Chile Green Hydrogen Action Plan Overview

In 2020, Chile released its national green hydrogen strategy, which set out to make the country the top destination for hydrogen investment in Latin America by 2030.

The goal is to have at least 25 GW of electrolysis capacity operating, producing at least 200k/tons of hydrogen per year, and reaching a price of US$1.50 per kilogram. Achieving this would mean that Chile has the cheapest production on the planet by 2030, one of the main global exporters, and will be a leading global producer measured by electrolysis.

The development roadmap used in the national hydrogen strategy envisions three stages. The first focuses on large-scale domestic consumption through existing demand, for example in refineries. The second stage would spread hydrogen use to the transport sector and exports. The third stage would involve large-scale deployment of export infrastructure. 

As a follow up to the original hydrogen strategy, the government recently released its Green Hydrogen Action Plan which will help direct the industry from 2024 to 2030 – the time frame that Chile has set for itself to become a major hydrogen exporter.

The text includes 81 measures distributed among 18 lines of work, which will be implemented in two stages. We have provided highlights of the 208-page document below.

Green Hydrogen Action Plan

The Green Hydrogen Action Plan is a comprehensive strategy to promote the development of the green hydrogen industry in Chile This action plan builds on the initial efforts made by the current and prior administrations to position Chile as a major producer and exporter of low-cost green hydrogen.

The plan addresses many important topics such as the construction of infrastructure to the development of policies that encourage private participation and investment in the sector. In addition, the document highlights the commitment to education and potential finance incentives. These measures will be implemented in two phases.

The first phase which is set between 2023 to 2026, will focus on establishing the necessary conditions for the growth of the hydrogen industry, including defining environmental, social, and labor standards, streamlining permitting processes, promoting research, advancing incentives, and relationships with potential buyers.

The second phase which is set between 2026 to 2030, will focus on accelerating the development of the industry with an emphasis on regional and local development. This includes territorial planning, regulations, local development, citizen participation, and human capital preparation.

Some of the highlights from the action plan include –

• Tax measures – Along with other tax reforms, the action plan proposes to establish several tax incentives. The first is for companies that develop projects that promote new technologies and/or the decarbonization of certain sectors.  A second incentive to reduce the income tax rate from 27% to 25%, in addition, to establishing a 2% tax reduction which may be deducted through investments that increase productivity, such as the acquisition of high-tech equipment. Lastly, another incentive to improve the tax credits available under the research and development law. called “ley I+D”. It is expected that the tax reforms will be submitted to the Chilean Congress in 2024 and approved the following year. 
• US$1 Billion Financing Facility – CORFO, which is Chile’s economic development agency, is establishing a USD$1b financing facility to support the development of green hydrogen projects. This will be focused on production, demand, and the acquisition of equipment/technology for green hydrogen facilities. This financing facility is already under development and is expected to become operational during the second half of 2024.
• Expansion of the Green Credit Program – This program already provides financing to financial intermediaries that lend money to the renewable sectors and several other initiaves. A new program introduced in 2024 is expected to also support the development of Green H2 projects.
• Creation of an Emission Trading System – The action plan calls for a cap-and-trade system boost domestic demand for hydrogen in key sectors. A pilot program will be developed to facilitate the adoption of new hydrogen-based technologies to decarbonize emission-intensive sectors. Companies would be motivated to adopt lower-carbon alternatives, such green hydrogen, as the emissions cap is gradually dropped. The pilot program will be designed between 2024-2025, and its implementation is expected to begin during 2025.
• Streamlined Permitting Process – The action plan calls for administrative and legislative reforms to simplify the process for granting permits to develop projects. A new bill has already been introduced in 2024 with the goal of reducing permit approval times by 30% and streamlining processes between the various government entities. The legislative bill has broad support since it will also be helpful across several sectors such as mining and energy. The bill is expected to be approved in 2026.
• International Certification – In anticipation of regulatory and certification requirements that are being developed internationally, the Chilean Government is expected to develop a certification system aligned with these standards. 
• State-owned Land – The action proposes accelerating the awarding of state-owned lands. An initial program that started in 2021 will conclude and a second program to allocate additional state-owned lands in 2025 will start.

Conclusion

Until now, there have only been demonstration plants and other pilots operating in Chile but there are around 60 projects that have been announced, collectively worth billions of dollars in investment. Of those, there are five or six large-scale projects that will enter the environmental impact assessment system.

Chile abilities to become a global hydrogen exporter depends partly on how the local industry is nurtured. The recently published action plan is an important step as it creates a roadmap to solving issues related to regulatory issues, permitting times, transportation, technical skills, and infrastructure. Te hope is to provide the right conditions for investments to be made.

The other part of Chile’s success will largely depend on the government creating supply side measures to supporting demand in the short to medium term. The industry is at a point where costs have not yet come down to make hydrogen competitive, yet the industry cannot mature and lower costs without having customers to support them. The new action plan will help create local demand for hydrogen to support the industry while the exportation of hydrogen ramps up later on.

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