February 26, 2024

However, under the statute, the lifecycle emissions of hydrogen production are the ultimate determinant of the rate of credit. [...] I suggest that modeling be used to demonstrate equivalence to the three requirements approach in the proposed guidance rather than be used to directly determine the lifecycle emissions of the hydrogen production, and, consequently, the value of the tax credit. [...] Risks from Using Annual Emissions Rates In the proposed guidance, IRS and Treasury state that the value of the tax credit be calculated for all hours of the year based on the annual lifecycle emissions rate rather than calculating the credit separately on an hour- by-hour basis. [...] Consequently, the difference in the value of the tax credit received by an electrolyzer with an average emissions rate below 0.45 kg/kg H2 as compared to one right above that value would be $2 for every kilogram of hydrogen produced over the course of the year, or two-thirds of the full $3 value. [...] At the same time, there will still be an economic incentive to minimize the amount of production not covered by EACs due to the loss of the tax credit in those hours, likely rendering the marginal cost of production higher than the potential sales revenue.