Brazil finds itself at a pivotal crossroads in its pursuit of a low-carbon hydrogen industry. The recent proposals for a legal framework for hydrogen in the National Congress have sparked a nationwide debate on the future of this clean energy source in the country. Central to this discourse is the need for incentives and subsidies, and their source, to develop a thriving low-carbon hydrogen industry in Brazil.
As of now, two prominent proposals are under discussion in Congress, each emanating from a different legislative body – the Chamber and the Senate. Both proposals focus on key aspects, including the conceptual definition of low-carbon hydrogen and fiscal and regulatory incentives for its production. This entails considering various pathways to produce hydrogen, from renewable sources to fossil sources with carbon capture.
The crux of the issue lies in how to fund these incentives, and a significant concern pertains to the allocation of charges that might potentially burden consumers. When green hydrogen, produced via electrolysis, requires an amount of energy equivalent to 60% to 70% of its production cost, the key challenge becomes ensuring that the energy reaches the electrolyzer at an affordable cost.
The issue of charging consumers, particularly those in the middle-income bracket, to subsidize large-scale hydrogen projects has already raised concerns. And even as Brazil produces cost-effective energy, the expense of consuming that energy hampers the competitiveness of its green hydrogen.
At the federal level, there is no explicit discussion of subsidies, even as some states, such as Bahia, are moving ahead with tax exemption policies. These policies are a strong indicator of the eagerness among local governments to foster the hydrogen industry.
Another concern is the tax burden on hydrogen, which is also a part of the broader tax reform agenda. There is a push for greater clarity on demand incentives to provide more security for hydrogen producers’ investments.
The International Energy Agency (IEA) has recommended the establishment of mandatory mandates for hydrogen use, such as targets for its use in the production of green fertilizers. This could help drive demand for low-carbon hydrogen, thereby ensuring a more secure market for producers.
Meanwhile, Brazil’s government has embraced the carbon market approach through the creation of a Brazilian Emissions Trading System (SBCE) that follows a cap-and-trade model. This system sets emission limits for sectors like transport and industry. Those who emit less than their limit generate credits, while those exceeding it must purchase credits. It’s a form of rewarding consumer industries for reducing their carbon emissions.
However, there’s still a great deal of work to be done in terms of infrastructure. Incentives will be essential for adapting ports and developing high-capacity transmission lines for renewable energy. The entire logistics network for transporting hydrogen and its derivatives needs significant investment.
While Brazil might not have the resources to match subsidies seen in regions like the United States or Europe, it boasts unique advantages. Abundant renewable energy, a well-connected national grid, extensive biomass resources, and a substantial industrial base all position Brazil as a formidable player in the emerging low-carbon hydrogen industry. Therefore, the focus must be on crafting balanced incentives that leverage these competitive advantages and unleash the potential of new, technologically advanced industrial chains that generate jobs and income.
In a world transitioning to cleaner energy sources, Brazil stands at the precipice of an exciting journey towards a sustainable, low-carbon hydrogen future.