Brazil’s fledgling green hydrogen sector advanced in 2024. In August, the government established a new legal framework for low-carbon hydrogen and then shortly afterwards followed up with a new tax incentive programme to spur investment. By December, the government had received 70 proposals for low-carbon hydrogen hub projects.

This year, the government looks set to continue its decarbonisation push. In January, Brazilian President Luiz Inacio Lula da Silva approved the Energy Transition Acceleration Programme (PATEN), a strategic initiative launched to financially support a variety of clean technologies, including green hydrogen.  

“The Brazilian northeast is a hotspot for green hydrogen projects” Stefanelo, Demarest Advogados

“PATEN aims to promote the financing of sustainable development projects, especially those related to infrastructure, research and the development of technological innovation,” said Marcos Ludwig, a partner at Brazilian law firm Veirano Advogados. “Among the 11 areas the law defines as ‘priority sectors’ are the development of technologies and production of fuels that reduce greenhouse gas emissions, including ‘low-carbon hydrogen or green hydrogen and its derivatives’.”

Green enough?

Last year, the newly approved legal framework for hydrogen defined low-carbon hydrogen as being equal to or lower than 7kg CO₂e/kg of hydrogen produced. The original version of the bill defined low-carbon hydrogen as equivalent or less than 4kg CO₂e/kg of hydrogen, but the threshold was raised with the justification of including hydrogen produced from biofuels.

This amendment is controversial as it will likely result in hydrogen produced from natural gas being classified as low carbon. Grey hydrogen typically emits 10–12kg CO₂e/kg of hydrogen, but when coupled with CCS this figure could be reduced to below the 7kg CO₂e/kg threshold.  

Low-carbon advocacy groups the Clean Energy Coalition and the Climate Observatory pointed out the new limit was much higher than allowed in the EU, the US or China. By contrast, the EU set its ceiling at 3.384kg CO₂e/kg of hydrogen. Research from a university in Brazil also found hydrogen could be produced from the steam reforming of ethanol at 2.27kg CO₂e/kg of hydrogen.  

The bill’s alteration might have been controversial, but the new framework was at least seen as an important step towards derisking the sector. “Federal Law 14,948/24, which established the National Policy for Low-Carbon Hydrogen, offers guidelines to develop the hydrogen production chain,” said Fernanda Stefanelo, a partner at Brazilian law firm Demarest Advogados. “It aims to integrate low-carbon hydrogen into Brazil's energy matrix to support decarbonisation, promote technological neutrality in incentives for production and use, expand the market, make rational use of existing energy supply infrastructure and invest in [both] research and the development of production technologies.”

Regulator the National Agency for Petroleum, Natural Gas and Biofuels (ANP) was also given authority to regulate, authorise and supervise activities involving hydrogen, its derivatives and carriers. From a tax perspective, the new regulation also established the Special Incentive Regime for Low Carbon Hydrogen Production, which the government hopes will foster technological and industrial development, competitiveness and value addition in the national production chain through suspension of certain taxes.

“In September, Law No. 14,990/2024 complemented Brazil’s National Policy of Low-Carbon Hydrogen with the introduction of an additional tax incentive programme, PHBC, subject to a competitive auction with terms still to be regulated,” said Ludwig. “The Brazilian government will define the amount of the tax credits available in each calendar year, subject to an annual cap set forth in the law, amounting to up to BRL18.3b [c.$3.1b] over the course of the five years.”

Credits can cover up to 100% of the price difference between low-carbon hydrogen and its substitutes, depending on emission intensity. To be eligible, projects must contribute to regional development, climate change mitigation, technological innovation and industrial diversification. “Such credits can be used to offset tax debts or be reimbursed in cash, providing a significant financial incentive for companies to invest in green hydrogen in Brazil,” continued Stefanelo.

Gaining momentum

The low-carbon hydrogen sector is not entirely starting from zero either. In January, Brazil’s ministry of mines and energy said registered hydrogen projects will generate 27.7GW of additional domestic renewable energy. The northern state of Ceara, in particular, stands out, with 33 memorandums of understanding already inked and 15GW of potential renewable energy on the way.

“The Brazilian northeast is a hotspot for green hydrogen projects, with substantial investments already underway from foreign countries,” said Stefanelo. “Brazil's competitive edge lies in its ability to produce green hydrogen at a lower cost due to its abundant renewable resources.”

The government identified the Hydrogen Hub in the Pecem Complex, a world-class offshore terminal in Ceara, as one the country’s brightest prospects. The venture has the potential to produce up to 300,000t/yr of low-carbon hydrogen.

70 – Hub proposals

In early February, the government also approved Australia-based Fortescue’s green hydrogen project at the Port Complex of Pecem. The project aims to build out 168,000t/yr of green hydrogen, based on the consumption of 2.1GW of renewable energy.

A month previously, the governor of Ceara met the CEO of the Port of Rotterdam to strengthen links with Europe’s largest seaport. Last year, the state authorities attracted $135m in investment to modernise and expand the Port of Pecem.

Overcoming barriers

The northeast is particularly attractive because of its enormous renewable energy potential but is also among Brazil’s most socioeconomically deprived areas and far less populous than the industrial south. Expansion and modernisation of transmission and distribution networks will be key to transporting supplies to larger consumer centres. The same is true of energy storage infrastructure to help stabilise the grid during high demand and low generation.

In March, the Ceara state authorities announced 1,991km of new electricity lines auctioned in the state for more than BRL$579m. Construction will attract more than BRL$5b in investment. In September, the Brazilian government also published plans to hold another domestic electricity transmission auction in 2025, followed by a further two in 2026.

“There are some technical and economic challenges to the effective development of green hydrogen projects in Brazil, in addition to the regulatory ones, which were already preliminary addressed by Federal Laws 14,990/24 and 14,948/24,” noted Stefanelo. “According to the second edition of the study Sustainable Hydrogen – Perspectives for Development and Potential for the Brazilian Industry, published in August by the National Confederation of Industry, one of the challenges is the lack of a mature ecosystem of equipment suppliers, technological partners and investors who can support decision-making for new investments.”

Another issue is lack of skilled human resources at the operational, engineering and technology levels. Brazil will no doubt be forced, at least for some time, to depend on international suppliers. “Furthermore, considering the current cost scenario for hydrogen production and the massive subsidies being implemented by European and US governments, there will be increased competition for green hydrogen projects aimed at export,” cautioned Stefanelo.

An August report from the World Economic Forum found that, if everything goes to plan, Brazil could be supplying 10% of the world’s clean hydrogen supply by mid-century. That share translates to 21-32mt/yr in production and 4mt/yr of exports but will require slashing the levelised cost of production from $2.87–3.56/kg today to c.$1.2/kg.

Brazil has already attracted €2b ($2.07b) in investment from the EU and has at least now started putting public policies in place to help strengthen the sector. The next stage will be about increasing domestic demand to help lower those production costs as well as improve the competitiveness of clean hydrogen, both domestically as well as internationally.

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Author: Marat Aslan