Transcript of IRS Hearing on Clean Hydrogen Regs Is Available

SECTION 45V CREDIT FOR PRODUCTION OF CLEAN HYDROGEN; SECTION 48(A)(15) ELECTION TO TREAT CLEAN HYDROGEN PRODUCTION FACILITIES AS ENERGY PROPERTY

UNITED STATES DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PUBLIC HEARING ON PROPOSED REGULATIONS

[REG-117631-23]

DAY 1

Washington, D.C.

Monday, March 25, 2024

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PARTICIPANTS:

For IRS:

COURTNEY HUTSON
Attorney

ALAN TILLEY
Attorney

JAMES RIDER
Senior Counsel

JASON DEXTER
Special Counsel

For U.S. Department of Treasury:

JENNIFER BERNARDINI
Attorney-Adviser (OTP)

Speakers:

ERIC GUTER
Air Products

TIMOTHY SASSEEN
Ballard Power Systems Inc.

MARTIN WILLIS
Self

LACY MCMANUS
Greater New Orleans Inc.

TIMOTHY JUDSON
Nuclear Information and Resource Service

NICK PANKO
CFO Services Inc.

DON BOYAJIAN
Plug Power

MIKE SLOAN
Synergetic

CLAIRE BEHAR
Hy Stor Energy LP

KATRINA M. FRITZ
California Hydrogen Business Council

PAUL WILKINS
Electric Hydrogen

BETH DEANE

LEE ROSEN
Evolution Hydrogen Group LLC

TIMOTHY JACOBS
Self

KARL GNADT
Hydrogen Fuel Cell Bus Council

BRENT BOBSEIN
CNX Resources Corp.

FRANK WOLAK
Fuel Cell and Hydrogen Energy Association

SIMON HODSON
Omnis Fuel Technologies

JOE REESE
NextEra Energy Inc.

ROB WINGO
EQT Corp.

JORDAN TRUITT
New Fortress Energy

GRANT ZIMMERMAN
Amp Americas

DAN BYERS
U.S. Chamber of Commerce

DAVID EDWARDS
Air Liquide

MEG GENTLE
HIF Global LLC

ALEX SAVELLI
Hydrogen Forward

B. PERRY BABB
KeyState Energy

ANDREW VESEY
Fortescue

LAUREN MERTEN
Apex Clean Energy

AUBURN BELL
Earthjustice

EMILY KENT
Clean Air Task Force

GEOFFREY DIETZ
Coalition for Renewable Natural Gas

JOHN YOUNG
Mitsubishi Power Americas Inc.

GENE GRACE
American Clean Power Association

BENJAMIN KASPER
Generation Atomic

ERIK KAMRATH
Natural Resources Defense Council

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PROCEEDINGS

(10:04 a.m.)

MR. DEXTER: Good morning, everyone. This is the public hearing regarding the Credit for Production of Clean Hydrogen, under section 45V of the Internal Revenue Code, and the Election to Treat Clean Hydrogen Production Facilities as Energy Property, under section 48(a)(15) of the Internal Revenue Code. A notice of proposed rulemaking was published in the Federal Register on December 26 of last year. The IRS received numerous comments and requests to speak.

Each speaker will have 10 minutes to present their comments. There is a timer and a light indicator on top of the timer of the podium. When the light turns green, the speaker can begin speaking. When it turns yellow, it is a warning that the speaker has three minutes to summarize their position. When the light is red, the speaker's time is over. There will be one 15-minute break halfway through the hearing.

Now, let me introduce the panel. My name is Jason Dexter. I'm a special counsel at the Office of the Associate Chief Counsel for passthroughs in special industries. PSI Brach 6 has jurisdiction over section 45V. To my right is James Ryder. James is a senior counsel in PSI. To his right is Courtney Hutson. And to my immediate left is Alan Tilley. Both Courtney and Alan are attorneys in PSI Branch 6. And to my far left is Jennifer Bernardini, who's a tax policy adviser in the Office of Tax Policy at the Treasury Department.

Now I'd like to introduce our first speaker. Our first speaker is Eric Guter from Air Products. Eric, please come up to the podium. Thank you, everyone.

MR. GUTER: Hello, and thank you for the opportunity to speak today. My name is Eric Guter, and I'm the vice president of Hydrogen Air Products. Headquartered in downtown Pennsylvania, Air Products is the only U.S.-based global industrial gas company and world's largest supplier of hydrogen. Founded over eight decades ago, Air Products has operations in approximately 50 countries. We employ more than 23,000 talented and committed people, and we operate more than 750 industrial gas facilities worldwide. This includes owning, operating, and maintaining more than 110 hydrogen production facilities and over 700 miles of pure hydrogen pipelines.

Air Products is actively working with our partners and customers to accelerate the energy transition and generate a cleaner future: an effort that can be propelled through incentives such as the IRA 45V hydrogen tax credits, so long as there are strong guardrails to ensure we drive down emissions as we transition to an economy powered in part by hydrogen. We believe the most appropriate guardrails are hourly matching, incrementality, and deliverability, which are commonly known as the three pillars.

The IRA is the world's most significant piece of climate legislation, which, if implemented carefully, will help our nation advance the energy transition, fight climate change, and position the U.S. as the global leader in clean hydrogen production, consumption, and export. Its generous incentives — particularly 45V — must be held to the highest standards so the U.S. can achieve the maximum benefits of carbon reductions and put us on a path to achieving our net-zero targets by 2050.

At its heart, the IRA is climate- and clean-energy-driven legislation, and U.S. taxpayer dollars should not be used in a way that does not uphold that spirit. Long before the IRA, Air Products made an industry-leading commitment to invest over $15 billion in clean energy projects to accelerate the energy transition. And we are delivering on that commitment by building clean hydrogen projects around the world.

Currently, Air Products has projects that, in aggregate, represent more than $12 billion of investment under development in the U.S. and in other countries that meet the strictest standards of clean hydrogen production, which are hourly matching, incrementality, and deliverability. For example, Air Products and the AES Corporation announced plans to build, own, and operate a multibillion-dollar green hydrogen production facility in Texas. This mega-scale renewable power electrolysis-based hydrogen project would include approximately 1.4 gigawatts of new wind and solar power generation, along with electrolyzer capacity capable of producing over 200 metric tons per day of green hydrogen, making it the world's largest green hydrogen facility in the U.S. Again, this project will be three pillar compliant, and if we can do it, so can others.

During these days of testimony, you will hear from a range of companies. Some of these companies are the largest, most technically capable organizations in the world, but claim they can't do what Air Products is already doing. Even more of the companies you will hear from have no experience in the hydrogen industry. They've never produced a molecule of hydrogen. Both groups are asking Treasury to implement a weak standard for producing electrolytic hydrogen in exchange for the most lucrative climate subsidies in the world. They're asking you to lower the bar and subsidize the taxpayers' expense investments in hydrogen that will increase emissions. I urge you to be skeptical of false claims that would increase emissions on the grid in violation of the spirit of the IRA, which at its heart is climate and clean energy legislation. It can be done. Air Products is doing it; others can do it, too.

We applaud the Treasury and the Internal Revenue Service proposed guidance for imposing strict standards for the 45V hydrogen tax credit, which should deliver real and verifiable emissions reductions from day one. Air Products strongly supports hourly matching of electricity with hydrogen production starting in 2028. Hourly matching is critical to assuring that grid emissions won't increase from electricity generation associated with hydrogen production. This pillar ensures that we do not ramp up fossil-based production to support hydrogen production and exacerbate rather than reduce emissions.

Their product strongly supports incrementality of clean electricity starting day one. Incrementality is needed to ensure there is no shuffling of renewable power resources between existing end users of power at new clean hydrogen production facilities, and that we do not adversely impact grid power pricing. The incrementality pillar ensures that every new molecule of hydrogen production is generated by new clean electrons that we add to the grid.

Air Products supports the requirement for deliverability based on the regions identified in the proposed regulations. We must ensure that clean power generated in a region is actually delivered to clean hydrogen projects. Without this pillar, grid emissions may go down in one region but up in another, negating project benefits and increasing local grid congestion. For hydrogen to truly be clean, all three pillars must be implemented together. Without one, the system falls apart and risks increasing emissions on the backs of taxpayers.

I'd like to be clear that with respect to the three pillars, Air Products strongly opposes any extension of the phase-in period past December 31, 2027, any grandfathering or exemptions for hydrogen production facilities based on a begun construction or placed-in-service date, and any exemptions for power plants that are likely to avoid retirement because of their relationship with hydrogen production facilities, exemptions during periods in which minimal-emitting generation would have otherwise been curtailed, and exemptions based on conducting modeling to demonstrate zero or minimal induced grid emissions. Any deviation from the three pillars will set us on a perilous path to slow down rather than accelerate decarbonization. It will also unfairly disadvantage compliant projects, which Air Products is proving are possible.

Finally, we have the opportunity with this implementation to cement the U.S.'s global climate leadership. A robust U.S. hydrogen market will require that the U.S. hydrogen industry be able to export clean hydrogen to our allies around the globe, including the European Union. The EU's carbon border adjustment mechanism puts a fair price on the carbon emitted during the production of carbon-intensive goods entering the EU and encourages cleaner industrial production in non-EU countries.

Aligned with its decarbonization goals, the EU has set out its own strong three pillars, with proper environmental guardrails for producing electrolytic hydrogen. We believe the U.S. must promulgate strong rules for 45V to ensure our industry has ready access to the European clean hydrogen market. This will ensure the United States will be a part of a globally harmonized clean hydrogen certification system important for global energy trade and broader market liftoff.

I urge you to be skeptical of weak rules that would contradict the intent of the IRA and increase emissions. I urge you to position the U.S. for leadership and put us on a path towards a globally harmonized clean hydrogen certification system. Finally, I urge you to implement strong three pillars so we can accelerate the energy transition and build a truly hydrogen clean hydrogen market. Thank you for your time. I welcome any questions.

MR. DEXTER: Thank you.

Mr. SASSEEN: Hi, my name is Tim Sasseen. I'm market development director and public affairs for Ballard Power Systems for North America. In the words of Brian O'Flanagan, the IRS is awesome. It is awesome. It was founded in 1962. They collected almost $5 trillion in revenues last year from over 260 returns. Their responsibility is awesome, which makes it strange that we should be making them adjudicate esoteric energy policy. Makes you wonder how we got here. Makes me wonder how I got here.

I was working for a little wind turbine company in Flagstaff, Arizona, in the summer of 2000, and a friend of mine showed me his mason jar electrolyzer and the hydrogen that it made from electricity and water. And he took me to see Dr. Roy McAllister and his pickup truck that ran on the very same hydrogen. I was hooked, and I found Ballard Power Systems, who was making not only pickup trucks, but full-size transit buses that ran on this stuff. Three years later, I found myself walking through the welding shop of a Mercedes bus factory in Mannheim, Germany, where they were building 30 of these things to go on deployments from Iceland to Barcelona.

In public, it was an audacious project, and it was fantastically successful, with buses proving their capabilities in crowded city streets and bitter Scandinavian winters. A few years later, I found myself in San Diego, California, helping develop the 20 next-generation hybrid fuel cell electric buses destined for the 2010 Olympics in British Columbia. These buses formed the backbone of a demanding service schedule, up and down wintry mountain roads, proving the technology was mission capable. Around that time, another fleet of 13 fuel cell buses from another manufacturer were being deployed at AC Transit in Oakland, California, and the first pure battery-powered buses were just beginning to show promising results.

Numerous small and independent fuel cell electric bus project demonstrations were continuing until 2017, when New Flyer released its first commercial line of fuel cell electric buses — the Charge H2 — deploying across three agencies in California, including AC Transit. A very assertive California Air Resources Board took note of the confidence that transit was gaining in zero-emissions technology, from successful early battery pilots showing potential cost reduction promises to fuel cell electric buses showing performance capability. And in 2018, CARB passed our nation's first sectorwide transportation decarbonization mandate: the Innovative Clean Transit regulation.

At the same time, new applications leveraging the very same fuel cell electric powertrain technology were starting in demonstrations in Class A drainage trucks, parcel delivery vans, courtyard tractors, and freight locomotives. The performance and reliability gained through the transit experience were directly ported to these applications. These vehicles quickly pushed through their early lessons and consistently gave performance and durations that customers needed, with only one consistent and persistent problem: price and availability of fuel. An immature distribution network made arranging small, infrequent fuel deliveries difficult, and a lack of competition in clean hydrogen led to prices of $12 to $30 per kilogram or more that persist today.

Today, we see demand for fuel cell electric buses growing by over 50 percent year-over-year, with interest levels growing even faster. Just 22 buses on the road in 2017 are now over 170 at 17 different agencies across North America. Transit agencies are seeking zero emissions to turn fuel cell electric buses to solve their operational needs. We're finding some of the biggest commitments from these agencies are from those who experience battery electric options first, like Foothill Transit in Los Angeles or San Mateo Transit in south San Francisco. They found battery buses useful for small demonstrations, but when it came time to scale, they became far too expensive for the electrical infrastructure and far too complex for the operational dance around charging and maintenance schedules.

Now, East Coast transit agencies like SEPTA in Philadelphia and MTA in New York City are finding fuel cell buses are exactly what they need for decarbonization, particularly with winter heating needs that cripple battery buses, but in which fuel cell buses thrive. Transit needs fuel cell electric buses to fully decarbonize while maintaining the operations that so many working people depend on in the United States. They cannot shorten their routes in winter, and they do not want to bastardize their zero-emission buses with diesel heaters. They often cannot expand their crowded bus yards with more buses that go shorter distances and cannot be maintained while overnight charging. They don't want to maintain in-road charging centers far from their operations. And perhaps most of all, they cannot afford the money or time to move several megawatts of new electrical service to urban cores waiting for grid impact studies to upsize stations and underground feeder lines.

There are certainly some fortunate agencies for which batteries in the grid can fulfill their needs. But for very large agencies, particularly those in cold weather, fuel cell electric buses remain the only viable technology to bring their fleets to complete zero emissions without sacrificing the operations that so many working Americans depend on.

Transit shows us how to repower heavy-duty fleets in dense urban centers, across broad rural districts, through deep Midwest winters and blazing Mojave desert summers. And just like school buses, transit buses are heavy-duty machines that move through our neighborhoods and directly impact the air and sounds and the lives of the people living and working there. Transit demands continuous operation through all seasons, through all terrains. The mechanics who work in zero-emissions transit have exactly those next-generation trade skills that can be applied across mobility industries — in trains and trucks, and even power generation. The success of transit to decarbonize is therefore critical to decarbonizing all of transportation. It is a beachhead or a keystone industry upon which others will pattern.

But every one of our customers tells us the same story: They want to continue with the technology but can only do so if the price of clean hydrogen drops to be competitive with diesel. In just five years there will be no combustion engine transit buses procured in California, and these agencies are struggling today to find financial plans that support this mandate, with battery buses incapable of fulfilling their operational needs and hydrogen fuel not dropping in price since the first European fuel cell bus trials of over 20 years ago due to this lack of competition.

Already, transit agencies set on zero-emissions procurement are considering natural gas buses while they are permitted to do so, or revising their battery-focused plans as utility timelines and cost projections continue to build. Transit agencies need the commercial clean hydrogen pricing that we know the economics can support, but only when it's produced at the scale of a commercial fuel in a fully competitive environment.

The need is the same in California as it is in Illinois, as it is in New York and Las Vegas, Nevada. And we know hydrogen can do the job when it's unlocked its full potential. There's no state or region that is a natural leader in hydrogen, as there could be argued for lithium batteries, solar panels, or EVs. Hydrogen's greatest value is as a common denominator between energy resources, particularly those untapped or underutilized, at a time when we need every clean alternative resource available. Hydrogen allows curtailed solar power in Arizona and untapped capacity in nuclear plants in Virginia to find its way to zero-emission vehicles, for complex organic waste that would otherwise pile high in landfills or forests to turn into fuel for our trucks, and for the energy of the heavy windstorms in Texas plains to be stored for days or months underground, helping to level out an ever more volatile grid.

New advances and discoveries for clean hydrogen production continue to evolve and expand every day, such as solar-enhanced electrolysis and geologic forms of hydrogen. Hydrogen has found advocates in all sectors of our country. Few topics combine California and West Virginia these days, particularly in energy. Hydrogen does. Hydrogen creates an energy policy that fits America. Its strongest advocates are both Democrat and Republican, as it builds bridges across our regionally disparate clean energy resources. The wisdom of the 45V production tax credit, in its intended form, serves all these different forms of clean hydrogen, allowing rapid scaling of the market and unlocking the price reductions for clean hydrogen that we have been waiting for for decades.

The three pillars stand in the way of this bipartisan support and form a cage that restricts our energy policy to only the most fundamental tenets of one side of the energy discussion. It squanders this opportunity to use hydrogen to combine our forces of clean energy across all regions of the United States and instead isolates clean energy to a wind-and-solar-only orthodoxy that alienates most of the United States and ironically retards progress in the very goal claimed to be the ultimate ambition of these groups.

Today, two valid paths are presented to Treasury for this absurd task of adjudicating esoteric energy policy over hydrogen. One path presents the pillars and a plan for perpetual monitoring of an energy system with an inherent assumption that we may never achieve full decarbonization. It allows only incremental improvements from strictly verifiable sources derived only from solar and wind, necessitating complex and expensive systems of tracking and monitoring, bending our economy to the whims of an increasingly volatile weather and climate. The other path seeks to build a carbon-free energy infrastructure and new energy economy in less than two decades, engaging our entire country, red states and blue; leveraging our expertise in all areas of energy such as oil and gas and nuclear and hydrogen and geothermal, as well as solar and wind; and is indeed the only realistic path we have to fix our energy system in the very short time we have before us.

I urge Treasury to consider this unique role they've been given and allow the fuel used by public transit to be incentivized by the 45V production tax credit, without the three-pillar restrictions. Transit cannot wait another two decades for fuel prices to fall, and we have little hope for trucks, trains, or ships to decarbonize if this keystone sector fails. Thank you for your time.

MR. DEXTER: Thank you.

MR. WILLIS: My name is Martin C. Willis. I'm a union boilermaker from Newcastle, Delaware. First and foremost, I'd like to thank the Treasury Department Internal Revenue Service for allowing me to make my personal comments concerning the proposed section 45V credit for production of clean hydrogen. My first comment is that in the proposed rule, the Treasury Department and IRS petition, not a single public comment is in accordance 100 percent word-for-word with the Inflation Reduction Act of 2022 regarding section 45V(e)(3)(a), the prevailing wage requirements, and section 45V(e)(4), the apprenticeship requirements, which is curious to me because as a minority in the construction trades, here's a perfect opportunity for the Treasury Department and IRS to implement a policy to acquire more minorities and women in the construction trade apprenticeship programs.

Second, I would like to comment on the Treasury Department and IRS additional dates and a proposed rule. Nowhere could I find a section 45V law enacted on August 16, 2022, or the dates January 29, 2023; April 1, 2024; and January 1, 2028. The date of January 1, 2028, stands out to me because that is the date the Treasury and IRS had determined to use with their proposal 45V(d)(3)(a) and (b) hourly tracking. Proposal 45V(d)(3)(a) will provide the general rule that an energy aperture certificate (EAC) satisfies the temporal matching requirement if electricity represented by the EAC is generated in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen. Proposal 45V(d)(3)(b) will provide a traditional rule to allow an EAC that represents electricity generated before January 1, 2028, to fall within the general rule provided in 45V(d)(3)(ii)(a). That electricity represented by the EAC is generated in the same calendar year that the taxpayer's hydrogen production facility uses electricity to produce hydrogen.

According to the Treasury Department and IRS published in the Federal Register, their own analysis, data, and surveys had determined that A) hourly tracking systems for EACs are not yet broadly available across the country and will take some time to develop; B) only two of the nine national electricity grid operators have hourly tracking systems under development, and of those two regional grid operators, their software functional systems remain limited; C) fully developing the functionality of hourly tracking infrastructure in the other seven electricity grid operators of the country will take a considerable amount of time; and D) the national electricity grid operators identified several challenges to hourly tracking that will need to be overcome and developed.

Also, the Treasury Department and IRS, by their own admission, acknowledge that local, state, and federal agencies will need significant funding for systems to develop efficient regulatory hourly tracking mechanisms. The associated private sector trading markets will need to be developed. Uncertainty in the timing of implementing an hourly matching requirement and that implementation this rule would increase the cost of producing clean hydrogen, making it uneconomical to produce on a commercial scale.

The Treasury Department and IRS request comments about their hourly matching pillar. My comment is simply that nowhere in the Inflation Reduction Act will you find any language that institutes the Treasury or IRS autonomy to compulsorily require the clean hydrogen taxpayer to match the hour of power generation through the hour of clean hydrogen production to collect the benefits of the 45-day tax credit.

The third comment I would like to make is this: I've been a union boilermaker for over 35 years, and all I know is the insides and outs of how America's energy infrastructure works. And for the last two decades, starting with the passage of the Energy Protection Act of 2005, Congress has vigorously attempted to enact legislation to set in motion the transition of our nation from primarily based on conventional fossil fuel energy production to the decarbonized, sustainable, net-zero lifecycle greenhouse gas emission energy production. So when the Biden administration announced on October 13, 2023, that Delaware, south Jersey, and southeastern Pennsylvania's Mid-Atlantic Clean Hydrogen Hub was chosen by the Department of Energy as one of the seven national hydrogen hubs to receive up to $7 billion in federal funding from the 2021 bipartisan Infrastructure Investment and Jobs Act to advance domestic commercial-scale clean hydrogen production, I was finally able to say I'm going to retire one day soon, building clean, sustainable hydrogen units.

That anticipation was short lived because on December 15, 2023, when the CNX Resources Corporation announced that it was ending its cooperation in the multibillion-dollar clean ammonia production plant in Adams Fork, West Virginia, citing increasing uncertainty over the leaked (phonetic), unfavorable implementation of the Treasury Department and IRS-proposed 45V tax credit rules and regulations. The Shell, already CNX Resources' clean ammonia production plant, was expected to begin construction in late 2024 and be the anchor project in the Appalachian Regional Clean Hydrogen Hub.

Also, according to an article run in the January 4, 2024, Baltimore Sun, the Midwest Alliance for Clean Hydrogen hub's anchor project, the $900 million clean hydrogen plant that Constellation NewEnergy planned to build at its LaSalle County nuclear generating station in Brookfield, Illinois. This project is expected to produce an estimated 33,450 tons of clean hydrogen each year. It will be the world's largest nuclear power clean hydrogen plant. It could also be derailed by the proposed Treasury and IRS guidelines that will exclude existing nuclear power plants.

And on February 22, 2024, the Houston Chronicle reported that a year after ExxonMobil announced it will be part of the Gulf Coast HyVelocity Hydrogen Hub team to build the world's largest clean hydrogen facility. First announced on January 30, 2023, the $7 billion project is projected to produce up to 1 billion cubic feet of clean hydrogen, with a planned start-up in late 2027 or early 2028. But ExxonMobil executives are now warning the project at its Baytown, Texas, refining and petrochemical complex might no longer happen because the Treasury Department and IRS draft 45V tax credit guideline rules.

To conclude with my comments, before the 2022 Inflation Reduction Act, there was no domestic blueprint for commercial-scale production of clean hydrogen. The 45V tax credit, in general, designates inflating levels of tax-free emittance for each applicable amount of clean hydrogen the taxpayer produced. The lower the threshold of lifecycle greenhouse gas emissions through the point of well-to-gate reduction, the higher the tax credit disbursement, which could be worth up to $3 per kilogram of carbon dioxide equivalent per kilogram of hydrogen by January 1, 2033.

The 45V tax credit is a bountiful tax credit to the clean hydrogen production taxpayer and is unequivocally the driving force in the infantile domestic commercial-scale clean hydrogen production. And the tax credit would allow the clean hydrogen taxpayer to put union boilermakers like me to work immediately, even though there is no debate that hydrogen — no matter if it's blue, gray, pink, or green hydrogen — will be substituted for conventional fossil fuels and many industrial uses. And hydrogen can also be used as a feedstock for clean, sustainable fuels that's only emission is water vapor.

According to the Chevron doctrine undertaking, the Treasury Department and IRS, by my account, are proposing at least 135 guidance rules and regulations that will subvert and supersede the congressional intent for the private sector commercial scope sector clean hydrogen tax incentives to be flexible and technology neutral. In my opinion, when drafting their version of the 45V tax credit rules and regulations, the Treasury Department and IRS have overly depended on the substance and conjectures from academia, energy policy theorists, and pundits from nonprofit think tanks that in my 35 years as a union boilermaker have never put this clean hydrogen stakeholder to work in any segment of America's energy infrastructure.

In the Treasury Department and IRS proposed rules, it obviously, in a way that cannot be challenged or denied, has torpedoed at least $10 billion of shovel-ready clean hydrogen production, clean hydrogen projects, and any chance of me — a union boilermaker — building any domestic clean hydrogen units before I'm able to retire, now relying primarily on Social Security on January 1, 2033. But the Treasury Department and IRS can still right the ship if they give credence to my personal comments and listen to the clean hydrogen production taxpayers' comments that have put me to work, and hourly match paying into my multipayer union pension, so that I'll be able to retire early on January 1, 2028. Thank you.

MS. MCMANUS: Good morning. Thank you so much for having me here today. My name is Lacy McManus. I'm the executive director of future energy at GNO Inc., or Greater New Orleans Inc. We are the economic development organization for the 10 parishes in southeast Louisiana. Our role in economic development is to attract and retain business and industry in southeast Louisiana while cultivating a richer quality of life for our residents and our communities. We have the privilege in the energy space of working beyond our regional boundaries in just the New Orleans area and actually partnering with organizations across south Louisiana — higher education organizations and institutions, community colleges, and equity partners as well — on an initiative that we call H2theFuture, with the H standing for Hydrogen. This initiative is actually backed by about $50 million in federal Economic Development Administration funds, as well as $25 million in Louisiana economic development resources, as well. All because we and our 25-plus partners across south Louisiana believe in the promise of hydrogen for south Louisiana.

So why should the United States care what Louisiana thinks about hydrogen? What role does little Louisiana have to play in the hydrogen economy? Well, as a surprise to some, Louisiana actually consumes about 30 percent of the nation's hydrogen pipelines. We are a high-density hydrogen consumer because of our heavy industrial base of petrochemical companies across south Louisiana. We are number one in terms of per capita demand of hydrogen, and we are number two in terms of overall demand of hydrogen.

So, we are players in the hydrogen space, and the majority of our hydrogen currently is coming from gray hydrogen fueled by natural gas. However, we have the opportunity to transition this gray hydrogen feedstock to green and blue, thanks in large part to everything happening with the IRA. These incentives and these investments that are being made at the federal level are having a direct impact on Louisiana communities and on our Louisiana reduction in emission standards, as well.

We are very excited to see our pipeline of business development activity in the renewable and clean energy space across south Louisiana. We currently have about 35 projects that have been announced in the renewable energy landscape that represent over $45 billion in capital investment in Louisiana. Of these 35 projects, we actually have about $6.5 billion in proposed green hydrogen and green ammonia facilities in south Louisiana. This is tremendous for our economy, but please note there are direct results and impacts into our emissions, as well.

In Louisiana, when we look at our carbon emissions overall, we are, per capita, a little bit higher than many of our peer states. This is problematic, but when we look a little bit deeper as to those sources of our carbon emissions, 66 percent of Louisiana carbon emissions are coming from industry. That's compared to 17 percent nationally. So, we are punching well above our weight class when it comes to industrial emissions.

With those conversions to blue and green hydrogen, we have the opportunity to reduce our industrial emissions by 68 percent. This is a dramatic dent and step forward for the state of Louisiana. And most excitingly for us in economic development, we're able to do that while not only retaining the jobs that we currently have in industry, which are very much the backbone of our middle class, but also by ensuring we're able to grow our economy, grow our industrial landscape in a cleaner, greener, more renewable path forward. It's an exciting time in Louisiana, and we feel like we are doing exactly what the IRA intended states like Louisiana to do.

We are working with our hard-to-abate industrial sectors and partners, and we're abating them. We're moving forward. But do note, we need every tool available in the tool chest to get us there. When it comes to building out our renewable energy resources, we are aggressively moving forward on that front. On the wind side of things, we have significant opportunities in offshore wind that will not only create opportunities for renewable energy in Louisiana but spur economic development opportunities as well.

So, as you might be aware, the federal government has recently released, as of last week, four new potential lease sites in the Gulf of Mexico and federal waters. We just leased our first federal lease for offshore wind in August of 2023. So, we're aggressively building out that capacity. But offshore wind takes time: In the federal leased areas, we're looking at about seven years for full completion, and that's in the best-case scenario.

We all know, with supply chain issues, and certainly in the Gulf Coast force majeure and high weather events like hurricanes, to throw those timelines off kilter. So, we're looking at a timeline of around 2034 until we have the full wind capacity operationalized and maximized in Louisiana.

On the solar front, we're moving forward aggressively onshore on that front, as well. We've actually increased our utility-grade solar capacity four times since 2021. That's a lot of solar in a state like Louisiana. And we're on track to have 3,000 megawatts onshore by about 2029. So, we're moving forward, but we still need to ensure that we have the demand, the offtake agreements, and those industrial partners and consumers, at the end of the day, for these renewable energy resources.

That's the true business case in Louisiana. We have a low population density. It's our industrial customers that will be offtaking these renewable energy resources, at the end of the day, that give us the best bang for the buck and ensure we're able to continue the aggressive pace of renewable energy build out.

So, to that end, with that landscape, in that context, 45V is absolutely critical to everything we are doing in Louisiana. We feel that the landscape of renewable energy we're building out, the density of our hard-to-abate sectors, the combination of those coming together and being knitted together by 45V is exactly what the IRA intended to do. We are doing the hard work on the front lines, and we would appreciate some consideration from Treasury in the 45V rules and regulations to allow a little more flexibility for the unique context we're working in in Louisiana.

To be more specific in regards to temporal matching, when we look at the 2028 deadline, as I just mentioned, the renewable energy landscape in Louisiana, though we are building it out aggressively, it's still in its infancy. 2028 is a deadline that is not going to work for our renewable energy buildout onshore or offshore in Louisiana. We would therefore respectfully request Treasury reconsider that deadline, pushing it into the 2030 to 2032 timeline, and more specifically look at a more tailor-made approach for regions like Louisiana that are doing the hard work investing in renewable energy resources that need a little more time to get it done.

We're not asking for a lowering of standards; we're not asking for a free pass. We're asking for consideration of, again, the work we're doing on the front lines to build out the renewable energy resources to be matched with our industrial advancement.

Additionally — and I know this was mentioned by prior speakers, as well — when we look at the EAC opportunities for tracking and metrics, Louisiana, nor any other Gulf Coast [state], has adopted any EAC regimes. We do have some neighboring states who have those frameworks in place. So having time to build out those EAC tracking and metric systems, either on our own or in partnership with neighboring states like Texas, would be far more convenient and, we think, efficient for states like Louisiana.

On the second piece of deliverability, we are deeply concerned with the regional parameters that have been set around Louisiana and the delta region right now, the way the maps have been drawn, without that interregional connectivity to the Plains region, or in the case of Louisiana specifically into Texas, we stand a solid chance of those $6.5 billion in projects — real jobs for Louisiana residents — leaving Louisiana, ceasing to consider Louisiana as a base of operations and going instead to Texas, Oklahoma, a neighboring state with readily available renewable energy resources.

To ensure we're able to continue attracting and retaining those industrial players to Louisiana, greater connectivity and interregional alignment with our neighboring states is absolutely paramount. Further, this is in alignment in accordance with the DOE's Needs Study, as well as with the OMB Circular A-4 framework, as well. We would appreciate consideration on that front.

Lastly, before I wrap up, when we look at our industrial players across Louisiana, and we look at the great gains that have been made in our traditional oil and gas industry, we know many of our partners are working aggressively to lower their carbon footprint through their traditional hydrogen processes. We would appreciate that that consideration and the overall hydrogen intensity scores that are being made by Treasury, as well, as it relates to 45V.

So, in summary, we appreciate your consideration of our perspectives, what's happening on the ground in states like Louisiana, and the opportunity to amend and adjust 45V to ensure not only the high degree and rigor of environmental consideration but also the economic realities of communities in states like Louisiana. Thank you for your time and attention.

MR. JUDSON: Hi, good morning. My name is Timothy Judson. I'm the executive director of the Nuclear Information and Resource Service, and we're an environmental organization that was founded in 1978 to monitor the civilian nuclear industry, the commercial nuclear industry, and to advocate for the transition — socially just and equitable transition — to 100 percent renewable energy.

So, the first things to understand about hydrogen — and this is true of clean hydrogen — are that it's energy and water intensive and currently very expensive. For instance, with currently available electrolysis technology for producing hydrogen, it takes 52.5 kilowatt-hours of electricity to produce 1 hydrogen. And then the energy content of that hydrogen is about 25 percent less than that, at 39.4 kilowatt-hours per kilogram. Then to convert that hydrogen back into an energy use introduces further energy inefficiencies, so that if hydrogen is used for electricity applications, 55 percent to 70 percent of the electricity used to produce it is lost in the process. So, it's for those reasons that we needed a national hydrogen strategy and roadmap, which the Infrastructure Investment and Jobs Act required the DOE to put together and was published last summer.

So, you know, it's really important for the hydrogen production credit rules to be aligned with supporting the national hydrogen roadmap, or it will make it harder to realize the potential role of hydrogen in the country's goals for reducing emissions and transitioning to clean energy. The roadmap consists of three key strategies targeting strategic high-impact uses for clean hydrogen, reducing the cost of clean hydrogen, and focusing on developing regional networks. The principles of incrementality, hourly matching, and deliverability are essential to assuring clean hydrogen actually meets the criteria set forth in the Inflation Reduction Act. The proposed rule recognizes that existing generation that is diverted to hydrogen loads will be replaced for grid loads.

A recent study finds that replacement power is many times dirtier than the IRA standards, and even dirtier than steam methane reforming from methane, which is the current conventional source of hydrogen. If replaced by grid electricity, average emissions significantly exceed the IRA limit of 4 kilograms of CO2 per hydrogen, even in states with higher amounts of low-emission generation, like New York. If replaced with gas generation on a real time basis, emissions exceed 40 [kilograms of] carbon dioxide, more than 10 times the IRA limit. This is doubly important because, as I said, using electricity to produce hydrogen is very inefficient on a net energy basis. And not only that, the value of the hydrogen PTC at $3 per kilogram is sufficient to help reduce the cost of clean hydrogen to end users, which is really what the purpose of the subsidy is.

The suggested exemptions for existing nuclear and renewable generation would not comply with the IRA, and they would compromise the national hydrogen roadmap. The hydrogen PTC is not intended to be an upstream input subsidy to uneconomic electricity generation; it is intended to defray the cost of clean hydrogen production sufficient to make the cost of clean hydrogen affordable to end users. As the DOE says in the hydrogen roadmap, the hydrogen PTC can pull forward break-even times for clean hydrogen versus traditional fossil alternatives for end uses, particularly industrial applications such as ammonia and steel. States with additional incentives, such as the low-carbon fuel standard, can enable fuel cell trucks to be competitive before 2025.

The DOE estimates the market cost of clean hydrogen at $5 per kilogram or more and concludes that that price must be reduced by 80 percent, to $1 per kilogram, with an interim target of $2 per kilogram in 2026. The $3-per-kilogram value of the PTC could be sufficient to meet the interim price target and begin to stimulate demand for clean hydrogen, and this would activate the main factors for driving the roadmap's cost reduction strategy — that is, the scaling and manufacturing of electrolysis equipment and technological innovation to make it more efficient.

Reductions in electricity input costs are a significant factor in lowering the cost of hydrogen, but not by subsidizing uneconomic generation sources. Power input cost reduction to the national roadmap comes from two sources: timing hydrogen production to utilize zero-emission electricity when the market price of that electricity is in the range of $0 per megawatt-hour — this aligns well with the hourly matching, deliverability, and incrementality principles — and also improving the efficiency of the electrolysis process to produce the amount of electricity requires. And this, in fact, argues against using hydrogen production to sustain uneconomic baseload generation, such as nuclear reactors.

Exemptions that would allow for existing nuclear renewable generation will undermine the national hydrogen strategy and roadmap. Existing generation sources that require a subsidy to continue operating would increase the levelized cost of producing hydrogen, preventing the subsidy from playing the strategic role envisioned in the roadmap. Operating costs, for instance, for uneconomic nuclear generation now exceed $40 per megawatt-hour because the nuclear PTC is now available.

The IRA sets a base value of the nuclear PTC at $15 per megawatt-hour for reactors with revenue of $25 per megawatt-hour or less. The IRA then reduces the PTC by 80 percent of the revenue that exceeds $25 per megawatt-hour, effectively zeroing the credit out at revenues of $43.75 per megawatt-hour. If a reactor's operating expenses exceed those levels and would require the hydrogen PTC to continue operation, those electricity costs would be internalized in the production cost of clean hydrogen. Rather than using $0-per-kilowatt-hour electricity, hydrogen production would have to rely on electricity that costs more than $25 per megawatt-hour, including a share of the hydrogen PTC.

Nuclear operating costs are largely fixed, dominated by invariable expenses such as capital, labor, and property taxes, and even the fuel costs for nuclear reactors are considered a capital expense. If hydrogen production were to use or to make up the gap in those operating costs, a disproportionate amount of its value would have to be applied to make up the whole margin of the reactor's operating costs, regardless of how much electricity generation is used for hydrogen production. For instance, as a component of the MACH2 regional hydrogen hub demonstration project proposed in Illinois, Constellation plans to install a 250-megawatt electrolysis facility at its La Salle nuclear power plant, which has a 2,400 generation capacity.

If La Salle were to qualify under the proposed exemptions, the cost added to hydrogen production would have to equal 10 times the margin of La Salle's operating costs. So, if La Salle were losing $5 per megawatt-hour on an annual basis, the subsidy from hydrogen production necessary to justify its continued operation would have to be equal to $50 per megawatt-hour to keep the reactors in the black. That would consume 88 percent of the hydrogen PTC's value.

However, the hydrogen production roadmap counts on nearly 60 percent of the near-term cost reductions coming from lower capital and O&M costs for electrolysis equipment. Hence, if uneconomic nuclear generation is used for production of clean hydrogen, it will undercut the hydrogen roadmap. It will increase the cost of clean hydrogen and consume the value of the hydrogen PTC as an electricity subsidy rather than a subsidy to make clean hydrogen affordable to end users in the near term.

The other exemptions for existing generation are just as unsupportable. If the regional electricity supply is already zero emissions or near to it, it is largely because renewable generation capacity is already being developed at a high rate, which of course supports the deliverability, hourly matching, and incrementality provisions or principles. The formulaic approach would, as with the unprofitable reactors proposal, waste the value of the hydrogen PTC on a nuclear industrywide subsidy, regardless of whether it corresponds to actual hydrogen production. It would not prevent the retirement of existing reactors that are unprofitable because it would provide them with too small of a subsidy, and it would provide an unnecessary subsidy to reactors that are otherwise profitable, whether or not any hydrogen is produced with their electricity.

Furthermore, nuclear and renewable generation are extremely vulnerable, or extremely variable regionally, compromising the deliverability criteria. Some states have no renewable energy standards and very little renewable generation currently, but some states have very high renewable energy standards and very high rates of renewable energy deployment. And similarly with nuclear reactors, there are three states where more than 50 percent of the electricity supply is generated by nuclear, but there are 20 states in B.C. where there's no nuclear generation at all.

In conclusion, we encourage the IRS and the Treasury Department to hold firm to the criteria of incrementality, hourly matching, and deliverability, as proposed in the draft rule, with no exceptions. A hydrogen PTC must not be used as an electricity subsidy; its highest value is in helping to reduce the cost of clean hydrogen to end users toward the national roadmap targets of $2 per kilogram in an interim basis and $1 per kilogram in 2030. Thank you very much.

MR. DEXTER: Thank you.

MR. PANKO: Excellent. My name is Nick Panko. I'm with CFO Services. We're a boutique tax consulting firm. We specialize in credits and incentives, particularly federal, R&D, IRA, CHIPS, and then state job and investment-type credits. I do want to say thank you for having us today. I do have a few comments that maybe will help prevent some unnecessary controversy between the IRS and taxpayers down the road. But I do also have to commend for going through, or at least attempting, 30,000 comments on this and actually getting through all that. So a lot of work, a lot of effort. I do appreciate that.

There are six things that I want to talk about today. First being the facility definition just needs more clarity. The second being the timing of completion of the verification of clean hydrogen. Kind of the urgency for more GREET pathways are needed, especially for byproduct pathways. Also, that the EIC being optional is not clear in the regulations, and then better definition of "use" in the regulations, and then modification of existing facilities and "use" properly is really not clearly defined.

On the first point, the “facility” needs more clarity. The facility definition in the regulations needs more explanation or more examples or both, because the definition of the facility — the "facility" is needed for the GREET, determining the GREET, the PER determination, applying the modification rules, defining EAC inputs, and also applying the prevailing wage and apprenticeship requirements. So it really needs to be very clear how we define that. Specifically, the term single production line and interdependability, if I can even say that correctly. There's a little bit that leaves interpretation, and I think down the road the taxpayers and the IRS will have unnecessary controversy to do that. I think the regulations assume a stand-alone hydrogen facility, and I think the DOE has pointed out numerous pathways that will be not stand-alone, and there'd be byproduct pathways. So, consider in the regulations how the facility definition applies to byproduct — for example, the chlor-alkali processes and how that facility definition impacts those types of processes.

So the second would be the timing and completion of the verification, with the fact that if we don't have our pathway in the model, and in doing that, receiving a PER; registering for the elective payment, if we're doing that; performing a prevailing wage review; and then also completing the third-party verification — there's a lot that needs to be done before we actually claim the credit in our return. So, with the upcoming allowance of applying for PER here in April, it's unknown of what the timing will be for the DOE to approve those pathways or give you results back.

And so, especially for 2023, I think we miss out on time to take advantage of the credit because of how many things have to be done. And if we're filing in October with extensions, we'll miss out on some significant benefits, and then we'll have to file amended returns. Which, if we don't have to file amended returns, that would be beneficial.

In reference to the qualified verifier, you did ask for specific comments on a couple things — I think what type of accreditation from ANSI could be beneficial to taxpayers, because it just says any type of accreditation from ANSI which can; the California board is a little bit more specific. And then I don't think there needs to be any additional accreditations or another level of compliance. That's not needed because there's already plenty of items that are in here for compliance.

More GREET pathways are needed. There's only eight, and I know the DOE has a few others that they want to add into the model. I do think that needs to be addressed before the background data becomes foreground data. And again, some of the background data that's used for upstream feedstocks will be difficult to quantify just because — especially if it's not in our production process or not controlled by us — that'll be more difficult to get into the production system.

And then on the PER determination, in our opinion, I think what the IRS and DOE should require instead of a front-end engineering, something similar to the 48C concept paper requirements that you have to do some sort of early analysis, but it's not a full-blown engineering design, but it gives enough for the DOE to make that determination, but also shows that the taxpayer is making some commitment to that process.

The other piece that we'd like to comment on for this, that if the taxpayer wants to improve its level of GHG emissions within the qualified facility, the regs only seem to allow limited circumstances in which you can request revision to the DOE's assessment. If I have none of my pathways that are in the model and I have to request it, I have to first determine that if I can even qualify for the credit, and if I want to improve that, the regulations don't seem to allow me to do that — to request another evaluation from the DOE.

And then in regards to the EAC being optional, Regs-4D do not make it clear that EACs from specific electricity is an optional method to select, even though when you look at the actual GREET model spreadsheet that's there, it is something that is optional we can choose. I think that would just help all taxpayers to know that is an optional method when they are trying to follow those three pillars.

And then a better definition of use. I think the defining of qualified use — "use" — seems to leave a wide interpretation to taxpayers and the IRS. This could lead into unintended consequences down the road. And I think there should be just maybe some more examples, like if we are replacing natural gas usage or other things like that in our industrial production complex. Maybe those some examples would be helpful.

And then lastly I'd like to comment on the modification of existing facilities. Again, as I said before, the definition of facility is really important to all the aspects of it. And then implying the modification rule, and specifically the 80/20 rule, and I think with hydrogen, depending on where it's produced in our process — if it's early in the process, that's one thing, but if it's produced at the end of the process, and if we have to include all that, the 80/20 rule becomes very detrimental to taxpayers.

I think the term "used property" so different from the "use," the termed "used property", needs to be defined clear to understand what is used. Because based on that existing facility definition, the equipment becoming used needs to be addressed.Because it's similar to like our original use rule we have in our ITC credits. And I think that would be a better way to apply that 80/20. Because, for example, if we had a facility placed in service after 11/23, and from the PER process determines they do not fall under the minimum, the minimum 4 kilograms, then if the taxpayer makes a modification to the existing facility that did not meet the qualified hydrogen facility definition, they will have to follow the 80/20 rule. And in this case, they would most likely fail because if they made this modification, all that equipment now becomes used, and that leads a very high value target that they have to get over. The test does not allow you to fail the model and then make modifications.

So in the same concept, if we currently qualify but want to improve our level of GHG, again, the modification rule — especially the 80/20 rule — unintentionally disqualifies taxpayers and doesn't incent them to continue to reduce their emissions on their hydrogen process. So, our recommendation is use something that's more like the original use rule. So, if I have original use equipment that doesn't get considered used, I cannot have to be disincentive by only doing it once and doing it perfectly correct.

And then the last point I'd like to make is — but I do want to commend that we do have some other rule to get a different placed-in-service date. I do want to commend that we are trying to do that with the 80/20 rule. The last thing I will say is the term “modification” in this point of the regulations has no relationship in the prevailing wage and apprenticeship regulations, which is a very important component of this. Under 45V(3) the term we have construction alteration or repair in prevailing wage, but we're using a term called modification in 45V. I think there shouldn't be — some way that we can make that consistent and make that — so, it's for taxpayers that are considering both aspects. The application is more consistent in the reg. So thank you very much. I will take any questions.

MR. DEXTER:Thank you.

MR. BOYAJIAN: Good morning. My name is Don Boyajian. I am the director of government affairs and counsel at Plug Power. Plug Power is a leading provider of turnkey green hydrogen solutions. We were the first company in the world to develop a commercially viable fuel cell product, in small part due to clean energy incentives like the section 48 ITC.

But we are also a leading manufacturer of electrolyzers, and we are, I think, distinct from some of the other company stakeholders here today in that we don't speak about clean hydrogen projects conceptually as plans for the future. We have plans that are in operation right now. We just recently began operation on a 15-ton-per-day facility in Georgia. We have several other facilities that are under various stages of construction throughout the country.

So, these aren't conceptual items that we raise today; these are very real pain points with some of the realities of what it takes to scale a new technology and to be cost competitive. So, we are unique in that we are, I will say, a true first mover.

I'd like to thank the Department of Treasury, Internal Revenue Service, and the entire Biden administration for your efforts advancing the various provisions of the IRA. As somebody that came from government before I worked at Plug, I can't even get my head around the monumental undertaking. So, thank you. And it's also — you know, I haven't heard it said yet today — the most significant climate action ever taken by the federal government. It's incredible.

I'd also like to thank the Biden administration for their recognition of and commitment to advancing the role of clean hydrogen in the United States as an invaluable decarbonization tool through policies such as the Department of Energy's Regional Clean Hydrogen Hub program, and for policies such as the section 45V hydrogen production tax credit.

At present, the clean hydrogen industry is at an inflection point.We have very aggressive decarbonization timelines that we need to hit, and some of the hardest-to-abate sectors are really pivotal to that trajectory, which necessitates the need for rapid deployment of clean hydrogen generation now, which is particularly urgent given the availability of existing low-cost fossil-based hydrogen.And then compound that with the huge amounts of hydrogen that some of these very hard-to-abate sectors require.Things like making steel, making ammonia — they require not a small-scaled hydrogen economy, they require a fully scaled, large amounts of hydrogen, clean hydrogen economy.

That's what the section 45V credit is about. And the implementation of that credit will be pivotal — beyond pivotal — to the trajectory of the U.S. clean hydrogen economy, and in turn, the trajectory that our country takes in decarbonizing hard-to-abate sectors where hydrogen in its unique role is that Swiss Army knife of decarbonization tools, which may be the only option for some of these hard-to-abate sectors.

And how does the ITC go about doing that? It's by driving cost parity with incumbent fossil-based technologies. Plug Power was intimately involved in the formulation of this concept from the outset. We've been involved in this process throughout. That $3 per kilogram came from somewhere: It was comparing the cost of existing fossil-based hydrogen with things like electrolysis. There was no notion or discussion or understanding of anything such as the three pillars, which, as I'll go into, do little more than just add costs and erode the underlying goals of Congress and enacting this policy.

And quite frankly, time is of the essence in terms of how we scale the hydrogen economy and whether or not we're going to hit our decarbonization objectives, particularly for these hard-to-abate sectors. You can scale new clean energy technologies at the same time as you decarbonize the grid. We have to walk before we run, but we have to walk and chew gum at the same time. And I really think we can do that if we implement this credit properly. Plug has done extensive, extensive analysis on the economic implications of the proposed three pillars and on the downstream decarbonization consequences, like what is it going to do in terms of offtakers' ability to use clean hydrogen or not will probably cost them sensitivity (phonetic) points.

And in some, the pillars have compounding effects that increase the levelized costs of hydrogen, and they work to the detriment of downstream decarbonization. So that's really, I think, counter to what this credit was about, which is scaling a nascent new technology.

I'm not going to address some of the administrative law considerations that we've highlighted in our written comments on the three pillars, particularly on incrementality. They're covered in detail in our written comments. But I respectfully would like to suggest that a few different types of changes are going to be very beneficial to creating a legally durable framework and a framework that comports and is consistent with Congress's goals in scaling the domestic clean hydrogen economy.

Number one, grandfathering first-mover protections are essential for the 45V framework and for U.S. clean energy leadership in general. The final regulations should include grandfathering provisions that exempt from the incrementality, time matching, and deliverability requirements projects that began construction prior to the publication of the final regulations.

And second, hydrogen producers should be able to rely upon the regulatory framework in place at the time of the facility's beginning of construction date. So, we're talking about two different things here: We're talking about the projects that began before this discussion came about and is finalized through these regulations, and then we're talking about having that beginning of construction standard that is so key to having predictability and uniformity of requirements over a facility's 10-year credit window. That predictability and uniformity is very important in terms of ensuring financeability of projects. But they are distinct concepts.

And I would go so far as to say that a section 45V framework that doesn't have these grandfathering protections is inconsistent with the principles of U.S. clean energy policy, which are firmly rooted in sparking first-mover innovation companies like Plug that have gone out and taken the leap of faith and spent hundreds of millions of dollars to try to scale a new sector of the economy.

That is the spirit of these policies. And I think it's an important precedent to preserve, both for 45V and for clean energy policies in general. We want to encourage first-mover innovation. And that really speaks to the first type of grandfathering I'm talking about. I think anything that — the pillars, if they were imposed on projects that began prior to the finalization of these regulations, I would go so far as to say that's punitive and not proper.

The second point that I'd like to address with respect to the three pillars is focusing on the incrementality provisions. I respectfully maintain, as consistent with our written comments, that the incrementality requirements exceed the delegation of authority in section 45V and that the induced grid emissions justification is somewhat attenuated and speculative. However, if the final rules do impose some type of incrementality requirement, I think they need to — it's essential that they ensure several pathways for hydrogen producers to access clean baseload power, such as nuclear and hydroelectric. And Plug is very much appreciative of the notice of proposed rulemaking entertainment of several different options and ways that incrementality could be nuanced. And we would like to suggest that rather than focus on any one of those individual options, a suite of options is really going to be important, because as noted in the notice, some of this stuff is kind of a proxy on this induced grid emissions theory. And by affording a range of options, I think that proxy becomes a little bit more palatable, a little bit more workable. And I'll highlight a few of the ones in particular that I think are worth calling out.

Facilities that are in jurisdictions that have some type of clean energy mandate — whether that's a renewable portfolio standard or a clean energy mandate or an emissions reduction cap — those state jurisdictions have their eyes all over grid emissions, and we should be cognizant of those policies and recognize that the states play a very important role in great decarbonization. Why impose a redundant, ineffectual additional developer onus on top of that?

Secondly, the percentage-based caps that were discussed in the notice we are very supportive of. They think that they're a very meaningful, purposeful way to include baseload clean power. But again, I want to go back to the broader point that the full suite of options should be included; it shouldn't be any one individual option. But we think having a suite of options will make this framework more legally durable and more administrable.

Lastly, I'm not going to go into much detail on provisions on hourly time matching, but I will note that imposing a requirement such as that on one industry is not going to create a liquid market for hourly REC. If that requirement is only imposed on one industry, and if we don't have a liquid hourly REC market, the whole framework stands to not function properly. So that's just a thematic point.

And lastly, one additional small point which isn't really the pillars, but I think it's very impactful, and it relates to the fact that we are entertaining hourly matching requirements. The notion that a hydrogen producer would have to aggregate all of its hydrogen over the course of the year and not be able to claim the ITC for smaller durations of time where it can verify that production is inconsistent with the statute is counter to the goals of the credit.

So, I thank you for your time, and I'm happy to entertain any questions.

MR. SLOAN: My name is Mike Sloan, CEO of Synergetic. We develop three pillars: Compliant green hydrogen production, storage, and industrial use sites. Our gigawatt-scale development seeks strong fundamentals in four key areas: high combined wind and solar resource, geology well suited for subsurface hydrogen storage, development of new water supplies such as desalinization of brackish groundwater, and strong local community relationships.

We expect our sites to provide both (phonetic) thrive under strict three pillar requirements and be among the lowest-cost sources of green hydrogen in the United States. Synergetic strongly supports Treasury's guidance on 45V. This week you will undoubtedly hear a very broad range of opinions and suggestions on how to improve 45V rules. Here's one quote that captures a basic framing of 45V hydrogen debate that some stakeholders have embraced. It's from a recent panel discussion on IRA guidance by an executive from the American Clean Power Association who said regarding the development of their 45V position, “What we have tried to do is figure out where the sweet spot is between allowing the market to get off its feet and the regulation necessary not to completely obliterate the Biden administration's climate goals.” This binary framing of economy versus environment seems a false choice.

My testimony will seek to establish that a sturdy three-pillars foundation that spurs innovation, ensures environmental integrity, and consciously leads to a desired hydrogen future is the very best way to stimulate a robust, enduring hydrogen sector.

One additional note: I previously managed the regional wind trade association for SPP and ERCOT and had leadership roles developing several first-of-a-kind policies, including the Texas RPS; the Texas REC trading platform, which was the first electronic planner platform in the country; and the REZ proactive transmission buildout policy. Attention to detail, anticipating problems, and seeking bang for buck for public investment were common threads in each of those.

I'll now describe some concerns regarding the electric grid and electrolysis. First, with the electric grid, the grid has held back the pace of renewable energy deployments for many years. Interconnection queues and the backlogs there, they're fundamentally a function of shortages of transmission, uncertainties that they introduce to developers getting their projects on. And the IRA is going to ask much more of the electric grid. This is at a time when additional loads for artificial intelligence, EVs, heat pumps are coming. Now add electrolysis on top of that.

So, a fundamental question is going to be, will green hydrogen help or hurt the electric grid? And 45V rules will answer that question. Because if you were to increase annual matching, annual matching intrinsically will increase the amount of overall electrolyzer load at times when you have low renewable energy. And that's going to intrinsically stress the grid. So, it's going to drive up electric prices, and it's going to increase energy burden on J40 communities. Now, the current rules you have there, based in three pillars, they're going to limit those bad things and hopefully spur innovation, such as new hydrogen infrastructure that can enhance the abilities of the electric grid.

Now on to the efficiency of electrolysis. Unlike EVs, which are highly efficient, electrolysis is not. If you look at a gray SMR of the natural gas that goes in, about 72 percent is going to pop out the other side as hydrogen. Even if you use the most efficient natural, which are about — you get about 28 percent of the natural gas that goes into that power plant and through the electrolyzer would come out as hydrogen. So, using two-and-a-half times more natural gas fuel, it would produce twice the CO2 and have 13 times the NOx. And if you're going to make hydrogen using coal, it's vastly worse: You've got five times higher carbon emissions, 40 times the NOx, and 1,000 times the SO2 emissions. So, it just doesn't look like a good idea for the environment to use coal or gas to make hydrogen. For electrolysis to be a net benefit, it must be very clean and very low cost.

Next, the cost of hydrogen from electrolysis. You really can boil it down to two pieces: There's the electrolyzer, and then there's the cost of the electricity. Those are the two prime drivers, and electricity generally is the biggest. And if you go through the LBL market assessments for wind power across the country, there's areas of the United States where you would have a cost of electricity feedstock for electrolyzer as low as 50 cents a kilogram. In certain places in Oklahoma, Kansas, west Texas, that's around $10 a megawatt-hour.

On the other side of it, in places like Boston or San Francisco, it could be over $450 just for the cost of the electricity per kilogram. So, you have this very broad range. So, fundamentally green hydrogen, it's basically an issue of location. If you're in the middle of the country, mid-continent, $3 a kilogram, you can produce in that range. So, there's a lot of projects that can happen there. If you're in other areas, on the coast, much more expensive. And that's why you have people asking for different provisions. But a lot of hydrogen can be made in the middle of the country.

In fact, if you really look at what a mature market for hydrogen will look like, molecule markets, they always strive to produce where it's lowest, and they use infrastructure to get it to people all over the country, or all over the world, even.And a mature hydrogen market, it's pretty clear that all clean energy — whether you're talking nuclear, hydropower, wind, or solar — it's going to make hydrogen when prices are really low, and you'll sell in the electric grid when prices are high.That's what I think a mature hydrogen market is very likely to look like.

Next, on to annual RECs. Annual RECs are a poor tool for climbing carbon intensity. And again, Texas, we started the template for this. And I'll say we designed everything, soup to nuts, in 18 months. That was from scratch. So, I'm really surprised when people say they don't think we can build the system in time. We were building wind farms concurrently while we built that very first REC trading program. In RECs, fundamentally what they do is they validate deployment; they do not characterize emission displacement. It's a very important thing, because 45V is about emission reductions, not about deployment of renewable resources.

So, a REC offset, it can offset something that's a little bit dirty or a lot dirty, and it's going to push all of that into a residual mix. It's not taking it out of the system. And so that's a known weakness with the 45V accounting, is on the carbon intensity and under three pillars, there's not much uncertainty because you're chewing (phonetic) up hourly.

However, under annual RECs, the electrolyzer operation and clean supply are fully decoupled. There's a very high uncertainty in the carbon intensity score. And you'll probably see this spring RECs — that's when you have the most renewables. You're going to have a lot of RECs produced in the spring. They will cannibalize renewable energy, and they'll be used in the summer, during the ozone season, by running coal and gas plants. That's what's going to drive and allow those RECs to run. And that loophole allows annual RECs to claim the label of clean, even though what they're really doing is they are blending in dirty hydrogen with clean hydrogen to increase the volume and get more incentives.

That's where the obliteration of climate goals comes from. And if this pays more money, then a lot of people are going to want to try to do it. Even those that could be three pillars capable.

So, one last thing I want to mention is it's a threshold question for 45V rules. Whether it's going to depend on the grid, electric grid, or whether you're going to have hydrogen pipelines, that's a game changer. If there's hydrogen pipelines, it can ensure that hydrogen can be provided. And again, molecule markets, they're fundamentally going to use the lowest-cost resource and depend on superior logistics to get it to customers. And if we're trying to grow new demand for power plants, steel, they're going to require high volume, high reliability, affordable price. Only pipelines can deliver that and get those markets going.

Wrapping up here, high-volume pipelines plus salt cavern storage can play a transformational role to accelerate hydrogen. It will ensure environmental integrity, provide bang for the buck for 45V investments, and help America realize the extensive benefits of hydrogen. And the quicker we do this, the quicker the planet decarbonizes. Thank you.

MS. BEHAR: Good morning, thank you for the opportunity to testify today. My name is Claire Behar, and I'm the chief commercial officer of Hy Stor Energy LP, representing Hy Stor Energy in our subsidiary in Mississippi Clean Hydrogen Hub. Hy Stor Energy was headquartered in Jackson, Mississippi, for the purpose of scaling production, storage, and delivery of clean hydrogen. Hy Stor Energy's first major project is the Mississippi Clean Hydrogen Hub we built around underground salt cavern storage for large-scale long-ration hydrogen storage. The project will produce green hydrogen through electrolysis powered by dedicated off-grid renewable electricity facilities. Hydrogen will be stored underground as it is produced so it can be delivered regardless of whether the sun is shining or the wind is blowing.

Our focus on large-scale hydrogen storage will make Mississippi Clean Hydrogen Hub a highly reliable source of large quantities of clean hydrogen. 24/7 clean hydrogen supply will offer — will make it possible to decarbonize even the hardest-to-abate sectors, such as steel production, transportation, and fertilizer production. Hy Stor Energy expects to supply green hydrogen to customers in each of these sectors. Our project will be an important catalyst for the development of industries employing clean hydrogen in and around Mississippi.

Potential customers and the federal government see the value in Hy Stor Energy renewables-only storage-centric clean hydrogen production model. Just this morning, the Department of Energy announced that it has selected SSAB Americas — one of our target customers — to negotiate an award of up to $500 million to support SSAB's development of the world's first demonstration-scale facility capable of producing hydrogen-reduced, fossil-free sponge iron. That clean steel facility will be constructed adjacent to the Mississippi Clean Hydrogen Hub and be supplied with clean hydrogen from our facility.

The three pillars approach must be embraced in the final 45V guidance. The final section 45V guidance should reaffirm the three pillars approach, taking in the proposed rule. The regulations should require taxpayers to satisfy specific additionality, regionality, and time matching requirements to qualify for the credits. Without these guardrails, significant additional emissions would occur when grid-connected electrolyzers' demand drives increases for fossil fuel generation.

Studies that we have identified in our comments warn that the section 45V rules would undermine both the achievement of the Biden administration's decarbonization goals and the credibility of the hydrogen industry. It is critically important that the public accepts hydrogen as a viable pathway to a cleaner future. So, the final section 45V guidance must ensure tax benefits are not awarded to hydrogen projects that do not demonstratively contribute to greenhouse gas reductions. If the section 45V credit ends up rewarding hydrogen production that is actually increasing emissions, it will be subject to attack, and justifiably so. This will not be good for our industry. Hy Stor Energy urges Treasury and the IRS to adopt the three pillars approach requiring additionality from day one, strong deliverability standards, and a phased-into hourly matching by 2028.

Hy Stor Energy believes the United States should be at the forefront of a global drive to use hydrogen in achieving lasting emissions reductions. We should be encouraging other countries to match this high bar set in defining what is required to produce clean hydrogen. Establishing clear, demanding, and transparent standards for hydrogen that qualifies as clean is essential to build out global hydrogen trade. Exporting clean hydrogen, green ammonia, green ethanol, and other hydrogen derivatives to Europe, Asia, and other international partners will be important in enhancing energy security both in the United States and abroad. To achieve this, U.S.-produced hydrogen must qualify as clean in export markets.

The three pillars should be adopted for renewable natural gas. We believe that the three pillars approach for electrolytic hydrogen provides a framework that should be applied to the use of biogas, renewable natural gas, and fugitive emission. Each of the incrementality, deliverability, and temporal matching concepts should be adapted to these hydrogen production pathways to ensure their use does not increase fossil fuel generation and increase greenhouse gas emissions.

Nuclear generation should be accommodated as a source of supply for hydrogen production. Hy Stor Energy believes that the Treasury and the IRS should adapt the incrementality requirement of the three pillars approach in a way that supports the use of renewable resources to produce clean hydrogen. Existing nuclear resources which produce no greenhouse gas emissions should be incentivized through the 45V program to support clean hydrogen production. We therefore support proposals for an across-the-board exemption for the incrementality requirement that would be specific to nuclear generating resources, permitting them to generate energy attribute certificates that will qualify for the section 45V credit.

There is potential for a serious problem in the way that section 45V guidance proposes the use of the GREET model to determine the hydrogen production lifecycle greenhouse gas emissions. The final regulations need to ensure that any annual changes in the GREET model do not create additional uncertainties for the hydrogen industry. Changes in the GREET model's assumptions and the results it produces could occur each year, and having to incorporate these changes could be a problem in acquiring financing or tax credit equity. Allowing clean hydrogen producers to rely for the life of the section 45V credit on the version of the GREET model in effect when they reach a final investment decision would eliminate this source of uncertainty.

We need clear, definitive guidance ASAP. Hy Stor Energy appreciates the efforts that the Treasury and IRS have expended in developing the proposed section 45V guidance. But the time for debating the application of section 45V needs to end now. The section 45V credit was intended to jump-start the investment in the deployment of clean hydrogen in our country. Unfortunately, the lack of definitive guidance has resulted in postponed final investment decisions. Some projects have been cancelled, and others have moved abroad. Hy Stor Energy therefore urges Treasury and the IRS to provide clear directives and final guidance as soon as possible.

In conclusion, Hy Stor Energy urges treasury and the IRS to adopt the three pillars approach they put forth in the proposed rulemaking. This will go a long way towards ensuring that the production of clean hydrogen lives up to its full potential to decarbonize our economy. Taking this high road will position the United States to be a world leader in the race to embrace clean hydrogen. Thank you for the opportunity to testify today.

MS. FRITZ: Thank you, and good morning. I'm Katrina Fritz, president and chief executive officer of the California Hydrogen Business Council. The CHBC is the largest and longest-running hydrogen trade association in the United States. We have over 130 members across the hydrogen value chain. Our members include the transportation industry, hydrogen production and delivery, refueling and fuel cell technology companies, manufacturers across the supply chain, engineering and services firms, municipalities, research institutions, government laboratories, and air quality, environmental, and tribal organizations.

The California Air Resources Board has identified hydrogen as a necessary decarbonization pathway. California has a long history of using hydrogen for decarbonization and air quality across the early markets of power generation and light-duty transportation sectors and is expanding use in transit and heavy-duty fleets, power plants, and maritime and rail sectors. In recognition of the key role of hydrogen, renewable hydrogen is already an eligible resource in the California renewable portfolio standard, our PS, and is included in the California low-carbon fuel standard, LCFS, and cap and trade, some of the most well-designed decarbonization programs in the world based on carbon intensity.

On behalf of CHBC members, my testimony will primarily address two topics. First, the impact of the proposed regulations on the California hydrogen hub, known as ARCHES, selected by the U.S. Department of Energy. Second, the negative impacts of the draft regulations' proposed limitations on the use of environmental attributes, retroactively imposing temporal matching, incrementality, and new geographic deliverability rules on hydrogen — rules that were not in place when California and ARCHES applied for the DOE hydrogen hub. Program funding would materially impact projects in the hub and potentially jeopardize California's ability to realize the full value of the award. If implemented, these rules would have the unintended consequence of prolonging the use of fossil fuels in the heavy industry and transportation sectors by delaying action to decarbonize overburdened communities, where the hydrogen demand centers in the ARCHES program are located.

Fleet and port operators require the heavy-duty performance of hydrogen-powered fuel cell electric vehicles such as trucks and buses.

Percent of the projected hub benefits are anticipated to go to these disadvantaged communities, and they can immediately benefit from improved air quality and green job growth with using hydrogen. The ARCHES hub is currently in contract negotiations with the DOE for the $1.2 billion award — an award that was made under a specific circumstance based on the legislative intent of section 45V in the Inflation Reduction Act. All the end user projects in ARCHES, including bus fleets, heavy-duty freight trucks, port cargo handling equipment, and distributed fuel cell and central turbine power generation, depend on the $3-per-kilogram protection tax credit for bank financing to proceed to enable those projects. The private sector has committed more than $11 billion to the ARCHES program, more than a 10-to-1 return on investment ratio for the state of California, which under these proposed rules is at risk.

For all these reasons, Treasury should exempt clean hydrogen projects, such as hub projects that begin construction prior to 2033, from incrementality, hourly temporal matching, and deliverability requirements.

Enacting incrementality requirements in states that are proactively addressing grid decarbonization would be unnecessary and restrict achievement of decarbonization targets and far exceeds congressional intent. An exemption should therefore be granted for facilities located in jurisdictions with renewable portfolio standards, clean power mandates, declining emission caps, or other similar policies.

For purposes of tax credit eligibility, any resource that is eligible under any tier for RPS compliance should be eligible as renewable power. California's RPS is an enforceable binding compliance obligation, and California's cap and trade is an enforceable binding and declining cap on greenhouse gas emissions. Neither RPS nor cap and trade obligations change if electric load increases due to new demand, like electrolytic hydrogen production. RPS annual compliance obligations are assumed into electric distribution utility load forecasts that inform cap-and-trade allocations. EDUS, in their integrated resource plans, balance their RPS obligations with their obligations to reduce emissions under cap and trade. This balance in renewable procurement with cap, declining carbon emissions, and the cost of carbon inform the model unit that dictates what generation resources are procured.

Treasury should not attribute any induced emissions to power procured by electrolyzer owners receiving 45V credits until such time as those emissions can be properly calculated with temporal and spatial resolution consistent with other parts of the regulation. The same is true of the inclusion of the pathway in carbon intensity of consequential emissions related to the dispatch of existing resources. This should be deferred until such time as tools are in place to calculate these emissions under common assumptions.

At a minimum, the final guidance should allow producers to include a quantified assessment of induced emissions and pathway carbon intensity calculations with no specific requirement on facility vintage for procured power.

The CHBC recommends that the guidance adopt the same market boundaries as the existing tradable EAC markets, as defined by the North American Electric Reliability Corporation, or NERC. The draft guidance limits 45V power transactions to only a part of California. In the Western region, the market boundary should near the Western Electricity Coordinating Council, known as the WECC, and the intention of the regional hydrogen hubs is also to create a connective infrastructure across regions. The new market boundaries as proposed by the regionality rule would stifle the connection of the hubs and further dilute the investments, for example, between California and the Pacific Northwest renewable hubs.

The California RPF has regulations in place regarding renewable power transactions within the WECC, using EAC certified and tracked through the W region system. With protections already in place on resource shuffling, this existing framework is based on years of comprehensive policy analysis. California has a framework that functions as it should with agencies who work on a regional basis. Those same protocols should be used for 45V eligibility for California renewable electrolytic hydrogen production to ensure reliable electricity that meets stringent decarbonization standards.

With respect to temporal matching, the CHBC similarly recommends a waiver of the requirement for hourly matching in states and regions that already have a compliance mechanism in place that ensures decarbonized hydrogen production. In markets that have a binding RPS and/or carbon regulation, time matching in the form of storage and firm renewable resources will evolve through market forces. Changing policy to track temporal matching must consider what is possible today with tracking systems, as well as how the grid will progress in time. Arbitrary mandates like hourly matching overlaid on existing systems will interfere with optimal market-based resource additions and dispatch. System design cannot begin until final regulations are in place and until regional tracking systems determine how they will recover costs for system design and implementation. Further information is needed before the earliest practical implementation date of the final regulations can be determined, including the time for robust piloting and validation prior to wide-scale rollout of a multibillion-dollar financial instrument tracking system.

Finally, on renewable natural gas, RNG, Treasury should ensure that a wider range of RNG feedstocks are included in the final rule and should allow new and existing RNG facilities to shift hydrogen production at any time to support deep decarbonization. Further, hourly temporal matching should not be applied to RNG. Treasury should institute a book-and-claim provision for RNG and other low-emission sources without geographic restrictions. The appropriate region for book and claim should be defined as the North American interconnected pipeline grid.

Thank you for your consideration of this public testimony.The CHBC emphasizes that regional markets with binding RPS requirements and/or binding carbon caps already have provisions in place to address the concerns that purport to be addressed by what some parties have referred to as the three pillars. The existing combination of California RPS and LCFS program requirements for eligibility and already well-established regional energy markets ensure that real GHG reductions and expansion of renewable hydrogen supply will occur. Overlaying prescriptive mandates to these programs adds unnecessary constraints that will increase the cost and timeline required to achieve deep decarbonization. Thank you very much.

MR. WILKINS: Thank you for the opportunity to testify. My name is Paul Wilkins, and I serve as vice president for policy and government engagement at Electric Hydrogen. Electric Hydrogen is a manufacturer of advanced PEM electrolyzers for low-cost green hydrogen production.

Since our founding in 2020 we have grown over 300 employees at our offices and R&D facilities in California and Massachusetts. Next month we will begin production at our gigafactory in Devens, Massachusetts. In the fall we will begin installing our first 100-megawatt commercial system at a customer site in Beaumont, Texas. Electric Hydrogen's mission is making renewable molecules to decarbonize our world. We do that by making the world's most powerful electrolyzers to help our customers reduce their emissions in hard-to-decarbonize sectors by replacing grey hydrogen and other fossil inputs with green hydrogen.

Aligned with DOE's hydrogen shot, our goal is to make green hydrogen cost competitive with grey hydrogen on an unsubsidized basis by 2030. To achieve this goal, three requirements must be met. First, the cost of the electricity powering the electrolyzer must be less than $20 per megawatt-hour. Second, the total cost of the electrolyzer — including power electronics, balance of plant, and installation — must be less than $300 per kilowatt. It is impossible to make green hydrogen cost competitive with grey hydrogen unless both these conditions are met.

Treasury's draft 45V guidance promotes these first two requirements. The final requirement to attaining the hydrogen shot goal is speed to scale. Rapid cost reduction requires rapid learning through experience. The industry must start scaling deployments immediately to learn and reduce cost in the six short years to 2030.

The first two requirements should inform how Treasury structures the final endpoint of the 45V rules. Only intermittent zero-carbon resources can generate electricity for less than $20 a megawatt-hour. Requiring hourly matching will drive the industry towards rampable electrolyzers that can capture low-cost intermittent renewable generation. Allowing annual matching for too long allows project developers to invest in less flexible electrolyzers incapable of ramping with renewable generation. These taxpayer-subsidized systems would risk becoming stranded assets, and the wrong technology would be scaled.

The third requirement, speed to scale, should inform the starting point of the 45V rules. The rules must be structured to allow the work of scaling and reducing costs to begin immediately. According to the International Energy Agency's annual hydrogen review, rampable Western made electrolyzers from legacy producers cost about $2,000 per kilowatt on a fully installed basis. This implies an 85 percent cost reduction is necessary to produce green hydrogen cost competitively with grey hydrogen on an unsubsidized basis. This is a challenging but achievable cost reduction. Thanks to the section 48 investment tax credit, the solar industry was able to scale and achieve a comparable 82 percent cost reduction between 2010 and 2019.

Electric Hydrogen's product has already engineered out 60 percent of the cost of the electrolyzers. The last 25 percent will be achieved by scaling domestic manufacturing in a smart way, with learning curves that come from rapid cycles of deployment. We can get that done if existing projects can move forward with supply from U.S. factories. Through our customers, we have come to understand the real-world project constraints of project development.

Currently, there's an insufficient number of ready-to-go projects with access to regional incremental power supply and high-volume hydrogen demand to jump-start the industry. We need to give the developers a chance to finance and build ready-to-go projects while also requiring that newly developed projects — projects that will be placed in service in three to four years from now — be required to adhere to hourly matching requirements. To make green hydrogen competitive with fossil fuels by 2030, Treasury must find the right balance between getting projects and factories going in the short term and maintaining longer-term emissions integrity.

Highly rampable, low-cost electrolyzers are not only a necessary condition for low-cost green hydrogen, but they are also important for the U.S. competitive position through the energy transition. China currently has over 13 gigawatts of annual electrolyzer production capacity, compared to less than 3 gigawatts of production capacity in the U.S. This advantage in scale allows China to manufacture electrolyzers more cheaply. However, 90 percent of China's production is low-tech systems with limited ramping capability.

The U.S. currently has a competitive advantage in the manufacturing of high-tech rampable systems that can follow variable renewable generation. Requiring hourly matching drives the U.S. market towards U.S.-produced electrolyzers. Allowing annual matching for too long, or not requiring matching at all, incentivizes the procurement of technology from China.

Electric Hydrogen respectfully recommends Treasury prioritize two principles as it finalizes the rules. First, time matters. Until the rule is finalized, even three pillars compliant projects will not go to FID as they cannot predict their revenue stream with the necessary certainty, and hence cannot attract finance. We urge Treasury to issue a final rule by June. Any later than that, then it jeopardizes ready-to-go projects and wastes precious time to meet 2030 goals. Moreover, in the absence of certainty domestically, other markets are taking the lead, despite the landmark IRA. Already China accounts for more than 40 percent of electrolysis projects that have reached FID globally.

Second, to leverage 45V to create scale for the industry, Treasury should allow for short, three-to-four-year phase-in periods for all three pillars, with grandfathering of first movers and alternative compliance pathways for nuclear, hydro, and RPS-compliant states to satisfy incrementality. Deadlines for the transition should be based on crisp placed-in-service standards rather than loose commenced construction standards that push out compliance by years and unnecessarily dilute long-term emissions integrity.

Members of the Treasury staff, thank you for your work on this critical policy, and thank you for the opportunity to testify. There is a balanced approach that allows the right kind of industry to scale. Treasury should make the hard decisions as soon as possible to ensure the United States is the global leader in green hydrogen production and manufacturing. Thank you.

MR. ROSEN: To the members of the committee and those here in attendance, thank you for allowing me to speak on this matter. My name is Lee Rosen and I am a Founder and the COO or Evolution Hydrogen Group. We have had plans depending upon the outcome of 45V for three 90-thousand kilogram per day facilities for ultra-pure hydrogen production sites in various locations across the U.S.

By picking only the use of solar and wind without allowing electrical energy storage, you are picking only PEM or alkaline technologies as electrolyzers and are eliminating others which are more efficient and lower the cost of production of hydrogen. You are instead asking for green hydrogen production to constantly start and stop based upon the availability of wind and solar.

In order to maximize hydrogen production, base load energy is mandatory. This can be achieved by adding batteries or alternative electrical energy storage. If utilizing the 80/20 rule for the solar and wind energy, 90,000 kilograms per day requires the purchase of 1.2 gigawatts for 14 hours, plus another 1 gigawatt of power to be able to store for the other 240 megawatt-hours, for the remaining 10 hours that solar and wind are not providing power. However, the current rules do not address energy storage and therefore currently disqualifies their use.

Another way to solve the power supply issue where solar and wind are unavailable is to utilize nuclear, geothermal or waste-to-energy power sources that are currently not cited in 45V. Our position is that nuclear power should absolutely be used as a carbon-free energy resource as it has consistent and constant availability for baseload power without carbon emissions at a reasonable price. However, nuclear power cannot be used if vertical integration is allowed.

There are 26 deregulated nuclear plants operated by Constellation Energy Corporation, representing almost 50 percent of the nuclear energy production of the — oh, I'm sorry, of 50 percent of the unregulated and over — I'm sorry, 50 percent of the production and 80 percent of the unregulated nuclear energy production.

If nuclear with vertical integration is allowed, you will be giving Constellation a monopoly over the entire low-carbon hydrogen market. However, we do believe that nuclear power companies should be allowed to own minority positions in any company that produces hydrogen. In order to remove the potential antitrust issues, the proposal rules in 45V as currently published, have incorporated a set of concepts that have been properly referred to as pillars. These pillars, while seeming to have good intentions, will be the downfall of green hydrogen production in the United States. We will address two of these pillars.

The three-year rule. As the backlog of currently utilizable renewable power systems is more than three and a half years from accessibility to the grid. The rules are written completely remove them from contention. As example of this problem was reported on CNBC by reporter Catherine Clifford April 6, 2023. According to Ms. Clifford, wind and solar power generators generation wait in yearlong bureaucratic lines to connect to the power grid, only to be faced with fees they can't afford, forcing them to scramble for money or pull out of the properties completely.

In late 2017, the Oceti Sakowin Power Authority paid a $2.5 million deposit to secure a place in line for the application to be reviewed by the Southwest Power Pool, a regional grid operator. Five years later, in 2022, the Southwest Power Pool came back and told it that the fee to connect to the grid would actually be $48 million.The Oceti Sakowin Power Authority had 15 days to come up with the extra $45.5 million. Ladies and gentlemen, this is a five-year wait. Let me repeat five years. And they had to come up with an additional 19-fold increase in their cost in less than three weeks.

There are other reports indicating that the interconnection process can take up to eight years. At that rate, there will never be any sources available to fit this rule. You are therefore dooming green hydrogen before it can start. Ms. Clifford also reported, the entire electric grid in the United States has an installed capacity of about 1,250 gigawatts of power, and there is currently 2,020 gigawatts of energy capacity waiting in line to be connected. This statement was also verified by Lawrence Berkeley National Lab.

We submit that the Treasury Department should allow hydrogen production facilities that meet the start of construction by 2028 to be exempt from incrementality for the term of the 45 credit. The rules should further emphasize that the three-year requirement starts with renewable power sources to be connected to the grid and not when they are built.

Hourly matching. The main argument for hourly matching revolves around the concern of hydrogen production companies gaming the system and adding fossil fuel energy to the mix, under the nose of government insight. The elegant solution to this argument is a simple addition which would rectify concerns and relieve many industrial and commercial concerns of potential extra capital cost of up to 40 to 50 percent over previous estimates, as indicated at the CERAWeek energy conference just last week. This solution is on-site, metered, high-energy storage.

Indeed, we at Evolution Hydrogen have no intention of ever buying lithium batteries. Yet energy storage is a must to cover our energy needs in times of lean supply. The Treasury Department should clarify the stored electricity with a time stamp that correlates to the same time such electricity is taken into storage.

In addition to the pillars, the rules of 45V do not address the use of renewable energy behind the meter coexisting on-site with hydrogen production. Directly connected electricity generating facilities do not create tradable energy attribute certificates. Further guidance should clarify that electricity generated by a behind the meter configuration be counted in determining the life cycle greenhouse gas emissions rate. The Treasury Department should also confirm that 4.9 line loss assumption does not aptly apply to behind-the-meter configurations as the electricity is only traveling a short distance.

On March 18, the CEOs of Exxon and Aramco both stated that without significant subsidies, green hydrogen will never exist in the United States, and if 45V is not properly changed, they will shut down blue hydrogen with carbon sequestration efforts. This is no news.

Evolution Hydrogen Group is working on technology to significantly lower the costs of green hydrogen production without any government subsidies. However, even with these lowered costs, if 45V is not significantly (inaudible), we will not be able to produce hydrogen in the United States. Evolution Hydrogen Group has planned and cited three 90,000-kilogram-per-day hydrogen facilities with room to grow to 450,000 kilograms day each. That is 1.35 million kilograms per day of carbon-free produced hydrogen in the United States before 2032.

We will be employing over 2,000 workers to build these facilities over the next five to seven years, as well as over 300 workers permanently. With the possibility of expanding beyond the three sites employing even more individuals. Dependent upon our final rules of 45V, we will either — to continue or abandon these sites in the U.S. for other countries. We can tell you that since November we have been in talks with various countries and have found that they are much more receptive to green hydrogen than the United States and are willing to do more than what is currently proposed in 45V. If 45V continues in this current path, we will abandon the United States and start on three sites in other countries.

I thank you very much for your time and your consideration.

MR. JACOBS: Good afternoon. I am Tim Jacobs, a partner at Hunton Andrews Kurth in Washington, D.C. I have practiced law in the tax credit area for nearly 19 years and have assisted in the preparation of comments on behalf of a number of key stakeholders with respect to the section 45V proposed rules.

I would like to discuss some clarifications with respect to two key areas of the proposed regulations and to suggest some responsive solutions. The first issue I would like to discuss is the incrementality requirement and to clarify that it should not apply to the repowering of clean energy facilities such as wind facilities. Renewable energy facilities and in particular wind facilities are often repowered. Repowering conserves resources and accelerates the development of clean energy projects by using existing infrastructure and property.

Repowering occurs after the 10-year credit period. In the case of the production tax credit, if the requirements for repowering are met under the 80/20 rule, then the facility is treated as having a new original placed-in-service date and a new 10-year credit period for tax purposes. The notion of repowering is well established and well understood in the tax law, having been recognized in numerous IRS notices and other administrative decisions.

Turning to the proposed rule. The proposed regulations allow the use of Energy Attribute Certificates, or EACs, to grid connected power sources. However, under the three pillars and more specifically the incrementality requirement, the proposed regulations, in essence, requires the use of new clean energy facilities in order to satisfy this incrementality requirement. Rather than use the common tax concept of placed-in-service date, the proposed regulations would use the concept of a commercial operations date or COD.

Specifically, the proposed regulations at provide that an energy attribute certificate meets the incrementality requirement if the electric-generating facility producing the unit of electricity to which the certificate relates has a commercial operation state that is no more than 36 months before the clean hydrogen production facility for which the energy attribute certificate is retired (phonetic) was placed in service. The term “commercial operations date” means the date on which a facility that generates electricity begins its commercial operations. That may not necessarily be the same as the placed-in-service date. It may not be the same as the original placed-in-service date for tax purposes. The preamble to the proposed rule indicates that the commercial operations date concept was used in the incrementality requirement because of energy attribute certificate tracking systems. In other words, the use of the commercial operations date concept appears to have been intended to address an administrative tracing matter and did not reflect the substantive decision on the part of Treasury. However, the use of the commercial operations date concept rather than the placed-in-service date concept for incrementality requirement creates uncertainty with respect to repowered facilities.

Treasury and the IRS should confirm that repowered facilities will be treated as newly built facilities consistent with the tax law treatment of such facilities for purposes of the incrementality requirement. In support of this treatment, I would note that the proposed rule itself adopts the 80/20 rule. It adopts the 80/20 rule in the context of the clean hydrogen production facilities and provides a new original placed-in-service date under 1.45V(6)(b) (phonetic).

It would be inconsistent to permit a 45V hydrogen facility to obtain a new placed-in-service date and a new 10-year credit period, but then to disqualify repowered facilities from satisfying the incrementality requirement because of the use of a commercial operations date and not an original or new original placement-service-date. Treasury and the IRS should clarify this issue.

The second issue that I would like to discuss is the issue of incremental generation and how to measure that incremental generation with respect to certain zero-emission facilities. The issue arises in the context of uprates (phonetic), upgrades, and efficiency improvements made to existing facilities such as nuclear or hydropower facilities. This issue is doubly important because the same issue may arise in the context of the new technology neutral tax credits under sections 45Y and 48E with respect to additions of capacity and incremental production.

The proposed regs at dash 4€(3) recognize upgraded production and allow the section 45V hydrogen credit for incremental generation. However, further clarification is required with respect to how this incremental generation should be measured. Importantly, the elaborate series of definitions in the proposed rule repeatedly use the term nameplate capacity but never define that term. Importantly, it is critical that incremental generation not be measured using a baseline, that is the original nameplate licensed or rated capacity. Rather, the term nameplate capacity should be defined in a manner that takes into account degradation, depreciation, and similar factors that reduce the operating capacity of the facility over time.

This situation is best illustrated by a nuclear facility. Most existing nuclear facilities have been in service for at least 30 years or much longer. These facilities have experienced natural degradation and depreciation and they no longer operate at their original nameplate licensed or rated capacity. Therefore, it is important that the final regulations for the hydrogen credit recognize the issue and provide certainty to these types of facilities by defining the term nameplate capacity accordingly, to take into account degradation and similar changes that occurred naturally over time.

To address this issue and provide a needed clarification to the proposed rule, Treasury should consider adopting the definition of nameplate capacity that is already provided in 40 C.F.R. 96.202, which is the same regulation that Treasury has proposed to use in a similar context for qualified interconnection facilities property under the section 48 proposed regulations, at 1.48-14(g)(3)(ii) (phonetic).This regulation accounts for degradation and other types of changes over time to a facility.

Alternatively, a taxpayer should be able to use other methods for measuring incremental generation. For example, electricity producers regularly submit data on the capacity of electric generating units to independent system operators or regional transmission organizations, as well as to the U.S. Energy Information Administration, which data reflects the net capability of the generating unit. It is not locked into the original nameplate, license, or rated capacity of the facility. This alternative information may be used to determine incremental production of the unit through multiyear averaging or other reasonable comparisons.

I would ask that Treasury and the IRS provide this clarification in the final regulations and further define the term nameplate capacity in a manner that is flexible and consistent with this comment.

Thank you.

MR. GNADT: Good morning. Nope, good afternoon. My name is Karl Gnadt. I am the president of the Hydrogen Fuel Cell Bus Council, and I am the chief executive officer of the Champaign-Urbana Mass Transit District [MTD], which is a small, urban, local government public transit provider in Champaign-Urbana, Illinois, home of the University of Illinois. I appreciate the opportunity to submit feedback today.

According to CALSTART's 2023 zero emission bus report, the nationwide fleet of fuel cell transit vehicles increased 64 percent from 2021 to 2022. It's a fast-growing market with serious potential for decarbonizing public transportation.

Fuel costs need to be economical to allow more transit agencies to enter the market. Hydrogen hubs are being established to create fuel supply and offtake relationships. California's ARCHES hub has a goal of funding 1,200 fuel cell transit vehicles over the next 10 years. Transit agencies were early partners within the MACH2 hub and the ARCH2 hub as well. At MTD, the mass transit district in Champagne-Urbana, we have 118 buses, 12 of which are hydrogen fuel cell electric buses, and we operate our own 1 megawatt electrolyzer, which is powered by a 2 megawatt solar array directly attached to the electrolyzer.

We likely would qualify for some tax credits, but we for sure, under the proposed rules, would need to hire some consultants to help us with that. And, quite frankly, we have a concern that the cost of the consultants would balance out the cost — the savings of the tax credits.

So obtaining the maximum production tax credit rate is crucial for small production facilities like us to stay cost-competitive with more established companies. Regulations should encourage production from small-scale facilities. This will allow for much better regional distribution and more resilient supply networks. Small hydrogen production facilities have a unique ability to decarbonize transportation now, long before the large production we all hope for in the future. The proposed regulations could effectively deny the production tax credit to small facilities that are spearheading the transition to clean hydrogen.

MTD has an onsite solar array, as I mentioned. Not every transit agency will have that ability and many will be purchasing hydrogen fuel on the general market. Off-takers need supplier choice to get competitive prices. To ensure a wider network of suppliers, facilities must be able to come online and be eligible for tax credits. As drafted there is a 36-month window where clean energy facilities would need to begin operations to be paired with a hydrogen production facility in order to receive the credit. The Lawrence National Laboratory has found the average clean energy project spends five years just waiting its turn in the interconnection queue. A 60-month window rather than 36 makes sense to ensure suppliers can compare hydrogen production with clean power projects.

It's the council's position, the Hydrogen Fuel Cell Bus Council's position, that annual or daily matching should be the system used throughout the life cycle of the production tax credit. Hourly matching would be very challenging to monitor and verify for an organization our size. We produce renewable energy even when the electrolyzer isn't being used during daylight hours, putting clean energy into the regional grid. Essentially, we produce two and a half times the electricity during the day than what we use, and then over the non-solar hours at night we draw down from the grid, but we overproduce our solar electricity. Under hourly matching rules MTD would lose out on receiving the tax credit for hydrogen production during evening hours, even though we provided clean energy to the grid during the day.

A possible alternative to temporal matching would be to mimic net energy monitoring that is used for photovoltaics. This provides a good example to follow for hydrogen production and has been successfully put into practice by regulators and private industry.

We'd like to encourage a whole of government approach when it comes to the implementation of these tax credits. Federal agencies should collaborate on rulemakings and take local government perspectives into consideration. The Inflation Reduction Act and the tax credits within were designed by Congress with local governments, such as MTD, as the targeted beneficiaries. But onerous regulations will limit local government investment in clean energy technology. The council and its members suggest that the Treasury offer a streamlined version of verification, compliance with the GREET model, and tax forms for small producers of hydrogen such as MTD and other units of local government. Thank you.

MR. BOBSTEIN: Hello. Thank you for the opportunity to speak on this very important policy of 45V. I'm Brent Bobstein, the vice president of sustainable development at CNX Resources. Today I'd like to talk to you about using coal mine methane as a feedstock to hydrogen production for the purposes of 45V. Specifically, how to apply the three pillars and do it in a low-carbon gas setting. Life cycle assessments, antiabuse considerations, and first productive use will be discussed today.

I work for a company called DNX Resources. It's based in Appalachia. We have over 400 employees. We have one of the largest coal mine methane capture projects in the United States. We're a gas company and we operate gas capture projects. We are not a mining company. We're looking to do more on coal mine methane capture, and we've identified many opportunities to do so. We were a part of the ARCH2 hydrogen hub project that the Department of Energy had awarded. We've worked extensively with Argonne National Laboratories on their GREET model and have coordinated with NETL at DOE along with EPA's coal mine methane outreach program. I just returned from the Global Methane Initiative Conference at the United Nations and had the opportunity to speak with coal mine methane professionals from all around the world.

So what is coal mine methane? Coal mine methane is methane that's necessarily released by mines for safety purposes. Unfortunately, historically there have been many deadly accidents and severe injuries caused by coal mine methane building up to certain toxic or explosive limits that have caused deadly disasters. As a result, the Mine Safety Health Administration obligates miners to release this methane from underground to the surface. That is causing 10 percent of U.S. methane emissions today. There is no regulation in place that mandates the capture or the destruction of this methane. Even after a mine closes and coal mining goes away, this problem does not go away. Mine methane will continue to be liberated to atmosphere decades after mining closes.

There are very low capture rates in place today and less than percent of mines are doing anything to abate mine methane.

Productive use projects are also closing. Sixty-six percent of the projects that capture methane for productive use have closed over the last decade. This problem globally is forecasted to get worse, not better, with time. There have been independent peer-reviewed studies that show four to eight times as much growth by the of end the century in coal mine methane than exists today.

All captured today is entirely voluntary. The good news is that we can capture it with existing technology and make hydrogen from it using this framework of 45V. It was included in Argonne National Laboratory's GREET 2023 R&D model.

So, now focusing on a life cycle assessment. The life cycle assessment tool, the GREET model, has been around since the '90s and it has recognized emissions avoidance accounting for that entire duration of its existence. The life cycle assessment should be a scientific process. It should be an objective, rigorous review of facts. That analysis has been performed by many of the agencies that I mentioned earlier. They've studied what is the business as usual or counterfactual scenario that would happen without incentives. Without 45V, this problem will get worse, not better. And so those agencies, after a thorough and rigorous evaluation and peer-reviewed studies, have established a 100 percent methane avoidance credit is justified. And that's what was included in the GREET R&D 2023 model.

Unfortunately, the 45VH2-GREET model did not include that pathway. It did exist in the R&D model with a conversion to hydrogen, but it was not implemented in the 45VH2 pathway. There shouldn't be a subjective difference in policy that ignores the climate benefits of capturing this methane. This isn't a nice-to-have; it is a must-have for coal mine methane emissions that are going unaddressed, forgotten by all federal policy. This is a solution that offers pollution reduction for coal mine methane to productive use projects that are closing, not opening. This solution offers economic justification to change the course for global coal mine methane emissions that are getting worse, not better. This offers a sustainable framework for Appalachia, our home. It is an impoverished area hardest hit by the energy transition. This offers that area a lifeline.

Emissions avoidance accounting and blending of carbon intensity must be allowed under the program. If no emissions avoidance accounting or blending is recognized, there will be no new coal mine methane capture projects for beneficial use that happen. There is no economic justification to do so. Unfortunately, the costs are too high.

The climate benefits of a program that cannot be implemented in practice is exactly zero. If implemented without carbon avoidance, it would directly contradict the direction established by climate envoy John Kerry and the commitments he is making globally. Europe, Asia, international standard organizations, the World Business Council for Sustainable Development, EPA's RFS program, the LCFs, and even certain portions of the 45VH2 model do recognize emissions avoidance accounting. It's absolutely critical and it's a part of the Department of Energy's hydrogen hub LCA tool that was used to select the projects that are moving forward.

Next, I want to talk about antiabuse considerations for waste production specific to coal mine methane. Treasury is appropriately considering some limitations. Incentives for coal mine methane won't increase coal mine methane emissions or the amount of mining that occurs. This is the result of a California Air Resource Board study that was performed on this subject. Each mining operator is required to submit a ventilation plan to the Mine Safety Health Administration. That plan quantifies exactly how much and how and to what degree of methane they can liberate.

The value of coal mine methane incentives through 45V pales in comparison to the cost associated with mining. A new mining operation, for example, would cost billions of dollars. The value of the coal mine methane incentives made available through 45V would pale in comparison to the cost associated with that mine, but it would be directed towards new capture projects. These are things like pipelines, compressor stations, processing facilities. They cost tens of millions of dollars. In addition, most times gas title is separate from the coal estate title, and so the incentives may not necessarily get to a mine operator. If Treasury deems it as absolutely necessary, please implement those requirements carefully.

We noticed that in the proposed guidance there was a reference to the Greenhouse Gas Reporting Program. I want to be clear that the Greenhouse Gas Reporting Program is not an inventory tool. Only obligated reporting is recorded. It omits abandoned mines, it omits surface mines, and it omits many underground mines. Ninety-nine percent of the mines in the U.S. do not report to GHGRP. The Global Energy Monitor notes that coal mine methane emissions are two to three times higher in the United States as compared to Greenhouse Gas Reporting Program.

The first six months of an individual source are the most prolific as it comes to coal mine methane and if we were required to have that source be in the Greenhouse Gas Reporting Program, we would be forced to measure this amount of methane going into atmosphere for an entire year before we can actually start capturing it. So I don't think that was intended by Treasury, but it would effectually make us vent stuff before we can capture it. So we really would encourage Treasury not to use Greenhouse Gas Reporting Program as a tool. But perhaps if there is a requirement it could reference MSHA IDs, not being able to get a new MSHA ID after the IRA was put in place to qualify coal mine methane.

The last point I want to touch on is first productive use. It can't be implemented as is. Even existing productive use, coal mine methane facilities have very high OPEX. If Treasury does deem that it must be maintained in some form, it should be implied on an individual borehole, not at a mine level. Each individual borehole is a discrete investment decision. If instead Treasury implements it at a mine level, the best candidates would be disqualified since they had previously captured but have since closed and they are now the largest venting sources.

To summarize, we want to do more. We want to invest in new coal mine methane for productive use projects. However, we have no economic justification to pursue new projects; 45V is our chance to do this. It's important to me. It's important to our company, our community, the climate, and the future of climate policy. We applaud the recognition of coal mine methane in the guidance and the R&D GREET model, and we urge you to follow the science and give us a chance to build these projects. Thank you.

MR. WOLAK: Ladies and gentlemen, thank you for the opportunity to discuss the proposed regulations for the section 45V credit for production and clean hydrogen. I'd like to thank all of you for your patience and your attention over the next three days. It's going to be a long time for all of us.

My name is Frank Wolak and I'm the president and CEO of the Fuel Cell and Hydrogen Energy Association, or FCHEA. FCHEA is the national industry association for the hydrogen sector. We have operated since 1989 with membership of over 100 companies and organizations across the global hydrogen supply chain. Our members include hydrogen producers across the color spectrum, as well as a range of hydrogen storage and distribution companies, and end-users representing transportation, power, and industrial applications. Our written comments and this oral testimony are the result of extensive feedback and conversations within our membership and present a majority and consensus view of the hydrogen sector.

The Biden administration has recognized the crucial role hydrogen can play in meeting our nation's decarbonization and economic goals. This importance is evidenced by the inclusion of $9.5 billion for clean hydrogen in the bipartisan infrastructure law, the formation of the hydrogen Earthshot and the U.S. National Clean Hydrogen Strategy and Roadmap. The linchpin of these hydrogen policies was the enactment of the IRA section 45V credit for production of clean hydrogen.

Some speaking before you may say we must get this credit right. Getting this credit right must include offering the flexibility and support this nascent industry needs to get off the ground. I'd like to be candid that the results of the final regulations for this tax credit are truly make or break for this industry. While we respect all the time and effort undertaken by your agencies, the results of these regulations will determine whether or not we unlock the potential of the domestic hydrogen industry, as well as whether the administration realizes its goals for our sector.

I'm here today to discuss four primary aspects of the proposed rulemaking for 45V, the proposed three pillars as they relate to electricity and energy attribute credits, or EACs, and the need for flexibility, particularly for early movers. The need for support for renewable natural gas, or RNG, for clean hydrogen production; concerns with the annual basis calculation for the 45V credit as detailed in the proposed regulations; and needed changes to the 45VH2-GREET model and the provisional emissions rate process.

On the three pillars considerable time has been spent over the last 18 months discussing the industry's broad concerns and disagreements with the proposed three pillars of incrementality, time matching, and regionality. The current state of the U.S. industry is that while there was huge interest in the clean hydrogen production immediately following the passage of the IRA, much owing to the simplicity of the credit, at this time, financiers and participants are largely sitting on the sidelines. This also includes the public private sector activities, including the regional hydrogen hubs.

The three pillars were not included in the statute of the Inflation Reduction Act as it was written or even discussed contemporaneously. Both sides of this debate also agree that these requirements will drive significant compliance costs. These requirements all serve to make the economics for most clean hydrogen projects at best extremely difficult and in some cases unattainable altogether, implicitly undermining the environmental goals of this credit and the IRA at large.

We would strongly prefer that the three pillars not be included in the final rules at all. However, if included in order to achieve the environmental and economic outcomes embedded in the IRA, longer transitional factors and early mover support for this sector in a way that is ultimately palatable to industry must be included. As a result, I'd like to focus the bulk of my time offering solutions and proposed pathways for how these pillars should be implemented in a way that could be palatable for industry. What I will describe in summary has been provided in our comments previously provided.

First, I'd like to elaborate on the need to support first movers. These early projects, particularly the hydrogen hubs, are vital to the trajectory of the domestic clean hydrogen economy, to U.S. clean energy leadership, and to domestic job creation. To counter the uncertainty created by the three pillar proposals, we are seeking a grandfathering provision to provide safe harbor for early movers. Moreover, early projects that begin before enactment of these pillars clauses should be exempt for the life of the credit.

We also ask Treasury to help provide certainty for those first movers by supporting the ability for clean hydrogen developers to opt for a look in — for a lock-in, rather — of the GREET model regime for the full 10-year period of the credit. For the three pillars we are also seeking a longer transition period for project developers. We believe that all three pillars should be deferred until January 1st, 2033, to allow time for this burgeoning industry to develop as intended.

For time matching, the implementation of an hourly matched requirement in 2028 is particularly onerous as there is no certainty that a wholly new hourly matched market will be created in the next few years. We believe that no such requirement should be enacted unless the existence of a commercial market and availability of access by our sector is verified by a study conducted by the Department of Energy.

For incrementality, the exclusion of existing baseload nuclear and hydropower is particularly concerning. We believe these baseload clean power resources should be exempt from these provisions, though, if not, then the full suite of options detailed in the proposed regulations should be made available to satisfy the provisions, including relicensing exemptions for states with clean power mandates, and a formulaic approach of at least 10 percent.

For regionality, we ask the Treasury support purchase of EACs across regions, and we consider using the NERC regions as appropriate means.

Before providing the rest of my comments, I want to end by emphasizing that taken together the strict adoption of the three pillars as proposed will harm the nation's clean hydrogen sector and especially first movers, including the Biden administration's own hydrogen hubs. Taking into consideration the points I've raised here will support the development of the hydrogen sector and ensure we are able to achieve the potential environmental benefits that we are all seeking.

On RNG, I'd like to take a moment to discuss some comments. It is the opinion of FCHEA that Treasury and the IRS should implement rules that are consistent with the treatment of electricity and EACs to the extent they are appropriate for RNG. In our view, this means grandfathering exemptions to the pillars for first movers, delayed implementation for those pillars to the extent they make sense to implement at all, and ensuring the use of book-and-claim as intended by Congress. In particular, RNG should not be held to a time matching standard more stringent than hourly — monthly matching, excuse me — for regionality. Treasury should follow the lead of California and their low-carbon-fuel standard by using national gas grid and apply plausible deliverability to that system. Should Treasury implement a first productive use requirement, it should not be more strict than the additionality requirements applied to electricity and EACs.

Moving on to my third area, FCHEA strongly supports allowing taxpayers to claim the 45V credit for any duration of clean hydrogen production, not just an annualized average as detailed in the proposed regulations. Hydrogen producers should be able to produce hydrogen with varying carbon intensities throughout the taxable year and to optimize operations; accommodate customer requirements, and to adjust input, availability, price, and quality; and should be able to bifurcate the hydrogen into qualified and nonqualified quantities for purposes of the credit. This ability to determine the amount of clean hydrogen for the calculation is already allowed within the GREET manual and should be applied in the final rules.

I'd like to use the remainder of my time to comment on the 45VH2-GREET model itself as well as the provisional emissions rate or per process. First, FCHEA supports the ability to make investments in certified low emissions intensity natural gas to meet the carbon intensity requirements of 45V and receive recognition in the GREET model. The 45VH2-GREET model currently excludes a range of clean hydrogen pathways and feedstocks that add barriers to project financing for those producers. Upstream methane rates and a variety of other feedstocks are already included in GREET. There is a simple fix to adjust and include these measures in the 45VH2-GREET model.

Producers seeking a provisional emissions rate, or PER, also need to have a reasonable timeline and appeals process for obtaining a PER and GREET determination to be able to apply for a PER at the point of completion of a feed study and be able to submit a single PER for similar co-located production lines. At present, there is too much uncertainty for projects that must go through with the PER process.

Finally, on the subject of how the 45VH2-GREET model treats coproduction allocation, we ask for greater flexibility. We ask the Treasury adopt a system in which taxpayers producing multiple products, including hydrogen, should be permitted to utilize any reasonable allocation method, including the proposed system allocation method, as well as others. This would be in line with the California Air Resources Board framework already used today.

In closing, if the environmental and economic goals for this sector are to be realized, 45V regulations must offer a means to that end. Thank you very much for the opportunity to speak with you and if time permits, I'd be happy to answer any questions.

MR. SOLERI: Good afternoon, everybody. I know everybody is dying for a break, but I cannot give the break. The panel to the left is all the authorities. All I can do is speak as fast as I can. I'm Manson Soleri (phonetic), speaking on behalf of Simon Hodson and honored to be here today to discuss a matter of paramount importance to our nation and to the global community at large, the interwinding challenges of climate change, the imperative of providing abundant and affordable clean energy, and the critical path towards achieving net-zero emissions. We have submitted our technical documents, but today my comments will mainly address it from the perspective of U.S. energy and net-zero goals. That will be my main emphasis.

My presence here is underscored by a deep concern for the environmental and economic ramifications of our current energy policies and the potential avenues for innovation and progress that we stand on the brink of losing absent a robust awareness about next-generation technologies that are becoming real as we speak. I will share my views first and foremost as a professional with a track record of nearly 50 years in energy matters. As president of technology and R&D for Omnigen or Omnis Fuel Technologies and the chairman of the Omnigen Hydrogen Advisory Board, I am responsible for overseeing scientific and technical efforts to produce clean, affordable hydrogen energy. I'm also CEO of Quantum Reservoir Impact, QRI, an artificial intelligence firm specializing in sustainability and energy transition since 2007. Previously, I was head of reservoir management for Saudi Aramco for nearly a decade, where I led efforts in overseeing the company's maximum sustained capacity, MSC, of 11 million barrels per day in oil production. I was also the chairman of the Corporate Task Force for Saudi Aramco's non-associated gas program.

Now, prior to that, I worked for Chevron for 18 years where I was responsible for technical support to the company's entire domestic and international upstream assets. I'm an SP distinguished speaker and the recipient of the Society of Petroleum Engineers prestigious John Franklin Carll Award. I was cited among the industry's game changers in the book titled Groundbreakers by Mark Mau and Henry Edmondson in 2015, and I hold seven patents, and MSc. and Ph.D. degrees from the University of Virginia. Cavaliers, go.

However, as the years have gone by, I have become more and more concerned about the impact of global climate change and I became obsessed, truly obsessed, with looking for true net-zero solutions in energy, my lifetime passion. I'm pleased to report that there are breakthroughs that have been recently achieved that are truly revolutionary and could bring cost-effective net zero into reality much faster than most of us have ever imagined. It's important to highlight the significant progress being made in the development of green energy solutions. The drive towards a sustainable future is not just a vision, but a rapidly approaching reality.

Now the inflation Reduction Act of '22 was phenomenal, has set a precedent for ambitious action against climate change, aiming for net zero emissions with a pragmatic acknowledgment of the diverse means through which the scope can be achieved. This landmark legislation underscores the importance of CO2 emissions reductions and energy abundance, the primary criteria that must guide our endeavors without imposing unwarranted constraints on the technologies, particularly the concept of legacy technologies representing the future, they never do, employed to reach these targets.

However, a concern has been raised, a concern that merits our collective and thoughtful consideration. There is a growing apprehension that the interpretation of this legislation might evolve in a manner that inadvertently narrows the scope of available and emerging solutions, particularly in the context of hydrocarbon utilization in the pursuit of green energy. It is imperative that we maintain a legislative and regulatory environment that fosters innovation and embraces the full spectrum of potential solutions to our climate and energy challenges and goals. The pursuit of net zero emissions should be inclusive, allowing for the development and deployment of technologies that can effectively reduce CO2 emissions regardless of their basis in traditional energy sources. This includes the use of hydrocarbons in ways that enable our emissions reductions and energy security objectives.

In the next 90 days, a demonstration project, and it's not the first one I'm involved with, will showcase some of these groundbreaking achievements. While I'm not at liberty to share specific details at this point, due to confidentiality stipulations, I can assure you that the technologies we are developing can actually deliver net zero energy in ways previously thought to be unfeasible. These include methods designed to harness energy from hydrocarbons, while releasing net zero atmospheric emissions.

Let us be unequivocally clear. The goal is not to advocate for any single approach at the exclusion of others. No organization, no technology, can have a monopoly on innovation. That's granted. Instead, our collective aim should be to ensure that our legislative framework is robust, flexible, and sufficiently forward-looking to accommodate the rapid pace of technological innovation. The focus must be on desired IRA outcomes, namely emissions reduction and clean energy abundance.

We must also insist on having the correct KPIs. This is a very important concept, having the correct KPIs to measure desired outcomes that we all agree on, which is reducing GHG emissions. And in that respect, I want to make a reference to the methods with which we're making those determinations, in particular, the GREET model in its current state. It's too restrictive. It's not acknowledging the capabilities of evolving new technologies. That's something that needs to be addressed, but we will address it separately with the Department of Energy.

In this light, I urge this committee and the Treasury Department to consider the implications of overly restrictive interpretations of net zero standards. We must ensure that our policies do not inadvertently close the door to viable, innovative solutions that could contribute to our environmental and economic objectives. The essence of the Inflation Reduction Act, with its emphasis on reducing CO2 emissions, should guide our approach, encouraging the exploration and reduction of all potential paths to a cleaner, more sustainable future. To be crystal clear, if hydrocarbon can be used as a cost-effective base to produce net zero energy, they should remain as qualifiers under the support described within the Inflation Reduction Act.

We need to not only safeguard our environmental commitments, but also ensure that we remain competitive on the global stage. Countries such as China and India, as everybody knows, are achieving costs as low as 5 cents per kilowatt-hour. With our current trajectory, we risk failing far behind, jeopardizing both our environmental sustainability and economic viability.

In conclusion, I urge the committee to prioritize policies that support a broad, robustly open spectrum of innovative technologies capable of achieving net zero emissions, including new tech that leverages and valorizes, and I repeat the word, valorizes, the nation's vast hydrocarbon assets, but with true net zero emissions. By fostering an environment of innovation and flexibility, we can pursue a strategy that not only addresses the urgent challenge of climate change, but also ensures our economic resilience and competitiveness. Let us not narrow our focus to the point of excluding potentially transformative solutions. Instead, let us embrace a future where diverse technologies contribute to a sustainable, prosperous, and net zero world.

In a net sum of how I can summarize it is abundant energy and net zero are not mutually exclusive. New technologies make it all possible.

Thank you for the opportunity to share my insights with you today, and I'll be more than happy to address any of your questions. Thank you very much.

MR. DEXTER: We'll have one more speaker, and then we'll take a break.

MR. DEXTER: One more speaker and then we'll take a break.

MR. STOCKERT: Thank you. And thank you for the opportunity to discuss the proposed regulations issued under Section 45V for the production of clean hydrogen. My name is Kevin Stockert and I'm a director of government affairs at NextEra Energy. I'm speaking on behalf of Joe Reese, our head of tax.

NextEra is one of the largest electric, power and energy infrastructure companies in North America and a leader in renewable energy. NextEra is the world's largest generator of renewable energy from the wind and sun, a world leader in battery storage, and with the right federal policies in place, NextEra is prepared to play a significant role in the clean hydrogen industry.

To meet the United States climate targets, this country will need to adopt a range of new clean energy solutions to address hard to decarbonize sectors that are the cornerstones of our economic growth, from agriculture and heavy industry to transportation and aviation. Clean hydrogen could put the U.S. on the right track to cutting emissions, but only if it can reach the necessary scale. With the right policy incentives, the domestic hydrogen market could expand to up to $70 billion annually, trigger $1.5 to $2 trillion dollars in capital investment through 2050, and create up to 2 million good paying domestic jobs generating opportunities across the value chain in manufacturing, construction, and operations.

NextEra supports adoption of the three pillars, temporal matching, incrementality, and deliverability, but has significant concerns with how these pillars are applied under the proposed regulations. We believe a few modest changes to the proposed regulations can unlock the deep decarbonization potential of clean hydrogen, consistent with congressional intent in enacting Section 45V. NextEra recommends the annual matching applied to hydrogen facility production facilities that start construction before 2028 determined under existing IRS start-up construction guidance, including a four-year continuity safe harbor.

For hydrogen production facilities that satisfy the start-of-construction requirement, annual matching would apply to the full 10-year PTC period, providing certainty for first mover hydrogen projects most in need of the incentive. Under the proposed regulations, annual matching only applies to electricity generated before 2028, regardless of when the hydrogen production facility started construction or was placed in service. Providing such a short transition from annual to hourly will be detrimental to the development of the nascent domestic hydrogen production industry and puts at risk achieving this administration's decarbonization goals.

Project designs of annual and hourly match hydrogen production facilities are so different that a hydrogen production facility subject to hourly matching during any portion of the 10-year PTC period must be designed to meet hourly matching from day one. This effectively negates any benefit provided by the temporal matching transition rule included in the proposed regulations. Furthermore, by having to make costly modifications to design a hydrogen production facility to meet hourly matching at COD, developers would not benefit from the projected downward cost curves of hydrogen production equipment.

Since the IRA was passed in August 2022, macroeconomic challenges, including rising interest rates and inflation, have negatively impacted green hydrogen production projects. As a result, hydrogen offtakers are less likely to switch from incumbent gray hydrogen to green hydrogen, which is critical to the clean hydrogen industry reaching scale. Transitioning to hourly matching before the domestic green hydrogen industry has reached the appropriate scale, will make green hydrogen too expensive to serve as a substitute for grey hydrogen.

Prior to transitioning from annual to hourly matching, Treasury and IRS must ensure that hourly matching is achievable nationwide. As noted in the preamble of the proposed regulations, hourly tracking systems for EACs are not yet broadly available across the country and will take some time to develop. For the two out of nine regions surveyed with hourly tracking capability, software functionality remains limited. Treasury's optimistic timeline for a nationwide hourly matching implementation ignores the challenges posed by data availability, data collection, and regulatory oversight. As an example, the largest market for renewable energy certificates in the U.S. Western Renewable Energy Generation Information System switched tracking platforms in late 2022 and experienced significant technological problems and errors that resulted in delays of a full systemwide implementation for over a year.

Given the concerns and documented challenges, NextEra believes that the temporal matching transition rule and the proposed regulation does not provide enough time for all qualified EAC registries to implement reliable hourly tracking. Adopting a transition rule that provides annual matching hydrogen production facilities that start construction before 2028 will allow more time for hourly tracking EACs to be implemented nationwide, and it will provide first movers, including hydrogen, the certainty needed to ensure the U.S. objectives for long-term deep decarbonization of hard-to-abates industries.

Next, I'd like to address two recommended clarifications to the incrementality requirements. First, the incrementality requirement should be clarified to confirm that the commercial operations date of an electricity generating facility that meets the 80/20 repower rule include the tax placed-in-service date of such repowered facility. Under the proposed regulations, the incrementality requirement is satisfied if an EAC is from an electricity generating facility that has a commercial operations date not more than 36 months before the hydrogen production facility.

The preamble to the proposed regulations provides the general rules for determining an electricity generating facility's placed-in-service date for federal income tax purposes would not apply in determining its COD. The language in the preamble could be interpreted to exclude electricity generating facilities that satisfy the 80/20 repower rule from meeting the incrementality requirement. Excluding these repowered facilities could lead to uneconomic decisions, such as favoring demolition and rebuilding of an existing electricity generation facility instead of a more cost-effective repower. We see no policy justification for this inclusion.

Second, existing clean electricity generators should be treated as satisfying the incrementality requirement based on a formulaic approach that allows for 10 percent of the hourly generation from electricity generating facilities placed in service before 2023. This rule should be administered across a taxpayer's entire electricity generating fleet located within the same deliverability region.

The preamble to the proposed regulation provides that Treasury and IRS are considering alternatives under which an EAC may be deemed to satisfy the incrementality requirement, including approaches based on avoiding retirements, minimal induced grid emissions, or formula. As noted in the proposed regulations, administering approaches based on avoided retirements or minimal induced grid emissions is difficult. A formulaic approach is administrable and can be applied consistently across taxpayer regions. Furthermore, it is appropriate to utilize 10 percent in the formulaic approach to account for the upward trend in negative wholesale electricity prices that is likely to be eclipsed the 10 percent threshold later this decade.

Altogether, if we wanted to win the game of building out clean energy and driving economic growth, we need to create a winning playbook on clean hydrogen. That starts with the right fundamentals and policies, and our suggested modifications to the proposed regulations would accomplish those objectives. Thank you for your time and consideration. I'm happy to answer any questions.

MR. DEXTER: Thank you everyone. At which point we will continue on. Thank you.

(Recess)

MR. DEXTER: Let's reconvene. Is Rob Wingo our next speaker here? There he is.

MR. WINGO: It's good to catch everybody fresh. My name is Rob Wingo and I am the executive vice president of corporate ventures for EQT Corporation. EQT is a leading independent natural gas producer with an evolutionary focus on our future. We have operations in Pennsylvania, West Virginia, Ohio, and we're dedicated to responsibly developing a world class asset base in the core of the Appalachian Basin. We are a member of the Appalachian Regional Clean Hydrogen Hub, or ARCH2, and that was one of the seven hubs that was granted $7 billion from the Department of Energy.

Our project within ARCH2 is a low-carbon energy complex, or LCEC, and it is an integrated facility utilizing autothermal reforming, or ATR, of responsibly sourced gas, otherwise known as RSG, with carbon capture, utilization, and sequestration to produce hydrogen and other products such as low-carbon aviation fuel, also known as LCAF. The DOE has approved our project to proceed to Phase 1 of the grant process and the hydrogen production tax credit, Internal Revenue Source Code 45V, has been highlighted as a key component of the expansion of the hydrogen economy. It's intended to spur production of qualified clean hydrogen from diverse pathways, including blue hydrogen produced from natural gas with carbon capture, utilization, and sequestration.

One of the requirements for hydrogen to be considered qualified clean is that it's produced through a process that results in life cycle emissions that are no greater than 4 kilograms of CO2 per kilogram of hydrogen. We're targeting production of hydrogen and LCAF along with naphtha base oils, lubricants, and waxes using qualified clean hydrogen produced from RSG through a novel combination of ATR technology, fisher tropes process, catalyst improvements, and carbon capture.

Our low-carbon energy complex will produce clean hydrogen in three categories. First, it'll be hydrogen that will be contained in syngas from the ATR and utilized as a feedstock in the FT process, to produce LCAF and other products. Second, we'll produce hydrogen that's contained in syngas from ATR that will be separated out into pure hydrogen stream that is sold to third parties or utilized in the production of LCAF and other products. And third, will produce hydrogen contained in purge gases utilized to power and optimize our process.

It's well understood that natural gas may serve as a feedstock for aviation fuel. Using the FT process, which is a collection of chemical reactions that converts a mixture of hydrogen and carbon monoxide, otherwise known as syngas, into liquid hydrocarbons.

We seek section 45V eligibility for all of the hydrogen that we're going to produce and that we'll use at our LCEC facility, including hydrogen that's contained in our syngas stream, which is our novel process, which is fed directly to the liquid fuels production steps without the need to first separate or purify the hydrogen. In fact, separation of hydrogen would result in a process that significantly reduces efficiency and increases cost because the carbon required to generate LCAF already exists in the syngas stream, as part of the hydrogen produced by the ATR process.

Likewise, we're seeking 45V eligibility for hydrogen and recovered purge gases to help run the process as it is cost optimal, and commercially accepted way to assist electricity generation needed to run the interdependent equipment in the facility. If the qualified clean hydrogen found in waste gas were not so used, it would be vented to the atmosphere, which would further reduce green such use further reduces greenhouse gas emissions from the process.

Our comments focus on four topics. First, the required use of background assumptions in the current 2023 GREET model. Second, confirmation of the definition of the term "facility." Third, recognition that the carbon monoxide utilized in conjunction with clean hydrogen in the production of LCAF may be treated similarly to the carbon monoxide captured and sequestered. And finally, fourth, that qualified clean hydrogen contained in the processed waste streams and thereafter that are used in the fuel to power parts of the facility is an acceptable use of the qualified clean hydrogen.

The proposed regulations pertaining to 45b, released by Treasury on December 22, include strict limitations and procedural rules that could frustrate the intent of Congress to grow the hydrogen economy and the goals of the Biden administration to create jobs to expand use of clean hydrogen in the industrial sector and beyond. The proposed regulations mandate use of the current 45V GREET model, and the current model includes an assumption in the irrefutable background data regarding upstream methane loss rates. This background data uses a national average and assumes that methane leakage during the natural gas recovery process and subsequent gas processing and transmission sums to about 0.9 percent of methane consumed by the reformer.

As demonstrated with high fidelity and verifiable data that is certified and submitted to the EPA, EQT deploys best-in-class practices and systems throughout the supply chain to minimize greenhouse gas emissions, including sourcing, transportation, and processing, and we also employ the best available systems to detect, monitor, measure, and verify each step. Using this background assumption would inflate our actual upstream methane loss rate for the Appalachian Basin by 600 percent. It also potentially allows other companies with much higher loss rates than ours, and who haven't taken the steps or made the investment to lower their loss rates, access to the production tax credit they might not otherwise have earned.

The proposed background value will limit severely the amount of section 45V credit available to qualified clean hydrogen projects, undermining proactive stakeholder investments, and decarbonizing their natural gas supply. Environmental stewardship and motivation to participate in the 45V program to accelerate the new clean hydrogen economy.

With respect to the background assumptions, EQT respectfully requests that Treasury and the IRS ensure the 45V regulations are consistent with the Clean Air Act technology-neutral definition of "lifecycle greenhouse gas emissions," by modifying the proposed Treasury Regulation 1.45B-1(a)(8), to add a provision that enables clean energy leaders who demonstrate with high fidelity data certified to the EPA, to qualify for credits based on well to gate life cycle greenhouse gas emission calculations, that aren't limited by the background assumptions of the 4V GREET model. Specifically, that those clean energy leaders be allowed to input actual verified life cycle greenhouse gas emission data in the foreground data of the GREET model for upstream methane loss rates. In the alternative, allow that RSG feedstock is not a pathway already in the GREET model and let those producers using it to pursue the provisional emissions rate route to determine their specific upstream methane loss rate and overall CI from their facility.

Regarding the definition of "facility," EQT asks for confirmation that the definition of facility includes integrated processes for producing qualified clean hydrogen, that may include functionally interdependent components that synergistically utilize hydrogen and carbon oxides in the production of coproducts, such as LCAF. In other words, recognize that the hydrogen may be intermediate product, but not the end product of a single production line.

Recognizing this interdependency as a part of the single production line will yield a single carbon intensity factor for the full hydrogen production facility. This will enable producers to maximize carbon utilization, energy efficiencies, and CCUS, while measurably reducing the carbon intensity of all products along the value chain, beyond that which two disconnected processes can provide. Treasury could enable this by including an example of such co-production pursuant to proposed Treasury Regulation 45V(1)(a)(7)(6).

EQT further requests the recognition that carbon in the syngas generated by the ATR is either captured and stored at a rate of 95 percent plus, when making hydrogen for sale or synergistically utilized as carbon monoxide in the FT process. The carbon monoxide used in the FT process is not released into the atmosphere during the process but is instead embodied within a commercially proven fuel that has a carbon intensity below that of traditional aviation fuel.

Following the requirements for utilization in 45Q, carbon oxides that are displacing carbon that would otherwise be procured and emitted may be utilized to qualify for the credit, and the same principles should apply with 45V, for pathways integrating carbon capture and utilization.

Last, EQT request that you confirm that qualified clean hydrogen, which is contained in processed waste streams and otherwise would be vented to the atmosphere, that is used to power functionally interdependent components to enable the production of additional hydrogen and low carbon energy projects, such as LCAF, is an acceptable use under section 45V(c)(2)(b)(iii) of qualified clean hydrogen.

On behalf of EQT, I'd like to express my sincere appreciation for your efforts in drafting these proposed rules and request that you guys consider clarifications in the final regulations, which will be key as we look to launch the hydrogen economy. Thank you.

MR.TRUITT: Thank you for your time and for the opportunity to provide testimony on behalf of New Fortress Energy and its clean hydrogen business, Zero. My name is Jordan Truitt, senior vice president of commercial and development for the Zero Division.

I'd like to start by thanking the administration and the Treasury Department for giving us the opportunity to provide our perspective and written comments on the proposed IRA 45V regulations. This administration has been a global leader in clean energy initiatives, America's decarbonization, and a major advocate for clean hydrogen with its passage of the IRA. The IRA has the potential to be the most significant incentive for clean hydrogen in the world. It's also highly scrutinized and controversial, and its implementation will have a lasting impact on America's role in global clean hydrogen market.

Right now, the world is watching to see how we'll navigate the implementation of the IRA because it could have such a significant effect on global clean energy. Before I give you a summary of our proposed changes, a little background on who we are and why this regulation matters to us.

New Fortress Energy began 10 years ago with the first-of-its-kind conversion of a train in Florida from diesel to cleaner burning natural gas. We've since built infrastructure across the globe to help our customers transition their heavy emitting energy sources to cleaner options. In many cases, we've even lowered their overall power costs and improved the reliability of their power generation. We do this by building the supply chain needed to enable energy-impoverished parts of the world to convert from HFO, or diesel power, to cleaner burning natural gas.

Four years ago, our founders started Zero as an evolution to our commitment to support customers as they work to decarbonize or transition to lower and eventually zero emissions energy. Under the Zero banner we've invested and enabled the development of new hydrogen production technologies. We were the first company in the U.S. to sustain hydrogen blending in a conventional thermal power plant at our sister organization, Long Ridge Energy. We're also ly building an up-to-200-megawatt green hydrogen production plant in Beaumont, Texas. The Beaumont project, which we call ZeroPark 1, is planned to have its first phase of 100 megawatts operational the first half of 2025. We've also secured offtake from ZeroPark 1, where our green hydrogen will be used to decarbonize an existing methanol plant in the region — ammonia, sorry.

ZeroPark 1 perfectly encompasses the intent of the IRA. We're supporting the decarbonization of an existing and hard-to-abate industry by using new American produced electrolysis technology and by working with the regulated utilities and renewable developers in the region to source clean energy for our facility. In addition to ZeroPark 1, we're developing two more projects which are near FID at two different locations in the U.S. Both of which are slated to be operational by 2027, having a combined potential of 500 electrolysis capacity and will be powered by both nuclear and hydroelectric sources. Our plans at Zero are to build, own, and operate many additional facilities like these across the U.S.

The stakes for U.S. decarbonization in America's emerging clean hydrogen market could not be higher. Many countries across the globe are racing to become the world leader in clean hydrogen. And unfortunately, as the 45V draft rules stand today, and if not modified in a timely manner, the U.S. will concede its leading position in the global clean hydrogen race.

With the passage of the IRA in 2022, the world shifted its focus to the U.S. because the IRA provided the catalyst needed to launch the early clean hydrogen ecosystem, by giving project developers the ability to provide a more cost competitive, “levelized' cost of clean hydrogen. America was on its way to a clean energy economic boom, and the clean hydrogen energy had significant momentum, all thanks to the IRA and this administration. However, that momentum has completely stalled since the restrictive 45V draft rules were issued. Now, the U.S. is on the verge of missing out on that economic boom, a boom which would bring massive investments in clean energy and hydrogen, American innovation and manufacturing, as well as millions of high-paying jobs.

Right now, the clean hydrogen frenzy in America has almost completely subsided as uncertainty and doubt grows around the timing and content of a new 45V draft. This has caused a pause in the long line of investors and developers who are awaiting the final rules. These factors, coupled with the global need for hydrogen energy, have caused many countries to offer incentives in an attempt to attract projects away from the U.S. It's for these reasons that we urge the administration to modify the 45V rules in a practical and timely manner.

We find ourselves in a unique position to comment on the draft rules as Zero being born from an organization at the forefront of the energy transition, and since we're currently engaged in an accelerated development timeline at our first three sites, which would be heavily impacted by the current proposition.

Our written comments and testimony focus primarily on electrolytic hydrogen using clean energy sources and specifically how that clean energy is qualified under the three pillars of temporal matching, incrementality and deliverability. From our perspective, the proposed 45V rules are too restrictive. The timeline for strict adherence to the three pillars is too short, will cause an unfair playing field between geographies across the country, and will materially limit the efficacy of clean hydrogen in America.

More directly, the current draft rules will create a federally imposed division in the U.S., where some geographies will prosper from clean hydrogen advancements, while others won't even be able to support clean hydrogen development at all due to a lack of industry infrastructure or clean energy resources. This will be especially impactful in the early years of the IRA era, when almost every region in the U.S. needs adequate time for the required clean energy resources to be built. There needs to be sufficient pathways established so that all regions can participate in the early clean hydrogen market.

To be clear, we're not proposing the removal of the three pillars. Rather, we've offered a pragmatic approach to address the input and timing of implementing the three pillars, as well as mechanisms to allow for the early clean hydrogen market to develop and grow. We believe this pragmatic approach can immediately unlock the stalled clean hydrogen market and bring a flood of investment into the long line of projects awaiting to be developed. This opportunity is also one of legacy. A practical and timely modification to the rules could elevate the Biden administration and establish the president as a champion of the clean hydrogen industry.

There are many competing ideas when it comes to the implementation of the three pillars under the 45V rules, and there's unlikely to be a one-size-fits-all solution. However, we believe our proposed changes, which I'll summarize, will be neither burdensome nor prohibitive to administer. For temporal matching, we propose a grandfathering position for the full IRA term of if a project commences construction before 2028, with annual matching for five years after COD and monthly matching thereafter. Projects starting construction after 2028 will have annual matching until 2030, monthly matching from 2030 to 2035, and hourly matching beyond 2035. This timeline will afford all regions the time needed to develop clean energy resources and enable early hydrogen projects to advance everywhere, including in those regions which otherwise lack the clean generation mix needed if strict time matching were imposed prematurely.

Regarding incrementality, we propose a grandfathering provision which would exempt a clean hydrogen facility if it began construction before 2028 or if COD occurs before 2030. In addition, the participation of minimally emitting generators, or MEGs, in the clean hydrogen market should be facilitated through rules that would exempt them from incrementality in certain scenarios, including up to 20 percent of the nameplate capacity of a MEGs facility if used for clean hydrogen. This modification would also facilitate many of the DOE hydrogen hub projects which plan to use MEG sources for power.

Under the deliverability requirement, we propose for the rules to allow a clean hydrogen facility to source energy from adjacent and interconnected grid regions. This would address the concerns for a clean hydrogen facility to impose incremental regional grid emissions and help to eliminate the disparity imposed on regions with no existing industry, or regions with industry but limited clean energy resources.

Lastly, we've proposed several additional changes to the other restrictive requirements under the current 45V rules, and have provided further detail and justification in our written comments. By way of example, these include one locking or tying the version of the GREET model for a facility to the most recent version at the time it begins construction. This will avoid the uncertainty of a changing CI score, which would otherwise render clean hydrogen projects as unbankable or unfinanceable. Secondly, establishment of a national EAC registry to standardize the EAC minting timeline and process, as well as define standards for clean energy resources, to provide real-time EAC data to a clean hydrogen producer.

Lastly, defining an operational margin of at least 20 percent, or at most 20 percent, where clean hydrogen producers are not penalized for operating outside their EAC generation profile. This allows a clean hydrogen facility to continually operate while still producing hydrogen with a lower CI than conventional grey hydrogen.

Thank you for your time and for the opportunity to testify. We believe the proposed changes, summarized here and detailed in written comments, will greatly encourage the emerging clean hydrogen economy, while maintaining the integrity of the clean energy it uses, support the administration's climate goals around American decarbonization, and ultimately establish the U.S as a world leader in clean hydrogen. Thank you.

MR. ZIMMERMAN: Good afternoon members of the hearing panel. My name is Grant Zimmerman. I recognize some of you from last month. I am the CEO of Amp Americas. We thank Treasury for the opportunity to comment and share our comments publicly in this forum, and we have also submitted written comments for the public record.

AMP is a dairy RNG company. We serve the global community by serving our farm partners looking to reduce their environmental impact by reducing methane emissions. That means that AMP is a methane abatement company. Methane is 84 times more powerful than CO2 in terms of its global warming potential. Our company and the industry were the first to rely primarily on greenhouse gas emissions impact to create value. We don't make money if we don't make emissions impact.

We have nearly $1 billion invested with operations in Indiana, Minnesota, Wisconsin, Kansas, and Idaho, and another $1 billion of pipeline in states like Wisconsin, Michigan, Arizona, Minnesota, and others. Our reductions are substantiated by decades of science, reams of data collected by millions of dollars of equipment, over 80 audits in 2023 alone performed by multiple third-party verifiers, and our impact is undercounted by design. On this basis, we're proud to say that we've abated just shy of 2 million tons of carbon dioxide equivalent by capturing methane emissions from American dairy farms. That's over 700,000 tons a year by the end of this year. Our effort and our dollars contribute to tangible solutions to climate change, air quality and water quality improvement, and American society.

We're here to ask Treasury to make two major changes to the proposed rule text. Number 1, to include dairy RNG and the 45V(h)(2) GREET model consistent with statute, including pathways to hydrogen counting avoided methane. And do not be confused by the three pillars as they relate to RNG because largely they don't apply. First, productive use concepts should be removed or modified to comply with statutory requirement. The pathways measure actual indirect emissions. Temporal requirements for electricity should not be applied. Monthly settlement and recognition of storage is imperative, and deliverability for RNG must permit use of book-and-claim, the same market-based delivery mechanisms used in the renewable fuel standard and the California LCFS program.

Before I go into detail on the ask, I wanted to spend a quick minute on the impact 45V regulations, their impact on AMP, and society. The world has a climate budget. It's a bit like a very large boat that we've been filling up for centuries with carbon emissions. We have the opportunity to start reducing the rate at which we're putting carbon onto this boat, but if we don't stop it in time, the boat is going to sink. We've got about four years before that boat starts taking on water and we cross the 1.5 degrees Celsius global warming threshold, and only about 15 before we hit the 2 degree threshold. Reducing methane from agriculture operations with dairy digesters takes carbon off the boat. It actually solves the problem and has immediate impact at a much greater quantum than carbon dioxide equivalent reductions would.

AMP is for all solutions, including methane abatement, but also, we're for electrify everything. In the future, even if we get to a point where we've electrified the entire economy, as long as we like to eat, as long as we conduct the operations that are necessary to feed the planet, we're going to produce organic waste. And that means that we've got to deal with methane emissions, whatever the end market. Disallowing digesters into the 45V, is equivalent to a mandate to continue to emit methane.

We partner with farmers looking to reduce emissions and to improve their revenues. We create good-paying jobs in tax base and underinvested rural communities across America. Uncertainty in the IRA has stymied our investment. Failing to correct the 45V rules will further undermine progress in methane reduction from digesters and will cause backsliding and increased methane emissions.

To point this out, and to provide a tangible example of how this has worked in the past, we work with a group of farmers who covers their lagoons. They actively manage odors because they have neighbors that abut every corner of their farms. Dozens of neighbors within a very close distance, and there's absolutely no smell from these farms. They put digesters in about 15 years ago to sell electricity, renewable electricity. But when the utility refused to renew the renewable electricity contract under which they built these digesters, they had to shut them down, because they are not core to the operation of the dairy and they weren't adding to their efforts anymore. They couldn't afford to keep them going because they needed to focus on milk production.

Well, the renewable fuel standard, the low-carbon fuel standard, created a revenue source where Amp could go back in and restart these digesters. But with the volatility in those markets, the uncertainty behind those programs, and now uncertainty in the 45V, we not only risk eroding the potential for development of new digester projects, but if we don't make the 45V rules conducive and inviting to dairy RNG projects, we're actually going to backslide and shut down existing digesters and not just forego development of new digesters.

I want to dig in a little bit to the specific asks around the regulation. So on the GREET model point, we must include RNG pathways in the RNG GREET model to be consistent with the statute's intent to create a technology neutral hydrogen production tax credit, not including it's tantamount to a mandate to emit methane emissions from farms — from the farms that are feeding us. The 45V(h)(2) GREET model must permit hydrogen producers to use feedstock supplier specific values that are calculated using the R&D GREET model. You must measure the actual emissions of projects using specific data, site-specific data, rather than national averages that risk overstating impact at some projects and understating impact at others.

Life cycle analysis for RMG must include avoided methane emissions. Decades of research, scores of academic papers, and simple observable logic validate the impact and the validity of avoided emissions. When we capture methane from a farm, we prevent that methane from polluting our climate. We clean and condition it for market. We put it through a third-party-owned sales meter. We literally continuously measure our impact with a utility owned meter. And if you've ever dealt with your own utility, you know that they're not in the business for paying for gas that they didn't receive. Their meter approves the validity of the methane that we're preventing from going to the atmosphere.

A new argon GREET analysis for RNG is not needed each year unless there have been changes to facility. Investors should need certainty to make their investment. Treasury needs rules that are administrable. Uncertainty in changing the model from year to year will lead to higher cost of capital, fewer projects, and fewer projects on smaller farms, and in aggregate, far less impact.

Now on the applicability of the three pillars, the first productive use concept should be removed or modified to comply with statutory requirement that pathways measure actual indirect emissions. First, productive use is a stand-in for the broader concept of additionality, which relies on a theory of indirect emissions. RNG has no indirect emissions. Any currently produced RNG repurposed for hydrogen production will be backfilled with RNG. There's no precedent in the U.S. in clean fuels programs for additionality requirements. And yet, through the strength of voluntary and regulated demand, use of renewable fuels is growing strongly. Even if the above were not incontrovertibly true, indirect emissions for RNG simply don't exist. Moving RNG from transportation fuel, which is very small tailpipe emissions, into hydrogen production, which in all likelihood will capture the emissions, is actually a net reduction of total emissions.

Temporality requirements the entire natural gas industry settles on a monthly basis. We think that's appropriate for RNG. And deliverability, there are multiple systems battle tested between the RFS, California, and third-party private systems that have established ways to measure, book-and-claim, and there's, to my knowledge, been no abuse of such system.

AMP and the industry are here to make impact, but we can't continue if our investments don't work. We're for electrify everything, but as long as we want to eat — and everybody that I've ever talked to says that they intend to continue eating for the foreseeable future, we've got to deal with methane emissions. AMP builds solutions in partnership with American farmers, bringing good-paying jobs and investment to rural communities.

We call on Treasury to fix the 45V regulations to give RNG industry solution builders the support we need to develop the nascent but powerful methane abatement industry. Thank you very much.

MR. BYERS: Good afternoon, thanks for the opportunity to speak today. My name is Dan Byers. I'm with the U.S. Chamber of Commerce. The Chamber and its members strongly support the 45V credit and its ultimate objective of catalyzing the clean hydrogen production necessary to deliver on economywide emissions reductions goals.

In this vein, it's important to remember that Congress did not create 45V simply for the sake of dramatically increasing hydrogen production, but rather to ultimately supply hard-to-abate sectors of the economy with cleaner energy inputs and power alternatives. Unfortunately, the proposed regulations would deter, and in some cases halt investment in deployment in clean hydrogen projects. This is primarily, but not entirely, due to the three pillars that have been talked about today that significantly increase production costs and limit project investability.

Chamber's full written comments, submitted jointly as part of an industry coalition, detail our economic, practical, and legal concerns associated with three pillars. I'll forego speaking to those technical issues directly today and focus on our more fundamental and high-level concerns with the rulemaking, and the breadth and diversity of voices that share these concerns.

At the top of the list is the federal government's own Department of Energy. When describing efforts to rapidly build out a clean hydrogen economy last year, Energy Secretary Jennifer Granholm said, "You have to do everything everywhere, all at once." It would be an exaggeration to say the Treasury's proposed rules would result in going nothing nowhere ever, but not by much. So we believe there's a fundamental disconnect between Department of Energy's vision and the proposed rules. A number of media reports have revealed that DOE is urging Treasury to relax the rules to give industry the time to grow, out of concern that the tax guidance will hamstring its hydrogen initiatives, including the nearly $8 billion program to create regional hydrogen hubs.

We agree with DOE and urge Treasury to closely consider DOE's advice on overcoming the barriers to accelerating clean hydrogen. For example, DOE's National Hydrogen Strategy Report sets forth a target of 50 million tons of clean hydrogen production and concludes that achieving this goal would reduce economywide emissions by 10 percent. But the strategy also cautions that our ability to address emissions in these hard-to-decarbonize sectors will hinge on other federal policies. Specifically, the report states, stakeholders on the production, demand, and financing sides highlight hesitancy to commit resources due to the lack of price transparency and risks in clean hydrogen supply. Regulatory drivers at the state and federal level could help provide these long-term demand signals. Catalyzing long-term offtake would ensure the clean hydrogen production projects break ground while tax credits are active, allowing for production cost downs in the early 2030s. In other words, DOE is warning that pending federal policies present a risk to the clean hydrogen investment necessary to drive down prices and stimulate industrial demand. While not explicitly mentioned in the report, the primary factor influencing these supply risks is the 45V credit.

Of course, DOE and the Chamber are not alone in raising these concerns. Consider the following sample of stakeholders urging major changes to the proposal. First, all seven of DOE's regional hydrogen hub awardees issued a joint letter to express shared concerns regarding "narrow guidance that may have far reaching negative consequences for the entire domestic clean hydrogen industry." As a reminder, these hubs aren't advocates with an ax to grind. They are literally the centerpiece of the federal government's hydrogen decarbonization efforts, and they've been tasked with kick-starting a national network of clean hydrogen producers, consumers, and connective infrastructure. So the success of these hubs and their associated emissions reductions depend on workable 45V guidance. So we urge Treasury to heed their warnings.

Second, states' Democratic governors of California, Oregon, and Washington have called for an alternative compliance pathway for states with commitments to achieve 100 percent clean electricity, and they've warned against "imposing cumbersome and expensive project level limitations on the use of clean electricity sources." Third, members of Congress, in December 11, Democrat senators wrote to Secretary Yellen to reiterate the intent of the 45V credit was "to provide a robust and flexible incentive that will catalyze and quickly scale domestic hydrogen economy."

Additionally, Senator Tom Carper, chair of the Environment Public Works Committee, stated, "I fear this proposed rule may well miss the mark. When developing the Inflation Reduction Act, we intended for the clean hydrogen incentives to be flexible and technology neutral. Treasury's draft guidance does not fully reflect this intent, potentially jeopardizing the clean hydrogen industry's ability to get off the ground successfully."

Fourth, labor unions across the country have also weighed in, including the Utility Workers of America, which stated, we have already seen some of our largest employers begin to back away from investment in this technology as they view the further requirements set out in this guidance as being completely unworkable in practice. The list goes on and on. And I would note, that in addition to the diverse voices speaking today, similar comments filed into the docket from groups that are not testifying include, and this is just a sampling of them, the National Association of State Energy Officials, the Massachusetts Department of Energy Resources, Pennsylvania Governor Josh Shapiro, the New Mexico Department of Environment, which warned that the rule "disadvantages clean hydrogen produced with low carbon natural gas," North America's Building Trades Unions, the International Union of Operating Engineers, United Association of Plumbers and Pipe Fitters, Pittsburgh Regional Building and Construction Trades Council, the Colorado Energy Office, the American Trucking Association, Greater Houston Partnership, New Jersey State Chamber of Commerce, Greater Pittsburgh Chamber of Commerce, the Associated Builders and Contractors, the Fertilizer Institute Airlines for America, American Public Power Association. Obviously, a long list of industry stakeholders eager to take advantage of the credit. They're very concerned they won't be able to.

So the Chamber's position on the regulations is largely aligned with these stakeholders, and we respectfully request that Treasury address the many concerns related to the three pillars and their near-certain negative impact on the ability of hard-to-abate sectors to decarbonize.

Three final points of concern. First, we urge Treasury to recognize the importance of 45V not only to DOE's broad hydrogen strategy, but to EPA's regulatory agenda. EPA is expected to soon finalize a power sector CO2 regulation requiring hydrogen co-firing on certain power plants. The proposed rule assumes a clean hydrogen price of just $1 per kilogram through 2032, declining to 50 cents per kilogram thereafter. As, according to EPA, "tax credits and market forces are expected to accelerate innovation and drive down costs even further over the next decade." Clearly, EPA is expecting a robust 45V credit, and clearly there's a misalignment between EPA and Treasury's regulations. In order for EPA's vision of large-scale use of affordable clean hydrogen in the power sector to be realized, 45V credit must be structured in a manner that does not unduly restrict investment in hydrogen production.

Second, and this has been mentioned many times, we urge Treasury to address flaws in the 45VH2 GREET model used to determine life cycle GHG emissions. In particular, certain parameters in the GREET model are fixed assumptions, including upstream methane loss rates, and emissions associated with regional electricity grids. As a clean air task force appropriately describes it, this amounts to a "one-size-fits-none approach" that fails to allow operators who can and want to prove they have lower leak rates to do so. And I know we heard the same from EQT earlier.

Third, and finally, we urge allowance of booking claim accounting processes for renewable natural gas and natural gas feedstocks to be used for clean hydrogen production. These systems have worked well and will encourage greater investment in production of emissions-reducing clean hydrogen.

So in summary, the 45V credit was designed by Congress not only to drive rapid growth and deployment of domestic clean hydrogen production facilities, but ultimately to provide the supply-side incentives necessary to stimulate demand for end-use sectors to purchase and consume that clean hydrogen in order to achieve economywide emissions reductions goals. The proposed regulations would, unfortunately, inadvertently deter investors and developers from pursuing clean hydrogen development. So we urge major modifications to the proposal prior to finalization.

Thank you for the opportunity to provide comments.

MR. EDWARDS: Good afternoon. Thank you for the opportunity to testify today. My name is Dave Edwards. I'm here representing Air Liquide, where I serve as director and advocate for hydrogen energy.

Air Liquide is a world leader in gases, technologies, and services for industry and health. We have a presence in more than 50 states with more than 20,000 employees in the U.S. and more than 1400 locations and plant facilities. We offer industrial gases and related services to customers in a range of industries including oil and gas, chemical, steel, construction, food, beverage, research, analysis, electronics, and healthcare.

Air Liquide has more than 60 years of experience across the entirety of the hydrogen value chain, from feedstock acquisition all the way through to potentially driving fuel cell trucks for our deliveries. Hydrogen has been and continues to be a core growth area for our business worldwide but especially here in the U.S. As a global leader in clean hydrogen development, Air Liquide has made significant investments worldwide, exceeding more than $1 billion invested in hydrogen in the U.S. to date, with a commitment to invest nearly $10 billion more in low-carbon hydrogen by 2035 globally.

With Air Liquide's significant presence in the U.S. and the acceleration of the hydrogen market sphere, we would like to see as much of that $10 billion invested in the U.S. as possible, helping the nation achieve its decarbonization goals while creating more clean energy careers. The provisions of section 45V and the IRA have the potential to enable the private investments which will become the engine that drives this energy transformation.

The clean energy transition is a once-in-a-lifetime opportunity for the economic impacts, for the environmental impacts, for the jobs impacts, for societal impacts, reimagining our energy future and doing so in a way that drives the economic development and job creation in a sustainable way. President Biden set the stage for significantly advancing the clean energy transition with the passage of the landmark IRA investment Inflation Reduction Act, introducing hydrogen-related incentives, including section 45V, for the production of clean hydrogen. This legislation reflects the urgency for action and the need for large-scale deployment of solutions that hydrogen can bring to these hardest-to-decarbonize sectors. Section 45V has the potential to catalyze the hydrogen economy to further cement U.S. global energy leadership, and for it to be successful, it will need to be implemented appropriately.

As a longtime partner of the U.S. government, Air Liquide heed strives to bring forth solution-based recommendations to improve the proposed rulemaking for section 45V. My remarks summarize our detailed written comments, which were submitted earlier last month. Three main points that I'd like to make today are as follows, and these are amplified by some of the previous speakers. The need for flexibility and certainty in implementing the three pillars, temporality, incrementality, and deliverability, to provide further clarification on the applicability and use of renewable natural gas as a feedstock for clean hydrogen production. And thirdly, some of the administrative concerns around the life cycle assessment, life cycle analysis, facility eligibility specifically associated with the GREET model and similar.

With respect to the three pillars, the intent of the three pillars is clear. It's to provide the appropriate guardrails to ensure that hydrogen production delivers on its decarbonization potential. We agree on this important foundation. You've already heard from numerous organizations regarding the importance of flexibility and certainty in the implementation of these three pillars. We want to emphasize that this message supports a phased approach for the three pillars provided by 45V. By providing flexibility at an early stage, this allows the hydrogen economy to develop and scale, which is critical to the short-term advancement of the hydrogen economy and to achieve our environmental goals.

Immediate, strict implementation will imperil the construction of the first generation of facilities; it will delay hydrogen production; and it will make widespread deployment cost prohibitive for the customers who need it the most. This would directly undermine the essential goals of the hydrogen production tax credit and counters the urgent need for large-scale solutions.

It is imperative that to enable the desired environmental, economic, and equity goals of the IRA, private investment in hydrogen production must advance at a scale and at an accelerated pace. We support the creating of grandfathering or safe harbor mechanisms for first movers, notably those tied to hydrogen hubs, which would allow for the build-out of critical infrastructure needed for the transition to the stricter temporal, incremental, and deliverability requirements over time, providing clarity on cost and timing that supports the investment decisions critical for these first movers.

As members of the Fuel Cell & Hydrogen Energy Association, we would like to echo the testimony made earlier today by Frank Wolak and his points about the three pillars. Additionally, we support an emissions allocation methodology that would enable either an hour-by-hour accounting or a production pathway accounting instead of the proposed annual aggregation method for production facilities. Our proposed methods support and incentivize the continuous improvements in carbon intensity development across the spectrum of technologies and project lifetimes, an important aspect of continued improvement.

With respect to renewable natural gas, Air Liquide applauds Treasury's recognition of renewable natural gas as an important tool in decarbonizing hydrogen production and emphasizes that RNG is an indispensable drop-in solution to the nation's short-term, large-scale production of low-carbon hydrogen.

The DOE and the Energy Information Administration, the EIA, indicate that today, more than 95 percent of U.S.A.'s commercial hydrogen production is from established technologies that reform fossil-based natural gas into hydrogen. RNG, being physically identical to the natural gas that's fed to these reformers, can be injected into pipelines meeting similar specifications and using the existing nation's distribution systems. This RNG provides real, direct, carbon reductions, and its use provides the market incentive for curtailing critical agricultural and civil waste emissions.

We strongly encourage Treasury to leverage the existing GREET models already published by DOE and other applications that include RNG from other waste sources, like RNG from anaerobic digestion of agricultural waste, including things like dairy, swine, beef, poultry, and manure. These RNG pathways have the potential to account for some of the strongest and most immediate decarbonization options available and would capitalize on the nation's leading natural gas infrastructure. By enabling these pathways, we can both decarbonize existing hydrogen production while incentivizing the investment in further U.S. agricultural processes that enable the best use of our energy feedstocks.

The proposed regulations include the intent to apply conditions that are logically consistent with, but not identical to, the incremental, temporal, and deliverable requirements for electricity and apply these to the hydrogen production using RNG. Imposing overly strict requirements will disincentivize the use of this already expensive RNG in favor of fossil natural gas because of its lower costs, less administrative burden.

The unintended result of overextending the three pillars to RNG could be to increase GHG emissions and decrease the feasibility of methane abatement. In addressing some of these critical issues regarding the applicability of RNG, we recommend referencing California's low-carbon fuel standards, the book and claim and plausible deliverability models, while eliminating the temporality and incrementality conditions.

Air Liquide is participating in the DOE's hydrogen hubs, several of which intend to use RNG for decarbonization of reformer-based hydrogen production. The proposed guidance raises important issues on key matters for the use of RNG hydrogen decarbonization, and we urge that this guidance is developed in a way that does not restrict its use.

Certain parameters in the GREET model are using fixed assumptions or background data in order to fully capture and incentivize greater emission reductions. We strongly encourage Treasury to convert as many parameters as possible to foreground data. As an example, without the capability to account for upstream emissions, the incentive for decarbonizations of feedstocks is removed, and it would stymie the adoption and investment in new decarbonization technologies. Combined with the emissions allocations proposal, this can incentivize the continued improvement of new and existing production facilities over the project's lifetime.

Lastly, we believe it is critical that Treasury allow for a safe harbor for GREET model calculations made at the time of claiming of 45V credits for the duration of the project. Changes in the GREET model during a project's lifetime has the potential to negatively impact the carbon intensity calculation and hence the ability to make investments and project financing. Air Liquide strives to be a leader in industry, delivering long-term performance and contributes to sustainable development, which is further emphasized by our strong commitment to decarbonize industrial and hard-to-abate sectors and advance the energy transition.

Our goals are aligned with the intent of the IRA, and we believe we're on the right path. We believe that these proposed changes to 45V can ensure U.S. clean hydrogen economies does not veer from this path and is fully realized. Hydrogen will enable this nation to achieve its decarbonization goals while creating more clean energy careers, addressing the issues facing historically disadvantaged communities, and strengthening our domestic energy security.

In closing, we want to be a resource and look forward to working with you on this critical catalyst for the clean hydrogen economy. Thanks for your time and consideration. Please reach out to us if you have any questions or concerns. Thank you.

MS. GENTLE: Good afternoon, my name is Meg Gentle. I'm the executive director of HIF Global. HIF Global is the world leading electrofuels or e-fuels company. We produce green hydrogen and provide a ready market for that green hydrogen by combining it with recycled CO2 to make electrofuels that can be used by existing infrastructure, which enables the green hydrogen to be a direct replacement for fossil fuels immediately, without any uncertainty of new market development.

We produce this green hydrogen and e-fuels today in our fully operating facility in southern Chile. And last year we received all of our environmental authorizations to begin construction on the world's largest e-fuels production facility in Matagorda County, Texas. The Texas facility is completing feed-level engineering this week, making it ready for construction in 2024 for 300,000 tons or 300 million kilograms per year of green hydrogen, where we will invest about $7 billion of capex, create 5,000 direct and over 25,000 indirect jobs during construction in an underdeveloped part of the U.S. Gulf Coast.

We expect to enable more than five gigawatts of full incrementality renewable power capacity to supply the facility and to install PEM electrolyzers so that we have flexibility to turn down the facility anytime the ERCOT grid needs us to turn back power because of very high prices and constrained supply. We formally commented in the written process with four requested changes to the guidance, and I want to talk about three of them today.

We agree with the guiding principles of the three pillars and have three suggestions to improve them and their incentives to growing the hydrogen industry. First, we asked Treasury to adopt a GREET model safe harbor, based on a hydrogen produced production facility's beginning-of-construction date.

Under the current guidance, the most recent GREET model is proposed to be defined as the latest version of the 45V hydrogen GREET that is publicly available on the first day of each tax year. This could result in new rules for calculating the tax credit in any tax year, despite continuous production at our facility using the same process. This creates an extreme financing uncertainty as we go into capital raising. We propose a more stable approach, a safe harbor familiar to the renewable industry, to lock in the applicable 45V GREET model, in effect, as of the facility's beginning-of-construction date. And any subsequent 45V GREET model changes determined to be successor models can be adopted at the discretion of the producer of the hydrogen, determined consistently with the existing guidance. This safe harbor could result in financial model certainty needed for projects to secure the requisite funding.

Second, we asked Treasury to ease the restriction of 100 percent strict hourly matching set to take effect in less than four years. The proposed regulations requiring 100 percent hourly matching as of 1-01-2028 will result in curtailment of hydrogen production facilities, creating inefficiency, energy waste, and increasing the cost of hydrogen production. Rather than continuing to debate all or nothing, all hourly matching or no hourly matching, we propose a compromised solution for 80 percent hourly matching and 20 percent annual matching allowance. In this regard, we would like to present some important considerations to cover three questions. One, why can't hourly matching at 100 percent practically work? Two, why does 80 percent hourly matching work? And three, what happens to emissions with a 20 percent annual matching allowance?

I can tell you the example of our project. And this is not a theory. This is what we are actually engineering. We've been working on the project in Texas for three and a half years, and we're completing engineering this week. Even with complete engineering, we will not start construction until about six months after these 45V guidelines are final because of the process for raising the capital, and then we will be in construction for four years. So to the end of 2028. This is a $7 billion project. We have to do the engineering on what is proven today, not what might be proven in four years.

Lastly, the project has to be engineered and designed together with the power portfolio for its full financing life. So 15 to 20 years. It cannot change power structure in the middle. So with all the tools we have available today to design the project, what happens? We need two gigawatts of power at the facility. We can purchase about five and a half gigawatts of a combination of wind and solar power capacity. And when that solar and wind runs on its natural profile, we'll be about 80 percent hourly matched because of the combination of wind and solar, and we will be greater than 100 percent annually matched. That means we'll generate more power in a year than we use.

Because we increase that power over buying, I would say, it starts to get too expensive. So we look to storage solutions, which today cost more than what I can earn in incremental revenue, even with the tax credit. So we will instead shut the plant in at about 80 percent capacity factor. I don't think that's what we intended with the tax incentive, leaving us inefficient infrastructure and increasing the fixed cost of producing the hydrogen by about 20 percent.

So why can 80 percent hourly matching work? The short answer is because the natural curve of the combined wind and solar generation is about 80 percent hourly matched if we overbuy the power in an economic way. And with the 20 percent allowance for annual matching, we still have fully incremental power generated in the year. That is, displacing fossil fuel power. That excess power reduces emissions, outweighing any impact when our facility uses grid power.

So how do we know that we decrease emissions with 80 percent hourly matching? We tested our portfolio against the 2023 ERCOT grid as if we had actually been in operations in 2023. We considered power dispatch, what emissions would be, what would be curtailed, whether it's gas, coal, or other renewables. And we found that if we had been in operations with 20 percent annual matching allowance, we would have displaced gas and coal generation when we produce more renewable power than we need. We would use a little bit of gas fired power when we're short renewables. And on a net basis, we would reduce emissions by over 200,000 metric tons.

So that's a net over 200,000-metric-ton emission reduction in the year. As an aside, we had an error in the units in our written comments, which we correct here to 222,000 metric tons. That we will submit a written correction following this meeting.

In summary, on 80/20 is a good solution. Alleviates the limitations of a 100 percent hourly matching. It keeps the requirements high for green hydrogen, and it's expected to reduce CO2 emissions across the ERCOT grid in Texas, based on actual modeling of the 2023 emissions on the grid.

Third, we are actually trying everything that we can to be able to add energy storage to our project, even though today it is very expensive on a variable cost basis. We do think that diabatic compressed air storage may be financeable in Texas. However, to make it work, we have to know that renewable natural gas and green hydrogen will be an allowable heat source for the diabatic energy storage processes that contribute to green hydrogen production.

The issue is essentially that in compressed air storage, we need to heat the air to release the potential stored energy. This means we need a heat source, and we know if we're drawing on the stored energy, we don't have renewable power available on the grid. Otherwise, we wouldn't need the power from storage. So what do we do to avoid triggering CO2 emissions from the grid? We can use hydrogen. However, the proposed 45V regulations include the antiabuse rule that disallows 45V credits if the primary purpose is production, to obtain the credit in a manner that is wasteful, including if it's used to produce hydrogen.

While we agree the antiabuse rule is very important, we're concerned that it's broad enough that it will unintentionally preclude the use of diabatic compressed air storage technology through the sweeping antiabuse rule. And we suggest that future guidance explicitly state that qualified clean hydrogen produced and sold to be used in an energy storage process that supplies power to future green hydrogen electrolysis does not run afoul of the antiabuse rule.

That concludes my prepared remarks on behalf of HIF Global. Thank you for the careful consideration you're giving to getting this transformative legislation right to incentivize American leadership fighting climate change.

MR. SAVELLI: Good afternoon, ladies and gentlemen. My name is Alex Savelli, and I'm the managing director of electrolyzers in the Americas for Accelera by Cummins. Accelera by Cummins is really — Accelera is coming zero-emissions business. We innovate, manufacture, and integrate a diverse portfolio of zero-emission solutions, you know, for the world's most essential and vital industries, empowering them to accelerate their transition to zero-emissions future. This includes hydrogen-producing electrolyzers, fuel cells that run on hydrogen, and batteries and electrified components that complete, you know, either electric or fuel cell electric powertrains. Headquartered in Indiana and with a new electrolyzer manufacturing plant in Minnesota, we are invested in and committed to scaling hydrogen as a critical component of a decarbonized U.S. economy.

Today, I'm actually honored to represent Hydrogen Forward, a coalition of companies and organizations across the hydrogen value chain that are working to ensure hydrogen is a key contributing solution in the energy transition. On behalf of Hydrogen Forward, I would like to express our appreciation for the opportunity to testify today.

Clean hydrogen has been identified as an essential climate solution by federal and state policymakers as well as a broad range of industries across the economy to achieve U.S. and global net zero goals. Ensuring the 45V hydrogen production tax credit is workable for clean hydrogen producers is critical for scaling the industry, boosting U.S. global competitiveness, and serving as the means to revitalize the nation's industrial base through domestic manufacturing.

The proposed regulation, as written, are inconsistent with congressional intent and will result in a market uncertainty for clean hydrogen producers at a time when certainty is essential for the United States to lead global clean hydrogen deployment. The proposed regulations are overly restrictive for specific production pathways and de facto excludes other commercially viable clean production pathways. The inclusion of incrementality, temporal matching, and deliverability criteria, commonly referred to as the three pillars, as we heard many times today, have no basis in the IRA and place overly restrictive requirements on electrolytic production pathways.

Under the three pillars, hydrogen producers located in a region with low renewable production yields will have higher costs compared to a region with a higher renewable production. For regions with higher levels of nuclear and hydropower, like the Midwest and the Pacific Northwest, respectively, incrementality requirements making it unfeasible to leverage existing zero-carbon generation within the region.

Companies are reviewing these regulations before making multibillion-dollar investment decisions, some of which are party to one or multiple Department of Energy hydrogen hub select keys (phonetic). Electrolyzer manufacturers, including Accelera by Cummins, Flood Power (phonetic), and (inaudible) John Cockerill have all announced gigafactories across the U.S., which could support hundreds of jobs in places like Texas, Minnesota, New York, and Michigan. The 45-year regulations will have a direct impact on the number of electrolyzers needed, potentially putting some of these facilities, jobs, and future investments at risk if demand is reduced due to burdensome regulations.

While the IRS was overly prescriptive and restrictive regarding electrolytic pathways, the proposed regulations also create significant uncertainty around other pathways. This includes relying on national average data for upstream emissions, which will result in inaccurate carbon intensity measurements on a project-by-project basis and will disincentivize reducing upstream emissions.

In addition, clean hydrogen production that leverages certified or differentiated gas receives no distinction from natural gas that has a higher emissions profile. And producers leveraging a production pathway excluded from preapproved list will need to go through an additional cumbersome and costly process to calculate life cycle greenhouse gas emissions. This creates another market barrier and disincentivizes bringing new innovation into the commercial markets.

Hydrogen Forward believes inconsistencies with the proposed regulation represent a level of regulatory negligence that reflects the positions of agenda-driven groups who are openly calling for limited hydrogen deployment, and it ignores the recommendations of the industry stakeholders that are today investing in and responsible for safe and efficient clean hydrogen deployment.

Implications for the domestic hydrogen economy and demand for hydrogen technologies will be significant. The proposed regulations will dramatically impact the industry's ability to reduce the cost of clean hydrogen and drive adoption across multiple sectors of the economy. Without lower-cost clean hydrogen, there will be no incentive for prospective hydrogen users to fuel switch. Devaluing the 45V credit through inconsistent requirements across production methods will not attract investment into this market. As a result, potential clean hydrogen users will use the persistently higher costs and potentially examine other decarbonization solutions, or even worse, continue to operate business as usual.

In short, economic-wide decarbonization cannot and will not happen without clean hydrogen. The proposed regulations, as written, will add more market barriers for clean hydrogen producers and create regulatory uncertainty. We urge the IRS to establish a level playing field for the diversity of clean hydrogen producers in the market and not finalize regulations that pick and choose the preferred production pathways and technologies.

Congress intended the U.S. to have a global competitive edge in the deployment of clean hydrogen, but the proposed regulations, as written, will undercut the industry before you can even build the first 45V eligible project. Hydrogen Forward supports the recommendations by I-Fushia (phonetic) and the U.S. Chamber of Commerce as presented today.

We certainly appreciate the opportunity for making comments today and your consideration. Thank you.

MR. BABB: Thank you. My name is Perry Babb. I'm CEO and co-founder of KeyState Energy. We're developers of two qualified clean hydrogen production facilities in Appalachia. These facilities have engineered what we believe will be the world's lowest-carbon, lowest-cost, large-scale, qualified clean hydrogen production. Four hundred tons per day of hydrogen, 140 million kilograms year for use of mobility power, clean ammonia, and fertilizers, and with a carbon intensity well below the 0.45 kilogram of CO2 per kilogram of hydrogen. And, as you know, is the most stringent requirement in the IRA 45V hydrogen production tax credit.

How did we achieve this? Well, we integrate on-site natural gas extraction, on-site manufacturing using that natural gas, on-site carbon separation and sequestration, and on-site power generation. We use an autothermal reforming that's modified to separate the methane C from the H, return the H, use the H, return the C back deep underground, and we produce our own power on-site.

But the critical and the big innovation that allows us to reach our CI score is what we've done in upstream emissions. We virtually eliminated CO2 and methane emissions typically associated with natural gas extraction. We developed a system to avoid 99 percent-plus of the upstream emissions and demonstrate the value proposition, the business case, to do that in the production of qualified clean hydrogen.

This innovation has profound implications for Appalachia, for America's decarbonization ambitions, and for America's future in the hydrogen economy. With this and other innovations, Appalachia and America will be a clean hydrogen superpower for the next 30 years. But we have one problem: 45V guidance, as written, says we must use a default value for upstream emissions contained in the current GREET model. And this default value and estimate of upstream emissions is referred to as background data, as you know, and cannot be modified. So rather than use actual data that we worked very hard to be able to attain and attain this CI score, we must use default of an estimate typical of other upstream production and upstream emissions. This voids our innovation and inflates our carbon intensity score dramatically.

Fortunately, Treasury, in its proposed rulemaking, is seeking comments as to how these upstream emissions might be accurately collected — measured, collected, monitored, and audited annually to assure an accurate carbon intensity score of the feedstock being used. KeyState's proprietary system was designed to be audited. It was designed to meet the IRA requirements of annual emissions audit. The way we do that, first, is with a captured closed methane supply system.

KeyState will extract, as I said, all its gas that's used in the qualified clean hydrogen production from its own site, own wells, all new wells, all new gathering system, no compressor stations, and supply this captive gas directly to the production facility just a few miles away. The closed system is not connected to the gas grid in any way. There's not a molecule of natural gas used in the manufacturing of the qualified clean hydrogen that's outside this closed captive methane supply system.

As example, our Pennsylvania facility in north central Pennsylvania is on a 7,000-acre track. We have 22 gas wells that will be drilled on 6 pads where they're collected, each pad about 10 acres, all within a few miles of the manufacturing facility. So you can see we've designed this to be audited, to collect the data and to be audited.

Second, within this closed system, in that context, we've designed an upstream emissions avoidance and monitoring program of technologies and protocols, which — with the effect of eliminating methane and CO2 emissions, the power that's used related to the gas production, drying, et cetera. This breakthrough has enormous implications for large-scale hydrogen production in Appalachia and beyond, and it demonstrates the value proposition of producing natural gas in a whole new way and with a whole new level of emissions reduction in the production of hydrogen.

Thirdly, then, the captive closed methane system and the upstream avoidance program were designed specifically for ease of auditing. Through the capture real-time data of every well, every well pad, every processing step, every valve, every foot of gathering system 24/7, 365, this program was tailored for the Inflation Reduction Act requirement of an annual audit of emissions and production of qualified clean hydrogen in order to determine the actual carbon intensity score of the hydrogen produced. An emissions audit is not an estimate or an extrapolation of emissions, but the quantification of specific point source emissions data 24/7, 365, the system that we have designed.

KeyState is so appreciative that in the guidance Treasury is seeking comments as to how these upstream emissions might be monitored and an annual audit be performed with confidence. KeyState is happy to work with DOE and Treasury to demonstrate how an annual third-party audit of emissions could be performed with confidence under this type of system.

As to impact that the current rulemaking has, none of the KeyState projects as (inaudible) we have announced, there's others that we're getting ready to announce, none of the KeyState projects would move forward. The innovation would not move forward. The KeyState projects are approximately $2 billion each, the Appalachia projects representing thousands of jobs, hundreds of millions of dollars of economic impact in desperate former coal communities in north central PA and southwest Virginia. In southwest Virginia alone, 10,000 coal jobs were lost in the last decade.

Please note that also one of the projects, the Pennsylvania project, is a part of ARCH2. It's one of the principal projects for ARCH2 hydrogen hub and would not go forward without change in the guidance.

If KeyState were required to use the default background data of typical upstream emissions rather than an audit of its own actual emissions, our carbon intensity score would be artificially bloated, our hydrogen production tax credit eligibility slashed, and the projects would be unfinanceable. And this is a key point of it. The additional capital and operations costs to attain to this historic level of emissions reduction are substantial, and the capital markets are demanding a strong return on their investment from the risk of funding these first-mover type projects and these innovations. That's what makes this unfinanceable. KeyState's innovations make the projects financeable.

And as to impact, overall, KeyState would be prevented from demonstrating that clean hydrogen production from natural gas at huge scale, which meets the IRS most stringent requirements of carbon intensity — we'd be prevented from demonstrating that. And KeyState would be prevented from demonstrating the practice and value proposition of producing natural gas in a whole new way, with the value proposition in the production of hydrogen with no methane and CO2 upstream emissions. The climate implications and the job implications together more than warrant a thoughtful wording of the final rule to allow for actual upstream emissions data to be used in order for an accurate annual third-party audit might confirm the carbon intensity of the qualified clean hydrogen.

And again, thank you for the opportunity. Thank you for the approach of, well, how would we do this? Yes, we can see in the industry there's innovation, and the IRA was written for this kind of innovation to happen. So how would we monitor that? How would the audit be run? We appreciate that. We'd be happy, along with others, I'm sure, to help work for that innovation to be then realized, and we can move forward in a whole new way. Thank you.

MR. VESEY: Hello and thank you for the opportunity to provide comments here today. My name is Andrew Vesey. I am the CEO of Fortescue North America.

There is no doubt that the Biden administration has ushered in a new era of green energy across the United States. But I am here to warn you that the good work initiated by the Inflation Reduction Act could all come undone because of the proposed drafting of the 45V guidelines and the serious burdens of incrementality and hourly matching. These will only do one thing: kill the rapid development of the green hydrogen industry by disadvantaging first movers. And the only solution to prevent this is to, at a minimum, include grandfathering. This will allow the emerging industry to continue to move rapidly, bringing billions of dollars of capital investment, thousands of generational career opportunities, and the creation of a U.S.-based green hydrogen supply chain.

That's what we at Fortescue are trying to do. We're playing a central role in the global effort to build a green hydrogen industry. We're investing billions of dollars in pioneering projects and developing affordable and sustainable green energy solutions across America and around the world. As a fully integrated green energy mining and technology company with a market capitalization of $55 billion, we are on course to supply low-cost green hydrogen to cut emissions in hard-to-decarbonize sectors that cannot use an electron.

Today, we are investing an initial $35 million to acquire a factory in the heart of Detroit, Michigan, that will serve as our U.S. advanced manufacturing center, where we will make heavy-duty industrial batteries, fast chargers, and electrolyzers, creating up to 600 new jobs by 2030. In November last year, Fortescue was one of the first in the U.S. to make a final investment decision on a green hydrogen project, committing $550 million in capital for a liquid green hydrogen production facility in Buckeye, Arizona, to supply the growing heavy-duty mobility market. These two projects, in addition to our proposed 300 megawatt green hydrogen production facility in Washington state, part of the DOE's Pacific Northwest hydrogen hub, are just the start of Fortescue's commitment to bringing critical investment to the U.S. and providing an alternative to the use of climate-damaging fossil fuels. That's why I'm here today expressing our serious concerns about the implementation of the Inflation Reduction Act's tax incentives as they relate to section 45V.

My message today is simple: You only have one shot at ensuring companies like ours invest billions here in the U.S., and only one shot at making the U.S. the world leader of this global industry. We need to get it right. When the U.S. Congress passed the Inflation Reduction Act, undoubtedly the most significant investment in green energy that the world had ever seen, the goal of 45V was to support the growth of the U.S. clean hydrogen industry. But if left as is, the draft guidelines for the 45V clean hydrogen production tax credit will have precisely the opposite impact the IRA was intended to deliver.

For example, temporal matching on an hourly basis is the biggest challenge to the feasibility of any green hydrogen project. Due to the intermittent nature of renewables, hourly matching will require substantial additional storage capacity to meet the times when the wind isn't blowing and the sun isn't shining. Adding battery storage to comply with hourly matching could increase the cost at a facility the size of our Buckeye project by over 140 percent.

In addition, to meet the hourly matching requirements, a facility would have to purchase two and a half times more power than is needed for annual matching. Even if a facility can purchase the right amount of power, the technology to implement hourly matching is not readily available, nor is there certainty around when this technology will be.

The renewable energy provider for our Buckeye project is not set up to measure, track, or retire EACs on an hourly basis. They have indicated that they will need several years to have this capability. If hourly matching is to remain, Fortescue recommends that final regulations provide additional flexibility under which all projects that begin construction prior to December 31, 2029, are grandfathered into annual temporal (phonetic) matching.

I also want to note that a phase-in, slope, or glide path approach, which postpones the requirement for hourly matching, but ultimately requiring all facilities to comply within the 10-year credit window does not help. Hourly matching requires an entirely different facility design and level of operability than monthly or annual matching, so the only workable approach is to grandfather first-mover projects.

I want to be clear that Fortescue supports the Biden's administration's goal to produce clean hydrogen in a way that prioritizes sustainability. However, 45V in its current form is a straitjacket on the emerging industry. The incrementality proposal, even with a 36-month lookback, significantly disadvantages zero-carbon electricity sources like nuclear and hydropower. Incrementality will punish those regions which have actually made the most progress towards a zero-carbon grid.

For example, take Fortescue's proposed 300-megawatt green hydrogen production facility in Washington state. This investment would not qualify for the tax credit because we plan to use a mix of surplus hydropower and other renewables. If we don't use this surplus, it is literally water over the dam. It is surplus, and yet it does not qualify. If incrementality is applied as proposed in the guidance, Fortescue would need to seek significantly higher priced additional new renewable energy resources, stressing an already heavily burdened transmission grid. Even if we develop the incremental energy, bringing it online could take five years or more, and transporting that energy to our project would increase the price of that energy by an additional 20 percent.

We are the only industry that has been told that we have to bring our own green electrons to the table. Think about that. If the EV industry was required to do the same, there would most likely not be a single electric vehicle on the road today. That's why we recommend that facilities beginning construction prior to December 31, 2029, should be grandfathered into the incrementality requirement.

I also want to talk about the efforts to release a GREET model specific to section 45V. The proposal requires that taxpayers use the GREET model that is available in the year that the qualified hydrogen is produced. This creates significant uncertainty and risk. It means that a facility's ability to qualify for credits and the value of those credits could change year to year. This makes project development difficult and financing nearly impossible. Fortescue recommends once a project is eligible under the GREET model, it is assessed under the same criteria for the 10-year life of the tax credit.

Section 45 was intended to be a catalyst for clean hydrogen production in the U.S. However, the current draft proposal limits project opportunities and slows their speed to market, all while significantly increasing the cost of green hydrogen and increasing investment risk. Put simply, the current 45V proposed guidance and the three pillars threaten to delay the robust development of the green hydrogen industry and works against the Biden administration's own climate, hydrogen, and decarbonization goals. It restricts the types of clean energy that can be produced, where it can be produced, and even when it can be produced, a burden that is not placed on any other industry.

If you want to be serious about green hydrogen and combating a climate change catastrophe, we ask that you revise proposed guidelines and, at a minimum — at a minimum — grandfather early movement projects in the green hydrogen industry. Thank you.

MS. MERTEN: Hi there, my name is Laura Merten, and I'm here on behalf of Apex Clean Energy. First of all, thank you for all of the work that's gone into this proposed rulemaking. We are grateful for the opportunity to comment on the proposed rules and the section 45V credit. We recognize this issue warrants significant attention. It'll support the emerging domestic clean fuels industry, create jobs, support domestic manufacturing. Today, we'd specifically like to address the temporal matching requirement and the VH2-GREET model.

So, about Apex. Founded in 2009, we've been dedicated to accelerating the shift to clean energy with a national footprint of utility-scale wind and solar facilities. We have a team of over 400; we're originating, constructing, and operating these facilities; and most recently, we've started using these wind and solar facilities to kind of kick off a green fuels business within Apex.

So one of our flagship green fuels initiatives is called Project Rio. It's in collaboration with Ares Management Corporation, EPIC Midstream, and the Port of Corpus Christi Authority, and it aims to establish a gigawatt scale green fuels hub on the Texas Gulf coast. This project will co-locate wind and solar facilities with electrolyzers to produce hundreds of thousands of metric tons of hydrogen annually. Because of the nature of the co-located load and generation and these new-build wind and solar facilities, the project can largely withstand the 45V regulations as proposed.

That said, Apex is concerned that portions of the rule will hinder the domestic green hydrogen industry and really hinder from taking off by increasing the cost and complexity of these projects. So our concerns are really born out of the need for certainty to move forward on these large-scale, capital-intensive hydrogen projects.

At a high level, some degree of flexibility and certainty on time matching is critical to scale the industry, to provide a financial certainty for external project investment, and to facilitate safer operations. And while we consider project grandfathering or a longer transition before the adoption of hourly matching to be probably the most impactful change that's available to Treasury, even a small percentage threshold of energy to be consumed annually, similar to the approach that was mentioned by HIF Global earlier, would make a significant difference on the viability of some of these clean hydrogen projects.

Additionally, the ability to lock in a version of the 45VH2-GREET model would minimize risk associated with potential changes. As it's currently conceived, any significant model change, regions of deliverability, grid emissions factors, or energy-consumed data granularity, would drastically impact the project qualification and design.

So a little bit more on the time matching. Apex supported the American Clean Power Association's proposal over the past year, which calls for projects that begin construction before 2029 to be eligible for the full hydrogen PTC with annual matching for the life of the credit. Apex continues to support grandfathering for these early movers. However, insofar as Treasury does not adopt this position, we suggest this at a minimum approach, this compromise, which would permit a percentage of energy consumed to be annually matched for the life of the credit. This is a concept in line with the formulaic approach proposed to address incrementality from existing generation.

Under this approach, a certain percentage of annual matching would be permitted for the life of the credit, applied to the total amount of energy consumed by a facility in the year. For instance, a green hydrogen facility could match on an annual basis 15 percent, but then would have to meet 85 percent of its remaining capacity on an hourly basis. For a project that's only pulling from the grid when co-located generation is not producing, which is under — call it 5 percent of the year, even a 5 percent threshold for annually matched generation would simplify operations and include easier safety design protocols and drive down the cost of the project.

We believe this could thread the needle between the administration's desire to ensure decarbonization while ensuring that these clean hydrogen projects can meet the temporal matching requirement in an operationally safe and cost competitive manner.

Additionally, there's a critical need for financial certainty of the tax credit value in order to incentivize needed investment in these projects. The shift from annual to hourly matching poses a credit qualification risk that will limit this investment. From what we've been told, if a financing bank is unsure if the project will continue to qualify for the full tax credit, they will take the most conservative approach and underwrite the project with limited qualification. To mitigate this risk, the temporal matching requirements to claim 45V credits should remain in place for the entire life of that credit.

In the same vein, on 45VH2-GREET model, we would urge the use of the published version of the model available at the start of construction, the ability to kind of lock in that GREET model. This would provide investors and hydrogen developers with the level of certainty to assess project economics and viability. Changes to the model continue to be a concern as any uncertainty arises with an unknown future model. As an example, the model today only contemplates annual inputs and produces an annual average CI score using a weighted average of those annual inputs.

Under the proprosed rule, it's not clear what that will look like in 2028, with the hourly inputs. This would result in a different CI score. Apex retained a third-party advisory firm to do this life cycle analysis and try to understand on one of our green hydrogen production sites under development, and what we found is that changing from an annual weighted average CI score to a CI score calculated on an hourly basis led to a 4 to 6 percent decrease in annual tax credit revenue. Taken over the life of the credit, that would represent a loss of tens to hundreds of millions of dollars, and that cost would be passed through ultimately to the hydrogen purchaser.

So in conclusion, while we really, truly appreciate all the work that's gone into the proposed rule, we fear that some aspects of the temporal matching requirement, as proposed, may increase costs for the clean hydrogen producer, impede much-needed investment in the supply chain, and introduce operational complexities. Ultimately, this has the potential to delay the administration's hydrogen goals and deter investment into this industry, slowing down the clean energy transition. Thank you very much for your time and appreciate your consideration.

MS. BELL: Good afternoon, and thank you to Treasury and the IRS for convening this public hearing. My name is Auburn Bell. I'm a legislative representative at Earthjustice, a nonprofit public interest environmental law and policy organization.

I would like to start by thanking the Biden administration for the progress already being made in addressing the climate crisis due to the historic investments from the Inflation Reduction Act, the largest climate investment in history. These unprecedented investments in climate and environmental justice are already boosting clean energy production across the country and helping clean up the air and water for communities that have long experienced the desperate impacts of pollution.

However, the promise of a new clean energy economy cannot come on the backs of the same frontline communities that continue to bear the brunt of last generation's dirty energy promises. It cannot come on the backs of people like Frank Pettis from Waukegan, Illinois, an environmental justice community on the banks of Lake Michigan, whose sharecropper grandparents were drawn north from Mississippi by the promise of good jobs at manufacturing facilities and processing plants that are now superfund sites. These are the stakeholders Treasury needs to consider when evaluating this rule. The lived reality of people over profits.

Treasury got it right with the proposed rules for electrolytic hydrogen. Earthjustice commends Treasury's strong proposed rule for the 45V tax credit for recognizing the importance of getting hydrogen production right the first time. The agency's adoption of stringent criteria, incrementality, hourly matching, and deliverability, often called the three pillars, correctly accounts for the induced grid emissions from electrolytic hydrogen production, which plays a significant role in the Biden administration's roadmap for the hydrogen industry. Strict adherence to the three pillars is necessary to avoid the disastrous climate- and community-level consequences of subsidizing dirty hydrogen.

The draft rule avoids wasting billions of tax dollars on subsidies for dirty hydrogen production projects that would spike climate- and health-harming pollution. The draft rule also helps ensure this emerging industry does not cause families' electricity bills to skyrocket, an outcome we've seen from the similarly power-hungry crypto mining industry. However, more work is needed on hydrogen produced from methane.

While the produced rules for electrolytic hydrogen are strong, Treasury needs to be just as rigorous in its carbon accounting for hydrogen produced from methane. To start, Treasury should accurately account for the emissions intensity of fossil hydrogen by updating GREET model assumptions on methane leakage to reflect real-world data. For hydrogen producers that use carbon capture and sequestration, it will also be essential to accurately measure the emissions associated with capturing, handling, and storing that carbon.

For storage, monitoring the verification protocols must be at least as rigorous as the ones Treasury adopts in its implementation of section 45Q. Proper carbon accounting will ensure Treasury does not illegally grant tax credits to hydrogen producers that fail to meet 45V's emission threshold. Treasury should not allow hydrogen producers to use biomethane credit schemes to negate emissions from their fossil methane purchases. For hydrogen producers that use biomethane, or fugitive methane, Treasury should only treat these feedstocks as lower emitting than fossil fuel when they come from an unavoidable waste stream that has not been put to prior productive use. Any other approach would provide a powerful incentive to create additional methane waste through unsustainable practices that also burden neighboring communities with health harming pollution.

Treasury should not weaken proposed rules due to an industry lobbying blitz. This rule must be finalized without loopholes. Weakening the rule would undermine the Biden administration's pursuit of a net-zero-emissions economy by allowing hydrogen producers to use paper accounting practices to characterize their hydrogen as low- and zero-carbon while continuing real-world practices that emit carbon pollution.

We have heard the same talking points from industry, irrespective of the rule in question, that sound policy will stifle economic progress and growth. That is a false choice that policymakers should soundly reject. And Congress was explicit when the 45V production tax credit program was enacted, that this tax credit was intended to impact greenhouse gas emissions. Not guarantee a profit windfall for industry.

Listening to the speakers testifying today, a pattern becomes clear. Public interest groups and climate organizations have pointed to a large body of peer-reviewed evidence to highlight the necessary environmental and consumer protections that are embedded in Treasury's guidance. Pioneering industries have told you today that they already have projects that are at scale that meet these commonsense protections, but other industries are claiming that these will crater the hydrogen economy. The common theme is that all this fearmongering is entirely unsubstantiated.

Weakening the rules would create a significant risk of hydrogen producers receiving 45V tax credits, even when their hydrogen exceeds the emissions threshold set by Congress, which would violate the statute. The federal government has historically hastened the development of clean technologies and made progress on environmental justice when it sets science-based standards, despite industry complaints that they would be cost inhibitive prohibitive.

Time and time again, once the policy signals are in place, industry has innovated and continued to thrive. Once again, we need the Biden administration to follow the science and not set weak standards that cater to the lowest common denominator.

Treasury must properly account for fugitive emissions of hydrogen at production facilities. To do so, Treasury must first clarify that taxpayers may only claim tax credits for hydrogen that they actually sell or use, not hydrogen that's vented or leaked. Second, the carbon intensity of the hydrogen that these facilities sell must reflect the climate forcing impacts of their fugitive hydrogen emissions.

In conclusion, Earthjustice urges Treasury to finalize strong rules for the 45V tax credit for hydrogen production that is too polluting to meet section 45V's emissions threshold. Weak rules would drive dramatic increases in greenhouse gas emissions, help harming pollution and electricity rates, and give dirty hydrogen producers an improper competitive advantage against companies with truly clean production processes.

The stakes could not be higher. Our climate is warming rapidly, and we cannot risk investing precious time and resources in projects that plunge us deeper into our climate crisis. Nor can we subsidize projects that subject frontline communities to yet more toxic pollution in the name of market creation. Our climate and communities need Treasury to get this right, and getting this right means finalizing a strong rule without loopholes.

Thank you for the opportunity to testify.

MS. KENT: Good afternoon. My name is Emily Kent, and I am the U.S. director for zero-carbon fuels at Clean Air Task Force. CATF is a global nonprofit working to safeguard against climate change by catalyzing rapid development and deployment of low-carbon energy and climate protecting technologies. I greatly appreciate the opportunity to testify today.

Achieving net zero emissions across the energy system will require a vast expansion of both electrification and decarbonized fuels. Hydrogen may serve as both a fuel and a feedstock, first to decarbonize existing uses of hydrogen in the industrial and agricultural sectors, and later to decarbonize other hard-to-abate sectors, like heavy industry and transportation. Congress passed the Clean Hydrogen Production Tax Credit to enable a truly clean hydrogen market to take hold, and section 45V appropriately assigns tax credit amounts based on the carbon intensity of the hydrogen.

I will use this testimony to highlight key points from CATF's formal comments on section 45V. I will cover considerations for electrolytic hydrogen, considerations for carbon-based hydrogen, and other methodological considerations for the tax credit.

Electrolytic hydrogen production requires water and electricity as feedstocks. To be truly clean, the electricity used to produce the hydrogen must be clean, and any significant indirect emissions resulting from the use of that clean electricity must be avoided. To account for these significant indirect emissions, the three pillars were included in the proposed 45V guidance. For an electrolytic hydrogen producer who claims that their electricity is from a specific generating facility rather than their regional grid, the proposed guidance appropriately requires that they must purchase energy attribute credits that comply with the three pillars. This is the best methodology for ensuring and verifying that the electricity used to produce hydrogen is truly clean. Failure to account for these undoubtedly significant indirect emissions would result in a completely inaccurate cycle analysis of hydrogen production.

CATF applauds Treasury for addressing systemwide emissions in its guidance, and we urge you to finalize these protections.

For the incrementality pillar, Treasury proposed a 5 percent exemption for all existing minimal emitting facilities as a proxy for curtailments and clean energy retirements. However, this is too broad and only crudely addresses both circumstances. Instead of a broad 5 percent exemption, Treasury should adopt more targeted solutions. These should include specific pathways to qualify for incrementality via avoided retirements, surplus energy that would have been curtailed, up rates, and potentially regions with clean grids and policies like clean fuel standards.

On temporal matching, CATF also supports Treasury's proposed 2028 phase-in for hourly matching. Without hourly matching, dirtier generation sources may supply electricity for hydrogen production during hours when clean generation is not available. A 2028 phase-in date is ample time for registries to implement systems to issue hourly EACs. Should certain registries decide not to issue hourly EACs, facilities can also use hourly metering data, along with retiring of annual or monthly EACs to prevent double counting. This method of hourly tracking and verification is already available and in use in the U.S. and around the world.

Next, I will cover considerations for carbon-based hydrogen pathways. Hydrogen producers who use natural gas feedstocks must be required to use verifiable, project-specific upstream methane leak rates to incentivize producers to clean up their emissions. Under the current version of 45VH2-GREET, the upstream methane leak rate for the natural gas supply chain is treated as a fixed nationwide average of 0.9 percent, and the upstream CO2 emissions are similarly fixed. Treasury's proposed national leak rate of 0.9 percent is both over and under inclusive of true upstream emissions. It prevents operators with lower leak rates from proving so and achieving a higher 45V credit, while also allowing operators with higher leak rates to claim an artificially lower carbon intensity.

We urge Treasury to require that operators provide verifiable, project-specific data to establish their methane leak rates, using the data that I already submitted as part of subpart W of the Environmental Protection Agency's Greenhouse Gas Reporting Program. Following this logic, we also urge Treasury to require upstream CO2 emissions to be calculated based on emissions reported under GHGRP, subparts C and W.

In addition, negative emissions values should not be used as inputs for 45V life cycle analyses. We urge Treasury to adopt strict guidelines around hydrogen production pathways that use biomethane and fugitive methane. Treasury should not allow hydrogen producers to offset direct hydrogen facility emissions using negative emission rates from biomethane. Allowing such a practice goes against the text and intent of section 45V and would undercut truly clean hydrogen production methods that the tax credit is meant to promote. For example, blending 25 percent or less biomethane with fossil natural gas could result in hydrogen producers that qualify for the highest 45V tier, while still using polluting hydrogen production methods without any carbon capture.

Similarly, Treasury should not allow fugitive methane sources to receive negative emission rates, just because they capture methane that would have otherwise been leaked or flared. This would give oil and gas producers a windfall, particularly given that several state and federal regulations require, or will soon require, emissions reductions to fugitive methane.

Finally, I will cover other logistical and methodological considerations for 45V. Treasury should award credits based on the carbon intensities of qualified clean hydrogen on a kilogram-by-kilogram basis, rather than an average of all hydrogen produced by a facility in a given year. Treasury's current proposal would award tax credits based on the annual average carbon intensity of all hydrogen produced by that facility. This annual averaging approach goes against the statute and is unnecessarily restrictive for the nascent clean hydrogen industry. Producers only need to use grid electricity for 1 to 3 percent of the year to exceed the threshold for the top tier of 45V.

Instead, the tax credit should be awarded using a two-step means of determining life cycle emissions. First, a hydrogen producer must meet an annual average of no more than 4 hydrogen for all hydrogen produced. This approach aligns with the statute given that hydrogen must be produced at a qualified clean hydrogen production facility to earn the credit at all. Second, once a facility meets that average on an annual basis, section 45V requires a kilogram by kilogram approach where projects receive the credit by multiplying their kilograms of qualified clean hydrogen by the applicable amount, which is determined by their life cycle emissions rate. For ease of accounting, this can also be accomplished on an hourly basis.

We also urge Treasury to increase accessibility and transparency of the 45VH2-GREET tool. In its current format, the tool is a black box, making it arbitrarily difficult to understand how inputs translate into final carbon intensities. To increase accessibility, Treasury should collaborate with DOE to publish a transparent tool where calculations are visible and the user manual is comprehensive of all background data.

Lastly, the process to make major updates to GREET must be transparent and involve public input. Certain updates to 45VH2-GREET could have significant impacts on 45V implementation and resulting real-world emissions. Thus, the public should be provided notice with an opportunity to comment when there are significant changes in methodology or assumptions for 45VH2-GREET.

Overall, Treasury's 45V proposal is an excellent first step towards fostering growth of the truly clean hydrogen market that is needed to reach full economywide decarbonization. Our recommendations provide suggestions to both strength and guardrails around hydrogen life cycle analyses, while also emphasizing flexibility and certainty for hydrogen producers. Both principles are critical to getting this lucrative credit right.

Clean Air Task Force looks forward to continued engagement with the IRS and Department of the Treasury. Thank you for your time today.

MR. DEETZ: Good afternoon. My name is Jeff Deetz. I'm the director of federal government affairs at Coalition for Renewable Natural Gas. Thank you for the opportunity to testify on the section 45V proposed rule.

RNG Coalition represents the renewable gas industry, including companies throughout the value of waste feedstock conversions to sustainable end use applications. RNG is derived from biogas that's been captured from organic waste streams and claimed and conditioned to achieve standards necessary to blend with or substitute for fossil natural gas in myriad end uses. Essentially, RNG projects capture and utilize methane that would otherwise have emitted into the atmosphere or flared (phonetic).

RNG is not an offset; it is a vital tool for the United States to achieve its methane abatement goals pursuant to the administration's Methane Emissions Reduction Action Plan and its robust commitments under the global methane pledge. The RNG industry appreciates the thoughtful work behind the proposed rule, namely recognition that RNG offers viable, credible, and important pathways for clean hydrogen production.

RNG Coalition urges the Treasury Department to reconsider some concepts that the proposed rule identifies as anticipated for RNG. We also ask the agency to refrain from imposing overly strict requirements in order to maximize the environmental and economic benefits of expanded methane capture in RNG production.

There are several key points on the proposed rule's treatment of RNG that I would like to discuss. The first point relates to the 45VH2-GREET model and RNG pathways. The RNG industry has long supported use of GREET as a transparent and well-respected life cycle model that indeed follows the science. The 45VH2-GREET model, however, must include additional pathways for RNG to hydrogen beyond landfill gas. Argonne National Laboratory's GREET life cycle emissions analysis properly includes avoided emissions for RNG facilities where the biogas may have otherwise been flared or released into the atmosphere.

Under 45VH2-GREET model, GHG emissions associated with production of biomass feedstocks should include avoided emissions benefits from organic waste to RNG for all greenhouse gases. This approach is consistent with other regulatory programs that consider life cycle emissions and use the GREET model, including California's Low Carbon Fuel Standard program.

Since its formalization in the 2018 California LCFS rulemaking, EPA data indicates that avoided methane crediting has contributed significantly to methane emissions reduction from dairy-manure-based biogas projects and the dairy sector more broadly. Methane-avoidance benefits under section 45V can similarly catalyze investment in methane abatement and recycling across U.S. livestock operations.

I'd also like to briefly discuss tracking and verification schemes associated with the book-and-claim transaction of RNG. RNG Coalition is confident that existing systems for tracking RNG offer effective and efficient means to facilitate RNG to hydrogen production pathways under section 45V, protocols that the proposed rule refers to as book-and-claim systems.

Existing approaches to tracking across many federal and state regulatory programs have a long history in the natural gas market, and book-and-claim approaches are used in these programs without indemnified (phonetic) cases of fraud or double counting. While we do not believe an electronic system is required, the M-RETS renewable thermal tracking system, an electronic tracking system for RNG, could be available as an option for parties to utilize.

On a separate matter, RNG coalition has significant concerns with the proposed rule's considerations on induced emissions. We focused on this issue in our comment letter and particularly in the context of the so-called three pillars, including the anticipated first productive use requirement for RNG. While we understand particular potential concerns with unintended consequences of increased hydrogen production, it is important to note that the RNG and natural gas market operates very differently than the electricity grid. There's simply no scientific basis to indicate using existing sources of RNG production and hydrogen would create induced emissions. Further, there's no legal basis to impose incrementality, temporality, or deliverability requirements on RNG to account for induced emissions. Section 45V requires that life cycle emissions rates be determined using the GREET model, which does not include such emissions induced emissions for RNG pathways. With regard to anticipated provisions related to incrementality, we are concerned the first productive use concept is not reflected in statute and, further, that its implementation would exclude viable RNG projects that could support clean hydrogen production today.

Requiring the RNG project and the hydrogen production facility to come online in the same year, or for the RNG project to come online after, is simply unworkable and shouldn't be adopted in the final rule. The requirement will cause a significant value discrepancy for new RNG projects, creating a market distortion, risk of stranded RNG for existing projects, added complexity, and higher prices for end consumers.

Concurrently, we believe it's speculative that RNG and existing uses will be diverted for hydrogen production and backfilled with fossil fuels. As our comment letter elaborates, there is ample supply to meet growing demand, provided the right incentives are available. Any potential switching of RNG use toward clean hydrogen would create a need for more RNG or other biofuels that backfill in our primary markets, the EPA renewable fuel standard, and safe low-carbon fuel.

In sum, there's no need to create dual classes of new and old facilities if aggregate RNG industry growth occurs. Nonetheless, to address potential concerns regarding unintended increases in emissions, the RNG industry recommends the agency conduct a five-year check in in 2029. The Treasury Department could find projects built prior to 2030 meet any such incrementality or similar requirement with a check on the market impacts of increased hydrogen production to determine if any induced emissions patterns for RNG can be discerned. This aligns with timing prior to which addressable biogas availability and RNG projects in the industry's pipeline will ensure that movement of RNG from one end use to another end use will be backfilled with new RNG production. It also provides DOE with more time to see how the market operates as the RNG industry is in the early stages as far as reaching its potential supply.

We also wanted to broach industry's perspectives on temporality and deliverability. First, we believe temporal requirements for electricity should not be applied to RNG. Due to the operations of the natural gas market, overly stringent time-matching requirements will likely be impractical, if not impossible, to achieve, serving to disincentivize RNG use. The industry's standard for settled gas transactions is to balance supply and demand on a monthly basis, and hydrogen production is often tracked on a quarterly basis. Temporal requirements for electricity shouldn't be applied to RNG because of drastic differences between electricity generation and RNG production.

First, wind and solar generation are intermittent where RNG production is not. And second, there is no substantial storage infrastructure for power where there is extensive gas storage capacity. Where fossil gas is displaced by RNG that is injected into the pipeline system, use of current market operations is sufficient to ensure RNG volumes made available match the amount of gas used by the hydrogen producer.

Second, on geographic deliverability, we believe strict requirements for RNG are not necessary. With the system for balancing volumes injected and withdrawn and its substantial storage capabilities, the entire pipeline system is the proper geographic scope for the section 45V credit. Any regional limitations on the production and use of RNG would be impractical and not based on physical realities. Because of the interconnectedness of the pipeline system and based on the long-standing system for measuring natural gas transportation and delivery, there is no need to impose geographic restrictions for RNG. EPA, in fact, mentioned in a December 2023 letter to Treasury why and how deliverability of RNG transported via pipelines can be tracked without requiring geographic limitations on the use of RNG beyond being part of the same broader pipeline system.

Another item we'd like to mention concerns the frequency of calculation of the emissions rate of a clean hydrogen production facility. Given the ability to store and deliver RNG within the pipeline system, the scale of hydrogen plants, and quantities of RNG required to reduce the emissions rate of clean hydrogen produced by a facility in a year, taxpayers should be permitted to use an accounting period of one month or one quarter to calculate individual life cycle emission scores and to add the amounts together to establish eligibility for section 45V within a year. In this way, large hydrogen facilities can be built and be filled up with incremental RNG supply. This will increase the build-out of hydrogen capacities and matching RNG projects.

As a final point, we'd urge that the final rule support existing facilities to begin producing clean hydrogen using RNG. To support the cost-effective and rapid deployment of clean hydrogen, the Treasury Department should consider how to support facilities to transition from fossil natural gas in the production process to RNG. This will provide emissions reduction sooner, reduce the potential environmental impacts of building new plants, and ultimately keep costs down for end users.

The IRA presents a major opportunity to decarbonize the economy and was a crucial step in the pursuit of U.S. climate goals. As recognized by Congress and DOE, the sustainable development, deployment, and utilization of RNG as a clean hydrogen feedstock should play a key role in that pursuit. Practical, workable, and science-driven requirements for RNG pathways under section 45V can stimulate investment in new RNG development, which accelerates organic waste methane abatement and helps jump-start the clean hydrogen industry. On behalf of RNG Coalition, thank you for the opportunity to provide this testimony, and we appreciate your consideration of our position. Thank you.

MR. YOUNG: Good afternoon. I'm John Young, representing Mitsubishi Power Americas. We design, build, service, and optimize the world's most efficient advanced glass gas turbines for tomorrow's power plants and are an industry leader in hydrogen and battery energy storage systems. Headquartered in Lake Mary, Florida, Mitsubishi Power employs more than 2,300 people in North, Central and South America. We are the power solutions brand of Mitsubishi Heavy Industries, headquartered in Tokyo, Japan. I'd like to begin today by thanking the IRS and the Treasury Department for its commitment to IRA energy tax implementation during this busy time for the agency and the department. IRS's commitment to a timely stakeholder engagement process across the IRA's many energy provisions plays a key role in providing certainty and predictability to companies like ours, leading the energy transition in the U.S.

Mitsubishi applauds the work of the agency to help and announce 45,000 clean energy projects get built faster and more affordably here in the U.S., and we appreciate the agency's willingness to engage with us today on a number of those projects seeking to avail the production tax credit for clean hydrogen in section 45V. Mitsubishi believes the development of the U.S. clean hydrogen industry is critical to reducing global GHG emissions, meeting our nation's climate goals, and creating good-paying jobs here in the United States. That's why we're proud to support the Biden administration's strong commitment to accelerating the clean hydrogen economy. Mitsubishi remains an honored partner with the Department of Energy to help the administration build on that strong commitment.

As you may know, Mitsubishi and DOE's loan programs office have been mutually invested since June 2022 as the success of a major hydrogen production and seasonal storage project in Utah, which represents the department's first loan guarantee for energy project in over a decade at over $500 million. More recently, Mitsubishi is poised to become a grant subrecipient in two of DOE seven hydrogen hubs, contributing project expertise in the HyVelocity and Pacific Northwest hubs as we continue award negotiations with DOE.

So given our investments and partnerships with the administration in the success of several major hydrogen projects, the tax credit for the production of clean hydrogen in section 45V is a key tool to advance our mutual goals of building out the hydrogen economy. We therefore greatly appreciate the opportunity to testify here today. So while Mitsubishi applauds the administration's work to advance clean hydrogen, we fear that the IRS proposed rule misses the mark by jeopardizing the clean hydrogen industry's ability to get off the ground successfully.

When developing the IRA, Congress intended for the clean hydrogen incentives to be flexible and technology neutral. After extensive modeling and analysis of the proposed rule's potential impacts on our U.S. hydrogen projects, Mitsubishi comes to the same conclusion of several key senators that the draft 45V guidance does not fully reflect Congressional intent. With that in mind, we offer the following recommendations, starting with the 45VH2-GREET model. Many of these have been said before, so I'll be rather brief here.

On the GREET model, generally, the uncertainty of future changes to the 45VH2-GREET model may result in the inability to finance projects. And so, to reduce this uncertainty, we request the IRS allow taxpayers the flexibility to choose between two options, both of which have been said already: the latest version of the model, developed on the first day of the taxpayer's taxable year in which the qualified clean hydrogen is produced, or the model available at the time the facility begins construction.

On the model itself, similar recommendations to other speakers here, flexibility should be built into the model so we can input actual background data when available, rather than rely on some values and assumptions built into the background data of the model. We also request IRS to allow taxpayers to input excess steam for all pathways. Additionally, coke product steam should be treated as foreground data in a model to best represent actual carbon intensity.

So, past the GREET model, Mitsubishi believes low-carbon hydrogen production through carbon capture is necessary to grow the hydrogen economy and reduce emissions at the scale required for the U.S. to meet its 2050 decarbonization goals. With this in mind, we recommend IRS remove the following policy barriers to low-carbon hydrogen projects seeking to avail 45V.

First, we urge IRS to allow taxpayers with separate independent production lines to avail section 45V and section 45Q (phonetic). We're not trying to stack them, we're simply trying to avail them on a separate production line basis, even if the production lines are co-located and interconnected via utility, power, or other systems.

Second, we request IRS to allow taxpayers to track fugitive natural gas emissions on a project-by-project basis and provide a measured feedstock CI (phonetic) for natural gas used to create hydrogen. This tracking flexibility will incent the reduction of both methane emissions, as mentioned, and the production of lower-carbon hydrogen.

On the three pillars, I would largely defer to the FCHEA's comments on these. I thought they were really well done. I'll just kind of say from Mitsubishi Power's perspective, we undertook a very extensive modeling exercise, one unrivaled by many of our peers in the industry, to determine the proposed three pillars' impacts on our hydrogen production business goals. While I humbly refer to you to our written comments for the details and methodology there, please allow me to briefly share our conclusions there.

Our modeling analysis infers real-world outcomes of proposed requirements and their constraints. We find that the proposed rules result in significant unnecessary system overload, sorry, overbuild, leading to increased emissions and higher green hydrogen production costs. So to determine the cumulative impact of the proposed rules, we analyzed and modeled the impact caused by the constraints in each separate pillar on the total system costs and the levelized cost of hydrogen, LCOH.

As per section 45V, qualified hydrogen facilities can avail the $3-per-kilogram credit for 10 years. So based on a facility service life of 30 years and a discount rate of 8 percent, we found a levelized value of the section 45V credit is $1.79 per kilogram. So when all three pillars are applied across the different regions we analyzed in our models, we found the cumulative impact results in an increase in the LCOH ranging around and even above that $1.79 per kilogram, meaning that in some regions, the cost to implement the proposed rules can outweigh the production incentives Congress intends to provide. Combined, our modeling results show that the three pillars would cause a significant increase to a project's capital costs anywhere from 50 percent to 110 percent. That's why we believe that if finalized as proposed, the 45V rules will impede the utilization of hydrogen in hard-to-abate sectors, thereby preventing the administration from reaching its climate goals.

Thank you very much for giving Mitsubishi Power's written comments your thoughtful consideration. Please feel free to follow up with any questions or clarifications and thank you for your time. Look forward to further engagement with the agency.

MR. DEXTER: Is our next speaker, Gene Grace from the American Clean Power Association here? Benjamin Kasper from Generation Atomic?

MR. KASPER:Good afternoon. My name is Lieutenant Benjamin Kasper, and I am a submarine officer with the United States Navy. I am speaking here today as a private citizen in my role as director of government affairs for Generation Atomic in order to provide public comment on the proposed regulations regarding clean hydrogen tax credits.

Our organization has submitted comprehensive comments online answering very specific questions, and today I will be summarizing some of the key points covered. The four main categories that I will be covering are avoided retirement, 5 percent approach, the formulaic approaches, and temporality.

At Generation Atomic, we strongly support the avoided-retirement approach for clean hydrogen production incentives. Existing clean energy sources should not be diverted for hydrogen production unless a facility would otherwise retire without the credits. While the goals should be to minimize retirement of clean power plants, we acknowledge that striking the right balance is challenging. If requirements are too strict, plants in need of incentives to remain open may not apply and shut down anyway. If requirements are too lax, plants that would otherwise stay open regardless of credit may qualify and therefore limit available resources for truly need-based cases.

Some specific recommendations that we have toward the retirement approach: first, to study the policies in Illinois and New Jersey where plants have had to demonstrate financial need in order to qualify for state-level subsidies. Second, to allow all plants facing closure to be considered incremental, subject to proving that they would retire without the incentive. Third, limit subsidies given to said plants at the minimum necessary requirement in order to avoid retirement, including a comprehensive review of finances. This would be to save the government money as well as reinvest where necessary. Fourth, reevaluate eligibility every few years, adjusting subsidies based on current market conditions. This approach can be found in the Illinois legislation. And finally, we would like for previously retired plants that come back online to be brought to be viewed as new production as well as operating to also be viewed as new production. The key for the requirements will be finding the right balance to channel incentives effectively towards avoiding retirements of clean energy while not over subsidizing plants that would otherwise continue operating regardless of if they made more money.

On the blanket 5 percent rule, Generation Atomic does not support this approach. The argument that companies do not know how much electricity that they produce at each facility is counterfactual. Operators track their real-time output in order to maintain profitability and prevent outages.

However, if a blanket subsidy is to be considered, it should meet the following requirements. First, be assessed on a plant-by-plant basis or at a very minimal regional level. Any fleet level would be too broad, and operators operating across multiple regions could hide profitability elsewhere.

Second, only apply when wholesale electricity prices are negative and for the specific electricity produced during the hours of subzero pricing. Third, it should exclude producers already benefiting from subsidies and therefore willing to sell at negative prices. No producer, if not already receiving a subsidy, would be willing to sell their electricity at a negative price on the wholesale market.

If simpleization (phonetic) is desired during this approach, we believe that it should come through standardized reporting formats such as those already in use by the Federal Energy Regulation Commission. Standardized forms would simplify submissions and reviews versus operators submitting their own formats for requested data. This will also allow for ease of auditing to assess base-level operational data if concerns arise.

A clear and audible system would ensure that only those in need of credit during negative prices are receiving it and prevent market exploitation. On formulaic approaches, Generation Atomic firmly believes that the application of 45V credits should be done through a rigorous application approach and not formulaic alternatives. It is crucial that financial support from the forms of credit, including avoided retirement program, goes solely to facilities in true need of it to remain operational.

Simplification in the process by most formulaic approaches will dilute the effect of the credits over a large group of facilities, most of which either don't require assistance or already receive existing subsidies. This is an inefficient and ineffective way to achieve production of both clean hydrogen and electricity. While formulaic approaches may seem simpler, it defeats the purpose of approaches such as the avoided-retirement initiative by limiting the benefit to plants in need. At the cost of this simplification, we risk losing those critical clean sources of power. A rigorous vetting process is therefore imperative to direct funds where they are most needed.

On temporality, we strongly support the proposed rule linking electricity accounting credits, or EACs, to the specific hour and date of generation and consumption. This temporal matching requirement is critical for the EAC program to achieve its intended environmental benefits. We oppose the proposed five-year exception.

Additionally, a one-year time frame of evaluation is too broad and long to capture the daily and seasonal variation in zero-emission electricity supply. The stated reason for this exception, allowing for time for an hourly tracking system to develop is an insufficient justification to completely suspend the hourly requirement for five years. A superior approach would be to permit a delay in the rigidity of the documentation requirements while still requiring an adaptation (phonetic) that claims for an EAC credit meet the hourly matching requirement.

Major electricity markets such as PKM already track and sell electricity produced hourly, today. This demonstrates that verification of a system should not require five years to implement across the market. Requiring hourly tracking to be implemented will expedite the spread of such technology throughout the industry. We therefore strongly urge maintaining the hourly temporal matching requirement while allowing a reasonable path to build robust compliance verification processes. The integrity of the EAC program depends on it. At the very least, the temporal requirement should be strictly enforced without a five-year delay or any pursued exception to the baseline additionality requirement.

In conclusion, Generation Atomics supports a tailored plant-by-plant analysis to target subsidies precisely where they are needed in order to preserve existing clean generation while allowing for expansion of new. Broad allowances risk redirecting clean power away from the grid or being exploited by producers double dipping on subsidies to get credits that they do not need. Overall, the aim of the 45 tax credit should be to incentivize new hydrogen output through addition of clean sources to the grid and prevent proven clean sources from retiring.

Every day, onboard American submarines, rampable electrolyzers powered by a nuclear reactor are used to split water into oxygen and hydrogen for atmospheric controls while we remain deep underwater. It is time that the American public is able to use the same technology to not only maintain a clean grid, but also produce clean hydrogen.

Thank you for your time, and we appreciate your unenviable position of deciding the final ruling on such a landmark and important legislation.

MR. KAMRATH: Good afternoon. My name is Erik Kamrath, I'm the federal hydrogen advocate for the Natural Resources Defense Council. NRDC's mission is to safeguard the Earth, its people, its plants and animals, and the natural systems on which all life depends. We thank Treasury for diligently considering the legal, climate, economic, and technical evidence in publishing a proposal for the 45V clean hydrogen tax credit.

I'd like to start by making a key observation of the testimony provided today, which is that we find it truly dumbfounding that none of the groups who have asked for weakening of the proposed rule have argued that this would be consistent with IRA requirements or its intent to decarbonize the U.S. economy. It's crystal clear that these asks are instead tied exclusively to their company's own interests.

NRDC fully supports Treasury's proposal for electrolytic hydrogen production, and we urge Treasury to finalize this strong proposed guidance, which includes the three-pillar framework in its current form without broad exemptions. A wide ranging and diverse set of U.S. taxpayers support the NRDC's proposal for electrolytic hydrogen, which includes the consensus of environmental and public health organizations, industry groups across the hydrogen value chain, members of Congress, consumer advocate groups, and environmental justice groups.

In my testimony today, I'll focus on three aspects of why Treasury's proposal for electrolytic hydrogen production should be finalized in its current form, which include that the proposal is consistent with clear statutory language, consistent with congressional intent, and it's the fiscally responsible solution. Additionally, I'll explain why the 5 to 10 percent allowance for existing clean energy to qualify as incremental, which Treasury is considering, is an explicit violation of IRA emissions thresholds and should be rejected.

First and foremost, NRDC would like to highlight that Treasury's proposal for electrolytic hydrogen production is consistent with statutory language in the Inflation Reduction Act. Treasury is statutory required to consider significant indirect emissions from hydrogen production, as demonstrated by the IRA's cross reference to the Clean Air Act's renewable fuel standard. Because induced grid emissions squarely constitute as significant indirect emissions from hydrogen production, Treasury is required to consider induced grid emissions when calculating life cycle greenhouse gas emissions of electrolytic hydrogen projects.

The EPA has also confirmed this finding to be consistent with the agency's long-standing interpretation and application of section 211(o)(1)(H) of the Clean Air Act. NRDC's legal assessment is into full agreement with EPA, as we've previously outlined in our joint legal comments with the Clean Air Task Force, which has been submitted into the record. Given this logic is well substantiated, Treasury must account for induced grid emissions when determining whether a project meets IRA emissions threshold.

Overwhelming evidence, including from the DOE and the EPA, shows that absent the three pillars, the risks of significant induced grid emissions from hydrogen production are high. This expert assessment by the agencies is robustly substantiated. Studies by Princeton's ZERO Lab, Energy Innovation, and the MIT Energy Initiative find that if hydrogen projects are not required to comply with all three pillars, they could have an emissions intensity upwards of 40 times above the 45V threshold to qualify for the $3 per kilogram of hydrogen credit value. The Electric Power Research Institute and Evolved Energy Research draw a similar conclusion.

Furthermore, ERM consulting recently conducted a meta literature review of 30 independent reports and analyses on the topic, which confirmed there is a very strong consensus that hydrogen production will drive substantial emissions increases if the three pillars are not in place. Therefore, by using the three pillars as a proxy for induced grid emissions, Treasury has made a reasonable, factual determination that follows the express statutory language of Congress.

In short, failing to consider significant indirect emissions from hydrogen projects and failing to require the three pillars would be an explicit violation of clear statutory language, a flagrant departure from legal precedent, and would violate IRA emission thresholds. It's also noteworthy that the DOE and EPA have confirmed the three pillars are a reasonable and appropriate proxy to determine minimal to zero induced grid emissions.

In addition to being consistent with statutory language, the three pillars are entirely consistent with congressional intent. Since weakening of the three pillars would lead to significant emissions increases from hydrogen production, doing so will fundamentally undermine the animating purpose of the enabling statute in the IRA, which is to support the decarbonization of the U.S. economy. Parties calling on Treasury to weaken the three pillars, including those some of them today, routinely fail to explain how their position in support of weaker rules is consistent with Congress's stated purpose to reduce U.S. greenhouse gas emissions or the IRA's explicit incorporation of section 211(o) of the Clean Air Act.

The three pillars will also support substantial industry growth, as Congress intended. Claims that the three pillars will hinder industry growth flout on-the-ground evidence and are contrary to the best analytical findings. The bulk of first-mover projects in the U.S. and the European Union are three pillar compliant. We list a subset of those projects, beginning on page 27 in our written comments. Also, a resounding chorus of companies has publicly supported Treasury's proposal and are providing comment to that effect today and this week.

In December 2023, Air Products, Hy Stor Energy, Synergetic, EDP Renewables, among others, sent a letter to Treasury expressing confidence in the three pillars' ability to deliver robust industry growth, indicating that they have a collective scale of planning and interest exceeding a whopping 50 gigawatts of three-pillar compliant projects in the U.S. This scale alone of 50 gigawatts will deliver significant technology cost reductions and likely more than half the cost of electrolyzer technologies in this decade.

The European Union also offers a powerful case study and further evidence that the three pillars will support substantial industry growth. Despite some in the industry crying wolf that the three pillars would stymie growth in the EU, the pipeline of announced projects since the EU adopted the three pillars in 2023 has already grown by 20 percent. We further outlined the rapid growth in the EU since the three pillars were adopted, beginning on page 25 of our written comments. The trends coming out of the EU should provide confidence that the U.S. industry will grow. Similarly, this should encourage Treasury to be acutely skeptical of contradictory claims. The analytical evidence finding the two pillars will not hinder the cost competitiveness of projects is equally overwhelming, and we summarize this on pages 21 through 38 of our written comments.

In addition to scaling a hydrogen industry that decarbonizes the U.S. economy as Congress intended, it's also worth underscoring the three pillars are the fiscally responsible solution. The Electric Power Research Institute has estimated that the fiscal costs of 45V could be substantial if the pillars are weakened. Their lower-end estimates show that the total fiscal outlays with the three pillars would amount to $385 billion, but that number rapidly slips into the upper 400s and 500s of billions of dollars as the pillars are weakened.

Lastly, I will remark on the emissions impacts and cost implications of the 5 to 10 percent broad allowance that Treasury is considering. The Rhodium Group, Energy Innovation, and Princeton have all independently found that the 5 to 10 percent broad proxy would lead to substantial and unlawful induced grid emissions. The Rhodium Group found that a 5 percent allowance would drive up to nearly 1.5 billion metric tons of increased emissions through 2035. A 5 to 10 percent proxy will drive substantial induced grid emissions and support hydrogen production with a life cycle greenhouse gas intensity up to five times worse than section 45V's lowest emissions threshold.

This allowance is clearly in violation of IRA statutory requirements and should be rejected. Furthermore, a 5 to 10 percent allowance would cost taxpayers approximately an extra $50 to $100 billion in fiscal outlays over the 10-year tax credit period and produce highly emitting hydrogen. NRDC does offer targeted flexibilities that are pragmatic for existing clean energy to qualify as incremental without violating statutory requirements on page 65 of our comments.

In sum, Treasury has shown a commendable commitment to statutory language, scientific fact, soliciting input, and rulemaking. As you work to finalize these rules, we urge you to finalize the strong proposal for electrolytic hydrogen production without broad exemptions. The three-pillar scenario is the only scenario that lowers cost for U.S. taxpayers, reduces emissions, is consistent with statutory language and congressional intent, will scale the hydrogen industry, and support the decarbonization of the U.S. economy.

MR. DEXTER: That's all the speakers that we have scheduled today. I want to thank the speakers and my co-panelists from the Treasury and the IRS for their time for being here. This will conclude day 1 of the public hearing on the section 45V proposed regulations. Thank you. Have a good day.

(Whereupon, at 3:58 p.m., the PROCEEDINGS were continued.)

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SECTION 45V CREDIT FOR PRODUCTION OF CLEAN HYDROGEN; SECTION 48(A)(15) ELECTION TO TREAT CLEAN HYDROGEN PRODUCTION FACILITIES AS ENERGY PROPERTY

UNITED STATES DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PUBLIC HEARING ON PROPOSED REGULATIONS

[REG-117631-23]

DAY 2

Washington, D.C.

Tuesday, March 26, 2024

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PARTICIPANTS:

For IRS:

COURTNEY HUTSON
Attorney

ALAN TILLEY
Attorney

JAMES RIDER
Senior Counsel

JASON DEXTER
Special Counsel

For U.S. Department of Treasury:

JENNIFER BERNARDINI
Attorney-Advisor (OTP)

Speakers:

ROXANA BEKEMOHAMMADI
United States Hydrogen Alliance

MARK VIEHMAN
Capgemini America Inc

ANTONIO FAYAD
EDP Renewables North America LLC

MATTHEW SMALL
StormFisher Hydrogen

SHAWN BENNETT
Appalachian Regional Clean Hydrogen Hub

JENNA PETH
Differentiated Gas Coordinating Council

CHARLES FRANKLIN
American Chemistry Council

MICHAEL MOORE
Waste Gas Capture Initiative

DOROTHY R. DAVIDSON
Midwest Alliance for Clean Hydrogen

DANIEL ESPOSITO
Energy Innovation Policy & Technology LLC

PATRICK SERFASS
American Biogas Council

DR. ILISSA OCKO
Environmental Defense Fund

NATHAN IYER
RMI

THOMAS PIPER

MICHAEL L. PLATNER
Carbon Utilization Research Council

TOMMY GERRITY
Orsted

JANET ANDERSON
Clean Hydrogen Future Coalition

JEFFREY HANSEN
Steel Dynamics

ADAM VICTOR
TransGas Development Systems, LLC

JAMES MENNELL
Aymium

H. WILLIAM BURDETT, JR.
Mesabi Steel (Mesabi)

MANUEL SALGADO
WE ACT for Environmental Justice

RICK MILLER
LyondellBassell

JOHN F. KOTEK
Nuclear Energy Institute

NEIL BLACK
ROSS BUCKENHAM
California Bioenergy LLC

MATT TANNER
ROSS KEOGH
Los Angeles Department of Water and Power

RANDY LACK
Anew Climate LLC

MIHALY WEKLER

RYAN BUSH
Project Canary

RICHARD STUCKEY
Self

BARBARA BRANDOM
Self

TRACY CARLUCCIO
Delaware Riverkeeper Network

KAREN FERIDUN
Better Path Coalition

PEGGY ANN BERRY
Self

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PROCEEDINGS

(10:10 a.m.)

MR. TILLEY: Good morning. This is the public hearing regarding the credit for production of clean hydrogen under section 45V of the Internal Revenue Code and the election to treat clean hydrogen production facilities as energy property under section 48(a)(15) of the Internal Revenue Code.

A notice of proposed rulemaking was published in the Federal Register on December 26 of last year. Numerous written comments were received and the IRS also received numerous requests to speak. Each speaker will have 10 minutes to present their comments. The AT&T moderator will unmute the speaker. When I say the speaker's name and when the speaker has 1 minute left, the moderator will announce there's 1 minute left. When the 10 minutes is up, the moderator will mute the speaker.

Now let me introduce the panel. My name is Alan Tilley, I'm an Attorney at the Office of the Associate Chief Counsel for Passthroughs and Special Industries. CSI Branch 6 has jurisdiction over section 45V. Accompanying me on the panel is Courtney Hutson. Courtney is an attorney in Branch 6. Also on the panel is James Rider. James is also an attorney in Branch 6. Jennifer Bernardini, who's a Tax Policy Advisor in the Office of Tax Policy at the Treasury Department, is also on the panel.

Now I'd like to introduce our first speaker. Our first speaker is Roxana Bekemohammadi for the United States Hydrogen Alliance.

MS. BEKEMOHAMMADI: Thank you so much. My name is Roxana Bekemohammadi. I'm the founder and executive director of the U.S. Hydrogen Alliance. We appreciate the opportunity to share our thoughts on section 45V, Credit for Production of Clean Hydrogen. The United States Hydrogen Alliance is a nonprofit trade association dedicated to building the U.S. hydrogen economy. Our organization represents hydrogen companies actively deploying clean technologies across the country.

We would like to share our perspective on several key program areas for your consideration. These requests and concerns address the hydrogen economy grandfathering methane, the 45VH2-GREET pathways model, development of market mechanisms, grid electricity, temporal matching, the anti-abuse rule, energy attributes, certificates and incrementality.

As shown after the United Nations Framework Convention on Climate Change Conference of COP27, hydrogen projects from international investments are occurring in Japan, Saudi Arabia, Egypt, Northern Europe, and other nations. The United States is being left out of hydrogen conversations due to the proposed stringent 45V guidance, leaving the country ultimately behind other nation-states. Most investors now doubt — let me repeat that since there's background noise — most investors now doubt the economic viability of hydrogen projects in the U.S. But the global market would still like to see these projects developed in the U.S. due to the usual safety of investments in this country. Still, until the ruling creates a more inclusive environment all the money and infrastructure associated with developing them will stop in the U.S.

We ask for the allowance of grandfathering for nuclear, hydropowered, geothermal, renewable natural gas, and biogas plants. These plants can take 10 to 30 years to develop, a timespan not currently accounted for in the guidance. The energy provided by these plants will fill in any energy gaps created by solar and wind facilities. We unfortunately cannot rely on batteries to store energy to fill in these gaps due to the lack of technological advancements for duration, scale, power, and supply of batteries.

We also asked for flexible access to low greenhouse gas methane sources such as renewable natural gas, responsibly sourced gas to reduce greenhouse gases, and the levelized cost of hydrogen. Methane-splitting technologies produce both hydrogen and solid carbon. Solid carbon is a commercial product. The proposed regulations do not clearly address how this carbon will be treated, which is important for purposes of allocating the GHG emissions.

The 45VH2-GREET model guidance document and the model itself indicate that only steam, oxygen, and nitrogen may be valorized. We urge the Treasury Department to include the concept and definition of "valorization" in the final regulations, and to permit solid carbon to be treated as valorized when the carbon is sold or used to produce an end-product that will be sold.

We also ask for the inclusion of distinct upstream methane types in foreground data in the 45VH2-GREET model to subsidize for lower greenhouse gas methane, along with the support for development of market mechanisms to validate distinct methane carbon intensity. The 45V hydrogen GREET model does not have a pathway for methane spring technology. We request that a new pathway be added by Argonne National Laboratory as soon as possible, with our input and collaboration where possible.

We also suggest that the Treasury Department allow companies to obtain a provisional emissions rate in parallel based on our own data and verification until the new pathway is available. We further propose that the Treasury Department guarantee optionality between PER and 45V GREET data and also provide transparency on life cycle analysis methodology for the lifetime of a project to reduce risk and accelerate project investment and clean hydrogen production.

The proposed regulations use large North American Electric Reliability Corporation regions to determine the baseline GHG emission score for grid electricity used to produce hydrogen. But smaller areas need to determine the eligibility of these credits to offset those emissions. This disadvantages producers in localities like Oregon that have invested in a clean grid by placing them in a larger pool of generally dirtier power generation for farming with this greenhouse gas emission score, while then limiting them for purposes of credit.

We recommend that the Treasury Department use the same or similar regions for both purposes or allow for exceptions for states and other jurisdictions that have a substantially clean electricity grid attributable to both local [. . .] and to local generation purchase power.

In the context of advancing hydrogen production and renewable energy capacity, it is proposed that the approach to electrolysis and the addition of new renewable energy capacity be decoupled, allowing market dynamics to dictate the expansion of generation capacity based on the demand for clean power. This approach would ensure that the development of the electrolysis capacity and renewable energy generation is not hindered by the requirement for these elements to be directly linked. Instead, the market should serve as the primary driver for determining the optimal use of renewable energy generation by the necessary additional generation capacity.

Moreover, leveraging existing hydroelectric infrastructure presents a significant opportunity to augment clean energy sources, as highlighted by the Department of Energy studies identifying the potential to add 70 gigawatts of hydro capacity. To support sustainable hydrogen production, the integration of new nuclear and hydro resources, including pumped hydro storage, should be encouraged through market forces rather than prescriptive guidance. It's imperative to amend regulations within the Federal Energy Regulatory Commission to expedite the licensing process for hydro and nuclear facilities, enabling the timely addition of clean, stable, and cost-effective power sources. Such regulatory adjustments will ensure that hydrogen production is on equal footing with other greenhouse gas-reducing technologies, facilitating a balanced and efficient transition to a low-carbon economy.

The proposed regulations base the amount of tax credit available per kilogram of hydrogen on an annual average greenhouse gas score. This creates a risk for hydrogen producers that must purchase those credits to reduce their greenhouse gas score, as they may lose tax credits for the entire year if they're not able to secure enough of those credits due to matters beyond their control, such as weather events, market fluctuations, or supply disruptions. This is particularly troubling in 2028 and later when those credits must be matched to hydrogen production on an hourly basis.

We suggest that the Treasury Department allow hydrogen producers to choose between claiming 45V credits based on an annual average GHG score or only for those kilograms of hydrogen that can be demonstrated to have a sufficiently low greenhouse gas score, using the independent verification models already required in the proposed regulations.

Overall, temporal matching should be at the rate of either weekly or daily matching. It has been shown that daily and monthly time matching have resulted in similar environmental impacts over a five-to ten-year basis.

The antiabuse rule needs more clear guidelines specifically regarding the limitations on using qualified clean hydrogen to produce hydrogen. Hydrogen can be produced and consumed in the same process. Only the net clean hydrogen output should be eligible for tax credit claims. And I want to clarify that that means net hydrogen produced from a facility compared to gross hydrogen from the entire process. The proposed regulations require that any credits purchased to reduce the GHD emission score for hydrogen be generated at an electricity generation facility that has a commercial operations date that is no more than 36 months prior to the date on which the hydrogen production facility was placed in service. The proposed regulations do not clearly define how to determine that commercial operations date for refurbished electricity generation facilities.

We request that the Treasury Department clarify that the 80/20 rule, which analyzes the proportion of used to new equipment in a refurbished facility, should apply for purposes of determining the commercial operations date for the credits.

To directly address incrementality — while we oppose its integration, if it is to be passed, we believe it should be only applied to the power side of the equation. Electrons should be able to be replaced in the respective grid over a seven- to ten-year window after the facility comes online. This allows the development of sites at a scale not hindered by the current limitations presented by transformers, solar panels, and wind turbines. We would also like to support any hydrogen generation that is coming from nuclear, hydropower, or any other zero- or low-carbon electricity and renewable electricity, as this will further the country's decarbonization goals.

We at the United States Hydrogen Alliance thank you for your time and consideration. Please reach out to us if you have any questions. I respect your time. Thank you so much. And I yield the rest of my time.

MR. TILLEY: Great. Richard, I think you're the AT&T moderator, is that right?

MODERATOR: That is correct, sir.

MR. TILLEY: So we're going to ask that you mute everyone and then unmute them when they're called. Is that possible?

MODERATOR: Yes, it will take a moment. Please hold.

MR. TILLEY: Okay, thanks.

MODERATOR: All right, Mr. Tilley, the other lines have been muted.

MR. TILLEY: Great, thanks so much. All right, so our next speaker is Mark Viehman from Capgemini America.

MR. VIEHMAN: I'd like to thank the Department of Treasury —

MODERATOR: Mark, your line is open. You may proceed.

MR. VIEHMAN: Okay. Can you hear me now?

MR. TILLEY: Yes.

MR. VIEHMAN: Very good. Thank you very much. Good morning. My name is Mark Viehman. I'd like to thank the Department of Treasury and the IRS for the opportunity today to comment on some more specific aspects of the clean hydrogen policy.

I'm the principal consultant for hydrogen and clean fuels for the U.S. for Capgemini. Capgemini is an international consultancy based out of Paris with over 370,000 team members in more than 50 countries. I'm part of a smaller team of 360 engineers dedicated to finding solutions for the emerging clean hydrogen marketplace globally. Capgemini is also a foundational sponsor of the Open Hydrogen Initiative, OHI, an industry collaboration that leverages the expertise of a team of scientists, engineers, and industry partners to develop a life cycle assessment model that determines the carbon intensity of hydrogen based on site-specific data in order to conform to international standards, allow international independent certification, and facilitate trade of specific shipments in the development of a transparent and clean hydrogen marketplace.

OHI has already submitted written comments during the public comment period, principally around issues identified with the GREET model. Therefore, my testimony does not reflect a position of OHI, but does build what we have learned in Capgemini through taking a much deeper dive into hydrogen life cycle assessment through this collaboration effort.

Capgemini's position is that the three pillars is good public policy and in the public interest. 45V's tiered production tax credit structure is a bold step to reward hydrogen producers who make the investment to reduce their emissions. Further, this tiered approach is currently unique to the U.S. establishing a clear leadership position in hydrogen policy. It roughly aligns with EU policy and we believe that harmonization of standards will be beneficial for the development of the global hydrogen marketplace.

Despite the challenges that 45V's carbon-intensive requirements present for qualifying for production tax credits, these challenges can and will be overcome through a careful use of existing technologies and the development of new technologies. These are the earliest days of the application of clean hydrogen at scale, and we should be open to supporting new technologies, such as enhanced geothermal and sedimentary geothermal as they are developed.

You have already heard powerful testimony from one of the world's leading hydrogen producers, stating that they have already designed compliance with the three pillars into their projects. That stands as a clear validation of the proposed policy that's been submitted. So in the interest of time, I will discuss instead environmental attribute certificates and focus specifically on the potential application of avoided emissions in EACS.

On page 89,229 of the Federal Register, there is discussion that a hydrogen producer purchasing zero-GHG=emitting electricity, that's represented under an EAC, is relatively straightforward to verify both the direct and indirect emissions resulting from a purchase in use. However, for minimal emitting sources of electricity, additional considerations may be necessary to verify the full range of direct and indirect emissions. Treasury and IRS have requested comment on what information is needed to document and verify these greenhouse gas emissions, and this is what I'll address.

If EACs for low-carbon power were to have the added attribute of the marginal emissions reductions at the point of their generation, the resulting calculation is simplified: balance the incremental emissions associated with hydrogen production with the marginal emission reductions from low-carbon generation elsewhere. Rather than relying on rules that dictate where and when renewable electricity can be utilized to produce hydrogen, why not directly tackle the objective of CO2's neutrality and CO2 reduction? After all, CO2 in the atmosphere is not a local phenomenon, and it really doesn't matter exactly where or when emissions are offset, but it certainly does matter that they are offset effectively.

This is not a new concept, though it has not figured prominently in the clean hydrogen debate so far. There is, however, some very rigorous analysis in this area of emissions matching that has been conducted by others, and I have cited that work in a LinkedIn article I recently published. Therefore, our recommendation at Capgemini is to maintain the proposed policy, but to remain flexible to better approaches in time.

In the near term, we need to advance the currently reproposed policy as quickly as possible to allow project developers to make their investment decisions and secure financing. The public policy should never remain static. It should adapt to new realities as they develop. So, in addition to the three pillars, future policies should reward those projects that can demonstrate their ability to effectively decarbonize through technologies and approaches not yet known. The careful use of locational marginal emissions is a good example of that.

And in closing, I'd like to cite the policy known as PURPA from 1978 as a good example of how this has been done. PURPA opened a new era of independent power generation by deeming that those qualified facilities that reduced energy consumption or promoted energy efficiency should be deemed to be required to have their power purchased from prevailing utilities. That ushered in a new era for independent power generation and ultimately 20 years later, for the opening up of the power markets themselves. That was an unintended, but positive consequence of that policy. We're standing at the doorstep, if you will, of being able to apply a comparable future-looking policy to hydrogen production. Cogenerators were rewarded for their efforts by contracting with utilities of prevailing long-run avoided cost of generation that was being avoided. Comparably, if we can reward producers of hydrogen with a long-run avoided emissions, that can provide the certainty that they need for their financing going forward.

With that, I thank you for your consideration of the recommendations.

MR. TILLEY: Okay, great. Our next speaker is Antonio Fayad from EDP Renewables North America.

MODERATOR: Antonio, your line is open. You may begin.

MR. FAYAD: Hi there. Can you confirm that you can hear me?

MR. TILLEY: I can hear you.

MR. FAYAD: Perfect, thank you. I'll proceed then. Thank you for the opportunity to testify in such an important topic for the energy sector of the United States. My name is Antonio Fayad and I lead the strategy and origination activities on hydrogen for EDP Renewables in North America. To provide some context on our activity, the EDP group operates across the entire value chain of power in more than 30 different countries. And specifically in the United States, we have been developing and operating renewable since 2007. Since then, we brought online more than nine gigawatts of renewable and invested approximately $17 billion across 17 different states, significantly contributing to the decarbonization of the power sector and bringing jobs in areas in need.

Considering that background and understanding the need to deploy solutions that go beyond renewable electricity to decarbonize our entire economy, for the past three years we have a global dedicated team to developing electrolytic hydrogen projects. As part of our work, we have been actively providing our view on how to create an industry that can drive sound economic growth, without losing the focus on the fundamental motivation, which is to reduce emissions. As such, we overall welcome the proposed rules as we are in support of the principles of incrementality, deliverability, and time matching, which are critical to ensure the adoption of the most cost-efficient path for the decarbonization of our economy.

From our extensive activity in wind, solar, and on hydrogen, we have learned two important lessons that are important in the context of this guidance. The first one, PTC rules will inevitably shape the way the clean hydrogen industry evolves. And the second one, is that tax credit revenues need to have an adequate level of predictability to be effective.

On the first one, strong incentives, such as the production tax credit we are discussing here today, in an industry where the value chain only exists in specific locations of this country, need to be carefully drafted as they will determine the way the industry evolves and how, where, and what type of projects are being developed, including which sectors are being targeted. As the economic viability of renewable hazard doesn't exist today, developers will make their best effort for their project to comply with the future guidance rules, whatever they are. This is why we believe that the PTC rules need to already take into account the long-term objectives of the industry we want to create, which in this case, is to reduce emissions. Developers engaging on hydrogen today should have that cleared from the start and design their project with those objectives in mind.

On the second lesson, tax credits had and still have a significant role on the deployment of renewables in the U.S. In fact, our own operation is still significantly financed through the monetization of tax credits. It provides us with a unique view on how banks and other institutions that finance these projects perceive the risks associated with those revenues. The ability for developers to provide an accurate expectation on the tax credit's revenues is paramount for the project's risk assessment and its ability to be financed.

Taking these two lessons into account, I'll focus most of my comments on the proposed methodology to determine the annual tax credits that a project is eligible to receive. Under the proposed guidance, as you know, a project is evaluated for its annual average emissions, and all hydrogen produced in a given year is considered to be eligible or not to a certain level of tax credit. Although this methodology is environmentally sound, we believe that it doesn't suit the current needs of the market and the hydrogen developers as it overly penalizes projects for failing to comply in a very small number of hours. For example, using as reference the average carbon intensity of the U.S. power grid. Failing to comply in more than 2 percent of the hour reduces the tax credit amount of a project by two-thirds. Failing to comply just 15 percent of the hour completely eliminates the tax credits of that project. This implies that projects that comply 85 percent of the time with the three pillars are often put in an equal field (phonetic) with others that don't comply in any hour. Taking into account that the PTC could represent a large share of the project revenues, this considerably increases the default risk of a project. Adding this risk to the normal challenges of scaling up nascent technologies could considerably harm the deployment of electrolyzer projects in the short term.

What we propose in alternatives is to adopt a two-step approach in which first, projects are deemed eligible or not eligible to receive tax credits on a given year based on their annual average emissions. If they can meet the standard of being equal or below per kilograms of CO2 emitted per kilogram of hydrogen produced on an annual basis, a project is deemed eligible. If considered eligible, then the annual amount of PTC is then given by evaluating the carbon intensity of the project separately for each hour of the year, allocating the associated tax credit amount and multiplying by the quantity produced in a given hour. By replicating this for all hours of the year, and summing the tax credit amount of each hour, we will breach the total annual tax credit amount.

In summary, this means that if a project is eligible to receive the tax credit in a given year, and it's then capable of demonstrating that it complies, for example, 85 percent of the time with the three pillars, it will be eligible to receive a tax credit equal to 85 percent of its annual hydrogen production times $3 per kilogram. You can find a more detailed explanation on our written comments on the exact methodology that we're currently proposing.

So, everyone understands the degree of flexibility that this would add to a project, the number of hours that a project would be able to not comply with the three pillars. Assuming, once again the average U.S. power grid carbon intensity would be approximately 17 percent of the hours. We believe that this methodology ensures the following objectives. First and foremost, it reduces emissions. Current hydrogen production emits approximately 9 kilograms of CO2 per kilogram of hydrogen, and so we would be achieving a minimum of 50 percent of emission reductions. But we would be ensuring that taxpayers would only be funding the share of production that meets the clean hydrogen standard. Second, it would provide a more predictable evolution of project revenues as the value of tax credits is linear with the number of hours a project complies, which could bring a significant positive impact on the bankability of projects.

The third point I would like to highlight is that this methodology allows developers to adapt the level of compliance that they aim for when designing their projects based on their client needs. For example, set hydrogen delivery profile, the security of supply of hydrogen that they want, and of course, their willingness to pay.

And last, this methodology continues to be environmentally sound, independently on the project location, and the emissions profile of the power grid that it's connected to. We considered that this approach strikes an adequate balance between the flexibility required to promote the deployment of new technologies and the need to reduce emissions. This does not happen with other solutions that I discussed here, such as fixing a number of hours that projects are hesitant to comply. For example, fixing a number of exception hours has an unknown environmental impact because it depends on where a project is developed on, and any proposed number of hours will quickly become obsolete as renewable deployment across different power markets increase at different paces.

Before I proceed to my closing remarks, I would like to highlight again that availability of a project is heavily dependent on the ability to predict its revenues for that. For that —

MODERATOR: One minute remaining.

MR. FAYAD: — it is paramount that the regulatory framework that a product is subjected to is stable across its lifetime. In order to secure that, we would ask the IRS to allow developers to compute their emissions based on the most updated version of grid model available on startup construction across the entire duration of the tax credit. I would like to conclude my statement by highlighting that the hydrogen industry has a critical role to play in the U.S. meeting its environmental targets and is currently at an inflection point. We urge the IRS to swiftly implement the final guidance so all stakeholders can understand the regulatory framework that they have to abide to. The principles laid down on the initial guidance released in December 23 should be maintained, but there are small and important changes that could be made to increase the ability of hydrogen developers to commit toward the consumers. EDP Renewables remains open to contribute with its views on this topic and other future discussions.

Thank you very much.

MR. TILLEY: Okay, our next speaker is Matthew Small of StormFisher Hydrogen.

MODERATOR: One moment please. Matthew, your line is unmuted.

MR. SMALL: Hello, can you hear me? Okay, just confirming. Can you hear me?

MR. TILLEY: Yes, I can hear you.

MR. SMALL: Excellent. Thank you. So good morning to team members of the Internal Revenue Service, Department of Treasury and fellow stakeholders. My name is Matthew Small and I serve as Director of Project Development and Policy for StormFisher Hydrogen. StormFisher Hydrogen develops, owns, and operates electrolysis-based clean fuel production facilities. Today, I'm calling in to share our insights and recommendations regarding the proposed section 45V credit for the production of clean hydrogen and the importance of adopting flexible yet effective policies to ensure the success of clean hydrogen production in the United States.

Our company journey began in 2006 with a focus on biogas. As the energy landscape has evolved, so did our vision, leading us to focus on the vast potential of clean hydrogen. Hydrogen is not just a fuel, it is also a crucial component for achieving the low-carbon future. It offers unparalleled versatility in decarbonizing various industry sectors, stabilizing the electrical grid, and providing essential energy storage. In particular, electrolytic hydrogen facilities can follow markets annulments to be a stabilizing force within the system, acting as a flexible load that can be curtailed in times of high prices or peak system loads.

In our view, certain provisions within the proposed rulemaking would constrain the inherent advantage offered by the adaptability of electrolytic hydrogen production. Our primary concern with current proposed rules is the calculation of the 45V credit on an annual basis in combination with the acre mentality and temporal matching requirements. The proposed procedure for determining a GHG emission rate for all hydrogen produced within/at a facility during a taxable year is extremely challenging and introduces unnecessary risk to facility owners. This is something that many other stakeholders have mentioned yesterday and today as well.

Other stakeholders have also mentioned during the in-person hearing yesterday that there is a need, for systems needed for hourly EAC tracking are not yet in place and reasonably tested. They would not be for early-mover projects. With this in mind, the consequence of a minor deviation from the hourly matching requirement is far too high. For a hydrogen production facility, failing to meet the hourly criteria for just a handful of hours in a year could be losing a major portion of their use production tax credit. In the case of StormFisher's proposed facilities, this could translate into losses of $30 to $50 million annually per facility, a risk that severely hampers finance ability and viability of these critical clean energy projects. But to be clear about this, under the current proposed section 45V rulemaking, these facilities would not be built. The year-to-year uncertainty surrounding production tax credit eligibility is just far too high.

Recognizing the challenges introduced by the current proposal, StormFisher suggests adopting a more flexible approach. Specifically, we propose a carveout allowance of 10 percent per year where hourly matching is not strictly required. This adjustment would afford producers like StormFisher with the necessary margin to manage operating challenges, tracking challenges, and other unforeseen issues without the looming threat of losing a large portion of the production tax credit.

We suggest that hydrogen produced during carveout hours be subject to annual matching instead of hourly matching. Implementing such a carveout will not only ensure the financial viability of these critical projects, but also uphold the environmental goals of the policy. This primary recommendation for attempts to carve out allowance shares similarities with successful frameworks used in other jurisdictions. It offers a pragmatic solution that mitigates the risk while maintaining the integrity of the program. This approach not only ensures feasibility of current and future clean hydrogen projects, but also encourages continued investment and development in this essential sector. By incorporating such flexibility, we can collectively foster environments that supports innovation, scales up clean hydrogen production, and moves us closer to our shared environmental and energy goals.

StormFisher's full comments and recommendations regarding this matter are posted on the regulations.gov website. In conclusion, StormFisher Hydrogen appreciates the opportunity to participate in this critical discussion and urges consideration of our recommendations to help ensure evolution and sustainability within the client's clean hydrogen industry. We are committed to working collaboratively with the Internal Revenue Service, Department of Treasury, and all stakeholders to refine these rules, paving the way for a cleaner, more sustainable future.

Thank you for attention. I welcome any questions and future discussion on these matters.

MR. TILLEY: Okay, our next speaker is Shawn Bennett of the Appalachian Regional Clean Hydrogen Hub.

MODERATOR: Shawn Bennett, your line is open.

MR. BENNETT: Thank you. Good morning.

ARCH here, today, in response to regulations relating to the credit for production of clean hydrogen as established and amended in the Inflation Reduction Act of 2022, respectively. Deploying and adopting clean hydrogen in the industrial sectors is paramount to achieving net-zero emissions. However, without a workable and fair 45V tax credit, it'll be extremely difficult to meet those goals, especially in areas of the country such as Appalachia where there is currently little to no hydrogen production and/or consumption.

The proposed rules will lead to a loss — could lead to a loss of $6 billion in private investment by the key ARCH2 partners in the region and negatively impact 10,000 jobs in the early stages of hydrogen construction and reaching almost 3,200 jobs towards the end of the project. Equally important, the ability to affordably transition to a clean hydrogen economy for the region and the nation will be muted.

We view implementing the proposed rules as hurting the evolution of the hydrogen economy by penalizing an embryotic industry requiring a low-cost feedstock such as natural gas that is abundant in the ARCH2 region. We believe that the 45VH2-GREET model lacks the maturity and flexibility to adapt to a current shale gas production approach that lowers the upstream carbon intensity considerably versus the rigid approach based on outdated leak rates from former oil-producing region combined with other penalty-inducing differences that are currently in the 45VH2-GREET model.

Our hub's biggest competition and by our hub, the ARCH2 hub isn't other forms of hydrogen. ARCH2 is primarily a blue hydrogen-producing hydrogen hub, meaning much of the produced hydrogen will be derived from natural gas with carbon capture and sequestration. To encourage our region to switch fuel from natural gas to other forms — or other forms of fossil fuels to hydrogen and building out the necessary infrastructure to allow for liftoff of hydrogen economy will require financial incentives. They will not do this without having the incentives to switch. They will continue to do as they have been utilizing natural gas in its current form.

With sizable credit to offset high production costs of hydrogen expected by first adopters of new technologies, the hydrogen economy will struggle with market adoption in an area that could be its greatest success story.

Additionally, it completely ignores the fact that blue hydrogen infrastructure built for blue hydrogen will be in a place to take advantage of other forms of hydrogen as those prices come down. So instead of believing that blue hydrogen infrastructure is only for blue hydrogen, we have to understand that other forms of hydrogen can use the same infrastructure once it becomes competitive.

It is imperative to incentivize the build-out to prepare ourselves for the hydrogen future and not limit our ability based on preferred fuel choices that may not be applicable to achieving liftoff in select regions of the country. If this guidance is implemented as currently proposed, it will have far-reaching negative consequences for the entire domestic clean hydrogen industry and the U.S. Department of Energy's H2 Hubs program. Specific impacts will vary by partners, but each will be negatively impacted in their own way by the proposed rules.

ARCH2's most significant concern, and most important to allowing for liftoff in our region, is a workable and flexible GREET model. As it is currently written for 45V, the GREET model is far too restrictive and not representative of current operations in Appalachia. The current model does not allow for inputs that reflect our region and instead relies on an average that incorporates emission rates that are more reflective of the oil-producing regions, as I mentioned above.

To be clear, natural gas operators in the Marcellus and Utica target primarily natural gas, and since this is their commodity, they are heavily incentivized to minimize their methane losses from production to delivery of their product. This means their methane losses are far lower than national averages and their carbon intensity score should reflect that.

In addition, ARCH2 is committed to using certified and responsibly sourced natural gas and as the draft rule is written, the Treasury actually incentivizes the lowest-cost natural gas instead of the lowest-emitting natural gas, which seems to confuse me a little here.

Allowing our partners to submit actual reported greenhouse gas emissions data as validated by the EPA would allow for a more accurate reporting of our carbon intensity scores. The carbon intensity should be based on ISO-specified energy allocation methodology from specific extraction, processing and transmission inputs into the 45VH2-GREET model. This can be easily accomplished by utilizing greenhouse gas reporting program under subparts W and C as required by the Methane Emissions Reduction Program, also known as MERP, that was also established in the IRA.

Recent 45V guidance nullifies this innovation by insisting a default value of upstream emissions must be used in the GREET model rather than actual data. And that is just one example of how this proposed GREET model is not ready to satisfy market innovators that are participating in this space.

We strongly urge the IRS to recognize the benefits of hydrogen derived from industrial off-gassing. The 45V GREET model does not include hydrogen recycled from industrial processes at specified production pathway. This can potentially increase project development time and financial risk for some of our members within ARCH2. Not being able to calculate the value of the PTC tax credits with reasonable certainty increases difficulty of raising capital to finance these projects, potentially leaving over five tons per day of hydrogen unrecycled and continuing to vent into the atmosphere.

This will present a missed opportunity to power thousands of vehicles with a clean hydrogen from an otherwise wasted source. The GREET 2023 model released by Argonne National Lab includes a fully defined pathway for calculating greenhouse gas emissions from a chlor-alkali process, as mentioned as the hydrogen recycling process above. The model includes four H2 handling methods and recommended the first option. H2 diverted from vented (phonetic) emissions is used for calculating the (inaudible) from hydrogen recycling facility utilizing chlor-alkali feedstock.

So, it's already there in the GREET 2023 model, but yet just not implemented into the 45V. Why is the 45VH2-GREET model so dismissive of other tools already available in the GREET system tool model? In addition to industrial outcast, we'd also like to offer our position that the reign of rules that will incentivize the use of fugitive emissions such as coal mine methane in the hydrogen 45V conversation.

Central ARCH2 has a lot of legacy coal mines that currently emit into the atmosphere. Coal mine methane, which is not to be confused with coal bed methane, is a byproduct of the mining process that is overwhelmingly emitting methane into the atmosphere, which continues long after mining has ceased, leading to an environmental challenge. Coal mine methane is a significant source of fugitive methane that is frequently overlooked and is abundant across the Appalachian region representing 8 percent of U.S. methane emissions and can be used to drive down the carbon intensity of hydrogen projects significantly.

ARCH2 participants are uniquely qualified to provide insight on coal mine methane capture for productive-use projects. So, we have been developed within Appalachia in the past and are looking for opportunities for future projects are being evaluated. Unfortunately, today there's no clear economic incentive to capture coal mine methane for productive use. The section 45V credit for production of clean hydrogen could prove to be that incentive if the implementation of the policy aligns with the goals of reducing emissions, creating jobs, and kick-starting the clean hydrogen economy.

MODERATOR: One minute remaining.

MR. BENNETT: Fourthly, section 45V tax credit has the potential to tip the economic scale, to drive innovation investment in capturing coal mine methane emissions and utilizing this methane for clean hydrogen production. Regarding additionality, ARCH2 has significant concerns for our green hydrogen partners. Draft regulation requires immediate incremental mentality, aka additionality. The power resources cannot have come in line within that. This is just simply not workable for our green hydrogen partners in ARCH2, as the ability to build out these projects are limited due to difficulties in the permitting and siting appropriate sites in the ARCH2 region.

Regarding hourly matching, the draft rules state that all facilities must switch to hourly within 2028. Even if already placed in service or begin discussion, this lack of certainty particular visibility on hourly REC market makes project financing incredibly tenuous. ARCH2 green hydrogen producers are also concerned, and draft rules require hydrogen to calculate and annualize carbon intensity for all hydrogen produced during the year. This is —

MR. TILLEY: All right. Our next speaker is Jenna Peth of the Differentiated Gas Coordinating Council.

MODERATOR: Jenna, your line is open.

MS. PETH: Great, thank you. My name is Jenna Peth and I'm the Policy Director for the Differentiated Gas Coordinating Council. I'd like to start my remarks today by thanking the implementation team at Treasury for considering the diverse perspective voiced during these hearings. The Differentiated Gas Coordinating Council values the opportunity to present our testimony here today. We represent companies throughout the natural gas value chain committed to establishing a pathway for differentiated gas, a pathway that is enabled by innovative measurement practices and robust verification.

As it stands, the draft rule fails to adequately account for emissions from projects utilizing natural gas as a feedstock, thus undermining the intended neutrality of the 45V tax credit envisioned by Congress. Specifically, the fixed upstream methane leakage rate in the 45VH2-GREET model at 0.9 percent poses challenges for accurately assessing emissions.

This emission disproportionately impacts those producing hydrogen derived from natural gas, as upstream methane emissions significantly influence the carbon intensity of the resulting hydrogen. Consequently, projects driving for minimal emissions are discouraged and likely eliminated by the current framework. The proposed rule would likely influence project developers to claim the 45Q tax credit rather than the 45V credit. Claiming 45Q would allow projects to have more certainty on their rate of return, even if that rate falls below potential 45V values.

The unintended consequence of driving projects towards claiming the 45Q credit over 45V undermines the administration's goals. This shift incentivizes CO2 capture volume over the overall carbon intensity of hydrogen production, neglecting significant upstream emissions considerations. While the proposed rules suggest verification challenges regarding project inputs like methane loss rates, advancements in technology and existing verification efforts offer viable solutions. Leveraging independent verification processes and established emissions assessment frameworks aligns with the administration's methane reduction objectives broadly.

Furthermore, ongoing initiatives such as EPA's subpart W rule and PHMSA's leak detection and repair rulemaking demonstrate a commitment to advancing methane emissions reduction technologies. The ability to utilize specific data was also recognized in the version of GREET in place at the time of the enactment of the IRA. Projects could opt for several options to account for their methane loss rates and were not locked into a default value.

In practice, verifiers can assess both the measured data and the emissions calculations for their accuracy and reliability. The Greenhouse Gas Reporting Program emissions can be used as bespoke inputs and be built upon by data that has been produced by technologies approved under the new source performance standards Quad Ob and Quad Oc alternative test method program. You can find additional details on current verification capabilities in our written comments.

In the final rule, Treasury should allow projects to utilize their unique verified upstream methane loss rates in the 45VH2-GREET model. Failing to do so will put this rulemaking in misalignment with other federal efforts to curb methane emissions.

We appreciate your time and consideration of these critical issues. Thank you.

MR. TILLEY: All right, our next speaker is Charles Franklin of the American Chemistry Council.

MR. FRANKLIN: Thank you very much. Can you hear me?

MR. TILLEY: Yes.

MR. FRANKLIN: Thank you very much. My name is Charles Franklin, and I'm a senior director for energy, climate, and environment with the American Chemistry Council. ACC and its members, thank you for the opportunity to provide this brief testimony on the 45V tax credit.

We represent a diverse set of companies engaged in the business of chemistry, a $639 billion enterprise with operations of every size in every region of the nation. While we're diverseas an industry, we are united on the importance of a strong national hydrogen incentive policy. The chemical sector is one of the primary sources of hydrogen production today and one of the most promising sectors for low-carbon hydrogen production in the future. The industry's process, expertise, infrastructure, sales, and distribution channels, along with access to opportunities to build new hydrogen markets, makes the chemical sector an essential stakeholder and future partner in these efforts to build and rapidly scale a national clean hydrogen economy. And indeed, our members are participating in consortium for five of the seven hydrogen hubs under development right now.

In short, as current and prospective producers, users, and enablers in the new hydrogen economy, our members see the 45V tax credit paired with the hydrogen hub infrastructure program as an essential catalyst for early, rapid, and nationwide investment to the clean hydrogen economy. So, to advance these shared goals, we urge the administration to consider the following principles in its implementation of section 45V and the other critical IRA/IIJA programs.

First, meeting our nation's climate objectives requires all of the above energy and manufacturing sector abatement strategy, that focuses on reducing emissions, not options. Number two, the 45V tax credit should incentivize investments in all forms of clean hydrogen production technologies that can meet the GHG emissions intensity standards set by Congress, regardless of the energy source, feedstock, or process. Three, to catalyze early investment in clean hydrogen production capacity, investors need regulatory and financial certainty, access to necessary infrastructure, access to critical feedstocks and innovative chemistries, and a clear patent through permitting to operation. Four, clean hydrogen cannot be an afterthought. The build-out of a nationwide clean energy grid should complement, not curtail investments in clean hydrogen production and other industrial abatement technologies. Five, taxpayers must be able to rely on their life cycle methodologies and rules in place at the time that investment decisions are made. Six, the 45V rules and methodology should maximize the use of actual validated facts and data when making life cycle interpretations. This results in more reliable policy outcomes and incentivizes continued innovation. And seven, the IRA intended the 45V program to be an incentive, not a regulation. It was designed to encourage, not stifle, investment in clean hydrogen. As such, the administration must guard against regulatory overreach in interpreting its section 45V tax credit authority.

Now, with these principles in mind, we'd like to highlight several areas of particular focus in our comments, which you can review for further detail. One, again, investors need certainty. We understand that LCA modeling is an evolving science and that DOE models can evolve over time. For the purposes of a tax credit that will likely drive decisions on major capital investments, customers need to be confident that the business calculations they made at the time of commitment will still hold over the life of the tax credit. The department should allow taxpayers the option to use the same GREET version available at start of the project through the life of the tax credit.

Number two, the induced grid emissions doctrine is bad law and bad policy. The proposed rule uses a new theory of "induced grid emissions" to constrain taxpayers' access to existing sources of lower-emissions electricity. Neither the theory nor its application were supported by the IRA, the Clean Air Act, or the prior EPA precedent, and it should be revoked. New projects should have the right to compete for the same sources of lower-emissions energy available within the market as any other user. Restricting access will not bring new generation to the grid, it will just bring less clean hydrogen production capacity to the market and undermine efforts to build out the hydrogen hubs. The administration should encourage short-term investment in clean hydrogen production capacity and allow the market and other IRA incentives to drive the long-term build-out of local grids.

Three, the rule should account for potential delays in completing the verification process. Taxpayers need flexibility to adjust their elections for credit transfer or elect to pay where amended returns are necessary. Four, the department needs to complete provisional emissions rate determinations, PERs, before, not after, the feed process. Taxpayers developing capital-intensive projects will typically spend significant time analyzing and selecting a specific technology or facility design concept, often referred to as PRE-FEED, front-end engineering design. Waiting until FEED to consider the PER application will delay or eliminate the taxpayer's ability to align a proposed project with standard project assurances and auditing processes. The PER determination process should be completed after the PRE-FEED process is complete.

Five, the GREET model should prioritize verifiable data over fixed assumptions. The current version of the 45VH2-GREET model locks certain key parameters as background data, which will disincentivize or prevent the production of hydrogen using pathways or systems that are significantly less carbon-intensive than the relevant background data in the model. This results in less accurate LCA outputs and eliminates the incentive applicants have to innovate and optimize relevant processes.

And finally, the rule should allow for the use of book-and-claim systems for clean hydrogen production using renewable natural gas. RNG product locations are typically not co-located with hydrogen production facilities, requiring RNG producers to rely on natural gas common carrier pipelines for transport. Book-and-claim accounting provides a reliable, quantitative method for documenting movement and transport of RNG. It is recognized by EPA in California. It should be allowed for the 45V tax credit.

ACC appreciates the opportunity to provide comments on this important program and we welcome the opportunity to talk further on opportunities to improve the deployment of tax credits. If you have any questions or need more information, please feel free to contact me or my colleagues through the information provided in the comments. Thank you very much.

MR. TILLEY: Okay, our next speaker is Michael Moore of the Waste Gas Capture Initiative.

MR. MOORE: Good morning. Thank you to the Treasury and the IRS for holding these important hearings this week. I appreciate the opportunity to share my views and the views of the Waste Gas Capture Initiative. My name is Mike Moore and I'm the Executive Director of the Waste Gas Capture Initiative. We are a diverse group of leading American energy industry partners, NGOs, and experts, who are committed to recognizing the economic benefits and environmental impact of a strong mine methane capture industry, especially for local communities.

The WGCI is dedicated to expanding fugitive methane capture practices and we commend the Treasury for its commitment to exploring additional hydrogen production pathways, especially the capture and utilization of fugitive methane, such as coal mine methane. Coal mine methane, or CMM, is distinct from coal bed methane. CMM is waste methane that must be liberated from mines safely, and it is responsible for 8 to 10 percent of all U.S. methane emissions. Still, as of today, CMM emissions are not regulated by any current framework. That is why the WGCI encourages the Treasury to consider important policy implementation factors to ensure the successful inclusion of mine methane under the Inflation Reduction Act.

First, the WGCI requests that the Treasury accept all hydrogen production pathways covered by Argonne National Laboratory's R&D GREET model under the 45V program. As currently drafted, the 45VH2-GREET model would exclude key low-carbon-intensity sources for hydrogen production that have already been vetted and assessed to rigorous scientific review. The application of 45VH2-GREET, as drafted, would disincentivize the productive use of methane capture from sources like CMM and other fusions of methane streams and their unique synergies with the deployment of carbon capture and sequestration technology. It is therefore in opposition to U.S. federal and methane reduction pledges.

In addition, the first productive use requirement, if implemented as drafted, is overly burdensome and will unnecessarily restrict opportunities to decarbonize hydrogen production, as well as curtail methane abatement at scale. The WGCI strongly opposes this measure in the form proposed. Many mines have terminated productive use due to economic conditions and will not be afforded the opportunity to redeploy capture systems if strictly implemented. Any project that achieves meaningful methane abatement is necessarily expansive and spends multiple point source boreholes for methane capture. Capturing new CMM source boreholes for beneficial use is an incremental, discrete investment decision that is unjustified economically today since the capture and collection infrastructure for each borehole requires significant investment in ongoing operational expenditures. If deemed necessary, any final first productive-use requirement should therefore be applied on a per-borehole basis.

The WGCI also requests that the finalized regulations allow for storage and unrestricted book-and-claim delivery, as well as the implementation of the CMM power pathway. This will allow hydrogen producers to have the necessary access to distribute CMM sources. Many concerns have been brought up by stakeholders around the potential pitfalls of implementing coal mine methane and other low-carbon gases into the 45V program.

A lot of these concerns are warranted, which is why the low-carbon gas industry and the agency's task with regulating it are actively applying robust and mature solutions, such as comprehensive life cycle analysis of coal mine methane, was performed by Argon National Laboratory. Existing tracking frameworks, such as the Renewable Thermal Certificate program by M-RETS, guard against double-counting. Regulatory programs such as the Federal Renewable Fuel Standard or California's LCFs have extensive third-party verification frameworks that are readily transportable into the 45V program. Of these, EPA's RFS program has recently even undergone a major biogas regulatory reform, which enhances governmental oversight and further improves program robustness using industry-specific metering and verification requirements that apply to pipeline-injected gas.

These frameworks are fully applicable to putative methane. Extensive measurement and monitoring systems that mine methane capture operations already exist, allowing for robust auditing by third-party verifiers. Capturing CMM lowers pollution and greenhouse gas emissions in disadvantaged communities, ensuring that the deployment of CMM capture systems cannot negatively impact communities. Coal demand is forecast to remain flat by the IEA, and the methane from both metallurgical and thermal coal has the same impact on GHG emissions. Mine methane capture deployment should not be prejudiced on source. The industry agrees that CMM is separate from oil- and gas-related methane emissions.

And finally, the need for a techno-economic analysis has been satisfied by a variety of sources, including Argonne National Laboratory's agreed R&D model, life cycle analysis, and a techno-economic analysis on CMM for productive use conducted by CMOF and ARI and GMI. Local communities near current or inactive mining areas feel the environmental impacts of emissions most strongly. Precisely for this reason that investment is required in fugitive methane capture projects in impacted communities. Preventing the inclusion of fugitive methane sources from active and abandoned mines will continue to contribute to harmful environmental benefits in the area most impacted by point source methane pollution.

The inclusion of mine methane capture in the proposed regulation allows for broader goals to achieve significant emission reductions. Fugitive methane capture and potential hydrogen production applications can stimulate economic growth and create thousands of good-paying jobs, especially in regions that have experienced economic decline due to the clean energy transition. By supporting the development of robust fugitive methane capture and clean hydrogen production industries in the U.S., we can foster innovation job creation, while propelling the nation toward a sustainable, low-carbon future.

Encouraging and incentivizing the capture and beneficial use of mine methane can create much-needed jobs and expand economic activity, including in some of the most socioeconomically challenged communities in the U.S. These programs will benefit communities, Appalachia, the South, the rural American West, who need it most. For instance, in West Virginia, the top state for CMMemissions by volume, CMM capture would reduce emissions by 236 million metric tons of carbon dioxide-equivalent over a 20-year timeline according to one analysis. In that same time frame, CMM capture would create over 1,400 jobs and contribute $2.7 billion to West Virginia's gross domestic product.

I would also be remiss to not highlight the grand departure of the proposed rules relative to the original intent of the IRA, which sets forth a technology-neutral metric of carbon intensity derived from the GREET model and was meant by the lawmakers to encourage hydrogen derived from low-carbon gases, as established in the congressional record. We believe that liberties are being taken to regulate a market in a way that was not in line with the carefully negotiated guidelines of the original intended legislation.

In closing, we appreciate the opportunity to contribute to the development of regulations that will shape the future of hydrogen production and methane emissions reduction in the United States. The industry is ready to go on this effort. This is about remediation of a coal industry that is required to vent methane for safety of its workers. By avoiding capturing this methane at the source like we can today, we risk having to confront the more challenging, more expensive task of directly capturing methane from the atmosphere.

MODERATOR: 1 minute remaining.

MR. MOORE: We should work to capture the methane emitted from the coal mines now before it becomes necessary to capture it from the atmosphere, which is estimated to be ten times as expensive. Waiting for an additional techno-economic analysis at this point is watching an oil spill in real time and waiting around for an environmental analysis before doing anything about it. Each day we wait is another day more methane is vented into the atmosphere. We are out of time for our climate. Let's act now. We have the financing instrument to make a meaningful impact now, and we ask you to move to hasten, under the original intent of the IRA, to allow for the accrediting use as a feedstock for the future of the hydrogen economy we are working to create.

We look forward to continued dialogue to ensure the final rules under consideration today reflect the full spectrum of environmental and economic benefits associated with fusion of methane capture and utilization and its pivotal role in the hydrogen production landscape. Thank you and available for questions.

MR. TILLEY: Okay, our next speaker is Dorothy R. Davidson of the Midwest Alliance for Clean Hydrogen.

MODERATOR: Dorothy, your line is open.

MS. DAVIDSON: Thank you. Good morning, I am Dr. Dorothy Davidson, Chief Executive Officer of the Midwest Alliance for Clean Hydrogen, or MachH2. Thank you for this opportunity to speak to you.

MachH2 strongly supports the Biden administration's historic investment in clean energy and specifically the priority it has placed on accelerating the production and use of clean hydrogen. Our hub is made up of nine key projects, including production of hydrogen from renewables, nuclear, and natural gas with carbon capture. We are supported by more than 70 private and public organizations in the Midwest, representing every part of the hydrogen value chain. We are a diverse coalition, but we all share the same goal, cutting greenhouse gas emissions to combat climate change while avoiding increases in air pollution.

MachH2 members also share a commitment to the Biden administration's historic Justice40 Initiative, which aims to lift up disadvantaged communities. Achieving these goals, however, hinges on robust, flexible, and technology-neutral tax credit guidance. If implemented as written, Treasury's guidance will have a negative impact on the viability of hydrogen hub projects. In particular for MachH2, I want to be very clear, the rules as written will prevent our nuclear project from moving forward.

The Midwest is home to hundreds of companies in many large industrial sectors, including steelmaking, refining, and glassmaking, that rely on conventional hydrogen consumption to fuel their operations. Our hub represents a key opportunity to displace that consumption with clean hydrogen, reducing emissions from these hard-to-decarbonize sectors. Other uses of clean hydrogen at the MachH2 hub will help accelerate include heavy-duty and bus transportation and aviation. Without clean hydrogen, these sectors will continue to emit greenhouse gases and the country will fail to meet its emission reduction goals. That is the focus of our hub and is clearly the heart of the MachH2 hub's program, as well as the intent of the hydrogen production credit. For 45V to have its intended effect and for our hub to effectively reduce emissions from these sectors, Treasury must provide a clear and economically viable pathway for hydrogen produced using existing generation and credible emerging clean hydrogen pathways to qualify for the tax credit. MachH2 has three specific recommendations for the U.S. Department of Treasury in finalizing its guidance. First, the restrictive approach of the 45V eligibility for existing carbon-free generation in Treasury's proposed rule would prevent nuclear participation in the MachH2 hub. We believe this could result in the DOE being unable to reach the goal established in the Infrastructure Investment and Jobs Act, of having at least one hub focused on the production of hydrogen via nuclear energy. The proposed rule takes comments on several options for nuclear-powered hydrogen production including 45V eligibility for a set percentage of existing output. This could be an administratively and economically feasible approach, but only if increased to an exemption greater than 10 percent of existing zero-carbon generation that is calculated on an enterprise-wide level.

It is essential that the administration recognize the scale required to make hydrogen economic at a nuclear station. This moderate expansion of 45V eligibility would enable nuclear participation in our hub and provide the growth opportunity for a nascent industry without causing significant indirect emissions on the power grid. Careful consideration of the underlying economics and data suggests that an exception of at least 10 percent of existing zero-carbon generation would be reasonable and conservative and would drive positive economic outcomes.

Second point, if we seek a rules framework that enables clean hydrogen projects to secure financing to be economically competitive, ensuring that rules do not change within the lifetime of a project's production credit is critical. Therefore, we seek grandfathering of rules for projects at start of construction for the life of the tax credit. Projects with start of construction pre-2028, we seek an annual matching framework to enable projects to proceed.

While studies have shown that an annual matching framework creates demand for additional renewables and can reduce emissions on the grid, we acknowledge that a transition to hourly matching will occur. Upon that transition, we seek to match the hourly matching ambitions of the federal government itself. The Federal Sustainability Plan Executive Order 14057 has established a goal of 50 percent hourly match clean power by 2030. We see 50 percent annual matching with 50 percent hourly matching for hydrogen projects having started construction pre-2030 and then after post-2030 with a subject of 30 percent annual matching and 70 percent mix.

Third consideration. In order to maintain the large-scale industrial decarbonization, components of clear mass balancing of renewable natural gas are essential. Treasury must submit support, a system that enables the creation of low-emission certificates by renewable natural gas producers and retirement of these certificates by hydrogen producers. Robust and transparent systems are already in place that should serve as models for use of RNG within the 45V tax credit. The Environmental Protection Agency has administered the Renewable Fuel Standard Programs for nearly 20 years, which enables the transportation market to mass balance RNG through the EPA Moderated Transaction System, or EMTS. This system tracks greenhouse gas emissions from RNG sources to a diverse group of consumers, including utilities across the country. The EMTS would serve as a good model to allow the mass balancing of RNG into hydrogen production facilities on a well-to-gate basis. Moreover, these systems are regulated and audited to provide necessary compliance assurance.

Leveraging a robust preexisting system with decades of operating experience, such as EMTS, would enable hydrogen producers to verify the purchase of renewable natural gas and the corresponding carbon intensity as part of the life cycle greenhouse gas emission calculation for the production of clean hydrogen. A rapid transition to clean hydrogen is vital for America meeting its goal of net-zero emissions by 2050, as President Biden noted when announcing the selection of the seven H2 hubs.

But this rapid transition will not happen if the draft rules are not modified. A significant impediment to this rapid transition is exclusion of nuclear from eligibility for the 45V credit. That's why it's imperative that Treasury's final 45 regulations support the success of the hydrogen hubs and the entire clean hydrogen industry. Doing so will expand opportunities to address and accelerate projects that will reduce emissions, create thousands of clean energy jobs, and advance environmental justice.

Thank you for this opportunity to voice our concerns and recommendations regarding the clean hydrogen tax credit.

MR. TILLEY: Okay, our next speaker is Daniel Esposito of Energy Innovation Policy & Technology.

MR. ESPOSITO: Good morning. My name is Dan Esposito and I'm with Energy Innovation, which is a nonpartisan energy and climate policy think tank. We provide customized research and policy analysis to decision-makers to support policy design that reduces emissions at the speed and scale are required for a safe climate future.

I've led our clean hydrogen research as a manager in our electricity program and previously spent four years in energy market analytics to help finance new power generation assets across North America. I have master's degrees in public affairs and environmental science, and bachelor's degrees in math and physics.

We do not have a financial stake in 45V or the hydrogen industry. Instead, our interest comes from two angles. One, we know we'll need a large, thriving clean hydrogen industry to help decarbonize industrial feedstocks, as well as aviation and marine shipping fuels. And two, we know the tax credit is so rich that without the right guardrails, it'll be exploited to the severe detriment of climate, consumers, and the hydrogen industry's own longevity.

My main takeaway today is that Treasury must hold strong on its commendable rules for incrementality, deliverability, and hourly type matching. This framework ensures the tax credit supports verifiably clean hydrogen production with rules that are straightforward to comply with. My remarks will cover why this framework is necessary to keep emissions low, is critical to growing a healthy industry, and will not suffocate the industry's near-term development.

First, on emissions, our analysis finds electrolytic hydrogen production that fails to meet all three pillars will drive greenhouse gas emissions that are two to five times worse than how hydrogen is made today. For example, an electrolyzer buying power from an existing nuclear power plant would displace clean electricity that was serving demand elsewhere.

Today, in the vast majority of hours, fossil-fuel power plants will ramp up to fill in this gap, an outcome directly induced by the electrolyzer. Calling this hydrogen clean would be textbook greenwashing. In reviewing all evidence, there's consensus that forgoing any pillar will drive greenhouse gas emissions that far exceed the statutory requirement for earning the tax credit. In fact, emissions would be higher even after accounting for hydrogen use downstream.

To put this in perspective, an evolved energy research study finds 45V could drive 11 to 26 million metric tons of electrolytic hydrogen production annually by 2032. Without the three pillars, the production of hydrogen that's clean in name only would increase emissions by 200 to 1000 million metric tons of CO2 per year, at an annual taxpayer bill of $30 to $80 billion. This would put the U.S. target of halving climate pollution by 2030 well out of reach.

While the three pillars help ensure 45V rewards truly clean hydrogen production, we know electrolyzers' use of existing clean energy would occasionally not worsen greenhouse gas emissions, and ideally, the rules would qualify these instances.

In our written comments, we propose a few targeted exemptions meant to capture these cases in a readily administrable manner. For example, we suggest exempting incrementality and hours from the locational marginal price at an electrolyzer's node falls below a threshold price that implies the use of clean energy that would have otherwise been curtailed. We lay out similarly tailored exemptions for the use of clean energy from facilities that would otherwise retire or are located in regions of finding emissions caps.

That said, a broad carveout that indiscriminately exempts 5 or any other percent of existing clean energy generation from incrementality would not come close to matching those instances when it ought to qualify. While clean energy curtailment is on the rise, it's too spiky in time and scattered in space for electrolyzers to capture more than a tiny fraction of this would-be wasted electricity.

Offering a broad exemption to existing clean energy that would have been generated regardless doesn't reduce curtailment in other hours or locations. It just causes fossil-fuel power plants to ramp up to serve the new demand. We found just a 5 percent broad exemption would drive 30 to 60 million metric tons of carbon pollution per year with a hydrogen emissions intensity that far exceeds the statutory threshold. In sum, we need all three pillars to ensure truly clean hydrogen production, and any exemptions should strictly qualify the circumstances they're intended to capture.

Next, on growing a healthy industry hydrogen will need sustained policy support for a long time before it'll be able to compete on its own. The hydrogen industry has a chance to do things right from the start, building and maintaining public trust that it's truly clean. If 45V instead subsidizes highly-emitting hydrogen production, worsens local air pollution, raises consumer energy bills, and transparently greenwashes a dirty fuel source, the hydrogen industry will lose its social license to operate. We're already seeing this through opposition letters from communities and environmental justice groups against the hydrogen hubs, due to the hub's efforts to weaken these rules.

The industry will have a far better chance of quickly permitting and building projects if communities aren't trying to fight them at every juncture, and fewer development risks will cut investment costs. We'll also need 45V to stand up an industry that can someday survive without subsidies. But this will only happen with the right design. Loose rules kill the incentive to innovate and encourage a race to the bottom. Despite what companies say they'll do, they'd make the most money by buying the cheapest electrolyzers on the market and making hydrogen around the clock. But this sets up long-term failure.

For example, loose rules would push electrolyzers to pair up with existing nuclear power plants. As 45V is worth much more than nuclear facilities going forward, costs and their constant output would maximize tax credit revenue. But when the credit expires, the electrolyzer won't be able to pay the nuclear plant nearly enough to cover its costs.

It also won't be set up to pivot to price hunting for cheap power on the market due to inflexible operations or a lack of storage to help provide a constant supply of hydrogen to off-takers. The project will have already made its money, but it'll either shut down in the post-subsidy period or leverage the jobs at stake to lobby for a tax credit extension, much like many commenters this week are doing even before these rules have been finalized.

Zooming out. Overinvestment in rigid electrolyzers will have done little to cut costs for the flexible technologies we'll need to make cheap hydrogen. By contrast, strong rules would generally see electrolyzers pair with new renewables. Here, hourly matching will drive innovation on and investment in flexibility. When 45V expires, these projects would ramp up in hours of low-power prices and ramp down in high-price hours. This allows the continued production of low-cost, truly clean hydrogen while boosting, rather than undermining, the transition to a clean power grid. It also brings flexible electrolyzers down the cost curve and much more investment in hydrogen storage. We have a real chance to grow a thriving clean hydrogen industry, but efforts to weaken the pillars risk trading this success for a flash in the pan where every project makes its money but at great societal harm.

Lastly, on how strong rules would affect near-term growth, we point to analytical and real world evidence. First, a review of cost studies by Princeton shows three pillars-compliant projects can be highly profitable. Solar-only projects might not pencil out under hourly matching, but projects designed at the three pillars in mind from the start can absolutely be in the money.

Second, Europe put similar rules in place for clean hydrogen, and despite threats that this would destroy their industry, they've seen investment increase. Third, many hydrogen companies are in favor of strong rules for 45V. They're not trying to shoot themselves in the foot. They know they can comply with these rules and that the industry will be better off for it.

Frankly, everyone has always known 45V requires upstream emissions accounting. This is not some surprise. You're hearing a lot this week from the subset of companies that chose to ignore this and now may need to abandon dirty project designs in favor of clean ones. But it's not Treasury's responsibility to make every project successful, emissions be damned. Nor is the Department to blame for any canceled investments. The fault lies with those who made cynical bets that Treasury will accede to their demands for lax rules.

Fortunately, many companies say they can rise —

MODERATOR: One minute.

MR. ESPOSITO: — and we should believe them. In closing, we recommend holding strong on the draft rules. We find no justification for loosening the pillars, and doing so would drive climate pollution well beyond the statute thresholds.

We make many recommendations in our written comments, but a couple of these include rejecting the broad exemption for existing clean energy in favor of targeted approaches and keeping the hourly match in phase and data 2028 with no grandfathering, as this period is meant to give ample time to develop tracking software rather than be adverse movers free writ (phonetic) to pollute.

With loose rules, greater hydrogen production will mean increasingly worse outcomes for climate, public health, consumers, taxpayers, and the industry's long-term viability. But with strong rules, more hydrogen production will drive more emissions reductions, help clean up the power grid, and responsibly use taxpayer money to grow a thriving, truly clean industry.

Treasury can have full confidence and conviction in its draft rules, and we're ready to assist with any questions. Thank you very much for your time and continued hard work on this issue.

MR. TILLEY: Okay, our next speaker is Patrick Serfass of the American Biogas Council.

MR. SERFASS: Good morning, everyone. My name is Patrick Serfass and I've spent almost my entire career in hydrogen and biogas over a little over two decades. I was vice president of the National Hydrogen Association for almost a decade, a predecessor to the Fuel Cell & Hydrogen Energy Association, and have been executive director of the American Biogas Council for the last 14 years. American Biogas Council, or ABC, currently represents over 400 member companies and 5,200 professionals as the voice of the U.S. biogas industry.

For those of you who are not familiar, biogas systems recycle nutrients, create soil products, and produce energy biogas from the inexhaustible and renewable resource that is food scraps, wastewater sludge, and agricultural waste our society produces. The biogas can be converted to renewable electricity to turn into hydrogen or renewable natural gas, which we also use to make hydrogen.

Our members include fuel cell companies, industrial gas companies, energy companies, and more invested in the clean hydrogen economy. We're allied with the California Hydrogen Business Council, and we need your help at the Treasury Department to encourage those investments in our economy to continue.

While renewable electricity from biogas is included in the proposed guidance today, my testimony focuses on the impact and role that RNG made from biogas plays as a feedstock to produce clean, renewable hydrogen. Four things. First, the American Biogas Council and the biogas industry we represent is extremely disappointed that Treasury has failed to propose implementing rules for the production of hydrogen under the section 45V tax credit, using RNG as a feedstock. This emission is quite remarkable given the reality that, according to DOE and many others, hydrogen production from natural gas is the cheapest, the most efficient, and the most common method of hydrogen production in the U.S. today. Just like Treasury has shown that renewable electricity should be allowed to make clean hydrogen, so should renewable natural gas. Both are the renewable drop-in replacements that can be used today to produce low-carbon, carbon-neutral, or even carbon-negative hydrogen, replacing their fossil counterparts.

Number two, the requirement that hydrogen production must originate from first productive use of the RNG or else the RNG will be treated for purposes as if it's fossil gas is wrong and misguided. This shows a lack of understanding that renewable natural gas is actually renewable. In fact, if you look at all actual RNG projects, RNG-to-hydrogen projects using manure today to produce biogas and evaluated using the GREET model on the California low-carbon fuel standard, every one of them reduces carbon two to five times more than any wind or solar or battery electric vehicle project. Excluding or completely or in part, RNG as a feedstock for clean hydrogen is a major miss for anyone who truly believes in promoting a clean indication.

Furthermore, the American Biogas Council's industry data shows that there is a significant current and potential domestic production of RNG to support new clean hydrogen production. Last year, 2023 was a third year of record growth for new biogas systems; 91 percent of those new projects make RNG. Currently, we've got 2,400 operational biogas systems in the U.S. with the potential to develop 15,000 additional systems. There's plenty of capacity for clean hydrogen. Only 16 percent of the market has been deployed, so there's ample opportunity for RNG systems, new ones, to support the clean hydrogen economy while also supporting other industry sectors like natural gas vehicles, which currently use most of the RNG supply today.

It's mind-boggling that Treasury assumes the opposite. If 45V supports a vehicle project using clean hydrogen from RNG, will that RNG be taken away from another project where it was fueling natural gas vehicles? So, then those other vehicles are instead fueled with fossil natural gas? Not likely. How do we know this? Because RNG has been fueling 97 percent of natural gas vehicles in California. And since that milestone was reached, some of the biggest non-vehicle deals in the world have been announced, like with AstraZeneca and others. This begs the question, did that RNG going to those other uses mean that more natural gas vehicles in California are running on fossil gas? No, they're running on clean, renewable natural gas. The biogas industry instead developed new projects to satisfy that new demand. American humans and animals produce so much waste. Project opportunities abound. As long as Treasury doesn't stifle the development by trying to shortchange RNG as a clean hydrogen supply, these industry investments in the construction of recycling infrastructure will continue. Clean hydrogen from RNG deserves the same benefits as other sources of clean hydrogen. We have the carbon-reducing data to show RNG deserves it.

Third, we have a problem with the proposed time-matching and transmission-constraint requirements for RNG, which are irrelevant to how RNG is actually produced and transmitted. RNG from biogas is produced 24/7, 365 and is transmitted through the gas pipeline system or over road continuously and unconstrained. This contrasts sharply with the intermittent renewables like wind and solar and the regional electric grid transmission system.

Time matching is simply not an issue since the production and distribution of RNG is continuous. And since the natural gas system in North America has ample long-duration storage to help manage supply and demand, distribution inherently includes storage. Something also not found with the power grid. There's also no regional segregation of RNG, no analogy to a regional transmission operator, no unique carbon-intensity profile associated with specific geographic regions on the gas grid. Therefore, there's no need to impose regional geographic restrictions for RNG. Neither the EPA, nor California, place time or geographic constraints on RNG pathways. Treasury should follow their lead.

Fourth, and finally, I'd like to bring your attention to the changes necessary to the GREET 45V hydrogen model to reflect the full life cycle emission reductions achieved by RNG when used as a feedstock for clean hydrogen production. Our organization, the American Biogas Council, spent 2023, last year, developing with our carbon consultants a new carbon accounting methodology for biogas systems. It's based heavily on Argonne's GREET model and improves it by correcting and expanding the applicable baseline conditions found at real RNG production facilities, which prior GREET models have excluded.

One example is that the carbon benefits of beneficially reusing the digested material from a biogas system to displace fossil-derived fertilizer, which reduces carbon emissions. That's left out. So we've added that back in so that you can fully calculate all of the carbon emissions for a biogas system which relates to the carbon emissions of clean hydrogen.

We asked Treasury to expand the carbon accounting model for hydrogen using this carbon accounting methodology for biogas systems, which is open source and free for all to use. This will improve the carbon accounting accuracy of RNG feedstocks. We've provided specific revisions in our written comments and responses to the questions from Treasury.

Thank you for the opportunity to comment on these proposed rules and to share RNG's potential to contribute to clean hydrogen production goals. I hope we can work with Treasury to develop workable regulations which enable RNG to accelerate the U.S. clean hydrogen economy. Thank you.

MR. TILLEY: Okay, our next speaker is Dr. Ilissa Ocko of the Environmental Defense Fund.

DR. OCKO: Dr. Ilissa Ocko and I am a senior climate scientist at Environmental Defense Fund. EDF is a global environmental organization with a mission to stabilize the climate and build a vital earth for everyone. At EDF, I lead our research on the climate impacts of hydrogen systems. My specific expertise is in atmospheric physics and I hold a PhD in atmospheric and oceanic sciences from Princeton University.

I want to thank the Department of Treasury for providing me the opportunity to testify today. I also want to commend Treasury on a strong first draft of the 45V guidance and thank you on behalf of EDF for the hard work it has taken to get to this position. My remarks today will focus on ensuring the climate integrity of hydrogen production systems so that the 45V tax credit does what it is intended to do, which is help the U.S. achieve its climate goals.

Clean hydrogen has the potential to solve some of the world's most pressing decarbonization challenges. However, clean hydrogen is not inherently climate-neutral. In other words, even clean hydrogen systems can contribute to climate change, in large part based on the way hydrogen is produced. If we want hydrogen to be an effective decarbonization strategy, it is paramount that we adequately account for all climate impacts of hydrogen production projects and only incentivize those that are consistent with climate goals. And because 45V will essentially define clean hydrogen in the U.S., the decisions we make today will shape the hydrogen economy for decades to come.

So today I will focus my remarks on three key factors that play an important role in determining the climate impacts of hydrogen production, electricity sourcing, methane emissions, and hydrogen emissions. Electricity sourcing is important because electrolytic hydrogen production is a very energy-intensive process. If the renewable electricity we use to split water molecules is diverted from the power grid, which is often referred to as not additional or incremental, it is very likely that we will need more fossil fuels to supplement the grid. My team's research shows how system-wide greenhouse gas emissions can more than triple if this happens, making climate change worse. This is why accounting for additionality, as in the three pillars framework included in the current 45V draft, is essential for preventing large-scale emissions increases and achieving climate goals.

Studies, including research we commissioned by Environmental Resources Management, also show that there are many benefits to the energy system from requiring the three pillars framework, including incentivizing domestic power sector solutions, hydrogen storage build-out, and the development of more flexible electrolyzers that can succeed after 45V expiration. And studies from Princeton University Energy Innovation and evolved energy research make abundantly clear that without the three pillars, 45V could add hundreds of millions of tons of pollution per year. We therefore strongly recommend that Treasury uphold the three pillars framework in its final rule for the 45V production tax credit.

The second issue I want to discuss is methane emissions. Hydrogen production facilities using natural gas, including more than half of the DOE Regional Clean Hydrogen Hubs, could make up the majority of new capacity additions in the U.S. over the next decade. For these systems, methane emissions that are vented and leaked throughout the natural gas supply chain are often the largest contributor to a project's greenhouse gas emissions. And studies, including my team's, show that high methane leakage rates can make hydrogen applications worse for the climate in the near term than their fossil fuel counterparts.

However, in the draft 45V rules, the GREET model currently assumes a national average methane leak rate that underestimates emissions. This is mostly because it excludes methane emissions from wells that produce and market both oil and gas, which are known as co-producing wells, and doesn't account for basin-specific leakage rates that can be far higher than the national average. For example, methane leakage rates from natural gas-producing and co-producing wells for the Permian and Uinta basins are around 2 and 4 percent respectively, which is two and four times higher than the values used in GREET if combined with a 90 percent carbon capture rate. Hydrogen producers should not be eligible for the 45V tax credit if using natural gas from these basins. But because the GREET model doesn't account for basin-level emissions, these projects would be eligible, meaning that we are incentivizing hydrogen systems that threaten U.S. climate goals.

To address this issue, we recommend that Treasury kick-start a joint agency process to update GREET methane leakage estimates annually and move towards basin-specific leak rates, utilizing reliable and imminent measurement data. Further, while many hydrogen producers have called for Treasury to allow them to submit their own methane leakage rates, this would lead to even greater inaccuracies because there are currently no standardized measurement-based verification methods. Moreover, because the GREET model relies on a national average, allowing a producer to substitute a lower loss rate would lead to cherry-picking and make the default national average inaccurate for all other users.

And finally, I want to discuss hydrogen emissions. Hydrogen is a leak-prone gas that warms the climate by increasing the amounts of short-lived greenhouse gases in the atmosphere through chemical reactions. There is scientific consensus regarding hydrogen's warming potency and its warming effects have been studied for decades and included in four cycles of IPCC reports. A recent multimodal assessment explicitly states that the science is robust enough to be included in policy decisions and tools, but the warming effects of hydrogen emissions are not currently included in 45B greenhouse gas intensity calculations through the GREET model.

Hydrogen is emitted throughout the value chain from both operational releases and leakage. For example, in the production of electrolytic hydrogen, published estimates suggest that nearly 10 percent of the hydrogen may be emitted from leakage, venting, and purging. While direct measurements are needed to confirm published estimates, these levels of emissions are consequential for the climate. For example, if 10 percent of hydrogen is lost to the atmosphere from the U.S. 's 2030 clean hydrogen production target of 10 million metric tons, that would have the same 20-year warming impact as adding 8 million gasoline-powered vehicles to the road for one year. Therefore, hydrogen emissions can significantly undermine the climate benefits of hydrogen use. Two of my team's peer-reviewed research studies suggest that the near-term climate benefits of hydrogen deployment can be reduced by 25 percent to 40 percent if hydrogen emissions rates are high.

It is important to note that hydrogen emissions are thought to be a largely solvable engineering challenge. However, this issue won't be solved if industry is not held accountable for these emissions. Therefore, we recommend that hydrogen emissions be factored into the 45V version of the GREET model. Given that the model already includes hydrogen loss rates, this is as simple as applying a global warming potential value to the loss rate. Ideally, the latest science would be incorporated, but at a minimum, an older value reported in IPCC reports can be used for now.

Overall, only under the right conditions can hydrogen be a climate solution. Otherwise, we could make climate change even worse.

In closing, here are our three main recommendations.

MODERATOR: One minute.

DR. OCKO: First, continue to implement the three-pillars framework. Second, update the methane leakage rate in the GREET model, so that it is more accurate and reflects space and specific rates. And third, include the warming effects of hydrogen emissions and greenhouse gas intensity calculations. Thank you for your time.

MR. TILLEY: OK, our next speaker is Nathan Iyer and Thomas Piper of RMI.

MR. IYER: Senior associate on the U.S. program at RMI. Thank you for allowing me to testify today on this marathon 45V proposed rule session.

The Treasury Department is tasked with charting a narrow path. By law, it must measure and credit low-emissions hydrogen production, while providing enough certainty to administer the credit and enable the administration's goals for an industry liftoff. We support these goals, and our comments outline a practical path to achieving both.

Now, according to the industry, there needs to be more clarity and flexibility, and RMI agrees. The rules are not yet detailed enough to bank on, and Treasury is asking many of the right questions on how to expand eligibility and handle edge cases. According to the law and congressional intent, flexibility cannot be at the expense of emissions requirements. And in our comments and testimony, RMI suggests targeted adjustments that maintain these emissions guardrails while making it easier for taxpayers to comply and Treasury to administer.

Today, I'll discuss four topics. First, our suggestions to clarify and expand the proposed rules. Second, some challenging trade-offs. Third, a discussion about offsets in gaming. And fourth, suggestions to strengthen guardrails for gas-based pathways.

To begin, missed hours should be accounted for in a way that is predictable and financeable, and the way we suggest this is to calculate each hour's credit separately. The current rule suggests that the credit will be calculated by averaging emissions over a year and providing one credit value for the entire year. And this is really challenging. Missing-eligible hourly attributes for 2 percent to 3 percent of total energy consumption would be enough to kick a project from the first to second tier, which can be existential. It's possible to design projects that achieve this level of accuracy, but this risk adds costs, and potentially safety issues if projects are desperate to ramp. It could lead to unsafe operational practices. Treasury will have the data to calculate each hour separately, and in doing so, public dollars will only go towards qualifying hydrogen production, and projects will not risk bankruptcy over rare contingencies. There are several additional guardrails we outlined in our comments, which would be in line with the EU's regulations.

Second, state policy dual compliance. States with climate policies in place, like renewable portfolio standards, need certainty on how the 45V compliance and double counting rules will impact their existing policies. And we recommend allowing EACs to be used for both 45v compliance and state compliance, with states having the ultimate say over how their own policy handles hydrogen loads and related electricity attributes.

And the third flexibility point would be enabling battery storage. And our comments outline a straightforward method to enable grid-connected storage to play a role, shifting hourly EACs. And notably, to enable storage, Treasury and qualifying registries will need a way to collect and validate state of charge data.

Next, I'll discuss two areas where there are challenging trade-offs between emissions and industry liftoff. First, Treasury requested comments on the 2028 phase to hourly matching with questions on registry readiness and administrability. RMI is currently working with a group of technical experts, data infrastructure firms, registries, and companies to accelerate of hourly matching registries and related contracts for projects across the nation. And we'd like to make three points. First, for this phase out to work, there must be absolute clarity on how hourly matching credits will be calculated post 2028 in the final rule. In the proposed rulemaking, all projects will need to be hourly ready in order to be financed, and any policy uncertainty about how hourly matching will work or deferred decision-making could put projects in limbo waiting on the final details. RMI has provided extensive comments on how to provide enough detail to enable this smooth transition, and the missed hours calculation in particular is critical to clarify. If this detail is not possible a safe harbor may be appropriate.

Second, the timeline put forth by Treasury on hourly readiness is focused a lot on hourly tradability, which is an advanced capability that may be material over time but is not actually required for the earliest investment decisions. Our team has yet to speak with a developer that intends to raise capital by relying on a spot market for tradable hourly instruments. Instead, RMI outlines a pathway for nationwide partial hourly registry coverage as soon as this year. A key insight is that bilateral long-term hourly contracts can combine hourly meter data with existing registries. Because there's a single hourly offtaker, it should not be possible to double count the same hourly attribute, which allows for much simpler tracking for first movers without getting bottlenecked by registry development.

And third, registries exist for compliance. The clearer the requirements, the faster registries will be able to meet the regulatory demands. Pushing back or altering the requirements will make it harder for registries to invest in the capabilities required to accurately implement this credit.

Next, I'll discuss the 5 percent rule. The NPRM requests feedback for a blanket 5 percent exemption to account for curtailed power. And our view is that Treasury should include an exemption for surplus clean power, but that the blanket 5 percent rule does not achieve that goal. Instead, it creates a pool of allowances from existing generators, and it is often most profitable to extract the most valuable 5 percent of hours, which often corresponds to periods of the highest emissions intensity. And according to the Rhodium Group, a 5 percent exemption could induce nearly 1.5 gigatons of emissions if existing clean power is allocated to produce hydrogen during the grid's most polluting hours of the year.

RMI supports two more targeted pathways. First, an hourly allowance for curtailment proxied by locational marginal price of electricity and second, an application pathway demonstrating retirement risk. Now, to conclude all of these comments, there are many decisions that add up to a system as a whole, and RMI suggests a holistic and quantitative assessment when evaluating the final rule. We have done some analysis of our own.

With capacity expansion modeling, you can estimate the overall market depth of EAC eligibility — incrementality, regionality, hourly matching are all clear and measurable standards, and according to the midcase Cambium dataset from NREL, there could be enough qualifying attributes to support 200-plus gigawatts of electrolyzer capacity operating at a 70 percent capacity factor through the 45V credit period. This is roughly enough to support 24 million metric tons of hydrogen production per year by 2035. And there are technically enough regional attributes to support every hub by 2030.

Now, of course, there are practical and really strong and challenging barriers to accessing these attributes into building viable projects. But according to the numbers, on its face, the three pillars as described are quite flexible. Siding, permitting, expanding the grid, building new clean capacity enables more qualifying clean hydrogen, and other policies and agencies are tasked with these challenges.

Next, I'd like to discuss offsets. RMI applauds the Treasury for not allowing offsets unrelated to the physical production of clean hydrogen, because offsets create a massive risk of regulatory arbitrage. The law clearly states that emissions are not valued equally for this credit. The difference between the top and second tier is worth $2, and between the second and third tier is worth $0.25 for the same kilo of CO2 abated in order of magnitude difference. And the reason is simple. This is technology policy, and it's far more expensive to achieve real deep decarbonization for hydrogen production than it is to buy an offset. That's why deliverability, time matching, and disallowing negative emission certificates will be important to avoid creating unintended offsets. The investment should be invested towards building the infrastructure for a clean hydrogen economy rather than diverting resources towards unrelated low-cost offsets. And with this in mind, I'll now discuss the gas-based production pathways.

More guardrails in the final rule will be essential to avoid significant emissions increases and we have three main suggestions. First, update leakage assumptions. Second, enable path-specific leakage certification. And third, prevent offset from undermining the standard.

For the first, national leakage rate assumptions at 0.9 percent in GREET are too low and require updating. Second, path-specific rate certification should be allowed in the foreground inputs of the GREET model using measurement-informed emissions reporting standards. And third, biomethane should never receive a negative carbon intensity score. This creates a potent offset that could undermine the credit, and gas-based pathways should not be able to blend these offsets with production from different gas-based feedstocks. For example, the carbon intensity of hydrogen produced using gas from a dairy digester should not be averaged with the carbon intensity of hydrogen produced using fossil gas to create an average carbon intensity that does not reflect the actual emissions impact of the hydrogen production.

MODERATOR: One minute.

MR. IYER: Seventy percent of the U.S. biomethane supply comes from landfills, which releases a substantial amount of methane, and we suggest a high standard for incrementality, a life cycle analysis that aligns with EPA's waste management hierarchy, and limits the waste in place at the time of IRA's passage. Overall, RMI is encouraged by the thoughtfulness of the proposed rule, and there's more work to do. This tax credit could support scaling truly low-emissions hydrogen to support decarbonization. And with surgical adjustments, the core guardrails can be made while providing industry enough policy certainty to drive industry liftoff. We urge Treasury to act quickly to provide as much certainty as possible to enable the launch of a clean hydrogen industry. Thank you for your time and thank you for the incredible work your team's been doing.

MODERATOR: Mr. Tilley, whose line would you like to go to next? Alan Tilley, you may have muted your line. I cannot hear any audio.

Ladies and gentlemen, please continue to stand by while we check audio connection with the host line.

MR. RIDER: Richard, can you hear me?

MODERATOR: James Rider, your line is open. You may proceed.

MR. RIDER: Thank you. Next up, we have Michael Platner with Carbon Utilization Research Council.

MR. PLATNER: Good afternoon. I'm Michael Platner, senior tax policy counsel for the Carbon Utilization Research Council, also known as CURC.

CURC is focused on technology solutions for the responsible and sustainable use of our fossil energy resources. We have a broad membership reflective of the full and diverse CCS ecosystem, including power plant owners, equipment manufacturers, technology innovators, associations that represent the power sector, labor unions, fossil fuel producers, nongovernmental entities, and state university technology research organizations. We appreciate the opportunity to provide these comments and want to thank you for taking the time to hold this hearing and for your consideration of our comments. (Inaudible) language 45V(d)(2) states, "No credit shall be allowed under this section with respect to any qualified clean hydrogen produced at a facility which includes carbon capture equipment for which a credit is allowed to any taxpayer under section 45Q for the taxable year or any prior taxable year. "CRUC would like the final regulations to confirm the term "allowed" means the taxpayer has actually taken the 45V credit on its tax return, not that it is eligible for the 45Q credit on that facility.

In addition, the statutory language clearly precludes taking the 45V credit if the 45Q credit has already been taken by the taxpayer for the qualified facility and not the other way around. CURC would like the final regulations to clarify that qualified hydrogen production facilities can start with the 45V credit and then switch to claim 45Q for the remainder of its 12-year credit window for any taxable year during the 10-year credit, 45V credit window or at the end of the 45V credit window, with the understanding that the taxpayer would not be able to switch back to 45V once it has taken the 45Q credit.

Proposed regulations provide guidance that an electric generating facility co-located with a clean hydrogen qualified facility is not part of that clean hydrogen qualified facility for purposes of 45V. We would like to see the final regulations provide guidance, clear guidance, that carbon capture equipment that is only capturing CO2 from an electric generating facility that is providing power to a hydrogen production facility is not included in the definition of the hydrogen production qualified facility such that the 45Q credit could be taken for that CO2 captured from the electric generating facility and the 45V credit for the hydrogen production facility. This guidance should also make it clear that this is true even if the same taxpayer owns both the electric generating facility and the hydrogen production facility.

Next, CURC believes the 45V(h)(2) GREET model has too many parameters of hydrogen production processes locked down as fixed assumptions or background data that may not be changed by the user. The proposal defines background data as parameters for which bespoke inputs from hydrogen producers are unlikely to be independently verifiable with high fidelity. This differs in the standard (h)(2) GREET model, which allows for many of these parameters to be input by the user. One example of these inputs is the distance of a pipeline transmission, whether for natural gas or renewable natural gas derived from landfill gas. 45V(h)(2) GREET 2023 mandates the national average length of the pipeline transmission system, 680 miles, and this distance is easily verified when specific sources of gas are utilized for a production facility.

Another variable, the upstream methane leakage rate, was fixed by the 45V(h)(2) GREET model for the natural gas supply chain at 0.9 percent in background data. Many hydrogen production facilities will have access to verified data that documents a methane leakage rate lower than 0.9 percent and should be rewarded for the lower CO2 intensity of the hydrogen produced.

Further, subpart WVPA's greenhouse gas reporting will, when it is finalized, may be another pathway to verify the upstream leaky trait. Treasury allows third-party verification for other tax credit. It should also be adequate to validate methodologies to determine the inputs to the 45V(h)(2) GREET model.

Also, 45V(h)(2) GREET 2023 does not allow an input for the quantity of co-produced steam to exceed 17.6 percent of the total energy content of all steam and hydrogen produced. The amount of steam produced can be measured by meters and verified. Given the steam requirements are different for each type of capture technology, the quantity of co-produced steam should be foreground variable data in the model and not be artificially limited.

Given the existing limitations in the 45V(h)(2) GREET model, taxpayers should be allowed to file for a provisional emissions rate even if the feedstock is represented in 45V(h)(2) GREET when the taxpayer can demonstrate that the underlying assumptions, that is background data, does not represent their feedstock. To do otherwise penalizes taxpayers who have made investments in differentiated sources of methane, natural gas, or other feedstocks that lower CO2 intensities than those assumed in 45V(h)(2) GREET. Taxpayers that invest in ways to (inaudible) efficient and lower CO2 emitting processes should have their efforts recognized and emissions reductions counted as part of the 45V process. In order for projects to proceed in a timely manner, DOE must issue a PER within 90 days of receiving a complete application for PER.

Electricity generated by an existing fossil fuel electric generating facility that adds CCS and reduces its emissions should be considered an incremental source of minimal emitting electricity. If the addition of the CCS as a commercial operation (inaudible) that meets the final incrementality requirement, which CURC believes should provide a lookback period of at least five years. On a related issue, CURC believes that depending on its CO2 emissions rate, it is appropriate to treat an existing fossil fuel or electric generating facility as a new source of minimal emitting generation on the grid that would not be associated with induced grid emissions. These facilities should receive the same treatment as an existing renewable electricity source being considered new after a qualifying retrofit.

Thank you for the opportunity to testify and we appreciate all the time you all have spent preparing this guidance. Thank you.

MR. TILLEY: All right. Next up we have Tommy Gerrity with Orsted.

MR. GERRITY: Good morning. My name is Tommy Gerrity and I'm the head of Orsted Power-to-X, or P2X, business in the Americas. I appreciate the opportunity to provide comments today on the draft guidance for section 45V, which focuses on the hydrogen production tax credit.

Orsted is a global clean energy developer and the world leader in offshore wind. In the U.S., we have 3 gigawatts of offshore wind under development and 4 gigawatts operating and under construction onshore wind farms, solar farms, and battery energy storage facilities.

Orsted started a green hydrogen and Power-to-X business unit six years ago to further our mission to create a world run entirely on green energy. This business unit is responsible for developing, building, owning, and operating green hydrogen and derivative e-fuels production facilities. Since then, we have been a first mover in scaling the green molecule industry.

Currently, we're constructing FlagshipONE in Sweden, one of the largest e-methanol projects under construction in the world. When operational in 2025, this facility will produce 55,000 tons of e-methanol a year from a 70 megawatt electrolyzer. The learnings from FlagshipONE are already informing our planned projects in the U.S., such as Project Star, which will produce up to 300,000 tons per year of e-methanol to decarbonize the shipping sector.

Orsted has been selected as part of both a hydrogen hub and industrial decarbonization deal programs, and we want to state that we're very proud to be part of the Biden-Harris administration's transformative efforts create a robust hydrogen economy. We also believe that in addition to the hub program and other DOE funding opportunities, 45V will be foundational in growing the nascent U.S. green hydrogen economy, creating good-paying jobs and releasing billions of dollars in investment.

Orsted applauds the continued work of the Treasury Department on the 45V guidance. We largely support the draft guidance as is, including on additionality and regionality. However, we believe targeted modifications are necessary to ensure that the intent of the bill's sponsors and the Biden-Harris administration is realized, namely to achieve market liftoff of the U.S. clean hydrogen economy while reducing carbon emissions and encouraging domestic economic growth. Particularly, we believe these modifications are necessary to incentivize early movers to catalyze industry liftoff and to ensure projects are financeable. I'll talk primarily about time matching today, and perhaps briefly mention the GREET model as well.

Regarding time matching, Orsted is supportive of a transition from annual to hourly matching. However, we recommend that the final rule include a temporary and targeted partial annual matching allowance through the full PTC term to incentivize early mover projects. Specifically, we propose to allow up to 15 percent of the electrolyzer capacity qualify by matching EACs annually to the life of the PTC for projects where start of construction occurs no later than January 1, 2028, to place in service no later than January 1, 2032. The remaining 85 percent of capacity would be required to match hourly EACs starting in 2032, and all other projects would be required to match 100 percent of their capacity hourly.

The critical piece to this is that early mover projects have a constant time-matching paradigm throughout the 10-year PTC. Perhaps the most important thing you'll hear me say today is that we find the benefit to levelized cost of hydrogen, or LCOH, from a limited 15 percent annual allowance for the full 10-year PTC term to dramatically outweigh the benefit of several years with 100 percent annual matching followed by a switch to 100 percent hourly matching, as is the structure of the current guidance.

I'll explain our rationale. The current guidance proposes that hourly matching be required by January 1, 2028. This appears intended to provide an economic benefit to early-mover projects. However, requiring hourly matching during any period of the PTC term effectively requires the project to design for hourly matching from day 1. This is primarily because tax equity partners and other financing institutions will not fund a project that will rely on major technical, commercial, and operational changes, as are required to change a time-matching paradigm during the project's operational life.

I'll elaborate a little bit on each of these major changes needed. On technical, a project shifting from annual to hourly matching will overnight meaningfully drop its electrolyzer utilization and hydrogen output. As early-mover projects are generally designed for specific offtakers with constant hydrogen needs, a sudden output drop is not acceptable, and thus the project would need to add new electrolysis capacity to meet the constant throughput demand. This requires buying additional land, engineering a facility expansion, integrating new capacity into an existing facility, shutting down the facility for construction and commissioning, et cetera, adding risk and — schedule and safety risk, as well as the economic impacts. Additional hydrogen storage will be needed to provide the steady throughput that most customers require, which adds additional safety risk, footprint need, and the list goes on.

Commercially, a project would need to negotiate some sort of two-phase offtake agreement which acknowledges some period of low or no supply during the construction of the expanded facility and then address increased risk of delivery, both for construction risk, mid-operations as well as of a different operating paradigm with the different buffering needs. The project would need similar agreements for all feedstocks and utilities, power being most notable, where a project would need to have two sets of power purchase agreements or be left with a power supply that did not meet the appropriate time-matching paradigm. Again, cost and risk to project investors.

And finally, operationally, where a facility will need to substantially shift operational modes, which has impacts not just on upfront technological choices but training, safety processes, and even staffing to ensure a facility continues to operate safely and efficiently. Investors and project finance diligence will not accept these risks, project, or tax credit qualification. Thus, any project that must change mid-operations at any point to an hourly matching paradigm will simply design and build their facility to be hourly matching at COD, effectively burdening itself with all the additional cap ex and op ex costs through the life of the project as if there were no beginning period of annual matching at all.

Therefore, we propose incentivizing early movers and higher cost basis and risk they incur by allowing their project to maintain some annual matching allowance through the full 10-year PTC term and provide certainty to investors. We propose, however, a more nuanced solution than simply a full annual allowance or grandfathering, as many comments refer to it. Our analysis, which was included in the comments we submitted into the record, finds that the vast majority of the LCOH benefit of annual matching can be achieved with a small allowance for annual matching measured as a percentage of the electrolyzer's capacity. We found specifically that a 15 percent allowance achieved 75 percent or more of the LCOH benefit of full annual matching. This seems to us to be a pragmatic compromise that has enough early-mover economic benefit to enable market liftoff while minimizing any potential emissions concerns relative to a full matching scenario.

In addition, we echo a similar concern many others have voiced, which is that the 2028 date to begin hourly matching is too early. The electrolyzer supply chain is still in its infancy and likely will be unable to support meaningful capacity for early-mover projects before this date.

In addition, it is highly unlikely that a network of regional EAC systems for tracking and recording will be established and well tested to operate with hourly data by this date across markets. As such, Orsted recommends that Treasury adopt a timeline where any project with a start-up construction occurring by 2028 and placed in service by 2032 be allowed this early-mover incentive of the 15 percent annual matching allowance through the 10-year PTC term. All other projects would be required to shift fully to hourly matching in 2032.

Critically, this proposed approach can be easily administered without modification to the accounting or technological tracking requirements required by the current guidance and using the GREET model framework. Start-up construction is a mechanism already in place in the renewable industry and is familiar to tax equity investors in project finance. Using a formulaic approach of a flat 15 percent in electrolyzer and nameplate capacity requires no case-by-case proposal review and acceptance process.

I'll also briefly touch on the GREET model. Orsted recommends that the version of the GREET model used by projects be the version that is current at the time of started construction for the full 10-year PTC term for that project, rather than requiring that projects comply with a GREET model that changes annually. Even if the intention is for changes to not be materially adverse to the qualification of projects for the hydrogen PTC, that risk exposure will be untenable for investors or financing institutions, which will prevent projects getting built.

Orsted believes our recommendations will facilitate the growth and maturation of the nascent green hydrogen industry in the U.S., creating good-paying jobs that can't be offshored, catalyzing billions of dollars of capital investment, and ensuring the tremendous economywide decarbonization potential of green hydrogen and e-fuels will be realized.

Thank you again for your time and for the tremendous thoughtfulness and effort in drafting and finalizing these rules.

MR. TILLEY: Thank you. Next up we have Janet Anderson with Clean Hydrogen Future Coalition.

MS. ANDERSON: I'm Janet Anderson, policy and technology adviser to the Clean Hydrogen Future Coalition, or CHFC. The CHFC appreciates the opportunity to present its views on the proposed rules for the 45V tax credit.

The Clean Hydrogen Future Coalition was founded to bring together a diverse group of stakeholders to promote clean hydrogen as a critical pathway to achieve global decarbonization objectives. CHFC members coalesce around the foundational principle that clean hydrogen is vital to transitioning several sectors of our economy to a low-carbon future and must be produced through a range of methods, whether produced from renewable and nuclear electricity, biomass, or fossil fuels, combined with CO2 capture and storage.

Our first comments are on the 45V(h)(2) GREET model, which was adopted without opportunity for public input. It is more restrictive than the already existing hydrogen GREET model, meaning there are more foreground variable inputs in the existing model than the model developed specifically for 45V. The 45V(h)(2) GREET must be updated in the final rule to account for production technologies with differentiated efficiencies, differentiated CO2 capture technologies, and differentiated gas supplies.

As other speakers have noted, without allowing for this increased accuracy in the 45V(h)(2) GREET, the rules disincentivize use of cleaner feedstocks and technologies. For example, many facilities will have access to verified data that documents lower methane leakage rates as well as from differentiated sources. Taxpayers should have the option to use emissions reported through EPA's Greenhouse Gas Reporting Program, the default natural gas methane leakage rate, or supply data that is third-party verified to determine foreground data into the 45V(h)(2) GREET.

CHFC believes that the annual matching of Energy Attribute Certificates, or EACs, should remain in place for projects that begin construction before January 1, 2030. Also, Treasury should issue a report at least one year prior to that transition date on the availability of a nationwide hourly matching system for EACs. If the system is not available, then the transition date must be delayed by at least one year. Treasury noted in the proposed rule that such a system does not currently exist and did not provide a date when one may be ready.

Further, whatever time-matching requirement exists when a project begins, construction must remain in place throughout the life of the 10-year credit matching period. This is necessary to obtain the certainty of conditions required for financing large projects, again, as other speakers have noted.

The CHFC believes incrementality requirements are unnecessary and should be eliminated. However, if not eliminated, incrementality requirements should be expanded to include clean generation projects that came online within five years of the operational date of the clean hydrogen facility. This is a nod to the reality of the timelines required for new clean electricity resources to be developed and become operational, which is a minimum of five years, as the most recent Lawrence Berkeley lab study assessing the interconnection process stated.

We also advocate for Treasury to create special rules for early projects. For projects that are placed in service within five years of the final rules, let's say January 1, 2030, there should be no incrementality. Deliverability should be within one of the six North American Electric Reliability Corporation regions and annual due for the 10-year credit claiming period. This time window with special rules will allow a limited number of clean hydrogen projects, generally already under development, to be placed in service, demonstrate feasibility, and allow for the necessary infrastructure, supply chains, and markets to be developed. All of these are required to create the new clean hydrogen industry.

Any emissions associated with a limited pool of initial projects will be small and accelerate the ability of — and this time window would allow — accelerate the ability of clean hydrogen to deliver emission reductions in hard-to-decarbonize and use sectors. CHFC recommends the curtailment safe harbor utilize a formula framework and use a value of 10 percent in order to address the growing level of curtailment of minimal emitting electricity generators in many regions of the country. We also suggest the safe harbor percentage be applied to a three-year rolling average of electricity generation from those facilities.

For the certainty required to obtain financing for projects, CHFC calls for a project to be allowed to use the version of the GREET model in place at the beginning of construction. Treasury could choose to define the "current version" of the GREET model in this manner. Given the inability of the 45V(h)(2) model to reflect the conditions of all clean hydrogen facilities, projects must also be allowed to apply to the Department of Energy for a provisional emission rate, even if its feedstock and production technology is currently represented in the model.

Finally, with respect to renewable natural gas, or RNG, Treasury must develop rules for its use that reflect the differences between electricity and methane — namely, deliverability or physical tracing requirements should be limited to existing book-and-claim accounting systems currently used in the natural gas system. Since RNG can be both injected and stored in the gas pipeline network, book-and-claim accounting allows end-users to contract for and receive credit for the RNG and its associated environmental attributes, even if the end-user does not physically receive the RNG to its facility.

Although the reduction of emissions associated with the CO2 intensity of the RNG may not be avoided directly at the hydrogen production facility, equal environmental benefits would be achieved throughout the gas pipeline system in the other end uses, consuming the RNG. Book and claim accounting should be allowed so long as the environmental attributes of the RNG are not also being claimed by another party for the 45V tax credit.

Further, there is no need for time matching or incrementality requirements for RNG. For recordkeeping purposes, CHFC recommends RNGs' EACs must be used within a year of the RNG injection into the gas system. Incrementality is not required, as output from existing sources of RNG is usually already contracted for, so new users of RNG for clean hydrogen will have to find new or develop additional RNG supplies.

Thank you for the opportunity for the CHFC to share some of its priorities from its written comments. We look forward to working with Treasury and other stakeholders as the rules are finalized.

MR. TILLEY: Thank you. Next up we have Jeffrey Hansen with Steel Dynamics.

MR. HANSEN: Can you hear me OK?

MR. TILLEY: Yes.

MR. HANSEN: OK. Thank you. Yeah. Good afternoon. On behalf of Steel Dynamics, also known as SDI, I appreciate the opportunity to speak with you today on the proposed regulations for the section 45V credit for production of clean hydrogen. My name is Jeff Hansen, and I'm the vice president of environmental sustainability for Steel Dynamics.

SDI was founded in 1993 and is one of the largest steel producers and metals recyclers in the United States. Our first steel mill was commissioned in 1995 in Butler, Indiana. Today we operate seven electric arc furnace steel mills. We have 14 million tons of steelmaking capacity and are the second largest steelmaker in the United States based on market cap.

Steel Dynamics is committed to driving circular manufacturing models. We produce steel exclusively through electric arc furnace technology, which uses recycled scrap metal as the primary raw material and generates the lowest greenhouse gas emissions per ton of steel as compared to other commercially available methods. Through our wholly owned subsidiary Omnisource, we are the second largest recycler in North America.

With our electric arc furnace steelmaking technology, North American recycling business, circular manufacturing model, and innovative team, Steel Dynamics is already a leader in the production of lower carbon steel products within the global industry. But this is not enough. In 2021, we announced aggressive decarbonization goals to further reduce our carbon emissions footprint, making Steel Dynamics the first in the American steel industry to set a carbon neutral goal by 2050. We have also committed to a 20 percent reduction in our steel mills' greenhouse gas emissions by 2025 and a 50 percent reduction by 2030.

In pursuit of these goals, we have partnered with biocarbon pioneer Aymium to build SDI Biocarbon Solutions, a $260 million plant in our Columbus, Mississippi, flat-roll steel mill. At this biocarbon production facility, we plan to produce over 200,000 tons of biocarbon per year, which will provide SDI with a renewable product alternative to anthracite coal used in our steelmaking operations. We have projected as much as a 35 percent reduction in our steel mill Scope 1 greenhouse gas emissions attributed to this alternative.

The section 45V credit is critically important to Steel Dynamics and the overall steel industry as we believe it continues to accelerate the domestic clean hydrogen proliferation priorities associated with the Inflation Reduction Act, priorities which we support and believe are essential to the reduction of greenhouse gas emissions and decarbonization. We believe the proposed regulation sets forth a strong framework, and we are grateful for the work the Treasury and the IRS have put into implementation of the Inflation Reduction Act. We believe with certain clarifications, these regulations would better reflect the current state of the industry.

We propose several revisions or clarifications to achieve that objective. Through SDI Biocarbon Solutions, Steel Dynamics, together with our partner Aymium, submitted written comments which go into greater detail on many of the key points I will make today, and we welcome the opportunity to meet with Treasury and the IRS to discuss any further questions you might have.

Domestic steel production is essential to national and economic security in our critical infrastructure. It is also a material that is used in nearly every technology involved in the transition to a lower carbon economy. To put this in perspective, the iron and steel industry accounts for around 7 percent of global greenhouse gas emissions. Most of the steel industry's emissions are associated with traditional technologies different from those employed by SDI. In fact, most of the greenhouse gas emissions are associated with the production of iron, a precursor to steel production, and the vast majority of emissions in ironmaking are associated with the gases used to chemically reduce the iron ore to metallic iron, notably carbon monoxide and hydrogen. The current source of both of these materials are fossil fuels. Coal is used to make the coke that is converted to carbon monoxide. Natural gases traditionally steam reformed into hydrogen and carbon dioxide. Both of these are huge sources of greenhouse gas pollution that contribute to the steel industry's carbon emissions footprint.

I repeat this because it is a critical point. Coke from coal converted to carbon monoxide and natural gas conversion to hydrogen are responsible for the majority of steelmaking emissions globally today. To serve the United States decarbonization goals, Congress recognized that it needed to support and incentivize the creation of a resilient, secure, and trusted supply chain for verifiable clean hydrogen, support the transition from fossil fuels to lower carbon energy production, and create domestic jobs. Section 45V provides a key incentive for the domestic production of a clean hydrogen to replace more carbon-intensive energy and raw material sources in mostly hard-to-abate industrial and other commercial sectors.

To help explain the basis for our requested changes detailed in our February 26 submission, I would like to back up and speak for a moment about the production of hydrogen through a process called biomass pyrolysis. Pyrolysis is the heating of an organic material such as biomass in the absence of oxygen and without combustion. This process is utilized by SDI Biocarbon Solutions and results in the production of clean hydrogen and a biocarbon product. Fortunately, this technology has promise as a source of hydrogen and biocarbon that can be used as a direct replacement for natural gas and coal in the ironmaking process that I just emphasized. With biomass paralysis as a recognized technology pathway for green hydrogen, the 45V tax credit could be serving a critical role to incentivize the decarbonization of the steel industry that is available today.

Just two weeks ago, the Department of Energy released a report outlining how America can sustainably produce more than 1 billion, that's billion with a B, tons of biomass per year. James Mennell, CEO of Aymium, will be speaking in a few minutes. I expect that in his testimony he will be emphasizing that the present 45V hydrogen GREET model permits only a small fraction of the available biomass in the United States to be utilized in the presently defined pathway. With some minor changes to the 45V guidance in the associated GREET model, substantial clean hydrogen capabilities would be unlocked using sustainably sourced biomass.

As discussed within our written submission, the regulations in the GREET model should be more reflective of the current state of the domestic production of clean hydrogen, the massive availability of sustainable biomass, as well as the complexities and rapid technological advancements that continue to be made within the industry. The disconnect between the current state of production of clean hydrogen in the industry and the technologies that are not represented in the current GREET model, coupled with the proposed provisional emission rate, or PER, process for addressing this disconnect will negatively impact the implementation of the credits and creates inefficiencies for both taxpayers and the federal government.

Therefore, first, we request that the biomass specific hydrogen production pathway in the GREET model be expanded to, one, include a broader definition of wood-based feedstocks and, two, expressly include pyrolysis as a hydrogen production technology.

Second, the regulations and/or GREET model should be clarified to take into account that carbon that leaves the facility in a solid or liquid product and is not emitted into the atmosphere during clean hydrogen production should be calculated to reduce life cycle well-to-gate greenhouse gas emissions.

Third, as a U.S. company and taxpayer itself, SDI appreciates the concerns the Treasury and the IRS have regarding the potential for abuse and agree that abuse should be prevented. However, we recommend clarifying that the provision applies only where hydrogen is wasted and used solely for the production of hydrogen for the primary purpose of obtaining tax credits.

MODERATOR: One minute remaining.

MR. HANSEN: We appreciated the opportunity to file our comments with respect to the proposed regulations and to be heard on these concerns and recommendations today. We stand ready to further discuss these comments, to provide additional information regarding the industry, our business, or the role biomass pyrolysis has in the production of hydrogen, and to answer any questions you might have as you consider finalization of these important regulations. Thank you.

MR. TILLEY: Thank you. We have one more speaker and then we'll take a short break. Mr. Adam Victor with TransGas Development Systems.

MR. VICTOR: (Inaudible) Systems, which in turn owns Adams Fork Energy, which is developing the largest clean ammonia facility in the United States. I have significant real-world experience in developing new energy projects, including in the context of delivering projects in conformance with new legislation.

In 1978 Congress passed PURPA [Public Utility Regulatory Policies Act], at the time the most energy-efficient policy ever conceived by the United States, which also resulted in improved clean air and lower electric prices. During the past 40 years, it changed the landscape of monopolistic utility pricing and greatly increased competition, lowering electricity prices while reducing air emissions as well. PURPA achieves this paradigm shift without mandating specific technology by using a simple thermodynamic formula that put all current and future technology on a level playing field. We are concerned that the proposed 45V rules are not technology neutral, unlike PURPA or the 45V legislation itself.

Immediately after the passage of PURPA, I developed one of the nation's first and most successful large PURPA-qualified facilities. We designed the recycled steam-injected gas turbine co-generation plant, which simultaneously provided waste heat to cool and heat three major hospitals, two universities, and a public housing authority, and supply excess electricity to the grid. This plant was the power plant that reenergized the entire eastern United States grid after the massive blackout of the summer of 2003. It was also the first project to purchase its own 20-year fuel supply in Canada and build the first bypass of the local utilities' gas pipeline system to fuel that project.

My involvement in the hydrogen economy began in 1971 as an engineering student at Cornell University under the tutelage of professor Arthur Ruoff, the father of the hydrogen economy. My latter studies at the Wharton School of Business focused on the vulnerability of infrastructure from acts of political terrorism. In 2006, I was asked by the former director of the Central Intelligence Agency, James Woolsey, to provide a detailed presentation to the Defense Science Advisory Board on the vulnerability of electric infrastructure and recently was invited to speak by the U.S. Army Corps of Engineers in Rome at the Italian Ministry of Defense on electric reliability in an age of sustainability.

I am speaking to you against the proposed IRS rules on section 45V as the developer and owner of this nation's largest ammonia facility and expect to have the first air-quality permit for production of 36,000 tons of ammonia per day issued imminently. The proposed rules ignore the clear language of the IRA itself as drafted and approved by the United States Congress. These rules not only run counter to the language of what Congress enacted, but vitiate the entire section 45V program and damage national security in the process, making this country more susceptible to acts of political terrorism that take down our electric infrastructure. I shall explain.

Data centers now consume 4.5 percent of all electricity generated in the United States. To be part of the decarbonized solution, much of their power is green power generated by solar or wind and their environmental attributes purchased and used by owners of these data centers. This 4.5 percent consumption is before the coming age of artificial intelligence, which will dramatically increase this consumption. The recent announcement of new superchips, whose power density will be up to 100 times that of older chips, only exacerbates this.

In addition to the increase in raw power usage, the amount of heat generated by these chips will make existing data center cooling technology obsolete. Air cooling will no longer be a viable option. Either massive energy-consuming mechanical cooling technology or the siting of these data centers at sites adjacent to massive freshwater mine pools to enable geothermal cooling, such as the Adams Fork Energy project decided, will be required.

What remaining green energy isn't ascribed for use in data centers will be primarily used in a new fleet of EV charging stations. There simply will not be enough green energy left over after the data centers and EV charging stations to fuel a massive new industrial chemical base to produce decarbonized fuels that will be needed to be built to decarbonize the world's power generation, shipping, cement, chemical, and steel industries.

As an example, the Adams Fork Energy project sits atop the prime saline aquifer of carbon sequestration in the eastern United States and will sequester 99.3 percent of all its carbon emissions. It will be fueled by 1.2 million dekatherms per day of stranded methane and will produce 36,000 tons per day of low-carbon-intensity ammonia. The Adams Fork facility will not have any connection to nor use any power from the electric grid, nor consume any portable or river water and have no water discharge. It will use geothermal cooling from the adjacent freshwater mine pool, the largest in the eastern United States, and it will use its exothermic energy to co-generate its own electricity and power the entire facility. Its 13 million tons per year of low-carbon-intensity ammonia would displace up to 42 million tons per year of carbon dioxide. In fact, if the Adams Fork project and site were used for hyperscale data centers, it would display 6,000 megawatts of electric power use and supply over 50 million square feet of zero-emission data center racks. The site has the added benefit of sitting adjacent to major dock fiber lines.

Compare this to a facility that would produce the same amount of ammonia by using 100 percent solar energy via the electrolysis process. That facility would require 14,000 megawatts — that is, 14 1,000-megawatt nuclear power plants of electricity equivalent. It will consume between 60 to 90 million year of water. That amount of water is what 4 million people consume, or more than 1 percent of the entire United States population. More importantly, it would require a massive solar farm of scores of square miles that is simply unable to be protected from drone or terrorist attack.

The proposed 45V rules pick winners and losers based on technology rather than carbon intensity under the R&D GREET model and, as such, favors a facility that requires 14,000 megawatts of offsite generation and more than 1 percent of all-American potable water over the 150 acre Adams Fork project that requires neither. Under the current 45V hydrogen (h)(2) GREET model, the Adams Fork Energy is unable to qualify for any clean energy hydrogen production, as the model does not include a pathway for ATR of coal mine methane with carbon capture and storage. Moreover, the ambiguity and certain surrounding the provisional emissions rate process exacerbates the issue.

For all these reasons listed above, I believe the Treasury should modify its proposed section 45V. They need to follow the carefully legislated language and let the R&D GREET model and the science behind it be dispositive in determining factor as to what projects qualify for the 45V hydrogen credits. These credits will enable Adams Fork Energy to offer reduced price, low-carbon-intensity ammonia to help decarbonize the world.

They will also be a catalyst for economic development for the people of southern West Virginia. The people of southern West Virginia are the heirs and descendants of the people that mined the coal that made the steel that built the Panama Canal, that made the steel that built the armaments that allowed us to fight and win both World War I and World War II. They mined the coal that powered the American Industrial Revolution. Through no fault of their own, these good people have been left behind. They deserve the chance to lead again the way towards again producing the fuels that will power the world, albeit a new decarbonized world. They deserve this project and they deserve to have the R&D GREET model be dispositive of who gets the hydrogen 45V credits.

If the staff of the Treasury wants to contact me to get clarity and more information, please feel free to contact me at my email at adam@tgds.com where the TGDs is the agreement for — the abbreviation for the TransGas Development Systems.

Finally, during this call, I received a message from my staff that the West Virginia Department of Environmental Protection notified us today that the issuance of our permit for 36,000 tons will be issued within the next 48 hours. Thirty-six thousand tons results in 2 million tons of hydrogen per year. That is 20 percent of America's 2030 goal.

Thank you very much.

MR. TILLEY: Thank you. All right, everyone. We've been going strong for a while now. How about we take a quick break, stretch our legs, and we will reconvene at, let's say, 1:05 p. m. ? And we'll kick things off at that time with James Mennell.

(Recess)

MR. TILLEY: OK, everyone, we're going to resume the hearing now, and our next speaker is James Mennell with Aymium.

MR. MENNELL: Good afternoon. My name is James Mennell. I'm the CEO of Aymium. We are a biohydrogen and bioproduct producer based in Minnesota. Our products are used to replace fossil-based inputs and reduce the environmental footprint in the production of iron, steel, silicon, energy, and water purification. We operate a production facility in Michigan and are developing new production capacity in California, Mississippi, Oregon, and Arkansas. I appreciate the opportunity to comment on the proposed regulations and thank you for your time. Previously, we submitted written comments through SDI Biocarbon Solutions, a joint venture with our partner Steel Dynamics, and my comments today will focus on certain key areas of our February 26 comment letter, namely the importance of pyrolysis as a technological pathway for the production of clean hydrogen, specifically pyrolysis of biomass, and to suggest clarifications to the prose regulations and GREET model that will help promote clean hydrogen production using this technology.

There are four points I request you to consider as you work to finalize the IRA clean hydrogen regulations. Point 1, pyrolysis should be expressly included as a clean hydrogen production pathway. The proposed regulations provide a pathway for gasification of biomass to produce biohydrogen. They do not, however, expressly mention biomass pyrolysis. We recommend that they do. Pyrolysis is a long-established technology uniquely positioned to create both clean hydrogen and other renewable products while sharing some common attributes. Gasification and pyrolysis are different technologies. Gasification uses heat, oxygen and combustion to convert the majority of feedstock to gases that can include hydrogen. Pyrolysis also uses heat, but in the absence of oxygen and without combustion to create multiple products that can include solids, liquids, gases that include hydrogen. Importantly, unlike gasification, the majority of carbon in the biomass feedstock used in pyrolysis is converted to non-gas products such as bio-oil and biocarbon that may be used to defossilize multiple industries while also producing clean hydrogen. Further, with pyrolysis, the majority of carbon in the feedstock is retained in solid or liquid products, which greatly reduces the cradle to great lifecycle greenhouse gas emissions for hydrogen produced using this technology. As a result, pyrolysis emits less CO2 when producing a unit of hydrogen than gasification because carbon is retained in co-product and it's potentially the least carbon-intensive technology available for clean hydrogen production, and for this reason it should be expressly included in the clean hydrogen regulations. Point 2, the definition of biomass should be expanded. Plants and trees are the most effective and most ubiquitous technology at removing CO2 from the atmosphere. All carbon renewable technologies in the world combined cannot match the amount of CO2 removed by trees and plants today. Sustainable and productive use of biomass as a feedstock for hydrogen production promotes planting of trees, increases extraction of CO2 from the atmosphere, and prevents greenhouse gas emissions that result from either burning or landfill disposal of low value biomass, which can degrade into methane and other greenhouse gas precursors. The only biomass pathway, including the prose regulations, is quote “corn stover and logging residue,” end quote. This is unnecessarily restrictive and undermines the massive potential to use biomass to produce low carbon intensity clean hydrogen. The U.S. Department of Energy released earlier this month an updated report outlining how America can sustainably produce over 1.2 billion tons of biomass every year for use in the renewable energy while continuing to support food production, thriving ecosystems, and beneficial uses for land. Corn stover and logging residue represent less than 10 percent of the total available biomass in the U.S. identified by the DOE. We recommend that the regulations in the biomass specific provision pathway in the GREET model be expanded to include forest materials more broadly, including forest thinnings, harvest residues, and, importantly, sawmill residues. It should also include agricultural residues like orchard trimmings and rotations, shells, pits, and husks, and it should expressly include energy crops. According to DOE, these categories represent hundreds of millions of tons of available and sustainable biomass and should be expressly recognized today as feedstock for clean hydrogen production. Point 3, cradle-to-gate greenhouse gas emissions should be calculated to exclude carbon that's not emitted in clean hydrogen production. When using pyrolysis, biomass is typically around 50 percent carbon. This carbon, which is biogenic in nature and extracted from the atmosphere through photosynthesis, is emitted to the atmosphere during gasification. The majority of carbon in biomass feedstock in pyrolysis, however, is not emitted to the atmosphere. When produced in clean hydrogen, the majority of carbon is retained in the solid or liquid carbon bioproducts. The LCA analysis for pyrolysis should exclude carbon that's not emitted during production. The GREET user manual provides that for hydrogen production that uses allowable biomass feedstocks, the model quote assumes that biogenic CO2 emissions that result from gasification equal CO2 emissions that were captured during growth of the feedstock. While this is correct for gasification, it is not so for pyrolysis, where clean hydrogen from biomass is co-produced with biocarbon using pyrolysis, over 65 percent of the carbon in the biomass is retained in solid form and is not released to the atmosphere. We recommend that any cradle-to-gate LCA for clean hydrogen production using pyrolysis expressly subtract carbon that is not emitted to the atmosphere during the production of hydrogen or which leaves the facility in a product. This will provide an accurate cradle-to-gate LCA for clean hydrogen produced when using the technology of pyrolysis. Point 4, production and use of clean hydrogen and pyrolysis to create renewable products should qualify for the clean hydrogen tax credit. The proposed regulations include antiabuse language intended to prevent the clean hydrogen tax credit where production use is not for productive purpose but instead is wasteful. The proposed regulations provided examples. Production of hydrogen — the taxpayer knows it will be vented or flared, truly wasted. The regulations also provide, however, that use of hydrogen to produce hydrogen could be wasteful. This language makes complete sense in the context of electrolysis-based hydrogen as a circular production of hydrogen to make electricity. To make hydrogen is not a productive use and is wasteful. Alternatively, in production of hydrogen with pyrolysis, clean hydrogen may be produced on site and used for the productive purpose of providing necessary energy to convert feedstock into hydrogen and other valuable products like biocarbon and renewable transportation fuels. Thermal production of hydrogen is endothermic. It requires energy, as energy is necessary for such processes and will otherwise be supplied by fossil fuels such as natural gas. The hydrogen is no way being wasted, and its productive use should be incentivized to support low-carbon-intensity processes where hydrogen is used to produce a valuable product such as biocarbon or biofuels. Section 45V's purpose of producing clean hydrogen for productive use is satisfied, and disallowing credit would encourage use of fossil natural gas and higher carbon intensity processes. Further, as the primary economic driver of such facilities, the production of biocarbon or biofuel excess conversion of feedstock to hydrogen beyond what's needed for use for process requirements is inherently disincentivized. The purpose of such hydrogen production is to provide needed energy, not to waste the hydrogen. This may be addressed in many ways, but the simplest may be to insert the word solely in the regulatory language that prohibits use of hydrogen to produce hydrogen, such that the tax credit is only prohibited where hydrogen is produced solely to produce more hydrogen in a wasteful and circular manner.

Importantly, without clarification, the proposed antiabuse rule could disincentivize onsite hydrogen production for productive use instead require that hydrogen be compressed, stored, and shipped to qualify for the section 45V tax credit. Nothing in the text of section 45V supports this outcome, and we believe it's contrary to congressional intent. Onsite production and use of biohydrogen has significant potential to decarbonize processes that present rely on fossil inputs. Production and use of self-produced biohydrogen to provide thermal energy necessary for pyrolysis is a productive use, is not wasteful, and reduces carbon intensity. The regulations that implement section 45V and the associated antiabuse provisions should reflect this and clearly provide the tax credit where hydrogen is produced and used on-site for productive purposes. Finally, while we appreciate the intent and potential flexibility of the provisional emission rate, or PER, process, we believe it's critical to address our comments now in the regulations in the GREET model. Congress intended this law to expedite clean hydrogen production, and we want to build hydrogen production capacity today. Unfortunately, the PER process requires extensive engineering prior to submittal of any per requests and provides no timelines for response to a PER petition. This creates cost, uncertainty, and delay. Consistent with congressional intent, the IRS and DOE should strive to provide as much clarity as possible in the final regulations and the GREET model. Now, as suggested here, to facilitate expedited investment in new clean hydrogen production, we and others are ready to move forward and invest in clean hydrogen production, and these suggested clarifications will help us to do so. I'm happy to answer any questions, and I would welcome the opportunity to follow up with you to provide further information as you work to finalize the regulations. Thank you again for your time today.

MR. TILLEY: OK, our next speaker is H. William Burdett Jr. of Mesabi Steel.

MR. BURDETT: Hello and thank you for the opportunity to speak today. My name is Bill Burdett and I'm an attorney with the law firm of Winthrop and Weinstein, headquartered in Minneapolis. We represent Mesabi Metallics Company, a U.S. steelmaking company located in northern Minnesota that aims to lead the country in 100 percent green steel production. As part of these efforts, Masabi seeks to produce qualified clean hydrogen to be used as a reduction agent during its steelmaking process in place of coal. Mesabi very much exemplifies the modern climate driven us industrial company kind of company that strongly desires to decarbonize its operations, yet cannot financially overcome the hurdles put forth under the proposed regulations in a timely manner. In response to comments sought by the IRS regarding section 45V proposed regulations, we suggest the final regulations allow industrial sector taxpayers, meaning taxpayers involved in producing iron, steel, chemicals, food and beverage, cement or refining, to use existing renewable or zero-emission energy and no more than monthly metering until 2032. As the administration has emphasized, the industrial sector makes up 30 percent of the United States energy related carbon dioxide emissions. The steel and iron industry constitutes 7 percent of those emissions. These are notable emissions figures given the proportionate economic size of the industrial sector to the whole of the United States economy. Notwithstanding its carbon footprint, the industrial sector is not only vital to the U.S. economy but vital to the success of our nation's future clean energy infrastructure. Steel production, for example, is critical in creating durable solar panel brackets, energy efficient commercial buildings, and fireproof battery housing for electric vehicle powertrains. Yet steelmaking produces quite a bit of carbon dioxide, mainly from burning coal and other fossil fuels. Despite its best intentions to decarbonize, there is a limited universe of clean energy initiatives available for most U.S. industrial businesses to feasibly adopt to reduce their carbon footprint. Hydrogen production could be that missing incentive. In fact, clean hydrogen production and use could significantly reduce coal and fossil consumption within the industrial sector. Many industrial operations like Mesabi, however, are not located near favorable new renewable energy sources or those in development. Furthermore, unlike specialized hydrogen producers, most industrial businesses cannot feasibly absorb the costs required by current hourly metering technologies, which can more easily be absorbed by large-scale specialized hydrogen producers. Within our submitted written comments, we offered several suggestions regarding the proposed regulations, which include limiting the definition of wastefulness under the antiabuse rule to venting, flaring, and hydrogen reproduction in order to avoid making the 45V credit unavailable in circumstances that would otherwise reduce greenhouse gas emissions for today's purposes. Given the important and often all or nothing debate over the strictness of the three pillars, we are focusing on offering a solution, a more nuanced approach that balances market viability and optimization of greenhouse gas reduction. Thus, we offer three reasons to provide leniency to hydrogen producers within the high-emitting and hard-to-decarbonize industrial sector. First, industrial decarbonization is an administrative priority that requires bold action. Second, industrial decarbonization initiatives are particularly difficult to implement. Third, industrial decarbonization will create the greatest reduction in greenhouse gas emissions. To our first point, the section 45V final regulation should provide more leniency to industrial hydrogen producers in consideration of the administration's priorities, as published under the Department of Energy's industrial decarbonization roadmap. The roadmap proclaims that bold action is needed to decarbonize the high emitting industrial sector. If this credit allows industrial entities to produce clean hydrogen using renewable energy, then we should not deter this expense on term investment, which will immediately lead to significant greenhouse gas emission reductions. Other taxpayers have and will debate the overall efficacy of the incrementality and hourly metering standards under the proposed regulations. While we recognize that certain restrictions are necessary to deter wasteful or gray hydrogen production, the final regulation should, at the very least, respect adjacent and unique administrative guidance by adopting a more nuanced, lenient approach for the high-emitting industrial sector. Our second argument is that the industrial decarbonization is particularly difficult to implement, thus requiring leniency for which we advocate. The National Academy of Sciences calls the U.S. industrial sector difficult to decarbonize, meaning more grace is needed to implement hydrogen production within this sector. Decarbonization efforts such as clean hydrogen production are more difficult and expensive to implement within this sector because of higher energy demands and lack of geographic proximity to renewable resources. Yet when reviewing the hydrogen ladder 5.0, a model that ranks likely areas in which hydrogen will be used globally based on cost, efficiency, safety, and benefits, hydrogen implementation in many industrial processes, including steelmaking, is deemed unavoidable. The maximum clean hydrogen production credit would make it feasible for industrial manufacturers such as Mesabi to produce and use qualified clean hydrogen in their domestic manufacturing processes as a reduction agent in place of coal, creating significant greenhouse gas reductions. However, the incrementality in hourly metering proposals make it financially impossible to maximize these tax credits associated with these decarbonization efforts. The stringency of the proposed regulations goes against the industrial roadmap's acknowledgment that reductions in the cost of large-scale hydrogen production technologies are essential to enabling industrial hydrogen use. This is particularly true for Mesabi, whose steel plant is tied to an iron ore deposit that is not located near current or future wind, solar, geothermal, or hydropower energy production. Now, we are not asking for weak rules that would contradict the intent of the IRA. We are asking the IRS to consider the whole of the inflation Reduction Act instead considering both the Biden administration's focus on decarbonizing the industrial sector and the proportionate strictness of other incentive programs under the Inflation Reduction Act. As to our final point, industrial decarbonization creates the greatest reduction in greenhouse gas emissions. Efforts by industrial taxpayers to produce clean hydrogen will create the greatest reduction in greenhouse gas emissions if they can afford to produce it. We should not deter these positive efforts by overregulating implementation within the industry that is most in need of change. Industrial entities are more likely to produce clean hydrogen to replace their own energy-intensive fossil-fuel-burning processes, meaning industrial hydrogen production will supplant the greater greenhouse gas emitters and avoid any energy efficiency reduction from storage or distribution. These manufacturers will use the hydrogen in place of coal as a reduction agent in their steelmaking processes. To be clear, our suggestion is far from providing the industrial sector a free pass. We appreciate that the proposed regulations aim to ensure the cleanliness of hydrogen production. Under our proposal, industrial taxpayers must still produce hydrogen from renewable or zero-emission energy sources and track production via regular metering. We believe more nuance is needed under these proposed regulations to expedite clean energy efforts within the high-emitting, hardest-to-decarbonize sector. We have heard a lot of valid arguments for and against the three pillars under the proposed regulations. Hydrogen production specialists have and will play a vital role in U.S. clean energy adoption, but the 45V program is not only for them. We must remember that combating climate change also requires adoption of clean energy initiatives by the greater business community. The proposed section 45V regulations constitute the strictest adherence, which is disproportionate to the reduction in carbon emissions and overly prescriptive on the deployment of other specific renewable resources, such as renewable electricity, which is not the primary focus of this credit program. These stringent three pillars may remain easy hurdles for a select few within the hydrogen space, but we urge you to consider non-hydrogen specialists like Mesabi to encourage the broadest adoption of a clean energy infrastructure. Industrial leniency will allow for well defined, well deserved, and notable adoption of clean hydrogen production without oversacrificing on what constitutes qualified clean energy. Rather than an all-or-nothing approach to incrementality and hourly metering, we ask you to consider making an exception for industrial sector businesses. Thank you very much for your time.

MR. TILLEY: OK, our next speaker is Manuel Salgado from WE ACT for Environmental Justice.

MR. SALGADO: Hello, my name is Manuel Salgado and I serve as federal research manager for WE ACT for Environmental Justice. WE ACT's mission is to build healthy communities by ensuring that people of color and or low-income residents participate meaningfully in the creation of sound and fair environmental health and protection policies and practices. I am thankful for the opportunity to provide testimony from an environmental justice perspective — when used in limited scenarios in hard-to-decarbonize sectors and when producing.

MR. SALGADO: Through electrolysis, powered by new renewable energy, and in adherence to the principles known as the three pillars, hydrogen has potential to be a positive force in the path towards decarbonization. However, WE ACT and many other environmental justice organizations have long maintained that hydrogen is a false solution to our climate and pollution problems because unless it is produced in a truly clean manner and used only in ways that do not have direct electrification alternatives, hydrogen has potential to cause more harm than good.

The 45V tax credit must be finalized with the three pillars and with the objective of ensuring that the hydrogen industry does not add to the many burdens faced by frontline and environmental justice communities. Over the past two days of testimony, I have heard organizations testify that the three pillars would make it impossibly difficult for them to produce hydrogen in an economical manner and would represent a deadly threat to the hydrogen industry. However, these testimonies have been undercut by many others who have pointed out that they are currently producing hydrogen while adhering to these allegedly fatal principles. Decarbonizing the economy is not an easy task, but it is a necessary one if we are truly aiming to protect people's lives from the carbon crisis.

Numerous studies have shown that electrolytic hydrogen produced without the protections of the three pillars will result in a large increase in greenhouse gas emissions over simply continuing to produce dirty hydrogen. This is not decarbonization, but in fact the exact opposite, creating a remedy worse than the disease. The increase of greenhouse gas emissions would also be accompanied by dangerous co-pollutants such as NOx and particulate matter.

There are members of the hydrogen industry who will tell you that they cannot produce hydrogen under the three pillars, even as many of their colleagues tell you, they already do. What the opponents of these principles will fail to tell you is that in the absence of the three pillars, hydrogen production will increase air pollution and have an increased cost measured in human lives. The costs will be paid by the environmental justice communities who live in the shadow of fossil fuel power plants.

Today, Black Americans face an air pollution mortality rate over four times that of white Americans. If hydrogen is to play a role in saving lives and decreasing disparities such as this, it must be produced in a manner that aligns with the three pillars. The Inflation Reduction Act is crystal clear on this subject. In order to qualify for a credit, hydrogen production methods must meet life cycle greenhouse gas requirements. The three pillars are the best way to ensure electrolytic hydrogen production meets these thresholds and does not result in a large increase in greenhouse gas emissions and deadly co-pollutants.

The three pillars will also serve as a financial protection for low-income households around the United States. Electrolytic hydrogen production is an energy-intensive activity, and if new, clean energy generation is not brought online to supply electrolysis demands, we will see large spikes in energy prices for Americans who can ill afford to pay more to power their homes.

We have seen a similar situation play out with a rapid increase of data centers dedicated to cryptocurrency. These facilities have dramatically increased electricity demand across the nation and in turn have raised the price of power for many Americans. The Department of Treasury can avoid this outcome for electrolytic hydrogen by ensuring the three pillars remain a part of the finalized guidance.

45V also contains provisions for hydrogen produced through methods other than electrolysis. WE ACT stands against all hydrogen produced from fossil fuel feedstocks. Hydrogen produced in this manner is in no way clean and results in a high volume of upstream emissions, largely due to methane leakage. It is imperative that these emissions are fully accounted for and that the GREET model accurately represents the impact these production methods have on greenhouse gas emissions.

Although the tax credit does not rule out specific hydrogen production pathways, it does clearly require life cycle greenhouse gas emissions to not surpass various thresholds in order to qualify. If a hydrogen production method is unable to achieve these emissions thresholds, then it should not be subsidized by public dollars. Once again, it is essential that the emissions accounting for all hydrogen production methods are as accurate as possible in order to fully comply with the statute.

The Treasury [Department] has an opportunity to guide the country towards a future where hydrogen is an agent for positive change and decarbonization. It is not hyperbole to state that the Treasury has the opportunity to save thousands of lives and positively impact millions of others by getting this guidance right. There is no justification for prioritizing the profits of companies over the lives of people. WE ACT urges the Treasury [Department] to enact a final rule that retains the three pillars, closes off loopholes, and ensures accurate emissions accounting.

Once again, thank you for the opportunity to provide testimony.

MR. TILLEY: OK, our next speaker is Rick Miller of LyondellBassell.

MR. MILLER: Good afternoon and thank you for the opportunity to speak to you today. My name is Rick Miller and I am the senior director of net-zero transition for the U.S. region at LyondellBassell.

We are a leader in the global chemical industry, creating solutions for everyday sustainable living. Through advanced technology and focused investments, we are enabling a circular and low-carbon economy. Across all we do, we aim to unlock value for our customers, investors and society. As one of the world's largest producers of polymers and a leader in polyolefin technologies, we develop, manufacture, and market high-quality and innovative products for applications ranging from sustainable transportation and food safety to clean water and quality healthcare.

We are taking concrete steps to reduce greenhouse gas emissions from our operations. Our goal is to achieve net-zero scope 1 and 2 GHG emissions from global operations by 2050 and reduce the absolute scope 1 and 2 emissions 42 percent by 2030 relative to our 2020 baseline.

LYB's strategy for achieving our climate ambitions relies on several key levers, including fuel switching to low-carbon energy, such as clean hydrogen. Our challenge, which is shared by other energy intensive industries, is that the cost to develop clean hydrogen production and infrastructure prevents us from making investments necessary to utilize hydrogen as fuel. The latest climate science calls for urgent action, and bridging the economic gap for hydrogen as fuel can be an accelerator by unlocking industrial decarbonization. Subsidies like that of section 45V and government policy that reward investment in carbon-reducing technologies and supports development of infrastructure are critical for us to achieve our goals, as well as the administration's goal of reducing United States emissions by 50 percent to 52 percent by 2030.

In order for the chemical industry to jump-start a sustainable net-zero transition, it is necessary for section 45V guidance to deliver with certainty an economically viable option for facilities using clean hydrogen as fuel. The proposed guidance issued by the U.S. Department of Treasury falls short in providing that certainty. We must accelerate the pace of reducing GHG emissions, and this can be accomplished by reducing the cost to produce and procure clean hydrogen, enabling a more level playing field that can compete in the fuel market.

Without changes to the proposed guidance market, adoption of clean hydrogen as a primary fuel source will be stalled, which has the potential of significantly slowing the industry's overall net-zero transition timeline. LyondellBassell has provided written feedback for consideration in the development of final rulemaking for qualified taxpayer incentives under section 45V.

We have highlighted three areas that we believe modifications are necessary to accelerate adoption of clean hydrogen as a primary fuel source. First, we request that the guidelines regarding the three pillars be modified to reflect the market and technological constraints that exist. The guidelines should encourage innovation and development of renewable energy in an equitable manner and not disadvantage any given region based on resource or infrastructure availability.

LyondellBassell supports incrementality and appreciates the practical consideration to allow for certain existing assets to qualify. We request that modifications be made to align the guidance with other statutes and increase long-term certainty around investments. Deliverability will be an ongoing threat to the onstream time of production assets for the foreseeable future. We applaud the allowance for qualifying curtailment and believe that the allowance should be aligned with deliverability to the closest contractual hub to reflect the actual market conditions impacting the operations of the asset. It is also important to expand the qualified technologies producing low-carbon electricity to foster equitable transition while promoting domestic energy security.

Regarding temporal matching, LyondellBassell does not have confidence that technology and the market will provide feasible options to transition from annual to hourly matching by 2028. Hourly matching should only be implemented when the technology and market have advanced to support such operations. LyondellBassell recommends that a transition date should not be defined in the guidelines. Rather, a transition method should be stipulated based on market penetration of the technologies needed to support the transition and maturity of the EAC market, including readiness of tracking and reporting systems.

Concerning deliverability, LyondellBassell recognized that the development of renewable electricity has occurred disproportionately across the United States. This is driven by availability of resource, market and regulatory structure, and infrastructure constraints. We believe that guidance relative to deliverability should not disadvantage regions in the United States and allow hydrogen to be developed to meet demand requirements in an optimal manner. We recommend no restriction beyond the contiguous United States.

Secondly, lines that the three pillars not apply to RNG, and we instead support the use of a book-and-claim system. RNG is produced, transported, and delivered very differently than in the electricity market, so the policy for treatment of the two should reflect those differences. Book-and-claim is an industry standard allowed for in the EPA's renewable fuel standard and California's low-carbon fuel standard, and it appropriately addresses the constraints that exist from production facilities located near biowaste sites rather than in centralized locations, and should be considered a best practice to be applied in a standard.

Finally, LyondellBassell appreciates the development of the 45V hydrogen GREET model and recognizes the need for a systemic way of determining the life cycle GHG emissions for hydrogen, which can be accredited. LyondellBassell urges that the model be updated to provide greater accuracy in calculating the life cycle GHG emissions for hydrogen by allowing for the entry of actual background data and operational data that can be verified by a third party. Providing this flexibility will further encourage innovation and development of management systems designed to minimize GHG emissions across industry.

While we advocate for a GREET model that is maintained to properly reflect the actual life cycle GHG emissions, we are also concerned that an ED (phonetic) model creates uncertainty over the course of a 10-year credit period. LyondellBassell recommends that the final rules allow for a safe harbor under which the GREET model available at the time a project begins construction be allowed in lieu of the most current model. This will provide the certainty needed for a sound business case, which will drive investment decisions.

As we go forward, there is an unprecedented opportunity for collaboration between the chemical industry and government to accelerate the development of an entire hydrogen value chain. This collaboration builds on the history of America's can-do innovative spirit to shape a more sustainable world. We are excited about unlocking the possibilities for the chemical industry and working towards building future energy security for the United States. With this in mind, we urge the Department of Treasury to consider implementing the modifications raised today.

I want to thank you for your time. If you have any questions on our requested modifications, we would be happy to work with you to clarify. Thank you for your time again.

MR. TILLEY: OK, our next speaker is John Kotek of Nuclear Energy Institute.

MR. KOTEK: Good afternoon. This is John Kotek, senior vice president for policy and public affairs at the Nuclear Energy Institute [NEI]. NEI is the trade association for the commercial nuclear technology industry in the U.S.

First off, I want to say thanks to the IRS team for your hard work on this draft rule and all the other tax credit implementation work that you're doing. I also want to say thanks to the administration for all the great support we've seen for nuclear energy these past several years. It truly has been tremendous. But unfortunately, I'm sorry to have to say that on this particular issue, you blew it.

There's been a lot of back-and-forth today about what the law actually requires, but I haven't heard anyone quote the person who actually wrote the Inflation Reduction Act. And Senator Joe Manchin said the 45V proposal, quote, “imposes onerous rules which were not included in the IRA that limit the ability of the credit to help develop a domestic hydrogen market.”

Now, I'm not going to speed read to you a CliffsNotes version of the NEI comments, which I trust you've reviewed, but I will hit three key points and share a few thoughts from my time in government. First, your draft rule is plainly inconsistent with the law. The IRA explicitly allows for taxpayers claiming the 45V credit to also claim the 45U credit for existing nuclear facilities. Excluding existing nuclear facilities from accessing the 45V credit is in clear conflict with both the text and the intent of the IRA. The IRA also established that taxpayers could begin claiming the 45V tax credit at the beginning of 2023, one of the earliest eligibility dates for any IRA tax credit. Requiring hydrogen producers to purpose-build power sources for their operations is inconsistent with the timelines for hydrogen production Congress outlined in the IRA.

Second, your draft rule is going to stifle the growth of the clean hydrogen ecosystem in the U.S., which is an ecosystem we've been trying to grow for decades. Now, with 45V and with other programs, the U.S. has an opportunity to really lead the world in clean hydrogen production.

As we know, DOE has a goal to produce 10 million metric tons of clean hydrogen annually by 2030 and increasing to 50 by 2050. The establishment of the hydrogen hubs in the IIJA was a major step in overcoming deployment and integration challenges for hydrogen. But the hub program alone was not sufficient to spur the level of production needed to meet our goals. So the IRA stepped in, and the IRA provided the most robust incentive for clean hydrogen production we've seen.

As we know, producing clean hydrogen currently costs around $5 a kilogram, which is well above the DOE's $1 target. So by providing up to $3 a kilogram for the least carbon-intensive hydrogen, 45V was designed to incentivize rapid production and adoption of clean hydrogen. The proposed rule is inconsistent with the administration's policy towards hydrogen and really is going to have a detrimental effect on the hydrogen hubs. We've heard that today. It's underscored by the fact that all seven hydrogen hubs have expressed concern with the proposed rule.

On a personal note, I comment back 20-plus years ago, I was responsible for the nuclear hydrogen program at Argonne National Laboratory, and so I know we've been waiting for an opportunity to go big on clean hydrogen for decades. We might not ever see an opportunity like this again. So now is not the time to artificially restrict the amount of clean hydrogen in the marketplace.

My third and final point from our comments is that while we strongly impose the inclusion of any incrementality policy in the final rule, we did offer suggested improvements should Treasury nonetheless decide to move forward with such a restriction. For example, we proposed that you should allow for early-mover hydrogen projects to utilize existing nuclear energy by providing an exemption to the incrementality requirement for hydrogen projects that are under construction before the end of 2026.

We also proposed that subsequent license renewals should allow existing nuclear facilities to be counted as new. This provision would allow facilities seeking a subsequent license renewal from the Nuclear Regulatory Commission to claim 100 percent of their output as new, starting five years prior to the start of the subsequent license. And then finally, we propose the Treasury allow for 10 percent of existing clean generation to count as new on a fleetwide basis, as opposed to the 5 percent that's included in the proposed rule.

Let me leave you with a final thought. I mentioned I've spent a lot of time in government myself. And this whole exercise reminds me of my time serving as staff director to a federal commission back in the early 2010s. That commission issued a very well-considered set of draft recommendations for public comment. And yet when the commission started receiving feedback, it was clear that a particular issue hadn't been appropriately addressed. But rather than close their ears to the feedback, the commission chose to embrace it, and their modified final recommendations enjoyed widespread acceptance. You're all in the same position, right? You're in a position to bolster your credibility by issuing a final rule that embraces the critical comments you've received from us, from the hydrogen hubs and others, that's consistent with the law and then enables what we really need, which is the rapid expansion of a clean hydrogen ecosystem.

So with that, let me thank you for the opportunity to comment.

MR. TILLEY: All right, our next speaker is Ross Buckenham and Neil Black of California Bioenergy.

MR. BLACK: Thank you for the opportunity to speak today. My name is Neil Black, and I am one of the founders of California Bioenergy. We formed CalBio in 2006. CalBio asks the U.S. Department of Treasury to modify the provisions in the 45V proposed rule to include RNG produced from dairy biogas, reflecting the recognition of avoided methane in the GREET model. Such a step will both greatly reduce current dairy methane emissions and speed the development of economic clean hydrogen generation to use in critical, hard-to-abate sectors.

At CalBio, we build digesters that capture dairy methane emissions. We work closely with government agencies and dairy families. Today, we are preventing over 1 million metric tons of CO2 equivalent from being emitted into the atmosphere each year. We also deliver a range of co-benefits, including improved local air quality and odor control. Further, the renewable natural gas we collect is displacing petroleum-based fuels. 45V is a remarkable opportunity to greatly reduce dairy methane emissions across America and to do so quickly over the next five years. The renewable hydrogen made from this methane can be used in hard-to-electrify sectors and transportation. 45V provides the economics to rapidly achieve dairy methane emission reductions.

From our formation in 2006, we were encouraged to partner with the agricultural community to build a digester company focused on taking action to address climate change. Encouragement came from U.S. EPA, USDA, the California Department of Food and Agriculture, California Air Resources Board, California Energy Commission, and California Public Utilities Commission. Why? Dairy manure management and livestock more broadly are resulting in substantial emissions of methane as well as odor and air quality issues. Digesters are an effective and rapid solution that help address these problems. According to the Environmental Defense Fund, dairy farming is responsible for nearly 10 percent of global methane emissions. In 2016 California CARB in California passed S.B. 1383. It requires a 40 percent reduction in methane emissions from dairy manure management by 2030.

Over the first 12 years, we work with government agencies, many partners, and other developers to build a foundation for a sound business model, while decreasing methane emissions, protecting the environment, and helping the local community. We partnered with engineers, technology providers, and construction firms. We benefited from government programs. This began with U.S. Treasury. The Recovery Act of 2009 and its 1603 program provided the financial viability for our first two projects. In short, without these critical incentive programs, our projects would not have moved forward.

Following the lead of 1603, California put in place incentives to jump-start building projects. Prior to the new incentives, California only had a dozen historical digesters, and many were struggling. The new incentives opened up the opportunity to invest in digesters. Incentives took the form of grants, as well as CARB establishing low-carbon fuel standard based on accounting for the benefits of avoided methane emissions. We also were able to benefit from EPA's renewable fuel standard.

An essential step was our partnership with dairies. We developed our company by partnering with dairy families. 100 percent of our partners are family-owned businesses, and each spans multigenerations. At CalBio, we structured our relationship informed by the co-op structure the majority of dairies participate in. Over the first dozen years, we built five projects. More importantly, we set the foundation for successful business.

In 2019 we began to gallop. Over the past five years, CalBio has built 50 new operating digesters. Along with other companies like ours, in California, we're reducing the 2013 baseline from the newer management by roughly 25 percent, or 2.5 million tons. That is the greenhouse gas equivalent of removing over half a million cars from the road. That is just in California.

Similar projects across the country are reducing dairy methane, as you heard from AMP yesterday. Core of economics is applying established science to accurately count for avoided methane emissions. A digester project receives the value the methane captured that would have gone in the atmosphere without the project. Avoided methane reflects rigorous analysis and policy developed by a broad spectrum of government, industry, environmental and academic experts over many years. For instance, as a part of that process, CARB and Argonne National Labs based the LCFs GREET model for livestock unavoidable methane. Projects we carefully measure every 15 minutes, independently confirmed by the utility, the methane we put in the pipeline. Third parties review the project's methane abatement. Based on the heat-trapping properties of methane 80 times as warming over 20 years and nearly 30 times as warming over 100 years, digesters are a cost-effective solution for a ton of greenhouse gas reduced. However, they require significant upfront investments and don't pencil out without fully accounting for the critical reductions in methane emissions they deliver.

We have built approximately $600 million of projects to date. We have approximately the same amount in available capital in the near term to continue delivering methane eliminating projects, and along with others in the industry, can raise more. However, we can only raise and use this capital with clear policy signals that demonstrate that investments in dairy digesters will be valued over the long term. 45V is a key part of solving this problem. It provides the economics to accelerate new digester projects. (inaudible) will help build projects on smaller dairies and help fill in financial gaps where state funding has decreased. This biomethane will in turn produce clean hydrogen for both the transportation and hard-to-electrify sectors, and it can be done quickly. And since we're capturing and destroying is methane, which is about 30 times more heat trapping than CO2 over 100 years, it helps buy us time in the race against the clock on climate change. Biomethane can be used both in SMR and electrolysis. SMR needs rules put in place based on avoided methane. Dairy methane can accelerate hydrogen production and methane abatement at the same time. We also produce clean renewable electricity. Today we generate zero emission electricity deploying fuel cells powered by dairy methane. There are balloon fuel cells in American technology. We are now testing mainsprings, another new American technology. Dairy generated electricity is a good counterbalance to intermittent solar and wind. An additional benefit of our projects is that dairy digesters capture hydrogen sulfide, greatly reducing odors in the formation of particulate matter. The result is cleaner local air.

In our written testimony provided specific recommendations for the modifications of the 45VH2-GREET model, based on the R&D GREET 2023 model. This includes adjusting the model to site-specific conditions, such as the manure management practices and digester type. Dairy methane reductions are a great bipartisan climate success. We have come together across the focal spectrum and have reduced greenhouse gases quickly and significantly. We have an opportunity to build on this success, but we have only just begun given the climate emergency. We need thousands of successes across the country. Dairy participation with avoided meth and crediting in 45V is one of them. Our mission is to reduce dairy methane, and with others, we have demonstrated how effective we can be when policy signals are aligned with the signs as well as the market.

I want to thank Treasury for the opportunity to speak today.

MR. TILLEY: All right, our next speaker is Matt Tanner and Ross Keogh of Los Angeles Department of Water and Power.

MR. KEOGH: My name is Ross Keogh and I'm a shareholder with Parsons, Behle & Latimer and lead of the firm's tax practice. I'm joined today by Matt Tanner, who is managing director of Berkeley Research Group's energy and climate practice. Matt and I are here today as counsel for the Los Angeles Department of Water and Power in its capacity as operating agent for the Intermountain Power Project, an existing coal plant which is being transformed into an 840 megawatt, hydrogen-capable gas turbine combined cycle power plant, known as IPP Renewed, located in Delta, Utah.

As part of IPP Renewed, Advanced Clean Energy Storage I LLC is constructing a 220 megawatt, electrolysis-based hydrogen production and storage facility that will produce and store clean hydrogen for use by IPP Renewed. Portions of that facility will be commercially operational this year or early 2025, and the ACES facility, as it's known, is eligible for 45V in 2025. The ACES facility is a critical component of Los Angeles Department of Water and Power's commitment to decarbonize its electric supply by 2035. Cleaner hydrogen resources were highlighted in LADWP's landmark LA100 study with the National Renewable Energy Laboratory. That study showed that a resource like ACES, which provides dispatchable energy, will be crucial to the clean energy future of this country.

IPP Renewed and ACES serve these purposes. LADWP will use the ACES facility to convert electric energy to hydrogen during times of abundant renewable generation for long-term seasonal storage, which will then be used to fuel IPP Renewed. If it's helpful, we would invite you to tour the ACES facility. I note that LADWP serves a disproportionate share of residents living in low-income and disadvantaged communities that suffer from a combination of economic, health, and environmental burdens amounting to more than 2. 1 million Angelenos, or 54 percent of its residents.

Any tax benefits from 45V associated with the ACES facility flow directly to these LADWP customers. LADWP submitted extensive comments to Treasury in its docket, which include technical analysis from BRG and the Brattle Group. And I'll turn it over to Matt Tanner, an additional perspective on the technical issues that LADWP is facing and monetizing the 45V credit for those members of its customer base.

MR. TANNER: Thanks Ross. Good afternoon, everyone, and thanks for the chance to present. LADWP is the largest municipal utility in the United States and owns a large generation and transmission system dedicated to supplying electricity to its customers in the city of Los Angeles. The department has one of the most aggressive decarbonization targets in the world, with a plan on reaching 100 percent green energy and, very importantly, fully time matched by 2035. The successful early decarbonization of a system as challenging as LADWPs will stand as evidence that it can be done broadly in the United States and globally. IPP Renewed and ACES 1 are important pieces of the department's strategy to a successful transition to 100 percent decarbonization.

I want to highlight four specific issues that LADWP believes will enhance the effectiveness of the regulations in meeting the goals of the Inflation Reduction Act, to both incentivize decarbonization and kick-start hydrogen as a technology for storing renewable energy. All of these comments are explained in significant detail in the white papers attached to our submittal to Treasury.

First, the reasons for the western interconnect need to be refined. Powering hydrogen production facilities with deliverable electricity is critical for demonstrating zero emissions. The regions proposed by Treasury largely, and we believe, correctly match market structures in the eastern United States. However, the Western Regions are split in a way that is arbitrary compared to how power markets and trading are structured in this region. We discuss this in detail in our comments, but for the western region to properly reflect market structure, it needs to be divided into only two regions which follow balancing authority area participation in the WEIM and the WEIS markets. These are the two large wholesale power markets for energy trading. This would better reflect the realities of how the western grid actually operates.

Second, locational marginal pricing should be adopted as a proxy for incrementality. Treasury requested comments on whether there is an administratively simple rule that could be used to allow incrementality to be relaxed when it can be proven that the load of a hydrogen production facility is not increasing emissions on the system. In our view, an emitting resource threshold of the locational marginal price can be regionally defined, and whatever the locational price for electricity consumed at the facility is below that threshold, that consumption should be assumed to be zero emissions for 45V purposes. The white papers we submitted provide more detail on this concept and provide a simple approach for Treasury to calculate it on an annual and regional basis. There is broad acceptance to this formulation, including by the Environmental Defense Fund and the Clean Air Task Force, that there should be a threshold price below which hydrogen production can be assumed to be zero emissions.

Third, incrementality should be delayed until more granular grid mixes are available in GREET. We believe that allowing a short delay for requiring incrementality until more granular grid mixes for the GREET model are developed is necessary. For example, LADWP is currently sourcing nearly 50 percent of its electric energy from renewable sources, most of which were constructed before the start of the incrementality window for ACES 1, forcing LADWP to acquire new renewable resources ahead of its natural procurement cycle to simply satisfy 45V, only harms LADWP's ratepayers. Slightly delaying incrementality to align with enhanced grid mixes will recognize LADWP and others prior efforts to decarbonize.

Fourth, we believe that temporal matching should be delayed until markets can adapt. Current REC tracking and trading are generally done on an annual basis. LADWP is concerned that WREGIS, the western tracking system, won't be ready to hourly match by January 1, 2028. Further, while we agree that temporal matching is an important part of the regulations, we also think that it has to be introduced in such a way that there is time for a liquid market to develop. This will ensure administrative and economic feasibility for purchasers of time matched EACs, such as LADWP.

With my remaining time, I would raise two technical issues that we seek clarification on. First, Treasury should clarify the role of pseudo ties in firm transmission in the geography of regions. In the regulations, Treasury stated the deliverability regions include resources that are electrically connected to balancing areas as opposed to a pure geographic definition, and we wish for clarification that this means that energy resources that are pseudo tied to a balancing area, or have firm transition to the balancing area, are considered deliverable. This would both ensure consistency with how deliverability is generally defined, and very importantly, would not exclude a large number of non-emitting projects that LADWP is currently contracted or owns to serve its own load.

Second, we look for clarification on the intended scope of the antiabuse rule. Treasury should clarify that the operation of a grid connected electrolyzer project, with adjacent grid connected hydrogen-based generation projects, will not violate the antiabuse rule when the projects are both operating at the same time for operational or grid reliability reasons. Given the reliability needs of LADWP, we anticipate that there will be moments when the electrolyzers at the ACES facility are running at the same time as the IPP Renewed turbines are combusting a fuel blend, which may include hydrogen from the ACES 1 facility. We want to ensure this is not deemed a violation because of the reliability reasons for the operation.

Thank you for your consideration of these comments.

MR. TILLEY: All right, our next speaker is Randy Lack and Mihaly Wekler of Anew Climate LLC.

MR. WEKLER: Sorry, what was that? Am I live? Now I am?

MR. TILLEY: I can hear you. Yes.

MR. WEKLER: I'm not sure what happened.

OK, can I start my comments?

MR. TILLEY: Absolutely, yes.

MR. WEKLER: Wonderful. Hello, my name is Mihaly Weckler and I'm providing comments on behalf of Anew Climate LLC.

Anew Climate is the largest independent marketer of low-carbon gases in the United States. We market renewable natural gas from over 50 facilities. Anew serves all low-carbon gas markets and participates in various platforms that serve market integrity, such as the European Union's ICC program, the Renewable Thermal Certificate program by M-RETS, and Green-e. We have participated in California's low-carbon fuel standard program since its inception, and we are a major generator of cellulosic RINs under EPA's renewable fuel standard, so we have deep expertise generating, managing, and tracking low-carbon fuel resources, subject to a variety of program requirements.

We were discouraged to see the rulemaking focused exclusively on an electrolysis market, which is further away from coming online than gas reforming based hydrogen. Hydrogen from reforming is the backbone of many of planned hydrogen hub projects, and harmonizing federal incentives aimed at hydrogen decarbonization to support these projects should be the near-term objective of this rulemaking process. In fact, multiple hub participants have already come out publicly and stated that if 45-year rules do not include proper crediting of upstream carbon intensity reductions, and they can't make the $3-per-kilo production tax credit threshold, their projects will likely not move ahead. Your work is essential to the future of the clean hydrogen economy, which, given that today around 95 percent of U.S. hydrogen production is from gas reforming, must be anchored in technologically mature projects that achieve immediate GHG reductions at scale.

This is doubly true when considering that sufficient demand for clean hydrogen can only develop if cost points can be achieved in the near term to justify the significant infrastructure investments necessary to accommodate this new energy carrier. So before I dive into specifics, based on comments we heard yesterday and today, I'd like to represent (phonetic) something. Neither RNG nor fugitive methane or coal mine methane have any direct connection to oil and gas operations. These are not marginal improvements in efficiency or methane leakage, and no current or planned regulation exists to capture and use these gases. Instead, we're really talking about the proverbial canary in the coal mine here.

Renewable natural gas in the United States is produced by digesting organic wastes, so it combats climate pollution arising from the very need to nourish our society. Capture and beneficial use of coal methane remediates mining sites that are already in place and will continue to emit for a long time after they are closed. Coal mine methane is entirely waste methane, all of which would have been vented to atmosphere for mine safety reasons. Beneficial use of coal mine methane does not ever lead to more methane produced. It is a tool for remediation of established mining sites.

Recognizing the common benefits of these low-carbon gases ensures the tax dollars spent as part of the 45V program are an efficient investment into real, actionable, and current emission reductions while supporting U.S. farmers as well as workers forced to the fringes by energy poverty. While Treasury's proposed rules provide a jumping-off point for including low-carbon gases into the program, I'd like to highlight certain adjustments we believe provide maximum practical benefit.

The first productive use requirement as proposed is restrictive to the point that it may prove impossible to achieve methane abatement under the program. Size matters. A typical blue hydrogen project would need dozens of new low-carbon gas projects that need to be brought online in lockstep with online date of the hydrogen facility. Trying to do this in the same calendar year is akin to midair fueling. Similarly, once a verified carbon intensity established for a low carbon gas facility under the program, its carbon intensity must stay the same for the entire duration of the program to avoid potentially project-killing risks.

The first productive use requirements as proposed does not take into account fundamental differences between low-carbon gases and electricity in that operational expenses of keeping RNG or a fugitive methane project online are significantly higher than most clean electricity technologies, making the concept of additionality different for low-carbon gases than it is for electricity. The application of an online date requirement that crudely disqualifies certain production sources is not viable.

If restrictions akin to first productive use are deemed necessary in the final rule, it is important that they are assessed at the methane source level and not at an overall project level because this is how investments are made in this space. For renewable natural gas, investment decisions are made per lagoon or digester; for fugitive methane, each mine borehole is its individual investment decision, and that's what should be reflected in IRA implementation.

Deliverability is also a very important consideration for leveraging low-carbon gases. Waste gas sources are not located where hydrogen is produced, and supply must be aggregated from dozens of projects, making leveraging the pipeline system essential. The U.S. pipeline grid is fundamentally different from the segmented electric service areas in that there are no grid restrictions. There is no basis for geographically restricting delivery within the interconnected U.S. pipeline system.

Gas is also physically stored in pipelines and dedicated storage caverns, which allow for the building of low-carbon-gas inventory. These are proven storage technologies much more potent than batteries and most available storage options for power and should be allowed for balancing with reasonable timing limitations. Several robust tracking and verification solutions are in use today for low-carbon gases. We believe that M-RETS' Renewable Thermal Certificate Program, bolstered by third-party verification requirements mirroring those already in place for EPA's renewable fuel standard or California's low carbon fuel standard, would be the best path forward.

EPA even recently implemented a biogas regulatory reform provision under the renewable fuel standard that allows for more sophisticated value chains, enhances governmental oversight, and improves program robustness using industry-specific metering and verifications. These enhancements go live this summer and can be easily transposed into the 45V program along with existing tracking solutions, such as M-RETS' RTC program.

I'd like to use my remaining time to address certain pieces of misinformation that are in circulation today. First, some say that including methane avoidance crediting in GREET in the 45V program is inappropriate and would somehow lead to additional methane emissions. To put it bluntly, we will only solve the methane problem if we give credit for cleaning it up. We need to utilize funds under the IRA to remediate these waste methane emissions. Avoidance crediting in GREET today is based on real emissions. It pinpoints the biggest emission sources and directs action to where the biggest impact can be received — I apologize, achieved. Any limitation of the model's rigorous science is arbitrary and would hinder the directing of tax dollars towards most efficient climate action.

Quantification of methane abatement benefits as part of a life cycle analysis is also not an offset. It is the application of life cycle science that is recognized by the International Organization of Standardization and the EU's frameworks, and it has been in GREET for over a decade. This is nothing new. It's existing climate science.

Crediting within a life cycle analysis is also not unique to methane. The same methodology is used to credit an electrolytic hydrogen operation that valorizes oxygen as a co-product, and it is appropriate in both cases.

Coal mine methane was added to the 2023 GREET model after extensive analysis by Argonne National Laboratories. We strongly oppose going against the careful scientific review conducted by Department of Energy's own scientists.

It has been theorized that the 45V program could create perverse incentive for waste generation or suboptimal waste management. This notion remains unproven. Farmers optimize capital deployments based on meat and dairy product markets. Miners optimize capital deployment based on mineral extraction. RNG and coal mine methane are not what drive operational expansion decisions by these economic players. Similarly, the blending of carbon intensity must be allowed of the program, and we urge Treasury to stay at a course of measuring carbon intensity in the aggregate based on production periods, be it monthly, quarterly, or annual, because hydrogen producers need the ability to aggregate benefits of their feedstock mix to make program participation a practical reality.

In summary, we applaud Treasury's recognition of renewable natural gas and coal mine methane as important parts of the 45V program in the proposed rule. Gas-reforming-based hydrogen and its decarbonization solutions need to be given their due priority. We request that the GREET model's life cycle science be upheld, including recognition of methane abatement. Existing tracking and verification solutions for low-carbon gases should be utilized and the fortified PV program's goal.

MR. TILLEY: OK. Our next speaker is Ryan Brush of Project Canary.

MR. BRUSH: Good afternoon. My name is Ryan Brush and I am the director of strategic initiatives at Project Canary. Thank you for this opportunity to comment on the section 45V credit for production of clean hydrogen. My remarks will focus primarily on ensuring the integrity of 45V by allowing the use of verifiable measured methane emissions data as foreground data for blue hydrogen production.

Project Canary is a climate technology company focused on providing needed emissions intelligence to help companies identify, measure, understand, and act to reduce emissions across the energy value chain. The company has deep expertise in measuring methane emissions in the energy supply chain and has expanded to other greenhouse gases. Project Canary offers a vertically integrated technology service that incorporates various monitoring technologies, sophisticated software, and physics-based models to identify and quantify actual emissions. We provide an accurate inventory of emissions generated by all sources, sources that include smaller operational emissions, such as pneumatic controllers, to intermittent, abnormal, and often large emissions events such as those from tanks and (inaudible). Our solutions undergo significant third-party testing, and all data can be audited by third parties.

Project Canary recommends that the Department should allow for the use of verifiable measurement data to determine project-specific methane emissions or methane leakage as it appears in the 45V(h)(2) GREET model as foreground data in the 45V(h)(2) GREET model when the final 45V tax credit rule is effective. The department should not defer the use of project-specific data for a later version of the 45V(h)(2) GREET model.

The technology exists today to measure methane emissions instead of using default national average emission data. Such measurement data can be verified by accredited third-party assurance groups already conducting similar work in markets such as California's low-carbon fuel standards. Allowing the use of such project-specific data creates necessary incentives to decarbonize hydrogen production in alignment with the Inflation Reduction Act's statutory obligations.

My first point, in the oil and gas industry measurement matters regarding the department's assertion in the proposed rule that users of 45V(h)(2) GREET may not change background data. The Basinwide Methane Emissions Index, an independent organization that provides evidence-based data and transparency on the methane performance of oil and gas operators, shows that the top decile operators in the (inaudible) basin have a methane leakage rate of less than 0.5 percent, while the bottom decile have methane leakage rates exceeding 5 percent. In terms of 45V tax credits, a 0.5 percent methane leakage rate approximately translates to 0.5 kilograms of CO2-equivalent per kilogram of hydrogen produced to the total hydrogen production carbon intent. On the other hand, a 5 percent methane leakage rate contributes to more than 5 kilograms of CO2-equivalent per kilogram of hydrogen produced. Five kilograms of CO2-equivalent precludes such hydrogen production from qualifying for the 45V tax credit even before considering other supply chains and process emissions.

Numerous academic studies have shown that reported emissions are often inaccurate when compared to field measurement campaigns. Such discrepancies are highly attributed to the use of generic emission factors, which typically do not account for abnormal operations and thus understate actual emissions. Measurement technologies spanning continuous monitoring systems, aerial flyovers, and satellite detection have rapidly advanced to accurately measure emissions and improve emissions inventories. These technologies have been rigorously tested through independent controlled release studies supported by both academia and industry. The EPA has even recognized the readiness of advanced monitoring technologies, creating an approval pathway for such technologies to be used under the NSPS Quad Ob, e. g., Quad Oc alternative test method regulations.

The 45V tax credit is intended to promote the production of low-carbon hydrogen. Relying on default national assumptions for methane leakage, which are material to the carbon intensity of hydrogen production falls short of this intent. Measurement has been instrumental in identifying gas and annual emissions reporting within the oil and gas industry, and the 45V tax credit can accelerate the use of measurement to identify emissions and decarbonize hydrogen production as intended by the law.

My second point, the verification mechanisms for this data already exist regarding the department's assertion that background data are parameters for which bespoke inputs from hydrogen producers are unlikely to be independently verifiable with high fidelity given the current status of verification mechanisms. The necessary verification infrastructure already exists to verify measurement-based emissions data. Independent verifiers already audit similar datasets for the low-carbon fuel standard market and are rapidly building capabilities to verify measurement-informed inventories through numerous reporting frameworks such as OGMT and GCI Veritas. Digital registries, such as EarnDLT and Xpansiv, have developed infrastructure to track emissions data to units of production. These could be a single MMDTU from a specific well site that can be tracked through processing, transportation, and all the way to the end consumer.

Separately, the Biden administration has also initiated a framework for monitoring, measurement, reporting, and verification, often referred to as MMRV, to provide market participants with verified information about life cycle greenhouse gas emissions from production through delivery. These should be completed next year. Allowing such verifiable emissions data, such as production methane leakage, to be foreground data unlocks market incentives that will accelerate adoption of transparent verification mechanisms and drive energy supply chain decarbonization.

My final point, a measurement-based approach has clear environmental benefits. Supporting and enabling innovation in next-generation technologies to detect, measure, and reduce methane emissions is the cornerstone of the Biden administration's United States methane emissions reduction action plan. These technologies offer a quicker and more accurate way to identify methane leaks throughout the oil and gas industry, ensure these leaks are alleviated much sooner, and accelerate the nation's progress towards its ambitious climate goals. If finalized with improvements we respectfully offer in this testimony and in our written comments, the final rule offers an outstanding opportunity for the nation to invest in a long-lasting clean hydrogen market.

In conclusion, the intent of the 45V tax credit is to incentivize low-carbon hydrogen production, relying on default methane loss rate as background data falls short to this end. The immediate adoption of a methane loss rate as foreground data can meet verification requirements of the department and will support the technology-neutral construct of the 45V tax credit with the added environmental benefits of incentivizing operators to accurately measure and reduce their emissions.

Thank you for this opportunity to voice our recommendations regarding the implementation of 45V, and we welcome any further inquiries.

MR. TILLEY: OK. Our next speaker is Richard Stuckey.

MODERATOR: I do apologize.

MR. TILLEY: If somebody said something, I couldn't really hear it.

MORDERATOR: Sir, are you able to hear?

MR. TILLEY: I can hear you now, yeah. You were very quiet.

MODERATOR: Sorry. Not finding a Richard on the call. There are no Richards on the call currently. What name would you like to call on?

MR. TILLEY: So I'm hearing from Vivian that the last five speakers didn't provide a telephone number. She suggests asking them to press star zero. Would that work?

MODERATOR: One moment, please. We can find another way to do that. One second. Go ahead. Go ahead and repeat the name, we'll have them press star zero to queue up.

MR. TILLEY: Okay, so, Richard Stuckey, if you're here, just press star zero.

MODERATOR: Richard Stuckey, please press star zero so an operator can place you into talk mode. Mr. Stuckey is not queuing up. Would you like to move on to the next speaker?

MR. TILLEY: Yeah. So, next would be Barbara Brandom.

MODERATOR: Barbara Brandom, please press star zero so an operator can flag your line. Also not seeing a response from Barbara at this time.

MR. TILLEY: All right, so we'll keep going. Next will be Tracy Carluccio of Delaware Riverkeeper Network.

MODERATOR: Tracy Carluccio, if you could press star zero at this time, please. Still no response at this time.

MR. TILLEY: All right, next would be Karen Feridun of Better Path Coalition.

MODERATOR: Karen Feridun, if you press star zero at this time. Still not seeing any responses on our end.

MR. TILLEY: All right, so that leaves just Peggy Ann Barry.

MODERATOR: Were those two names or was the name Peggy Ann Barry?

MR. TILLEY: T hat's her full name.

MODERATOR: Thank you. Peggy Ann Barry, if you could press star zero at this time, please. And our call team does not see anyone queuing up at this time, sir.

MR. TILLEY: All right, so that will be all the speakers that we have scheduled today.

That will conclude day 2 of the public hearing on the section 45V proposed regulations. I'm sorry, one second, I'm hearing that there might be someone — one last speaker on the call. Is there a Gene Grace?

MODERATOR: Gene? Not seeing a Gene. Not with a "G," not with a "J. "Oh, one moment, they may be queuing up. Please allow a moment, we have isolated her line. We're going to bring him in here momentarily.

MR. TILLEY: Thank you.

MODERATOR: OK, your line is open, Gene.

MR. GRACE: Great. Thank you. ACP is the leading voice in the clean energy industry today. We have over 800 members, including companies involved in renewable energy, storage, transmission, and green hydrogen. As has been repeatedly stated at the hearings, green hydrogen holds the promise of reducing emissions in hard-to-abate sectors of the U.S. economy.

Simply put, if our nation is to meet its ambitious goal of achieving net zero by 2050, it is critical that new green hydrogen technology be deployed as quickly as possible. Recognizing this, Congress created the section 45V tax credit with a clear intent to quickly grow domestic green hydrogen economy. But the success of this incentive will depend on whether Treasury's final guidance adequately supports first mover green hydrogen projects.

With respect to the three pillars, American Clean Power generally agrees with Treasury's proposal to impose stringent incrementality and deliverability requirements on hydrogen facilities. However, Treasury's overall proposal has one key fundamental flaw. It imposes strict hourly time-matching requirements far too soon. Without more flexibility on time matching, the green hydrogen industry will falter and fail before it can take its first step, and its long-term emission reduction potential will not be realized.

To provide the glide path needed to allow this industry to get to scale, ACP has two specific recommendations related to time matching. The final rules should first, extend the phase and date for hourly time matching to 2032. And two, exempt facilities, preferably fully or at a minimum partially, that start construction before January 1, 2028, and are placed in service before January 1, 2032, from hourly time-matching requirements for the life of the tax credit.

I want to take a moment to explain why pioneering green hydrogen projects first movers can't achieve commercial viability if they are required to engage in hourly time matching during the beginning of the industry. The current levelized cost of green hydrogen is up to $9 per kilogram. A number of factors contribute to this high cost. Electrolyzers are relatively new, expensive, and underdeveloped technology. In many regions, there is difficulty sourcing low-cost renewable feedstocks that can support sustained and continuous commercial operations. Battery storage is oftentimes cost prohibitive. At the presently high levelized cost of green hydrogen, it can't compete with other forms of hydrogen production, as well as securing long-term production contracts with potential offtakers.

To make green hydrogen cost competitive, the levelized cost of green hydrogen needs to fall within the $1 [kilogram] to $2 kilogram range, and that won't happen until the industry reaches scale, which is unlikely until at least the middle of the next decade. Until the industry reaches scale, the levelized cost of green hydrogen, under an annual time-matching system, will allow projects to pencil out, but the same is not true for hourly. According to a Wood Mack study, by 2032, American Clean Power's time-matching proposal will result in 2.3 million tons per annum of green hydrogen production, versus just 0.9 million tons per annum under Treasury's proposed approach. This is because hourly time matching forces green hydrogen facilities to shut down their electrolyzers and stop hydrogen production when renewable energy is not available.

In other words, they have to operate at lower capacity factors. Operating at low capacity factors results in high production costs, which are then distributed over a lower quantity of green hydrogen produced, driving down investment in and deployment of green hydrogen in the early years. The Wood Mack study found that in many regions of the country, electrolyzers will only be able to operate at 50 percent capacity under an hourly system. Whereas under an annual time matching system, green hydrogen facilities can use grid electricity when renewable energy is not available. Consequently, they can run their electrolyzers 90 percent to 100 percent of the time.

The longer it takes for green hydrogen production costs to fall, the less likely it is that the U.S. is going to jump-start this industry and be able to reach climate goals. Over time, as the cost of electrolyzers fall, and access to cheaper renewable energy and energy storage grows, green hydrogen should be able to achieve higher capacity factors and lower costs under an hourly time-matching system. But for now, in the infancy of the green hydrogen industry, Treasury should provide a longer glide path from annual to hourly time matching for early movers.

If Treasury is not inclined to allow first movers to engage in 100 percent annual time matching, it must, at the very least, partially exempt these projects from hourly requirements. Specifically, the ACP proposes that at a minimum, Treasury should allow green hydrogen facilities to annually match up to a percentage. For example, at least 15 percent of the total number of megawatt-hours that our electrolyzers consume in a one-year period. Though only allowing partial annual time matching is unlikely enough to support nationwide green hydrogen deployment at an ideal pace, it should, at the least, enable some portion of first-mover projects to achieve commercial viability in many regions. Especially those with ample access to renewable energy.

Some have expressed concern that allowing first-mover green hydrogen projects to engage in annual time matching for the duration of the life of the tax credit will result in increased grid level emissions. While green hydrogen deployment levels are low — that is, until the industry reaches scale — these concerns are largely unfounded. But more importantly, even assuming for the sake of argument that there are short-term marginal emission increases in some regions associated with allowing early movers to engage in annual time matching, it would be more than offset by the total emission reduction that could be achieved if the green hydrogen industry is permitted to scale to levels that will promote emission reductions in the U.S. economy.

Further, if the industry does not achieve scale due to unduly restrictive early time-matching requirements, studies show that on net emissions will increase as green hydrogen will not be able to be there to decarbonize various parts of our economy that can't be directly electrified.

In sum, if the final guidance imposes hourly time matching too soon, as is the case with the proposed rule, it will drive up costs and prevent the green hydrogen industry from reaching scale. As with many infant industries, green hydrogen needs dedicated, flexible policies for early movers that support the industry getting off the ground. We strongly urge Treasury to consider ACP's time action proposal in the final rule, which balances the need to get the industry to scale and keeping emissions in check.

Thanks for your time and the opportunity to speak today. I appreciate it.

MR. TILLEY: OK, I'm being told that Tracy Carluccio of Delaware Riverkeeper Network is on the line.

MODERATOR: Thank you, one moment please. Tracy, your line is open. You may proceed.

MS. CARLUCCIO: Can you hear me?

MR. TILLEY: I can hear you, yes.

MS. CARLUCCIO: Thank you. Delaware Riverkeeper Network advocates that the Department of the Treasury and the IRS ensures that the final rule strictly maintains the three pillars of additionality, deliverability, and hourly time matching, to prevent dirty and inefficient energy from qualifying for the 45V credits.

Polluters, including the oil and gas industry, are campaigning to weaken the proposed regulations by allowing hydrogen produced from methane through electrolysis to be claimed as eligible for the 45V tax credits, and by removing strict oversight of the program. If the proposed rules are eroded by not implementing the three pillars, the investment by the Biden administration will have the opposite effect than the stated purpose. Hydrogen production from electricity would far exceed the carbon emissions requirements of the 45V tax credit, and greenhouse gas emissions will increase, further fueling the climate crisis and negatively impacting front-line communities who live near these facilities. The IRS and the Department of the Treasury must ensure that the final rule strictly maintains these three pillars.

Delaware Riverkeeper Network opposes the provision in the proposed rule that delays the implementation of hourly term matching until 2028. You must enforce hourly matching without delay, or polluters will undermine the program's potential benefit and turn this credit into a counterproductive subsidy for the gas and oil industry and other fossil fuels. We do not see any plausible justification to delay implementation. It seems to simply be a perk for dirty energy suppliers. Without hourly time matching, making hydrogen from dirty energy will end up qualifying for the clean energy tax credits by pulling dirty energy from the grid. This will subsidize polluting interest that would otherwise be ineligible for these benefits, greatly reducing transparency as to the source of the energy being used to create hydrogen, and would also increase greenhouse gas emissions.

Furthermore, this would allow the continuation of the ruining of communities and the environment where gas and oil company and fossil fuel resource extraction and their infrastructure are operating. Compounding the environmental injustices forced on those already overburdened.

Delaware Riverkeeper Network objects also to the underestimate of fossil fuel emissions in the proposed rules that is built into the assumption that would be used to calculate the proposed accounting of these emissions. The assumption is only one-third of the actual leakage rate established by science. By allowing such a gross inaccuracy, hydrogen made from polluting fossil fuels will receive tax credits, and greenhouse gas emissions and coal pollutants will continue to be emitted. There would be no way to accurately track these unaccounted for and thus, "invisible" emissions or control them, further adding to atmospheric warming and worsening the climate crisis. Even when hydrogen is blue, using fossil gas and methane with carbon capture, we know that it is a disaster at all levels, including for the climate. This error in the proposed rules must be corrected.

Additionally, the additionality requirement must apply fully and equally to nuclear power plants. This heavily subsidized industry does not need to be treated any differently than any other energy source.

Finally, credits for carbon capture will allow fudging of the actual effects of fossil fuel emissions. Today, carbon capture is technically unreliable and its efficacy is unproven. This has become an enormous loophole that allows greenwashing of fossil fuel use and must not be allowed in the 45V tax credit program. This loophole is being exploited by industry standard practice of trying to hide the facts from the public to serve their own special interest, making profits at the expense of the public, externalizing cost, and successfully escaping the scrutiny that's required to expose the full effect of dirty energy generation and use.

45V will award billions of taxpayer dollars and must not reward the special interests that want to take advantage of these subsidies without meeting the strictest of government regulations and oversight. Delaware Riverkeeper Network advocates that the three pillars be maintained and that the loopholes in the proposed rules be closed so that this program will not be turned against our nation's goals of reducing greenhouse gas emissions to combat climate catastrophe and in order to provide environmental justice to front-line communities, as is so desperately needed.

Thank you very much for the opportunity to speak today. I would like to lodge a complaint, however. We think that it was very difficult to sign up for this hearing. It was difficult to understand what the Federal Register instructions told you to do, and then it was difficult to actually sign up. You had a certain date you had to sign up by. General members of the public were really crossed out of being able to participate today because of all the thresholds that you had to jump over in order to be able to actually be on this call today. I myself almost didn't make it on the call because I had a conflict that had been on my schedule weeks in advance, and I was arbitrarily moved to the next day without even being asked what day would be best. And this happened to many of those who are speaking here today.

So I would like to ask the IRS and the Department of the Treasury to do better, to have a more accessible system for those who want to comment on these very important rules that are being promulgated by the federal government. Thank you very much.

MR. TILLEY: OK, I think that's, again, all the speakers that we have. This will conclude Day 2 of the public hearing on the section 45V preposed regs. I want to thank everyone for attending. Have a nice day, and thank you very much.

(Whereupon, at 2:43 p.m., the PROCEEDINGS were continued.)

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