103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB2051

 

Introduced 2/7/2023, by Rep. Terra Costa Howard

 

SYNOPSIS AS INTRODUCED:
 
New Act
35 ILCS 5/240 new

    Creates the Hydrogen Fuel Replacement Tax Credit Act. Creates an income tax credit for eligible taxpayers in an amount equal to $1 per kilogram of eligible zero-carbon hydrogen used by the eligible taxpayer during the tax year for which a credit is sought. Provides for additional credits if the use of the zero-carbon hydrogen by the eligible taxpayer occurs in an equity investment eligible community. Provides that the total amount of tax credits to be allocated by the Department of Revenue to taxpayers for eligible zero-carbon hydrogen use occurring in the tax year ending during that State fiscal year shall not exceed $100,000,000, plus the amount of tax credits that were available to be allocated for eligible zero-carbon hydrogen use in the tax year ending during the prior State fiscal year but were not allocated. Effective immediately.


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A BILL FOR

 

HB2051LRB103 05879 HLH 50900 b

1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 1. Short title. This Act may be cited as the
5Hydrogen Fuel Replacement Tax Credit Act.
 
6    Section 5. Legislative findings; purpose. The General
7Assembly finds that:
8        (1) the health, welfare, and prosperity of all
9    Illinois residents require that the State of Illinois act
10    to reduce carbon emissions and other air pollutants in the
11    State;
12        (2) the State currently invests in a variety of
13    strategies to reduce carbon emissions and other air
14    pollutants, including, but not limited to, strategies that
15    encourage the use of renewable energy, nuclear energy,
16    energy efficient processes, and low-emission vehicles;
17        (3) zero-carbon hydrogen can be produced through the
18    electrolysis of water using electricity generated by
19    emissions-free energy sources; and
20        (4) replacing fossil fuels and hydrogen produced from
21    fossil fuels with zero-carbon hydrogen will reduce carbon
22    emissions and other air pollutants and benefit the
23    environment and public health of this State.

 

 

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1    This Act is intended to encourage the replacement of
2fossil fuels and hydrogen produced from fossil fuels with
3zero-carbon hydrogen for the purposes of promoting
4decarbonization and improving the State's air quality.
 
5    Section 10. Definitions. As used in this Act:
6    "Attestation" means a statement that is made under penalty
7of perjury by a producer under Section 13.
8    "Department" means the Department of Revenue.
9    "Eligible taxpayer" means a taxpayer that:
10        (1) is subject to subsections (a) and (b) of Section
11    201 of the Illinois Income Tax Act;
12        (2) has eligible zero-carbon hydrogen use for which
13    the producer has provided an attestation and verification
14    under Section 13;
15        (3) complies with subsection (e) of Section 15 if
16    applicable; and
17        (4) is allocated credits by the Department under
18    Section 25.
19    If the taxpayer is an individual, partnership, trust,
20estate, or Subchapter S corporation, then the taxpayer is an
21eligible taxpayer only to the extent that the taxpayer's
22Illinois income tax liability is due to an equity interest in a
23partnership that uses zero-carbon hydrogen, a Subchapter S
24corporation that uses zero-carbon hydrogen, or a similar
25pass-through entity that uses zero-carbon hydrogen.

 

 

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1    "Eligible zero-carbon hydrogen use" means the consumption,
2in Illinois, of zero-carbon hydrogen.
3    "Environmental attribute credit" means a renewable energy
4credit, zero-emission credit, or carbon mitigation credit, as
5those terms are defined in Sections 1-10 and 1-75 of the
6Illinois Power Agency Act, or any other environmental
7attribute credit tracked by the Generation Attribute Tracking
8System administered by PJM Interconnection, LLC.
9    "Equity investment eligible community" has the meaning
10provided in Section 5-5 of the Energy Transition Act.
11    "MISO" means Midcontinent Independent System Operator,
12Inc.
13    "MISO maximum generation event" has the same meaning as in
14MISO's Reliability Operating Procedures.
15    "PJM performance assessment interval" has the same meaning
16as provided in the PJM Open Access Transmission Tariff.
17    "Producer" means a zero-carbon hydrogen producer.
18    "Qualified renewable energy resource" means an electric
19generator that (1) is fueled by wind, solar thermal energy,
20photovoltaic cells and panels, geothermal energy, or
21hydropower that does not involve new construction or
22significant expansion of hydropower dams; and (2) produces
23renewable energy credits that are eligible to be counted
24toward the renewable energy requirements in subsection (c) of
25Section 1-75 of the Illinois Power Agency Act.
26    "Regional grid" means the territory served by a specific

 

 

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1regional transmission organization.
2    "Regional transmission organization" means PJM
3Interconnection, LLC; Midcontinent Independent System
4Operator; or any other entity charged with regional real-time
5balancing of electricity generation and load.
6    "Zero-carbon hydrogen" means hydrogen that is produced
7through electrolysis by an electrolyzer powered from
8electricity generated by one or more zero-emission facilities
9or qualified renewable energy resources that, in either
10instance, are located in the same regional grid where the
11zero-carbon hydrogen is produced.
12    "Zero-emission facility" has the same meaning as provided
13in Section 1-10 of the Illinois Power Agency Act as that Act
14exists on the effective date of this Act.
 
15    Section 13. Attestation and verification required. Each
16taxpayer seeking credits under this Act shall submit with its
17application for credits under this Act an attestation from the
18producer, made under penalty of perjury, that the producer or
19its electricity supplier has retired environmental attribute
20credits associated with generation from a zero-emission
21facility or a qualified renewable energy resource facility,
22located in the same regional grid where the zero-carbon
23hydrogen is produced, during each hour in which the hydrogen
24for which a tax credit is claimed is produced, in an amount at
25least as great as the energy consumed in that hour for

 

 

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1production of the volume of hydrogen for which a tax credit is
2claimed. The attestation shall also confirm that the hydrogen
3for which a tax credit is claimed has not been produced during
4an applicable PJM performance assessment interval or an
5applicable MISO maximum generation event. In so attesting, the
6producer may credit a portion of a monthly attribute
7certificate to a specific hour within that month in an amount
8equal to the generation quantity reflected in the certificate,
9multiplied by the ratio of the zero-emission facility's or
10qualified renewable energy resource's total generation in that
11hour to its total monthly generation. Each taxpayer seeking
12credits under this Act shall also be required to submit to the
13Department, at the time of the tax filing for the applicable
14year, documentation verifying the facts set forth in the
15attestation required by this Section.
 
16    Section 15. Allowable credit.
17    (a) For tax years ending on or after December 31, 2023, a
18credit is allowed against the taxes imposed on an eligible
19taxpayer under subsections (a) and (b) of Section 201 of the
20Illinois Income Tax Act in an amount equal to $1 per kilogram
21of eligible zero-carbon hydrogen used by the eligible taxpayer
22during the tax year for which a credit is sought.
23    (b) The allowable credit provided in subsection (a) of
24this Section shall be increased by $0.15 per kilogram of
25eligible zero-carbon hydrogen if the use of the zero-carbon

 

 

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1hydrogen by the eligible taxpayer occurs in an equity
2investment eligible community, after consultation with the
3community and reasonable efforts to accommodate the community.
4    (c) The allowable credit provided in subsection (a) of
5this Section shall be increased by $0.15 per kilogram of
6eligible zero-carbon hydrogen if the eligible taxpayer uses
7contractors or employs labor at a project location in an
8equity investment eligible community, as defined in Section
95-5 of the Energy Transition Act on the effective date of this
10Act, to convert existing equipment or install new equipment to
11enable eligible zero-carbon hydrogen use for which a credit is
12claimed under this Act.
13    (d) An eligible taxpayer may not earn tax credits for a tax
14year for eligible zero-carbon hydrogen use in an amount that
15exceeds the amount of tax credit allocated to it for the tax
16year under Section 25. The credit or credits may not reduce the
17taxpayer's liability to less than zero. An eligible taxpayer
18may carry forward any tax credit that has been earned but not
19used (or transferred pursuant to Section 35) for a period of up
20to 5 tax years after the last tax year in which a credit was
21earned by that taxpayer for eligible zero-carbon hydrogen use.
22Unused credits that are not transferred pursuant to Section 35
23shall expire at the end of this 5-year carryforward period.
24    (e) Labor performed on or after the effective date of this
25Act to convert the eligible taxpayer's existing equipment or
26install for the eligible taxpayer new equipment to enable

 

 

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1eligible zero-carbon hydrogen use for which a credit is
2claimed under this Act shall be performed by general
3contractors that enter into a project labor agreement, as
4defined by the Illinois Power Agency Act, prior to
5construction. The project labor agreement shall be filed with
6the Department. At a minimum, the project labor agreement must
7provide the names, addresses, and occupations of the owner of
8the facilities and the individuals representing the labor
9organization employees participating in the project labor
10agreement consistent with the Project Labor Agreements Act.
11The agreement must also specify the terms and conditions as
12defined by the Illinois Power Agency Act. Any information
13submitted pursuant to this subsection (e) shall be considered
14commercially sensitive information.
 
15    Section 20. Credit availability. Beginning with the State
16fiscal year ending on June 30, 2024, and in each subsequent
17State fiscal year, the total amount of tax credits to be
18allocated by the Department to taxpayers for eligible
19zero-carbon hydrogen use occurring in a tax year ending during
20that State fiscal year shall not exceed $100,000,000, plus the
21amount of tax credits that were available under this Section
22to be allocated for eligible zero-carbon hydrogen use in the
23tax year ending during the prior State fiscal year but were not
24allocated.
 

 

 

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1    Section 25. Credit allocation by the Department.
2    (a) Taxpayers shall notify the Department, by July 1,
32023, of the dollar amount of credit the taxpayer estimates it
4will earn for eligible zero-carbon hydrogen use in tax years
5ending on or after December 31, 2023 and ending on or before
6June 30, 2024. For tax years ending on or after July 1, 2024,
7taxpayers shall notify the Department of the dollar amount of
8credit the taxpayer estimates it will earn for eligible
9zero-carbon hydrogen use by January 1 immediately preceding
10the first day of the fiscal year in which the tax year ends.
11    (b) The Department shall notify each taxpayer of the
12dollar amount of credit allocated to that taxpayer for
13zero-carbon hydrogen use. That notification shall occur by
14March 1 following the date on which the taxpayer notifies the
15Department of its estimated zero-carbon hydrogen use under
16subsection (a). The taxpayer must notify the Department within
1730 days after the notification by the Department under this
18subsection (b) if it wishes to surrender its allocation.
19    (c) The Department shall not allocate any credit under
20this Act to a taxpayer for a tax year that ends on or after
21December 31, 2032 if the taxpayer has not previously claimed a
22credit under this Act for eligible zero-carbon hydrogen use.
23    (d) Notwithstanding any other provision of this Section or
24Section 30, the Department shall not allocate credits under
25this Act to a taxpayer for more than 10 years.
26    (e) The amount of credit allocated to a taxpayer by the

 

 

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1Department in subsection (b) of this Section shall be the
2maximum credit that the taxpayer is permitted to earn for the
3tax year ending in the State fiscal year for which credits are
4allocated.
5    (f) In years when the total allocation of credits sought
6by taxpayers exceeds the available credits to be allocated to
7all taxpayers under Section 20, a taxpayer that fails to earn
8credit for eligible zero-carbon hydrogen use for at least 90%
9of the credit allocated to that taxpayer shall pay a penalty
10equal to the dollar amount of tax credit allocated but
11unearned. This subsection shall not apply if a taxpayer's
12failure to use its full allocation of credits is due to an
13extraordinary event that was unforeseen at the time of the
14requested allocation under subsection (a) of this Section or
15the 30-day surrender period in subsection (b) of this Section,
16such as an unexpected outage of the generator providing
17electricity used to produce zero-carbon hydrogen, an
18unexpected outage of the hydrogen production facility, or an
19unexpected outage of the taxpayer's facility using the
20zero-carbon hydrogen.
21    (g) Except as provided in Section 35, an allocation may
22not be transferred, sold, or otherwise conveyed, nor may an
23allocation be rolled forward to a subsequent year.
 
24    Section 30. Prioritization of tax credit allocation. If
25the total amount of tax credits sought by taxpayers under

 

 

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1Section 25 exceeds the total amount of tax credits that are
2allowed to be allocated under Section 20, the Department shall
3prioritize allocation as follows:
4        (1) First, tax credits shall be allocated to eligible
5    taxpayers who (i) participate in a United States
6    Department of Energy Hydrogen Hub for their associated
7    eligible zero-carbon hydrogen use, (ii) purchase hydrogen
8    from a participant in a United States Department of Energy
9    Hydrogen Hub for their associated eligible zero-carbon
10    hydrogen use, or (iii) purchase electricity to produce and
11    use zero-carbon hydrogen from a participant in a United
12    States Department of Energy Hydrogen Hub for their
13    associated eligible zero-carbon hydrogen use.
14        (2) Next, any remaining credits shall be allocated to
15    eligible taxpayers who previously received a credit
16    allocation and who engaged in eligible zero-carbon
17    hydrogen use in the prior calendar year, in an amount
18    equal to the most recent allocation; however, if there are
19    insufficient remaining credits available, then priority
20    shall be given to such eligible taxpayers based on the
21    amount of eligible zero-carbon hydrogen they used in the
22    prior calendar year, in order from greatest to least.
23        (3) Finally, any remaining credits shall be allocated
24    to taxpayers in proportion to their requested allocation,
25    excluding any amount already allocated to a taxpayer
26    pursuant to subsections (1) and (2) of this Section.
 

 

 

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1    Section 35. Transfer of credits.
2    (a) Any eligible taxpayer earning tax credits under this
3Act (referred to in this Section as the assignor), which tax
4credits have been allocated and earned but not yet used by the
5eligible taxpayer against its tax liability for any tax year
6and which have not expired, may sell, assign, convey, or
7otherwise transfer such credits. The taxpayer acquiring the
8credits (referred to in this Section as the assignee) may use
9the amount of the acquired credits against the tax imposed
10under subsections (a) and (b) of Section 201 of the Illinois
11Income Tax Act for the tax year in which the assignee acquired
12the credit and may carry forward any unused credit for 5 tax
13years after the tax year in which the assignee acquired the
14credit.
15    (b) The Department shall certify the eligibility of the
16credit to be transferred by the assignor upon assignor's
17application to the Department. The application shall set forth
18the hydrogen producer's name and attestation, the amount of
19all credits earned and previously used by the assignor, the
20amount of all credits earned and unused by the assignor, the
21amount of credits proposed to be transferred, and the
22assignee's name and tax identification number. The Department
23shall thereafter certify whether the amount of credits
24proposed to be transferred to the assignee is available to the
25assignor.
 

 

 

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1    Section 37. Rules. The Department may adopt rules to
2implement and administer this Act.
 
3    Section 40. Severability. If any provision of this Act or
4its application to any person or circumstance is held invalid,
5the invalidity of that provision or application does not
6affect other provisions or applications of this Act that can
7be given effect without the invalid provision or application.
 
8    Section 900. The Illinois Income Tax Act is amended by
9adding Section 240 as follows:
 
10    (35 ILCS 5/240 new)
11    Sec. 240. Hydrogen fuel replacement tax credits.
12    (a) For tax years ending on or after December 31, 2023 and
13before January 1, 2043, an eligible taxpayer who qualifies for
14a credit under the Hydrogen Fuel Replacement Tax Credit Act is
15entitled to a credit against the taxes imposed under
16subsections (a) and (b) of Section 201 of this Act as provided
17in that Act. If the eligible taxpayer is a partnership or
18Subchapter S corporation, the credit shall be allowed to the
19partners or shareholders in accordance with the determination
20of income and distributive share of income under Sections 702
21and 704 and Subchapter S of the Internal Revenue Code.
22    (b) If the amount of any tax credit awarded under this

 

 

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1Section exceeds the qualified taxpayer's income tax liability
2for the year, the excess amount may be carried forward as
3provided in the Hydrogen Fuel Replacement Tax Credit Act.
4    (c) The Department shall allocate available credits to
5taxpayers in accordance with the Hydrogen Fuel Replacement Tax
6Credit Act.
7    (d) A sale, assignment, or transfer of the tax credit may
8be made in accordance with the Hydrogen Fuel Replacement Tax
9Credit Act by the taxpayer earning the credit.
10    (e) The Department shall certify the available credit for
11transfer by an assignor in accordance with the Hydrogen Fuel
12Replacement Tax Credit Act.
 
13    Section 999. Effective date. This Act takes effect upon
14becoming law.