defined in proposed Sec.  1.45V-1(a)(8)(i)) of all hydrogen produced at 
a qualified clean hydrogen production facility (as defined in proposed 
Sec.  1.45V-1(a)(10)) during the taxable year. This determination is 
made following the close of each such taxable year and must include all 
hydrogen production from

[[Page 89225]]

the year. Further, proposed Sec.  1.45V-4(a) would provide that the 
lifecycle GHG emissions rate for purposes of section 45V is determined 
under the most recent GREET model (as defined in proposed Sec.  1.45V-
1(a)(8)(ii)). Additionally, proposed Sec.  1.45V-4(a) would provide 
that in the case of any hydrogen for which a lifecycle GHG emissions 
rate has not been determined under the most recent GREET model for 
purposes of section 45V, a taxpayer producing such hydrogen may file a 
petition with the Secretary for a determination of the lifecycle GHG 
emissions rate with respect to such hydrogen (a provisional emissions 
rate (PER)).
A. GREET Model
    Proposed Sec.  1.45V-4(b) would provide procedures to calculate the 
lifecycle GHG emissions rate of hydrogen produced at a hydrogen 
production facility using the most recent GREET model as defined in 
proposed Sec.  1.45V-1(a)(8)(ii) (referring to 45VH2-GREET). Proposed 
Sec.  1.45V-4(b) would provide that for each taxable year during the 
period described in section 45V(a)(1), a taxpayer claiming the section 
45V credit determines the lifecycle GHG emissions rate of hydrogen 
produced at a hydrogen production facility using the most recent GREET 
model. Such a determination is made separately for each hydrogen 
production facility the taxpayer owns and as of the close of each 
respective taxable year in which such production occurs (that is, such 
a determination is made for that taxable year's total hydrogen 
production at a hydrogen production facility). Proposed Sec.  1.45V-
4(b) would provide that in calculating the lifecycle GHG emissions rate 
for purposes of determining the amount of the section 45V credit, the 
taxpayer must accurately enter all information about its qualified 
clean hydrogen production facility requested within the interface of 
45VH2-GREET in compliance with the most recent version of the 
Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions of 
Hydrogen Production Pathways using 45VH2-GREET (GREET User Manual), 
which currently can be found at: www.energy.gov/45vresources. Current 
45VH2-GREET, previous versions of 45VH2-GREET, and subsequent updates 
to 45VH2-GREET can be found at www.energy.gov/45vresources. Proposed 
Sec.  1.45V-4(b) would provide that information for the location of 
45VH2-GREET and accompanying documentation will be included in the 
instructions to the Form 7210, Clean Hydrogen Production Credit.
    45VH2-GREET includes various hydrogen production pathways. As of 
the publication date of these proposed regulations, 45VH2-GREET 
includes the following hydrogen production pathways--
    (1) Steam methane reforming (SMR) of natural gas, with potential 
carbon capture and sequestration (CCS);
    (2) Autothermal reforming (ATR) of natural gas, with potential CCS;
    (3) SMR of landfill gas with potential CCS;
    (4) ATR of landfill gas with potential CCS;
    (5) Coal gasification with potential CCS;
    (6) Biomass gasification with corn stover and logging residue with 
no significant market value with potential CCS;
    (7) Low-temperature water electrolysis using electricity; and
    (8) High-temperature water electrolysis using electricity and 
potential heat from nuclear power plants.
    As described in Guidelines to Determine Well-to-Gate Greenhouse Gas 
(GHG) Emissions of Hydrogen Production Pathways using 45VH2-GREET 
(GREET User Manual), certain parameters in 45VH2-GREET are fixed 
assumptions, referred to as ``background data'' in this document. Users 
of 45VH2-GREET may not change background data. Examples of background 
data include upstream methane loss rates, emissions associated with 
power generation from specific generator types, and emissions 
associated with regional electricity grids. Background data are 
parameters for which bespoke inputs from hydrogen producers are 
unlikely to be independently verifiable with high fidelity, given the 
current status of verification mechanisms. The Treasury Department and 
the IRS seek comment on the readiness of verification mechanisms that 
could be utilized for certain background data in 45VH2-GREET if it were 
reverted to foreground data in future releases. For example, the 
upstream methane loss rate is background data in 45VH2-GREET, and the 
Treasury Department and the IRS seek comment on conditions, if any, 
under which the methane loss rate may in future releases become 
foreground data (such as certificates that verifiably demonstrate 
different methane loss rates for natural gas feedstocks, sometimes 
described as responsibly sourced natural gas).
    45VH2-GREET allows users to input the quantity of valorized co-
products (that is, co-products from the hydrogen production process 
that are productively utilized or sold) and allocates emissions to 
those co-products (rather than to the hydrogen production) as described 
in Guidelines to Determine Well-to-Gate Greenhouse Gas (GHG) Emissions 
of Hydrogen Production Pathways using 45VH2-GREET 2023. As described in 
that document, 45VH2-GREET utilizes the ``system expansion'' approach 
for all co-products if possible, but restricts the amount of steam co-
product that reformers can claim based on the quantity of steam that an 
optimally designed reformer is expected to be capable of producing 
based on modeling from the National Energy Technology Laboratory.\7\ 
This restriction is included within the model to avoid incentivizing 
generation or over-production of hydrogen co-products like steam to 
enable access to a higher tax credit value by artificially reducing the 
calculated carbon intensity of the hydrogen (for example, by combustion 
of fuel onsite that is unnecessary for hydrogen production). The 
Treasury Department and the IRS seek comments on this approach, 
including whether alternative co-product accounting methods, such as 
physical allocation (for example, energy allocation or mass allocation) 
or allocation based on other characteristics, would better ensure well-
to-gate carbon intensity of hydrogen production is accurately 
represented.
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    \7\ National Energy Technology Laboratory, DOE, ``Comparison of 
Commercial, State-of-the-Art, Fossil-Based Hydrogen Production 
Technologies,'' April 12, 2022, available at https://www.netl.doe.gov/energy-analysis/details?id=ed4825aa-8f04-4df7-abef-60e564f636c9.
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B. Provisional Emissions Rate
    Proposed Sec.  1.45V-4(c)(1) would provide that, for purposes of 
section 45V(c)(2)(C) and proposed Sec.  1.45V-4(a), the term 
``provisional emissions rate'' or ``PER'' means the lifecycle GHG 
emissions rate of the process by which qualified clean hydrogen is 
produced by the taxpayer at a qualified clean hydrogen production 
facility as determined by the Secretary under proposed Sec.  1.45V-
4(c).
    Proposed Sec.  1.45V-4(c)(2)(i) would provide that a taxpayer may 
not file a petition with the Secretary for a PER unless a lifecycle GHG 
emissions rate has not been determined under the most recent GREET 
model (as defined in proposed Sec.  1.45V-1(a)(8)(ii) as 45VH2-GREET) 
for hydrogen produced by the taxpayer at a hydrogen production 
facility. Proposed Sec.  1.45V-4(c)(2)(i) would further provide that a 
lifecycle GHG emissions rate has not been determined under the most 
recent GREET model with respect to hydrogen

[[Page 89226]]

produced by the taxpayer at a hydrogen production facility if it uses a 
hydrogen production pathway that is not included in the most recent 
GREET model--that is, if either the feedstock used by such facility or 
the facility's hydrogen production technology is not included in the 
most recent GREET model.
    For example, the initial version of 45VH2-GREET does not model 
every possible biomass fuel as a feedstock nor does it represent all 
hydrogen production technologies that are currently of commercial 
interest or that may be commercially viable in the future, including 
geologic hydrogen, trigeneration, or other technologies if sufficient 
technical analysis had not been completed at the time the model was 
published. A taxpayer with one of these types of hydrogen production 
pathways may use the PER process to obtain carbon intensities because 
such hydrogen production technologies or feedstocks are not currently 
in 45VH2-GREET. To use the PER process, the hydrogen production pathway 
that the taxpayer is utilizing must either be consuming a feedstock 
that is not represented in 45VH2-GREET (for example, a type of biomass 
that is not represented in the model) or using a hydrogen production 
technology that is not represented in 45VH2-GREET (for example, 
technologies used to drill for geologic hydrogen or trigeneration that 
can use a fuel cell to co-produce hydrogen, heat, and power). A 
taxpayer may not use the PER process if its feedstock and hydrogen 
production technology are represented in 45VH2-GREET, even if the 
taxpayer disagrees with the underlying assumptions (that is, background 
data) or calculation approach used by the most recent 45VH2-GREET. 
Future versions of 45VH2-GREET may include additional hydrogen 
production pathways, such as geologic hydrogen, as sufficient technical 
information becomes available to provide consistent treatment in 45VH2-
GREET.
    Proposed Sec.  1.45V-4(c)(2)(i) would also provide that, if a 
taxpayer's request for an emissions value from the DOE under proposed 
Sec.  1.45V-4(c)(5) with respect to the hydrogen produced by the 
taxpayer at a hydrogen production facility is pending at the time such 
hydrogen production facility's pathway is included in an updated 
version of 45VH2-GREET, the taxpayer's request for an emissions value 
will be automatically denied.
    Proposed Sec.  1.45V-4(c)(2)(ii) would specify that, 
notwithstanding proposed Sec.  1.45V-1(a)(8)(ii), for the taxable year 
in which the hydrogen production pathway the taxpayer uses to produce 
hydrogen at a qualified clean hydrogen production facility is first 
included in an updated version of 45VH2-GREET, the updated version of 
45VH2-GREET will be considered the most recent GREET model with respect 
to the hydrogen produced by the taxpayer at the hydrogen production 
facility.
1. Process for Filing a Provisional Emissions Rate Petition
    Proposed Sec.  1.45V-4(c)(3) would provide that a taxpayer 
petitions the Secretary for a PER by attaching a PER petition to its 
Federal income tax return or information return for the first taxable 
year of hydrogen production ending within the 10-year period described 
in section 45V(a)(1) for which the taxpayer claims the section 45V 
credit for hydrogen to which the PER petition relates and for which a 
lifecycle GHG emissions rate has not been determined, as defined under 
proposed Sec.  1.45V-4(c)(2)(i). Proposed Sec.  1.45V-4(c)(3) would 
provide that a PER petition must contain (i) an emissions value 
obtained from the DOE setting forth the DOE's analytical assessment of 
the lifecycle GHG emissions rate associated with the facility's 
hydrogen production pathway, and (ii) a copy of the taxpayer's request 
to the DOE for an emissions value, including any information that the 
taxpayer provided to the DOE pursuant to the emissions value request 
process specified in proposed Sec.  1.45V-4(c)(5). Proposed Sec.  
1.45V-4(c)(3) would further provide that, if the taxpayer obtained more 
than one emissions value from the DOE, then the PER petition must 
contain the emissions value setting forth the lifecycle GHG emissions 
rate of the hydrogen for which the section 45V credit is claimed on the 
Form 7210, Clean Hydrogen Production Credit, to which the PER petition 
is attached.
2. Provisional Emissions Rate Determination
    Proposed Sec.  1.45V-4(c)(4) would provide that upon the IRS's 
acceptance of the taxpayer's Federal income tax return or information 
return containing a PER petition, the emissions value specified on such 
PER petition will be deemed accepted. Proposed Sec.  1.45V-4(c)(4) 
would provide that a taxpayer would be able to rely upon an emissions 
value provided by the DOE for purposes of calculating and claiming a 
section 45V credit, provided that any information, representations, or 
other data provided to the DOE in support of the request for an 
emissions value are accurate. Proposed Sec.  1.45V-4(c)(4) would also 
state that the IRS's deemed acceptance of such emissions value is the 
Secretary's determination of the PER. Proposed Sec.  1.45V-4(c)(4) 
would state, however, that the production and sale or use of such 
hydrogen must be verified by an unrelated party under section 
45V(c)(2)(B)(ii) and in compliance with the procedures provided in 
proposed Sec.  1.45V-5. Proposed Sec.  1.45V-4(c)(4) would state that 
such verification and any information, representations, or other data 
provided to the DOE in support of the request for an emissions value 
are subject to later examination by the IRS.
3. Department of Energy Emissions Value Request Process
    Proposed Sec.  1.45V-4(c)(5) would provide that, in order to obtain 
an emissions value, an applicant must submit a request for an emissions 
value following procedures that will be specified by the DOE. The 
emissions value request process will open on April 1, 2024.
    Proposed Sec.  1.45V-5 would also provide that emissions values 
will be evaluated using the same well-to-gate system boundary that is 
employed in 45VH2-GREET, as proposed in Sec.  1.45V-1(a)(8)(iii). 
Additionally, proposed Sec.  1.45V-5 would also provide that if 
applicable, background data parameters in 45VH2-GREET would also be 
treated as background data (with fixed values that an applicant cannot 
change) in the emissions value request process. The emissions value 
request process would be subject to any guidance issued under section 
45V, including any guidance related to the use of EACs.
    Proposed Sec.  1.45V-4(c)(5) would also provide that an applicant 
may request an emissions value from the DOE only after a front-end 
engineering and design (FEED) study or similar indication of project 
maturity, such as project specification and cost estimation sufficient 
to inform a final investment decision, has been completed for the 
hydrogen production facility. Forthcoming guidance from the DOE, which 
will be published prior to the April 1, 2024, opening of the emissions 
value request process, will specify criteria the DOE intends to 
consider in evaluating whether a FEED study has been completed or that 
a similar indicator of project readiness has been achieved. The 
Treasury Department and the IRS seek comments on appropriate indicators 
of project readiness that should be in place before an applicant 
requests an emissions value to ensure that requests correspond to 
hydrogen production facilities with significant commercial interest, 
and standards against which these indicators could be measured.

[[Page 89227]]

    Additionally, proposed Sec.  1.45V-4(c)(5) would provide that the 
DOE may decline to review applications that are not responsive, 
including those applications that use a hydrogen production technology 
and feedstock already in GREET or applications that are incomplete. 
Guidance and procedures for applicants to request and obtain an 
emissions value from the DOE will be published by the DOE,\8\ including 
a process for, under limited circumstances, a revision to the DOE's 
initial analytical assessment of an emissions value, such as to address 
revised technical information or facility design and operation.
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    \8\ DOE will provide guidance and procedures at www.energy.gov/45vresources.
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4. Effect of Provisional Emissions Rate
    Proposed Sec.  1.45V-4(c)(6) would provide that a taxpayer may use 
a PER determined by the Secretary to calculate the amount of the clean 
hydrogen production credit under section 45V(a) and proposed Sec.  
1.45V-1(b) with respect to qualified clean hydrogen produced by the 
taxpayer at a qualified clean hydrogen production facility beginning 
with the first taxable year in which a PER determined by the Secretary 
has been obtained and for any subsequent taxable year during the 10-
year period beginning on the date such facility was originally placed 
in service, provided all other requirements of section 45V are met, and 
until the lifecycle GHG emissions rate of such hydrogen has been 
determined (for purposes of section 45V(c)(2)(C)) under the most recent 
GREET model (as defined in proposed Sec.  1.45V-1(a)(8)(ii)).
    Proposed Sec.  1.45V-4(c)(6) would provide that the Secretary's PER 
determination is not an examination or an inspection of books of 
account for purposes of section 7605(b) of the Code, and would not 
preclude or impede the IRS (under section 7605(b) or any administrative 
provisions adopted by the IRS) from later examining a return or 
inspecting books or records with respect to any taxable year for which 
the section 45V credit is claimed. Proposed Sec.  1.45V-4(c)(6) would 
provide that a verification report submitted under section 
45V(c)(2)(B)(ii) and Sec.  1.45V-5 and any information, 
representations, or other data provided to the DOE in support of an 
emissions value request would still be subject to IRS examination. 
Further, proposed Sec.  1.45V-4(c)(6) would state that a PER 
determination would not mean that the IRS has determined that all the 
requirements of section 45V have been satisfied for any taxable year, 
nor would it create an inference that such a presumption exists.
C. Use of Energy Attribute Certificates
    The Treasury Department and the IRS, in consultation with the 
United States Environmental Protection Agency (EPA) and the DOE, have 
preliminarily determined that energy attribute certificates (EACs) may 
be considered under certain conditions in documenting purchased 
electricity inputs and assessing emissions impacts of electricity used 
in the production of hydrogen for purposes of the section 45V 
credit.\9\ For purposes of these proposed regulations, the term 
``EACs'' refers solely to EACs that represent attributes of electricity 
generated by a specific facility or source. The EPA has advised that 
EACs are an established mechanism for substantiating the purchase of 
electricity from zero GHG-emitting sources and that the use of EACs 
with attributes that meet certain criteria is an appropriate way for 
the Treasury Department and the IRS to document electricity inputs to 
electrolytic hydrogen production. Such EACs can also serve as a 
reasonable methodological proxy for quantifying certain indirect 
emissions associated with electricity for purposes of the section 45V 
credit. Similarly, the EPA and the DOE have advised that it would be 
appropriate for EACs with attributes that meet certain criteria to be 
included as part of the basis for assessing emissions for purposes of 
the section 45V credit. The Treasury Department and the IRS have 
preliminarily determined that the use of certain EACs, which satisfy 
the qualifying EAC requirements (as specified in proposed Sec.  1.45V-
4(d)(3)), is consistent with the references to subparagraph (H) of 
section 211(o)(1) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)) and 
the most recent GREET Model, as specified in section 45V(c)(1).
---------------------------------------------------------------------------

    \9\ EPA Letter, available at https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf; DOE. 2023. ``Assessing Lifecycle 
Greenhouse Gas Emissions Associated with Electricity Use for the 
Section 45V Clean Hydrogen Production Tax Credit.'' Washington, DC: 
U.S. Department of Energy available at www.energy.gov/45vresources.
---------------------------------------------------------------------------

    Proposed Sec.  1.45V-4(d)(1) would provide that for purposes of 
section 45V, if a taxpayer determines a lifecycle GHG emissions rate 
for hydrogen produced at a hydrogen production facility using the most 
recent GREET model (as defined in proposed Sec.  1.45V-1(a)(8)(ii)) or 
a PER (as defined in proposed Sec.  1.45V-4(c)(1)), then the taxpayer 
may reflect in GREET or include in a PER such hydrogen production 
facility's use of electricity as being from a specific electricity 
generating facility rather than the being from the regional electricity 
grid (as represented in 45VH2-GREET) only if the taxpayer acquires and 
retires a qualifying EAC (as defined in proposed Sec.  1.45V-
4(d)(2)(iv)) for each unit of electricity that the taxpayer claims from 
such source. For example, one megawatt-hour of electricity used to 
produce hydrogen would need to be matched with one megawatt-hour of 
qualifying EACs. The Treasury Department and the IRS seek comments on 
whether a different treatment would be more appropriate to account for 
transmission and distribution line losses.
    Further, proposed Sec.  1.45V-4(d)(1) would provide that to satisfy 
this requirement, a taxpayer's acquisition and retirement of qualifying 
EACs must also be recorded in a qualified EAC registry or accounting 
system (as defined in proposed Sec.  1.45V-4(d)(2)(v)) so that the 
acquisition and retirement of such EACs may be verified by a qualified 
verifier (as defined in proposed Sec.  1.45V-5(h)).
    The double counting of EACs and their underlying attributes would 
undermine the integrity of lifecycle GHG emissions rate determinations 
that incorporate EACs. A double counting occurs if two different 
parties claim the same environmental benefits from the same generated 
energy.\10\ Uniformly requiring claims of using electricity generated 
from specific sources to be evidenced by EACs that meet the 
requirements of proposed Sec.  1.45V-4(d)(1) would mitigate the risk of 
double counting. Thus, proposed Sec.  1.45V-4(d)(1) would provide that 
certain requirements must be met regardless of whether the electricity 
generating facility giving rise to the qualifying EAC is grid 
connected, directly connected, or co-located with the hydrogen 
production facility (that is, regardless of whether the underlying 
source of the qualifying EAC physically supplies electricity through a 
direct connection to the hydrogen production facility).
---------------------------------------------------------------------------

    \10\ EPA, ``Double Counting,'' last updated Feb. 5, 2023, 
available at https://www.epa.gov/green-power-markets/double-counting.
---------------------------------------------------------------------------

1. Definitions Related To Use of Energy Attribute Certificates
    Proposed Sec.  1.45V-4(d)(2)(i) would define the term ``commercial 
operations date'' or ``COD'' as the date on which a facility that 
generates electricity begins commercial operations. The COD, as defined 
here, is the first date of the operation of the relevant electricity

[[Page 89228]]

generating facility. The general rules for determining an electricity 
generating facility's placed in service date for Federal income tax 
purposes would not apply in determining its COD.
    Proposed Sec.  1.45V-4(d)(2)(ii) would define the term ``energy 
attribute certificate'' or ``EAC'' to mean a tradeable contractual 
instrument, issued through a qualified EAC registry or accounting 
system (as defined in proposed Sec.  1.45V-4(d)(2)(v)), that represents 
the energy attributes of a specific unit of energy produced. An EAC may 
be acquired with or separately from the underlying energy it 
represents. An EAC can be retired by or on behalf of its owner, which 
is the party that has the right to claim the underlying attributes 
represented by an EAC. Renewable energy certificates (RECs) and other 
similar energy certificates issued through a registry or accounting 
system are forms of EACs.
    Proposed Sec.  1.45V-4(d)(2)(iii) would define the term ``eligible 
EAC'' to mean an EAC that, with respect to the electricity to which the 
EAC relates, provides, at minimum, the following information: (i) a 
description of the electricity generating facility, including the 
technology and feedstock used to generate the electricity; (ii) the 
amount and units of electricity; (iii) the date on which the facility 
that generated the electricity first began commercial operations 
(referred to as the commercial operations date (COD)) (as defined in 
proposed Sec.  1.45V-4(d)(2)(i)); (iv) for electricity that is 
generated before January 1, 2028, the calendar year in which such 
electricity was generated; (v) for electricity that is generated after 
December 31, 2027, the date and hour in which such electricity was 
generated; and (vi) a unique project identification number or assigned 
identifier for each EAC that can be used to cross reference any 
additional electricity generating facility information that may be 
needed, such as location.
    Proposed Sec.  1.45V-4(d)(2)(iv) would define the term ``qualifying 
EAC'' to mean an eligible EAC (as defined in proposed Sec.  1.45V-
4(d)(2)(iii)) that meets the requirements of proposed Sec.  1.45V-
4(d)(3) and for which the satisfaction of those requirements has been 
verified by a qualified verifier (as defined in proposed Sec.  1.45V-
5(h)).
    Proposed Sec.  1.45V-4(d)(2)(v) would define the term ``qualified 
EAC registry or accounting system'' to mean a tracking system that (i) 
assigns a unique identification number to each EAC tracked by such 
system, (ii) enables verification that only one EAC is associated with 
each unit of electricity, (iii) verifies that the underlying attributes 
of each EAC is claimed and retired only once, (iv) identifies the owner 
of each EAC, and (v) provides a publicly accessible view (for example, 
through an application programming interface) of all currently 
registered electricity generators in the tracking system to prevent the 
duplicative registration of such generators. Qualified EAC registries 
currently include, but are not limited to, the following: Electric 
Reliability Council of Texas (ERCOT); Michigan Renewable Energy 
Certification System (MIRECS); Midwest Renewable Energy Tracking 
System, Inc. (M-RETS); North American Registry (NAR); New England Power 
Pool Generation Information System (NEPOOL-GIS); New York Generation 
Attribute Tracking System (NYGATS); North Carolina Renewable Energy 
Tracking System (NC-RETS); PJM Generation Attribute Tracking System 
(PJM-GATS); and Western Electric Coordinating Council (WREGIS).
    Proposed Sec.  1.45V-4(d)(2)(vi) would define the term ``region'' 
to mean a United States region derived from the National Transmission 
Needs Study (DOE Needs Study) that was released by the DOE on October 
30, 2023.\11\ The DOE has mapped the DOE Needs Study regions to actual 
balancing authorities. The data file and map of the resulting United 
States regions can be found in Guidelines to Determine Well-to-Gate 
Greenhouse Gas (GHG) Emissions of Hydrogen Production Pathways using 
45VH2-GREET (GREET User Manual) as of December 26, 2023. The location 
of an electricity generation source and the location of a hydrogen 
production facility will be based on the balancing authority to which 
it is electrically interconnected (not its geographic location), with 
each balancing authority linked to a single region. The MISO balancing 
authority is an exception because it is split into two U.S. regions as 
shown in the map located at GREET User Manual as of December 26, 2023. 
Alaska, Hawaii, and each U.S. territory will be treated as separate 
regions.
---------------------------------------------------------------------------

    \11\ DOE, National Transmission Needs Study, Oct. 2023, 
available at https://www.energy.gov/sites/default/files/2023-10/National_Transmission_Needs_Study_2023.pdf.
---------------------------------------------------------------------------

2. Eligible Energy Attribute Certificate Requirements
    Proposed Sec.  1.45V-4(d)(3) would provide that an EAC meets the 
requirements to be a qualifying EAC if it meets the requirements for 
incrementality, temporal matching, and deliverability. The 
incrementality requirement in proposed Sec.  1.45V-4(d)(3)(i) would 
require qualifying EACs to represent incremental source electricity, 
such as electricity from an electricity generating facility that has a 
recent COD. As discussed in more detail later in this section, the 
Treasury Department and the IRS are requesting comments on whether and 
under what circumstances electricity generated by an existing 
electricity generating facility (that is, with a less recent COD) that 
is dedicated to hydrogen production may be treated as satisfying the 
incrementality requirement. The temporal matching requirement in 
proposed Sec.  1.45V-4(d)(3)(ii) would require that qualifying EACs are 
retired that represent electricity produced in the same time period in 
which the hydrogen production facility consumes electricity in the 
production of hydrogen. The deliverability requirement in proposed 
Sec.  1.45V-4(d)(3)(iii) would require qualifying EACs to represent 
electricity that was produced by an electricity generating facility 
that is in the same region as the relevant hydrogen production 
facility.
    The Treasury Department and the IRS, in consultation with the EPA 
and the DOE, have preliminarily determined that these qualifying EAC 
requirements are consistent with the requirements of section 
45V(c)(1)(A) and (B) of the Code.\12\ The EPA has advised that, based 
on its prior implementation of section 211(o)(1)(H) of the Clean Air 
Act in other contexts, it would be reasonable and consistent with the 
EPA's precedent for the Treasury Department and the IRS to determine 
that induced grid emissions are an anticipated real-world result of 
electrolytic hydrogen production that must be considered in lifecycle 
GHG analyses for purposes of the section 45V credit. Such 
interpretation would be consistent with the EPA's long-standing 
interpretation and application of section 211(o)(1)(H) of the Clean Air 
Act in the context of the Renewable Fuel Standard (RFS) program. The 
EPA has also noted that EACs are an established means for documentation 
and verification of the electricity generation and purchase of zero-GHG 
electricity. Moreover, the EPA has advised that it believes it would be 
reasonable for the Treasury Department and the IRS to use EACs that 
possess specific attributes that meet certain criteria as a means of 
reducing the risk of induced grid emissions resulting from

[[Page 89229]]

new load from electrolytic hydrogen production being added to an 
existing grid. Such requirements would mitigate the risk of 
inappropriately crediting hydrogen production that does not meet the 
lifecycle GHG levels required by section 45V.
---------------------------------------------------------------------------

    \12\ EPA Letter, available at https://home.treasury.gov/system/files/136/45V-NPRM-EPA-letter.pdf; DOE. 2023. ``Assessing Lifecycle 
Greenhouse Gas Emissions Associated with Electricity Use for the 
Section 45V Clean Hydrogen Production Tax Credit.'' Washington, DC: 
U.S. Department of Energy, available at www.energy.gov/45vresources.
---------------------------------------------------------------------------

    DOE has published a technical paper, Assessing Lifecycle Greenhouse 
Gas Emissions Associated with Electricity Use for the Section 45V Clean 
Hydrogen Production Tax Credit, which the Treasury Department and the 
IRS have reviewed, and which has informed the development of the 
proposed regulations. As discussed therein, incrementality, temporal 
matching, and deliverability requirements are important guardrails to 
ensure that hydrogen producers' electricity use can be reasonably 
deemed to reflect the emissions associated with the specific generators 
from which the EACs were purchased and retired. If hydrogen producers 
rely on EACs without attributes that meet these three criteria there is 
a significant risk that hydrogen production would significantly 
increase induced grid GHG emissions beyond the allowable levels 
required to qualify for the section 45V credit.
    Electricity from a specific generator will have a GHG emissions 
profile that results from both its direct and indirect emissions. EACs 
with attributes that meet the three criteria are intended to address 
indirect GHG emissions resulting from the dynamics of the electricity 
market and the electric grid. If a hydrogen producer purchases zero 
GHG-emitting electricity that is represented by such EACs it is 
relatively straightforward to verify both the direct and indirect 
emissions resulting from such purchase and use. However, for minimal-
emitting sources of electricity, additional considerations may be 
necessary to verify the full range of direct and indirect emissions. 
The Treasury Department and the IRS request comment on what information 
is needed to document and verify GHG emissions related to minimal-
emitting electricity generation that is purchased and used for hydrogen 
production for purposes of claiming the section 45V credit.
    While the Treasury Department and the IRS are soliciting comment on 
the type of information that hydrogen producers must provide in order 
to document and verify the direct and indirect GHG emissions associated 
with purchased electricity generally, we are also seeking input on two 
specific types of electricity generation for which GHG emissions can be 
highly variable or uncertain: fossil fuel-powered electricity 
generation with CCS and biomass-powered electricity generation. With 
regard to non-minimally emitting electricity generation, and fossil 
fuel-powered generation and biomass powered generation with or without 
CCS in particular, the Treasury Department and the IRS request comment 
on mechanisms to verify accurately real-world emissions related to 
hydrogen production. This includes mechanisms for, among other things, 
verification of the origin of the feedstock, rate of carbon capture, 
and other parameters that are relevant to accurate lifecycle analysis, 
as well as the ability of EAC instruments to represent accurately such 
attributes. The Treasury Department and the IRS also request comment on 
specific lifecycle GHG emissions considerations, including the use of 
counterfactual scenarios, that should be considered in evaluating 
direct and indirect emissions associated with specific types of biomass 
and its consumption. The Treasury Department and the IRS also request 
comment on the extent and manner in which incrementality, temporal 
matching, and deliverability should be applied in accounting for 
existing or new electricity generation from biomass or fossil 
feedstock. These comments may inform future versions of 45VH2-GREET.
a. Incrementality
    Proposed Sec.  1.45V-4(d)(3)(i)(A) would provide that an EAC meets 
the incrementality requirement if the electricity generating facility 
that produced the unit of electricity to which the EAC relates has a 
COD (as defined in proposed Sec.  1.45V-4(d)(2)(i)) that is no more 
than 36 months before the hydrogen production facility for which the 
EAC is retired was placed in service.
    The Treasury Department and the IRS understand that EAC tracking 
systems capture the COD of each electricity generating facility during 
the registration process (often using data also reported to the Energy 
Information Administration), inclusive of month and year, which can be 
cross-referenced based on project identification codes included on 
those EACs. That COD should represent the initial date of operation for 
the relevant electricity generating facility. Third-party verifiers 
should use this data to confirm the eligibility of purchased and 
retired EACs.
    The Treasury Department and the IRS note that there are 
circumstances in which an existing higher-emitting electricity 
generating facility may make upgrades to subsequently deliver minimal-
emitting electricity. For example, an existing fossil-fuel electricity 
generating facility may add CCS capability, thereby reducing its 
lifecycle emissions rate as determined in 45VH2-GREET. The Treasury 
Department and the IRS request comments on whether the electricity 
generated by such a facility should be considered incremental under 
circumstances such as if an existing fossil fuel electricity-generating 
facility after the addition of CCS (after upgrade), had a COD that is 
no more than 36 months before the relevant hydrogen production facility 
was placed in service. Comment is also requested on the related 
question of whether, depending on its carbon dioxide capture rate, it 
would be appropriate to treat such a facility as a new source of 
minimal-emitting generation on the grid that would not be associated 
with induced grid emissions. Relevant to these questions, the Treasury 
Department and the IRS additionally request comment on what information 
would be needed to allow for qualifying EACs representing existing 
fossil fuel-powered electricity from facilities that have added CCS. In 
particular, comment is requested on whether there are safeguards that 
can ensure that a hydrogen producer's purchase and use of electricity 
from an existing fossil fuel-fired electricity generating facility that 
installs CCS does not result in indirect GHG emissions due to the 
dynamics of the electricity market and electric grid. The Treasury 
Department and the IRS request comment on the direct and induced 
emissions impacts of making such a facility eligible, and whether and 
under what circumstances it would be appropriate to do so.
    Proposed Sec.  1.45V-4(d)(3)(i)(B) would provide an alternative 
test for establishing incrementality for electricity generating 
facilities that undergo an uprate. Proposed Sec.  1.45V-4(d)(3)(i)(B) 
would provide that an EAC satisfies this alternative test if the 
electricity represented by the EAC is produced by an electricity 
generating facility that had an uprate no more than 36 months before 
the hydrogen production facility with respect to which the EAC is 
retired was placed in service and such electricity is part of such 
electricity generating facility's uprated production.
    Proposed Sec.  1.45V-4(d)(3)(i)(B) would provide rules for 
determining uprated production. Specifically, proposed Sec.  1.45V-
4(d)(3)(i)(B) would provide that an uprated electricity generating 
facility's production must be prorated to each hour or year, consistent 
with the requirements in proposed Sec.  1.45V-4(d)(3)(ii), of such 
facility's generation by multiplying each hour's production

[[Page 89230]]

by the uprated production rate to determine the electricity to which 
the uprate relates. Proposed Sec.  1.45V-4(d)(3)(i)(B) would define key 
terms, including: (i) ``uprate,'' which means an increase in an 
electricity generating facility's rated nameplate capacity (in 
nameplate megawatts); (ii) ``pre-uprate capacity,'' which means the 
nameplate capacity of an electricity generating facility immediately 
before an uprate; (iii) ``post-uprate capacity,'' which means the 
nameplate capacity of an electricity generating facility immediately 
after an uprate; (iv) ``incremental generation capacity,'' which means 
the increase in an electricity generating facility's rated nameplate 
capacity from the pre-uprate capacity to the post-uprate capacity; (v) 
``uprated production rate,'' which means the incremental generation 
capacity (in nameplate megawatts) divided by the post-uprate capacity 
(in nameplate megawatts); and (vi) ``uprated production,'' which means 
the uprated production rate of an electricity generating facility 
multiplied by its total generation output in a given hour (in megawatt 
hours). Proposed Sec.  1.45V-4(d)(3)(i)(C) would provide an example to 
illustrate the application of the alternative test for establishing 
incrementality due to uprates.
    The DOE has advised that there are circumstances during which 
diversion of existing minimal (that is, zero or near-zero) emissions 
power generation to hydrogen production is unlikely to result in 
significant induced GHG emissions.\13\ Such circumstances may include 
generation from minimal-emitting power plants (i) that would retire 
absent the ability to sell electricity for qualified clean hydrogen 
production, (ii) during periods in which minimal-emitting generation 
would have otherwise been curtailed, if marginal emissions rates are 
minimal, or (iii) in locations where grid-electricity is 100 percent 
generated by minimal-emitting generators or where increases in load do 
not increase grid emissions, for example, due to State policy capping 
total GHG emissions such that new load must be met with minimal-
emitting generators. The Treasury Department and the IRS seek comments 
on whether and how to provide alternative approaches to identifying 
circumstances in which there is minimal risk of significant induced 
grid emissions for certain existing electricity generating facilities.
---------------------------------------------------------------------------

    \13\ DOE. 2023. ``Assessing Lifecycle Greenhouse Gas Emissions 
Associated with Electricity Use for the Section 45V Clean Hydrogen 
Production Tax Credit.'' Washington, DC: U.S. Department of Energy, 
available at www.energy.gov/45vresources.
---------------------------------------------------------------------------

    The Treasury Department and the IRS are considering providing, in 
the final regulations, alternative circumstances under which an EAC may 
be deemed to satisfy the incrementality requirement. The Treasury 
Department and the IRS request comments on these specific circumstances 
as described in part V.C.2.a.i through iii of this Explanation of 
Provisions.
i. Avoided Retirements Approach
    The Treasury Department and the IRS seek comments on whether to 
recognize an avoided retirements approach that would treat EACs from an 
existing electricity generating facility as satisfying the 
incrementality requirement if the facility is likely to avoid 
retirement because of its relationship with a hydrogen production 
facility. With respect to this potential approach, the Treasury 
Department and the IRS request comments on the following: (i) the 
appropriate criteria that should be considered to assess retirement 
risk; (ii) the extent to which demonstration of financial loss, 
projected or actual local electricity market conditions, presence of 
out-of-market financial support (which could potentially include 
financial support driven by Federal or State policy, bilateral 
contracts for EACs or above-market electricity sales, or revenue 
provided by cost-of-service regulation), or upcoming relicensing 
decisions, in combination, are appropriate criteria to assess risk; 
(iii) industry best practices for estimating financial loss and the 
documentation necessary to support those estimates; (iv) the 
appropriate criteria that should be taken into account to assess the 
likelihood that an electricity generator's relationship with a hydrogen 
production facility avoids retirement of the generator (for example, 
size of electrolyzer, co-location, contract length, or otherwise); (v) 
the appropriate criteria that should be taken into account to ensure 
that only electricity generation supplying the minimum hydrogen 
production necessary to avoid retirement is counted as incremental, 
and, in particular, whether there should be a cap on the amount of 
generation from a given facility that qualifies as incremental and how 
such a cap should be determined; (vi) the period during which any 
determination of incrementality of existing electricity generators 
would be maintained before a new showing would be required; (vii) the 
process by which eligibility for this approach should be determined and 
any related administrability considerations; and (viii) what role, if 
any, EAC tracking systems should play in the verification or tracking 
of eligible EACs from such electricity generators.
    With respect to processes that may be used to implement this 
approach, the Treasury Department and the IRS request comments on 
whether such approach should allow existing minimal-emitting generators 
that wish to provide EACs to hydrogen producers to demonstrate 
incrementality through submission to the IRS or another Federal agency, 
such as the DOE, specific information that supports a conclusion that 
the electricity generator is at risk of retirement that may be 
mitigated by sales to hydrogen producers, and, if so, what information 
and information submission process should be required.
    The available data on retirement risk indicates this approach may 
be warranted. Some clean power plants, primarily nuclear plants, have 
retired in recent years. Based on data from the Energy Information 
Administration (EIA), from 2013 through 2022, 10,800 megawatts (MW) of 
nuclear, 1,700 MW of wind, 950 MW of hydropower, and 360 MW of solar 
have retired.\14\ Studies have shown that there is risk of continued 
retirement in the years ahead.\15\ The EIA, for example, estimates that 
an additional 4,600 MW of existing nuclear plants may retire through 
2032, equivalent to five percent of the existing nuclear fleet (1,900 
gigawatts (GW) of renewable power plants may retire as well).\16\ Some 
of these plant owners (primarily owners of nuclear plants) may decide 
whether to retire the plants based on the finances of continuing to 
operate the plants. It is likely that for some plants, additional 
revenue from selling EACs and electricity to hydrogen producers may 
improve the financial outlook of the plant and help avert retirement, 
thereby keeping the minimal-emitting power plant in operation and not 
resulting in induced grid emissions compared to a scenario in which the 
plant retires.
---------------------------------------------------------------------------

    \14\ Monthly Generator Report Based on Form 860 available at 
https://www.eia.gov/electricity/data/eia860m/.
    \15\ See John Bistline et al, ``Emissions and energy impacts of 
the Inflation Reduction Act'', 380Science, 1324-27, June 29, 2023, 
available at https://www.science.org/doi/10.1126/science.adg3781; 
U.S. Energy Information Administration, Annual Energy Outlook 2023, 
March 16, 2023, available at https://www.eia.gov/outlooks/aeo/tables_ref.php.
    \16\ U.S. Energy Information Administration, Annual Energy 
Outlook 2023, March 16, 2023, available at https://www.eia.gov/outlooks/aeo/tables_ref.php.

---------------------------------------------------------------------------

[[Page 89231]]

ii. Zero or Minimal Induced Grid Emissions Through Modeling or Other 
Evidence
    The Treasury Department and the IRS seek comments on whether to 
provide an opportunity to demonstrate zero or minimal induced grid 
emissions through modeling or other evidence under specific 
circumstances. A demonstrated or modeled minimal-emission approach 
could treat electricity produced by certain existing electricity 
generating facilities under certain circumstances as satisfying the 
incrementality requirement if it is demonstrated that such sources and 
circumstances would not give rise to significant induced grid 
emissions. Such a showing could be based on modeling or potentially be 
deemed to be made in certain circumstances based on regional grid 
characteristics, state policy, or facility history.
    The Treasury Department and the IRS request comments on this 
demonstrated or modeled minimal-emission approach, including: (i) the 
circumstances in which it should be available and the criteria that are 
appropriate to evaluate and determine whether those circumstances 
occur; (ii) who should apply under this approach, the electricity 
generation facility, the hydrogen producer, or both; (iii) what data or 
modeling should be submitted; (iv) best practices for making such 
demonstrations, including for ensuring the impartiality and 
replicability of calculation approaches; (v) how an administrator of 
such a program would validate the accuracy of applicant submissions; 
(vi) under what circumstances, if any, it would be appropriate to deem 
generation to satisfy the incrementality requirement without modeling, 
and what documentation should be provided in these cases; (vii) the 
process by which eligibility for this approach should be determined and 
any related administrability considerations; (viii) the period during 
which any determination of incrementality would be maintained before a 
new showing would be required; and (ix) the circumstances and 
capability of EACs and tracking systems to track and verify energy 
attributes from such sources.
    There are several circumstances that may be covered under this 
pathway. Periods of curtailment or zero or negative pricing is one such 
circumstance. Hydropower plants sometimes ``spill'' water, a form of 
curtailment. Curtailment of minimal-emitting electricity generation 
tends to occur during times when wholesale electricity prices are zero 
or negative on a system-wide basis. Purchasing EACs from existing 
minimal-emitting electricity generators under these conditions would 
have limited or no induced grid emissions as these are times during 
which increased load would tend to be met by the otherwise curtailed 
minimal-emitting electricity generators rather than inducing increased 
generation from emitting electricity generators, and so is unlikely to 
significantly increase induced grid emissions.
    Similarly, if in a particular region, all generation--including 
imported generation--comes from minimal-emitting electricity 
generators, then increased load is unlikely to significantly increase 
induced grid emissions. The same may be true if a region is subject to 
a state or local policy that ensures that new load is met with minimal-
emitting electricity generation.
    There may be limited risk of significant induced GHG emissions for 
islanded generation systems. Diversion of generation from a minimal-
emitting electricity generator that has never been connected to the 
grid generally may not have the same induced GHG emissions effects as 
diversion from an electricity generator that is connected to the grid. 
Induced GHG emissions could occur, however, if the energy demand that 
the existing minimal-emitting electricity generator previously met is 
instead met by a different, emitting, energy source. For example, an 
onsite minimal-emitting electricity generator that powers an industrial 
facility could be diverted for hydrogen production, in which case the 
induced GHG emissions would depend on what happens at the site to meet 
the power needs of the industrial facility (unless the industrial 
facility ceases operation).
iii. Formulaic Approaches To Addressing Incrementality From Existing 
Clean Generators
    The Treasury Department and the IRS recognize the difficulty in 
reliably identifying the specific electricity generators and specific 
times and places in which the circumstances described in part V.C.2.a.i 
and ii of this Explanation of Provisions might occur. Therefore, the 
Treasury Department and the IRS are also considering alternative 
approaches that would serve as proxy for all the pathways described in 
part V.C.2.a.i and part V.C.2.a.ii of this Explanation of Provisions. 
EACs that satisfy the incrementality requirement through this pathway 
would still be required to meet temporal matching and deliverability 
requirements.
    One such approach would deem five percent of the hourly generation 
from minimal-emitting electricity generators (for example, wind, solar, 
nuclear, and hydropower facilities) placed in service before January 1, 
2023, as satisfying the incrementality requirement. This pathway may be 
appropriate because some circumstances (including periods of 
curtailment or times when generation from minimal-emitting electricity 
generation is on the margin) may make the resulting incremental 
generation difficult to anticipate or identify, or because the process 
for identifying the circumstances (such as avoided retirement risk or 
modeling of minimal-emissions) may be overly burdensome to evaluate for 
specific electricity generators or require data that is not available. 
In some instances, for example, in determining whether EACs come from 
electricity generation that would otherwise have been curtailed, these 
circumstances require understanding of counterfactual ``what if'' 
scenarios that depend on numerous assumptions. In other circumstances, 
for example, in determining whether EACs come from minimal-emitting 
electricity generators that otherwise would have retired or if policy 
regimes restrict increases in grid emissions in the face of growing 
electricity demand, they may require detailed assessment and pre-
qualification based on applicant-submitted information and forecasts 
with related concerns about information accuracy. In still other cases, 
they may require complex geographically and temporally granular 
modeling and data (such as for marginal emission rates that consider 
operational and structural effects \17\) in concert with hourly EAC 
tracking infrastructure that is not yet widely available.
---------------------------------------------------------------------------

    \17\ DOE 2023. ``Assessing Lifecycle Greenhouse Gas Emissions 
Associated with Electricity Use for the Section 45V Clean Hydrogen 
Production Tax Credit.'' Washington, DC: U.S. Department of Energy, 
available at www.energy.gov/45vresources.
---------------------------------------------------------------------------

    The Treasury Department and the IRS are mindful of the risk that an 
allowance without further temporal, spatial, and circumstantial 
precision results in hydrogen production facilities receiving credits 
for which they should not be eligible given their induced emissions 
rates. Given the risks of induced GHG emissions, the Treasury 
Department and the IRS believe that a broadly available allowance that 
is not tailored to specific geographic or other conditions should not 
be greater than the national average rate of the occurrence of the 
above circumstances and instead should be a conservative lower bound of 
the national average. The DOE reports that wind curtailment in 2022 
averaged 5.3 percent of total wind generation

[[Page 89232]]

nationwide (data are only available for Independent System Operator 
(ISO) regions),\18\ and Lawrence Berkeley National Laboratory reports 
curtailment rates for solar photovoltaics at over 10 percent of solar 
generation in ERCOT and over 3 percent in California Independent System 
Operator (CAISO).
---------------------------------------------------------------------------

    \18\ Office of Energy Efficiency & Renewable Energy, DOE, 
``Land-Based Wind Market Report: 2023 Edition,'' Aug. 24, 2023, 
available at https://www.energy.gov/eere/wind/articles/land-based-wind-market-report-2023-edition.
---------------------------------------------------------------------------

    Purchasing EACs from existing minimal-emission electricity 
generators, whether or not from the electricity generators that would 
otherwise curtail their output, under these conditions would have 
limited risk of induced grid emissions. As noted earlier, curtailment 
is most likely to occur in the face of negative wholesale electricity 
prices if the marginal grid emissions rate is minimal or zero. Based on 
a data tool developed by Lawrence Berkeley National Laboratory that 
considers over 50,000 wholesale pricing nodes across the nation, 
negative wholesale prices occurred during roughly five percent of hours 
over the last several years (6.3 percent of hours in 2022, 5.8 percent 
in 2021, 4.8 percent in 2020, 3.3 percent in 2019, and 2.3% in 
2018).\19\ These are times during which increased load is unlikely to 
increase significantly induced grid emissions.\20\ Modeled data from 
the National Renewable Energy Laboratory (NREL) is broadly consistent 
with these trends. Specifically, NREL's Cambium data set for 2024 shows 
that long-run marginal emissions rates on a national basis are 
projected to be at or near zero for about five percent of hours, times 
during which minimal-emitting electricity generators are on the margin 
and often curtailed.\21\
---------------------------------------------------------------------------

    \19\ Berkeley Lab, Electricity Markets & Policy, The Renewables 
and Wholesale Electricity Prices (ReWEP) Tool, available at https://emp.lbl.gov/renewables-and-wholesale-electricity-prices-rewep.
    \20\ For example, see New York State Energy Research and 
Development Authority (NYSERDA). 2022 ``Projected Emission Factors 
for New York State Grid Electricity,'' NYSERDA Report Number 22-18, 
available at https://www.nyserda.ny.gov/-/media/Project/Nyserda/Files/Publications/Energy-Analysis/22-18-Projected-Emission-Factors-for-New-York-Grid-Electricity.pdf.
    \21\ See National Renewable Energy Laboratory, Energy Analysis, 
Cambium, available at https://www.nrel.gov/analysis/cambium.html. 
Long-run marginal emissions rates at or near zero defined as under 
25 kg CO2e/MWh.
---------------------------------------------------------------------------

    In addition, some minimal-emitting electricity generators are at 
risk of retirement, including about five percent of the nuclear fleet 
according to EIA estimates. A percentage allowance can also serve as 
proxy for avoided retirements.
    The Treasury Department and the IRS seek comments on this five 
percent-allowance approach, including the merits of this approach 
compared to the targeted pathways described, particularly with respect 
to balancing administrative feasibility and burden with accuracy of 
identifying circumstances with a low risk of induced grid emissions. 
The Treasury Department and the IRS also seek comments on whether 5 
percent is the appropriate magnitude for an allowance. In particular, 
as noted earlier, data show that curtailment rates have increased in 
recent years, and NREL's Cambium model predicts additional increases 
going forward. In light of these data and projections, the Treasury 
Department and the IRS seek comments on whether a higher amount, such 
as up to 10 percent, would be appropriate, either in general or in 
certain cases or circumstances. The Treasury Department and the IRS 
also seek comments on: (i) how a five-percent allowance should be 
tracked, allocated, and administered and how feasible it is for EAC 
tracking systems to incorporate data on such an allowance; (ii) whether 
the five percent should apply to all existing minimal-emitting 
electricity generators in all locations or a subset and for what 
reasons; (iii) whether such an allowance should be assessed at the 
individual plant level or across an operator's fleet within the same 
deliverability region; and (iv) any other administrability 
considerations. The Treasury Department and the IRS seek comments 
specifically on whether and how the ``averaging'' approach of a proxy 
appropriately captures the circumstances in which generation is 
incremental or does not generate induced grid emissions. The Treasury 
Department and the IRS also seek comments on how and whether the 
targeted alternative approaches or the other proxy approaches described 
subsequently in this part V.C.2.a.iii of this Explanation of Provisions 
might replace the five-percent allowance or might be coordinated with 
the allowance.
    The Treasury Department and the IRS invite comments on alternative 
formulaic, proxy approaches that might better capture conditions under 
which using existing minimal-emitting electricity generation to produce 
hydrogen does not significantly impact induced grid emissions. The 
Treasury Department and the IRS request comments on whether there would 
be an appropriate, more formulaic approach to capturing retirement 
risk, instead of the application-based process or the five-percent 
allowance. Comments are specifically requested on whether such an 
alternative approach should be limited to facilities with specific 
technical, market, or geographic characteristics corresponding with a 
greater risk of retirement (for example, participation in a wholesale 
market, lack of state support for a facility, nuclear plants with a 
single reactor) and higher likelihood that using a subset of 
electricity generation and related EACs for hydrogen production would 
minimize the risk.
    In particular, the Treasury Department and the IRS seek comments on 
whether existing nuclear and hydroelectric facilities that need to 
undertake a relicensing process are generally at higher risk of 
retirement without additional financial assistance and, if so, what 
considerations should be integrated into a potential formulaic 
approach. Comments are further requested on whether there are 
particular characteristics of hydrogen production facilities associated 
with existing generators at risk of retirement that should be 
considered (i) to demonstrate that the hydrogen production reduces 
retirement risk, such as co-location of hydrogen production with an 
existing generator and (ii) to assess the minimum hydrogen production 
necessary to reduce retirement risk, such as limitations on project 
size, electrolyzer capacity, or percent of generation used by the 
hydrogen production. Comments are further requested on how to determine 
the portion of such electricity generation and related EACs, which is 
generally likely to be sufficient to minimize that risk. Similarly, 
with respect to the modeled or demonstrated approach described in part 
V.C.2.a.ii of this Explanation of Provisions, the Treasury Department 
and the IRS request comments on whether there are formulaic approaches 
that might be used instead of an application-based pre-qualification 
process and the broad five-percent allowance.
    For each of these possible alternative approaches to establish 
incrementality, the Treasury Department and the IRS request comments on 
how eligibility for the approach may be reliably verified by an 
unrelated party and administered by the IRS.
b. Temporal Matching
    Proposed Sec.  1.45V-4(d)(3)(ii)(A) would provide the general rule 
that an EAC satisfies the temporal matching requirement if the 
electricity represented by the EAC is generated in the same hour that 
the taxpayer's hydrogen production facility uses electricity to produce 
hydrogen. Proposed Sec.  1.45V-4(d)(3)(ii)(B) would

[[Page 89233]]

provide a transition rule to allow an EAC that represents electricity 
generated before January 1, 2028 to fall within the general rule 
provided in proposed Sec.  1.45V-4(d)(3)(ii)(A) if the electricity 
represented by the EAC is generated in the same calendar year that the 
taxpayer's hydrogen production facility uses electricity to produce 
hydrogen. The DOE has advised that hourly matching is necessary to 
properly address significant indirect emissions from electricity use 
and that the tracking systems and related contractual structures for 
hourly matching will take some time to develop to an appropriate level 
of maturity.\22\ This transition rule is intended to provide time for 
the EAC market to develop the hourly tracking capability necessary to 
verify compliance with this requirement.
---------------------------------------------------------------------------

    \22\ DOE. 2023. ``Assessing Lifecycle Greenhouse Gas Emissions 
Associated with Electricity Use for the Section 45V Clean Hydrogen 
Production Tax Credit,'' Washington, DC: U.S. Department of Energy, 
available at www.energy.gov/45vresources.
---------------------------------------------------------------------------

    Hourly tracking systems for EACs are not yet broadly available 
across the country and will take some time to develop.\23\ In a recent 
survey of nine existing tracking systems,\24\ two of the tracking 
systems indicated that they are already tracking on an hourly basis, 
although software functionality in these two systems remains limited. 
Fully developing the functionality of these systems will take time, as 
will creating and developing the functionality of hourly tracking 
infrastructure in other regions of the country. Of the other tracking 
systems, assuming that challenges are overcome, four gave a timeline of 
less than one year to two years, and one gave a timeline of three to 
five years; in the latter case, the respondent noted that the timeline 
could be closer to three years if there is full state agency buy-in, 
clear instructions are received from federal or state agencies, and 
funding for stakeholder participation is made available. Two tracking 
systems declined to give a timeline to develop this functionality. In 
the same survey, tracking systems identified a number of challenges to 
hourly tracking that will need to be overcome, including cost, 
regulatory approval, interactions with state policy, sufficient 
stakeholder engagement, data availability and management, and user 
confusion. Moreover, once the tracking software infrastructure is in 
place nationally, it may take additional time for transactional 
structures and efficient hourly EAC markets to develop. Among the 
issues that require resolution as EAC tracking systems move to hourly 
resolution is the treatment of electricity storage.\25\
---------------------------------------------------------------------------

    \23\ Electric Power Research Institute, ``24/7 Carbon-free 
Energy: Matching Carbon-free Energy Procurement to Hourly Electric 
Load,'' Dec. 15, 2022, available at https://www.epri.com/research/products/000000003002025290.
    \24\ Center for Research Solutions, ``Readiness for Hourly: U.S. 
Renewable Energy Tracking Systems,'' June 15, 2023, available at 
https://resource-solutions.org/wp-content/uploads/2023/06/Readiness-for-Hourly-U.S.-Renewable-Energy-Tracking-Systems.pdf.
    \25\ DOE. 2023. ``Assessing Lifecycle Greenhouse Gas Emissions 
Associated with Electricity Use for the Section 45V Clean Hydrogen 
Production Tax Credit,'' Washington, DC: U.S. Department of Energy, 
available at: www.energy.gov/45vresources.
---------------------------------------------------------------------------

    Given the state of tracking systems, the expected responses to this 
proposed rule, and the impact of demand to drive development of the 
tracking systems, the Treasury Department and the IRS anticipate that 
the proposed duration of the transition rule would allow sufficient 
time for systems to develop hourly tracking mechanisms and for the 
associated trading markets to develop. The Treasury Department and the 
IRS acknowledge uncertainty in the timing of implementing an hourly 
matching requirement, however, and request comments on the appropriate 
duration of this transition rule to hourly matching, including specific 
data regarding current industry practices, the predicted timelines for 
development of hourly tracking mechanisms, and the predicted timeline 
for market development for hourly EACs.
c. Deliverability
    Proposed Sec.  1.45V-4(d)(3)(iii) would provide that an EAC meets 
the deliverability requirements if the electricity represented by the 
EAC is generated by a source that is in the same region (as defined in 
proposed Sec.  1.45V-4(d)(2)(vi)) as the relevant hydrogen production 
facility. This approach provides reasonable assurances of 
deliverability of electricity because the regions, as defined earlier, 
were developed by the DOE in consideration of transmission constraints 
and congestion and, in many cases, match power-systems operation. The 
Treasury Department and the IRS recognize that transmission limitations 
also exist within these specified regions but are not aware of readily 
administrable options to reflect those grid constraints. The DOE has 
generally found that inter-regional transmission constraints tend to be 
greater than within-region constraints.\26\ The Treasury Department and 
the IRS request comments on whether there are additional ways to 
establish deliverability, such as circumstances indicating that 
electricity is actually deliverable from an electricity generating 
facility to a hydrogen production facility, even if the two are not 
located in the same region or if the clean electricity generator is 
located outside of the United States.
---------------------------------------------------------------------------

    \26\ DOE, National Transmission Needs Study, Oct. 2023, 
available at https://www.energy.gov/sites/default/files/2023-10/National_Transmission_Needs_Study_2023.pdf.
---------------------------------------------------------------------------

VI. Procedures for Verification of Qualified Clean Hydrogen Production 
and Sale or Use

    Section 45V(c)(2)(B)(ii) provides that hydrogen is not qualified 
clean hydrogen unless ``the production and sale or use of such hydrogen 
is verified by an unrelated party.''
A. Requirements for Verification Reports
    Proposed Sec.  1.45V-5(a) would provide that a verification report 
must be attached to the taxpayer's Form 7210, Clean Hydrogen Production 
Credit, or any successor form(s), and included with the taxpayer's 
Federal income tax return or information return for each qualified 
clean hydrogen production facility and for each taxable year in which 
the taxpayer claims the section 45V credit. Proposed Sec.  1.45V-5(b) 
would provide that the verification report specified in Sec.  1.45V-
5(a) must be prepared by a qualified verifier (as defined in Sec.  
1.45V-5(h)) under penalties of perjury. Proposed Sec.  1.45V-5(b)(1) 
through (6) would describe the following information that a 
verification report must contain: (i) an attestation from the qualified 
verifier regarding the taxpayer's production of qualified clean 
hydrogen for sale or use during the taxable year (production 
attestation), (ii) an attestation from the qualified verifier regarding 
the amount of such qualified clean hydrogen sold or used (sale or use 
attestation), (iii) an attestation from the qualified verifier 
regarding conflicts of interest (conflict attestation), (iv) certain 
information regarding the qualified verifier, including documentation 
of the qualified verifier's qualifications (qualified verifier 
statement), (v) certain general information about the taxpayer's 
hydrogen production facility where the hydrogen production undergoing 
verification occurred, and (vi) any documentation necessary to 
substantiate the verification process given the standards and best 
practices prescribed by the qualified verifier's accrediting body and 
the circumstances of the taxpayer and the taxpayer's hydrogen 
production facility.

[[Page 89234]]

B. Requirements for Production Attestation
    Proposed Sec.  1.45V-5(c)(1) would provide that a production 
attestation must state, under penalties of perjury, that the qualified 
verifier performed a verification sufficient to determine that the 
operation, during the applicable taxable year, of the hydrogen 
production facility that produced the hydrogen for which the section 
45V credit is claimed, and any EACs applied pursuant to proposed Sec.  
1.45V-4(d), are accurately reflected in: (i) the amount of qualified 
clean hydrogen produced by the taxpayer that is claimed on the Form 
7210, Clean Hydrogen Production Credit, or any successor form(s), to 
which the verification report is attached; and (ii) either the data the 
taxpayer entered into the most recent GREET model (as defined in 
proposed Sec.  1.45V-1(a)(8)(ii)) to determine the lifecycle GHG 
emissions rate that is claimed on the Form 7210, or the data the 
taxpayer submitted in the PER petition relating to the hydrogen for 
which the section 45V credit is claimed, and which was provided to the 
DOE in support of the taxpayer's request for the emissions value 
provided in the PER petition. For any acquisition and retirement of 
qualifying EACs, the verification must include validation that any 
purchases of EACs from specified sources as entered into the most 
recent GREET model or used as part of a PER application meet all 
requirements for being qualifying EACs, and that any required technical 
parameters of the generating source (for example, CCS capture rate, or 
sources of biomass) as entered into 45VH2-GREET or as part of a PER 
application are accurate.
    Proposed Sec.  1.45V-5(c)(2) would provide that, if the production 
attestation attests to the information specified in proposed Sec.  
1.45V-5(c)(1)(ii)(B), then the production attestation must also specify 
the emissions value received from the DOE that was calculated using 
such data, expressed in kilograms of CO2e per kilogram of hydrogen.
    Proposed Sec.  1.45V-5(c)(3) would provide that the production 
attestation must specify the lifecycle GHG emissions rate (expressed in 
kilograms of CO2e per kilogram of hydrogen) and the amount of qualified 
clean hydrogen produced by the taxpayer, (expressed in kilograms), that 
are claimed on the Form 7210, Clean Hydrogen Production Credit, or any 
successor form(s), to which the verification report is attached.
C. Requirements for Sale or Use Attestation
    Proposed Sec.  1.45V-5(d)(1) would provide that the sale or use 
attestation must be an attestation, made under penalties of perjury, 
that the qualified verifier performed a verification sufficient to 
determine that the amount of qualified clean hydrogen that is specified 
in the production attestation (described in proposed Sec.  1.45V-5(c)), 
and that is claimed on the Form 7210, Clean Hydrogen Production Credit, 
or any successor form(s), to which the verification report is attached, 
has been sold or used.
    Proposed Sec.  1.45V-5(d)(2) would provide that, for purposes of 
section 45V(c)(2)(B)(ii) and Sec.  1.45V-1(a)(9)(ii), the hydrogen 
specified in proposed Sec.  1.45V-5(d)(1) has been used if a person 
makes a verifiable use of such hydrogen. Section 45V does not deny a 
section 45V credit if the hydrogen is sold or used outside the United 
States (as defined in section 638(1) or a United States territory 
(having the meaning of the term ``possession'' as defined in section 
638(2)). Thus, a verifiable use can occur within or outside the United 
States. A verifiable use can be made by the taxpayer or a person other 
than the taxpayer. For example, in a tolling arrangement pursuant to 
which a service recipient provides raw materials or inputs such as 
water or electricity to a third-party service provider that owns a 
hydrogen production facility (the toller), and the toller produces 
hydrogen for the service recipient using the service recipient's raw 
materials or inputs in exchange for a fee, use of the hydrogen by the 
service recipient would be a verifiable use. However, a verifiable use 
includes neither (i) use of hydrogen to generate electricity that is 
then directly or indirectly used in the production of more hydrogen, 
nor (ii) venting or flaring hydrogen.
    Excluding those activities from qualifying as a verifiable use is 
intended to prevent the wasteful production of hydrogen and abusive 
section 45V credit generation schemes. For example, without this 
restriction, the section 45V credit could be exploited through the 
production of qualified clean hydrogen that is used to generate 
electricity that is, in turn, used to produce additional qualified 
clean hydrogen. The primary purpose of these arrangements would be the 
exploitation of the section 45V credit and possibly other Federal 
income tax credits. Such arrangements are inconsistent with the intent 
of section 45V and with the statutory ``use'' requirement because they 
would incentivize the inefficient production of qualified clean 
hydrogen for unproductive use and would result in excessive claims of 
the section 45V credit. The Treasury Department and the IRS request 
comments on whether there are additional safeguards that the 
regulations could adopt to prevent this or similar types of abusive 
section 45V credit claims, including section 45V credit claims arising 
if such circular arrangements are coordinated among multiple parties.
D. Requirements for Conflict Attestation
    Proposed Sec.  1.45V-5(e)(1) would provide that the verification 
report must also include a conflict attestation, made under penalties 
of perjury, that (i) the qualified verifier has not received a fee 
based to any extent on the value of any section 45V credit that has 
been or is expected to be claimed by any taxpayer and no arrangement 
has been made for such fee to be paid at some time in the future; (ii) 
the qualified verifier was not a party to any transaction in which the 
taxpayer sold qualified clean hydrogen it had produced or in which the 
taxpayer purchased inputs for the production of such hydrogen; (iii) 
the qualified verifier is not related, within the meaning of section 
267(b) or 707(b)(1), to, or an employee of, the taxpayer; (iv) the 
qualified verifier is not married to an individual described in 
proposed Sec.  1.45V-5(e)(1)(iii); and (v) if the qualified verifier is 
acting in his or her capacity as a partner in a partnership, an 
employee of any person, whether an individual, corporation, or 
partnership, or an independent contractor engaged by a person other 
than the taxpayer, the attestations under proposed Sec.  1.45V-
5(e)(1)(i) through (iv) must be made with respect to the partnership or 
the person who employs or engages the qualified verifier.
    Proposed Sec.  1.45V-5(e)(2) would provide that, if a transfer 
election has been made under section 6418(a) of the Code with respect 
to the section 45V credit, then the attestation requirements under 
proposed Sec.  1.45V-5(e)(1) would need to be made with respect to the 
qualified verifier's independence from both the eligible taxpayer (as 
defined in section 6418(f)(2) and Sec.  1.6418-1(b)) and the transferee 
taxpayer (as described in section 6418(a) and defined in Sec.  1.6418-
1(m)).
E. Requirements for Qualified Verifier Statement
    Proposed Sec.  1.45V-5(f) would provide that the qualified verifier 
statement must contain (i) the qualified verifier's name, address, and 
taxpayer identification number; (ii) the qualified verifier's 
qualifications to conduct the

[[Page 89235]]

verification, including the qualified verifier's education and 
experience and a photocopy of the qualified verifier's certificate 
received from their accrediting body; (iii) if the qualified verifier 
is acting in his or her capacity as a partner in a partnership, an 
employee of any person, whether an individual, corporation, or 
partnership, or an independent contractor engaged by a person other 
than the taxpayer, the name, address, and taxpayer identification 
number of the partnership or the person who employs or engages the 
qualified verifier; (iv) the signature of the qualified verifier and 
the date signed by the qualified verifier; and (v) a statement that the 
verification was conducted for Federal income tax purposes.
F. General Information Required To Be Included in Verification Report
    Proposed Sec.  1.45V-5(g) would provide that the verification 
report must include (i) the location of the hydrogen production 
facility; (ii) a description of the hydrogen production facility, 
including its method of producing hydrogen; (iii) the type(s) of 
feedstock(s) used by the hydrogen production facility during the 
taxable year of production; (iv) the amount(s) of feedstock(s) used by 
the hydrogen production facility during the taxable year of production; 
and (v) a list of the metering devices used to record any data used by 
the qualified verifier to support the production attestation along with 
a statement that the qualified verifier is reasonably assured that the 
device(s) underwent industry-appropriate quality assurance and quality 
control, and that the accuracy and calibration of the device has been 
tested in the last year.
G. Definitions Related to Verifications
    Proposed Sec.  1.45V-5(h) would define the term ``qualified 
verifier'' to mean any individual or organization with active 
accreditation (i) as a validation and verification body from the 
American National Standards Institute National Accreditation Board; or 
(ii) as a verifier, lead verifier, or verification body under the 
California Air Resources Board Low Carbon Fuel Standard program. The 
Treasury Department and the IRS request comment on this definition of 
``qualified verifier,'' including on whether additional accreditations 
that demonstrate sufficient expertise for verification of lifecycle 
analysis for the section 45V credit should be included.
    Proposed Sec.  1.45V-5(i) would define the term ``unrelated party'' 
(as described in section 45V(c)(2)(B)(ii)) to mean a qualified verifier 
who meets the conflict attestation requirements as provided in proposed 
Sec.  1.45V-5(e).
H. Requirements for Taxpayers Claiming Both the Section 45V Credit and 
the Section 45 Credit or the Section 45U Credit
    Proposed Sec.  1.45V-5(j) would provide requirements that, in the 
case of a taxpayer who produces electricity for which either the 
section 45 credit or section 45U credit is claimed and the taxpayer or 
a related person (as defined in section 45(e)(4)) uses such electricity 
(and related EACs) to produce hydrogen for which the section 45V credit 
is claimed, the verification report must also contain attestations that 
the qualified verifier performed a verification sufficient to determine 
that (i) the electricity used to produce hydrogen was produced at the 
relevant facility for which either the section 45 credit or section 45U 
credit was claimed, (ii) the given amount of such electricity (in 
kilowatt hours) used to produce hydrogen at the relevant qualified 
clean hydrogen production facility is reasonably assured of being 
accurate, and (iii) the electricity for which a section 45 or section 
45U credit was claimed is represented by EACs that are retired in 
connection with the production of such hydrogen.
I. Required Time for Filing a Verification Report
    Proposed Sec.  1.45V-5(k) would provide that a verification report 
must be signed and dated by the qualified verifier no later than (i) 
the due date, including extensions, of the Federal income tax return or 
information return for the taxable year during which the hydrogen 
undergoing verification is produced; or (ii) in the case of a section 
45V credit first claimed on an amended return or administrative 
adjustment request (AAR), the date on which the amended return or AAR 
is filed.

VII. Placed in Service Date for Existing Facility That Is Modified or 
Retrofitted To Produce Qualified Clean Hydrogen

A. Modification of an Existing Facility
    Under section 45V(d)(4), in the case of any facility that was 
originally placed in service before January 1, 2023, and, prior to the 
modification (described in section 45V(d)(4)(B)), did not produce 
qualified clean hydrogen, and after the date the facility was 
originally placed in service (i) is modified to produce qualified clean 
hydrogen, and (ii) amounts paid or incurred with respect to the 
modification are properly chargeable to the taxpayer's capital account, 
the facility will be deemed to have been originally placed in service 
as of the date the property required to complete the modification is 
placed in service. The rule in section 45V(d)(4) for modification of 
existing facilities applies to modifications made after December 31, 
2022. See section 13204(a)(5)(C) of the IRA.
    Proposed Sec.  1.45V-6(a)(1) would incorporate the statutory 
provisions of section 45V(d)(4). Proposed Sec.  1.45V-6(a)(2) would 
further provide that an existing facility will not be deemed to have 
been originally placed in service as of the date the property required 
to complete the modification is placed in service unless the 
modification is made for the purpose of enabling the facility to 
produce qualified clean hydrogen and the taxpayer pays or incurs an 
amount with respect to such modification that is properly chargeable to 
the taxpayer's capital account for the facility. Proposed Sec.  1.45V-
6(a)(2) would also provide that a modification is made for the purpose 
of enabling the facility to produce qualified clean hydrogen if the 
facility could not produce hydrogen with a lifecycle GHG emissions rate 
that is less than or equal to 4 kilograms of CO2e per kilogram hydrogen 
but for the modification. Changing fuel inputs to the hydrogen 
production process, such as switching from conventional natural gas to 
renewable natural gas, would not qualify as a facility modification for 
purposes of proposed Sec.  1.45V-6(a)(2).
    Examples 1, 2, and 3 of proposed Sec.  1.45V-6(c) would provide 
examples illustrating the application of the rules provided by section 
45V(d)(4) and proposed Sec.  1.45V-6(a).
B. Retrofit of an Existing Facility (80/20 Rule)
    Proposed Sec.  1.45V-6(b) would provide that an existing facility 
may establish a new date on which it is considered originally placed in 
service for purposes of section 45V, even though the facility contains 
some used property, provided the fair market value of the used property 
is not more than 20 percent of the facility's total value (the cost of 
the new property plus the value of the used property) (80/20 Rule). 
Proposed Sec.  1.45V-6(b) would further provide that for purposes of 
the 80/20 Rule, the cost of new property includes all properly 
capitalized costs of the new property included within the facility. 
Proposed Sec.  1.45V-6(b) would provide that, if a facility satisfies 
the requirements of the 80/20 Rule, then the date on which such 
facility is considered originally placed in service for purposes of 
section 45V(a)(1) is the date on which the new property added to the 
facility is placed

[[Page 89236]]

in service. Proposed Sec.  1.45V-6(b) would also provide that the 80/20 
Rule applies to any existing facility, regardless of whether the 
facility previously produced qualified clean hydrogen and regardless of 
when the facility was originally placed in service (before application 
of proposed Sec.  1.45V-6(b)). Examples 4 and 5 of proposed Sec.  
1.45V-6(c) would provide examples illustrating the application of the 
80/20 Rule.

VIII. Election To Treat a Clean Hydrogen Production Facility as Energy 
Property for Purposes of the Section 48 Credit

A. Overview
    Section 48(a)(15) allows a taxpayer that owns and places in service 
a specified clean hydrogen production facility (as defined in section 
48(a)(15)(C)) to make an irrevocable election to claim the section 48 
credit in lieu of the section 45V credit for any qualified property (as 
defined in section 48(a)(5)(D)) that is part of the facility. This 
provision is effective for property placed in service after December 
31, 2022. For any property that is placed in service after December 31, 
2022, and the construction of which begins before January 1, 2023, 
section 13204(c)(3) of the IRA provides that section 48(a)(15) applies 
only to the extent of the basis of such property that is attributable 
to construction, reconstruction, or erection occurring after December 
31, 2022.
    Proposed Sec.  1.48-15(a) would provide that a taxpayer that owns 
and places in service a specified clean hydrogen production facility 
(as defined in section 48(a)(15)(C) and proposed Sec.  1.48-15(b)) can 
make an irrevocable election under section 48(a)(15)(C)(ii)(II) to 
treat any qualified property (as defined in section 48(a)(5)(D)) that 
is part of the facility as energy property for purposes of section 48.
    Proposed Sec.  1.48-15(b) would define the term ``specified clean 
hydrogen production facility'' to mean any qualified clean hydrogen 
production facility (within the meaning of section 45V(c)(3)) and 
proposed Sec.  1.45V-1(a)(10)): (i) that is placed in service after 
December 31, 2022; (ii) with respect to which no section 45V credit or 
section 45Q credit has been allowed, and for which the taxpayer makes 
an irrevocable election to have section 48(a)(15) apply; and (iii) for 
which an unrelated party has verified in the manner specified in 
proposed Sec.  1.48-15(e) that such facility produces hydrogen through 
a process that results in lifecycle GHG emissions that are consistent 
with the hydrogen that such facility was designed and expected to 
produce under section 48(a)(15)(A)(ii) and proposed Sec.  1.48-15(c).
    Proposed Sec.  1.48-15(c)(1) would provide the energy percentage 
(used by a taxpayer to calculate a section 48 credit) for a specified 
clean hydrogen production facility that is designed and reasonably 
expected to produce qualified clean hydrogen through a process that 
results in a lifecycle GHG emissions rate of not greater than 4 
kilograms of CO2e per kilogram of hydrogen. Proposed Sec.  1.48-
15(c)(2) would further provide that ``designed and reasonably expected 
to produce'' means hydrogen produced through a process that results in 
the lifecycle GHG emissions rate specified in the annual verification 
report for the taxable year in which the section 48(a)(15) election is 
made. The Treasury Department and the IRS request comments on this 
proposed rule and whether there are any challenges to using the 
lifecycle GHG emissions rate achieved in the taxable year in which the 
section 48(a)(15) election is made to determine the facility's energy 
percentage for purposes of calculating the section 48 credit amount.
B. Election Procedures
1. Time and Manner of Making Election
    Proposed Sec.  1.48-15(d)(1) would provide that, to make an 
election under section 48(a)(15)(c)(ii)(II), a taxpayer must claim the 
section 48 credit with respect to a specified clean hydrogen production 
facility on a Form 3468, Investment Credit, or any successor form(s), 
and file the form with the taxpayer's Federal income tax return or 
information return for the taxable year in which the specified clean 
hydrogen production facility is originally placed in service. Proposed 
Sec.  1.48-15(d)(1) would provide that the taxpayer must also attach a 
statement to its Form 3468, Investment Credit, or any successor 
form(s), filed with its Federal income tax return or information return 
that includes all the information required by the instructions to Form 
3468, Investment Credit, or any successor form(s), for each specified 
clean hydrogen production facility subject to an election. Proposed 
Sec.  1.48-15(d)(1) would provide that a separate election must be made 
for each specified clean hydrogen production facility that meets the 
requirements provided in section 48(a)(15) to treat the qualified 
property that is part of the facility as energy property.
    Proposed Sec.  1.48-15(d)(1) would further provide that, if any 
taxpayer owning an interest in a specified clean hydrogen production 
facility makes an election with respect to the facility, then that 
election would be binding on all taxpayers that directly or indirectly 
own an interest in the facility. Thus, consistent with section 
48(a)(15)(B), if a taxpayer owning an interest in a specified clean 
hydrogen production facility makes an election under section 
48(a)(15)(C)(ii)(II), then no other taxpayer owning an interest in the 
same facility will be allowed a section 45V credit or section 45Q 
credit with respect to the facility.
    The Treasury Department and the IRS request comments on whether, in 
the context of a specified clean hydrogen production facility that is 
directly owned through an arrangement properly treated as a tenancy-in-
common for Federal income tax purposes or through an organization that 
has made a valid election under section 761(a) of the Code, each co-
owner's or member's undivided ownership share of the qualified property 
comprised in the facility should be treated for purposes of section 
48(a)(15)(C)(ii)(II) as a separate facility owned by such co-owner or 
member, with each such co-owner or member eligible to make a separate 
election under section 48(a)(15)(C)(ii)(II) to claim the section 48 
credit in lieu of the section 45V credit with respect to its undivided 
ownership interest in the facility or share of the underlying qualified 
property.
2. Special Rule for Partnerships and S Corporations
    Proposed Sec.  1.48-15(d)(2) would provide that, in the case of a 
specified clean hydrogen production facility owned by a partnership or 
an S corporation, the election under section 48(a)(15)(C)(ii)(II) would 
be made by the partnership or S corporation and would be binding on all 
ultimate credit claimants (as defined in Sec.  1.50-1(b)(3)(ii)). 
Proposed Sec.  1.48-15(d)(2) would provide that the partnership or S 
corporation must file a Form 3468, Investment Credit, or any successor 
forms(s), with its partnership or S corporation return for the taxable 
year in which the specified clean hydrogen production facility is 
placed in service to indicate that it is making the election, and 
attach a statement that includes all the information required by the 
instructions to Form 3468, Investment Credit, or any successor form(s), 
for each specified clean hydrogen production facility subject to the 
election. Proposed Sec.  1.48-15(d)(2) would provide that the ultimate 
credit claimant's section 48 must be based on each claimant's share of 
the basis (as defined in Sec.  1.46-3(f)) of the specified

[[Page 89237]]

clean hydrogen production facility on a completed Form 3468, Investment 
Credit, or any successor forms(s), and file such form with a Federal 
income tax return or information return for the taxable year that ends 
with or within the taxable year in which the partnership or S 
corporation made the election. Proposed Sec.  1.48-15(d)(2) would 
provide that the partnership or S corporation making the election must 
provide the ultimate credit claimants with the necessary information to 
complete Form 3468, Investment Credit, or any successor forms(s), to 
claim the section 48 credit.
3. Election Irrevocable
    Proposed Sec.  1.48-15(d)(3) would provide that the election to 
treat any qualified property that is part of a specified clean hydrogen 
production facility as energy property would be irrevocable.
4. Election Availability Date
    Proposed Sec.  1.48-15(d)(4) would provide that the election to 
treat any qualified property that is part of a specified clean hydrogen 
production facility as energy property would be available for property 
placed in service after December 31, 2022, and, for any property that 
began construction before January 1, 2023, only to the extent of the 
basis thereof attributable to the construction, reconstruction, or 
erection after December 31, 2022.
C. Third-Party Verification
    Proposed Sec.  1.48-15(e)(1) would provide that, in the case of a 
taxpayer that makes an election under section 48(a)(15)(c)(ii)(II) to 
treat any qualified property that is part of a specified clean hydrogen 
production facility as energy property for purposes of the section 48 
credit, the taxpayer must obtain an annual verification report for the 
taxable year in which the election is made and for each taxable year 
thereafter of the recapture period specified in proposed Sec.  1.48-
15(f)(3). Proposed Sec.  1.48-15(e)(1) would further provide that the 
taxpayer must also submit the annual verification report as an 
attachment to the Form 3468, Investment Credit, or any successor 
form(s), for the taxable year in which the election is made.
    Further, proposed Sec.  1.48-15(e)(2)(i) would provide that the 
annual verification report must be signed under penalties of perjury by 
a qualified verifier (as defined in proposed Sec.  1.45V-5(h)) and 
contain (i) the information specified in Sec. Sec.  1.45V-5(b) and 
1.45V-5(d) through Sec.  1.45V-5(h); (ii) a statement attesting to the 
lifecycle GHG emissions rate (determined under section 45V(c) and Sec.  
1.45V-4) of the hydrogen produced at the specified clean hydrogen 
production facility for the taxable year to which the annual 
verification report relates and that the operation, during such taxable 
year, of the specified clean hydrogen production facility, and any EACs 
applied pursuant to Sec.  1.45V-4(d) for the purpose of accounting for 
such facility's emissions, are accurately reflected in the data the 
taxpayer entered into the most recent GREET model (as defined in Sec.  
1.45V-1(a)(8)(ii)) (or in the data the taxpayer provided to the DOE in 
support of the taxpayer's request for an emissions value), to determine 
the lifecycle GHG emissions rate of the hydrogen undergoing 
verification; and (iii) an attestation that the facility produced 
hydrogen through a process that results in a lifecycle GHG emissions 
rate that is consistent with, or lower than, the lifecycle GHG 
emissions rate of the hydrogen that such facility was designed and 
expected to produce.
    Proposed Sec.  1.48-15(e)(2)(ii) would provide that if a transfer 
election has been made under section 6418(a) of the Code with respect 
to the section 48 credit for a specified clean hydrogen production 
facility, then the conflict attestation containing the information 
specified in proposed Sec.  1.45V-5(e)(1) must be made with respect to 
the qualified verifier's independence from both the eligible taxpayer 
(as defined in section 6418(f)(2) and Sec.  1.6418-1(b)) and the 
transferee taxpayer (as described in section 6418(a) and defined in 
Sec.  1.6418-1(m)), and without regard to the requirements under 
proposed Sec.  1.45V-5(e)(2).
    Proposed Sec.  1.48-15(e)(2)(iii) would provide that in the event 
the facility produces qualified clean hydrogen through a process that 
results in a lifecycle GHG emissions rate greater than the lifecycle 
GHG emissions rate such facility was designed and expected to produce 
(and thus the qualified verifier cannot provide the attestation 
specified in proposed Sec.  1.48-15(e)(2)(i)(B)), resulting in a 
reduced energy percentage under section 48(a)(15)(A)(ii) with respect 
to such facility, an emissions tier recapture event under proposed 
Sec.  1.48-15(f)(2) will occur. Proposed Sec.  1.48-15(e)(2)(iv) would 
provide that the hydrogen a facility was ``designed and expected to 
produce'' would mean hydrogen produced through a process that results 
in the lifecycle GHG emissions rate specified in proposed Sec.  1.48-
15(c)(2).
    Additionally, proposed Sec.  1.48-15(e)(2)(v) would require that 
the annual verification report must be signed and dated by the 
qualified verifier no later than the due date, including extensions, of 
the Federal income tax return or information return for the taxable 
year in which the hydrogen undergoing verification was produced. 
Proposed Sec.  1.48-15(e)(2)(vi) would provide that in addition to the 
recordkeeping requirements set forth in Sec.  1.48-15(g), the taxpayer 
must retain the annual verification report for at least six years after 
the due date, with extensions, for filing the Federal income tax return 
or information return for the taxable year in which the hydrogen 
undergoing verification was produced.
D. Credit Recapture
    Section 48(a)(15)(E) directs the Secretary to issue such 
regulations or other guidance as determined necessary to carry out the 
purposes of section 48, including regulations or other guidance 
addressing recapture of so much of the credit allowed under section 48 
as exceeds the amount of the credit that 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.
1. Emissions Tier Recapture Events Under Section 48(a)(15)(E)
    Proposed Sec.  1.48-15(f)(1), would provide that, for purposes of 
section 48(a)(15)(E), in any taxable year of the recapture period 
specified in proposed Sec.  1.48-15(f)(3) in which an emissions tier 
recapture event (as defined in proposed Sec.  1.48-15(f)(2)) occurs, 
the tax imposed on the taxpayer under chapter 1 of the Code for the 
taxable year of the emissions tier recapture event is increased by the 
recapture amount specified in proposed Sec.  1.48-15(f)(4).
    Proposed Sec.  1.48-15(f)(2) would provide that an emissions tier 
recapture event under section 48(a)(15)(E) occurs during any taxable 
year of the recapture period specified in proposed Sec.  1.48-15(f)(3) 
under the following circumstances: (i) the taxpayer fails to obtain an 
annual verification report by the deadline for filing its Federal 
income tax return or information return (including extensions) for any 
taxable year in which an annual verification report was required under 
proposed Sec.  1.48-15(e)(1); (ii) the specified clean hydrogen 
production facility actually produced hydrogen through a process that 
results in a lifecycle GHG emissions rate that can only support a lower 
energy percentage than the energy percentage used to calculate the 
amount of the section 48 credit for such facility for the year in which 
the facility is placed in service; or (iii) the specified clean 
hydrogen production facility

[[Page 89238]]

actually produced hydrogen through a process that results in a 
lifecycle GHG emissions rate of greater than 4 kilograms of CO2e per 
kilogram of hydrogen.
2. Recapture Period Under Section 48(a)(15)(E)
    Proposed Sec.  1.48-15(f)(3) would provide that the recapture 
period begins on the first day of the first taxable year after the 
taxable year in which the facility was placed in service and ends on 
the last day of the fifth taxable year after the close of the taxable 
year in which the facility was placed in service. For example, if a 
calendar-year taxpayer places in service a specified clean hydrogen 
production facility on June 1, 2023, then the last day of the fifth 
taxable year following the close of the taxable year in which the 
facility was placed in service is December 31, 2028. Therefore, the 
recapture period is January 1, 2024, through December 31, 2028.
3. Recapture Amount
    Proposed Sec.  1.48-15(f)(4) would provide that, if an emissions 
tier recapture event has occurred under proposed Sec.  1.48-15(f)(2), 
the recapture amount for the taxable year in which the emissions tier 
recapture event occurred is equal to 20 percent of the excess of (i) 
the section 48 credit allowed to the taxpayer for the specified clean 
hydrogen production facility for the taxable year in which the facility 
was placed in service, over (ii) the section 48 credit that would have 
been allowed to the taxpayer for the facility if the taxpayer had used 
the energy percentage supported by the actual production to calculate 
the amount of the section 48 credit. Proposed Sec.  1.48-15(f)(4)(ii) 
would provide that, in the case of any emissions tier recapture event 
described in proposed Sec.  1.48-15(f)(2), the carrybacks and 
carryovers under section 39 must be adjusted by reason of the emissions 
tier recapture event. Proposed Sec.  1.48-15(f)(4)(iii) would further 
provide that, if the specified clean hydrogen production facility 
produced hydrogen through a process that results in a lifecycle GHG 
emissions rate of greater than 4 kilograms of CO2e per kilogram of 
hydrogen, or if the taxpayer fails to submit an annual verification 
report with its Federal income tax return or information return with 
respect to a specified clean hydrogen production facility for any 
taxable year of the recapture period, then the section 48 credit that 
would have been allowed to the taxpayer for the facility would be zero. 
Thus, in that case, the recapture amount in the taxable year of the 
emissions tier recapture event would be 20 percent of the section 48 
credit allowed to the taxpayer with respect to such specified clean 
hydrogen production facility. Proposed Sec.  1.48-15(f)(5) would 
provide an example illustrating the application of proposed Sec.  1.48-
15(f)(1) through (4).
    Unless modified in future guidance, any reporting of emissions tier 
recapture under proposed Sec.  1.48-15(f) is made on the taxpayer's 
annual tax return. The Secretary may issue future guidance and/or 
prescribe tax forms and instructions to address the reporting of 
emissions tier recapture under proposed Sec.  1.48-15(f) and any 
additional annual reporting obligations. The Treasury Department and 
IRS therefore request comments on the reporting of recapture and any 
additional annual reporting obligations.
4. Coordination With Recapture Rules Under Sections 50 and 48(a)(10)(C)
    Proposed Sec.  1.48-15(f)(6) would provide that, during any taxable 
year of the recapture period for any credit allowed under section 48(a) 
with respect to qualified property that is part of a specified clean 
hydrogen production facility, the recapture rules would be applied, if 
applicable, in the following order: (i) section 50(a) (recapture in 
case of dispositions, etc.); (ii) section 48(a)(10)(C) (recapture 
relating to the prevailing wage requirements); and (iii) section 
48(a)(15)(E) (emissions tier recapture).
E. Recordkeeping Requirements
    Proposed Sec.  1.45V-2(c) would provide that a taxpayer claiming 
the section 45V credit would need to meet the general recordkeeping 
requirements under section 6001 necessary to substantiate the amount of 
the section 45V credit claimed by the taxpayer. Section 6001 provides 
that every person liable for any tax imposed by the Code, or for the 
collection thereof, must keep such records as the Secretary may from 
time to time prescribe. Section 1.6001-1(a) provides that any person 
subject to income tax must keep such permanent books of account or 
records as are sufficient to establish the amount of gross income, 
deductions, credits, or other matters required to be shown by such 
person in any return of such tax. Section 1.6001-1(e) provides that the 
books and records required by Sec.  1.6001-1 must be retained so long 
as the contents thereof may become material in the administration of 
any internal revenue law.
    Proposed Sec.  1.45V-2(c) would also provide that taxpayers must 
retain all raw data used for submission of the request for an emissions 
value to the DOE for at least six years after the due date (including 
extensions) for filing the Federal income tax return or information 
return to which the PER petition is ultimately attached.
    Proposed Sec.  1.48-15(g) would provide corresponding recordkeeping 
rules.

IX. Renewable Natural Gas and Fugitive Sources of Methane

    The Treasury Department and the IRS intend to provide rules 
addressing hydrogen production pathways that use renewable natural gas 
(RNG) or other fugitive sources of methane (for example, from coal mine 
operations) for purposes of the section 45V credit. In the context of 
this guidance, the term RNG refers to biogas that has been upgraded to 
be equivalent in nature to fossil natural gas. Fugitive methane refers 
to the release of methane through, for example, equipment leaks, or 
venting during the extraction, processing, transformation, and delivery 
of fossil fuels to the point of final use, such as coal mine methane or 
coal bed methane. Such rules would apply to all RNG used for the 
purposes of the section 45V credit and would provide conditions that 
must be met before certificates for RNG or fugitive methane 
(representations of the environmental attributes of the methane) and 
the GHG emissions benefits they are meant to represent may be taken 
into account in determining lifecycle GHG emissions rates for purposes 
of the section 45V credit. Such conditions would be logically 
consistent with but not identical to the incrementality, temporal 
matching, and deliverability requirements for electricity derived EACs, 
in that they would be designed to reflect the ways in which additional 
RNG or demand for fugitive methane can impact lifecycle GHG emissions 
and also to address the differences between electricity and methane, 
including but not limited to the different sources of emissions, 
markets, available tracking and verification methods, and potential for 
perverse incentives.
    The Treasury Department and the IRS anticipate requiring that for 
purposes of the section 45V credit, for biogas or biogas-based RNG to 
receive an emissions value consistent with that gas (and not standard 
natural gas), the RNG used during the hydrogen production process must 
originate from the first productive use of the relevant methane. For 
any specific source of biogas,\27\

[[Page 89239]]

productive use is generally defined as any valuable application of 
biogas (including to provide heat or cooling, generate electricity, or 
upgraded to RNG), and specifically excludes venting to the atmosphere 
or capture and flaring. The Treasury Department and the IRS further 
propose to define ``first productive use'' of the relevant methane as 
the time when a producer of that gas first begins using or selling it 
for productive use in the same taxable year as (or after) the relevant 
hydrogen production facility was placed in service. The implication of 
this proposal is that biogas from any source that had been productively 
used in a taxable year prior to taxable year in which the relevant 
hydrogen production facility was placed in service would not receive an 
emission value consistent with biogas-based RNG but would instead 
receive a value consistent with natural gas in the determination of the 
emissions value for that specific hydrogen production pathway. This 
proposal would limit emissions associated with the diversion of biogas 
or RNG from other pre-existing productive uses.
---------------------------------------------------------------------------

    \27\ Biogas is gas resulting from the decomposition of organic 
matter under anaerobic conditions, and the principal constituent is 
methane (50-75 percent).
---------------------------------------------------------------------------

    For existing biogas sources that typically productively use or sell 
a portion of the biogas and flare or vent the remaining excess, the 
flared or vented portion may be eligible for first productive use as 
defined above if the flaring or venting volume can be adequately 
demonstrated and verified. In such circumstances, the flared or vented 
volume may be determined based on the previous taxable year's flared or 
vented volume as demonstrated via reported data to programs such as the 
Greenhouse Gas Reporting Program. Requirements would be established to 
reduce the risk that entities will deliberately generate additional 
biogas for purposes of the section 45V credit, above historic and 
expected future levels or an equivalent metric, for example by 
generating biogas through the intentional generation of waste, and to 
ensure that other factors affecting the emissions rate of hydrogen 
produced with biogas-based RNG or RNG procurement via RNG certificates 
are taken into account. The Treasury Department and the IRS request 
comment on these and other potential conditions. Any fugitive sources 
of methane would be treated in the same fashion as described above for 
RNG.
    For purposes of the section 45V credit, hydrogen producers using 
RNG or fugitive methane would be required to acquire and retire 
corresponding attribute certificates through a book-and-claim system 
that can verify in an electronic tracking system that all applicable 
requirements are met. Hydrogen producers would also be required to have 
a pipeline interconnection and measurement using a revenue grade meter. 
These rules would apply to the use of certificates with both direct and 
non-direct claims of RNG or fugitive methane use. Direct use would 
involve the production of hydrogen with a direct exclusive pipeline 
connection to a facility that generates RNG or from which fugitive 
methane is being sourced, while non-direct use would involve producing 
hydrogen using RNG or fugitive methane sourced from a commercial or 
common-carrier natural gas pipeline. In all cases, attribute 
certificates would need to document the RNG or fugitive methane 
procurement for qualified clean hydrogen production claims and that the 
environmental attributes of the RNG or fugitive methane being used are 
not sold to other parties or used for compliance with other policies or 
programs.
    The Treasury Department and the IRS request comments on these and 
other rules related to RNG and fugitive methane. Regarding fugitive 
methane, the Treasury Department and the IRS request comment on the 
appropriate lifecycle analysis considerations associated with specific 
fugitive methane sources, such as counterfactual scenarios, to account 
for direct and significant indirect emissions, and also the manner in 
which to assess methane from these sources if the current practice is 
flaring. These comments may inform future versions of 45VH2-GREET. In 
particular, the Treasury Department and the IRS request comments on the 
following questions:
    (1) What data sources and peer reviewed studies provide information 
on RNG production systems (including biogas production and reforming 
systems), markets, monitoring, reporting, and verification processes, 
and GHG emissions associated with these production systems and markets?
    (2) What conditions for the use of biogas and RNG would ensure that 
emissions accounting for purposes of the section 45V credit reflects 
and reduces the risk of indirect emissions effects from hydrogen 
production using biogas and RNG? How can taxpayers verify that they 
have met these requirements?
    (3) How broadly available and reliable are existing electronic 
tracking systems for RNG certificates in book and claim systems? What 
developments may be required, if any, before such systems are 
appropriate for use with RNG certificates used to claim the section 45V 
credit?
    (4) How should RNG or fugitive methane resulting from the first 
productive use of methane be defined, documented, and verified? What 
industry best practices or alternative methods would enable such 
verification to be reflected in an RNG or methane certificate or other 
documentation? What additional information should be included in RNG 
certificates to help certify compliance?
    (5) What are the emissions associated with different methods of 
transporting RNG or fugitive methane to hydrogen producers (for 
example, vehicular transport, pipeline)?
    (6) How can the section 45V regulations reflect and mitigate 
indirect emissions effects from the diversion of biogas or RNG or 
fugitive methane from potential future productive uses? What other new 
uses of biogas or RNG or fugitive methane could be affected in the 
future if more gas from new capture and productive use of methane from 
these sources is used in the hydrogen production process?
    (7) How can the potential for the generation of additional 
emissions from the production of additional waste, waste diversion from 
lower-emitting disposal methods, and changes in waste management 
practices be limited through emissions accounting or rules for biogas 
and RNG use established for purposes of the section 45V credit?
    (8) To limit the additional production of waste, should the final 
regulations limit eligibility to methane sources that existed as of a 
certain date or waste or waste streams that were produced before a 
certain date, such as the date that the IRA was enacted? If so, how can 
that be documented or verified? How should any changes in volumes of 
waste and waste capacity at existing methane sources be documented and 
treated for purposes of the section 45V credit? How should additional 
capture of existing waste or waste streams be documented and treated?
    (9) Are geographic or temporal deliverability requirements needed 
to reflect and reduce the risk of indirect emissions effects from 
biogas and RNG or fugitive methane use in the hydrogen production 
process? If so, what should these requirements be and are electronic 
tracking systems able to capture these details?
    (10) How should variation in methane leakage across the existing 
natural gas pipeline system be taken into account in estimating the 
emissions from the transportation of RNG or fugitive methane or 
establishing rules for RNG or fugitive methane use? How should methane 
leakage rates be estimated based on factors such as the location

[[Page 89240]]

where RNG or fugitive methane is injected and withdrawn, the distance 
between the locations where RNG or fugitive methane is injected and 
withdrawn, season of year, age of pipelines, or other factors? Are data 
or analysis available to support this?
    (11) What counterfactual assumptions and data should be used to 
assess the lifecycle GHG emissions of hydrogen production pathways that 
rely on RNG? Is venting an appropriate counterfactual assumption for 
some pathways? If not, what other factors should be considered?
    (12) What criteria should be used in assessing biogas and RNG-based 
PERs? What practices should be put in place to reduce the risk of 
unintended consequences (for example, gaming)? Should conservative 
default parameters and counterfactuals be used unless proven otherwise 
by a third party?
    The Treasury Department and the IRS understand that, before final 
regulations addressing the section 45V credit are issued, taxpayers 
will use 45VH2-GREET or the PER process to determine a lifecycle GHG 
emissions rate for hydrogen production facilities that rely on direct 
use of landfill gas or any fugitive methane feedstock, provided they 
meet the requirement that the gas being used results from the first 
productive use of methane from the landfill source or fugitive methane 
source. The term ``direct use'' means that there is a direct, exclusive 
pipeline connection between the hydrogen production facility and the 
source of the gas that is procured (for example, the upgrading or 
processing facility that produces RNG from landfill gas). Relative to a 
book-and-claim system, the direct connection between a gas supplier and 
a hydrogen production facility can reduce the uncertainty of pipeline 
leakage, tracking, and verification. The Treasury Department and the 
IRS are considering providing a rule that taxpayers would need to 
provide and maintain documentation to substantiate that (i) the RNG 
being used results from the first productive use of the methane at the 
landfill source and is not displacing a previous productive use; and 
(ii) the environmental attributes of the RNG being used, including 
those of the underlying biogas, are not sold to other parties or used 
for compliance with other policies or programs. When additional 
conditions addressing hydrogen production pathways that use RNG or 
fugitive methane for purposes of the section 45V credit are determined 
at a later date, taxpayers would also be required to maintain 
documentation that the RNG or fugitive methane being used meets those 
requirements and to acquire and retire any RNG or fugitive methane 
certificates that are established. The Treasury Department and IRS are 
also considering providing rules for using RNG certificates and 
documentation required in the event additional conditions for use of 
RNG are later imposed.
    Tracking and verification mechanisms for RNG or fugitive methane 
specific to the needs of the section 45V credit are not yet available, 
and existing systems have limited capabilities for tracking and 
verifying RNG pathways, especially in the part of the production 
process before the methane has been reformed to RNG. Existing tracking 
and verification systems do not clearly distinguish between inputs, 
verify or require verification of underlying practices claimed by RNG 
production sources, require proof of generator interconnection or 
revenue-quality metering, provide validation of generation methodology, 
include exclusively United States based-generation, verify generator 
registration, and track the vintage of generator interconnection. The 
Treasury Department and IRS are considering providing rules to address 
whether or how book-and-claim systems with sufficient tracking and 
verification mechanisms may be used to attribute the environmental 
benefits of RNG or fugitive methane to hydrogen producers in the final 
regulations. Additional certainty is also needed to accurately account 
for emissions from pathways that do not yet exist in 45VH2-GREET and 
from RNG that is injected into a commercial or common-carrier pipeline. 
The Treasury Department and IRS understand that, before final 
regulations are issued, taxpayers will determine a lifecycle GHG 
emissions rate for hydrogen production pathways using landfill gas by 
using 45VH2-GREET in cases in which the hydrogen production facility is 
receiving RNG through a direct dedicated pipeline connection and 
measurement using a revenue grade meter. The PER process will not 
address other hydrogen production pathways using biogas and RNG until 
after the final regulations are issued.

Proposed Applicability Dates

    These regulations are proposed to apply to taxable years beginning 
after these proposed regulations are published in the Federal Register. 
Taxpayers may rely on these proposed regulations for taxable years 
beginning after December 31, 2022, and before the date the final 
regulations are published in the Federal Register, provided the 
taxpayers follow the proposed regulations in their entirety and in a 
consistent manner.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether such collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit. A Federal agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless the collection of information 
displays a valid control number.
    The collections of information in these proposed regulations would 
include reporting, third-party disclosure, and recordkeeping 
requirements. These collections are necessary for taxpayers to claim 
the section 45V credit, or the section 48 credit with respect to a 
specified clean hydrogen production facility, and for the IRS to 
validate that taxpayers have met the regulatory requirements and are 
entitled to claim either credit.
    The recordkeeping requirements in these proposed regulations would 
include the requirement that taxpayers claiming the section 45V credit, 
or the section 48 credit with respect to a specified clean hydrogen 
production facility, need to meet the general recordkeeping provisions 
under section 6001 necessary to substantiate the amount of the section 
45V credit or section 48 credit claimed by the taxpayer as detailed in 
proposed Sec. Sec.  1.45V-2(c) and 1.48-15(g). These recordkeeping 
requirements are considered general tax records under Sec.  1.6001-
1(e). For PRA purposes, general tax records are already approved by OMB 
under 1545-0074 for individuals/sole proprietors, 1545-0123 for 
business entities, and 1545-0047 for tax-exempt organizations, and 
1545-0092 for trust and estate filers.
    The proposed regulations would reference the DOE's process for 
applicants to request an emissions value from the DOE that could then 
be used

[[Page 89241]]

to file a petition with the Secretary for a PER determination as 
detailed in proposed Sec.  1.45V-4. The petition made to IRS will be 
performed by attaching the emissions value obtained from the DOE to the 
filing of Form 7210. The burden for these requirements will be included 
within the Form and Instructions for 7210. Form 7210 will be approved 
by OMB, in accordance with 5 CFR 1320.10, under the following OMB 
Control Numbers: 1545-0074 for individuals, 1545-0123 for businesses, 
1545-0047 for tax-exempt organizations, and 1545-NEW for trust and 
estate filers.
    The proposed regulations mention the collection of information 
associated with the process for taxpayers to request an emissions value 
from the DOE and is reflected in the DOE's Paperwork Reduction Act 
Submission relating to such process. These proposed regulations are not 
creating or changing any of the collection requirements submitted by 
DOE to OMB for approval. Approval of the DOE's Paperwork Reduction Act 
Submission is pending with OMB. These proposed regulations are not 
creating or changing any of the collection requirements being approved 
by OMB under the DOE OMB Control Number 1910-XXXX.
    The proposed regulations would include reporting requirements that 
taxpayers claiming the section 45V credit provide a verification report 
with their annual Federal income tax return or information return for 
each taxable year in which they claim the section 45V credit as 
detailed in proposed Sec.  1.45V-5. The proposed regulation also 
includes a third-party disclosure requirement that a verification 
report must be certified by an unrelated third party. The verification 
report must contain an attestation regarding the taxpayer's production 
of qualified clean hydrogen for sale or use, the amount of qualified 
clean hydrogen sold or used by the taxpayer, conflicts of interest, the 
verifier's qualifications, and documentation necessary to substantiate 
the verification process. The taxpayer must submit the verification 
report to the IRS by attaching it to Form 7210, Clean Hydrogen 
Production Credit, or any successor form(s). The burden for these 
requirements will be included within the Form and Instructions for Form 
7210. Form 7210 will be approved by OMB, in accordance with 5 CFR 
1320.10, under the following OMB Control Numbers: 1545-0074 for 
individuals, 1545-0123 for businesses, 1545-0047 for tax-exempt 
organizations, and 1545-NEW for trust and estate filers.
    The proposed regulations include reporting, third-party disclosure, 
and recordkeeping requirements that taxpayers making the election under 
section 48(a)(15) to claim the energy credit under section 48 with 
respect to a specified clean hydrogen production facility. The 
reporting requirement is that taxpayers submit an annual verification 
report with their Federal income tax return or information return for 
the year in which they claim the section 48 credit. The third-party 
disclosure requirement is that an annual verification report must be 
certified by an unrelated third-party. The annual verification report 
must contain an attestation regarding the taxpayer's production of 
qualified clean hydrogen for sale or use, the amount of qualified clean 
hydrogen sold or used by the taxpayer, conflicts of interest, the 
verifier's qualifications, the lifecycle GHG emissions rate of the 
hydrogen that the specified clean hydrogen production facility 
produced, and documentation necessary to substantiate the verification 
process. The proposed regulations also include a requirement that the 
taxpayer obtain and retain an annual verification report for each 
taxable year of the recapture period. The taxpayer must obtain the 
annual verification report by the return filing deadline (with 
extensions) for the taxable year to which the annual verification 
report relates. The annual verification report must contain an 
attestation regarding the taxpayer's production of qualified clean 
hydrogen for sale or use during the taxable year, the amount of 
qualified clean hydrogen sold or used by the taxpayer during the 
taxable year, the lifecycle GHG emissions rate of the hydrogen that the 
specified clean hydrogen production facility produced during the 
taxable year, conflicts of interest, the verifier's qualifications, and 
documentation necessary to substantiate the verification process. The 
annual verification report for the taxable year in which the section 
48(a)(15) election is made will be attached to Form 3468. The annual 
verification report for each taxable year of the recapture period will 
be retained by the taxpayer for at least six years after the due date 
(with extensions) for filing the Federal income tax return or 
information return for the year to which the report relates. The burden 
for these requirements will be included within the Form and 
Instructions for 3468. The revisions to Form 3468 will be approved by 
OMB, in accordance with 5 CFR 1320.10, under the following OMB Control 
Numbers: 1545-0074 for individuals, 1545-0123 for businesses, 1545-0047 
for tax-exempt organizations, and 1545-0155 for trust and estate 
filers.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis (IRFA) of the proposed rule. 
The Treasury Department and the IRS have not determined whether the 
proposed rule, when finalized, will likely have a significant economic 
impact on a substantial number of small entities. This determination 
requires further study. However, because there is a possibility of 
significant economic impact on a substantial number of small entities, 
an IRFA is provided in these proposed regulations. The Treasury 
Department and the IRS invite comments on both the number of entities 
affected and the economic impact on small entities.
    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel of the Office of Advocacy of the 
Small Business Administration for comment on its impact on small 
business.
A. Need for and Objectives of the Rule
    The proposed regulations provide guidance to taxpayers intending to 
claim the section 45V credit for the production of qualified clean 
hydrogen or make the election under section 48(a)(15) to treat 
qualified property that is part of a specified clean hydrogen 
production facility as energy property and claim the section 48 credit. 
The proposed regulations would provide needed guidance for taxpayers on 
use of the GREET model to determine the lifecycle GHG emissions rate 
resulting from the hydrogen production process, procedures for 
petitioning the Secretary for a PER determination, requirements for the 
verification of the production and sale or use of the hydrogen, 
requirements for modifications to an existing hydrogen production 
facility, and procedures for making the election under section 
48(a)(15).

[[Page 89242]]

B. Affected Small Entities
    The RFA directs agencies to provide a description of, and if 
feasible, an estimate of, the number of small entities that may be 
affected by the proposed rules, if adopted. The Small Business 
Administration's Office of Advocacy estimates in its 2023 Frequently 
Asked Questions that 99.9 percent of American businesses meet the 
definition of a small business. The applicability of these proposed 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration. As described more fully in the 
preamble to this proposed regulation and in this IRFA, sections 45V and 
48(a)(15) and these proposed regulations may affect a variety of 
different businesses across several different industries. Because the 
potential credit claimants can vary widely, it is difficult to estimate 
at this time the impact of these proposed regulations, if any, on small 
businesses. Although there is uncertainty as to the exact number of 
small businesses within this group, the current estimated number of 
respondents to these proposed rules is between 800 and 1000 taxpayers.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on these 
proposed rules and again when taxpayers start using the guidance and 
procedures provided in these proposed regulations to claim the section 
45V credit, or the section 48 credit with respect to a specified clean 
hydrogen production facility.
C. Impact of the Rules
    The proposed regulations provide rules for how taxpayers can claim 
the section 45V credit, or the section 48 credit with respect to a 
specified clean hydrogen production facility. Taxpayers that claim the 
section 45V credit, or the section 48 credit with respect to a 
specified clean hydrogen production facility, will have administrative 
costs related to reading and understanding the rules as well as 
recordkeeping and reporting requirements because of the verification 
and Federal income tax return or information return requirements. The 
costs will vary across different-sized entities and across the type of 
project(s) in which such entities are engaged.
    To claim a section 45V credit, a taxpayer must determine the 
lifecycle GHG emissions rate for all hydrogen produced at a qualified 
clean hydrogen production facility during the taxable year. If the 
hydrogen production technology or feedstock used by the taxpayer to 
produce hydrogen is addressed in the most recent 45VH2-GREET, the 
taxpayer must use 45VH2-GREET to determine the emissions rate for the 
hydrogen produced during that taxable year at the qualified clean 
hydrogen production facility. If the hydrogen production technology or 
feedstock used by the taxpayer to produce hydrogen is not included in 
the most recent 45VH2-GREET, the taxpayer must petition the Secretary 
for a provisional emissions rate (PER). As part of the process for a 
taxpayer to petition for a PER, a taxpayer must submit an application 
to the DOE for an emissions value that it may use to claim the section 
45V credit.
    In addition to determining the lifecycle GHG emissions rate for 
hydrogen produced by the taxpayer at a qualified clean hydrogen 
production facility during the taxable year, before claiming the 
section 45V credit, a taxpayer must submit a verification report, 
certified by an unrelated third party, attesting to the taxpayer's 
production of qualified clean hydrogen for sale or use, the amount of 
qualified clean hydrogen sold or used by the taxpayer, conflicts of 
interest, the verifier's qualifications, and documentation necessary to 
substantiate the verification process. The process for claiming the 
section 48 credit with respect to a specified clean hydrogen production 
facility requires a taxpayer to submit an annual verification report 
with its Federal income tax return or information return for the 
taxable year in which it claims the section 48 credit, as well as to 
obtain an annual verification report for the five taxable years 
following the taxable year in which the section 48(a)(15) election is 
made. Additionally, the taxpayer would need to retain records 
sufficient to establish compliance with these proposed regulations for 
as long as may be relevant.
    Although the Treasury Department and the IRS do not have sufficient 
data to determine precisely the likely extent of the increased costs of 
compliance, the estimated burden of complying with the recordkeeping 
and reporting requirements are described in the Paperwork Reduction Act 
section of the preamble.
D. Alternatives Considered
    The Treasury Department and the IRS considered alternatives to the 
proposed regulations. The proposed regulations were designed to 
minimize burdens for taxpayers while ensuring that the statutory 
requirements of sections 45V and 48(a)(15) are met. For example, in 
providing rules related to the information required to be submitted to 
claim the section 45V credit, or the section 48 credit with respect to 
a specified hydrogen production facility, the Treasury Department and 
the IRS considered whether the production and sale or use of the 
hydrogen could be verified by an unrelated party without requiring the 
unrelated party to possess certain qualifications or conflict of 
interest characteristics. Such an option would, however, increase the 
opportunity for fraud or excessive payments under section 45V or 
section 48. Section 45V(f) specifically authorizes the IRS to 
promulgate regulations or other guidance providing for requirements for 
recordkeeping or information reporting for purposes of administering 
the requirements of section 45V. As described in the preamble to these 
proposed regulations, these proposed rules carry out that Congressional 
intent as the verification requirements allow the IRS to verify the 
taxpayer's entitlement to the section 45V credit.
    Additionally, the Treasury Department and the IRS considered 
whether to require taxpayers to submit an annual verification report 
with their Federal income tax returns or information returns claiming 
the section 45V credit. Section 45V requires the taxpayer to obtain an 
annual verification report, and the Treasury Department and the IRS 
determined that requiring the taxpayer to attach such a report to their 
federal income tax return or information return is the most efficient 
way of ensuring the completion and accuracy of the report.
    Additionally, the Treasury Department and the IRS considered 
allowing taxpayers to treat the section 45V credit as determined in the 
taxable year of hydrogen production or verification. However, such an 
option would create administrability issues and potentially a mismatch 
between the taxable year in which the hydrogen is produced and the 
taxable year in which the section 45V credit for such production is 
claimed. Thus, the proposed regulations would require the credit to be 
determined in the taxable year of production.
    Comments are requested on the requirements in the proposed 
regulations, including specifically whether there are less burdensome 
alternatives that do not increase the risk of duplication, fraud, or 
improper payments under section 45V.
E. Duplicative, Overlapping, or Conflicting Federal Rules
    The proposed regulations would not duplicate, overlap, or conflict 
with any relevant Federal rules. As discussed

[[Page 89243]]

above, the proposed regulations would merely provide procedures and 
definitions to allow taxpayers to claim the section 45V credit, or the 
section 48 credit with respect to a specified clean hydrogen production 
facility. The Treasury Department and the IRS invite input from 
interested members of the public on identifying and avoiding 
overlapping, duplicative, or conflicting requirements.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). This proposed 
rule does not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments, or by the private 
sector in excess of that threshold.
V. Executive Order 13132: Federalism
    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to comments regarding the notice of 
proposed rulemaking that are submitted timely to the IRS as prescribed 
in the preamble under the ADDRESSES section. The Treasury Department 
and the IRS request comments on all aspects of the proposed 
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn.
    A public hearing has been scheduled for March 25, 2024, beginning 
at 10 a.m. (ET), in the Auditorium at the Internal Revenue Building, 
1111 Constitution Avenue NW, Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
additional, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. Participants may alternatively attend the public 
hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit an outline of 
the topics to be discussed and the time to be devoted to each topic by 
March 4, 2024. A period of 10 minutes will be allotted to each person 
for making comments. An agenda showing the scheduling of the speakers 
will be prepared after the deadline for receiving outlines has passed. 
Copies of the agenda will be available free of charge at the hearing. 
If no outline of the topics to be discussed at the hearing is received 
by March 4, 2024, the public hearing will be cancelled. If the public 
hearing is cancelled, a notice of cancellation of the public hearing 
will be published in the Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-117631-23 and the language TESTIFY in Person. 
For example, the subject line may say: Request to TESTIFY in Person at 
Hearing for REG-117631-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number RE-117631-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-117631-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-117631-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing in Person for REG-117631-23. Requests to attend the 
public hearing must be received by 5:00 p.m. EST on March 18, 2024.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during a hearing please contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) by at least March 18, 2024.

Statement of Availability of IRS Documents

    IRS guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these proposed regulations is the Office of 
the Associate Chief Counsel (Passthroughs and Special Industries). 
However other personnel from the Treasury Department, the DOE, the EPA, 
and the IRS participated in the development of the proposed 
regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  1.45V-1 through 1.45V-6 and 
1.48-15 to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 1.45V-1 also issued under 26 U.S.C. 45V(f).
    Section 1.45V-2 also issued under 26 U.S.C. 45V(f).
    Section 1.45V-3 also issued under 26 U.S.C. 45V(e) and (f).
    Section 1.45V-4 also issued under 26 U.S.C. 45V(f).
    Section 1.45V-5 also issued under 26 U.S.C. 45V(f).
    Section 1.45V-6 also issued under 26 U.S.C. 45V(c) and (d).
* * * * *
    Section 1.48-15 also issued under 26 U.S.C. 48(a)(15).
* * * * *
0
Par. 2. Sections 1.45V-0 through 1.45V-6 are added to read as follows:
Sec.
* * * * *
1.45V-0 Table of contents.
1.45V-1 Credit for production of qualified clean hydrogen.
1.45V-2 Special rules.

[[Page 89244]]

1.45V-3 [Reserved]
1.45V-4 Procedures for determining lifecycle greenhouse gas 
emissions rates for qualified clean hydrogen.
1.45V-5 Procedures for verification of qualified clean hydrogen 
production and sale or use.
1.45V-6 Rules for determining the placed in service date for an 
existing facility that is modified to produce qualified clean 
hydrogen.
* * * * *


Sec.  1.45V-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.45V-1 
through 1.45V-6.

Sec.  1.45V-1 Credit for production of qualified clean hydrogen.
    (a) Overview.
    (1) In general.
    (2) Applicable amount.
    (i) In general.
    (ii) Inflation adjustment.
    (3) Applicable percentage.
    (4) Claim.
    (5) Code.
    (6) DOE.
    (7) Facility.
    (i) In general.
    (ii) Treatment of certain indirect production and post-
production equipment.
    (iii) Multipurpose components.
    (iv) Example.
    (8) Lifecycle GHG emissions.
    (i) In general.
    (ii) Most recent GREET model.
    (iii) Emissions through the point of production (well-to-gate).
    (9) Qualified clean hydrogen.
    (i) In general.
    (ii) For sale or use.
    (10) Qualified clean hydrogen production facility.
    (11) Secretary.
    (12) Section 45V credit.
    (13) Section 45V regulations.
    (b) Amount of credit.
    (1) In general.
    (2) Producer of qualified clean hydrogen.
    (3) Increased credit amount for qualified clean hydrogen 
production facilities.
    (c) Determination of credit.
    (d) Applicability date.
Sec.  1.45V-2 Special rules.
    (a) Coordination with credit for carbon oxide sequestration.
    (b) Anti-abuse rule.
    (1) In general.
    (2) Example.
    (i) Facts.
    (ii) Analysis.
    (c) Recordkeeping.
    (d) Applicability date.
Sec.  1.45V-3 [Reserved]
Sec.  1.45V-4 Procedures for determining lifecycle greenhouse gas 
emissions rates for qualified clean hydrogen.
    (a) In general.
    (b) Use of the most recent GREET model.
    (c) Provisional emissions rate (PER).
    (1) In general.
    (2) Rate not determined.
    (i) In general.
    (ii) Subsequent inclusion in 45VH2-GREET.
    (3) Process for filing a PER petition.
    (4) PER determination.
    (5) Department of Energy emissions value request process.
    (6) Effect of PER.
    (d) Use of Energy Attribute Certificates (EACs).
    (1) In general.
    (2) Definitions.
    (i) Commercial operations date.
    (ii) Energy attribute certificate.
    (iii) Eligible EAC.
    (iv) Qualifying EAC.
    (v) Qualified EAC registry or accounting system.
    (vi) Region.
    (3) Qualifying EAC requirements.
    (i) Incrementality.
    (ii) Temporal matching.
    (iii) Deliverability.
    (e) Applicability date.
Sec.  1.45V-5 Procedures for verification of qualified clean 
hydrogen production and sale or use.
    (a) In general.
    (b) Requirements for verification reports.
    (c) Requirements for the production attestation.
    (d) Requirements for the sale or use attestation.
    (1) In general.
    (2) Verifiable use.
    (e) Requirements for the conflict attestation.
    (1) In general.
    (2) Special rule for transfer elections.
    (f) Requirements for the qualified verifier statement.
    (g) General information on the taxpayer's hydrogen production 
facility.
    (h) Qualified verifier.
    (i) Unrelated party.
    (j) Requirements for taxpayers claiming both the section 45V 
credit and the section 45 credit or the section 45U credit.
    (k) Timely verification report.
    (l) Applicability date.
Sec.  1.45V-6 Rules for determining the placed in service date for 
an existing facility that is modified to produce qualified clean 
hydrogen.
    (a) Modification of an existing facility.
    (1) In general.
    (2) Modification requirements.
    (b) Retrofit of an Existing Facility (80/20 Rule).
    (c) Examples.
    (1) Example 1: Modification of an existing facility.
    (i) Facts.
    (ii) Analysis.
    (2) Example 2: Modification of an existing facility; 
coordination with the section 45Q credit previously allowed.
    (i) Facts.
    (ii) Analysis.
    (3) Example 3: Modification of an existing facility and 
coordination with section 45Q credit not previously allowed.
    (i) Facts.
    (ii) Analysis.
    (4) Example 4: Retrofit of an Existing Facility (80/20 Rule) and 
coordination with section 45Q credit previously allowed.
    (i) Facts.
    (ii) Analysis.
    (5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and 
coordination with section 45Q credit previously allowed.
    (i) Facts.
    (ii) Analysis.
    (d) Applicability date.


Sec.  1.45V-1  Credit for production of clean hydrogen.

    (a) Overview--(1) In general. For purposes of section 38 of the 
Code, the section 45V credit is determined under section 45V of the 
Code, so much of sections 6417 and 6418 of the Code that relate to 
section 45V, and the section 45V regulations (as defined in paragraph 
(a)(13) of this section). Paragraphs (a)(2) through (13) of this 
section provide generally applicable definitions of terms that, unless 
otherwise provided, apply for purposes of section 45V, the section 45V 
regulations, and any provision of the Code or this chapter that 
expressly refers to any provision of section 45V or the section 45V 
regulations. Paragraph (b) of this section provides rules for 
determining the amount of the section 45V credit for any taxable year, 
which generally depends on the kilograms of qualified clean hydrogen 
produced during the taxable year and the emissions intensity of the 
process used to produce such hydrogen, as well as whether certain 
requirements, including the requirements under Sec.  1.45V-3, are 
satisfied. Paragraph (c) of this section provides rules regarding the 
taxable year for which a section 45V credit is determined. See Sec.  
1.45V-2 for special rules, including rules to coordinate the section 
45V credit with the credit for carbon oxide sequestration determined 
under section 45Q of the Code, an anti-abuse rule, and recordkeeping 
requirements. See Sec.  1.45V-3 for rules relating to the increased 
credit amount for satisfying the prevailing wage and apprenticeship 
requirements. See Sec.  1.45V-4 for procedures to determine lifecycle 
greenhouse gas (GHG) emissions rates for qualified clean hydrogen and 
Sec.  1.45V-5 for procedures for verification of qualified clean 
hydrogen production and sale or use. See Sec.  1.45V-6 for rules to 
determine the placed in service date for an existing facility that is 
modified or retrofitted to produce qualified clean hydrogen. See also 
Sec.  1.48-15 for procedures to elect to treat any qualified property 
that is part of a specified clean hydrogen production facility as 
energy property for purposes of section 48 of the Code.
    (2) Applicable amount--(i) In general. The term applicable amount 
means the amount equal to the applicable percentage of $0.60, provided 
that if any such amount is not a multiple of 0.1

[[Page 89245]]

cent, such amount is rounded to the nearest multiple of 0.1 cent.
    (ii) Inflation adjustment. The $0.60 amount specified in section 
45V(b)(1) and paragraph (a)(2)(i) of this section is adjusted annually 
by multiplying such amount by the inflation adjustment factor (as 
determined under section 45(e)(2) of the Code, determined by 
substituting ``2022'' for ``1992'' in section 45(e)(2)(B)) for the 
calendar year in which the qualified clean hydrogen is produced, 
provided that if any such amount as adjusted is not a multiple of 0.1 
cent, such amount is rounded to the nearest multiple of 0.1 cent.
    (3) Applicable percentage. The term applicable percentage means the 
percentage set forth in paragraphs (a)(3)(i) through (iv) of this 
section, which is determined according to the lifecycle GHG emissions 
rate of the process by which the qualified clean hydrogen is produced:
    (i) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of not 
greater than 4 kilograms of carbon dioxide equivalent (CO2e) per 
kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per 
kilogram of hydrogen, the applicable percentage is 20 percent.
    (ii) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of 
less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less 
than 1.5 kilograms of CO2e per kilogram of hydrogen, the applicable 
percentage is 25 percent.
    (iii) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of 
less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less 
than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable 
percentage is 33.4 percent.
    (iv) In the case of any qualified clean hydrogen that is produced 
through a process that results in a lifecycle GHG emissions rate of 
less than 0.45 kilograms of CO2e per kilogram of hydrogen, the 
applicable percentage is 100 percent.
    (4) Claim. With respect to the section 45V credit determined for 
qualified clean hydrogen produced by the taxpayer at a qualified clean 
hydrogen production facility, the term claim means the filing of a 
completed Form 7210, Clean Hydrogen Production Credit, or any successor 
form(s), with the taxpayer's Federal income tax return or annual 
information return for the taxable year in which the credit is 
determined, and includes the making of an election under section 6417 
or 6418 and the regulations in this chapter under section 6417 or 6418, 
as applicable, with respect to such section 45V credit on the 
applicable entity's or eligible taxpayer's timely filed (including 
extensions) Federal income tax return or annual information return.
    (5) Code. The term Code means the Internal Revenue Code.
    (6) DOE. The term DOE means the U.S. Department of Energy.
    (7) Facility--(i) In general. For purposes of the definition of 
qualified clean hydrogen production facility provided at section 
45V(c)(3) and paragraph (a)(10) of this section, unless otherwise 
specified, the term facility means a single production line that is 
used to produce qualified clean hydrogen. A single production line 
includes all components of property that function interdependently to 
produce qualified clean hydrogen. Components of property function 
interdependently to produce qualified clean hydrogen if the placing in 
service of each component is dependent upon the placing in service of 
each of the other components to produce qualified clean hydrogen.
    (ii) Treatment of certain indirect production and post-production 
equipment. The term facility does not include--
    (A) Equipment that is used to condition or transport hydrogen 
beyond the point of production; or
    (B) Notwithstanding paragraph (a)(7)(iii) of this section, 
electricity production equipment used to power the hydrogen production 
process, including any carbon capture equipment associated with the 
electricity production process.
    (iii) Multipurpose components. Components that have a purpose in 
addition to the production of qualified hydrogen may be part of a 
facility if such components function interdependently with other 
components to produce qualified clean hydrogen.
    (iv) Example. The following example illustrates the definition of 
facility provided in this paragraph (a)(7). A hydrogen production 
facility is equipped with carbon capture equipment (as defined in Sec.  
1.45Q-2(c)), as distinguished from the carbon capture equipment 
described in paragraph (a)(7)(ii)(B) of this section. One purpose of 
this equipment is the capture of carbon oxides. The facility produces 
hydrogen through a process that results in a lifecycle GHG emissions 
rate falling within the range specified in section 45V(b)(2)(C). 
Without the carbon capture equipment, the facility could not produce 
hydrogen through a process that results in a lifecycle GHG emissions 
rate falling within the range specified in section 45V(b)(2)(C). 
Because the carbon capture equipment is functionally interdependent 
with other components of property to produce qualified clean hydrogen 
within the meaning of paragraph (a)(9)(i) of this section, the carbon 
capture equipment is part of the facility for purposes of section 
45V(c)(3) and the regulations in this part under section 45V, along 
with all other components of property that function interdependently 
with the carbon capture equipment to produce qualified clean hydrogen.
    (8) Lifecycle GHG emissions--(i) In general. Subject to section 
45V(c)(1)(B) and paragraphs (a)(8)(ii) and (iii) of this section, and 
unless otherwise specified in the section 45V regulations, the term 
lifecycle GHG emissions has the meaning given the term lifecycle 
greenhouse gas emissions by 42 U.S.C. 7545(o)(1)(H), as in effect on 
August 16, 2022. For purposes of section 45V, lifecycle GHG emissions 
include emissions only through the point of production (well-to-gate), 
as determined under the most recent Greenhouse gases, Regulated 
Emissions, and Energy use in Transportation model (GREET model) 
developed by Argonne National Laboratory, or a successor model.
    (ii) Most recent GREET model. Unless otherwise specified in the 
section 45V regulations, for purposes of the section 45V credit, the 
term most recent GREET model means the latest version of 45VH2-GREET 
developed by Argonne National Laboratory that is publicly available, as 
provided in the instructions to the latest version of Form 7210, Clean 
Hydrogen Production Credit, or any successor form(s), on the first day 
of the taxable year during which the qualified clean hydrogen for which 
the taxpayer is claiming the section 45V credit was produced. If a 
version of 45VH2-GREET becomes publicly available after the first day 
of the taxable year of production (but still within such taxable year), 
then the taxpayer may, in its discretion, treat such later version of 
45VH2-GREET as the most recent GREET model.
    (iii) Emissions through the point of production (well-to-gate). The 
term emissions through the point of production (well-to-gate) means the 
aggregate lifecycle GHG emissions related to hydrogen produced at a 
hydrogen production facility during the taxable year through the point 
of production. It includes emissions associated with feedstock growth, 
gathering, extraction, processing, and delivery to a hydrogen 
production facility. It also includes the emissions

[[Page 89246]]

associated with the hydrogen production process, inclusive of the 
electricity used by the hydrogen production facility and any capture 
and sequestration of carbon dioxide generated by the hydrogen 
production facility.
    (9) Qualified clean hydrogen--(i) In general. The term qualified 
clean hydrogen means hydrogen that is produced through a process that 
results in a lifecycle GHG emissions rate of not greater than 4 
kilograms of CO2e per kilogram of hydrogen. Such term does not include 
any hydrogen unless the production and sale or use of such hydrogen is 
verified by an unrelated party in accordance with, and satisfying the 
requirements of, Sec.  1.45V-5, and such hydrogen is produced--
    (A) In the United States (as defined in section 638(1) of the Code) 
or a United States territory, which, for purposes of section 45V and 
the regulations in this part under section 45V, has the meaning of the 
term possession provided in section 638(2) of the Code;
    (B) In the ordinary course of a trade or business of the taxpayer; 
and
    (C) For sale or use.
    (ii) For sale or use. The term for sale or use means for the 
primary purpose of making ready and available for sale or use. Storage 
of hydrogen following production does not disqualify such hydrogen from 
being considered produced for sale or use.
    (10) Qualified clean hydrogen production facility. The term 
qualified clean hydrogen production facility means a facility--
    (i) Owned by the taxpayer;
    (ii) That produces qualified clean hydrogen; and
    (iii) The construction of which begins before January 1, 2033.
    (11) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (12) Section 45V credit. The term section 45V credit means the 
credit for production of clean hydrogen determined under section 45V of 
the Code, so much of sections 6417 and 6418 of the Code that relate to 
section 45V, and the section 45V regulations.
    (13) Section 45V regulations. The term section 45V regulations 
means this section, Sec. Sec.  1.45V-2 through 1.45V-6, and the 
regulations in this chapter under sections 6417 and 6418 of the Code 
that relate to the section 45V credit.
    (b) Amount of credit--(1) In general. The amount of the section 45V 
credit determined under section 45V(a) and the section 45V regulations 
for any taxable year is the product of 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, 
multiplied by the applicable amount with respect to such hydrogen.
    (2) Producer of qualified clean hydrogen. The term taxpayer means 
the taxpayer that owns the qualified clean hydrogen production facility 
at the time of the facility's production of hydrogen for which the 
section 45V credit is claimed, regardless of whether such taxpayer is 
treated as a producer under section 263A of the Code or under any other 
provision of law with respect to such hydrogen.
    (3) Increased credit amount for qualified clean hydrogen production 
facilities. Pursuant to section 45V(e)(1), Sec.  1.45V-3 provides rules 
that permit the amount of the section 45V credit determined under 
section 45V(a) and paragraph (b)(1) of this section to be multiplied by 
five if certain requirements related to prevailing wages and 
apprenticeships are met. See Sec.  1.45V-3(a).
    (c) Determination of credit. Subject to any applicable sections of 
the Code that may limit the section 45V credit amount, the section 45V 
credit for any taxable year of a taxpayer who produces qualified clean 
hydrogen and claims such credit is determined with respect to the 
qualified clean hydrogen produced by the taxpayer during that taxable 
year, regardless of whether the verification of the production and sale 
or use of that hydrogen occurs in a later taxable year. Although the 
section 45V credit is determined with respect to the taxable year in 
which the qualified clean hydrogen is produced, a taxpayer is not 
eligible to claim the section 45V credit with respect to the production 
of that hydrogen until all relevant verification requirements, and the 
verification itself, have been completed for both the production of the 
hydrogen and the sale or use of that hydrogen. Accordingly, although 
the sale or use of the hydrogen and the verification thereof may occur 
in a taxable year after the taxable year of production, the section 45V 
credit is properly claimed with respect to the taxable year of 
production and is subject to the general period of limitations for 
filing a claim for credit or refund under section 6511 and other 
applicable provisions of the Code.
    (d) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-2  Special rules.

    (a) Coordination with credit for carbon oxide sequestration. In the 
case of any qualified clean hydrogen produced at a qualified clean 
hydrogen production facility that includes carbon capture equipment for 
which a credit is allowed to any taxpayer under section 45Q of the Code 
(section 45Q credit) for the taxable year or any prior taxable year, no 
section 45V credit is allowed under section 45V of the Code. However, 
if the 80/20 Rule provided in Sec.  1.45Q-2(g)(5) is satisfied with 
respect to such carbon capture equipment, and no new section 45Q credit 
has been allowed to any taxpayer for such carbon capture equipment, 
then the unit of carbon capture equipment (as defined in Sec.  1.45Q-
2(c)(3)) for which the 80/20 rule is satisfied will not be treated as 
carbon capture equipment for which a section 45Q credit was allowed to 
any taxpayer for any prior taxable year for purposes of section 
45V(d)(2) and this paragraph (a).
    (b) Anti-abuse rule--(1) In general. The rules of section 45V of 
the Code (and so much of sections 6417 and 6418 of the Code related to 
the section 45V credit) and the section 45V regulations (as defined in 
Sec.  1.45V-1(a)(13)) must be applied in a manner consistent with the 
purposes of section 45V and the section 45V regulations. A purpose of 
section 45V and the regulations in this part under section 45V (and so 
much of sections 6417 and 6418 and the regulations in this chapter 
under sections 6417 and 6418 related to the section 45V credit) is to 
provide taxpayers an incentive to produce qualified clean hydrogen for 
a productive use. Accordingly, the section 45V credit is not allowable 
if the primary purpose of the production and sale or use of qualified 
clean hydrogen is to obtain the benefit of the section 45V credit in a 
manner that is wasteful, such as the production of qualified clean 
hydrogen that the taxpayer knows or has reason to know will be vented, 
flared, or used to produce hydrogen. A determination of whether the 
production and sale or use of qualified clean hydrogen is inconsistent 
with the purposes of section 45V and the regulations in this part under 
section 45V of the Code is based on all facts and circumstances.
    (2) Example--(i) Facts. Taxpayer is a C corporation that has a 
calendar year taxable year. In 2031, Taxpayer places Facility in 
service in the United States. Facility produces qualified clean 
hydrogen that qualifies for the highest applicable amount of the 
section 45V credit at a production cost of $2 per

[[Page 89247]]

kilogram of hydrogen (assuming Taxpayer also claims the increased 
credit under section 45V(e), without taking into account any future 
inflation adjustment, the amount of the section 45V credit would be $3 
per kilogram of qualified clean hydrogen). The cost of producing each 
kilogram of qualified clean hydrogen is less than the amount of the 
section 45V credit that would be available if Taxpayer qualified for 
the section 45V credit. In 2031, Taxpayer sells all the qualified clean 
hydrogen produced at Facility that year to Customer at a price that is 
well below the current market price. Taxpayer knows or reasonably 
expects that Customer will vent or flare a portion of the qualified 
clean hydrogen it purchased from Taxpayer. In addition, Taxpayer 
intends to obtain the benefit from the section 45V credit by claiming 
such credit itself or monetizing such credits through an election under 
section 6417 or 6418 of the Code.
    (ii) Analysis. Based on all the facts and circumstances, the 
primary purpose of Taxpayer's production and sale of qualified clean 
hydrogen is to obtain the benefit of the section 45V credit in a manner 
that is wasteful. Taxpayer is not eligible for the section 45V credit 
with respect to the qualified clean hydrogen that Taxpayer produced and 
sold in 2031 to Customer that is subsequently vented or flared by 
Customer.
    (c) Recordkeeping. Consistent with section 6001 of the Code, a 
taxpayer claiming the section 45V credit for qualified clean hydrogen 
produced at a qualified clean hydrogen production facility must 
maintain and preserve records sufficient to establish the amount of the 
section 45V credit claimed by the taxpayer. At a minimum, those records 
must include records to substantiate the information required to be 
included in the verification report under Sec.  1.45V-5, records 
establishing that the facility meets the definition of a qualified 
clean hydrogen production facility under section 45V(c)(3) and Sec.  
1.45V-1(a)(10), records of past credit claims under section 45Q by any 
taxpayer with respect to carbon capture equipment included at the 
facility, and records establishing the date the qualified clean 
hydrogen production facility was placed in service. If the requirements 
under section 45V(e) and Sec.  1.45V-3(b) for the increased credit 
amount were satisfied, then the taxpayer must also maintain records in 
accordance with Sec.  1.45-12. Taxpayers must also retain all raw data 
used for submission of a request for an emissions value to the DOE for 
at least six years after the due date (including extensions) for filing 
the Federal income tax return or information return to which the 
provisional emissions rate (PER) (as defined in Sec.  1.45V-4(c)(1)) 
petition is ultimately attached.
    (d) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-3  [Reserved]


Sec.  1.45V-4  Procedures for determining lifecycle greenhouse gas 
emissions rates for qualified clean hydrogen.

    (a) In general. The amount of the section 45V credit is determined 
under section 45V(a) of the Code and Sec.  1.45V-1(b) according to the 
lifecycle GHG emissions rate of all hydrogen produced at a hydrogen 
production facility during the taxable year. The lifecycle GHG 
emissions rate of such hydrogen is determined under the most recent 
GREET model. In the case of any hydrogen for which a lifecycle GHG 
emissions rate has not been determined under the most recent GREET 
model for purposes of section 45V, a taxpayer producing such hydrogen 
may file a petition for a provisional emissions rate (PER) with the IRS 
for the Secretary's determination of the lifecycle GHG emissions rate 
with respect to such hydrogen.
    (b) Use of the most recent GREET model. For each taxable year 
during the period described in section 45V(a)(1), a taxpayer claiming 
the section 45V credit determines the lifecycle GHG emissions rate of 
hydrogen produced at a hydrogen production facility under the most 
recent GREET model separately for each hydrogen production facility the 
taxpayer owns. This determination is made following the close of each 
such taxable year and must include all hydrogen production during the 
taxable year. In using the most recent GREET model to calculate the 
lifecycle GHG emissions rate for purposes of determining the amount of 
the section 45V credit under section 45V(a) and Sec.  1.45V-1(b), the 
taxpayer must accurately enter all information about its facility 
requested within the interface of 45VH2-GREET (as described in Sec.  
1.45V-1(a)(8)(ii)). Information regarding where taxpayers may access 
45VH2-GREET and accompanying documentation will be included in the 
instructions to the Form 7210, Clean Hydrogen Production Credit, or any 
successor form(s).
    (c) Provisional emissions rate (PER)--(1) In general. For purposes 
of section 45V(c)(2)(C) and paragraph (a) of this section, the term 
provisional emissions rate or PER means the lifecycle GHG emissions 
rate of the process by which qualified clean hydrogen is produced by 
the taxpayer at a hydrogen production facility as determined by the 
Secretary under this paragraph (c).
    (2) Rate not determined--(i) In general. For purposes of section 
45V(c)(2)(C), a taxpayer may not file a petition for a PER unless a 
lifecycle GHG emissions rate has not been determined under the most 
recent GREET model with respect to hydrogen produced by the taxpayer at 
a hydrogen production facility. A lifecycle GHG emissions rate has not 
been determined under the most recent GREET model with respect to 
hydrogen produced by the taxpayer at a hydrogen production facility if 
either the feedstock used by such facility or the facility's hydrogen 
production technology is not included in the most recent GREET model. A 
facility's hydrogen production pathway is not included in the most 
recent GREET model if the feedstock used by such facility or the 
facility's hydrogen production technology is not included in the most 
recent GREET model. If a taxpayer's request for an emissions value 
pursuant to paragraph (c)(5) of this section with respect to the 
hydrogen produced by the taxpayer at a hydrogen production facility is 
pending at the time such facility's hydrogen production pathway becomes 
included in an updated version of 45VH2-GREET, the taxpayer's request 
for an emissions value will be automatically denied. In such case, the 
taxpayer must determine the lifecycle GHG emissions rate with respect 
to such hydrogen under paragraph (c)(2)(ii) of this section.
    (ii) Subsequent inclusion in 45VH2-GREET. Notwithstanding the 
definition of the most recent GREET model provided at Sec.  1.45V-
1(a)(8)(ii), for the taxable year in which the hydrogen production 
facility's hydrogen production pathway is first included in an updated 
version of 45VH2-GREET, the updated version of 45VH2-GREET will be 
considered the most recent GREET model with respect to the hydrogen 
produced by the taxpayer at the hydrogen production facility during 
such taxable year, and for purposes of section 45V(c)(2)(C), a 
lifecycle GHG emissions rate for such hydrogen will be considered to 
have been determined.
    (3) Process for filing a PER petition. To file a PER petition with 
the Secretary, a taxpayer must submit a PER petition attached to the 
taxpayer's Federal income tax return for the first taxable year of 
hydrogen production ending within the 10-year period described in 
section 45V(a)(1) for which the taxpayer claims the section 45V credit 
for hydrogen to which the PER petition relates and for which a 
lifecycle GHG emissions rate has not been

[[Page 89248]]

determined, as defined under paragraph (c)(2)(i) of this section. A PER 
petition must contain an emissions value obtained from the DOE setting 
forth DOE's analytical assessment of the lifecycle GHG emissions 
associated with the facility's hydrogen production pathway, which must 
be consistent with the lifecycle GHG emissions framework provided in 
the section 45V regulations, and a copy of the taxpayer's request to 
the DOE for an emissions value, including any information provided by 
the taxpayer to the DOE pursuant to the emissions value request process 
provided in paragraph (c)(5) of this section. If the taxpayer obtained 
more than one emissions value from the DOE, the PER petition must 
contain the emissions value setting forth the lifecycle GHG emissions 
rate of the hydrogen for which the section 45V credit is claimed on the 
Form 7210, Clean Hydrogen Production Credit, to which the PER petition 
is attached.
    (4) PER determination. Upon the IRS's acceptance of the taxpayer's 
Federal income tax return containing a PER petition, the emissions 
value of the hydrogen specified on such petition will be deemed 
accepted. A taxpayer would be able to rely upon an emissions value 
provided by the DOE for purposes of calculating and claiming a section 
45V credit, provided that any information, representations, or other 
data provided to the DOE in support of the request for an emissions 
value are accurate. The IRS's deemed acceptance of such emissions value 
is the Secretary's determination of the PER. However, the production 
and sale or use of such hydrogen must be verified by an unrelated party 
under section 45V(c)(2)(B)(ii) and Sec.  1.45V-5. Such verification and 
any information, representations, or other data provided to the DOE in 
support of the request for an emissions value are subject to later 
examination by the IRS.
    (5) Department of Energy (DOE) emissions value request process. An 
applicant that submits a request for an emissions value must follow the 
procedures specified by the DOE to request and obtain such emissions 
value. Emissions values will be evaluated using the same well-to-gate 
system boundary that is employed in 45VH2-GREET. Additionally, if 
applicable, background data parameters in 45VH2-GREET will also be 
treated as background data (with fixed values that an applicant cannot 
change) in the emissions value request process. Treatment of EACs and 
other proposals outlined in the regulations in this part under section 
45V will be consistently applied in the emissions value request 
process. An applicant may request an emissions value from the DOE only 
after a front-end engineering and design (FEED) study or similar 
indication of project maturity, as determined by the DOE, such as 
project specification and cost estimation sufficient to inform a final 
investment decision has been completed for the hydrogen production 
facility. The DOE may decline to review applications that are not 
responsive, including those applications that use a hydrogen production 
technology and feedstock already in 45VH2-GREET or applications that 
are incomplete. Guidance and procedures for applicants to request and 
obtain an emissions value from the DOE will be published by the DOE, 
including a process for, under limited circumstances, a revision to the 
DOE's initial analytical assessment of an emissions value on the basis 
of revised technical information or facility design and operation.
    (6) Effect of PER. A taxpayer may use a PER determined by the 
Secretary to calculate the amount of the section 45V credit under 
section 45V(a) and Sec.  1.45V-1(b) with respect to qualified clean 
hydrogen produced at a qualified clean hydrogen production facility, 
provided all other requirements of section 45V are met, until the 
lifecycle GHG emissions rate of such hydrogen has been determined (for 
purposes of section 45V(c)(2)(C)) under the most recent GREET model. 
The Secretary's PER determination is not an examination or inspection 
of books of account for purposes of section 7605(b) of the Code and 
does not preclude or impede the IRS (under section 7605(b) or any 
administrative provisions adopted by the IRS) from later examining a 
return or inspecting books or records with respect to any taxable year 
for which the section 45V credit is claimed. For example, the 
verification report submitted under section 45V(c)(2)(B)(ii) and Sec.  
1.45V-5 and any information, representations, or other data provided to 
the DOE in support of the request for an emissions value are still 
subject to examination. Further, a PER determination does not signify 
that the IRS has determined that the requirements of section 45V have 
been satisfied for any taxable year.
    (d) Use of Energy Attribute Certificates (EACs)--(1) In general. 
For purposes of the section 45V credit, if a taxpayer determines a 
lifecycle GHG emissions rate for hydrogen produced at a hydrogen 
production facility using the most recent GREET model or the Secretary 
determines a provisional emissions rate for hydrogen produced at a 
hydrogen production facility subject to a PER petition, then the 
taxpayer may treat such hydrogen production facility's use of 
electricity as being from a specific electricity generating facility 
rather than being from the regional electricity grid (as represented in 
45VH2-GREET) only if the taxpayer acquires and retires qualifying EACs 
(as defined in paragraph (d)(2)(iv) of this section) for each unit of 
electricity that the taxpayer claims from such source. For example, one 
megawatt-hour of electricity use to produce hydrogen would need to be 
matched with one megawatt-hour of qualifying EACs. Further, to satisfy 
this requirement, a taxpayer's acquisition and retirement of qualifying 
EACs must also be recorded in a qualified EAC registry or accounting 
system (as defined in paragraph (d)(2)(v) of this section) so that the 
acquisition and retirement of such EACs may be verified by a qualified 
verifier (as defined in Sec.  1.45V-5(h)). The requirements of this 
paragraph (d)(1) apply regardless of whether the electricity generating 
facility is grid connected, directly connected, or co-located with the 
hydrogen production facility.
    (2) Definitions. For purposes of this section--
    (i) Commercial operations date. The term commercial operations date 
or COD means the date on which a facility that generates electricity 
begins commercial operations.
    (ii) Energy attribute certificate. The term energy attribute 
certificate (EAC) means a tradeable contractual instrument, issued 
through a qualified EAC registry or accounting system (as defined in 
paragraph (d)(2)(v) of this section), that represents the energy 
attributes of a specific unit of energy produced. An EAC may be traded 
with or separately from the underlying energy it represents. An EAC can 
be retired by or on behalf of its owner, which is the party that has 
the right to claim the underlying attributes represented by an EAC. 
Renewable energy certificates (RECs) and other similar energy 
certificates issued through a registry or accounting system are forms 
of EACs.
    (iii) Eligible EAC. The term eligible EAC means an EAC that, with 
respect to the electricity to which the EAC relates, provides, at a 
minimum, the information described in paragraphs (d)(2)(iii)(A) through 
(F) of this section--
    (A) A description of the facility, including the technology and 
feedstock used to generate the electricity;
    (B) The amount and units of electricity;
    (C) The COD of the facility that generated the electricity;

[[Page 89249]]

    (D) For electricity that is generated before January 1, 2028, the 
calendar year in which such electricity was generated;
    (E) For electricity that is generated after December 31, 2027, the 
date and hour in which such electricity was generated; and
    (F) The project identification number or assigned identifier.
    (iv) Qualifying EAC. The term qualifying EAC means an eligible EAC 
that meets the requirements of paragraph (d)(3) of this section and for 
which the satisfaction of those requirements has been verified by a 
qualified verifier (as defined in Sec.  1.45V-5(h)).
    (v) Qualified EAC registry or accounting system. The term qualified 
EAC registry or accounting system means a tracking system that--
    (A) Assigns a unique identification number to each EAC tracked by 
such system;
    (B) Enables verification that only one EAC is associated with each 
unit of electricity;
    (C) Verifies that each EAC is claimed and retired only once;
    (D) Identifies the owner of each EAC; and
    (E) Provides a publicly accessible view (for example, through an 
application programming interface) of all currently registered 
generators in the tracking system to prevent the duplicative 
registration of generators.
    (vi) Region. The term region means a region derived from the 
National Transmission Needs Study that was released by the DOE on 
October 30, 2023. Alaska, Hawaii, and each U.S. territory will be 
treated as separate regions.
    (3) Qualifying EAC requirements. An eligible EAC meets the 
requirements of this paragraph (d)(3) if it meets the requirements of 
paragraphs (d)(3)(i) through (iii) of this section.
    (i) Incrementality. An EAC meets the requirements of this paragraph 
(d)(3)(i) if it meets the requirements of paragraph (d)(3)(i)(A) or (B) 
of this section. Paragraph (d)(3)(i)(C) of this section provides an 
example that illustrates the application of paragraph (d)(3)(i)(B) of 
this section.
    (A) An EAC meets the requirements of this paragraph (d)(3)(i)(A) if 
the electricity generation facility that produced the unit of 
electricity to which the EAC relates has a COD that is no more than 36 
months before the hydrogen production facility for which the EAC is 
retired was placed in service.
    (B) Uprates. An EAC meets the requirements of this paragraph 
(d)(3)(i)(B) if the electricity represented by the EAC is produced by 
an electricity generating facility that had an uprate no more than 36 
months before the hydrogen production facility with respect to which 
the EAC is retired was placed in service and such electricity is part 
of such electricity generating facility's uprated production. The term 
uprate means an increase in an electricity generating facility's rated 
nameplate capacity (in nameplate megawatts). The term pre-uprate 
capacity means the nameplate capacity of an electricity generating 
facility immediately before an uprate. The term post-uprate capacity 
means the nameplate capacity of an electricity generating facility 
immediately after an uprate. The term incremental generation capacity 
means the increase in an electricity generating facility's rated 
nameplate capacity from the pre-uprate capacity to the post-uprate 
capacity. The term uprated production rate means the incremental 
generation capacity (in nameplate megawatts) divided by the post-uprate 
capacity (in nameplate megawatts). The term uprated production means 
the uprated production rate of an electricity generating facility 
multiplied by its total generation output (in megawatt hours). An 
uprated electricity generating facility's production must be prorated 
to each hour of such facility's generation by multiplying the 
production for each hour or each year, consistent with the requirements 
in paragraph (d)(3)(ii) of this section, by the uprated production rate 
to determine the electricity to which the uprate relates.
    (C) Example. Power Plant undergoes an uprate that expands its rated 
nameplate capacity from a pre-uprate capacity of 10 megawatts (MW) to a 
post-uprate capacity of 12 MW. After the uprate, its generation output 
increases to a total of 40,000 MW hours for the year. Power Plant's 
incremental generation capacity is 2 MW, its uprated production rate is 
0.167 (2 MW divided by 12 MW), and its total uprated production for the 
year is 6,667 megawatt hours (MWh) (2 megawatts divided by 12 MW 
multiplied by 40,000 MWh). Two-twelfths (0.167) of each hour of the 
Power Plant's production may be considered uprated production.
    (ii) Temporal matching--(A) In general. An EAC meets the 
requirements of this paragraph (d)(3)(ii) if the electricity 
represented by the EAC is generated in the same hour that the 
taxpayer's hydrogen production facility uses electricity to produce 
hydrogen.
    (B) Transition rule. For EACs that represent electricity generated 
before January 1, 2028, the EAC will be considered generated in the 
same hour that the taxpayer's hydrogen production facility uses 
electricity to produce hydrogen as required in paragraph (d)(3)(ii)(A) 
of this section if the electricity represented by the EAC is generated 
in the same calendar year that the taxpayer's hydrogen production 
facility uses electricity to produce hydrogen.
    (iii) Deliverability. An EAC meets the requirements of this 
paragraph (d)(3)(iii) if the electricity represented by the EAC is 
generated by a facility that is in the same region (as defined in 
paragraph (d)(2)(vi) of this section) as the hydrogen production 
facility.
    (e) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-5  Procedures for verification of qualified clean hydrogen 
production and sale or use.

    (a) In general. For each qualified clean hydrogen production 
facility for which a taxpayer claims a section 45V credit, a 
verification report must be attached to the taxpayer's Form 7210, Clean 
Hydrogen Production Credit, or any successor form(s), for each 
qualified clean hydrogen production facility and for each taxable year 
in which the taxpayer claims the section 45V credit.
    (b) Requirements for verification reports. A verification report 
specified in paragraph (a) of this section must be prepared by a 
qualified verifier under penalties of perjury and must contain--
    (1) An attestation from the qualified verifier regarding the 
taxpayer's production of qualified clean hydrogen for sale or use 
(production attestation);
    (2) An attestation from the qualified verifier regarding the amount 
of qualified clean hydrogen sold or used (sale or use attestation);
    (3) An attestation from the qualified verifier regarding conflicts 
of interest (conflict attestation);
    (4) Certain information regarding the qualified verifier, including 
documentation of the qualified verifier's qualifications (qualified 
verifier statement);
    (5) Certain general information about the taxpayer's hydrogen 
production facility where the hydrogen production undergoing 
verification occurred; and
    (6) Any documentation necessary to substantiate the verification 
process given the standards and best practices prescribed by the 
qualified verifier's accrediting body and the circumstances of the 
taxpayer and the taxpayer's hydrogen production facility.
    (c) Requirements for the production attestation. The following 
requirements apply to the production attestation.
    (1) The production attestation must be an attestation, made under 
penalties of

[[Page 89250]]

perjury, that the qualified verifier performed a verification 
sufficient to determine that the operation, during the applicable 
taxable year, of the hydrogen production facility that produced the 
hydrogen for which the section 45V credit is claimed, and any energy 
attribute certificates (EACs) applied pursuant to Sec.  1.45V-4(d) for 
the purpose of accounting for such facility's emissions, are accurately 
reflected in--
    (i) The amount of qualified clean hydrogen produced by the taxpayer 
that is claimed on the Form 7210, Clean Hydrogen Production Credit, or 
any successor form(s), to which the verification report is attached; 
and
    (ii) Either--
    (A) The data the taxpayer entered into the most recent GREET model 
to determine the lifecycle GHG emissions rate that is claimed on the 
Form 7210, Clean Hydrogen Production Credit, or any successor form(s), 
to which the verification report is attached; or
    (B) The data the taxpayer submitted in the PER petition relating to 
the hydrogen for which the section 45V credit is claimed, and which was 
provided to the DOE in support of the taxpayer's request for the 
emissions value provided in the PER petition.
    (2) If the production attestation attests to the information 
specified in paragraph (c)(1)(ii)(B) of this section, then the 
production attestation must also specify the emissions value received 
from the DOE that was calculated using such data, expressed in 
kilograms of CO2e per kilogram of hydrogen.
    (3) The production attestation must specify the lifecycle GHG 
emissions rate (expressed in kilograms of CO2e per kilogram of 
hydrogen) and the amount of qualified clean hydrogen produced by the 
taxpayer (expressed in kilograms), that are claimed on the Form 7210, 
Clean Hydrogen Production Credit, or any successor form(s), to which 
the verification report is attached.
    (d) Requirements for the sale or use attestation--(1) In general. 
The sale or use attestation must be an attestation, made under 
penalties of perjury, that the qualified verifier performed a 
verification sufficient to determine that the amount of qualified clean 
hydrogen that is specified in the production attestation pursuant to 
paragraph (c)(1)(i) of this section, and that is claimed on the Form 
7210, Clean Hydrogen Production Credit, or any successor form(s), to 
which the verification report is attached, has been sold or used by a 
person who makes a verifiable use of such hydrogen.
    (2) Verifiable use. For purposes of section 45V(c)(2)(B)(ii) of the 
Code and the section 45V regulations (as defined in Sec.  1.45V-
1(a)(13)), a person's verifiable use of the hydrogen specified in 
paragraph (d)(1) of this section can occur within or outside the United 
States. A verifiable use can be made by the taxpayer or a person other 
than the taxpayer. For example, a verifiable use includes a tolling 
arrangement pursuant to which a service recipient provides raw 
materials or inputs, such as water or electricity, to a toller (that 
is, a third-party service provider that owns a hydrogen production 
facility), and the toller produces hydrogen for the service recipient 
using the service recipient's raw materials or inputs in exchange for a 
fee, use of the hydrogen by the service recipient would be a verifiable 
use. However, a verifiable use does not include--
    (i) Use of hydrogen to generate electricity that is then directly 
or indirectly used in the production of more hydrogen; or
    (ii) Venting or flaring of hydrogen.
    (e) Requirements for the conflict attestation--(1) In general. The 
conflict attestation must include attestations, made under penalties of 
perjury, that--
    (i) The qualified verifier has not received a fee based to any 
extent on the value of any section 45V credit that has been or is 
expected to be claimed by any taxpayer and no arrangement has been made 
for such fee to be paid at some time in the future;
    (ii) The qualified verifier was not a party to any transaction in 
which the taxpayer sold qualified clean hydrogen it had produced or in 
which the taxpayer purchased inputs for the production of such 
hydrogen;
    (iii) The qualified verifier is not related, within the meaning of 
section 267(b) or 707(b)(1) of the Code, to, or an employee of, the 
taxpayer;
    (iv) The qualified verifier is not married to an individual 
described in paragraph (e)(1)(iii) of this section; and
    (v) If the qualified verifier is acting in his or her capacity as a 
partner in a partnership, an employee of any person, whether an 
individual, corporation, or partnership, or an independent contractor 
engaged by a person other than the taxpayer, the attestations under 
paragraphs (e)(1)(i) through (iv) of this section must also be made 
with respect to the partnership or the person who employs or engages 
the qualified verifier.
    (2) Special rule for transfer elections. If an election has been 
made under section 6418(a) of the Code with respect to the section 45V 
credit, then the attestations under paragraph (e)(1) of this section 
must be made with respect to the qualified verifier's independence from 
both the eligible taxpayer and the transferee taxpayer (as those terms 
are defined in section 6418 and the regulations in this chapter 
thereunder).
    (f) Requirements for the qualified verifier statement. The 
qualified verifier statement must include the following--
    (1) The qualified verifier's name, address, and taxpayer 
identification number;
    (2) The qualified verifier's qualifications to conduct the 
verification, including a description of the qualified verifier's 
education and experience and a photocopy of the qualified verifier's 
certificate received from their accrediting body;
    (3) If the qualified verifier is acting in his or her capacity as a 
partner in a partnership, an employee of any person, whether an 
individual, corporation, or partnership, or an independent contractor 
engaged by a person other than the taxpayer, the name, address, and 
taxpayer identification number of the partnership or the person who 
employs or engages the qualified verifier;
    (4) The signature of the qualified verifier and the date signed by 
the qualified verifier; and
    (5) A statement that the verification was conducted for Federal 
income tax purposes.
    (g) General information on the taxpayer's hydrogen production 
facility. The verification report must include the following 
information for the taxpayer's hydrogen production facility where the 
hydrogen production undergoing verification occurred:
    (1) The location of the hydrogen production facility;
    (2) A description of the hydrogen production facility, including 
its method of producing hydrogen;
    (3) The type(s) of feedstock(s) used by the hydrogen production 
facility during the taxable year of production;
    (4) The amount(s) of feedstock(s) used by the hydrogen production 
facility during the taxable year of production; and
    (5) A list of the metering devices used to record any data used by 
the qualified verifier to support the production attestation under 
paragraph (c) of this section along with a statement that the qualified 
verifier is reasonably assured that the device(s) underwent industry-
appropriate quality assurance and quality control, and the accuracy and 
calibration of the device has been tested in the last year.
    (h) Qualified verifier. The term qualified verifier means any 
individual or organization with active accreditation--

[[Page 89251]]

    (1) As a validation and verification body from the American 
National Standards Institute National Accreditation Board; or
    (2) As a verifier, lead verifier, or verification body under the 
California Air Resources Board Low Carbon Fuel Standard program.
    (i) Unrelated party. For purposes of section 45V(c)(2)(B)(ii), the 
term unrelated party means a qualified verifier who meets the 
requirements of paragraph (e) of this section.
    (j) Requirements for taxpayers claiming both the section 45V credit 
and the section 45 credit or the section 45U credit. In the case of a 
taxpayer who produces electricity for which either the section 45 or 
section 45U credit is claimed and the taxpayer or a related person uses 
such electricity to produce hydrogen for which the section 45V credit 
is claimed, the verification report must also contain attestations that 
the qualified verifier performed a verification sufficient to determine 
that--
    (1) The electricity used to produce such hydrogen was produced at 
the relevant facility for which a section 45 or section 45U credit is 
claimed;
    (2) The given amount of electricity (in kilowatt hours) used to 
produce such hydrogen at the relevant hydrogen production facility is 
reasonably assured of being accurate; and
    (3) The electricity for which a section 45 or 45U credit was 
claimed is represented by EACs that are retired in connection with the 
production of such hydrogen.
    (k) Timely verification report. A verification report must be 
signed and dated by the qualified verifier no later than--
    (1) The due date, including extensions, of the Federal income tax 
return or information return for the taxable year during which the 
hydrogen undergoing verification is produced; or
    (2) In the case of a credit first claimed on an amended return or 
administrative adjustment request, the date on which the amended return 
or administrative adjustment request is filed.
    (l) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.


Sec.  1.45V-6  Rules for determining the placed in service date for an 
existing facility that is modified or retrofitted to produce qualified 
clean hydrogen.

    (a) Modification of an existing facility--(1) In general. Under 
section 45V(d)(4) of the Code, in the case of an existing facility 
that--
    (i) Was originally placed in service before January 1, 2023, and, 
prior to the modification described in this paragraph (a), did not 
produce qualified clean hydrogen, and after the date such facility was 
originally placed in service--
    (A) Is modified to produce qualified clean hydrogen; and
    (B) Amounts paid or incurred with respect to such modification are 
properly chargeable to the taxpayer's capital account for the facility.
    (ii) Such facility will be deemed to have been originally placed in 
service as of the date the property required to complete the 
modification described in this paragraph (a) is placed in service.
    (2) Modification requirements. For purposes of section 45V(d)(4) 
and paragraph (a)(1) of this section, an existing facility will not be 
deemed to have been originally placed in service as of the date the 
property required to complete the modification is placed in service 
unless the modification is made for the purpose of enabling the 
facility to produce qualified clean hydrogen and the taxpayer pays or 
incurs an amount that is properly chargeable to the taxpayer's capital 
account with respect to the facility. A modification is made for the 
purpose of enabling the facility to produce qualified clean hydrogen if 
the facility could not produce hydrogen with a lifecycle greenhouse gas 
(GHG) emissions rate that is less than or equal to 4 kilograms of CO2e 
per kilogram of hydrogen but for the modification. For example, if a 
taxpayer solely pays or incurs capital expenses to modify existing 
components of a hydrogen production facility that are not necessary for 
the production of hydrogen with a lifecycle GHG emissions rate that is 
less than or equal to 4 kilograms of CO2e per kilogram of hydrogen, 
such modification does not entitle the facility to a new placed in 
service date.
    (b) Retrofit of an Existing Facility (80/20 Rule). For purposes of 
section 45V(a)(1), a facility may establish a new date on which it is 
considered originally placed in service, even though the facility 
contains some used property, provided the fair market value of the used 
property is not more than 20 percent of the facility's total value, 
calculated by adding the cost of the new property to the value of the 
used property (80/20 Rule). For purposes of the 80/20 Rule, the cost of 
new property includes all properly capitalized costs of the new 
property included within the facility. The 80/20 Rule applies to any 
existing facility, regardless of whether the facility previously 
produced qualified clean hydrogen and regardless of when the facility 
was originally placed in service (before application of this paragraph 
(b)). If a facility satisfies the requirements of the 80/20 Rule, then 
the date on which such facility is considered originally placed in 
service for purposes of section 45V(a)(1) is the date on which the new 
property added to the facility is placed in service.
    (c) Examples. The following examples illustrate the application of 
paragraphs (a) and (b) of this section:
    (1) Example 1: Modification of an existing facility--(i) Facts. 
Facility X, a hydrogen production facility that was originally placed 
in service on January 1, 2018, could not produce qualified clean 
hydrogen as described in section 45V(c)(2). After January 1, 2023, 
Facility X was modified to produce qualified clean hydrogen, and all 
amounts paid or incurred with respect to such modifications were 
properly chargeable to the taxpayer's capital account for Facility X. 
The property required to complete the modification was placed in 
service on June 1, 2023.
    (ii) Analysis. Under section 45V(d)(4) and paragraph (a) of this 
section, because Facility X was originally placed in service before 
January 1, 2023, and before the modification could not produce 
qualified clean hydrogen, it is deemed to be originally placed in 
service as of the date the property required to complete the 
modification is placed in service. Accordingly, for purposes of section 
45V(a)(1) and (d)(4), Facility X is deemed to have been originally 
placed in service on June 1, 2023.
    (2) Example 2: Modification of an existing facility; coordination 
with the section 45Q credit previously allowed--(i) Facts. The facts 
are the same as in paragraph (c)(1) of this section (Example 1), except 
that taxpayer was allowed a section 45Q credit with respect to carbon 
capture equipment (CCE) included at Facility X before June 1, 2023.
    (ii) Analysis. Under paragraph (a) of this section and Sec.  1.45V-
2(a), although Facility X is deemed to have been originally placed in 
service on June 1, 2023, because taxpayer had previously been allowed a 
section 45Q credit with respect to the CCE included at Facility X, no 
section 45V credit is allowable for qualified clean hydrogen produced 
at Facility X, despite the modification.
    (3) Example 3: Modification of an existing facility and 
coordination with section 45Q credit not previously allowed--(i) Facts. 
Facility Y, a hydrogen production facility that was originally placed 
in service on February 1, 2020, could not previously produce qualified 
clean hydrogen as described in section 45V(c)(2). On February 1, 2026, 
Facility Y was modified to produce

[[Page 89252]]

qualified clean hydrogen by adding new CCE to allow Facility Y to 
capture, process, and prepare carbon dioxide for transport for 
disposal, injection, or utilization. All amounts paid or incurred with 
respect to such modifications were properly chargeable to the 
taxpayer's capital account for Facility Y. The property required to 
complete the modification of Facility Y was placed in service on 
February 1, 2026, and as a result, Facility Y, including the new CCE, 
is deemed to be originally placed in service on February 1, 2026, for 
purposes of sections 45V and 45Q. No section 45Q credit has been 
allowed to any taxpayer with respect to the new carbon capture 
equipment located at Facility Y.
    (ii) Analysis. Under paragraph (a) of this section and Sec.  1.45V-
2(a), because no section 45Q credit has been allowed to any taxpayer 
with respect to the new CCE located at Facility Y, a section 45V credit 
is allowable for the qualified clean hydrogen produced at Facility Y, 
assuming all other requirements of section 45V are met.
    (4) Example 4: Retrofit of an Existing Facility (80/20 Rule)--(i) 
Facts. Facility Z, a hydrogen production facility that was originally 
placed in service on February 1, 2023, does not produce qualified clean 
hydrogen as described in section 45V(c)(2). On January 1, 2026, 
Facility Z was retrofitted to produce qualified clean hydrogen. After 
the retrofit, the cost of the new property included in Facility Z is 
greater than 80 percent of Facility Z's total value.
    (ii) Analysis. Even though Facility Z does not satisfy the 
requirements of section 45V(d)(4) because Facility Z was not originally 
placed in service before January 1, 2023, under paragraph (b) of this 
section, Facility Z is deemed to be originally placed in service on 
January 1, 2026, because Facility Z meets the 80/20 Rule. Thus, a 
section 45V credit is allowable for qualified clean hydrogen produced 
at Facility Z during the 10-year period beginning on January 1, 2026, 
assuming all other requirements of section 45V are met.
    (5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and 
coordination with section 45Q credit previously allowed--(i) Facts. The 
facts are the same as in paragraph (c)(4) of this section (Example 4), 
except that before the retrofit, Facility Z included CCE for which a 
section 45Q credit was allowed to a taxpayer.
    (ii) Analysis. Under paragraph (b) of this section and Sec.  1.45V-
2(a), Facility Z is deemed to be originally placed in service on 
January 1, 2026, because Facility Z meets the 80/20 Rule. However, a 
section 45V credit is not allowable for qualified clean hydrogen 
produced at Facility Z during the 10-year period beginning on January 
1, 2026, because a section 45Q credit has been allowed to a taxpayer 
with regard to the CCE included in Facility Z.
    (d) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.
0
Par. 3. Section 1.48-15 is added to read as follows:


Sec.  1.48-15  Election to treat clean hydrogen production facility as 
energy property.

    (a) In general. Under section 48(a)(15) of the Internal Revenue 
Code (Code), a taxpayer that owns and places in service a specified 
clean hydrogen production facility (as defined in section 48(a)(15)(C) 
and paragraph (b) of this section) can make an irrevocable election 
under section 48(a)(15)(C)(ii)(II) to treat any qualified property (as 
defined in section 48(a)(5)(D)) that is part of the facility as energy 
property for purposes of section 48.
    (b) Specified clean hydrogen production facility. The term 
specified clean hydrogen production facility means any qualified clean 
hydrogen production facility--
    (1) That is placed in service after December 31, 2022;
    (2) With respect to which no credit has been allowed under section 
45V or 45Q of the Code, and for which the taxpayer makes an irrevocable 
election to have section 48(a)(15) apply; and
    (3) For which an unrelated party has verified in the manner 
specified in paragraph (e) of this section that such facility produces 
hydrogen through a process that results in lifecycle greenhouse gas 
(GHG) emissions that are consistent with the hydrogen that such 
facility was designed and expected to produce under section 
48(a)(15)(A)(ii) and paragraph (c) of this section.
    (c) Energy percentage--(1) In general. In the case of a specified 
clean hydrogen production facility that is designed and reasonably 
expected to produce qualified clean hydrogen through a process that 
results in a lifecycle GHG emissions rate of:
    (i) Not greater than 4 kilograms of carbon dioxide equivalent 
(CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of 
CO2e per kilogram of hydrogen, the energy percentage is 1.2 percent;
    (ii) Less than 2.5 kilograms of CO2e per kilogram of hydrogen, and 
not less than 1.5 kilograms of CO2e per kilogram of hydrogen, the 
energy percentage is 1.5 percent;
    (iii) Less than 1.5 kilograms of CO2e per kilogram of hydrogen, and 
not less than 0.45 kilograms of CO2e per kilogram of hydrogen, the 
energy percentage is 2 percent; and
    (iv) Less than 0.45 kilograms of CO2e per kilogram of hydrogen, the 
energy percentage is 6 percent.
    (2) Designed and reasonably expected to produce. Hydrogen that a 
facility is designed and reasonably expected to produce means hydrogen 
produced through a process that results in the lifecycle GHG emissions 
rate specified in the annual verification report described in paragraph 
(e)(2) of this section for the taxable year in which the election is 
made.
    (d) Time and manner of making the election--(1) In general. To make 
an election under section 48(a)(15)(C)(ii)(II), a taxpayer must claim 
the section 48 credit with respect to a specified clean hydrogen 
production facility on a completed Form 3468, Investment Credit, or any 
successor form(s), and file the form with the taxpayer's Federal income 
tax return or information return for the taxable year in which the 
specified clean hydrogen production facility is placed in service. The 
taxpayer must also attach a statement to its Form 3468, Investment 
Credit, or any successor form(s), filed with its Federal income tax 
return or information return that includes the information required by 
the instructions to Form 3468, Investment Credit, or any successor 
form(s), for each specified clean hydrogen production facility subject 
to an election. A separate election must be made for each specified 
clean hydrogen production facility that meets the requirements provided 
in section 48(a)(15) to treat the qualified property that is part of 
the facility as energy property. If any taxpayer owning an interest in 
a specified clean hydrogen production facility makes an election under 
section 48(a)(15)(C)(ii)(II) with respect to the specified clean 
hydrogen production facility, then that election is binding on all 
taxpayers that directly or indirectly own an interest in the specified 
clean hydrogen production facility.
    (2) Special rule for partnerships and S corporations. In the case 
of a specified clean hydrogen production facility owned by a 
partnership or an S corporation, the election under section 
48(a)(15)(C)(ii)(II) is made by the partnership or S corporation and is 
binding on all ultimate credit claimants (as defined in Sec.  1.50-
1(b)(3)(ii)). The partnership or S corporation must file a Form 3468, 
Investment Credit, or any successor forms(s), with its partnership or S 
corporation return for the taxable year in which the specified clean 
hydrogen production facility is placed

[[Page 89253]]

in service to indicate that it is making the election, and attach a 
statement that includes all the information required by the 
instructions to Form 3468, Investment Credit, or any successor form(s), 
for each specified clean hydrogen production facility subject to the 
election. The ultimate credit claimant's section 48 credit must be 
based on each claimant's share of the basis (as defined in Sec.  1.46-
3(f)) of the specified clean hydrogen production facility on a 
completed Form 3468, Investment Credit, or any successor form(s), and 
file such form with a Federal income tax return for the taxable year 
that ends with or within the taxable year in which the partnership or S 
corporation made the election. The partnership or S corporation making 
the election must provide the ultimate credit claimants with the 
necessary information to complete Form 3468, Investment Credit, or any 
successor form(s), to claim the section 48 credit.
    (3) Election irrevocable. The election to treat qualified property 
that is part of a specified clean hydrogen production facility as 
energy property is irrevocable.
    (4) Election availability date. The election to treat qualified 
property that is part of a specified clean hydrogen production facility 
as energy property is available for property placed in service after 
December 31, 2022. In the case of any property placed in service after 
December 31, 2022, for which construction began before January 1, 2023, 
the election under section 48(a)(15)(C)(ii)(II) applies only to the 
extent of the basis of such property that is attributable to 
construction, reconstruction, or erection occurring after December 31, 
2022.
    (e) Third party verification--(1) In general. In the case of a 
taxpayer that makes an election under section 48(a)(15)(C)(ii)(II) to 
treat any qualified property that is part of a specified clean hydrogen 
production facility as energy property for purposes of the section 48 
credit, the taxpayer must obtain an annual verification report for the 
taxable year in which the election under section 48(a)(15)(C)(ii)(II) 
is made for the facility and for each taxable year thereafter during 
the recapture period specified in paragraph (f)(3) of this section. The 
taxpayer must also submit the annual verification report as an 
attachment to the Form 3468, Investment Credit, or any successor 
form(s), for the taxable year in which the election under section 
48(a)(15)(C)(ii)(II) is made for the facility.
    (2) Annual verification report--(i) In general. For purposes of 
paragraph (e)(1) of this section, the annual verification report must 
be signed under penalties of perjury by a qualified verifier (as 
defined in Sec.  1.45V-5(h)) and contain an attestation providing all 
of the following--
    (A) The information specified in Sec.  1.45V-5(b) and (d) through 
(h);
    (B) A statement attesting to the lifecycle GHG emissions rate 
(determined under section 45V(c) and Sec.  1.45V-4) of the hydrogen 
produced at the specified clean hydrogen production facility for the 
taxable year to which the annual verification report relates and that 
the operation, during such taxable year, of the specified clean 
hydrogen production facility, and any energy attribute certificates 
(EACs) applied pursuant to Sec.  1.45V-4(d) for the purpose of 
accounting for such facility's emissions, are accurately reflected in 
the data that the taxpayer entered into the most recent GREET model (as 
defined in Sec.  1.45V-1(a)(8)(ii)) (or that the taxpayer provided to 
the Department of Energy (DOE) in support of the taxpayer's request for 
an emissions value), to determine the lifecycle GHG emissions rate of 
the hydrogen undergoing verification; and
    (C) A statement attesting that the facility produced hydrogen 
through a process that results in a lifecycle GHG emissions rate that 
is consistent with, or lower than, the lifecycle GHG emissions rate of 
the hydrogen that such facility was designed and expected to produce.
    (ii) Conflict attestation in the case of a transfer election. If a 
transfer election has been made under section 6418(a) of the Code with 
respect to the section 48 credit for a specified clean hydrogen 
production facility, then a conflict attestation containing the 
information specified in Sec.  1.45V-5(e)(1), must be made with respect 
to the qualified verifier's independence from both the eligible 
taxpayer (as defined in section 6418(f)(2) and Sec.  1.6418-1(b)) and 
the transferee taxpayer (as described in section 6418(a) and defined in 
Sec.  1.6418-1(m)), and without regard to the requirements under Sec.  
1.45V-5(e)(2).
    (iii) Inconsistent lifecycle GHG emissions. In the event the 
facility produces hydrogen through a process that results in a 
lifecycle GHG emissions rate that is greater than the lifecycle GHG 
emissions rate that such facility was designed and expected to produce 
(and thus the qualified verifier cannot provide the attestation 
specified in paragraph (e)(2)(i)(C) of this section), resulting in a 
reduced energy percentage under section 48(a)(15)(A)(ii) with respect 
to such facility, an emissions tier recapture event under paragraph 
(f)(2) of this section will occur.
    (iv) Designed and expected to produce. Hydrogen that the facility 
was designed and expected to produce means hydrogen specified in 
paragraph (c)(2) of this section.
    (v) Timely annual verification report. The annual verification 
report must be signed and dated by the qualified verifier no later than 
the due date, including extensions, of the Federal income tax return 
for the taxable year in which the hydrogen undergoing verification was 
produced.
    (vi) Records retention. In addition to the recordkeeping 
requirements set forth in paragraph (g) of this section, the taxpayer 
must retain the annual verification report for at least six years after 
the due date, with extensions, for filing the Federal income tax return 
for the taxable year in which the hydrogen undergoing verification was 
produced.
    (f) Recapture--(1) In general. For purposes of section 
48(a)(15)(E), in any taxable year of the recapture period specified in 
paragraph (f)(3) of this section in which an emissions tier recapture 
event (as defined in paragraph (f)(2) of this section) occurs, the tax 
imposed on the taxpayer under chapter 1 of the Code for the taxable 
year of the emissions tier recapture event is increased by the 
recapture amount specified in paragraph (f)(4) of this section.
    (2) Emissions tier recapture event. For purposes of paragraph 
(f)(1) of this section, an emissions tier recapture event occurs in any 
taxable year of the recapture period specified in paragraph (f)(3) of 
this section under the following circumstances--
    (i) The taxpayer fails to obtain an annual verification report by 
the deadline for filing its Federal income tax return (including 
extensions) for any taxable year in which an annual verification report 
is required under paragraph (e)(1) of this section;
    (ii) The specified clean hydrogen production facility actually 
produced hydrogen through a process that results in a lifecycle GHG 
emissions rate that can only support a lower energy percentage than the 
energy percentage used to calculate the amount of the section 48 credit 
for the facility for the taxable year in which the facility is placed 
in service; or
    (iii) The specified clean hydrogen production facility actually 
produced hydrogen through a process that results in a lifecycle GHG 
emissions rate of greater than 4 kilograms of CO2e per kilogram of 
hydrogen.
    (3) Recapture period. For purposes of paragraph (f) of this 
section, the recapture period begins on the first day of the taxable 
year after the taxable year

[[Page 89254]]

in which the facility was placed in service and ends on the close of 
the fifth taxable year following the close of the taxable year in which 
the facility was placed in service.
    (4) Recapture amount--(i) In general. In the case of an emissions 
tier recapture event under paragraph (f)(2) of this section, the 
recapture amount for the taxable year in which the emissions tier 
recapture event occurred is equal to 20 percent of the excess of the 
section 48 credit allowed to the taxpayer for the specified clean 
hydrogen production facility for the taxable year in which the facility 
was placed in service, over the section 48 credit that would have been 
allowed to the taxpayer for the facility if the taxpayer had used the 
energy percentage supported by the actual production to calculate the 
amount of the section 48 credit. Such increase in tax is the recapture 
amount.
    (ii) Carrybacks and carryovers. In the case of any emissions tier 
recapture event described in paragraph (f)(2) of this section, the 
carrybacks and carryovers under section 39 must be adjusted by reason 
of the emissions tier recapture event.
    (iii) Recapture amount in case of recapture events under paragraph 
(f)(2)(i) or (iii) of this section. For purposes of paragraph (f)(4)(i) 
of this section, in the case of an emissions tier recapture event under 
paragraph (f)(2)(i) or (iii), the amount of the section 48 credit that 
would have been allowed to the taxpayer for the specified clean 
hydrogen production facility if the taxpayer had used the energy 
percentage supported by the actual production is zero. Accordingly, the 
recapture amount in the taxable year of an emissions tier recapture 
event under paragraph (f)(2)(i) or (iii) is 20 percent of the section 
48 credit allowed to the taxpayer for such specified clean hydrogen 
production facility.
    (5) Example. The following example illustrates the application of 
paragraphs (f)(1) through (4) of this section.
    (i) Facts. On June 1, 2023, Taxpayer, a calendar-year taxpayer, 
originally places in service Facility X, a specified clean hydrogen 
production facility. At such time, Taxpayer's basis in qualified 
property that is part of Facility X is $100,000,000. In the taxable 
year in which Facility X was originally placed in service (taxable year 
2023), Facility X produces qualified clean hydrogen through a process 
that results in a lifecycle GHG emissions rate of 0.44kg/CO2e per 
kilogram of hydrogen. Taxpayer submits with its 2023 Federal income tax 
return an annual verification report attesting that, for the taxable 
year 2023, Facility X produced hydrogen through a process that resulted 
in a lifecycle GHG emissions rate of 0.44kg/CO2e, which is consistent 
with the lifecycle GHG emissions rate of the hydrogen that the facility 
was designed and expected to produce. Taxpayer makes a valid election 
under section 48(a)(15)(C)(ii)(II) with respect to Facility X on its 
Federal income tax return for the taxable year 2023. In the first year 
of the recapture period (taxable year 2024), Taxpayer fails to obtain 
an annual verification report by the deadline (including extensions) 
for filing its 2024 Federal income tax return. In the second year of 
the recapture period (taxable year 2025), Facility X produces qualified 
clean hydrogen through a process that results in a lifecycle GHG 
emissions rate of 1.4kg/CO2e per kilogram of hydrogen and obtains an 
annual verification report attesting to such lifecycle GHG emissions 
rate. In the third, fourth, and fifth years of the recapture period 
(taxable years 2026, 2027, and 2028), Facility X produces qualified 
clean hydrogen through a process that results in a lifecycle GHG 
emissions rate of 0.44kg/CO2e per kilogram of hydrogen and obtains an 
annual verification report attesting to such lifecycle GHG emissions 
rate, and attesting that such lifecycle GHG emissions rate is 
consistent with the lifecycle GHG emissions rate of the hydrogen that 
the facility was designed and expected to produce, by the deadline 
(including extensions) for filing its 2026, 2027, and 2028 Federal 
income tax returns, respectively.
    (ii) Analysis. Facility X is designed and reasonably expected to 
produce hydrogen through a process that results in a lifecycle GHG 
emissions rate of 0.44kg/CO2e, which is the rate specified in 
Taxpayer's annual verification report submitted with Taxpayer's Federal 
income tax return for the taxable year in which the election under 
section 48(a)(15)(C)(ii)(II) with respect to Facility X was made. Under 
paragraph (c)(1)(iv) of this section, Facility X's energy percentage is 
therefore 6 percent. For the taxable year 2023, the year in which 
Taxpayer places in service Facility X, Taxpayer claims a section 48 
credit for its basis in qualified property that is part of Facility X 
in the amount of $6,000,000 (6 percent of $100,000,000). In taxable 
year 2024, there is an emissions tier recapture event under paragraph 
(f)(2)(i) of this section because Taxpayer failed to obtain an annual 
verification report. Under paragraph (f)(4)(i) of this section, the 
amount of the section 48 credit recaptured in 2024 is $1,200,000. This 
reflects 20 percent of the section 48 credit allowed ($6,000,000) for 
Facility X. In taxable year 2025, there is an emissions tier recapture 
event under paragraph (f)(2)(ii) of this section because Facility X 
produced hydrogen through a process that resulted in a lifecycle GHG 
emissions rate that could only support an energy percentage of 2 
percent, which is lower than the energy percentage used to calculate 
the amount of the section 48 credit for Facility X. Under paragraph 
(f)(4)(i) of this section, the amount of the section 48 credit 
recaptured in 2025 is $800,000. This reflects 20 percent of the 
difference between the amount of the section 48 credit allowed 
($6,000,000) and the amount of the section 48 credit that would have 
been allowed for Facility X if Taxpayer had used the energy percentage 
supported by the actual production ($2,000,000). There is no emissions 
tier recapture event in taxable years 2026, 2027, or 2028 because, in 
those years, Facility X produced hydrogen through a process that 
resulted in a lifecycle GHG emissions rate that was consistent with the 
lifecycle GHG emissions rate of the hydrogen that Facility X was 
designed and expected to produce, and Taxpayer obtained an annual 
verification report attesting to such by the deadline (with extensions) 
for filing its Federal income tax return for each of those taxable 
years.
    (6) Coordination with sections 50(a) and 48(a)(10)(C) of the Code. 
In each taxable year of the recapture period specified in paragraph 
(f)(3) of this section for any credit allowed under section 48 with 
respect to a specified clean hydrogen production facility, the 
recapture rules, if applicable, apply in the following order:
    (i) Section 50(a);
    (ii) Section 48(a)(10)(C); and
    (iii) Section 48(a)(15)(E).
    (g) Recordkeeping. Consistent with section 6001 of the Code, a 
taxpayer making the election under section 48(a)(15)(C)(ii)(II) with 
respect to a specified clean hydrogen production facility must maintain 
and preserve records sufficient to establish the amount of the section 
48 credit claimed by the taxpayer. At a minimum, those records include 
records to substantiate the information required to be included in the 
annual verification report under paragraph (e)(2) of this section, 
records establishing that the facility meets the definition of a 
specified qualified clean hydrogen production facility under section 
48(a)(15)(C) and paragraph (b) of this section, and records 
establishing the date the specified clean hydrogen production facility 
was placed in

[[Page 89255]]

service. If the increased section 48 credit amount was allowed under 
section 48(a)(9), then the taxpayer must also maintain records in 
accordance with Sec.  1.45-12.
    (h) Applicability date. This section applies to taxable years 
beginning after December 26, 2023.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-28359 Filed 12-22-23; 8:45 am]
BILLING CODE 4830-01-P

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