Flawed hydrogen tax credit implementation could undermine billions in U.S. projects

• DOE’s opaque changes to emissions model risk U.S. competitiveness and global credibility 
• EDF finds that the changes could let fossil hydrogen projects claim methane emissions rates up to nine times lower than real-world measurements, cutting reported carbon intensity nearly in half and steering billions in credits toward hydrogen that wouldn’t meet U.S. or EU standards. 

The section 45V clean hydrogen production tax credit, signed into law in 2022, was designed as an incentive to drive investment toward truly clean hydrogen production, giving U.S. companies a boost to produce cleaner energy, provide quality jobs and gain long-term advantage in an increasingly competitive global market for cleaner fuels. Now, the current administration’s flawed implementation of section 45V is undermining these goals, risking U.S. energy competitiveness and credibility on the global market, along with billions in taxpayer dollars and private investments.

The law requires hydrogen producers claiming the tax credit to meet a minimum level of greenhouse gas emissions performance and provides higher levels of credit to incentivize the cleanest forms of production (up to $3/kg for near-zero-emission production, and up to $1/kg for other low-carbon production). Ensuring hydrogen production is truly clean requires a rigorous, standardized approach for determining lifecycle GHG emissions. Any defects in that approach could undermine Congress’s goals by subsidizing (at taxpayer expense) high-polluting hydrogen, setting back the development of the clean hydrogen industry in the U.S.

In recent months, the U.S. Department of Energy has made behind-the-scenes changes to the model that calculates a hydrogen producer’s GHG intensity for 45V tax credit purposes, without a public process or transparency. This move could result in lasting damage to U.S.’s global competitiveness and credibility, and progress on emissions reductions — not to mention the risk of creating greater regulatory uncertainty and wasting taxpayer resources on hydrogen production that isn’t truly clean For companies planning expensive and long-term hydrogen projects, that should be a big red flag.

Although presented as technical updates, many of these changes represent substantive policy shifts, conflicting with the existing regulations under which billions in tax credits may be awarded.

Changes made to 45V methane rates

In May and June this year, DOE updated, without public notice or input, how treats upstream methane emissions for hydrogen produced with natural gas. These revisions allow companies to provide their own methane emissions rates across different segments of the natural gas supply chain rather than use default rates provided by DOE. In so doing, DOE has opened the door for companies seeking the tax credit to “cherry-pick” methane emissions figures that maximize their tax benefits by selecting either a default emissions rate or the methane emissions they report to the Environmental Protection Agency. Making matters worse, EPA has simultaneously proposed to suspend the very methane emissions reporting requirements that underpin DOE’s updates. This risks substantially undercounting emissions for hydrogen production and awarding companies higher tax credits than permitted under the law.

For example, a company could now claim their methane leak rate is only 0.1%, based on their reporting to EPA — even though EPA methods have been widely shown to underestimate compared to real-world measurements, including satellite data. This number is nine times lower than the model’s default methane rate (0.9%) — and even that is an underestimate if the gas was sourced from the Permian Basin. In total, DOE’s recent actions could allow hydrogen producers to underestimate their GHG emissions by nearly half. For example, a Gulf Coast project with 95% carbon capture could claim to achieve 1.85 kgCO2e/kgH2 using DOE’s methods, while an independent verifier would find it doesn’t even meet the European Union’s legal cutoff of 3.38 kgCO2e/kgH2.

Notably, the Department of the Treasury specifically anticipated these underestimation and cherry-picking concerns when it issued its final hydrogen tax credit regulations in January 2025 following years of stakeholder engagement and tens of thousands of public comments — which is why the regulations specifically prohibit taxpayers from choosing between the default rate and the taxpayer-reported emission rate across different segments of the supply chain. DOE’s changes to the model contradict these regulations.

DOE’s recent actions risk awarding huge sums of taxpayer dollars to companies producing so-called low-carbon hydrogen, but which doesn’t achieve the requirements set by Congress. Furthermore, if DOE made additional changes that have been proposed, such as allowing renewable natural gas blending, an even more dramatic discounting of emissions could occur. EDF and allies recently sent a letter to Treasury and DOE detailing our concerns with this approach.

Credibility of U.S. hydrogen hangs in the balance

The unvetted changes to the model could funnel billions of dollars toward hydrogen projects that deliver little to no climate benefit, risking public trust in U.S. clean hydrogen as a viable solution in the energy transition. As global certification schemes are established to validate hydrogen imports, U.S. producers who rely on faulty data or methodologies could see themselves shut out from the future clean fuel trade, as markets around the world increasingly demand certified and verified low-emission fuels.

Decisions made for hydrogen reach far beyond this market: every hydrogen derivative — from ammonia and e-methanol to sustainable aviation fuels — depends on credible, clean hydrogen production. Aviation and shipping are looking to these fuels to decarbonize. Steel and iron are testing hydrogen as a replacement for fossil feedstocks.

Although current headwinds may slow progress, the global momentum toward cleaner fuels is continuing — driven by real market demand and necessity. Countries are competing to lead the development of these clean fuels for domestic and international markets. And major demand centers, including the EU and Asia, are putting the frameworks in place to ensure high-integrity products from producers.

Supranational and national policies, such as the EU’s ReFuelEU Aviation and FuelEU Maritime regulations and country SAF mandates (including UK, China and Japan), along with international efforts to decarbonize important sectors of the global economy, such as International Maritime Organization and International Civil Aviation Society targets and initiatives, will continue to drive demand for cleaner fuels.

The current administration’s changes to 45V implementation place U.S. producers at risk of falling behind the minimum standards of accuracy and transparency on emissions set by other jurisdictions. This could leave U.S. companies excluded from selling their product to key markets, losing out to.

The onus is now on companies to show accountability and emissions data integrity

Hydrogen projects, with more than 20-year time horizons, are being developed today, making it essential to build solid foundations for long-term sustainability and growth. Companies know this: clear guidance is necessary to facilitate stable investment decisions. DOE’s opaque changes to 45V implementation risk undermining the future of U.S. hydrogen production.

Restoring integrity to 45V is not just about fixing a model — it’s one crucial step to restoring trust across U.S. energy systems to prospective customers seeking long-term buyer-seller partnerships, and beyond.

Both regulators and industry leaders should act now to restore integrity and clarity to 45V to ensure long-term U.S. competitiveness and credibility.