Emissions Effects of Differing 45V Crediting Approaches

There are two primary emissions effects from the production of electrolytic hydrogen that are relevant for crediting under the new 45V tax credit.The most consequential effect is the capacity effect, which is determined by the carbon intensity of added generation capacity that comes online to meet new load from electrolyzers. This effect can result in emissions higher than those from uncontrolled hydrogen production from natural gas. Many current implementation proposals are intended to incentivize additional clean generation to reduce or eliminate this effect.Smaller emissions effects can arise from the dispatch effect—when clean electricity generation is not colocated in space or coincident in time with the new sources of load. Our analysis of the PJM region suggests the magnitude of this dispatch effect can be ~4 kg CO2 per kg H2, which is on the order of statutory emissions thresholds for the tax credit.Proposed requirements on “deliverability” of clean electricity to electrolyzers could reduce or eliminate the dispatch effect. Our analysis suggests that the spatial scale for such a deliverability requirement would need to be substantially smaller than an independent service operator or regional transmission operator to be effective.We discuss and propose for further research new mechanisms that could improve on the cost-efficiency of existing proposals, address both capacity effects and dispatch effects, and allow for more optimal siting of resources. We propose that the Department of Treasury provide an opportunity to revisit crediting approaches based on future research.