Clean H2 Production Act

II 117TH CONGRESS 1ST SESSION S. 1807 To amend the Internal Revenue Code of 1986 to provide for a production and investment tax credit related to the production of clean hydrogen. IN THE SENATE OF THE UNITED STATES MAY 25, 2021 Mr. CARPER introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to provide for a production and investment tax credit related to the production of clean hydrogen. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Clean H2 Production 4 Act’’. 5 SEC. 2. TAX CREDIT FOR PRODUCTION OF CLEAN HYDRO- 6 GEN. 7 (a) IN GENERAL.—Subpart D of part IV of sub- 8 chapter A of chapter 1 of the Internal Revenue Code of 9 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 1807 IS 1986 is amended by adding at the end the following new 1 section: 2 ‘‘SEC. 45U. CREDIT FOR PRODUCTION OF CLEAN HYDRO- 3 GEN. 4 ‘‘(a) AMOUNT OF CREDIT.—For purposes of section 5 38, the clean hydrogen production credit for any taxable 6 year is an amount equal to the product of— 7 ‘‘(1) the applicable amount, multiplied by 8 ‘‘(2) the kilograms of qualified clean hydro- 9 gen— 10 ‘‘(A) produced by the taxpayer at a quali- 11 fied clean hydrogen production facility during 12 the 10-year period beginning on the date the fa- 13 cility was placed in service, and 14 ‘‘(B)(i) sold by the taxpayer to an unre- 15 lated person during the taxable year, 16 ‘‘(ii) used by the taxpayer or a related per- 17 son during the taxable year, or 18 ‘‘(iii) stored during the taxable year for 19 subsequent use by the taxpayer or a related 20 person. 21 ‘‘(b) APPLICABLE AMOUNT.— 22 ‘‘(1) IN GENERAL.—For purposes of subsection 23 (a)(1), the applicable amount shall be an amount 24 equal to the applicable percentage of $3.00. If any 25 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 1807 IS amount as determined under the preceding sentence 1 is not a multiple of 0.1 cent, such amount shall be 2 rounded to the nearest multiple of 0.1 cent. 3 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 4 of paragraph (1), the term ‘applicable percentage’ 5 means— 6 ‘‘(A) in the case of any qualified clean hy- 7 drogen which is produced through a process 8 that, as compared to hydrogen produced by 9 steam-methane reforming, achieves a percent- 10 age reduction in lifecycle greenhouse gas emis- 11 sions which is less than 75 percent, 20 percent, 12 ‘‘(B) in the case of any qualified clean hy- 13 drogen which is produced through a process 14 that, as compared to hydrogen produced by 15 steam-methane reforming, achieves a percent- 16 age reduction in lifecycle greenhouse gas emis- 17 sions which is not less than 75 percent and less 18 than 85 percent, 25 percent, 19 ‘‘(C) in the case of any qualified clean hy- 20 drogen which is produced through a process 21 that, as compared to hydrogen produced by 22 steam-methane reforming, achieves a percent- 23 age reduction in lifecycle greenhouse gas emis- 24 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 1807 IS sions which is not less than 85 percent and less 1 than 95 percent, 34 percent, and 2 ‘‘(D) in the case of any qualified clean hy- 3 drogen which is produced through a process 4 that, as compared to hydrogen produced by 5 steam-methane reforming, achieves a percent- 6 age reduction in lifecycle greenhouse gas emis- 7 sions which is not less than 95 percent, 100 8 percent. 9 ‘‘(3) INFLATION ADJUSTMENT.—The $3.00 10 amount in paragraph (1) shall be adjusted by multi- 11 plying such amount by the inflation adjustment fac- 12 tor (as determined under section 45(e)(2), deter- 13 mined by substituting ‘2020’ for ‘1992’ in subpara- 14 graph (B) thereof) for the calendar year in which 15 the sale or use of the qualified clean hydrogen oc- 16 curs. If any amount as increased under the pre- 17 ceding sentence is not a multiple of 0.1 cent, such 18 amount shall be rounded to the nearest multiple of 19 0.1 cent. 20 ‘‘(c) CREDIT REDUCTION.—The amount of the credit 21 determined under subsection (a) with respect to any quali- 22 fied clean hydrogen production facility for any taxable 23 year shall be reduced in a manner similar to the reduction 24 applied under section 45(b)(3). 25 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 1807 IS ‘‘(d) DEFINITIONS.—For purposes of this section— 1 ‘‘(1) LIFECYCLE GREENHOUSE GAS EMIS- 2 SIONS.—For purposes of this section, the term 3 ‘lifecycle greenhouse gas emissions’ has the same 4 meaning given such term under subparagraph (H) of 5 section 211(o)(1) of the Clean Air Act (42 U.S.C. 6 7545(o)(1)), as in effect on the date of enactment of 7 this section, as related to the full fuel lifecycle 8 through the point of hydrogen production. 9 ‘‘(2) QUALIFIED CLEAN HYDROGEN.— 10 ‘‘(A) IN GENERAL.—The term ‘qualified 11 clean hydrogen’ means hydrogen which is pro- 12 duced through a process that, as compared to 13 hydrogen produced by steam-methane reforming 14 of non-renewable natural gas, achieves a per- 15 centage reduction in lifecycle greenhouse gas 16 emissions which is not less than 50 percent. 17 ‘‘(B) EXCLUSION.—The term ‘qualified 18 clean hydrogen’ shall not include any hydrogen 19 for which a credit is allowed for the taxable 20 year— 21 ‘‘(i) under section 38 which is prop- 22 erly allocable to any credit determined 23 under this part (other than this section), 24 or 25 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 1807 IS ‘‘(ii) under subchapter B of chapter 1 65 of subtitle F. 2 ‘‘(3) QUALIFIED CLEAN HYDROGEN PRODUC- 3 TION FACILITY.— 4 ‘‘(A) IN GENERAL.—The term ‘qualified 5 clean hydrogen production facility’ means— 6 ‘‘(i) a facility owned by the tax- 7 payer— 8 ‘‘(I) which produces qualified 9 clean hydrogen which, with respect to 10 any taxable year, is sold by the tax- 11 payer to an unrelated person or used 12 by the taxpayer, 13 ‘‘(II) which satisfies the require- 14 ments under subparagraphs (B) and 15 (C), and 16 ‘‘(III) the construction of which 17 begins before January 1, 2030, and 18 ‘‘(ii) in connection with any facility 19 described in clause (i), any property used 20 to convert feedstock to hydrogen, including 21 any equipment or supporting facility 22 which— 23 ‘‘(I) accepts or receives feedstock, 24 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 1807 IS ‘‘(II) conditions or stores feed- 1 stock or hydrogen, or 2 ‘‘(III) distributes or redistributes 3 hydrogen. 4 ‘‘(B) WAGE REQUIREMENTS.—The re- 5 quirements described in this subparagraph with 6 respect to any facility are that the taxpayer 7 shall ensure that any laborers and mechanics 8 employed by contractors and subcontractors 9 in— 10 ‘‘(i) the construction of such facility, 11 or 12 ‘‘(ii) for any year during the period 13 described in subsection (a)(2)(A) which be- 14 gins after the date of the enactment of this 15 section, the alteration or repair of such fa- 16 cility, 17 shall be paid wages at rates not less than the 18 prevailing rates for construction, alteration, or 19 repair of a similar character in the locality as 20 determined by the Secretary of Labor, in ac- 21 cordance with subchapter IV of chapter 31 of 22 title 40, United States Code. 23 ‘‘(C) LABOR REQUIREMENTS.— 24 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 1807 IS ‘‘(i) APPRENTICESHIPS.—The require- 1 ments described in this subparagraph with 2 respect to any facility are that the tax- 3 payer shall ensure that all contractors and 4 subcontractors engaged in the performance 5 of construction, alteration, or repair work 6 on any facility shall, subject to clause (ii), 7 ensure that not less than 15 percent of the 8 total labor hours of such work be per- 9 formed by qualified apprentices. 10 ‘‘(ii) APPRENTICE-TO- 11 JOURNEYWORKER RATIO.—The require- 12 ment under clause (i) shall be subject to 13 any applicable requirements for apprentice- 14 to-journeyworker ratios of the Department 15 of Labor or the applicable State appren- 16 ticeship agency. 17 ‘‘(iii) PARTICIPATION.—Each con- 18 tractor and subcontractor described in 19 clause (i) that employs 4 or more individ- 20 uals to perform construction, alteration, or 21 repair work on any facility shall employ 1 22 or more qualified apprentices to perform 23 such work. 24 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 1807 IS ‘‘(iv) EXCEPTION.—Notwithstanding 1 any other provision in this subparagraph, 2 this subparagraph shall not apply in the 3 case of a taxpayer who— 4 ‘‘(I) demonstrates a lack of avail- 5 ability of qualified apprentices in the 6 geographic area of the construction, 7 alteration, or repair work, and 8 ‘‘(II) makes a good faith effort, 9 and its contractors and subcontractors 10 make a good faith effort, to comply 11 with the requirements of this subpara- 12 graph. 13 ‘‘(4) STEAM-METHANE REFORMING.—The term 14 ‘steam-methane reforming’ means a hydrogen pro- 15 duction process in which high-temperature steam is 16 used to produce hydrogen from natural gas, without 17 carbon capture and sequestration. 18 ‘‘(e) SPECIAL RULES.— 19 ‘‘(1) IN GENERAL.—Rules similar to the rules 20 of paragraphs (3) and (4) of section 45(e) shall 21 apply for purposes of this section. 22 ‘‘(2) PRODUCTION IN THE UNITED STATES.— 23 No credit shall be allowed under this section with re- 24 spect to any qualified clean hydrogen which is pro- 25 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 1807 IS duced outside of the United States (as defined in 1 section 638(1) or any possession of the United 2 States (as defined in section 638(2)). 3 ‘‘(f) GUIDANCE.—Not later than 1 year after the date 4 of enactment of this section, the Secretary, in consultation 5 with the Secretary of Energy and Administrator of the 6 Environmental Protection Agency, shall publish guidance 7 prescribing methods for determining the credit based on 8 lifecycle greenhouse gas emissions. For purposes of the 9 preceding sentence, such methods shall consider the emis- 10 sions associated with any feedstock or energy source which 11 is not co-located at the qualified clean hydrogen produc- 12 tion facility if— 13 ‘‘(1) such feedstock or energy source is contrac- 14 tually obtained by the taxpayer, 15 ‘‘(2) the taxpayer provides sufficient legal as- 16 surances that no other person can claim credit for 17 the environmental attributes of such feedstock or en- 18 ergy source, and 19 ‘‘(3) environmental attributes of the non co-lo- 20 cated feedstock or energy source are only considered 21 to the extent the taxpayer consumes an equivalent 22 amount of the feedstock or energy source in the pro- 23 duction of hydrogen, whereas— 24 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 1807 IS ‘‘(A) in the case of electricity used to 1 produce hydrogen then only an equivalent 2 amount of electricity which is not co-located 3 may be considered, and 4 ‘‘(B) in the case of natural gas used to 5 produce hydrogen then only an equivalent 6 amount of biogas which is not co-located may 7 be considered.’’. 8 (b) CONFORMING AMENDMENTS.— 9 (1) Section 38(b) of the Internal Revenue Code 10 of 1986 is amended— 11 (A) in paragraph (32), by striking ‘‘plus’’ 12 at the end, 13 (B) in paragraph (33), by striking the pe- 14 riod at the end and inserting ‘‘, plus’’, and 15 (C) by adding at the end the following new 16 paragraph: 17 ‘‘(34) the clean hydrogen production credit de- 18 termined under section 45U(a).’’. 19 (2) The table of sections for subpart D of part 20 IV of subchapter A of chapter 1 of such Code is 21 amended by adding at the end the following new 22 item: 23 ‘‘Sec. 45U. Credit for production of clean hydrogen.’’. VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6211 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 1807 IS (c) EFFECTIVE DATE.—The amendments made by 1 this section shall apply to hydrogen used or sold after De- 2 cember 31, 2020. 3 SEC. 3. EXPANSION OF ENERGY CREDIT TO INCLUDE 4 CLEAN HYDROGEN PRODUCTION FACILITIES. 5 (a) IN GENERAL.—Section 48(a)(5) of the Internal 6 Revenue Code of 1986 is amended— 7 (1) in subparagraph (A)(ii), by inserting ‘‘sub- 8 ject to subparagraph (G)(i),’’ before ‘‘the energy 9 percentage’’, 10 (2) in subparagraph (B), by inserting ‘‘or 45U’’ 11 after ‘‘section 45’’, 12 (3) in subparagraph (C)— 13 (A) in clause (i), by inserting ‘‘or, subject 14 to subparagraph (G)(ii), a qualified clean hy- 15 drogen production facility (as defined in section 16 45U(d)(3)) which meets the requirements of 17 section 45U(b)(2)(C)’’ after ‘‘section 45(d)’’, 18 (B) in clause (ii), by inserting ‘‘(or, in the 19 case of a qualified clean hydrogen production 20 facility, which is placed in service after 2020 21 and the construction of which begins before 22 January 1, 2030)’’ after ‘‘January 1, 2022’’, 23 and 24 VerDate Sep 11 2014 18:00 Jun 11, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1807.IS S1807 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 1807 IS (C) in clause (iii)(I), by inserting ‘‘or 1 45U’’ after ‘‘section 45’’, and 2 (4) by adding at the end the following: 3 ‘‘(G) QUALIFIED CLEAN HYDROGEN PRO- 4 DUCTION FACILITIES.— 5 ‘‘(i) ENERGY PERCENTAGE.— 6 ‘‘(I) IN GENERAL.—For purposes 7 of subparagraph (A)(ii), in the case of 8 a qualified investment credit facility 9 which is a qualified clean hydrogen 10 production facility, the energy per- 11 centage with respect to such facility 12 shall be an amount (expressed as a 13 percentage) equal to— 14 ‘‘(aa) in the case of a facility 15 which is estimated to produce 16 qualified clean hydrogen (as [Text truncated for display. 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