HB0121 adds a new severance-tax statute (W.S. 39-14-213) that taxes hydrogen produced in Wyoming. The Department of Revenue must value hydrogen “at fair market value” and, for tax purposes, treat hydrogen like natural gas; producers and owners are liable for the tax.
The bill differentiates by feedstock: hydrogen produced from water faces a 9% severance tax, while hydrogen from by-product water or any non‑water feedstock is taxed at 3%. Existing severance rules for valuation, exemptions, collection, enforcement, remedies and distribution apply by cross-reference to the new hydrogen tax scheme, and the statute would apply to production on or after July 1, 2026.
At a Glance
What It Does
Creates W.S. 39-14-213 to levy a severance tax on hydrogen production, requires the Department to value hydrogen as if it were natural gas, and sets two tax rates based on feedstock: 9% for hydrogen from water and 3% for hydrogen from by-product water or other feedstocks.
Who It Affects
Hydrogen producers operating in Wyoming (including those producing via electrolysis, steam methane reforming, gasification, or using by-product water), owners of production interests, the Wyoming Department of Revenue, and recipients of severance distributions under W.S. 39-14-211.
Why It Matters
This is one of the first state-level attempts to treat hydrogen as a severable mineral product for taxation and to use feedstock-based rate differentiation — a structure that will affect project economics, siting decisions, and how producers classify feedstocks and by‑products.
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What This Bill Actually Does
The bill creates a standalone severance-tax provision for hydrogen production by adding W.S. 39-14-213. It defines ‘‘hydrogen production’’ as the separation or extraction of hydrogen from a feedstock and defines ‘‘feedstock’’ broadly to include water, biomass, natural gas and other fossil fuels.
The Department of Revenue must annually value hydrogen at its fair market value for taxation and is instructed to value hydrogen the way the statute values natural gas.
Liability falls on any person conducting hydrogen production and, to the extent of ownership interests, on owners of the hydrogen. The tax is levied on the value of the gross product from hydrogen production and is explicitly stated to be in addition to other taxes.
The bill also includes an anti-double-taxation sentence: it does not require the same gross product to be taxed more than once under the statute.The critical economic lever in the statute is the two-tier rate structure: hydrogen produced from water is taxed at 9%, while hydrogen produced from by-product water (as defined in the referenced environmental statute) or from any feedstock other than water is taxed at 3%. The bill imports Wyoming’s existing severance provisions — exemptions, collection, enforcement and taxpayer remedies — by cross-reference, and it directs that revenue from the hydrogen severance be distributed under the current severance distribution statute.
Finally, the new tax applies to production on or after July 1, 2026, giving producers a clear effective date for accounting and permitting.
The Five Things You Need to Know
The bill creates W.S. 39-14-213 to impose a severance tax specifically on hydrogen produced in Wyoming.
It instructs the Department of Revenue to value hydrogen for severance purposes the same way Wyoming values natural gas (W.S. 39-14-203(b)).
Hydrogen produced from water is subject to a 9% severance tax, while hydrogen from by-product water or any non‑water feedstock is taxed at 3%.
Tax liability attaches to producers and owners of an interest in the hydrogen, and the statute says the same gross product will not be taxed more than once under this section.
The bill applies existing severance exemptions, collection, enforcement, remedies, and the distribution formula from W.S. 39-14 (including W.S. 39-14-205 and W.S. 39-14-211) to hydrogen production and takes effect July 1, 2026.
Section-by-Section Breakdown
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Definitions: feedstock, hydrogen, hydrogen production
The statute sets the definitional scope. ‘‘Feedstock’’ is intentionally broad — water, biomass, natural gas and other fossil fuels are listed — which captures both electrolytic (water) and thermochemical pathways. ‘‘Hydrogen production’’ is defined as the separation or extraction of hydrogen from those feedstocks, which frames the taxable activity narrowly around the act of producing hydrogen rather than sales or distribution.
Valuation and administration: treat hydrogen like natural gas
The Department of Revenue must annually value hydrogen at fair market value and is directed to apply the same valuation method used for natural gas under W.S. 39-14-203(b). Practically, that ties hydrogen’s taxable base to existing natural‑gas pricing and valuation rules rather than creating a hydrogen‑specific pricing regime, which simplifies administration but may misalign with hydrogen markets and contracts.
Taxable event, liability and tiered tax rates
The taxable event is the gross product of hydrogen resulting from production in Wyoming. The bill makes producers and owners liable for the tax and contains a clause to avoid taxing the same gross product more than once under this section. The statute sets two feedstock‑based rates: 9% for hydrogen from water and 3% for hydrogen from by‑product water or other feedstocks. That differential is the statute’s core economic signal and will drive commercial and accounting behavior.
Cross-references to existing severance law: exemptions, collection, enforcement, remedies, distribution
Rather than recreating procedures, the bill imports Wyoming’s existing severance tax apparatus: exemptions from W.S. 39-14-205, collection procedures from W.S. 39-14-207, enforcement under W.S. 39-14-208, taxpayer remedies under W.S. 39-14-209, and distributions under W.S. 39-14-211. That approach accelerates implementation but makes hydrogen’s treatment contingent on how those provisions currently operate and are interpreted.
Applicability date
The bill applies to hydrogen production occurring on or after July 1, 2026. Producers with projects near commercial operation must factor the date into financial models and permitting timelines because production that begins on or after that date will be subject to the new severance rules.
Effective date
The statute states it is effective July 1, 2026, aligning the legal effectiveness with the applicability provision and giving regulators a single date to use for compliance and enforcement planning.
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Explore Energy in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Wyoming state and local fiscal bodies — the severance tax creates a new revenue stream and, through W.S. 39-14-211 distribution rules, will channel funds to state and county recipients that receive severance proceeds.
- Producers using by-product water or non‑water feedstocks — taxed at 3%, these producers get a materially lower rate than water-based producers, improving project economics relative to electrolytic projects taxed at 9%.
- Owners of mineral or production interests who receive distributions tied to severance revenues — they stand to benefit from any royalty- or distribution-linked increases in severance collections.
Who Bears the Cost
- Electrolytic (water-based) hydrogen producers — face a 9% severance tax that could materially affect levelized cost of hydrogen and project bankability compared with firms taxed at 3%.
- New hydrogen project developers and investors — must adapt permitting, accounting and contract terms to reflect treatment as a severable product valued like natural gas, including potential hedging or tax management costs.
- Wyoming Department of Revenue — must adapt valuation, reporting and audit processes for a product with different markets and delivery mechanisms than natural gas, imposing administrative and implementation expenses.
Key Issues
The Core Tension
The bill attempts to create a revenue stream and a straightforward tax mechanism by treating hydrogen like a severed mineral while also using feedstock-based rates that risk discouraging the very low‑carbon (water‑electrolysis) production pathways many policymakers seek to encourage — forcing a trade-off between immediate state revenue interests and long-term clean‑energy policy goals.
The statute’s decision to value hydrogen ‘‘as natural gas’’ simplifies tax administration by reusing established valuation rules, but it raises practical questions: hydrogen pricing, contract structures (production gas vs. liquid hydrogen), and transport costs differ from natural gas, so using natural‑gas valuation may misstate the taxable base or incentivize tax‑driven commodity structuring. The two-tier rate — 9% for water‑derived hydrogen versus 3% for by-product water or other feedstocks — creates a strong economic signal that could push producers toward lower‑taxed feedstocks or contractual classifications.
That could unintentionally favor fossil‑based hydrogen pathways over electrolytic green hydrogen, counter to decarbonization goals.
The bill leans on cross-references to existing severance statutes for exemptions, collection, enforcement and distribution. While efficient, that choice embeds hydrogen’s tax fate in provisions written for minerals and natural gas; legal disputes are likely over how those provisions apply when hydrogen production is integrated into industrial or renewable-energy facilities.
The reference to ‘‘by-product water’’ ties tax treatment to another statutory definition (W.S. 41-3-903), creating potential ambiguity about when water associated with industrial processes qualifies for the lower rate. Administration will require clear guidance from the Department of Revenue on feedstock classification, recordkeeping, valuation methodology, and allocation when multiple processes or co-products are present.
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