Hydrogen law, regulations & strategy in Brazil

The hydrogen industry in Brazil, until very recently, has been driven by the demand from the petrochemical and fertiliser industries, representing 87% of total hydrogen consumption in 2022 1 . The vast majority of the hydrogen consumed in Brazil at that time originated from natural gas steam reformation without carbon capture. The focus began to shift in 2022, with the publication of the National Programme for Hydrogen and the Work Plan 2023-2025 by the National Council for Energy Policy 2  (Conselho Nacional de Política Energética – “CNPE”), setting out the strategy for decarbonisation of the hydrogen sector and integrating hydrogen into energy transition policy.

From that moment forward, the potential role Brazil could play in meeting the global demand for low-carbon hydrogen also became a driver for the development of the sector. This policy shift meant that the domestic production of low-carbon hydrogen could not only reduce emissions in the petrochemical and fertiliser industries, but also be used in high-emission, hard-to-abate industries such as steelmaking, aviation and cargo fuels, as well as in facilitating renewable energy exports through hydrogen carriers, as Brazil benefits from a combination of abundant renewable resources and existing port and O&G infrastructure.

In 2023, Brazil had an estimated USD 30 billion project pipeline for the production of low-carbon hydrogen. Many of these projects are planned to develop as hydrogen hubs: clusters located in export processing zones and integrated with existing port infrastructure. The Northeast region of Brazil, comprised of nine states, is home to over 58% of the current estimated potential of low-carbon hydrogen production according to the Energy Research Enterprise (“EPE”) 3  as it also boasts the largest renewable energy potential in the country. Petrobras figures as one key player in the production of blue hydrogen, currently with at least two projects to integrate carbon capture utilisation and storage (“CCUS”) technologies at existing oil refineries for the production of blue hydrogen. A number of other projects for the production of low-carbon hydrogen integrated into industrial facilities such as cement, glass and steelmaking facilities have been announced over the past 12 months (see section C below).

In June 2022, the CNPE established the National Programme for Hydrogen (“PNH2”), supported by technical studies produced by the EPE. In parallel and in cooperation with the Brazil Energy Programme (“BEP”) initiative of the UK Government, EPE published three technical notes on the production of grey, turquoise and blue hydrogen. The PNH2,  along with the work produced by EPE, served as precursors to the preparation of a legal framework for the development of a low greenhouse gas emissions hydrogen industry in Brazil.

In August 2024, the Low-Carbon Hydrogen Law (Law 14948/2024) was passed, introducing a legal framework for activities relating to the production, exploration, processing, storage, transportation, sale and exportation of low-carbon hydrogen. The Brazilian National Agency for Petroleum, Natural Gas and Biofuels (“ANP”) will exercise regulatory oversight for such activities and is expected to issue directives regulating matters provided under the Low-Carbon Hydrogen Law.

As envisioned by the PNH2, the Low-Carbon Hydrogen Law will support the deployment of low-carbon hydrogen projects as a means to develop the industry, to meet international climate change commitments, and to efficiently integrate renewable generation. The law has also introduced tax incentives for projects to be developed from January 2025 onwards, along with a low-carbon hydrogen certification scheme. These aspects are set out in detail below. On 27 September 2024, the Programme for the Development of Low Carbon Emission Hydrogen was introduced through Law 14990/2024, which is also addressed below.

Low-Carbon Hydrogen Law- Definitions, Certification and Regulatory Aspects

The legal framework for the regulation of the low-carbon hydrogen industry was introduced in August 2024, with the Low-Carbon Hydrogen Law. This law establishes three classifications for hydrogen based on the production process and greenhouse gas (“GHG”) emissions during its life cycle:

1. Low-Carbon Hydrogen: Hydrogen obtained through processes that result in GHG emissions of less than seven kilograms of carbon dioxide equivalent per kilogram of hydrogen produced (7kgCO₂eq/kgH₂).
2. Renewable Hydrogen: Low-carbon hydrogen produced using energy from renewable sources.
3. Green Hydrogen: Hydrogen produced by water electrolysis using energy from renewable sources.

The classifications introduced by the law distinguish themselves from those usually adopted in the market, which focus on the technology or raw materials used to produce hydrogen. By adopting the level of GHG emissions, the law will be able to maintain technological neutrality in the concession of benefits for the use and production of low-carbon hydrogen. For instance, hydrogen produced by steam methane reforming with CCUS will be entitled to benefits afforded to low-carbon hydrogen, provided the use of CCUS reduces the GHG below the threshold established by the law.

The law also establishes the Brazilian Hydrogen Certification System (“SBCH2”), to promote the sustainable use of hydrogen based on information contained in certificates to be issued to hydrogen and derivatives. The certificate will inform the GHG emission intensity in hydrogen production from the analysis of the life cycle by a certification company. The certification will be in accordance with the Brazilian Standard for Hydrogen Certification, which is still being developed by the regulatory authority and will provide mechanisms for interoperability and harmonisation with international standards. This will ensure the integration of Brazilian hydrogen into international markets. Submission to the SBCH2 will be voluntary.

The operational structure of the SBCH2 will comprise both state authorities and private entities. The competent authority will play a public policy role, and the regulatory authority will be responsible for the supervision and regulation of the SBCH2. A separate institution will be responsible for the accreditation of the certification companies, and for interfacing with the certification companies, records manager, the producers and consumers.

The National Agency of Petroleum, Natural Gas and Biofuels (“ANP”) will be the main regulatory body for the low-carbon hydrogen sector, responsible for authorising activities related to the exploration, production, storage, movement, and commercialisation of hydrogen and its derivatives.

Hydrogen production activities may only be carried out by companies or consortia of companies incorporated under Brazilian law, with headquarters and administration in Brazil, and which have obtained authorisation from the competent regulatory body.

The Brazilian Electricity Regulatory Agency (“ANEEL”), in turn, will be responsible for issuing declarations of public utility for areas necessary for the installation of transmission and distribution infrastructure exclusively serving low-carbon hydrogen production.

Tax and Financial Incentives for Low-Carbon Hydrogen Projects

The Low-Carbon Hydrogen Law has established two tax and financial incentives which will benefit projects for the production of low-carbon hydrogen and accessory projects. The first incentive scheme is the Special Incentive Regime for the Production of Low-Carbon Hydrogen (“Rehidro”), which will allow producers to qualify for the suspension of certain taxes on the acquisition and importation of goods and services for the implementation of low-carbon hydrogen projects.

It is expected that the regulations for qualification and co-qualification will be established by the executive branch by the end of 2024. These regulations will detail the criteria for: local content and minimum investment in research, development, and innovation. Such criteria are to be in line with the law's principles, such as the utilisation of existing infrastructure, promotion of research and development, preservation of national interest, enhancement of national economic strengths, expansion of the job market, value addition to national products, and promotion of the national supply chain for hydrogen production.

The tax benefit granted by Rehidro will be in force for a period of five years, starting on 1^st January 2025, and will operate as a suspension of the application of certain taxes over the acquisition or importation of goods and services. At the end of the benefit period, the project owner must confirm that the project has concluded, with the incorporation of those goods and services that have been acquired and imported. At this point, the tax suspension will be converted into an exemption. Failure to comply with this requirement may result in the retroactive application of the suspended taxes as well as the imposition of penalties.

Low-carbon hydrogen projects located in Exportation Processing Zones 4 , many of which are developing hydrogen hubs (see section “C” below), will be eligible for Rehidro without having to forgo existing benefits. Rehidro will also allow for co-qualification to extend these benefits to auxiliary projects, such as those related to the storage, transport, distribution, and commercialisation of hydrogen, as well as the generation of renewable energy and the production of biofuels for hydrogen production.

The second tax and financial incentive provided under the Low-Carbon Hydrogen Law is the possibility for projects benefiting from Rehidro to raise funds through the issuance of incentivised debentures, debt securities that offer more favourable tax rates on the income earned by individuals or legal entities.

Aside from the incentives provided by the Low-Carbon Hydrogen Law, projects can also benefit from the Low-Carbon Hydrogen Development Programme (“PHBC”), established by Law 14990/2024, passed on 27 September. The PHBC establishes a source of funds for granting tax credits amounting to R$18.3 billion from 2028 to 2032 and applies to the commercialisation of low-carbon hydrogen and its derivatives. Projects must meet at least one of the following criteria to benefit from the PHBC resources: (a) contribute to climate change mitigation and adaptation, (b) contribute to regional development, (c) promote technological development and dissemination, or (d) diversify the Brazilian industrial base. 

Development of Low-Carbon Hydrogen Industrial Complex

According to estimates by the EPE, currently Brazil has the potential to produce 18.9 million tonnes of low-carbon hydrogen each year 5 , with 11 million tonnes of such potential being concentrated in the Northeast region of Brazil. Two of the states in the Northeast region, Ceará and Pernambuco, will be home to two of four hydrogen hubs announced so far, with the third planned in the state of Rio de Janeiro and a fourth recently announced in the state of São Paulo. Low-carbon hydrogen hubs are geographical centres that encompass a chain of activities, including production, transportation, delivery, and end-use of hydrogen in various sectors. These hubs have been created with the aim of meeting internal or international demand for low-carbon hydrogen. Of those hydrogen hubs, the ones at the Pecém Industrial and Port Complex (CE), at the Port of Suape (PE) and at the Port of Açu (RJ) will be located within export processing zones (“ZPEs”). Companies operating in ZPEs in Brazil benefit from specific tax, exchange, and administrative incentives. Certain taxes and charges are either suspended or exempt for domestic purchases of goods and services, exports and in some cases income. Additionally, ZPE companies are generally exempt from requiring federal licences or authorisations, except in matters related to health, environmental protection, and national security.

Ceará, home to the Pecém Hydrogen Hub, has entered into over 30 partnership agreements as of August 2024. Projects include:

• a joint venture between Eneva, Siemens Energy, and Cegás to produce 30,000 tonnes of green hydrogen annually;
• a large-scale project by Fortescue aiming for 100,000 tonnes per year; and
• a project by TotalEnergies, EDP Renewables and Petrobras, to produce 20,000 tonnes per year by electrolysis using solar energy.

At the Suape Hub, located in Pernambuco:

• Quair Brasil will produce hydrogen by electrolysis using solar and wind energy;
• Voltalia will deploy a green hydrogen and derivatives facility, with expected production of 100,000 tonnes per year of green methanol; and
• Aker Solutions and Unigel are developing a project to produce green ammonia targeting the fertiliser industry.

In Rio de Janeiro, projects at the Açu Hub will include:

• a collaboration between Eletrobras and Prumo Logística to develop a green hydrogen plant;
• an initiative by Anglo American to produce green hydrogen for use in the mining sector; and
• the HyDeal project, focused on large-scale hydrogen for export.

Other states with large potential for the deployment of hydrogen projects include Piauí, with a 21.4 GW project pipeline and 23 signed MoUs, including the first contract for the supply of green hydrogen between CPFL Energia and cement producer Mizu Cimentos; and Bahia with a 14.3 GW project pipeline and planned development of a hydrogen hub at the Camaçari Port Industrial Complex. São Paulo will receive a 5 MW electrolyser plant developed by Linde to supply green hydrogen for glass manufacturing, with operations expected to begin by 2025; a “power-to-x” hub at the Cubatão Port in a partnership between Brazil and Germany, and will be home to various research and development initiatives in partnership with the University of São Paulo and University of Campinas.

Finally, Petrobras is actively investing in CCUS technologies as part of its broader strategy to reduce carbon emissions in its hydrogen production processes. One of the significant initiatives involves the deployment of CCUS technologies at the Presidente Bernardes Refinery in Cubatão, São Paulo. This project aims to capture and store up to 1 million tonnes of CO2 per year. Another project is the integration of CCUS in the REPAR refinery in Paraná. Petrobras has committed to investing R$ 3.2 billion in the refinery's modernisation, which includes implementing CCUS to capture emissions from its hydrogen production units. This investment is part of a broader R$ 60 billion plan to enhance refining capabilities while focusing on sustainability and emissions reduction.