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The taxation of energy transitions: clean hydrogen production

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US tax incentives encouraging domestic hydrogen production aim to tap into the potential of hydrogen as an alternative energy source.

In brief

  • How can companies maximize their tax incentives using section 45 of the IRA

Many governments, investors, and other groups have recently accelerated their efforts related to hydrogen investment, considering it a key element of the transition to more sustainable energy systems. The Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act (IRA) have highlighted hydrogen's potential in the US, promoting it as an appealing alternative energy source that only emits water and oxygen when used.

In an article first published in Tax Notes Today Federal, EY Americas Energy Transition and Renewable Energy Leader Greg Matlock and Christine Chai, a manager in Ernst & Young LLP’s Energy Transition and Renewable Energy group, examine the potential applications and requirements of the IRA’s Section 45V tax credit for clean hydrogen production and the implications for businesses.

The introduction of the Section 45V tax credit for clean hydrogen production reflects the US Government's commitment to fostering a hydrogen economy and goals of significantly scaling up production of clean hydrogen as part of the broader objective to achieve 100% clean electricity by 2035. The effectiveness of this and other measures in attracting investment will be critical in determining how hydrogen will be integrated into the country’s energy landscape and contribute to the diversified energy needs of various states and sectors.

Contributor: Christine Chai, Manager, Ernst & Young LLP


As governments, investors, industry groups and other organizations consider how best to invest in clean energy sources, careful analysis and monitoring of ongoing developments in energy taxation will be important. Understanding the details of credits and incentives such as the Section 45V tax credit for hydrogen production, as outlined in recent and future guidance, may help determine when and how these credits can apply in specific circumstances.

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