Bill No. 2.308/2023 – Hydrogen Legal Framework

Law No. 14,948, of August 2, 2024, known as the Low Carbon Hydrogen Legal Framework, was published and came into force on August 2, 2024.

Brazil has great potential for the production of low-carbon hydrogen due to the strong presence of renewable sources in its energy matrix. The Legal Framework is expected to establish essential legal parameters for hydrogen production in the country and unlock investment in various projects. The measure creates opportunities for meeting decarbonization targets and developing an emerging sector, stimulating the domestic market and positioning Brazil at the forefront of exporting hydrogen and its derivatives.

The main points addressed in the law are:

1. Creation of the National Low-Carbon Hydrogen Policy;
2. Definitions of “Low-Carbon Hydrogen”, “Renewable Hydrogen” and “Green Hydrogen”;
3. Designation of the National Agency for Petroleum, Natural Gas and Biofuels (ANP) as the regulatory authority;
4. Creation of the Special Incentive Regime for Low-Carbon Hydrogen Production (REHIDRO); and
5. Creation of the Brazilian Hydrogen Certification System (SBH2).

 

National Low-Carbon Hydrogen Policy

The National Low Carbon Hydrogen Policy has several objectives, including the promotion of different low carbon hydrogen production routes and the protection of consumer interests in relation to the price, quality and availability of this hydrogen. In addition, it seeks to reduce greenhouse gas (GHG) emissions, stimulate free competition and encourage initiatives aimed at producing low-carbon hydrogen and its derivatives. The policy also aims to promote research and development in the use of this type of hydrogen and encourage the formation of public-private partnerships for the development of projects.

1. Technological neutrality in the formulation of incentives for the production and use of low-carbon hydrogen.
2. Competitive inclusion of low-carbon hydrogen in the energy matrix to promote decarbonization.
3. Previsibility in formulating regulations and granting incentives for market growth.
4. Rational use of existing infrastructure dedicated to energy supply.
5. Encouraging research and development in the use of low-carbon hydrogen.

The technical and economic foundations of the policy will be defined by the National Energy Policy Council (CNPE), while its implementation will be carried out by federal, state and municipal authorities.

The law creates the National Hydrogen Program Management Committee (Coges-PNH2), which will establish guidelines for implementing the policy, in addition to other duties defined by the CNPE and the law. Coges-PNH2 will be made up of representatives from the states, the Federal District and the productive sector, as well as representatives from the scientific community.

Definition of Hydrogen

An important point of the law is the definition of three different types of hydrogen, as follows:

• Low carbon emission hydrogen: hydrogen fuel or industrial input obtained from various production process sources and with an initial GHG emission value, according to life cycle analysis, of less than or equal to 7 kgCO2eq/kgH2;
• Renewable hydrogen: low-carbon hydrogen, collected as natural hydrogen or obtained from renewable sources, including biofuels or by electrolysis of water using renewable energy, such as solar, wind, hydraulic, biomass, ethanol, biogas, biomethane, landfill gas, geothermal and others to be defined by the government.
• Green hydrogen: hydrogen produced by electrolysis of water using the renewable energy sources mentioned above and others that may become recognized as renewable.

The limit of 7 kgCO2eq/kgH2 provided for in the definition of low-carbon hydrogen will be maintained until December 31, 2030, when it may be revised by regulation. The limit allows flexibility for new projects in the domestic market, but market players will have to pay attention to lower limits if they want to conform to international standards.

The different definitions and types of hydrogen allow the creation of public policies and incentives targeted and designed for each type of hydrogen.

ANP as the competent authority to regulate

The ANP will be the competent body to regulate, authorize and supervise hydrogen production in Brazil, including the exploration and production of Natural Hydrogen.

According to the law, the activity of producing hydrogen, its derivatives and carriers must be carried out by a company or consortium incorporated under Brazilian law, with headquarters and administration in the country, subject to obtaining authorization from the National Petroleum, Natural Gas and Biofuels Agency (ANP). The ANP’s regulation of the law will determine the cases in which authorization may be waived, considering production volumes and the use of hydrogen as an input.

The activities of loading, processing, treating, importing, exporting, storing, packaging, transporting, transferring, reselling and marketing hydrogen, its derivatives and carriers will also be subject to ANP authorization. Agents authorized to produce hydrogen will have priority in requests for authorization to carry out other activities.

A highlight of the law is the possibility of using a regulatory sandbox and the adoption of individual solutions to regulate the sector.

Other regulatory agencies

The law amends Law No. 9,427/1996 giving powers to National Electric Energy Agency (ANEEL) to provide inputs to the ANP on low-carbon hydrogen production. In addition, ANEEL is authorized to issue Public Utility Declarations (DUP) for electricity transmission and distribution facilities of restricted interest, intended for the exclusive supply of low-carbon hydrogen production projects.

Brazilian Hydrogen Certification System

One of the highlights is the certification of the origin of hydrogen, which is considered a key aspect in making certain production routes viable and valuable. To this end, the law creates the Brazilian Hydrogen Certification System (SBCH2), which is voluntary for producers of hydrogen and its derivatives produced in the country. In the case of imported hydrogen, the regulation will deal with recognizing the certification adopted in the territory of origin.

The certification will be based on criteria to be established in the regulation, which will contain, among others, (i) the definition of the chain of custody model, (ii) the scope of the GHG emissions considered, (iii) the boundaries of the certification system, (iv) the certifiable units to be reported, and (v) the criteria for suspension and cancellation of certificates.

Hydrogen certification will be based on the intensity of GHG emissions related to the hydrogen chain produced in the national territory, based on life cycle analysis. The certificates must safeguard environmental integrity, ensuring that there is no double counting.

The ANP should create mechanisms for interoperability and harmonization of international certification standards.

The certification system will include the following players:

1. Competent authority: will establish the public policy guidelines related to hydrogen certification in the national territory.
2. Regulatory authority: will supervise the SBCH2, being able to define regulations, standards and requirements for certification, responsibilities of accredited certification companies, supervise the movement of hydrogen and accredited certification companies, define and apply administrative sanctions.
3. Accrediting institution: will establish the procedures and carry out the accreditation of certifying companies, audit the certificates issued, among others.
4. Certifying company: a private institution that meets the requirements established by the regulatory authority, accredited by the accrediting institution and responsible for assessing the conformity of the hydrogen produced with the established standards.
5. Registration manager: will manage the national database of hydrogen certificate registrations, as well as registering, storing, accounting for and making available information on the certificates issued for auditing purposes.
6. Hydrogen producer: economic agent authorized to carry out the activity of hydrogen production in Brazil.
7. Hydrogen buyer: consumer of the hydrogen produced in Brazil that will be subject of the certification process.

Rehidro

Beneficiaries of the Special Incentive Regime for Low Carbon Emission Hydrogen Production (Rehidro) will have PIS/Cofins and PIS/Cofins-Import suspended for a period of 5 years from January 1, 2025, on local purchases and imports of new machinery, apparatus, instruments and equipment, and construction materials and services for use or incorporation in infrastructure works associated with hydrogen projects.

The requirements for qualification will be regulated by the Executive Power but will include (i) qualification for low-carbon hydrogen production; (ii) a minimum percentage of local content in the production process; and (iii) a minimum investment in research, development and innovation (RD&I).

Legal entities that (i) engage in the packaging, storage, transportation, distribution or commercialization of low-carbon hydrogen; (ii) generate renewable electricity or produce biofuels (ethanol, biogas or biomethane) for the production of low-carbon hydrogen may also qualify for Rehidro.

Important: It will be possible the cumulation of Rehidro with other benefits such as Export Processing Zones and the issuance of incentivized debentures (art. 2 of Law No. 12.431/2011) for (i) raising funds for the implementation or expansion of projects for the production, packaging, storage, transportation, distribution or commercialization of low-carbon hydrogen; and (ii) projects for the generation of renewable electricity or the production of biofuels for use in the low-carbon hydrogen chain.

The benefits of Rehidro are similar to those of Reidi, but there are two main differences between them: (i) Rehidro has minimum local content obligations and investments in RD&I, which Reidi does not have; and (ii) Reidi is generally restricted to the owner of the project’s infrastructure, while in the case of Rehidro the benefit can be extended to other agents in the chain.