LSU analysis for task force: 45Q sequestration credits generally yield higher returns than 45V hydrogen-production credits for blue hydrogen scenarios
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Summary
LSU researchers presented an economic model comparing tax incentives under 45Q (carbon sequestration) and 45V (clean-hydrogen production credit) for blue-hydrogen projects. The analysis found 45Q often produced higher internal rates of return for ATR-based blue hydrogen, and that methane leakage assumptions materially change outcomes under 45V.
Anurag Mandalika, assistant research professor at LSU’s Center for Energy Studies, presented a task-force-funded economic assessment comparing federal tax incentives under Section 45Q (carbon capture and sequestration) and Section 45V (clean hydrogen production credit).
Mandalika’s team modeled a representative blue-hydrogen project using autothermal reforming (ATR) — chosen because ATR produces a concentrated CO2 stream that is easier to capture — and calculated internal rates of return (IRR) under different policy and methane-leakage assumptions. He summarized the core finding: 45Q-based revenues generally produced higher IRRs for the ATR blue-hydrogen cases modeled than did 45V credits tied to a facility’s carbon-intensity (CI) score.
The analysis incorporated recent GREET model updates (the Argonne GREET lifecycle model) and noted that a small change in GREET’s combustion emission factor (an example change from 0.54 to 0.51 kg CO2e/kg H2 between model versions) and the ability to use facility-specific upstream methane leakage rates can materially affect a project’s CI and therefore its 45V eligibility and value.
Mandalika also showed that including downstream methane leakage in a CI calculation (a factor not currently part of GREET) reduces the IRR for projects relying on 45V because increased CI may drop a project into a lower 45V tier or render it ineligible. Task force members raised regional supply-basin leakage questions; Chair Orgeron and others suggested basin-level leakage assumptions (Haynesville vs. Permian) would be more informative than a single national average.
Doctor Upton and other task force members noted 45Q is typically simpler to apply and verify because it is based on measured tons of CO2 captured and stored, whereas 45V depends on lifecycle accounting and GREET-model inputs. Participants also flagged that federal reporting rules (EPA’s Greenhouse Gas Reporting Program) and potential future federal changes could affect the ability of projects to claim either credit.
Ending: Mandalika and the LSU team recommended continued scenario modeling using basin-specific methane leakage inputs and careful attention to federal reporting rules; task force members asked that the full report and data be appended to the task force’s final report.
