The American Clean Power Association (ACP) released revised guidelines this week for how clean hydrogen should be categorized under tax incentives in the Inflation Reduction Act (IRA).

The IRA’s 45V Hydrogen Production Tax Credit (PTC) incentivizes developers to produce “green” hydrogen. The law’s PTC has four tiers, depending on how much CO2 is produced in hydrogen production. Now, the U.S. Treasury is working to decide how emissions intensity of electrolysis-generated hydrogen is calculated.

The rollout of the tax credit has sparked debate over how to encourage first movers into the green hydrogen market while also ensuring carbon emission reductions. One major sticking point in the debate has been whether electricity used for hydrogen production must be from new projects and not from existing grid power, which may rely on fossil fuels.

American Clean Power had originally defended using grid power to produce clean hydrogen. However, the group’s revised framework proposes that green hydrogen incentives should be limited to facilities that demonstrate they are relying on “new” sources of clean power and that they are sourced from within relatively close and interconnected geographic boundaries.

The framework also requires green hydrogen facilities to ensure that both the clean power and the green hydrogen are produced in the same hour, after a brief initial phase-in period allowing for annual rather an hourly matching basis.

Under ACP’s proposal, only green hydrogen facilities that have started construction by the end of 2028 would receive greater leeway on this time-matching requirement.

ACP, one of the largest renewable trade groups in the U.S., said its guidelines “offer a compromise between supporting early-market development of green hydrogen while ensuring its production does not exacerbate the current climate crisis.”

Read ACP’s revised framework here.

Green hydrogen is seen as essential for decarbonizing difficult to abate sectors of the U.S. economy, such as heavy duty manufacturing, chemical production and heavy-duty transportation. In power generation, hydrogen can also be combusted in natural gas fired engines or turbines for decarbonization.

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