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Clean hydrogen and hydrogen-related investments are a relatively new phenomena in the United States.  Within the last year, both the Biden Administration and Congress have proposed new and expanded tax credits and other incentives to stimulate hydrogen investment.  In August 2020, the Biden Administration released its Clean Energy for Biden plan, which emphasized hydrogen development and proposed a slew of new energy tax incentives.  Concurrently, a group of Senate Democrats released a special report explaining the need to build up hydrogen infrastructure and recommending the creation of a production tax credit for clean hydrogen and hydrogen carriers (e.g., ammonia) produced in the United States.

In March 2021, the Biden Administration introduced the American Jobs Plan.  Among its components were numerous proposals to expand tax credits for clean energy and to make some credits eligible for direct pay.  In May 2021, the Treasury Department released the “Green Book,” which further discussed hydrogen tax incentives. The Green Book proposes a new six-year production tax credit (PTC) for the production of low-carbon hydrogen in qualified facilities for which construction begins before 2026, where the end use of the hydrogen is for energy, industrial, chemical, or transportation purposes.  The credit would initially be USD 3 per kilogram for 2022-2024 and then decrease to USD 2 for 2025-2027, subject to an annual inflation adjustment. This credit will also be eligible for a cash payment option in lieu of the credit.  Low-carbon hydrogen means hydrogen produced from nuclear energy or renewable energy or using natural gas where the carbon by-product is captured and sequestered.  Other Green Book proposals include: (i) expansion of the carbon sequestration credit under Section 45Q of the Internal Revenue Code of 1986, as amended (the “Code”) for capturing and storing geologically “hard-to-abate industrial carbon oxide capture sectors such as cement production, steelmaking, hydrogen production and petroleum refining”; (ii) expansion of the Code Section 48 investment tax credit (ITC) to include hydrogen storage for conversion to energy; (iii) expansion of the Code Section 48C advanced energy ITC to provide a 30% credit for manufacturing solar fuel cells and energy storage systems; and (iv) expansion of the PTC and the ITC for wind and solar projects.

Separately, there are various Congressional proposals under consideration.  The Clean Energy for America Act, referred to the full Senate on 26 May 2021, would create a new hydrogen PTC of up to USD 3/kilogram produced, with the credit amount based on a comparison of the lifecycle greenhouse gas emissions produced to those produced at a hydrogen facility using steam methane reformation.  This would allow investors to claim credits for both blue and green hydrogen because the credit is based on a lifecycle analysis of total greenhouse gas emissions.  Alternatively, a taxpayer could claim an ITC of between 6% and 30% for investing in hydrogen equipment, again based on a determination of lifecycle emissions.

In addition to the above, the Growing Renewable Energy and Efficiency Now (GREEN) Act of 2021 would, similar to the Biden Administration’s proposals, expand the PTC and ITC to include hydrogen storage incentives in addition to hydrogen production.  Other bills pending in Congress, in particular the Energy Sector Innovation Credit Act and Energy Storage Tax Incentive and Deployment Act, would expand the PTC and the ITC for qualifying hydrogen production and storage technologies.  There are similar bills under consideration at the state level.

We expect hydrogen investments in the United States to pick up steam with these new proposed incentives, although such investments are still lagging behind Asia and the European Union.  The PTC and the ITC (and other tax credits) have played a pivotal role in wind and solar power investments, and we expect the same for hydrogen investments in the near future.  President Biden’s goal of making the power sector carbon free by 2035 will depend on such investments.  To fully realize increased investments in the hydrogen space, Congress must expand: (i) the ITC to stand-alone hydrogen production and storage; and (ii) the PTC to stand-alone production of clean or low-carbon hydrogen based on a reduction of lifecycle greenhouse gas emissions.  Depending on an investor’s profile, and a production facility’s cost and production lifecycle, either the ITC or the PTC could be valuable.

Congress and President Biden recognize the essential role that clean energy will play in shaping the energy sector in the coming years.  Hydrogen production and storage appear to be top of mind, and new tax incentives—ideally those without fixed and short expiration dates—should be well suited to spur these investments and make the United States a power player in the hydrogen sphere.


Patricia W. McDonald advises on tax issues for corporations, partnerships, limited liability companies and other pass-through entities, with an emphasis on private equity and other investment fund transactions, energy credit transactions, partnership transactions, real estate/REIT transactions and M&A transactions. She lectures on international and partnership tax issues for various organizations, including Tax Executives Institute and Council for International Tax Education. Her native language is Cantonese and she is conversant in Mandarin.


Kai R. Kramer is a member of the Tax Practice Group in the Firm’s Houston office. Prior to joining Baker & McKenzie LLP, Mr. Kramer was a tax associate at another international law firm in Washington, DC where he handled tax matters related to a broad mixture of domestic and cross-border transactions across the energy, financial institution (including banks and insurance companies), pharmaceutical, and high-tech industries.


Brandon King is an associate in Baker McKenzie’s Tax Practice Group in Washington, DC. He focuses on tax controversy and tax planning. Prior to joining the Firm, Brandon was a law clerk for the Honorable Albert G. Lauber at the United States Tax Court. He also served as a Presidential Personnel Associate in the Obama administration, where he was the tax advisor on the vetting team for presidential nominations.

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