Brazil Mulls Tax Incentives for Green Hydrogen Projects

(Reuters) — Brazil is mulling granting tax incentives for green hydrogen production, a key step for the energy sector to ignite renewable fuel projects and keep pace with international competitors investing in the sector, experts and sources told Reuters.

"It's very likely that some sort of incentive will need to be given," said Brazil's special secretary for Green Economy, Decarbonization and Bioindustry, Rodrigo Rollemberg. "Let's see what instruments the government has."

However, Rollemberg added that the current priority is to build a regulatory framework for green hydrogen projects.

Brazil has some $30 billion in low-carbon hydrogen projects including projects with fossil sources that capture CO2, according to government data. But in order to become greener, hydrogen projects must come from renewable sources such as wind and solar power.

A tax reduction would be key for the country to develop fuels that could be used in vehicles and help decarbonize the transport and industry sectors, experts say.

"We have studies that show that Brazil can produce the cheapest green hydrogen in the world," Rollemberg said. "(But) Brazil is not in a current position to give the incentives that the European Union and the U.S. are giving."

The Biden administration is offering companies up to $100 billion in tax credits and regions up to $7 billion in grants to build out hydrogen hubs to help reach a target of producing 50 million metric tons of clean hydrogen fuel by 2050.

Another source in Brazil's finance ministry said the government is calculating the impact of tax measures for green hydrogen, adding that a recent tax reform, passed in the lower house in July, would also help projects with long maturities such as green hydrogen projects due to lower investment costs.

Elbia Gannoum, president of the ABEEolica group, said Brazil has competitive advantages in the renewable sector, but it needed to move fast to keep pace with investments made by peers.

"In the U.S., the government is paying to make hydrogen. With these strong policies abroad, Brazil can't wait for this natural path," she said.

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