Brazil’s House of Representatives Approves “Green Hydrogen” Bill

On November 28, 2023, the Brazilian House of Representatives approved an amended version of  Bill No. 2,308/2023, which also contemplates aspects of Bill No. 3,452/2023 and Bill No. 4,907/2023. The approved bill seeks to establish a legal framework for low-carbon emission hydrogen in the country.

The amended bill is a result of work carried out by a special House Committee that was set up to analyze and develop measures related to renewable sources and the green energy transition. The bill seeks to provide the legal certainty and regulatory stability needed to attract investment and boost the development of a low-carbon emission hydrogen industry in Brazil.

A subsidy package that had initially been proposed was removed from the amended text. On the other hand, federal tax exemptions linked to the Special Tax Incentive Regime for Low-Carbon Hydrogen (Rehidro) remain, as outlined in further detail below.

In the following sections, Mattos Filho’s experts highlight key aspects of the bill approved in the House of Representatives, which is now set to be sent to the Senate for further review.

Legal Concepts of Low Carbon Hydrogen and Renewable Hydrogen

The current version of the bill contains a series of relevant definitions for the hydrogen industry. The following are particularly important:

• Low-Carbon Hydrogen (Article 4, item XII): Hydrogen fuel or industrial feedstock collected or obtained from different production routes that lead to greenhouse gas (GHG) emissions with an initial value (according to an analysis of the life cycle) of no more than four kilograms of carbon dioxide equivalent per kilogram of hydrogen produced, (4 kgCO2eq/kgH2);
• Renewable Hydrogen (Article 4, item XIII): Hydrogen fuel or industrial feedstock collected or obtained from renewable sources – including solar, wind, hydraulic, biomass, biogas, biomethane, landfill gas, geothermal, tidal and oceanic sources; and
• The definition of the emissions scale referred to in item XII above must remain the same until December 31, 2030, and then decrease after this date (Article 4, paragraph 1).

The ANP’s duties and the National Hydrogen Program

Articles 11 and 13 of the new bill provide that the Brazilian Agency for Petroleum, Natural Gas and Biofuels (ANP) will be in charge of regulating, authorizing and supervising the exploitation and production of low-carbon hydrogen, renewable hydrogen and natural hydrogen.

The ANP will also be responsible for regulating other hydrogen-related activities, such as loading, processing, treatment, import, export, storage, packaging, transportation, transfer, sale and resale of hydrogen.

The bill also establishes new duties for the National Hydrogen Program (PNH2) and its steering committee (Coges-PNH2), which is one of the bodies responsible for coordinating and rolling out Brazil’s Low-Carbon Hydrogen Policy.

Low-Carbon Hydrogen Development Program

The new bill provides for creating the Low-Carbon Hydrogen Development Program (PHBC) to incentivize development within the hydrogen industry. The program will provide economic incentives for sales of low-carbon hydrogen (and its byproducts) produced on Brazilian territory. According to Article 32 of the approved bill, a competitive bidding process will precede these incentives, which Coges-PNH2 will be required to propose to the Brazilian Energy Policy Council (CNPE).

Brazilian Hydrogen Certification System

The bill provides for establishing a Brazilian hydrogen certification system. The objective is to promote sustainable hydrogen use through a certification process that guarantees stable emissions and safety in the hydrogen production chain.

Tax benefits

The bill establishes the Special Tax Incentive Regime for Low-Carbon Hydrogen (Rehidro). Companies that engage in hydrogen production, renewable electricity generation for hydrogen production, as well as hydrogen packaging, storage, transportation, distribution or commercialization may qualify for the regime.

Essentially, Rehidro aims to apply the same tax benefits existing in the Special Incentive Regime for Infrastructure Development (REIDI) to its beneficiaries. Rehidro also permits beneficiaries to issue incentivized debentures. Furthermore, companies operating in (and benefiting from) Export Processing Zones in Brazil are permitted to take advantage of Rehidro’s incentives.

The bill states that regulation will be required to define cases in which water, electricity, natural gas and inputs used in the production process are considered raw materials for hydrogen production. Once clarified, this should provide companies with greater legal certainty in using hydrogen-related tax incentives.

For more information on this topic, please contact Mattos Filho’s Energy Transition and Tax practice area.