Illinois General Assembly - Full Text of HB2204
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Full Text of HB2204  103rd General Assembly


Sen. David Koehler

Filed: 5/24/2023





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2    AMENDMENT NO. ______. Amend House Bill 2204 by replacing
3everything after the enacting clause with the following:
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;



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1        (3) qualifying hydrogen can be produced through the
2    electrolysis of water using electricity generated by
3    emissions-free energy sources;
4        (4) replacing fossil fuels and hydrogen produced from
5    fossil fuels with qualifying hydrogen can reduce carbon
6    emissions and other air pollutants and benefit the
7    environment and public health of this State; and
8        (5) qualifying hydrogen should be used only where it
9    will reduce carbon emissions and other air pollutants and
10    should primarily be used to replace hydrogen that is not
11    qualifying hydrogen or in sectors where direct
12    electrification is infeasible.
13    This Act is intended to encourage the replacement of
14fossil fuels and hydrogen produced from fossil fuels with
15qualifying hydrogen for the purposes of promoting
16decarbonization and improving the State's air quality.
17    Section 10. Definitions. As used in this Act:
18    "Attestation" means a statement that is made under penalty
19of perjury by a producer under Section 27.
20    "Department" means the Department of Commerce and Economic
22    "Eligible taxpayer" means a taxpayer that:
23        (1) is subject to subsections (a) and (b) of Section
24    201 of the Illinois Income Tax Act;
25        (2) has eligible qualifying hydrogen use for which the



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1    producer has provided an attestation and verification
2    under Section 27;
3        (3) complies with subsections (e) and (f) of Section
4    15 if applicable; and
5        (4) is allocated credits by the Department under
6    Section 25.
7    If the taxpayer is an individual, partnership, trust,
8estate, or Subchapter S corporation, then the taxpayer is an
9eligible taxpayer only to the extent that the taxpayer's
10Illinois income tax liability is due to an equity interest in a
11partnership that uses qualifying hydrogen, a Subchapter S
12corporation that uses qualifying hydrogen, or a similar
13pass-through entity that uses qualifying hydrogen.
14    "Eligible qualifying hydrogen use" means the use, in
15Illinois, of qualifying hydrogen, except for the use of
16qualifying hydrogen in the following sectors or for the
17following purposes:
18        (1) the use of qualifying hydrogen in all vehicles
19    powered by combustion engines or in vehicles in classes 1,
20    2, 3, 4, 5, and 6 in the 8-category Gross Vehicle Weight
21    Rating (GVWR) classification system, where Class 1
22    includes vehicles with a GVWR of less than 6,000 pounds
23    (lbs); Class 2 includes vehicles with a GVWR of 6,001 to
24    10,000 lbs; Class 3 includes vehicles with a GVWR of
25    10,001 to 14,000 lbs; Class 4 includes vehicles with a
26    GVWR of 14,001 to 16,000 lbs; Class 5 includes vehicles



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1    with a GVWR of 16,001 to 19,500 lbs; Class 6 includes
2    vehicles with a GVWR of 19,501 to 26,000 lbs; Class 7
3    includes vehicles with a GVWR of 26,001 to 33,000 lbs; and
4    Class 8 includes vehicles with a GVWR of greater than
5    33,001 lbs;
6        (2) the use of qualifying hydrogen in heating or
7    cooking in residential and commercial buildings, including
8    space heating, water heating, and clothes drying, or in
9    other cases where qualifying hydrogen is blended into the
10    gas distribution system of a residential or commercial
11    building; and
12        (3) the use of qualifying hydrogen for the production
13    of electricity generated using direct gas combustion,
14    except when that use is (A) for the purpose of emissions
15    reductions to achieve compliance with any rules or
16    regulations promulgated by the United States Environmental
17    Protection Agency, as interpreted and applied in State
18    Implementation Plans under those rules and regulations,
19    and (B) undertaken pursuant to an approved State
20    Implementation Plan for the State of Illinois.
21    "Environmental attribute credit" means a renewable energy
22credit, zero-emission credit, or carbon mitigation credit, as
23those terms are defined in Sections 1-10 and 1-75 of the
24Illinois Power Agency Act, or any other environmental
25attribute credit tracked by the Generation Attribute Tracking
26System administered by PJM Interconnection, LLC.



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1    "Equity investment eligible community" has the meaning
2provided in Section 5-5 of the Energy Transition Act.
3    "MISO" means Midcontinent Independent System Operator,
5    "MISO maximum generation event" has the same meaning as in
6MISO's Reliability Operating Procedures.
7    "PJM" means PJM Interconnection, LLC, the regional
8transmission organization (RTO) that coordinates the movement
9of wholesale electricity for portions of 13 states, including
11    "PJM performance assessment interval" has the same meaning
12as provided in the PJM Open Access Transmission Tariff.
13    "Producer" means a producer of qualifying hydrogen.
14    "Qualified renewable energy resource" means an electric
15generator that (1) is fueled by wind, solar thermal energy,
16photovoltaic cells and panels, geothermal energy, or
17hydropower that does not involve new construction or
18significant expansion of hydropower dams; and (2) produces
19renewable energy credits that are eligible to be counted
20toward the renewable energy requirements in subsection (c) of
21Section 1-75 of the Illinois Power Agency Act.
22    "Qualifying hydrogen" means hydrogen that (i) receives
23100% of the tax credit available under 26 U.S.C. 45V and (ii)
24meets the requirements of Section 27 of this Act. If any of the
25requirements of 26 U.S.C. 45v conflict with any of the
26requirements of Section 27, then the relevant requirement of



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1Section 27 shall govern for purposes of determining
2eligibility for the allowable credit established under this
4    "Regional grid" means the territory served by a specific
5regional transmission organization.
6    "Regional transmission organization" means PJM
7Interconnection, LLC; Midcontinent Independent System
8Operator; or any other entity charged with regional real-time
9balancing of electricity generation and load.
10    "Zero-emission facility" has the same meaning as provided
11in Section 1-10 of the Illinois Power Agency Act as that Act
12exists on the effective date of this Act.
13    Section 15. Allowable credit.
14    (a) For tax years ending on or after December 31, 2027 and
15beginning before January 1, 2029, a credit is allowed against
16the taxes imposed on an eligible taxpayer under subsections
17(a) and (b) of Section 201 of the Illinois Income Tax Act in an
18amount equal to $1 per kilogram of eligible qualifying
19hydrogen used by the eligible taxpayer during the immediately
20preceding calendar year. If the use of the qualifying hydrogen
21by a taxpayer occurs in or impacts one or more equity
22investment eligible communities, then, to be eligible for this
23credit, the taxpayer must submit to the Department and make
24publicly available documentation that demonstrates that the
25use has led to a net reduction of negative environmental



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1impacts in each impacted equity investment eligible community
2and demonstrates that all application requirements detailed in
3this Act, including those in subsection (c), have been met for
4the year in which the credit is sought. Those impacts shall
5include direct, indirect, and cumulative impacts, including,
6but not limited to, impacts from using, transporting, and
7storing qualifying hydrogen, and impacts to air, water,
8traffic, noise, and public health. This documentation must be
9specific, quantifiable, measurable, and verifiable. Continued
10receipt of tax credits is contingent upon the taxpayer making
11this demonstration each year. Failure to demonstrate a
12reduction of negative environmental impacts in each impacted
13equity investment eligible community shall result in the
14denial or forfeiture of tax credits.
15    (b) The allowable credit provided in subsection (a) of
16this Section shall be increased by $0.15 per kilogram of
17eligible qualifying hydrogen for eligible qualifying hydrogen
18use impacting one or more equity investment eligible
19communities if an eligible taxpayer specifically,
20quantifiably, and verifiably demonstrates that the eligible
21qualifying hydrogen use satisfies both of the following
22criteria for the preceding tax year:
23        (1) The eligible taxpayer's project workforce meets
24    the minimum equity standards for equity eligible persons
25    and equity eligible contractors determined by the Illinois
26    Power Agency pursuant to subsection (c-10) of Section 1-75



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1    of the Illinois Power Agency Act. This requirement shall
2    apply to both construction employment and ongoing
3    employment in areas such as, but not limited to,
4    operations, production, and maintenance.
5        (2) At least 40% of the total benefits provided by the
6    use are received by the equity investment eligible
7    communities impacted by the eligible qualifying hydrogen
8    use. Benefits to be considered shall include, but are not
9    limited to: a decrease in the percentage of household
10    income spent on energy costs; a decrease in environmental
11    exposures and burdens; an increase in access to low-cost
12    capital; an increase in employment and job training for
13    residents; an increase in clean energy enterprise creation
14    and contracting; increases in community energy ownership;
15    increased parity in clean energy technology and adoption;
16    and an increase in energy resilience. As used in this item
17    (2), "energy resilience" means the ability to operate
18    energy services in response to a major disruption.
19    Employment and contracting benefits provided pursuant to
20    paragraph (1) shall count toward this 40% requirement.
21    (c) The Department shall develop an application process
22for tax credits under this Section that provides meaningful,
23timely, and effective public notice of a tax credit
24application to members of impacted communities, accounting for
25linguistic needs and other relevant characteristics, and
26provides meaningful opportunity for public comment on any tax



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1credit application. The public notice and tax credit
2application shall be translated into non-English languages in
3impacted communities where a language other than English is
4widely spoken. The notice must, at a minimum, include all of
5the following: the name of the applicant, the location of the
6use, a brief description of the use and its impacts, and a link
7to a website where the application and more detailed
8information on the use and its impacts can be found. The notice
9shall be written at a third or fourth grade reading level to
10ensure ease of understanding for all members of the public.
11The opportunity for public comment must, at a minimum, include
12a public meeting held in a location within an impacted equity
13investment community and easily accessible to residents of
14other impacted equity investment eligible communities. Such
15public meeting shall be held not less than 30 days after public
16notice is provided and not less than 30 days before a decision
17is made on the application. The Department shall consider
18comments received when determining whether the requirements of
19this Section have been met. Applications, supporting
20materials, and comments submitted with respect to applications
21shall be maintained on the Department website in a publicly
22accessible manner.
23    (d) An eligible taxpayer may not earn tax credits for a tax
24year for eligible qualifying hydrogen use in an amount that
25exceeds the amount of tax credit allocated to it for the tax
26year under Section 25. If the amount of the credit exceeds the



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1tax liability for the year, the excess may be carried forward
2and applied to the tax liability of the 5 taxable years
3following the excess credit year. The credit shall be applied
4to the earliest year for which there is a tax liability. If
5there are credits from more than one tax year that are
6available to offset a liability, the earlier credit shall be
7applied first. In no event shall a credit under this Section
8reduce the taxpayer's liability to less than zero.
9    (e) Labor performed on or after the effective date of this
10Act to convert the eligible taxpayer's existing equipment or
11to install new equipment for the eligible taxpayer to enable
12eligible qualifying hydrogen use for which a credit is claimed
13under this Act shall be performed by general contractors that
14enter into a project labor agreement, as defined by the
15Illinois Power Agency Act, prior to construction. The project
16labor agreement shall be filed with the Department.
17    (f) Notwithstanding any provision of law to the contrary,
18any eligible taxpayer receiving tax credits under this Act
19shall be required to enter into a labor peace agreement with
20any bona fide labor organization that represents or is
21attempting to represent any of its employees.
22    Section 20. Credit availability; applications.
23    (a) The total amount of tax credits that may be allocated
24by the Department to taxpayers for eligible qualifying
25hydrogen use occurring in a calendar year shall not exceed



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1$10,000,000 per year, plus the amount of tax credits that were
2available under this Section to be allocated for eligible
3qualifying hydrogen use in the immediately preceding calendar
4year but were not allocated.
5    (b) In order to qualify for a tax credit under this Act,
6the applicant must apply with the Department on a form
7prescribed by the Department by rule. The application shall
8contain information necessary to calculate the tax credit and
9any additional information required by the Department.
10    (c) Upon satisfactory review of the application, the
11Department shall issue a tax credit certificate to the
12applicant stating the amount of the tax credit to which the
13applicant is entitled. The certificate shall be attached to
14the applicant's income tax return under the Illinois Income
15Tax Act.
16    Section 25. Credit allocation by the Department.
17    (a) As part of its application under Section 20, the
18taxpayer shall certify to the Department the amount of
19eligible qualifying hydrogen, in kilograms, used during the
20immediately preceding calendar year for which the application
21is filed.
22    (b) The Department shall notify each taxpayer of the
23dollar amount of credit allocated to that taxpayer under this
24Act. The taxpayer must notify the Department within 30 days
25after the notification by the Department under this subsection



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1(b) if it wishes to surrender its allocation.
2    (c) In each State fiscal year for which tax credits are
3available pursuant to this Act, the Department shall not
4allocate more than 10% of the total amount of tax credits
5available under this Act to the use of qualifying hydrogen for
6electricity generation that uses direct gas combustion.
7    (d) Subject to the limitations of this Section and
8Sections 20 and 30, the amount of the credit allocated to a
9taxpayer by the Department in subsection (b) of this Section
10shall be the maximum credit that the taxpayer is permitted to
11earn for the calendar year.
12    (e) Allocations may not be rolled forward to a subsequent
14    Section 27. Attestation and verification required.
15    (a) Each taxpayer seeking credits under this Act shall
16submit with its application for credits under this Act an
17attestation from the producer, made under penalty of perjury.
18The attestation shall also confirm that the hydrogen for which
19a tax credit is claimed has not been produced during an
20applicable PJM performance assessment interval or an
21applicable MISO maximum generation event. Each taxpayer
22seeking credits under this Act shall also be required to
23submit to the Department, at the time of the tax filing for the
24applicable year, documentation verifying the facts set forth
25in the attestation required by this Section.



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1    (b) Each taxpayer seeking credits under this Act shall
2submit with its application for credits under this Act
3documentation verifiably demonstrating that the hydrogen use
4or uses for which the tax credit is sought was entirely used
5for an eligible qualifying hydrogen use, as defined in Section
610 of this Act.
7    (c) Each taxpayer seeking credits under this Act shall
8submit with its application for credits under this Act
9verifiable documentation of the following information, to be
10provided to the taxpayer by the producer:
11        (i) the type of power generation used to produce the
12    qualifying hydrogen during each hour that the qualifying
13    hydrogen was produced, if this information is available;
14        (ii) the year or years in which the power generation
15    source or sources identified in item (i) went into
16    operation;
17        (iii) if the power generation identified in item (i)
18    would have been curtailed or otherwise would not have
19    occurred but for the production of qualifying hydrogen, to
20    the extent determined by PJM, MISO, or another grid
21    operator; and
22        (iv) to the extent available, the marginal emissions
23    intensity of the regional grid in the same location where
24    the qualifying hydrogen was produced during each hour that
25    the qualifying hydrogen was produced, as determined by the
26    marginal fuel type reported by PJM, MISO, or another grid



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1    operator, as appropriate, and an average emissions
2    intensity for that fuel.
3    Section 30. Prioritization of tax credit allocation. If
4the total amount of tax credits sought by taxpayers under
5Section 25 exceeds the total amount of tax credits that are
6allowed to be allocated under Section 20, the Department shall
7prioritize allocation as follows:
8        (1) Up to 90% of the tax credits shall be allocated to
9    the following eligible taxpayers in proportion to their
10    requested allocation up to their requested allocation:
11            (A) taxpayers who participate in a United States
12        Department of Energy Hydrogen Hub for their associated
13        eligible qualifying hydrogen use;
14            (B) taxpayers who purchase hydrogen from a
15        participant in a United States Department of Energy
16        Hydrogen Hub for their associated qualifying hydrogen
17        use; or
18            (C) taxpayers who purchase electricity to produce
19        and use qualifying hydrogen from a participant in a
20        United States Department of Energy Hydrogen Hub for
21        their associated eligible qualifying hydrogen use.
22        (2) Next, any remaining credits shall be allocated to
23    eligible taxpayers who do not qualify under paragraph (1);
24    however, if there are insufficient remaining credits
25    available to make the allocations under this paragraph



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1    (2), then the remaining credits shall be allocated in
2    proportion to the requested allocation up to the eligible
3    taxpayer's requested allocation.
4        (3) Next, any remaining credits shall be allocated to
5    taxpayers in proportion to their requested allocation, up
6    to their requested allocation, excluding any amount
7    already allocated to a taxpayer pursuant to subsections
8    (1) and (2) of this Section.
9        (4) Finally, any remaining credits shall be allocated
10    to taxpayers receiving an allocation pursuant to
11    subsection (1) in proportion to their requested
12    allocation, such that the allocation provided under
13    subsection (1) and subsection (4) combined does not exceed
14    their requested allocation.
15    Section 35. Transfer of credits. A transfer of credits
16earned under this Act may be made, in accordance with rules
17adopted by the Department, by the taxpayer earning the credits
18within one year after the credits are awarded. The Department
19shall issue a certificate of transfer to each transferor and
20transferee, identifying the amount of the credit transferred.
21The transfer certificate shall be attached to the transferor's
22and transferee's income tax return under the Illinois Income
23Tax Act.
24    Section 36. Analysis of hydrogen production and



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2    (a) No later than April 1, 2028, the Illinois
3Environmental Protection Agency, in consultation with the
4Department, the Illinois Power Agency, the Illinois Commerce
5Commission, and other State agencies, as needed, shall publish
6a report analyzing the greenhouse gas and copollutant
7emissions impacts of hydrogen production and utilization in
8the State from January 1, 2026 through December 31, 2027. The
9report shall separately measure each of the following:
10        (1) life-cycle greenhouse gas and copollutant emission
11    impacts of producing qualifying hydrogen;
12        (2) life-cycle greenhouse gas and copollutant emission
13    impacts of eligible qualifying hydrogen use for which an
14    eligible taxpayer receives a credit under this Act;
15        (3) any greenhouse gas and copollutant emissions
16    avoided by eligible use of qualifying hydrogen, such as by
17    displacing diesel in long-haul, heavy-duty trucking and
18    displacing hydrogen created using fossil fuel feedstock or
19    through electrolysis powered by fossil-fuel generated
20    electricity, where avoidance can be determined with
21    reasonable certainty; and
22        (4) economic activity and jobs attributable to
23    investments in qualifying hydrogen production and eligible
24    qualifying hydrogen use in the State across sectors.
25    The report shall also include the following separate



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1        (1) an analysis of opportunities to increase the
2    production of qualifying hydrogen from electrolysis that
3    is powered entirely by electricity generated from
4    qualified renewable energy resources in the State;
5        (2) a comparison of the cost of qualifying hydrogen to
6    the cost of hydrogen produced from fossil fuels;
7        (3) an analysis of whether energy sources other than
8    hydrogen are available alternatives for qualified uses,
9    and if so, whether those alternatives would achieve
10    greater emissions reductions, economic savings, or both;
11        (4) an analysis of the efficacy of this tax credit at
12    incentivizing the transition of industries with eligible
13    uses to use clean hydrogen as a means of decarbonization;
14        (5) an analysis of Illinois' competitiveness in the
15    clean hydrogen economy relative to other states; this
16    analysis shall include, but not be limited to, a review of
17    the Department of Energy's Hydrogen Hub awards, other
18    states' incentives for clean hydrogen, the amount of
19    eligible use of clean hydrogen in Illinois relative to
20    other states, and the amount of production of clean
21    hydrogen in Illinois relative to other states; this
22    analysis should also recommend policy changes the State
23    can make to be more competitive with other states in the
24    clean hydrogen economy to the extent that such
25    competitiveness is consistent with the State's emissions
26    reductions goals and is economically beneficial;



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1        (6) an analysis of areas where clean hydrogen use,
2    clean energy use, or both can increase emissions
3    reduction, and policy measures the State can take to
4    incentivize those uses, including, but not limited to, an
5    extension of this tax credit and changes to the total
6    annual amount of this tax credit; and
7        (7) an analysis of the expected arc of production,
8    relative costs of different methods of hydrogen
9    production, relative costs and emissions reductions
10    benefits of clean energy produced by other methods,
11    including renewables, for eligible and other uses to help
12    right-size the total tax credit amount.
13    The Illinois Environmental Protection Agency may consider
14application and attestation information provided by eligible
15taxpayers pursuant to this Act and any other data it deems
17    Data relied upon for the report and methods of measurement
18shall be identified in the report and be made publicly
19available in easily accessible, machine-readable format.
20    The Illinois Environmental Protection Agency shall
21determine and state in its report the impact of the production
22of qualifying hydrogen and eligible qualifying hydrogen uses
23receiving a tax credit pursuant to this Act on greenhouse gas
24and copollutant emissions.
25    (b) A draft of the report shall be made available for
26public comment no less than 30 days prior to its final



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1publication. The final report and comments received shall be
2made publicly available in both English and Spanish, and
3copies of the final report shall be filed with the General
4Assembly and the Governor.
5    Section 37. Rules. The Department may adopt rules to
6implement and administer this Act.
7    Section 40. Severability. If any provision of this Act or
8its application to any person or circumstance is held invalid,
9the invalidity of that provision or application does not
10affect other provisions or applications of this Act that can
11be given effect without the invalid provision or application.
12    Section 900. The Illinois Income Tax Act is amended by
13adding Section 240 as follows:
14    (35 ILCS 5/240 new)
15    Sec. 240. Hydrogen fuel replacement tax credits.
16    (a) For tax years ending on or after December 31, 2027 and
17beginning before January 1, 2029, an eligible taxpayer who
18qualifies for a credit under the Hydrogen Fuel Replacement Tax
19Credit Act is entitled to a credit against the taxes imposed
20under subsections (a) and (b) of Section 201 of this Act as
21provided in that Act. If the eligible taxpayer is a
22partnership or Subchapter S corporation, the credit shall be



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1allowed to the partners or shareholders in accordance with the
2determination of income and distributive share of income under
3Sections 702 and 704 and Subchapter S of the Internal Revenue
5    (b) If the amount of the credit exceeds the tax liability
6for the year, the excess may be carried forward and applied to
7the tax liability of the 5 taxable years following the excess
8credit year. The credit shall be applied to the earliest year
9for which there is a tax liability. If there are credits from
10more than one tax year that are available to offset a
11liability, the earlier credit shall be applied first. In no
12event shall a credit under this Section reduce the taxpayer's
13liability to less than zero.
14    (c) A sale, assignment, or transfer of the tax credit may
15be made by the taxpayer earning the credit within one year
16after the credit is awarded in accordance with rules adopted
17by the Department of Commerce and Economic Opportunity.
18    (d) A person claiming the credit allowed under this
19Section shall attach to its Illinois income tax return a copy
20of the tax credit certificate or the transfer certificate
21issued by the Department of Commerce and Economic Opportunity.
22    Section 999. Effective date. This Act takes effect upon
23becoming law.".