Hydrogen law, regulations & strategy in Chile

Hydrogen is expected to have a substantial role over the coming decades in decarbonising the Chilean energy system. In 2019, the Chilean government announced that Chile would be carbon neutral by 2050. 1 More information available at: https://www.emol.com/noticias/Economia/2019/06/18/951626/Chile-y-su-meta-de-ser-carbono-neutral-El-ambicioso-camino-de-los-otros-paises-que-tambien-se-propusieron-serlo.html; and, https://news.bloomberglaw.com/environment-and-energy/chile-aims-for-first-green-hydrogen-production-by-end-of-2021  However, at present, Chile is still at an early stage regarding hydrogen production due to technical barriers, an underdeveloped legal framework and a lack of clear financial support mechanisms.

In November 2020, the Chilean government published its “National Green Hydrogen Strategy” a public commitment that comes to show a growing public interest in developing a green hydrogen industry in Chile. Specifically, the government strategy emphasises the natural advantages to produce renewable energy in Chile and its consequently low cost, the lowest in the world according to the document, which makes green hydrogen-based energy sources an attractive alternative for the Chilean energy grid. 2 More information available online at: https://energia.gob.cl/h2/

At present, hydrogen production in Chile is still largely carried out by industrial gas producers and is primarily used in the refining industry (for hydrotreating, hydrocracking and desulphurisation), the food industry (in the manufacture of oils and margarines), the glass industry, the power generation industry (as a generator coolant), and in thermal and thermochemical treatments. 3 More information available at: https://www.4echile.cl/4echile/wp-content/uploads/2018/04/LIBRO-TECNOLOGIAS-H2-Y-PERSPECTIVAS-CHILE.pdf  Every year, around 58,500 tons of hydrogen are produced in the country, 98 per cent of which is used by refineries and the rest for the manufacture of glass and food. 4 More information available at: https://www.agenciase.org/2019/11/20/el-combustible-del-futuro-el-hidrogeno-verde-en-la-mira-de-chile-y-el-mundo/#:~:text=En%20Chile%2C%20actualmente%20se%20produce,combustibles%20f%C3%B3siles%20como%20gas%20natural.&text=Al%20a%C3%B1o%2C%20en%20el%20pa%C3%ADs,fabricaci%C3%B3n%20de%20vidrios%20y%20alimentos.

Public transport

Hydrogen (specifically hydrogen fuel cells or similar) is seen as a potential solution for larger road vehicles in the Chilean public transport system. 5 More information available at: https://energia.gob.cl/electromovilidad/hidrogeno-verde  The Ministry of Energy announced that the public transport system should shift in the short term towards natural gas and hydrogen fuel cell systems, both contributing to reducing the pollution caused by current diesel and gas transport fleets. In addition, if successful, this shift will include efforts with various public and private industry players to develop technologies that could be applicable in taxi fleets, buses and commercial fleets for the distribution of goods and services.

Industry

At present, Chilean industry uses hydrogen (mostly “grey” hydrogen) as a feedstock for several industrial processes. With the development of concentrated solar power plants (“CSPs”) and wind farm technology over the coming decade, this hydrogen could be obtained through electrolysis. Currently, there are two examples of low-scale pure hydrogen producers in the country:

1. “INDURA Lirquén” is a green-hydrogen plant, located in southern Chile. Since 1996, it has been developing 99 per cent pure green-hydrogen through electrolysis for the purpose of supplying hydrogen to local glass manufacturers.
2. “ASU Indura Graneros” is a hydrogen plant, located in central Chile, which produces and supplies pure hydrogen to local industries.

Finally, a big market player in Chilean industry is Linde, which in 2006 initiated the operation of a grey hydrogen plant, located in Concón, Chile with a production capacity of 4,200 kg/h. This hydrogen is supplied through a pipeline to the nearby oil refinery Empresa Nacional de Petróleo (“ENAP”), which has a hydrogen demand of 3,003 kg/h. This hydrogen production plant uses steam reforming methane with a thermal efficiency of 85 percent. It also distributes around 4,500 kg/month of hydrogen to external customers. 6 More information available at: https://www.4echile.cl/publicaciones/tecnologias-del-hidrogeno-y-perspectivas-para-chile-2019/

Mining sector

There have been some key advances in the implementation of hydrogen for use in fuel mining trucks. Overall, 25 per cent of the total carbon footprint of local copper mines is produced by oil-based engines. In order to reduce Chile’s carbon footprint and contribute to the production of “green-copper”, Chile is promoting hydrogen fuelled mining trucks and other hydrogen-fuelled industry support vehicles. Chilean public entity Corporación de Fomento a la Producción (“CORFO”) 7 More information available at: https://www.corfo.cl/sites/Satellite?blobcol=urldata&blobkey=id&blobtable=MungoBlobs&blobwhere=1475166591633&ssbinary=true  also called for two public tenders to study the feasibility and implementation of two different technologies:

1. dual powered hydrogen-diesel engines for mining trucks; and
2. hydrogen fuel cell-powered mining trucks and support vehicles.
3. Tenders were awarded in 2019.

In the case of the dual powered engines, the project was awarded to the technological consortium composed of: ALSET, the University of Santiago, Pontificia Catholic University of Chile, Japanese NTT DATA, Compañía Minera del Pacífico, BHP Chile, Anglo American Sur and ENGIE, amongst others. The purpose of this consortium was to develop a giant mining truck and demonstrate the technical and economic feasibility of mixing hydrogen with diesel. The total cost of this project is approximately USD $15,875,000, of which CORFO contributed USD $5,080,000 over the course of four years. The rest will be funded by the consortium.

Regarding the fuel cell-powered engines, the project was awarded to a second consortium composed of Federico Santa María University, Public Company Codelco, Collahuasi, Metalpar, Siemens, Engie, the National Mining Society, the National Hydrogen Center of Spain and LINDE. This project has a total cost of approximately USD $16,500,000, of which CORFO contributed USD $825,000. This project is being directed by local Federico Santa María Technical University where researchers have stated that they expect to be conducting the first in-plant tests for a hydrogen-powered mining vehicle by 2022.

Green hydrogen

Regarding green hydrogen production, on 18 October 2018, the World Energy Council identified Chile as the “hidden champion” in the race to develop a green hydrogen economy.

In light of the above, it is estimated that by 2050, revenues from exports of green hydrogen could represent 10 percent of the current Chilean GDP. Furthermore, the Ministry of Energy estimates that by 2050, 50 percent of the hydrogen production market in Japan and South Korea could be captured, as well as 20 percent in China. 8 More information available at: https://www.senado.cl/senadores-conocen-las-ventajas-del-denominado-combustible-del-futuro-el/senado/2020-06-26/103338.html

National Green Hydrogen Strategy

The National Green Hydrogen Strategy is a series of policies introduced by the Chilean government in October 2020 that aims to create a green hydrogen industry for Chile. Chilean government studies indicate that Chile will have the lowest green hydrogen production cost in the world to the point where, with a 160 million ton yearly green hydrogen production potential, the Chilean government not only aims to produce green hydrogen to supply its local energy demand but also hopes to start exporting its energy to the rest of the world before the end of the decade.

The National Green Hydrogen Strategy is set up in a three-phased plan:

• From 2020 to 2025. The government plans to accelerate the deployment of green hydrogen in 6 prioritised applications in order to create local supply chains and acquire experience in the developing of the industry. Incentives for green hydrogen use and production will be aimed at: (1) oil refineries, (2) ammonia production, (3) mining haul trucks, (4) heavy-duty trucking, (5) long range buses, and (6) blending into gas grids (hydrogen injection into existing gas networks).
• From 2025 to 2030 onwards. The local government aims to leverage its growing local experience on green hydrogen production so that it can start exporting energy to other nations and by doing so becoming a key player in the energy export community.
• Finally, a third phase will exploit synergies and economies of scale to expand the local industry into a position in which Chile could become a global supplier of clean fuels with a special focus on the future use of ammonia in the shipping industry and synfuels in aviation.

The Chilean state has pledged it will become a facilitator, coordinator and promoter of green hydrogen projects in its quest to establish a new industry through a multisectoral effort in which both private and public sector play a key role. The public sector will intend to identify and lower legal, financial, technical and regulatory barriers. Private initiatives shall build upon these fundamentals to play a leading role in developing the technologies, business investments and projects required to scale up efficient and competitive local and export markets.

In the same line, the Chilean state has set up a policy to promote its domestic and export market for green hydrogen by: (i) launching funding rounds of up to 50 MUSD to support selected green hydrogen projects; (ii) establishing a public-private roundtable, to discuss the pathway for both carbon prices and taxes that may better reflect the negative externalities that fossil fuels produce; (iii) committing to bridge regulatory and standard gaps throughout the hydrogen production process to ensure safety standards and give assurances to investors; (iv) the establishment of an operational team to help developers in permitting and piloting processes for green hydrogen project developments; (v) integrally reviewing natural gas regulations and local infrastructure to promote the injection of green hydrogen quotas in the existing gas infrastructure therefore increasing the local demand for green hydrogen; and (iv) deploying a green diplomacy strategy to position itself internationally as a source of clean energy.

The hydrogen market in Chile is at an early stage and has significant prospect for growth over the coming years. The Ministry of Energy has advised that hydrogen will be a key enabler for Chile to meet its 2050 net zero goals. 
Because of the nascent status of hydrogen projects, there has been limited M&A activity in the sector and as such, little by way of private financing to date. This is expected to change once the Chilean government clarifies the legal framework, as promised in the aforementioned National Green Hydrogen Strategy.

Notwithstanding the above, 2021 has already seen the emergence of some M&A operations. Among some of the most renowned projects are Green Hydrogen production ventures such as (i) “Haru Oni” in the Magallanes Region; (ii) a consortium between energy company Engie and mining research organisation Mining3 in order to incentivise decarbonisation in the mining industry through the use of green hydrogen; and (iii) “HyEx”, a project that aims at implementing green hydrogen in the production of mining explosives.

Legislative framework

In common with many other jurisdictions, Chile does not have a specific legislative framework for hydrogen projects across the various sectors. Therefore, it is important that new regulations are established to regulate the use of hydrogen in Chilean industry. There are a number of gaps and uncertainties that will need to be addressed before the hydrogen economy can truly flourish.

Financial support and incentives

The Chilean government supports the generation and use of alternative fuels generally and particularly hydrogen in the move to decarbonise the public transport system and the mining industry. This support is reflected in the decision of CORFO to financially support projects such as Hydra, which seeks to decarbonize the mining industry. 9 More information available at: https://www.corfo.cl/sites/Satellite?c=C_NoticiaNacional&cid=1476726420760&d=Touch&pagename=CorfoPortalPublico%2FC_NoticiaNacional%2FcorfoDetalleNoticiaNacionalWeb  By the end of January 2021 the same public entity had received 18 letters of interest to develop green hydrogen projects from private investors. These letters are a response to a request for information solicited by CORFO that aimed at gathering information from private parties interested in developing green hydrogen projects. CORFO is currently studying the possible alternatives of public support that may be necessary for the projects that show to be most promising.

However, according to a 2020 study by Deutsche Gesellschaft für Internationale Zusammenarbeit and 4E Chilean Renewable Energy Program and Electric Efficiency, Chile still requires a larger engagement from public and private funds in the development of the hydrogen sector across the board. The mentioned study states:

“…there are few climate finance options applicable to energy innovation projects in Chile. This implies a major challenge in improving business models, regulatory conditions and risk identification for this type of initiatives. This is relevant, especially considering that the spectrum of investors (concessional and non-concessional) interested in this type of low-carbon development projects is growing.” 10 Full report available at: https://energia.gob.cl/sites/default/files/opciones_de_financiamiento_climatico_para_proyectos_innovadores_en_el_sector_energetico_en_chile.pdf

Research and education

Generally, there needs to be an increase in the amount of research that is conducted into hydrogen in order to fully understand the availability and applicability of the resource and the technology needed for its production.

In broad terms, hydrogen in Chile is classified as a dangerous substance and, according to NCh382.Of98: 2003, it belongs to the Class 2.1: “flammable gases”. Therefore, the regulated activities are only those set out in the regulation. Namely, the following areas of activities are regulated:

1. transport of hazardous substances in public roads;
2. storage of hazardous substances; and
3. possession of hazardous substances in the workplace

The Ministry of Public Health regulates storage of dangerous substances (including flammable gasses), and basic sanitary and environmental conditions in the workplace pursuant to the following regulations:

1. Supreme Decree N° 43 approves the regulation of storage of dangerous substances. 11 Supreme Decree N° 43 is available online at: https://www.leychile.cl/Navegar?idNorma=1088802  This regulatory decree is the most complete regulation on hydrogen in Chile. It explicitly refers to the storage of hydrogen and is the most comprehensive in terms of specific measures such as safety distances and maximum storage capacities. However, this supreme decree explicitly indicates that it does not apply to “liquid and gaseous fuels, used as energy resources”, which “must be regulated by the Ministry of Economy, Development and Reconstruction”.
2. Supreme Decree N° 594 approves regulations on basic sanitary and environmental conditions in the workplace. It regulates hydrogen implicitly when dictating provisions for “flammable substances” and on fire safety measures; and
3. Exempt Resolution N° 408 approves a list of dangerous substances to health. This exempt resolution introduces hydrogen as a “hazardous substance” in both compressed and liquid forms, however it has not been regulated by the Ministry of Economy, Development and Reconstruction.

Transport

The Ministry of Transport and Telecommunications regulates the transport of dangerous substances by road and their handling in port facilities, in the following regulations:

1. Supreme Decree N° 298 regulates the transport of dangerous loads on streets and roads. It establishes general provisions for the transport of dangerous substances on public roads. However, it does not provide details or specific requirements for hydrogen or flammable gases transported in bulk. Nor does it contain provisions for the bulk transfer of flammable gases; and
2. Resolution N° 96, which updates and modifies handling and storage regulations of dangerous cargoes in port facilities. It has mainly administrative provisions, product classifications and indications of what can be deposited in certain port areas. It also does not reference the transfer of flammable gases in bulk.

Health & Safety

The Ministry of Labour and Social Welfare has also issued a regulation on the prevention of occupational risks, which indirectly applies to hydrogen projects as it requires employers to have an internal regulation of safety and hygiene in the workplace, by means of Supreme Decree N° 40. This Supreme Decree approves regulation on professional risk prevention and requires employers to prepare and keep current safety and hygiene regulations, in addition to informing workers of the risks they run and training them to adequately face such risks. These provisions mandate to update the safety and hygiene regulations to include “hydrogen” whenever it is incorporated into a work task, in addition to informing and training workers.

Mining

The National Service of Geology and Mining issued a Supreme Decree in 2004 which establishes mining safety regulations that could affect hydrogen indirectly. It does not refer to hydrogen directly, but this regulation allows the use of Liquefied Petroleum Gas (“LPG”) and Compressed Natural Gas (“CNG”) as a fuel for machinery in underground mines (under Article 129°), which suggests that they could also accept the use of hydrogen as a fuel.

Environment

Regarding the environmental aspects of hydrogen, it is estimated that the current regulations issued by the Ministry of Environment, addresses projects related to the hydrogen value chain and guides environmental impact statement proceedings. The Ministry of Economy and the Ministry of Environment are analysing in detail the current regulations in relation to hydrogen in order to propose specialised legislation.

Hydrogen-specific Regulation

Despite the lack of comprehensive regulation, small advances have been made aiming at creating broad regulation, a small change in Decree-Law 2,224 12 Decree Law 2.224 available at: https://www.bcn.cl/leychile/navegar?idNorma=6857  made in December 2020, granted sufficient powers to the Ministry of Energy so that it may directly regulate the hydrogen industry, which will be done on the basis of specific regulations on the subject.

In May 2020, a regulatory proposal funded by the Chilean Ministry of Energy and developed by the Pontificia Universidad Católica de Chile laid the groundwork for an eventual regulatory framework for the development of green hydrogen. 13 Full proposal available online at: https://h2lac.org/wp-content/uploads/2020/10/Estudio_Propuesta-regulatoria-hidrogeno-Chile.pdf

Despite recent legal undertakings and proposals, the currently existing regulatory framework of hydrogen is still insufficient for all of its applications, since the eventual spread of the use of hydrogen requires updated, specific and detailed regulations, covering situations not dealt with by existing regulations.

There is no specific regulatory body which is responsible for the regulation of hydrogen projects. Instead, a number of regulators have responsibilities depending on the activity in question.

As of 24 August 2021, 9 months after the enactment of the Strategy, there are 60 green hydrogen projects in portfolio in Chile, mainly located in Antofagasta, Valpraiso, Biobío and Magallanes. It is advised that future projects should aim to be built in areas with low project congestion, considering the huge volume of projects currently being processed. 14 https://www.globalcompliancenews.com/2021/09/24/chile-green-hydrogen-background-regulation-and-future-10092021/ Some of the most relevant projects are the following:

Haru Oni: a project currently in early construction and expected to initiate operations by 2022, led by companies such as Enel Green Power, Siemens Energy, Exxon Mobile, Global Thermostat and Porsche in the Magallanes Region. This project seeks to generate green hydrogen-based synthetic fuels (e-fuels) from wind power.

HYEX: currently in early development and carried out by Engie and Enaex in the Antofagasta region. This project aims to generate green ammonia for the manufacture of explosives use in mining operations; 15 More Information available at: https://www.df.cl/noticias/empresas/energia/fiebre-por-el-hidrogeno-verde-empresas-comienzan-a-avanzar-en-proyectos/2021-08-19/101851.html

HYDRA: a project developed by CSIRO, Engie and Mining3, which seeks to validate the generation and use of hydrogen fuelled vehicles for electromobility in mining operations that is currently in its pilot phase; 16 More information available at: https://www.energiaestrategica.com/estos-son-los-siete-proyectos-clave-en-hidrogeno-verde-del-sector-privado-en-chile/

Enagas, Acciona Energia and GNL Quintero: all key players in the Chilean energy industry, have partnered to develop a $30 million green hydrogen generation plant for the generation of green hydrogen in the Chilean port city of Quintero. 17 More information available at https://www.notimerica.com/economia/noticia-enagas-acciona-alian-impulsar-proyecto-hidrogeno-verde-chile-2565-millones-20210819160453.html