In August 2022, the United States passed the Inflation Reduction Act (IRA), earmarking approximately $369 billion for energy security and climate change incentives, including a focus on clean hydrogen. Particularly, the IRA introduced a clean hydrogen production credit and extended this existing investment tax credit to hydrogen projects and standalone hydrogen storage technology. The IRA is process-neutral towards obtaining tax credits; therefore, producers of clean hydrogen may use various technologies to become eligible for the tax credit. A taxpayer may not claim a clean hydrogen production credit for qualified clean hydrogen produced in any facility that includes carbon capture equipment.

Presently, the IRS is deliberating on the manner in which hydrogen projects will qualify for tax credit based on how much carbon dioxide is emitted during hydrogen production. Certain processes, such as electrolysis powered with behind-the-meter renewables and steam methane reforming capped with carbon capture technology, have clear and defined lifecycle carbon intensity accounting rules as defined in the Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model. However, for production pathways that are not currently defined in GREET, such as grid-powered electrolysis paired with indirect clean energy procurements that offset direct grid emissions, the Treasury Department must define processes to apply offset mechanisms to demonstrate that hydrogen production plants are “using” a source of clean electricity.