Business Opportunities for Brazilian Hydrogen within Global Energy Transition

The world has been discussing green hydrogen and its potential for global decarbonization. In fact, the context for the development of new power and carbon-neutral technologies, such as hydrogen, is intrinsically related to global warming and the pressure for countries to commit to reducing their greenhouse gas emissions, vis-à-vis the Paris Agreement.

Hydrogen has become a strategic priority for energy and climate policies around the world, not only as an energy carrier, but also for enabling energy storage. Due to these properties, hydrogen can not only be used directly as a low or zero-carbon energy source, but it also allows the energy sector to play an important role in other hard-to-abate sectors, such as transportation or heavy industries. In connection with energy storage, it enables entry of more variable renewables, such as wind and solar, into the grid.

The Hydrogen Council estimates that, by 2050, low-carbon hydrogen could represent 22% of global energy demand, which corresponds to 660 million tons of the product, creating a global market estimated at an impressive USD 3 trillion per year.[1]

In marine transport, green ammonia, synthesized from green hydrogen, can power cargo ships, making it the most cost-effective way to decarbonize container traffic by 2030.

For the aviation sector, the challenge is to develop technology capable of propelling small to large aircraft with liquid hydrogen, but an alternative that has proven to be viable is the replacement of aviation kerosene with synthetic fuels based on green hydrogen, with fewer carbon emissions.

In the context of the global supply chain, while China, Europe and North America are expected to be the world's main consumers of hydrogen, Australia, Brazil, and the Middle East tend to become the main producers and exporters of this energy source, attracting a large flow of investments to take advantage of economic opportunities in this new market.

Several countries have put hydrogen feasibility initiatives in place, aiming at the post-pandemic economy recovery and supporting energy transition.

Brazil is particularly well-positioned to be a major hub for green hydrogen development, given its wide availability of renewable energy resources (mostly hydro, solar and wind), offering numerous business opportunities.

As the main input for the production of green hydrogen is electrical energy from renewable sources (such as solar, wind and hydroelectric energy), the significant availability of these sources gives Brazil great potential for the production of hydrogen and becoming a protagonist on the world stage.

The implementation of new technologies and the development of the infrastructure of production, storage, transportation, and distribution of hydrogen have been under study not only by the Brazilian Government, but also by scholars of Brazilian universities in partnership with international development agencies.

Moreover, several companies in the Brazilian automotive sector, both in the gas and energy industry, have also started developing solutions and products related to hydrogen.

In February 2021, the Brazilian National Energy Policy Council (CNPE) declared hydrogen as one of the priority topics for research and development in Brazil, and in August the Brazilian Government launched its National Hydrogen Program, aimed at putting together a legal and regulatory framework for the energy use of hydrogen and to provide regulatory stability.

Such momentum has generated a favorable business environment, engaging several agents for the development of the hydrogen market. Even though a specific regulatory framework has not yet been established, given the significant competitiveness of variable renewables in Brazil (especially wind and solar), foreign investors and partners have shown a special interest in developing green hydrogen in the country, while local governments have been fostering the creation of hydrogen hubs. These hubs focus on the development of projects for hydrogen export, directly or indirectly, in the form of ammonia and methanol.

Moreover, energy transition has boosted a favorable business environment, and, despite the lack of a specific regulatory framework, investors have shown special interest in developing green hydrogen in Brazil,[2] given the significant competitiveness of renewable sources.

In addition to the electrolysis of water, another promising source of low-carbon hydrogen is biofuels, such as biomethane, which has the potential to produce seven million tons per year, as estimated by the Brazilian Association of Biogas (Abiogás).

As Brazil is rich in biomass, which can be used as an input in the production of biofuels (among them, biomethane) and, from there, green hydrogen, this seems to be a promising technological route. This is because the advantage of biofuels lies in offering greater efficiency and lower cost than electrolysis.

This characteristic gives Brazil even greater prominence, not only on the international scene, but also domestically, since the great Brazilian industrial centers are located relatively close to biomass plants.

Additionally, it is estimated that generation from biogas has an even lower carbon intensity for the environment, when employing solid waste.

To encourage programs and actions to reduce methane emissions and encourage the use of biogas and biomethane as renewable energy sources, in March 2022 the Brazilian Government issued Decree #11.003/2022, setting forth the national strategy for biogas and biomethane. According to the Decree, the Federal Administration must consider the use of biogas and biomethane in its strategic planning, programs, and institutional actions.

One of the measures of the national strategy allows the inclusion of investments in biomethane in the Special Regime of Incentives for the Development of Infrastructure (“Reidi”), with the suspension of the collection of PIS and COFINS of the projects inserted in the regime for the acquisition of machines, materials construction equipment, among others.

In addition to attracting investments and creating jobs, the Government's objective is to stimulate, among others, the carbon credit market, the adoption of initiatives to supply light and heavy vehicles, and the use of biogas and biomethane as sources of energy and renewable fuel, avoiding the emission of millions of tons of carbon into the atmosphere.

With this, the production of green hydrogen from biomethane further highlights the potential of the plurality of energy resources in Brazil for the country's contribution to the global energy transition.

The first factory to generate green hydrogen from biomethane is being set up by Yara, in Cubatão, in the State of São Paulo, with input sold by Raízen, and should start operating in 2024. The intention is to produce nitrates for industrial application and nitrogenous fertilizers with low carbon emission.

In addition, a research project for the conversion of ethanol into renewable hydrogen has been developed by Raízen with Shell Brasil, Hytron, the University of São Paulo (“USP”), the Senai Institute of Innovation in Biosynthetics and Fibers, and Toyota. The objective is to demonstrate that ethanol can be a vector in the production of renewable hydrogen, taking advantage of the existing logistics of the ethanol industry, in addition to being an efficient, sustainable, and easily replicable solution globally.

Another extremely relevant factor for the development of hydrogen in Brazil is its expertise in related technologies. Through partnerships with other countries and Brazilian universities, Brazil has a solid knowledge base in hydrogen-related technologies, such as fuel cells and electrolysis. In addition, our country has an established and robust oil and gas industry, which can be adapted for the production of hydrogen from natural gas.

The Government of São Paulo, for example, has committed to engage state universities in research and development of technologies for decarbonizing transport chains.

It is important to point out, however, that, like any new industry, the hydrogen economy – be it green hydrogen or any low-carbon hydrogen – will require the development of its entire associated production chain, including infrastructure and technologies for production, storage, and transport, which may represent significant business opportunities for foreign investors in Brazil.

Furthermore, given that the main input for the production of green hydrogen is electricity from renewable sources, it is expected that an increase in the expansion of wind and solar energy generation capacity will be strongly stimulated.

At the same time, investments in training and qualification of professionals will also be necessary for the operation of this new industry, as well as for research and development of incremental technologies.

In light of the above, it is clear that for Brazil, the energy transition scenario and the birth of the global hydrogen industry will create, on one hand, enormous opportunities for the national economy, in view of the abundant availability of natural resources for its production, such as the high potential for renewable generation and the existence of significant reserves of natural gas and biomass. On the other hand, for international companies and investors, it will represent a myriad of business opportunities of all sorts.

Nonetheless, Brazil will have to promote and implement public policies for the development of technological innovations to leverage its potential.