Brazil sets incentives for H2 industry, lacks direction

30 Nov 23 – 17:22 – Argus Media

London, 30 November (Argus) – Lawmakers in Brazil’s chamber of deputies have approved a bill to
regulate the nascent hydrogen sector, launching an incentive programme for producers, but failing
to give concrete directions for the industry to move forward.

The bill will now go to the Senate, a move that implies there could be some way to go before the
hydrogen industry gets real clarity about how much support it can expect from the Brazilian
government.

While the bill lays the groundwork for a hydrogen-specific incentive scheme in the future, there
has been little agreement on what it will look like.

Policy makers agreed on the creation of a “special incentive regime” for the production of low
emissions hydrogen. Under this set up, producers will be able to benefit from exemptions from
some federal taxes for up to five years — an incentive already granted to infrastructure ventures.
To be eligible, projects will have to meet a local content quota, and an exports ceiling, both of
which are yet to be decided. It is not clear how these factors will be evaluated or if there will be
exceptions.

According to the bill’s rapporteur, congressman Joao Carlos Bacelar, the poor incentives resulted
from the lack of agreement between lawmakers and the government’s economic arm regarding
how much fiscal room to give to the hydrogen industry. “Government policy is to increasingly
reduce tax incentives,” Bacelar said, adding that the parties agreed to continue the conversation.

After weeks of debates with businesses and researchers, the final draft is a much shortened
version of what it could have been, had it included suggestions from industry. Discussions revolved
around the inclusion of several incentive measures, ranging from mandates for hydrogen blending
in gas pipelines to reduced electricity fees for renewable hydrogen producers.

The latter measure has already been adopted by some jurisdictions around the world such as India
and Australia’s New South Wales, in an acknowledgement from authorities that power is a costly
element in the production of renewable hydrogen.

The Brazilian bill does not include hydrogen-specific stimulus measures or demand-side policies,
which industry participants have long said are needed to allow the domestic market to grow.

Industry participants “trust in the future improvement of the bill,” Brazil’s green hydrogen industry
association (ABIHV) said, calling for more regulatory and financial incentives to be amended.

According to a study by ABIHV, the measures necessary to kick off the hydrogen industry in Brazil
represent “less than 10pc” of the revenue that hydrogen projects could bring to the authorities.
The Brazilian government could receive 72bn Brazilian reals ($14.6bn) in revenue from the
hydrogen industry and value chain by 2030, ABIHV said. In the long run, this can reach up to
R769bn. A legal framework “without concrete incentives” will push these investments away, it
said.

The bill also establishes the creation of a Brazilian Hydrogen Certification System (SBCH2), which
will set the standards for certifying hydrogen based on its emissions intensity. The classification
follows previous proposals in which lawmakers defined low carbon hydrogen as having the carbon
intensity of up to 4kg of CO2 equivalent per kg of hydrogen. This intensity will be accepted as low
emissions until the end of 2030. From then, intensity “must be regressive”, the bill said, suggesting
that emissions standards will become stricter from 2031.

The hydrogen bill is part of a “green economy” package of regulatory frameworks the Brazilian
government wanted to sign ahead of the start of the Cop UN Climate Summit in Dubai today. The
package also includes the framework for carbon markets, carbon capture and storage and
offshore wind, among others.

By Pamela Machado

https://www.argusmedia.com/en/news/2515656-incentives-might-return-to-brazils-h2-bill