Legal expert outlines 45V and 45Q rules, risks and project planning implications for hydrogen developers

Sean DeRae, tax‑credits attorney at Jones Walker, briefed the Clean Hydrogen Task Force on Feb. 11 about the final regulations for the Section 45 clean hydrogen production credit (45V) and the Section 45Q carbon‑capture credit.

DeRae said the 45V production credit (enacted in the Inflation Reduction Act) is claimed over a 10‑year period and is calculated per kilogram of qualified clean hydrogen produced at a U.S. facility. A facility’s life‑cycle greenhouse‑gas emissions rate is the key metric; to qualify for any credit under 45V the well‑to‑gate emissions must be at or below 4 kilograms CO2e per kilogram H2. The highest 45V rate applies at very low emissions (the final regulations tie credit levels to specific emissions bands) and the credit phases out as the emissions rate increases above each threshold.

DeRae explained that the Department of Energy’s GREET life‑cycle model (referenced in IRS guidance) is used to calculate emissions rates and that the final 45V rules include a “three‑pillars” test for any project that identifies a specific renewable power source: incrementality (the generating resource must meet timing or other conditions), deliverability (regional matching), and temporality (currently annual matching, moving to hourly matching after 2030). He said the final regulations relaxed some proposed requirements but left several compliance complexities in place, including rules for RECs and regional delivery that developers must meet to claim the full credit.

For blue hydrogen projects, DeRae said 45Q capture rules are central because carbon captured under 45Q can be counted against the hydrogen facility’s life‑cycle emissions. He described 45Q as a per‑metric‑ton credit claimed over 12 years beginning when qualified capture equipment is placed in service; 45Q also includes a three‑year recapture period if sequestered carbon is later lost. DeRae said developers must consider whether to structure benefits under 45V, 45Q, or both in sequence (45V claim in early years followed by 45Q capture credits later), because the two credits are not fully stackable in the same year but can be used sequentially in some circumstances.

DeRae flagged several potential legal and policy risks developers should track: (1) the Congressional Review Act allows Congress to attempt to overturn a recently issued final regulation within a specified period; (2) courts are now less deferential to agency interpretations after the Supreme Court’s decision in LoperBright (the transcript referenced the 2024 shift on judicial review), which can make agency regulatory positions more vulnerable to litigation; and (3) potential future tax legislation or executive‑branch policy changes could alter or limit the credits. He said these risks create uncertainty for long‑lived industrial investments and that developers should factor regulatory and political risk into FID timing and contract negotiations.

Task Force members asked about: how GREET treats renewable natural gas and landfill gas; whether project‑specific methane leakage rates could be used instead of the GREET default (DeRae said the final regs use a 0.9% default now but that Treasury/DOE signaled interest in project‑specific determinations going forward); hourly versus annual electricity matching (DeRae said the final rule added an hourly option); and the practical choice between 45V and 45Q for accounting and investor decisions (DeRae characterized that as project‑specific and largely an accounting determination).

Ending

DeRae urged developers and stakeholders to monitor regulatory and congressional actions and to consider legal and accounting structuring early in project development. He offered to respond to follow‑up technical questions and to provide further detail on examples comparing 45V and 45Q outcomes.