Newsletter

On 30 September 2024 and 9 October 2024, respectively, two important laws were published:

• ‍Law No. 14,990/2024, establishing the Low Carbon Hydrogen Development Programme (PHBC), as part of Brazil's initiatives towards energy transition and economic decarbonisation, and aiming to position Brazil as a global leader in renewable hydrogen production; and
• Law No. 14,993/2024, referred to as the "Future Fuel Law.” It establishes national programmes to encourage the use of renewable fuels, regulates CO₂ capture and storage, promotes decarbonisation, and alters the blending ratios of ethanol and biodiesel with petrol and diesel.

This briefing covers the key points of each law.

I. The PHBC Law

Law No. 14,990/2024 has gained attention primarily for allocating BRL 18 billion by 2032 towards the development of the low-carbon hydrogen industry. However, its scope is broader, establishing the PHBC, which sets clear targets and offers fiscal incentives to accelerate the energy transition, strengthen the domestic renewable hydrogen market, and promote its use in industries that are difficult to decarbonise, such as steelmaking and petrochemicals.

Key aspects of the law:

1. Creation of the PHBC

The programme aims to develop and commercialise low-carbon and renewable hydrogen, driving Brazil’s energy transition and reducing greenhouse gas (GHG) emissions.

2. Goals and Objectives

The main objectives include:

• Promoting the use of low-carbon hydrogen in hard-to-decarbonise industrial sectors such as steelmaking, fertilisers, and petrochemicals.
• Developing the domestic market for sustainable hydrogen.
• Encouraging the use of low-carbon hydrogen in heavy transport.

3. Fiscal Incentives

The PHBC offers tax credits of up to 100% of the price difference between low-carbon hydrogen and substitute fuels, with priority given to projects with the lowest GHG emissions and the highest technological and industrial impact.

• ‍Eligibility: Projects must contribute to regional development, climate mitigation, technological advancement, or industrial diversification.‍
• Usage: Credits can be used to offset tax liabilities or refunded in cash within 12 months.‍
• Limits: Total credits will scale from BRL 1.7 billion in 2028 to BRL 5 billion in 2032.‍
• Penalties: Projects that fail to meet the requirements may be fined up to 20% of the credit value.

4. Tax Credit Limits (2028–2032)

A total of BRL 18.3 billion will be distributed between 2028 and 2032:

• 2028: R$ 1.7 billion
• 2029: R$ 2.9 billion
• 2030: R$ 4.2 billion
• 2031: R$ 4.5 billion
• 2032: R$ 5 billion

5. Granting Procedures

Credits will be awarded through competitive processes, with preference given to projects that offer the lowest GHG emissions and the greatest potential for developing the national value chain. Only beneficiaries under the Special Incentives Scheme for Low-Carbon Hydrogen Production (REHIDRO) or buyers of hydrogen will be eligible to compete.

6. Use of Tax Credits

Beneficiary companies or consortia may use the credits in two ways:

• Tax Liability Offset: To offset federal liabilities such as the CSLL.

• Cash Refund: If there are no liabilities to offset, companies may request a refund within 12 months.

7. Monitoring and Reporting

The government will publish annual reports assessing the PHBC’s outcomes, including economic and environmental impacts, along with lists of eligible projects and any sanctions applied.

By setting clear fiscal incentives and targets for the decarbonisation of hard-to-transition sectors, the programme aims to support Brazil’s energy transition and enhance its position in the global renewable hydrogen market.

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II. The Future Fuel Law

1. Sustainable Low-Carbon Mobility

Law No. 14,993/2024 integrates initiatives such as the National Biofuels Policy (RenovaBio) and the Green Mobility and Innovation Programme (Mover Programme) to promote sustainable mobility. A life cycle analysis will be used to mitigate CO₂ emissions, considering two cycles:

• Well-to-Wheel Cycle (until 31/12/2031): Includes energy consumption by vehicles.
• Cradle-to-Grave Cycle (from 01/01/2032): Covers emissions from resource extraction to vehicle disposal.

The National Energy Policy Council (CNPE) will set Carbon Intensity (ICE) values, and the Ministry of Development, Industry, Commerce, and Services will set consumption and emissions targets.

2. National Programmes

The law establishes three main programmes:

• National Programme for Sustainable Aviation Fuel (ProBioQAV): Encourages the research and use of sustainable aviation fuels. The ANP will calculate GHG emissions from SAF and set minimum emission reduction targets, progressively increasing until 2037.
• National Green Diesel Programme (PNDV): Promotes the use of green diesel, with a minimum mandatory volumetric share of 3% in commercial diesel. The ANP will determine mandatory blending ratios.
• National Programme for Decarbonisation of Natural Gas Producers and Importers and Incentive to Biomethane: Encourages the use of biomethane and biogas, with the CNPE setting annual emission reduction targets, starting at 1% in 2026 and potentially reaching 10%.

Additionally, the law provides for the gradual increase of mandatory ethanol and biodiesel blending percentages in petrol and diesel. Some key changes include:

• Ethanol in Petrol: The blend will increase from 27% to 30%, potentially reaching 35%, depending on technical feasibility.
• Biodiesel in Diesel: The blend will increase by 1 percentage point per year, starting at 15% in 2025 and reaching 20% by 2030.
• Sustainable Aviation Fuel (SAF): Airlines must reduce emissions by 1% annually from 2027, reaching a 10% reduction by 2037.
• Green Diesel: Encourages the production of green diesel, with a mandatory minimum blend of 3% in diesel starting in 2027.
• Synthetic Fuels: Proposes a regulatory framework for synthetic fuels (e-Fuels), which use hydrogen and CO₂ as raw materials.

3. CO₂ Capture and Storage

The law regulates the geological capture and storage of CO₂, with the ANP responsible for authorising and supervising these activities. Authorisations will last for 30 years, with the possibility of extension, and operators must meet specific conditions.

Law No. 14,993/2024 also amends previous regulations, such as the Petroleum Law (Law No. 9,487/1997) and the National Fuel Supply Law (Law No. 9,847/1999):

• The definitions of "biofuel," "ethanol," and "aviation bio-kerosene" have been updated, with aviation bio-kerosene now called "sustainable aviation fuel." New definitions for "biogas," "biomethane," and "synthetic fuel" have been introduced.
• The CNPE can now set guidelines for the regulation of CO₂ capture and storage, as well as biogas and biomethane targets.
• The ANP will be the regulatory body for the synthetic fuels industry and CO₂ capture and storage.
• Petrobras is authorised to expand its activities to include CO₂ capture and storage, alongside energy transition initiatives.

4. Presidential Vetoes

The Brazilian president vetoed three provisions from the text approved by the House of Representatives, related to accounting criteria that could affect revenue collection. Articles regarding the purchase of biomethane by gas marketers and importers, as well as the regulation of geological CO₂ capture and storage, were also vetoed. One vetoed article dealt with the taxation of the Biomethane Origin Guarantee Certificate (CGOB). These vetoes will now be reviewed by the National Congress, which may either uphold or overturn them.

This alert was prepared by partners Thiago Luiz Silva, Paula Padilha, and Camila Borba Lefèvre, along with associate Fernanda Aquino, all from the Energy & Natural Resources: Energy Transition team. They are available to clarify any questions and assess potential scenarios.