Regulatory Perspectives for Hydrogen in Brazil

Authors: Marcelo Frazão[1] and Maria Beatriz[2]

 

Climate change is a global concern. Cooperation and innovative solutions at a global level are fundamental to face the alarming environmental challenges. Hydrogen’s unique properties make it a powerful enabler for the energy transition, with benefits to energy systems and end-use applications.

Hydrogen also provides for a wide range of investment opportunities, which vary based on several aspects such as hydrogen sources. The energy sector classifies hydrogen according to the generation process and the energy origin used in that process. There are multiple classifications, including blue and green hydrogen.

The term ‘blue hydrogen’ refers to hydrogen produced through natural gas steam methane reforming, in combination with carbon capture and storage (CCS). The term ‘green hydrogen’ describes hydrogen produced through the electrolysis of water, using only renewable energy sources.

Brazil is already a leading country when it comes to a diversified matrix of sustainable energy sources. Brazil’s favorable geographical and climate conditions place the country at the front row for green hydrogen projects. In addition, the expertise of O&G companies in Brazil and the infrastructure associated with O&G production and transportation are an attractive factor for blue hydrogen projects.

As the hydrogen color scale grows, the Brazilian government continues to study opportunities for the hydrogen market. In July 2021, the Ministry of Mines and Energy published the National Hydrogen Program reaffirming the interest in investing in hydrogen, as a national priority.

From a legal perspective, Bill of Law No. 752/2022 (“Bill”) is currently under discussion in the Brazilian Senate. It aims at establishing rules and incentives for hydrogen produced with the use of renewable energy sources.

The Bill establishes that the National Petroleum Agency (“ANP”) shall be the governmental authority responsible to regulate the hydrogen chain. This is an important regulatory approach considering the multiple sources involved in the production of hydrogen. Nevertheless, other governmental agencies will certainly contribute to the regulation of the market, such as the National Electricity Agency – ANEEL and the National Water Agency – ANA.

The Bill sets minimum percentages of capacity at entry or exit points of transport pipelines that must be allocated for hydrogen: (i) 5% as of January 1, 2032, with 60% of this volume from renewable resources; and (ii) 10% as of January 1, 2050, with 80% of this volume from renewable resources.

What the Bill does not establish is a guideline for green hydrogen certification, which could be a challenge in practice. It may be necessary to develop a certification mechanism to guarantee not only the use of renewable energy in the production process but also throughout its supply chain.

Among the discussions for the implementation of projects in Brazil, Açu Port (Rio de Janeiro), Suape Port (Pernambuco) and Pecém Port (Ceará) already signed MoUs with private companies for the creation of three green hydrogen hubs. The market seems to be gaining traction in Brazil and significant opportunities should arise for players involved in the hydrogen chain.

[1] Partner and Co-head of the Energy and Natural Resources Sector at Campos Mello Advogados in cooperation with DLA Piper.

[2] Associate of the Energy and Natural Resources Sector at Campos Mello Advogados in cooperation with DLA Piper.