Alerts
- 16 August 2024
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Low Carbon Hydrogen Law Approved
On August 2nd, 2024, it was published the Law no. 14,948 (“Law“), which establishes the legal framework for lowcarbon hydrogen.
The provisions of the Law can be divided in three main groups. The first group encompasses the provisions that design the pillars for the regulatory framework for low carbon hydrogen. The second group targets the development of public policies and the governance structure to implement such policies. The third is related to tax incentives to promote the low-carbon hydrogen industry.
Below is a summary of the main points of the Law prepared by our professionals.
Regulatory Framework
ANP’s Competence: ANP is the regulatory agency responsible for regulating the activities of production, loading, packaging, transportation, transfer, resale and marketing of hydrogen, its by-products and carriers.
Authorization regime: The production of hydrogen, its by-products and carriers will be carried out by companies or consortia of companies incorporated under Brazilian law, with headquarters and administration in the country, which have obtained authorization from ANP, without prejudice of other applicable authorizations.
Definition of “Low Carbon Hydrogen”: The Law stablished that “Low carbon Hydrogen” is that fuel or industrial input hydrogen obtained or collected from various sources and that, in its production process, according to life cycle analysis, it has GHG emissions levels with an initial value of less than or equal to 7 kgCO2eq/kgH2. The Law adopted the principle of technological neutrality and did not restrict any production route, in line with the objective of encouraging the various production methodologies and valuing the multiple alternatives that exist in the country.
Definition of “Renewable Hydrogen”: “Renewable Hydrogen” is that Low Carbon Hydrogen, used as fuel or industrial input, collected as natural hydrogen or obtained from renewable sources, including that hydrogen produced from biomass, ethanol and other biofuels, as well as electrolytic hydrogen, produced by electrolysis of water, using renewable energies such as solar, wind, hydraulic, biomass, ethanol, biogas, biomethane, landfill gas, geothermal and others to be defined by the government.
Definition of “Green Hydrogen”: “Green Hydrogen” is the hydrogen produced by means of electrolysis of water, using renewable energy sources.
Public Policy and Governance
National Low Carbon Hydrogen Policy. The Law lays the foundations for structuring the National Low Carbon Hydrogen Policy, which aims to promote the development of the low carbon hydrogen industry and enhance its role as a driver for the energy transition. The Policy includes instruments such as the National Hydrogen Program (PNH2), the creation of the Low Carbon Hydrogen Development Program (PHBC) and the Brazilian Hydrogen Certification System (SBCH2). These measures should contribute to the definition of efficient public policies and boost the long-term development of the industry.
Brazilian Hydrogen Certification System (SBCH2). The aim of SBCH2 is to promote the sustainable use of hydrogen based on the information contained in a certificate issued by a certifying company. The certification adoption will be voluntary for producers and will aim to inform interested parties of the intensity of GHG emissions related to the hydrogen production chain, based on the analysis of the hydrogen life cycle. It is expected, however, that the players of the industry will adhere to certification, considering that the benefit of certifying low-carbon hydrogen is to give greater traceability and credibility to its environmental attributes. In this sense, it is possible that governmental incentives and subsidies, financiers and consumers will demand certification.
Hydrogen certification. Certification will adopt the intensity of GHG emissions related to hydrogen produced in the national territory, based on life cycle analysis, ensuring that there is no double counting. The hydrogen certificate will follow the benchmark established in the PBCH2 and will contain at least: (a) the chain of custody model that will be adopted; (b) the scope of GHG emissions; (c) the boundaries of the certification system; (d) the certifiable units that will be reported; (e) the criteria for suspending hydrogen certificates issued; (f) the criteria for canceling certificates; (g) the flexibility instruments that may be adopted in cases of temporary loss of hydrogen specification; and (h) information on negative emissions in the production process, where applicable.
Tax Incentives
REHIDRO. The Law established the Special Incentive Regime for Low Carbon Hydrogen Production (REHIDRO). It is an incentive similar to the existing Special Incentive Regime for Infrastructure Development (Regime Especial de Incentivos para o Desenvolvimento da Infraestrutura – REIDI), granting benefits of suspension of PIS and COFINS on (a) the sale or import of new machinery, apparatus, instruments and equipment, and construction materials for use or incorporation into infrastructure works intended for fixed assets; and (b) the sale or import of services intended for infrastructure works for incorporation into fixed assets.
Incentivized Debentures. The Law also extended to REHIDRO beneficiaries the possibility of issuing incentivized debentures as provided for in Law 12.431/2011
Export Processing Zones. Companies established in Export Processing Zones (ZPEs) may join REHIDRO, without prejudice to the benefits established in Law 11.508/2007.
Tax credits. It is worth noting that the bill of law approved by Brazilian Congress provided for the granting of tax credits in the sale of low-carbon hydrogen and its derivatives produced in Brazil, provided that the projects for this purpose meet at least one of the following requirements: (i) contribution to regional development; (ii) contribution to climate change mitigation and adaptation measures; (iii) stimulus to technological development and dissemination; and (iv) contribution to the diversification of the Brazilian industrial park. However, these provisions were vetoed based on technical grounds and it was agreed to address such issues on a new bill of law, which is already being discussed in the Congress under more expedited regime. Therefore, it is expected that such tax credits will be approved soon.
Next steps
The approval of the Low Carbon Hydrogen Law was the most awaited milestone for the development of low-carbon hydrogen projects in Brazil, since the country already has several competitive advantages to be one of the most relevant jurisdiction for this new industry.
It is moment to celebrate this achievement and take advantage of the momentum to continue advancing in the next steps, specially the following: (i) the approval of a new law regulating tax credits and the Low Carbon Hydrogen Development Program (PHBC); (ii) the approval of the decree regulating the law, which will be an opportunity to clarify and detail some of legal provisions; and (iii) preparing ANP’s structure and personnel to carry out its new regulatory competence and the subsequent issuance of the applicable regulation.
Lefosse Advogados’ Oil and Gas team closely follows the issues that move the sector and is available to assist interested agents in this and other matters.
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