The Inflation Reduction Act (IRA) (Pub. L. 117-169) was signed into law on August 16, 2022. The IRA includes significant tax provisions, as well as nearly US$370 billion in federal funding for clean energy and environmental projects in the form of competitive grants, cooperative agreements, and loan programs. Notably, the IRA provides for a new Hydrogen Production Tax Credit and incentives for hydrogen vehicle production and adoption. The credit builds upon previous investments in clean hydrogen in the Infrastructure Investment and Jobs Act (IIJA), including funding for Hydrogen Hubs.
Federal agencies continue to develop and implement the IRA’s clean energy and environmental provisions. In 2023, the Biden Administration has prioritized implementation of several major IRA incentives and programs including clean vehicle tax credits and the Greenhouse Gas Reduction Fund. However, the Biden Administration will continue to release additional IRA funding and program information throughout 2023. Final eligibility requirements, funding conditions and other program details will be announced through future agency guidance, funding announcements, or notices of funding opportunity (NOFOs).
Hydrogen Production Tax Credit (Section 45V) and Alternative Fuel Vehicle Refueling Property Credit (Section 30C)
The IRA creates a new tax credit for the domestic production of clean hydrogen at a qualified production facility. The credit is available for hydrogen produced after December 31, 2022, and for production facilities placed in service before January 1, 2033, for their first ten years in service. The credit provides a base credit amount of 60 cents per kilogram of hydrogen, multiplied by an applicable percentage based on lifecycle greenhouse gas (GHG) emissions. Bonus credit amounts are available if a facility meets prevailing wage and apprenticeship requirements. In addition, the credit is eligible for direct pay for tax-exempt organizations, states, political subdivisions and other applicable entities.
The IRA also extends and modifies the existing Alternative Fuel Vehicle Refueling Property Credit, which provides an investment tax credit for alternative fuel systems and electric vehicle charging property placed in service in low-income and rural areas between January 1, 2023, and December 31, 2032. Eligible alternative fuels include hydrogen. Bonus credit amounts are available if a project meets prevailing wage and apprenticeship requirements. In addition, the credit is eligible for direct pay for tax-exempt organizations, states, political subdivisions, and other applicable entities.
On November 3, 2022, the IRS issued notices requesting comments relating to the Hydrogen Production Tax Credit and Alternative Fuel Vehicle Refueling Property Credit. Comments were due on December 3, 2022. On November 29, the IRS released initial guidance on prevailing wage and apprenticeship requirements. As of May 8, 2023, the IRS has not released additional guidance on the credits.
Rural Energy for America Program (REAP)
The IRA provides US$2 billion for the Rural Energy for America Program (REAP) for guaranteed loan financing and grant funding for certain renewable energy systems or energy efficiency projects, including hydrogen systems. US$300 million is reserved for investment in underutilized renewable energy technologies. Participation in REAP is limited to agricultural producers and rural small businesses.
On April 14, the United States Department of Agriculture (USDA) Rural Business-Cooperative Service issued a second Notice of Solicitation of Applications under REAP. USDA previously published a Notice of Solicitation of Applications in December 2022. Applications for REAP funding received on or after April 1, 2023, will be evaluated and scored according to the provisions listed in the second notice.
Domestic Manufacturing Conversion Grants
The IRA provides $2 billion for competitive grants for domestic production of certain clean vehicles and clean vehicle components, including hydrogen fuel cell vehicles. Eligible recipients include vehicle and vehicle components manufacturers. As of May 8, 2023, the Department of Energy has not released additional information on the grant program.
For more information about the IRA’s funding and tax credit opportunities for hydrogen projects. please contact the authors of this blog post.
