Regulatory perspectives for hydrogen in Brazil

As climate change concerns increase in Latin America and beyond, governments and businesses alike are pursuing innovative technological and industrial approaches in hopes of achieving the transition to net zero.  Some of the world’s greatest hopes are being pinned on hydrogen fuels. Dubbed an “energy superstar” by the Clean Hydrogen Future Coalition, hydrogen fuels are being seen as potentially bringing enormous environmental benefits.  The most abundant element in the universe, hydrogen is being cast as the “miracle fuel” that will run ships, power factories, heat and cool buildings, and fly planes without loading the atmosphere with CO₂.  Business and investors are taking note.

In this issue of Panorama, we look at green and blue hydrogen and examine key legal developments around those fuels in the Brazilian market.

Classifications of hydrogen

The energy sector describes hydrogen fuels by color, based on how the fuel was created. Among these classifications are blue hydrogen and green hydrogen.

”Blue hydrogen” is an industry term for hydrogen produced from natural gas, using a process called steam reforming; because CO₂ is a byproduct of the process, carbon capture and storage is essential to this process. “Green hydrogen” is produced by splitting water atoms through electrolysis, using only renewable energy sources. The oxygen in this process can be vented into the atmosphere.

Hydrogen in Brazil

Brazil’s favorable geographical and climate conditions place the country at the forefront of green hydrogen projects. Brazil already leverages a diversified matrix of sustainable energy sources, which shall continue to expand in the upcoming years. The abundance of Brazilian oil and gas (O&G) companies, combined with the infrastructure associated with O&G production and transportation, is an attractive factor for blue hydrogen projects as well.

In this context, the Energy Research Company (EPE) has already issued a Technical Note on Blue Hydrogen to establish the basis of production of blue hydrogen in Brazil. The Technical Note on Green Hydrogen is currently under elaboration.

As the hydrogen color scale grows (and the energy sector already recognizes such variations as pink hydrogen, turquoise hydrogen and gray hydrogen), the Brazilian government continues to research opportunities within the market with the goal of expanding Brazil’s hydrogen fuel capabilities.  Most recently, in July 2021, the Ministry of Mines and Energy published the National Hydrogen Program, reaffirming the country’s interest in investing in hydrogen as a national priority.

Bill of Law No. 725/2022 and other regulatory actions

Bill of Law No. 725/2022 aims to establish rules and incentives for hydrogen produced using renewable energy sources.  It is currently under discussion in the Brazilian Senate.

If the bill is signed into law, the National Petroleum Agency (ANP) would become responsible for regulating, authorizing and inspecting the activities of the hydrogen chain. The measure would be a significant regulatory step forward, considering the multiple sources involved in the production of hydrogen.

Further, the Bill would set the following minimum percentages for allocation of hydrogen at transport pipelines entry or exit points: (i) 5 percent as of January 1, 2032, with 60 percent of that volume sourced from renewable resources; and (ii) 10 percent as of January 1, 2050, with 80 percent of that volume sourced from renewable resources. This allocation aims to promote the transportation and use of hydrogen, which – when found as gas – would have the same regulatory treatment as natural gas.

Whether or not this legislation is put in place, other governmental agencies, such as the National Electricity Agency (ANEEL) and the National Water Agency (ANA), are likely to also contribute to regulation of the hydrogen fuel market.

Looking ahead

The Bill does not propose a guideline for green hydrogen certification, which could pose 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. If the bill is approved, this legislative gap could be filled by regulations of ANP with the cooperation of related agencies.

Amid discussions surrounding the implementation of projects in Brazil, Açu Port in Rio de Janeiro, Suape Port in Pernambuco, and Pecém Port in Ceará have already signed Memranda of Understanding with private companies for the creation of green hydrogen hubs. The market appears to be gaining traction in Brazil, and significant opportunities are likely to arise for players involved in the hydrogen chain.

An earlier version of this article was published in NordicLight in June 2022.