Public Act 103-0268
 
HB2204 EnrolledLRB103 27545 KTG 53920 b

    AN ACT concerning State government.
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 1. Short title. This Act may be cited as the
Hydrogen Fuel Replacement Tax Credit Act.
 
    Section 5. Legislative findings; purpose. The General
Assembly finds that:
        (1) the health, welfare, and prosperity of all
    Illinois residents require that the State of Illinois act
    to reduce carbon emissions and other air pollutants in the
    State;
        (2) the State currently invests in a variety of
    strategies to reduce carbon emissions and other air
    pollutants, including, but not limited to, strategies that
    encourage the use of renewable energy, nuclear energy,
    energy efficient processes, and low-emission vehicles;
        (3) qualifying hydrogen can be produced through the
    electrolysis of water using electricity generated by
    emissions-free energy sources;
        (4) replacing fossil fuels and hydrogen produced from
    fossil fuels with qualifying hydrogen can reduce carbon
    emissions and other air pollutants and benefit the
    environment and public health of this State; and
        (5) qualifying hydrogen should be used only where it
    will reduce carbon emissions and other air pollutants and
    should primarily be used to replace hydrogen that is not
    qualifying hydrogen or in sectors where direct
    electrification is infeasible.
    This Act is intended to encourage the replacement of
fossil fuels and hydrogen produced from fossil fuels with
qualifying hydrogen for the purposes of promoting
decarbonization and improving the State's air quality.
 
    Section 10. Definitions. As used in this Act:
    "Attestation" means a statement that is made under penalty
of perjury by a producer under Section 27.
    "Department" means the Department of Commerce and Economic
Opportunity.
    "Eligible taxpayer" means a taxpayer that:
        (1) is subject to subsections (a) and (b) of Section
    201 of the Illinois Income Tax Act;
        (2) has eligible qualifying hydrogen use for which the
    producer has provided an attestation and verification
    under Section 27;
        (3) complies with subsections (e) and (f) of Section
    15 if applicable; and
        (4) is allocated credits by the Department under
    Section 25.
    If the taxpayer is an individual, partnership, trust,
estate, or Subchapter S corporation, then the taxpayer is an
eligible taxpayer only to the extent that the taxpayer's
Illinois income tax liability is due to an equity interest in a
partnership that uses qualifying hydrogen, a Subchapter S
corporation that uses qualifying hydrogen, or a similar
pass-through entity that uses qualifying hydrogen.
    "Eligible qualifying hydrogen use" means the use, in
Illinois, of qualifying hydrogen, except for the use of
qualifying hydrogen in the following sectors or for the
following purposes:
        (1) the use of qualifying hydrogen in all vehicles
    powered by combustion engines or in vehicles in classes 1,
    2, 3, 4, 5, and 6 in the 8-category Gross Vehicle Weight
    Rating (GVWR) classification system, where Class 1
    includes vehicles with a GVWR of less than 6,000 pounds
    (lbs); Class 2 includes vehicles with a GVWR of 6,001 to
    10,000 lbs; Class 3 includes vehicles with a GVWR of
    10,001 to 14,000 lbs; Class 4 includes vehicles with a
    GVWR of 14,001 to 16,000 lbs; Class 5 includes vehicles
    with a GVWR of 16,001 to 19,500 lbs; Class 6 includes
    vehicles with a GVWR of 19,501 to 26,000 lbs; Class 7
    includes vehicles with a GVWR of 26,001 to 33,000 lbs; and
    Class 8 includes vehicles with a GVWR of greater than
    33,001 lbs;
        (2) the use of qualifying hydrogen in heating or
    cooking in residential and commercial buildings, including
    space heating, water heating, and clothes drying, or in
    other cases where qualifying hydrogen is blended into the
    gas distribution system of a residential or commercial
    building; and
        (3) the use of qualifying hydrogen for the production
    of electricity generated using direct gas combustion,
    except when that use is (A) for the purpose of emissions
    reductions to achieve compliance with any rules or
    regulations promulgated by the United States Environmental
    Protection Agency, as interpreted and applied in State
    Implementation Plans under those rules and regulations,
    and (B) undertaken pursuant to an approved State
    Implementation Plan for the State of Illinois.
    "Environmental attribute credit" means a renewable energy
credit, zero-emission credit, or carbon mitigation credit, as
those terms are defined in Sections 1-10 and 1-75 of the
Illinois Power Agency Act, or any other environmental
attribute credit tracked by the Generation Attribute Tracking
System administered by PJM Interconnection, LLC.
    "Equity investment eligible community" has the meaning
provided in Section 5-5 of the Energy Transition Act.
    "MISO" means Midcontinent Independent System Operator,
Inc.
    "MISO maximum generation event" has the same meaning as in
MISO's Reliability Operating Procedures.
    "PJM" means PJM Interconnection, LLC, the regional
transmission organization (RTO) that coordinates the movement
of wholesale electricity for portions of 13 states, including
Illinois.
    "PJM performance assessment interval" has the same meaning
as provided in the PJM Open Access Transmission Tariff.
    "Producer" means a producer of qualifying hydrogen.
    "Qualified renewable energy resource" means an electric
generator that (1) is fueled by wind, solar thermal energy,
photovoltaic cells and panels, geothermal energy, or
hydropower that does not involve new construction or
significant expansion of hydropower dams; and (2) produces
renewable energy credits that are eligible to be counted
toward the renewable energy requirements in subsection (c) of
Section 1-75 of the Illinois Power Agency Act.
    "Qualifying hydrogen" means hydrogen that (i) receives
100% of the tax credit available under 26 U.S.C. 45V and (ii)
meets the requirements of Section 27 of this Act. If any of the
requirements of 26 U.S.C. 45v conflict with any of the
requirements of Section 27, then the relevant requirement of
Section 27 shall govern for purposes of determining
eligibility for the allowable credit established under this
Act.
    "Regional grid" means the territory served by a specific
regional transmission organization.
    "Regional transmission organization" means PJM
Interconnection, LLC; Midcontinent Independent System
Operator; or any other entity charged with regional real-time
balancing of electricity generation and load.
    "Zero-emission facility" has the same meaning as provided
in Section 1-10 of the Illinois Power Agency Act as that Act
exists on the effective date of this Act.
 
    Section 15. Allowable credit.
    (a) For tax years ending on or after December 31, 2027 and
beginning before January 1, 2029, a credit is allowed against
the taxes imposed on an eligible taxpayer under subsections
(a) and (b) of Section 201 of the Illinois Income Tax Act in an
amount equal to $1 per kilogram of eligible qualifying
hydrogen used by the eligible taxpayer during the immediately
preceding calendar year. If the use of the qualifying hydrogen
by a taxpayer occurs in or impacts one or more equity
investment eligible communities, then, to be eligible for this
credit, the taxpayer must submit to the Department and make
publicly available documentation that demonstrates that the
use has led to a net reduction of negative environmental
impacts in each impacted equity investment eligible community
and demonstrates that all application requirements detailed in
this Act, including those in subsection (c), have been met for
the year in which the credit is sought. Those impacts shall
include direct, indirect, and cumulative impacts, including,
but not limited to, impacts from using, transporting, and
storing qualifying hydrogen, and impacts to air, water,
traffic, noise, and public health. This documentation must be
specific, quantifiable, measurable, and verifiable. Continued
receipt of tax credits is contingent upon the taxpayer making
this demonstration each year. Failure to demonstrate a
reduction of negative environmental impacts in each impacted
equity investment eligible community shall result in the
denial or forfeiture of tax credits.
    (b) The allowable credit provided in subsection (a) of
this Section shall be increased by $0.15 per kilogram of
eligible qualifying hydrogen for eligible qualifying hydrogen
use impacting one or more equity investment eligible
communities if an eligible taxpayer specifically,
quantifiably, and verifiably demonstrates that the eligible
qualifying hydrogen use satisfies both of the following
criteria for the preceding tax year:
        (1) The eligible taxpayer's project workforce meets
    the minimum equity standards for equity eligible persons
    and equity eligible contractors determined by the Illinois
    Power Agency pursuant to subsection (c-10) of Section 1-75
    of the Illinois Power Agency Act. This requirement shall
    apply to both construction employment and ongoing
    employment in areas such as, but not limited to,
    operations, production, and maintenance.
        (2) At least 40% of the total benefits provided by the
    use are received by the equity investment eligible
    communities impacted by the eligible qualifying hydrogen
    use. Benefits to be considered shall include, but are not
    limited to: a decrease in the percentage of household
    income spent on energy costs; a decrease in environmental
    exposures and burdens; an increase in access to low-cost
    capital; an increase in employment and job training for
    residents; an increase in clean energy enterprise creation
    and contracting; increases in community energy ownership;
    increased parity in clean energy technology and adoption;
    and an increase in energy resilience. As used in this item
    (2), "energy resilience" means the ability to operate
    energy services in response to a major disruption.
    Employment and contracting benefits provided pursuant to
    paragraph (1) shall count toward this 40% requirement.
    (c) The Department shall develop an application process
for tax credits under this Section that provides meaningful,
timely, and effective public notice of a tax credit
application to members of impacted communities, accounting for
linguistic needs and other relevant characteristics, and
provides meaningful opportunity for public comment on any tax
credit application. The public notice and tax credit
application shall be translated into non-English languages in
impacted communities where a language other than English is
widely spoken. The notice must, at a minimum, include all of
the following: the name of the applicant, the location of the
use, a brief description of the use and its impacts, and a link
to a website where the application and more detailed
information on the use and its impacts can be found. The notice
shall be written at a third or fourth grade reading level to
ensure ease of understanding for all members of the public.
The opportunity for public comment must, at a minimum, include
a public meeting held in a location within an impacted equity
investment community and easily accessible to residents of
other impacted equity investment eligible communities. Such
public meeting shall be held not less than 30 days after public
notice is provided and not less than 30 days before a decision
is made on the application. The Department shall consider
comments received when determining whether the requirements of
this Section have been met. Applications, supporting
materials, and comments submitted with respect to applications
shall be maintained on the Department website in a publicly
accessible manner.
    (d) An eligible taxpayer may not earn tax credits for a tax
year for eligible qualifying hydrogen use in an amount that
exceeds the amount of tax credit allocated to it for the tax
year under Section 25. If the amount of the credit exceeds the
tax liability for the year, the excess may be carried forward
and applied to the tax liability of the 5 taxable years
following the excess credit year. The credit shall be applied
to the earliest year for which there is a tax liability. If
there are credits from more than one tax year that are
available to offset a liability, the earlier credit shall be
applied first. In no event shall a credit under this Section
reduce the taxpayer's liability to less than zero.
    (e) Labor performed on or after the effective date of this
Act to convert the eligible taxpayer's existing equipment or
to install new equipment for the eligible taxpayer to enable
eligible qualifying hydrogen use for which a credit is claimed
under this Act shall be performed by general contractors that
enter into a project labor agreement, as defined by the
Illinois Power Agency Act, prior to construction. The project
labor agreement shall be filed with the Department.
    (f) Notwithstanding any provision of law to the contrary,
any eligible taxpayer receiving tax credits under this Act
shall be required to enter into a labor peace agreement with
any bona fide labor organization that represents or is
attempting to represent any of its employees.
 
    Section 20. Credit availability; applications.
    (a) The total amount of tax credits that may be allocated
by the Department to taxpayers for eligible qualifying
hydrogen use occurring in a calendar year shall not exceed
$10,000,000 per year, plus the amount of tax credits that were
available under this Section to be allocated for eligible
qualifying hydrogen use in the immediately preceding calendar
year but were not allocated.
    (b) In order to qualify for a tax credit under this Act,
the applicant must apply with the Department on a form
prescribed by the Department by rule. The application shall
contain information necessary to calculate the tax credit and
any additional information required by the Department.
    (c) Upon satisfactory review of the application, the
Department shall issue a tax credit certificate to the
applicant stating the amount of the tax credit to which the
applicant is entitled. The certificate shall be attached to
the applicant's income tax return under the Illinois Income
Tax Act.
 
    Section 25. Credit allocation by the Department.
    (a) As part of its application under Section 20, the
taxpayer shall certify to the Department the amount of
eligible qualifying hydrogen, in kilograms, used during the
immediately preceding calendar year for which the application
is filed.
    (b) The Department shall notify each taxpayer of the
dollar amount of credit allocated to that taxpayer under this
Act. The taxpayer must notify the Department within 30 days
after the notification by the Department under this subsection
(b) if it wishes to surrender its allocation.
    (c) In each State fiscal year for which tax credits are
available pursuant to this Act, the Department shall not
allocate more than 10% of the total amount of tax credits
available under this Act to the use of qualifying hydrogen for
electricity generation that uses direct gas combustion.
    (d) Subject to the limitations of this Section and
Sections 20 and 30, the amount of the credit allocated to a
taxpayer by the Department in subsection (b) of this Section
shall be the maximum credit that the taxpayer is permitted to
earn for the calendar year.
    (e) Allocations may not be rolled forward to a subsequent
year.
 
    Section 27. Attestation and verification required.
    (a) Each taxpayer seeking credits under this Act shall
submit with its application for credits under this Act an
attestation from the producer, made under penalty of perjury.
The attestation shall also confirm that the hydrogen for which
a tax credit is claimed has not been produced during an
applicable PJM performance assessment interval or an
applicable MISO maximum generation event. Each taxpayer
seeking credits under this Act shall also be required to
submit to the Department, at the time of the tax filing for the
applicable year, documentation verifying the facts set forth
in the attestation required by this Section.
    (b) Each taxpayer seeking credits under this Act shall
submit with its application for credits under this Act
documentation verifiably demonstrating that the hydrogen use
or uses for which the tax credit is sought was entirely used
for an eligible qualifying hydrogen use, as defined in Section
10 of this Act.
    (c) Each taxpayer seeking credits under this Act shall
submit with its application for credits under this Act
verifiable documentation of the following information, to be
provided to the taxpayer by the producer:
        (i) the type of power generation used to produce the
    qualifying hydrogen during each hour that the qualifying
    hydrogen was produced, if this information is available;
        (ii) the year or years in which the power generation
    source or sources identified in item (i) went into
    operation;
        (iii) if the power generation identified in item (i)
    would have been curtailed or otherwise would not have
    occurred but for the production of qualifying hydrogen, to
    the extent determined by PJM, MISO, or another grid
    operator; and
        (iv) to the extent available, the marginal emissions
    intensity of the regional grid in the same location where
    the qualifying hydrogen was produced during each hour that
    the qualifying hydrogen was produced, as determined by the
    marginal fuel type reported by PJM, MISO, or another grid
    operator, as appropriate, and an average emissions
    intensity for that fuel.
 
    Section 30. Prioritization of tax credit allocation. If
the total amount of tax credits sought by taxpayers under
Section 25 exceeds the total amount of tax credits that are
allowed to be allocated under Section 20, the Department shall
prioritize allocation as follows:
        (1) Up to 90% of the tax credits shall be allocated to
    the following eligible taxpayers in proportion to their
    requested allocation up to their requested allocation:
            (A) taxpayers who participate in a United States
        Department of Energy Hydrogen Hub for their associated
        eligible qualifying hydrogen use;
            (B) taxpayers who purchase hydrogen from a
        participant in a United States Department of Energy
        Hydrogen Hub for their associated qualifying hydrogen
        use; or
            (C) taxpayers who purchase electricity to produce
        and use qualifying hydrogen from a participant in a
        United States Department of Energy Hydrogen Hub for
        their associated eligible qualifying hydrogen use.
        (2) Next, any remaining credits shall be allocated to
    eligible taxpayers who do not qualify under paragraph (1);
    however, if there are insufficient remaining credits
    available to make the allocations under this paragraph
    (2), then the remaining credits shall be allocated in
    proportion to the requested allocation up to the eligible
    taxpayer's requested allocation.
        (3) Next, any remaining credits shall be allocated to
    taxpayers in proportion to their requested allocation, up
    to their requested allocation, excluding any amount
    already allocated to a taxpayer pursuant to subsections
    (1) and (2) of this Section.
        (4) Finally, any remaining credits shall be allocated
    to taxpayers receiving an allocation pursuant to
    subsection (1) in proportion to their requested
    allocation, such that the allocation provided under
    subsection (1) and subsection (4) combined does not exceed
    their requested allocation.
 
    Section 35. Transfer of credits. A transfer of credits
earned under this Act may be made, in accordance with rules
adopted by the Department, by the taxpayer earning the credits
within one year after the credits are awarded. The Department
shall issue a certificate of transfer to each transferor and
transferee, identifying the amount of the credit transferred.
The transfer certificate shall be attached to the transferor's
and transferee's income tax return under the Illinois Income
Tax Act.
 
    Section 36. Analysis of hydrogen production and
utilization.
    (a) No later than April 1, 2028, the Illinois
Environmental Protection Agency, in consultation with the
Department, the Illinois Power Agency, the Illinois Commerce
Commission, and other State agencies, as needed, shall publish
a report analyzing the greenhouse gas and copollutant
emissions impacts of hydrogen production and utilization in
the State from January 1, 2026 through December 31, 2027. The
report shall separately measure each of the following:
        (1) life-cycle greenhouse gas and copollutant emission
    impacts of producing qualifying hydrogen;
        (2) life-cycle greenhouse gas and copollutant emission
    impacts of eligible qualifying hydrogen use for which an
    eligible taxpayer receives a credit under this Act;
        (3) any greenhouse gas and copollutant emissions
    avoided by eligible use of qualifying hydrogen, such as by
    displacing diesel in long-haul, heavy-duty trucking and
    displacing hydrogen created using fossil fuel feedstock or
    through electrolysis powered by fossil-fuel generated
    electricity, where avoidance can be determined with
    reasonable certainty; and
        (4) economic activity and jobs attributable to
    investments in qualifying hydrogen production and eligible
    qualifying hydrogen use in the State across sectors.
    The report shall also include the following separate
provisions:
        (1) an analysis of opportunities to increase the
    production of qualifying hydrogen from electrolysis that
    is powered entirely by electricity generated from
    qualified renewable energy resources in the State;
        (2) a comparison of the cost of qualifying hydrogen to
    the cost of hydrogen produced from fossil fuels;
        (3) an analysis of whether energy sources other than
    hydrogen are available alternatives for qualified uses,
    and if so, whether those alternatives would achieve
    greater emissions reductions, economic savings, or both;
        (4) an analysis of the efficacy of this tax credit at
    incentivizing the transition of industries with eligible
    uses to use clean hydrogen as a means of decarbonization;
        (5) an analysis of Illinois' competitiveness in the
    clean hydrogen economy relative to other states; this
    analysis shall include, but not be limited to, a review of
    the Department of Energy's Hydrogen Hub awards, other
    states' incentives for clean hydrogen, the amount of
    eligible use of clean hydrogen in Illinois relative to
    other states, and the amount of production of clean
    hydrogen in Illinois relative to other states; this
    analysis should also recommend policy changes the State
    can make to be more competitive with other states in the
    clean hydrogen economy to the extent that such
    competitiveness is consistent with the State's emissions
    reductions goals and is economically beneficial;
        (6) an analysis of areas where clean hydrogen use,
    clean energy use, or both can increase emissions
    reduction, and policy measures the State can take to
    incentivize those uses, including, but not limited to, an
    extension of this tax credit and changes to the total
    annual amount of this tax credit; and
        (7) an analysis of the expected arc of production,
    relative costs of different methods of hydrogen
    production, relative costs and emissions reductions
    benefits of clean energy produced by other methods,
    including renewables, for eligible and other uses to help
    right-size the total tax credit amount.
    The Illinois Environmental Protection Agency may consider
application and attestation information provided by eligible
taxpayers pursuant to this Act and any other data it deems
relevant.
    Data relied upon for the report and methods of measurement
shall be identified in the report and be made publicly
available in easily accessible, machine-readable format.
    The Illinois Environmental Protection Agency shall
determine and state in its report the impact of the production
of qualifying hydrogen and eligible qualifying hydrogen uses
receiving a tax credit pursuant to this Act on greenhouse gas
and copollutant emissions.
    (b) A draft of the report shall be made available for
public comment no less than 30 days prior to its final
publication. The final report and comments received shall be
made publicly available in both English and Spanish, and
copies of the final report shall be filed with the General
Assembly and the Governor.
 
    Section 37. Rules. The Department may adopt rules to
implement and administer this Act.
 
    Section 40. Severability. If any provision of this Act or
its application to any person or circumstance is held invalid,
the invalidity of that provision or application does not
affect other provisions or applications of this Act that can
be given effect without the invalid provision or application.
 
    Section 900. The Illinois Income Tax Act is amended by
adding Section 240 as follows:
 
    (35 ILCS 5/240 new)
    Sec. 240. Hydrogen fuel replacement tax credits.
    (a) For tax years ending on or after December 31, 2027 and
beginning before January 1, 2029, an eligible taxpayer who
qualifies for a credit under the Hydrogen Fuel Replacement Tax
Credit Act is entitled to a credit against the taxes imposed
under subsections (a) and (b) of Section 201 of this Act as
provided in that Act. If the eligible taxpayer is a
partnership or Subchapter S corporation, the credit shall be
allowed to the partners or shareholders in accordance with the
determination of income and distributive share of income under
Sections 702 and 704 and Subchapter S of the Internal Revenue
Code.
    (b) If the amount of the credit exceeds the tax liability
for the year, the excess may be carried forward and applied to
the tax liability of the 5 taxable years following the excess
credit year. The credit shall be applied to the earliest year
for which there is a tax liability. If there are credits from
more than one tax year that are available to offset a
liability, the earlier credit shall be applied first. In no
event shall a credit under this Section reduce the taxpayer's
liability to less than zero.
    (c) A sale, assignment, or transfer of the tax credit may
be made by the taxpayer earning the credit within one year
after the credit is awarded in accordance with rules adopted
by the Department of Commerce and Economic Opportunity.
    (d) A person claiming the credit allowed under this
Section shall attach to its Illinois income tax return a copy
of the tax credit certificate or the transfer certificate
issued by the Department of Commerce and Economic Opportunity.
 
    Section 999. Effective date. This Act takes effect upon
becoming law.

Effective Date: 7/25/2023