Brazil approves green hydrogen bill

Brazilian lawmakers approved amendments made by the senate to the bill that regulates the production of green hydrogen, instituting voluntary certification and federal tax incentives. The text now goes to the president to be ratified.

Local associations and experts said that the final text passed by congress will contribute to the development of the market. 

One of the main changes proposed is an increase in the amount of carbon dioxide per kilogram of hydrogen produced from the energy source used to obtain the hydrogen. While the congressional text provided for an index equal to or less than 4kg of CO2, the senate approved 7kg. Another change removes the provision for a gradual reduction in this limit from 2030 onwards.

Also approved was an end to the maximum percentage of hydrogen exports for the company to obtain tax benefits and the establishment in law of maximum tax subsidy limits for obtaining and marketing hydrogen.

INDICES 

According to the approved text, low-carbon hydrogen will be considered to be that which, in the life cycle of the production process, results in an initial value equal to or less than 7kg of carbon dioxide equivalent per kilogram of hydrogen produced (7kgCO2eq/kgH2). The increase is mainly aimed at ethanol suppliers.

This figure represents the intensity of greenhouse gas emissions and must be adopted by December 31, 2030.

Another approved amendment excluded the determination to make the level regressive from that date onwards, providing only for a review to be allowed by regulation.

RENEWABLE HYDROGEN

Another amendment approved by the deputies considers the concept of renewable hydrogen to be that obtained using renewable sources through production processes other than electrolysis, whether using solar, wind, hydraulic, biomass, biogas, biomethane, landfill gas, geothermal, tidal or oceanic energy sources.

The proposal approved with the senators' changes also includes a concept of green hydrogen as being that obtained from the electrolysis of water using the energy sources listed, from biofuels to biomass.

CERTIFICATION

Despite making it clear that adherence to the certification system will be voluntary on the part of producers of hydrogen or its derivatives, the text creates the Brazilian hydrogen certification system (SBCH2).

The certificate will attest to the intensity of greenhouse gas emissions in the production of hydrogen, and agents who join must comply with the rules and governance.

BRAZILIAN STANDARD 

The approved text creates a "Brazilian standard" to certify low-carbon hydrogen.

On the other hand, the regulatory authority must provide for harmonization mechanisms with international hydrogen certification standards, and may provide rules for recognizing certificates issued abroad.

POLICY AND INCENTIVES 

The bill determines that the national hydrogen program (PNH2) will incorporate the national low carbon hydrogen policy.

The bill extends tax incentives to companies producing low-carbon hydrogen by suspending PIS, Cofins, PIS-Import and Cofins-Import duties on the purchase or import of new machinery, apparatus, instruments and equipment and construction materials for hydrogen projects. The benefit can also be used for leased goods.

Another source of funds to encourage the sector will be through the low-carbon hydrogen development program (PHBC), established by the text, which provides for an economic subsidy for green hydrogen marketing. 

The lower house also approved a senate amendment setting the total amount of subsidies in the form of tax credits to be granted by the federal government to companies that benefit from the Rehidro special incentive scheme or buy the hydrogen they produce at 18.3 billion reais (US$3.4bn).

THE REPERCUSSIONS

Paula Padilha, a partner in the energy area at law firm Vieira Rezende Advogados, the approved framework has enormous potential to boost the hydrogen industry. 

"This measure not only promotes technological innovation and job creation, but also opens doors for new renewable energy generation projects," she told BNamericas. 

The lawyer pointed out, however, that some changes to the text could make it difficult to export green hydrogen to offtakers, especially in Europe. This is because they included the production of other means of energy generation, including geothermal, and increased the maximum limit for what is considered low-carbon hydrogen from 4kg to 7kg of carbon dioxide (CO2). 

"This could hinder the export of this hydrogen, because maritime transportation and its impacts must also be considered," added Padilha.

Brazil’s green hydrogen industry association (ABHIV) celebrated the approval of the bill and said that it represents a significant step in the regulation of a sector that is vital for Brazil's decarbonization and energy transition. 

The local sustainable hydrogen and fuels association ABHIC said that the text approved addresses essential items for the development of this sector in Brazil, such as taxonomy, with the definition of low-carbon emission hydrogen and renewable hydrogen, and the rules of governance, establishing the ANP as the party responsible for authorizing hydrogen production. 

ABHIC said that the allocation of more than 18bn reais for investments in hydrogen production will be of great importance for this sector to develop. 

“This initiative will help Brazil to compete with the international market, which has been granting major incentives for hydrogen production,” the association said. 

The industrial federation of Rio de Janeiro (Firjan) said that the approval of the green hydrogen regulatory framework creates an environment of legal certainty conducive to attracting investments and carrying out new industrial projects.

The organization estimates that potential investments in the production and use of hydrogen in the state could be over 40bn reais. 

Firjan said that the regulation of the law should establish a timetable for the start and end of the subsidies and that the subsidies should not be cross-generated, so as to avoid penalizing energy consumers.