Examination of Proposed Exemptions to Incrementality Requirements

This research addendum presents findings related to the proposed exemptions to incrementality requirements for Section 45V of the Clean Hydrogen Production Tax Credit. It builds on previous analysis and methods described in a published paper regarding emissions from grid-based hydrogen production. The addendum discusses the implications of a Notice of Proposed Rulemaking by the US Treasury, which suggests relaxing incrementality requirements while maintaining strict emission thresholds. Two proposals are examined: exempting 5-10% of existing clean generators' output from incrementality requirements and exempting states with carbon cap policies. The addendum provides modeling results showing that such exemptions could lead to increased carbon emissions from hydrogen production. It highlights the potential emissions intensity of hydrogen produced under these exemptions and discusses the concept of emissions leakage in regions with binding carbon cap policies. The findings indicate that current policies may not effectively mitigate emissions leakage, necessitating further analysis for robust solutions.