45V EXEMPTIONS NEED STRONG GUARDRAILS TO PROTECT CLIMATE, GROW HYDROGEN INDUSTRY

The report analyzes the U.S. Treasury's proposed regulations for the Section 45V Clean Hydrogen Production Tax Credit, specifically focusing on the 'incrementality' requirement. It argues that a proposed 'general carve-out'—exempting a percentage of existing clean energy from incrementality rules—would lead to significant 'dirty' hydrogen production and increase CO2 emissions by inducing fossil fuel power plants to run more often. The authors suggest that such a carve-out would also discourage investment in flexible electrolyzers and hydrogen storage. Instead, the report recommends targeted exemptions for curtailed power, retirement prevention, and binding emissions caps, provided they include rigorous guardrails to prevent emissions leakage and market manipulation.

• A proposed 'general carve-out' exempting 5 percent of existing U.S. clean energy from the incrementality requirement would allow approximately 1.5 million metric tons (MMT) of annual dirty hydrogen production, resulting in 30 to 60 MMT of CO2 emissions per year.
• A general carve-out would undermine the long-term growth of the hydrogen industry by removing the incentive to invest in flexible electrolyzers and hydrogen storage, which are necessary for competitiveness after the 45V credit expires.
• Exemptions for capturing curtailed clean electricity should be based on the electrolyzer's nodal or zonal power price being below a pre-set threshold (e.g., $0/MWh) to ensure low marginal emissions, and must still require the purchase of deliverable, time-matched energy attribute credits (EACs).
• The authors recommend against exemptions to prevent the retirement of clean energy resources, such as nuclear plants, arguing there is little evidence such support is needed and it risks inducing GHG emissions through overestimated revenue requirements.
• If retirement exemptions are implemented, the report suggests either an application-based approach requiring the exhaustion of other funds (like the Civil Nuclear Credit program and 45U credits) or a formulaic approach using a facility-specific threshold price determined by the DOE.
• Exemptions for regions with emissions caps are only viable if the caps are truly 'binding,' meaning they have enforcement mechanisms stronger than the 45V credit's value and prevent emissions leakage to unregulated regions.
• Analysis of California's cap-and-trade program suggests it may be a 'soft' cap rather than a binding one, as the willingness to pay for carbon allowances to earn the 45V credit could exceed the program's price ceiling.
• The Regional Greenhouse Gas Initiative (RGGI) is cited as an example of a program with significant emissions leakage, where 43 to 86 percent of emissions reductions in participating states may be offset by increases in unregulated areas.

APA

ESPOSITO, D., GIMON, E., & O’BOYLE, M. (2024). 45V EXEMPTIONS NEED STRONG GUARDRAILS TO PROTECT CLIMATE, GROW HYDROGEN INDUSTRY. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Energy-Innovation-45V-Exemptions-Need-Strong-Guardrails.pdf

Chicago

ESPOSITO, DAN, ERIC GIMON, and MIKE O’BOYLE. 45V EXEMPTIONS NEED STRONG GUARDRAILS TO PROTECT CLIMATE, GROW HYDROGEN INDUSTRY. Energy Innovation, 2024. https://energyinnovation.org/wp-content/uploads/Energy-Innovation-45V-Exemptions-Need-Strong-Guardrails.pdf.

Wikipedia

{{cite report |last1=ESPOSITO |first1=DAN |last2=GIMON |first2=ERIC |last3=O’BOYLE |first3=MIKE |title=45V EXEMPTIONS NEED STRONG GUARDRAILS TO PROTECT CLIMATE, GROW HYDROGEN INDUSTRY |publisher=Energy Innovation |date=February 2024 |url=https://energyinnovation.org/wp-content/uploads/Energy-Innovation-45V-Exemptions-Need-Strong-Guardrails.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{esposito202445v, author = {ESPOSITO, DAN and GIMON, ERIC and O’BOYLE, MIKE}, title = {{45V EXEMPTIONS NEED STRONG GUARDRAILS TO PROTECT CLIMATE, GROW HYDROGEN INDUSTRY}}, institution = {Energy Innovation}, year = {2024}, month = feb, url = {https://energyinnovation.org/wp-content/uploads/Energy-Innovation-45V-Exemptions-Need-Strong-Guardrails.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }