Brazil's planned hydrogen tax credit mechanism has officially become law after being approved by President Luiz Inacio Lula da Silva.
Lula's bill approval followed green light from the senate in August.
The law earmarks 18.3bn Brazilian reals ($3.36bn) in tax credits for companies producing or consuming "low-carbon" hydrogen in 2028-32.
Brazil's definition of low-carbon hydrogen is open to a multitude of production pathways and sets an emissions threshold of 7kg of CO2 equivalent/kg of hydrogen, arguably the most lenient in the world.
But tax credit beneficiaries will be selected through a competitive procedure that will prioritise projects with lower greenhouse gas (GHG) emissions and those with the most potential to boost economic development. The exact selection criteria will be determined by a committee yet to be set up by the government.
The tax credit value will be set at a specific percentage of up to 100pc of the difference between the estimated price of low-carbon hydrogen and the price of fuel or feedstock it replaces. The exact percentage "may be inversely proportional" to the GHG emissions intensity of the hydrogen produced or consumed, with the specific rules also yet to be determined by the committee.
The bill further sets out penalties for firms that are awarded tax credits but fail to implement their projects.
Its passage into law brings a long procedure to an end during which Lula once vetoed the tax credits out of a broader regulatory framework for the sector because of a lack of clarity on governance terms. Lawmakers subsequently provided more specific details on the tax credit plans, which allowed the bill to get over the line.
The wider regulatory framework, which includes the definition of low-carbon hydrogen and sets out other incentives such as tax and import duty exemptions, already entered into law in August and is now amended with the tax credit bill.
