From March 25 to March 27, 2024, the U.S. Division of the Treasury is internet hosting a public listening to on the December 2023 proposed rules governing implementation of the Part 45V Credit score for Manufacturing of Clear Hydrogen.
My feedback, to be introduced on March 27, are copied beneath. They give attention to 4 key points from the complete set of technical feedback UCS submitted to the file in February: correctness of Treasury’s general method; necessity of the three-pillars framework; want for updating upstream methane emissions accounting; and issues over remedy of biomethane and fugitive methane.
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Offered through phone through the March 27, 2024, public listening to for Docket ID No. REG-117631-23.
My identify is Julie McNamara, and I’m testifying in my function as deputy coverage director, Local weather & Vitality, on the Union of Involved Scientists (UCS). Thanks for the chance to talk.
UCS places rigorous, impartial science to work to unravel our planet’s most urgent issues. On behalf of our half 1,000,000 supporters and community of over 22,000 scientists, we respect the work of the U.S. Division of the Treasury (Treasury) to fastidiously implement a number of new Inflation Discount Act (IRA) tax credit, together with the Part 45V Credit score for Manufacturing of Clear Hydrogen (“45V”).
UCS believes that hydrogen has a worthwhile function to play within the nation’s clear vitality transition—however provided that it’s cleanly produced, strategically focused in its use, and topic to rigorous environmental, well being, and security requirements. As a result of the 45V credit score has the potential to dramatically speed up investments in hydrogen manufacturing infrastructure, it’s important that implementation of the credit score ensures that “certified clear hydrogen” is certainly climate-aligned from the outset. If not, then 45V is at important danger of as a substitute wastefully subsidizing the buildout of hydrogen manufacturing services completely out of step with that in the end demanded by the clear vitality transition.
The December proposal makes clear that Treasury understands the important significance of getting implementation steering proper from the beginning. UCS strongly helps Treasury’s sensible interpretation of the statute and the overarching implementation framework it’s superior.
Nonetheless, sure points into consideration within the proposal would radically depart from that method, leading to outcomes far afield of statutory necessities. Furthermore, main points stay unresolved associated to the remedy of biomethane and fugitive methane; if these points will not be fastidiously resolved, all the rigor of the implementation framework could possibly be undermined.
This testimony spotlights 4 key matters from our full set of feedback submitted to the docket.
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1. General method
Treasury has accurately adhered to the statutory textual content in setting its general method to implementation.
As a result of the 45V statutory textual content states that certified clear hydrogen will likely be decided primarily based on a lifecycle greenhouse fuel emissions fee, and explicitly defines “lifecycle greenhouse fuel emissions” as having the identical that means as that beneath subparagraph (H) of part 211(o)(1) of the Clear Air Act—that means together with direct emissions and important oblique emissions—the legislation leaves little ambiguity concerning the needed scope of method.
That is the start line from which all of Treasury’s implementation choices should comply with. The proposed rules clearly adhere to that framework, totally comporting with a plain studying of the textual content.
2. Electrolytic emissions accounting
By adopting the three-pillars method, Treasury has appropriately ensured correct accounting of direct and important oblique emissions from electrolytically produced hydrogen. Generalized exemptions would undermine the rigor of this method.
For implementation of the three pillars, UCS takes the next positions:
Incrementality. UCS helps Treasury’s proposed requirement that clear assets should start industrial operations inside 36 months of a hydrogen manufacturing facility being positioned into service.
Geographic deliverability. UCS helps Treasury’s proposed requirement that assets be situated throughout the similar area because the electrolyzer, as decided through DOE’s current Nationwide Transmission Wants Research, although encourages Treasury to include periodic updating to make sure areas appropriately match grid realities.
Hourly matching. UCS helps Treasury’s proposed temporal-matching requirement, with a phase-in of hourly matching by 2028 with no exemptions for legacy producers.
These standards will not be solely well-reasoned however required by a plain studying of the statutory textual content. Moreover, the Environmental Safety Company (EPA) offered a powerful and clear affirmation of the appropriateness of Treasury’s proposed method in gentle of EPA’s long-standing interpretation and implementation of the referenced lifecycle greenhouse fuel emissions definition.
It follows, then, that any thought of options to Treasury’s well-reasoned method should even be rigorously justified.
As detailed in our February feedback, whereas paths to implementation could possibly be reached for sure particular flexibilities, a generalized method, corresponding to a 5 or 10 p.c exemption for current era, completely fails on the deserves. This may not truly function a proxy for conditions enabling use of current era with out inducing grid emissions; as a substitute, it might merely be a expensive, extremely polluting give-away.
3. Upstream methane emissions
Treasury should enhance its method to characterizing upstream methane emissions to make sure correct dedication of a facility’s emissions fee.
Upstream methane emissions are a doubtlessly substantial share of the general emissions fee of fossil fuel-based hydrogen manufacturing services. It’s important that these upstream emissions are precisely assessed and assigned to keep away from subsidizing the buildout of services and infrastructure completely ill-equipped to really produce clear hydrogen.
Nevertheless, within the December proposal, Treasury inexplicably proposed an upstream methane emissions fee of 0.9%, far beneath that which has been documented throughout a variety of research and observations. Within the remaining rule, Treasury should appropriate this quantity to make sure that it precisely captures the truth of a lot increased leakage charges throughout and all through the system.
4. Biomethane and fugitive methane
Treasury is correct to fastidiously consider remedy of biomethane and fugitive methane fuels inside 45V earlier than issuing implementation steering.
Within the December proposal, Treasury accurately acknowledged the danger of actual and cascading harms arising from inappropriate remedy of biomethane and fugitive methane within the 45V credit score and the following want for warning within the face of such harms. The magnitude of those points signifies that if Treasury finalizes implementation choices prior to totally and precisely resolving underlying uncertainties, 45V might unintentionally find yourself incentivizing initiatives that fail to ship local weather advantages.
This may be an egregious waste of taxpayer {dollars} and an untenable waste of finite time for investing in initiatives that unlock actual and sturdy local weather progress. Furthermore, within the absence of sufficiently knowledgeable safeguards, 45V might unintentionally incentivize a rise in sources of biomethane which might be tightly intertwined with wide-ranging and infrequently inequitable harms to folks and the surroundings.
The place the file stays ambiguous, Treasury should proceed to keep up a precautionary stance given the magnitude of harms that might in any other case end result.
Treasury should assign credible carbon depth scores to different methane sources; in 45V, methane venting will not be an acceptable counterfactual.
The emissions related to use of methane can change primarily based on assumptions about the place it got here from and what may need in any other case occurred to it, or the “counterfactual.” Of specific concern is a counterfactual of venting, which can lead to the project of deeply unfavorable carbon depth scores.
Offering a credit score for averted methane essentially reshapes lifecycle accounting analyses, turning the credited gasoline right into a de facto offset mechanism. It’s also a essentially flawed method.
First, crediting sources of methane air pollution for voluntary avoidance is completely inappropriate in an economywide net-zero framework, which is exactly the endpoint the tax credit score is meant to help. Permitting the offsetting of direct facility emissions through averted methane credit would solely end result within the non permanent look of emissions reductions from hydrogen producers.
Second, any methane that may be captured ought to, at minimal, be assigned a baseline counterfactual of seize and flare. Nevertheless, in lots of, if not most, situations, one in all two different counterfactuals could possibly be extra acceptable: diversion from increased productive use, and full avoidance of methane creation through different supply administration practices.
Treasury should prohibit air pollution offsets of any variety inside 45V. If unfavorable carbon depth fuels are allowed, they can’t be used to offset any quantity of a facility’s actual emissions.
Offsets can be completely discordant with the intention of 45V, which is particularly designed to incentivize expertise and course of improvements to allow actually clear hydrogen manufacturing. Permitting undertaking qualification through offsetting undermines that incentive for innovation whereas additional entrenching polluting manufacturing initiatives.
Consequently, 45V lifecycle assessments should not permit for the offsetting of 1) direct facility emissions and/or upstream methane emissions, or 2) emissions related to electrical energy straight powering electrolyzer services or induced grid emissions.
Moreover, as a result of the credit score is clearly not supposed to reward achievement of the certified clear hydrogen threshold through biomethane or fugitive methane mixing, if Treasury nonetheless permits compliance through gasoline procurement versus course of efficiency, it ought to at minimal undertake a no-blending safeguard.
Treasury should set up rigorous feedstock eligibility necessities to actualize air pollution advantages whereas defending in opposition to perverse outcomes.
UCS recommends 5 gasoline eligibility limitations, prohibiting crediting of biomethane or fugitive methane that’s:
Diverted from earlier productive use;
Derived from feedstock expansions arising after the date of IRA implementation;
The results of oil or fuel operations;
In any other case avoidable through different waste administration practices; or
Demonstrated to return from practices that perpetuate public well being and environmental justice harms to surrounding communities.
Lastly, for any biomethane or fugitive methane that’s allowed, Treasury should set geographic bounds round eligible gasoline deliverability areas, require full supply methane monitoring, and disallow any use of book-and-claim techniques till they are often confirmed sufficiently succesful.
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As Treasury strikes to finalize rules governing implementation of 45V, it should preserve a rigorous method that’s aware of its statutory cost. The prices and penalties of doing something much less would end in critical harms to folks and the surroundings and end in a major waste of taxpayer {dollars}.
Thanks for the chance to touch upon this proposed rule and assist help the finalization of a strong method to 45V implementation.