TL/DR –
The Brazilian Federal Government has enacted Law No. 14.990/2024, which establishes the Low-Carbon Hydrogen Development Program (PHBC). The PHBC intends to provide financial subsidies to low-carbon hydrogen projects by offering tax credits which will reduce the Social Contribution on Net Profit. The program aims to develop low-carbon hydrogen and renewable hydrogen, support energy transition actions, set targets for the development of the low-carbon hydrogen internal market, offer incentives for decarbonization across various sectors, and promote the use of low-carbon hydrogen in heavy transport.
Brazil’s Low-Carbon Hydrogen Development Program (PHBC)
Law No. 14.990/2024, sanctioned by the Brazilian Federal Government, introduces the Low-Carbon Hydrogen Development Program (PHBC). It mirrors international initiatives like the US Inflation Reduction Act and the REPowerEU. The PHBC builds upon Law No. 14,948/2024, forming Brazil’s Low-Carbon Hydrogen Legal Framework.
PHBC aims to offer financial support to specific low-carbon hydrogen projects via tax credits. Initially proposed in a Bill of Law resulting in Law No. 14,948/2024, it was vetoed due to a lack of specific tax credit indicators. Law No. 14.990 provides clarity, stating the tax credits will lessen the Social Contribution on Net Profit.
Learn more about Law No. 14.948/2024 and its implications here.
PHBC Objectives:
The PHBC seeks to cultivate Low-Carbon and Renewable Hydrogen, support energy transition activities, set low-carbon hydrogen market development goals, incentivize hard-to-abate sectors to reduce carbon, and foster the use of low-carbon hydrogen in heavy transportation.
PHBC Mechanism:
The PHBC will apply tax credits to support the production of low-carbon hydrogen in Brazil, with the credits adjusting based on the greenhouse gas emission intensity of the hydrogen produced.
Eligibility Criteria:
Projects can claim tax credits under the PHBC if they contribute to regional development, climate change mitigation, technological development or the diversification of Brazilian industry.
PHBC Tax Credit Policies:
The executive branch, in line with fiscal goals and PHBC’s objectives, will determine tax credit value. Unused credits can be carried over to the following years.
The allocation of tax credits shall be subject to a competitive process. Selection criteria will include the lowest credit value per unit of product.
Further Regulation:
Regulations may stipulate tax credits diminishing over time, prioritize projects with lower GHG emissions and a high national value chain development potential, and impose penalties for non-compliance.
Penalties:
Project failures or legal violations may lead to fines up to 20% of the project’s allocated tax credits and potential cancellation of the tax credits.
Social Contribution on Net Profit:
PHBC tax credits correspond to the Social Contribution on Net Profit tax credits and can be used for offsetting debts or obtaining cash reimbursements.
Annual Low Carbon Hydrogen Policies Report
An annual report will provide an evaluation of the National Low Carbon Hydrogen Policy, the PHBC, the Brazilian Hydrogen Certification System (SBCH2) and Rehidro.
National Low Carbon Hydrogen Policy
The Ministry of Mines and Energy (MME) will propose technical and economic parameters for the National Low Carbon Hydrogen Policy and a work plan for its implementation to the National Energy Policy Council (CNPE).
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