Brazil moves forward with green hydrogen legislation

Brazil’s lower house approved a bill that establishes rules for the low carbon hydrogen development program (PHBC), including those related to tax incentives.

This issue was vetoed in the recent sanctioning of the low-carbon hydrogen regulatory framework bill by President Luiz Inácio Lula da Silva. 

The text will now be analyzed by the senate.

According to the proposal approved by the house, the total tax credit that can be granted for green hydrogen projects from 2028 to 2032 will be 18.3bn reais (US$3.3bn), with annual limits.

Priority for incentives will be given to industrial sectors that are difficult to decarbonize, such as fertilizers, steel, cement, chemicals and petrochemicals. Another objective will be to promote the use of hydrogen in heavy transport, such as maritime transport.

The credit, which will be considered a tax credit for the social contribution on net profit (CSLL), can be calculated as a percentage of the value of the project or as a monetary value per unit of measurement of the product.

Gabriela Fischer, a partner in the oil and gas area at Trench Rossi Watanabe, believes the most positive point is that the bill is agnostic in terms of technology. 

"The focus of the credits is to reach low carbon emission projects, as long as the limit of 7kg of CO2 equivalent per kg of hydrogen produced [kgCO2eq/kgH2] is respected," she told BNamericas. 

Leandro Alencar, regulatory director of the local hydrogen and sustainable fuels association ABHIC, says the creation of the PHBC and the special incentive scheme for low-carbon hydrogen production (Rehidro) will promote technological and industrial development.

The establishment of the national hydrogen certification system (SBCH2) will allow for traceability and a guarantee of the origin of the hydrogen produced, "in line with best international practices and guaranteeing environmental integrity," Alencar told BNamericas. 

However, he believes the legislation should provide for more explicit harmonization with international standards, especially with regard to the certification systems of the European Union and the US, in order to facilitate global trade in the hydrogen market.

"For example, the definition of low-carbon hydrogen of 7 kgCO2eq/kgH2 is not compatible with the stricter international parameters," said Alencar. 

He also thinks the effectiveness of the incentives could be improved by including automatic extension mechanisms if the initial objectives are not achieved. 

"There could be incentives for adherence to certification, which is voluntary. In addition, more details on the distribution of resources and the prioritization of investments could make the legislation more effective," said Alencar. 

He added the legislation could also include mechanisms to help SMEs integrate into the hydrogen market, given the role these companies play in the economy.