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Treasury Allows Clean Hydrogen Projects to Stack 45V Credits with LCFS Benefits
RNG
RFS
CA LCFS
Wednesday, 15th January 2025
Mansift Kaur

Key Takeaways

  • The framework institutes a four-tiered credit system (0.45 to 4.0 kg CO₂e/kg H₂) with base credits of $0.60/kg scalable to $3.00/kg under PWA requirements, while mandating comprehensive lifecycle GHG accounting that segregates RNG from conventional natural gas pathways for emissions calculations.
  • A key issue is feedstock blending, with industry seeking cost-efficient blending options, while environmental groups warn that “splash blending” could increase emissions and waste tax credits.
  • The framework introduces standardized CI scoring (-51g CO2/MJ for animal manure RNG) and delayed book-and-claim accounting (2027), allowing RNG producers to stack 45V credits with LCFS incentives, though separate CI accounting could affect pipeline aggregation.
  • Compliance requires adherence to operational parameters, including emissions monitoring, renewable energy matching (until 2030), and verification protocols for environmental attribute tracking, with a focus on methane leakage and renewable energy verification.
  • For RNG project developers, technical requirements necessitate sophisticated monitoring and verification systems capable of: (a) segregating feedstock streams, (b) documenting CI values independently, (c) tracking environmental attributes post-2027, and (d) integrating with multiple incentive program requirements when stacking credits.

The U.S. Department of Treasury has released its final rules for the Section 45V Clean Hydrogen Production Tax Credit, establishing a comprehensive framework that balances industry growth with environmental safeguards. The framework introduces significant changes that will reshape how clean hydrogen projects are developed and operated in the coming years, with implications spanning technical requirements, financial structuring, and operational protocols.

Credit Structure and Emissions Accounting

The framework introduces a tiered credit system rewarding cleaner hydrogen production, with base credits ranging from $0.60/kg to $3.00/kg for projects meeting prevailing wage and apprenticeship standards. Credit percentages are determined by lifecycle GHG emissions:

  • 20% for emissions between 2.5 and 4 kg CO₂e/kg H₂
  • 25% for emissions between 1.5 and 2.5 kg CO₂e/kg H₂
  • 33.4% for emissions between 0.45 and 1.5 kg CO₂e/kg H₂
  • 100% for emissions below 0.45 kg CO₂e/kg H₂

This structure incentivizes lower-carbon production methods while enforcing strict emissions accounting.

Standardized Carbon Intensity Framework and Alternative Fates

The Treasury has introduced a comprehensive CI scoring mechanism with specific provisions for different feedstock types:

Animal Manure RNG

  • Established benchmark: -51g CO2/MJ
  • Based on national average waste management practices
  • Accounts for multiple existing incentive programs
  • Considers potential additional waste production responses

Other Feedstock Alternative Fates

  • Landfill gas: Assumes flaring as alternative fate
  • Wastewater treatment: Considers both flaring and digester heating
  • Future updates anticipated for additional feedstock types

Book-and-Claim Implementation and Credit Stacking

The framework introduces a structured approach to environmental attribute tracking:

Book-and-Claim System (Post-2027)

  • Registration requirements for gas environmental attribute certificates (EACs)
  • Monthly matching requirements for attribute claims
  • Pipeline network in contiguous U.S. treated as single region for deliverability
  • No interim book-and-claim accounting permitted before 2027

Credit Stacking Provisions

  • Explicit permission for LCFS credit stacking
  • Prohibition on environmental attribute double-counting
  • Program-specific verification protocols

Operational Requirements and Compliance Protocols

Renewable Energy Matching Framework

The Treasury’s final rule allows annual renewable energy matching until 2030, after which facilities must transition to hourly matching requirements. This graduated approach provides initial flexibility while ensuring long-term environmental accountability. The framework enables producers to use hour-by-hour accounting methods while maintaining annual emissions limits, balancing precise tracking with operational practicality.

Methane Leakage Monitoring Systems

Methane leakage monitoring will initially use default national values before transitioning to project-specific rates. The system integrates with the EPA’s Greenhouse Gas Reporting Program and updated Subpart W rules, ensuring standardized emissions documentation across the industry. This approach provides a clear pathway from generalized to specific monitoring requirements while maintaining compliance with federal standards.

Technical Implementation Requirements for RNG Projects

Data Management and Tracking

RNG project developers must implement systems for real-time feedstock stream segregation and continuous emissions monitoring. These systems must maintain comprehensive environmental attribute documentation while enabling multi-program compliance tracking. The focus is creating verifiable records supporting participation in various incentive programs without double-counting benefits.

Verification Protocols

Projects must establish independent carbon intensity documentation for different feedstock streams and integrate with post-2027 attribute tracking requirements. The verification infrastructure needs to support multiple incentive programs while maintaining consistent data reporting across all participating programs. This ensures accurate environmental attribute tracking while enabling credit stacking opportunities.

Program Timeline and Industry Adaptations

Near-term Implementation

  • 45VH2 GREET Model updates expected within weeks
  • Option to maintain initial GREET version throughout project lifecycle
  • Delayed book-and-claim implementation until 2027
  • Transition period for renewable energy matching requirements

Long-term Considerations

  • Integration with Department of Energy’s Regional Clean Hydrogen Hubs
  • Adaptation to future feedstock additions
  • Evolution of verification systems
  • Development of standardized attribute tracking platforms

Looking Forward

The removal of the First Productive Use rule and expanded RNG feedstock options signal a broader approach to clean hydrogen production. However, delayed book-and-claim accounting and strict feedstock segregation pose near-term challenges. Success will depend on the industry’s ability to adapt to complex requirements while balancing compliance and cost-effective production.

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