Biomethane Threatens to Upend the Clean Hydrogen Tax Credit

The Inflation Reduction Act’s new hydrogen production tax credit, known as code 45V, is intended to incentivize a shift to low-carbon hydrogen production by offering producers a credit that increases in value as the carbon emissions associated with produced hydrogen declines. With an outsized credit for the lowest-carbon tier, the incentive’s aim is clear: Drive deployment of hydrogen production technologies that will be needed by, and aligned with, the nation’s overall clean energy transition.

But instead of meeting that straightforward aim, a series of implementation loopholes threaten to fully undermine it. This includes loopholes related to biomethane, whereby heavily polluting fossil fuel-fired hydrogen production facilities—the very facilities the tax credit is trying to incentivize a shift away from—can cloak themselves as “clean” and reap full tax…