Brazil’s New Green Hydrogen Industry: An Assessment of Its Macroeconomic Viability Through an Input–Output Approach

Abstract

This manuscript explores the role of green hydrogen produced through ethanol reforming in accelerating Brazil’s transition to a low-carbon economic framework. Despite ongoing efforts to lessen carbon dependence, Brazil’s reliance on biofuels and other renewable energy sources remains inadequate for fully achieving its decarbonization objectives. Green hydrogen presents a vital opportunity to boost energy sustainability, especially in sectors that are challenging to decarbonize, such as industry and transportation. By analyzing Brazil’s input–output (I-O) table, using data from the Brazilian Institute of Geography and Statistics (IBGE), this study evaluates the macroeconomic potential of green hydrogen, focusing on GDP growth and employment generation. Furthermore, the research explores green hydrogen systems’ economic feasibility and potential impact on future energy policies, offering valuable insights for stakeholders and decision-makers. In addition, this investigation highlights Brazil’s abundant renewable resources and identifies the infrastructural investments necessary to support a green hydrogen economy. The findings aim to strengthen Brazil’s national decarbonization strategy and serve as a model for other developing nations transitioning to clean energy.

1. Introduction

Energy concerns are ever-increasing, as was particularly evident from the commitment made by 195 countries to accelerate the growth of renewable energy and curb greenhouse gas emissions during the COP 21 Conference when the Paris Agreement was adopted. Since the world first sought sustainable energy solutions to achieve decarbonization targets, biofuels such as ethanol and biodiesel have become widely recognized as promising alternatives to traditional fossil fuels in the Brazilian energy matrix; see Abed et al. (2019). However, in 2021, Brazil emitted 1469.64 million tons of CO₂, the equivalent of 3.09% of global emissions; see Climate Watch (2021). Moreover, in 2022, Brazil was responsible for 1.2% of global CO₂ emissions from fuel combustion and emitted an equivalent of 413.935 metric tons of carbon dioxide (International Energy Agency 2022). This is evidence that the country’s efforts to mitigate GHG emissions are still insufficient.

In light of these facts, further action must be taken to achieve carbon neutrality goals. Alternative measures to those already being taken and implemented must be examined. New alternatives, such as green hydrogen systems, are being considered and have attracted much attention in recent years. This is due to the ongoing challenges of decarbonization, particularly in hard-to-abate sectors (Sarker et al. 2023) such as transportation and industries where electrification barriers exist (Nadel 2019).

It can be argued that electrification offers a mature solution to global concerns about mitigating GHG emissions. However, while electrifying light vehicles is very effective and results in lower carbon emissions depending on the model and range in question (Gan et al. 2023), electrification poses several challenges in hard-to-abate sectors, particularly the industrial sector where most rational solutions are not always applicable (Franco and Rocca 2024). Moreover, relying solely on electrification for the whole industry to achieve net-zero emissions is risky as it is still dependent on many factors before it can obtain optimal results (Mobarakeh and Kienberger 2022). Moreover, it can lead to uncertainties regarding energy security and perhaps impose a strain on electricity grids (Hu et al. 2024). In contrast, green hydrogen systems offer an alternative for strengthening energy security and improving efficiency compared to traditional fossil fuels and can achieve net-zero emissions or neutrality targets (Evro et al. 2024; Nnabuife et al. 2024).

Green hydrogen is currently regarded as vital in reaching global decarbonization goals and is mainly produced by electrolysis, a process where hydrogen and oxygen are extracted from water (Hassan et al. 2024). The electricity required for this process can be obtained from renewable sources. Thus, green hydrogen gives Brazil a unique opportunity because of the country’s abundant renewable energy resources, especially hydroelectricity, wind, and solar power. Green hydrogen can also be produced through a thermochemical process involving biomass gasification and is, thus, an alternative means of improving energy sustainability (Obiora et al. 2024). Ethanol reforming is another viable option since ethanol is used as a feedstock to produce hydrogen in a cleaner, lower-carbon process (Chen et al. 2023). The Brazilian government has already taken steps to embrace green hydrogen (in favorable circumstances) by embarking on initiatives like the National Hydrogen Program (PNH2), which seeks to achieve carbon neutrality by 2050. In addition, it has partnered with international organizations to boost the development of a green hydrogen economy (de Minas e Energia 2024; Serrano et al. 2024).

This study explores how green hydrogen produced by ethanol reforming can accelerate Brazil’s transition to a low-carbon economy. It assesses the macroeconomic potential of green hydrogen in Brazil and its alignment with Sustainable Development Goal 13 (SDG 13), which aims to combat climate change (Applied Economic Research (IPEA) 2019). This research highlights how green hydrogen can shape future energy policies by estimating the status of the green hydrogen industry in the Brazilian input–output (I-O) table and analyzing its economic benefits, such as GDP growth, job creation, and emissions reduction. The study conducts an in-depth investigation of the financial viability of green hydrogen and examines how its introduction can pave the way for future investments and infrastructural development, key factors in achieving Brazil’s decarbonization goals.

It should be pointed out that the data used in this study originate from Brazil’s most recent national input–output (I-O) tables updated by the Brazilian Institute of Geography and Statistics (IBGE), which map the flow of goods and services between industrial sectors. Since green hydrogen is an emerging renewable energy source, it was not initially included in the I-O framework. This is because its integration can only be carried out by allocating capital expenditure (CapEx) and operational expenditure (OPEX) funds to corresponding companies. Regarding its links with establishing production facilities, CapEx was designed for the construction and industrial sectors. At the same time, OPEX covers operational costs like utilities and labor and was thus assigned to the service and utility sectors. The method for data reconciliation, named after the economist Richard Stone (RAS), was applied to keep an updated balance for this I-O Table. This ensured consistency was maintained within the model and enabled an assessment of the macroeconomic and environmental effects of green hydrogen production in Brazil.

What sets this research apart is its concentration on green hydrogen within the context of Brazil, which is equipped to tackle green hydrogen systems but is underrepresented in global discussions about hydrogen, while many studies have only centered on countries in Europe and other major economies, this research examines the Brazilian context, together with its resources, challenges, and opportunities. By filling this gap, it is hoped that this study can provide valuable insights for policymakers and stakeholders and offer a blueprint for other developing countries seeking alternative ways of transitioning to clean energy.

Lastly, this paper is structured as follows: Section 2 reviews the relevant literature. Following this, Section 3 outlines the materials and methodology employed in this study. Section 4 presents an analysis, and finally, Section 5 concludes this paper by summarizing the key findings and discussing their implications for future research.

2. Literature Review

Over the past few decades, the Brazilian government has strongly encouraged biofuel production as part of its broader strategy to enhance energy security and reduce dependence on imported fossil fuels. This initiative emerged in response to the economic vulnerabilities exposed by the international oil crisis of the 1970s. During this period, the Organization of Petroleum Exporting Countries (OPEC) significantly reduced oil input, dramatically increasing global oil prices. Many countries, including Brazil, relied heavily on imported oil and faced severe economic challenges (Boughton 1984; Corden and Oppenheimer 1976). At that time, more than 80% of the oil consumed by the country was imported, and the sudden spike in prices led to a sharp increase in the cost of imports, escalating from USD 6.2 billion in 1973 to USD 12.6 billion in 1974. This situation transformed Brazil’s trade balance from a slight surplus of USD 7 million in 1973 to a substantial deficit of USD 4.7 billion by 1974, severely affecting the nation’s economy.

Recognizing the need for a more sustainable and self-sufficient energy strategy, the Brazilian government began to invest in alternative fuels, including ethanol, to reduce the country’s reliance on costly oil imports. Therefore, introducing the Proálcool program in 1975 marked the beginning of large-scale ethanol production, initially focused on sugarcane as the primary feedstock (de Oliveira Gonçalves et al. 2023). Ethanol was economically viable due to Brazil’s ideal climatic conditions for sugarcane cultivation and the government’s subsidies to promote ethanol as a fuel alternative (Aguiar et al. 2024). This shift sought energy independence and was also about finding an economically sustainable fuel source to support Brazil’s expanding industrial and transportation sectors during global economic instability.

As the years progressed, Brazil became one of the largest producers of ethanol worldwide, with the United States and Brazil accounting for 80% of the global production of this fuel by 2022 according to the U.S. Department of Energy (2024), benefiting from its agricultural practices and infrastructure that efficiently supported the ethanol supply chain. Despite its success, ethanol alone has limitations, especially in terms of sustainability (Vandenberghe et al. 2022).

Ethanol’s contribution to reducing greenhouse gas emissions is significant (Aguiar et al. 2024). Still, its impact is limited as current Brazilian policies fail to account for the emissions arising from land use changes (LUC), which can significantly elevate the carbon intensity of ethanol (Tiburcio et al. 2023).

It has been estimated that LUC can result in an additional 316 g CO2e/MJ, depending on the extent and nature of the land conversion (Maia and Bozelli 2022). Expanding biofuel crops into environmentally sensitive areas, such as the Amazon, presents further risks of habitat destruction and increased emissions. Without proper management, the projected agricultural expansion driven by ethanol demand could release 44.9 million tonnes of CO₂ equivalent, further exacerbating Brazil’s environmental challenges (Nogueira et al. 2023). Thus, while ethanol is crucial as a cleaner alternative compared to traditional fossil fuels, it does not represent a complete solution for Brazil’s energy transition.

Green hydrogen offers a promising solution to these limitations, mainly produced through ethanol steam reforming (Meloni et al. 2022). Although most global studies have focused on producing green hydrogen through traditional electrolysis, which uses renewable electricity to split water molecules, this process is costly and energy-intensive (Benghanem et al. 2023; Hassan et al. 2024). Electrolysis, despite its global promise (as cited by Franco and Giovannini 2023; Li and Baek 2021; Panigrahy et al. 2022; Wang et al. 2021; Zhao and Yuan 2023), is not the only viable method for producing green hydrogen in a country like Brazil. The country’s ethanol infrastructure could be leveraged to produce green hydrogen through ethanol steam reforming. Research by Cordaro et al. (2024) has demonstrated the economic feasibility of this approach, noting the country’s abundant sugarcane resources as a low-cost and viable feedstock. By converting ethanol into hydrogen, Brazil can achieve a cleaner and more efficient fuel production pathway, one that is uniquely suited to its strengths in ethanol (Callegari et al. 2020; Kumar 2021).

Green hydrogen stands out for its ability to decarbonize sectors that are difficult to mitigate emissions, such as heavy industry, aviation, and shipping (Martin et al. 2023). It emits no carbon dioxide as a fuel and can be produced using renewable energy sources (Amin et al. 2022; Callegari et al. 2020; Hassan et al. 2023). For instance, studies by Gupta et al. (2023) have explored the integration of green hydrogen into national energy strategies, using models to estimate reductions in GHG emissions and creating green jobs. However, there are challenges associated with green hydrogen, including the high costs of production, storage, and transportation (Kumar 2021; Liu et al. 2020). Hydrogen is more energy-dense than traditional fuels (Sivaramakrishnan et al. 2021), but the infrastructure needed to support a hydrogen economy, such as pipelines and storage facilities, is still underdeveloped (Gan et al. 2021). Despite these obstacles, hydrogen’s potential to support a global energy transition is significant, as innovations reduce production costs and improve efficiency (Perez et al. 2021).

While electrification alone, primarily through electric vehicles (EVs), is often seen as a key solution to decarbonization, it is not a one-size-fits-all answer. Reducing GHG emissions related to vehicle electrification is conditioned to several factors, like choosing the best charging strategy and the vehicle model, not representing a sufficient scheme to decarbonize the transportation sector (Woody et al. 2022). Furthermore, electric batteries have limited applicability in sectors such as shipping, aviation, and heavy industry, where hydrogen can be more effective, as cited by Franco and Rocca (2024); Martin et al. (2023). Therefore, green hydrogen offers an advantage by providing an alternative to solely electrification-based solutions for light-duty vehicles and hard-to-abate sectors, ensuring energy security and reducing dependence on fossil fuels. Moreover, unlike fossil fuels, which have reached their peak efficiency (Fathi et al. 2021), green hydrogen’s efficiency can improve with technological advancements (Marouani et al. 2023; Martinez-Burgos et al. 2021), making it a long-term, sustainable energy solution.

This study’s exploration of green hydrogen production, primarily through ethanol steam reforming, makes a substantial contribution to Sustainable Development Goal (SDG) 13, as cited by the Applied Economic Research (IPEA) (2019), with goals associated with climate action, especially 13.2, which focuses on integrating climate change measures into national policies, strategies, and planning. By offering a method to produce green hydrogen more sustainably, this research aligns with efforts to reduce carbon emissions and transition to cleaner energy. The integration of ethanol steam reforming into Brazil’s hydrogen production strategy supports the reduction of greenhouse gases in critical sectors, thereby playing a crucial role in Brazil’s efforts to combat climate change.

2.1. Input–Output (IO) Models

When analyzed using input–output (I-O) models, clean energy investments significantly impact a country’s economic structure and stability. Input–output analysis is essential for elucidating the interconnections between different sectors, highlighting how clean energy initiatives can catalyze economic growth across industries. This approach allows us to understand renewable energy investments’ direct and indirect implications, enhancing overall economic resilience.

Economic interdependencies are a central component of this analytical framework. I-O models illustrate clean energy investments’ direct and indirect effects on complementary sectors, strengthening overall economic robustness (Uku and Shehu 2024). For example, a 1% increase in gross domestic product (GDP) is associated with a 0.15% increase in electricity access, highlighting the economic benefits of renewable energy investments (Li et al. 2024).

Given this, the relevance of efficient governance structures and financial mechanisms is essential to maximize the potential of investments in renewable energy. According to Yadav et al. (2024), efficient governance, combined with green financial instruments, enhances the effects of these investments, especially in mitigating carbon dioxide (CO₂) emissions and promoting sustainable development. In countries with abundant natural resources, prudent government policies can stimulate private sector investment in green initiatives, contributing to economic stability (Li et al. 2024).

In addition, the long-term sustainability of economic systems increasingly depends on incorporating clean technologies. Innovations such as heat exchange networks can generate substantial economic returns, reinforcing the need for sustainable practices to be integrated into long-term economic strategic planning (Wagialla et al. 2024). However, challenges remain despite the unequivocal benefits associated with investments in clean energy. Key challenges include ensuring equitable access to these technologies and overcoming the complexities of governance and financial systems in different economic scenarios.

The input–output matrix applied to biofuel production is particularly relevant to the overall efficiency of the process. Critical operational factors such as feedstock selection, catalyst type, and reaction conditions influence biodiesel yield during transesterification. Therefore, proper feedstock and catalyst selection is crucial since the free fatty acid content impacts catalyst effectiveness, affecting biodiesel yield and production efficiency (Bharathiraja et al. 2022).

According to the literature, econometric models incorporating input–output matrices influence policy decisions related to biodiesel subsidies by analyzing economic interdependencies and environmental impacts. These models assist in making informed decisions and balancing economic growth with ecological sustainability. Building on the work of Wassily Leontief, these models demonstrate how different sectors interact, allowing policymakers to understand the direct and indirect effects of subsidies on production and consumption patterns (Pasha et al. 2021; Patel et al. 2020).

In addition, I-O models can quantify the economic benefits of biofuel production, such as job creation and income generation, while assessing environmental costs, including resource use and pollution (Patel et al. 2020). The application of input–output analysis to evaluate fuel subsidy reforms highlights its usefulness in predicting economic outcomes, such as GDP and inflation, under different subsidy scenarios (Pasha et al. 2021). However, there are limitations, such as the complexity of modeling inter-industry relationships, which can affect the reliability of the results (Pasha et al. 2021). This suggests optimizing the input–output matrix can increase efficiency by balancing production scale and quality. In summary, input–output analysis provides a comprehensive view of the economic and environmental impacts of clean energy and biofuel investments, providing a valuable framework for formulating policies that promote sustainable economic growth and environmental protection.

2.2. Green Hydrogen Dynamics in Brazil

Federal and state initiatives shape Brazil’s legal framework surrounding green hydrogen. These initiatives focus on promoting renewable energy and positioning Brazil as an essential player in this emerging sector. Hence, this section reflects the current legal landscape, explaining federal laws and how certain states are more prepared for the green hydrogen economy.

Brazil is taking essential steps toward incorporating hydrogen as a key energy source at the federal level. Several bills, currently under discussion in the Brazilian National Congress, highlight the growing importance of hydrogen in the country’s energy transition. Therefore, bill no. 725/2022 aims to regulate the use of hydrogen as an energy source, giving the Brazilian National Agency for Oil, Natural Gas, and Biofuels (ANP) the authority to oversee hydrogen production, import, export, and use. The bill also sets goals for blending hydrogen in pipelines, requiring 5% hydrogen by 2032, with an increase to 10% by 2050. Additionally, bill no. 1878/2022 focuses on establishing regulatory policies for green hydrogen, explicitly addressing its production and application for energy purposes. The Prohidroverde Program (bill no. 3173/2023) reinforces these efforts by creating incentives for producing, distributing, and using green hydrogen derived from renewable sources.

State-level legislation in Brazil also has a critical role in driving the green hydrogen agenda forward. Through Decree No. 21, 200 of 2022, Bahia has positioned itself as a key player with a State Plan for the Green Hydrogen Economy (PLEH2V), focusing on industrial modernization and fostering an attractive business environment for national and international partnerships. Espírito Santo, Decree No. 5, 416-R of 2023, is building a renewable energy ecosystem that encourages the use of green hydrogen, offering tax incentives for projects related to solar, wind, and biomass energy. States like Goiás and Paraná have also implemented laws that incentivize the production and adoption of green hydrogen, demonstrating their eagerness for this transition. These federal and state initiatives collectively aim to encourage research and development, offer tax incentives, and create public financing opportunities, positioning Brazil to use its abundant renewable resources for green hydrogen production.

Additionally, the ethanol reform in Brazil for green hydrogen production has been well discussed in Brazilian papers; see Aguiar et al. (2024); da Silva et al. (2024). The ethanol reform in Brazil for green hydrogen production markedly enhances the nation’s energy security while concurrently mitigating its carbon emissions (da Silva et al. 2024). This integration capitalizes on Brazil’s extensive ethanol infrastructure, fostering sustainable energy methodologies. By this, Li et al. (2024) discussed the cogeneration paradigm that employs ethanol steam reforming in conjunction with solid oxide fuel cells (SOFCs) to facilitate the concurrent generation of both hydrogen and electricity at strategically positioned fuel stations, optimizing distribution efficiency. By harnessing existing ethanol resources, Brazil can diminish its dependency on imported fossil fuels, thus fortifying its energy autonomy (Nikolaidis and Poullikkas 2023).

Incorporating hydrogen production into the ethanol and sugar manufacturing processes significantly reduces greenhouse gas emissions, given that hydrogen derived from renewable sources is classified as green (Pal et al. 2022). The utilization of ethanol, a biofuel that is already widely established in Brazil, contributes to diminished emissions in contrast to conventional fossil fuels, thereby aligning with international climate objectives (Maia and Bozelli 2022). Notwithstanding the myriad advantages of the transition to green hydrogen, challenges persisted for Sadeq et al. (2024), including the economic feasibility of hydrogen production and the imperative for regulatory support to enhance the integration of these innovative technologies.

This transition is contingent upon resolving regulatory, technical, and economic impediments while capitalizing on Brazil’s existing ethanol infrastructure. Elevated production costs constitute a significant barrier, as the current expenditures associated with ethanol steam reforming (ESR) and hydrogen production remain excessively high, as discussed by Meng et al. (2023).

Moreover, technical constraints, such as the necessity for efficient and stable catalysts, impede the process due to complications like metal sintering and carbon deposition (Gurgel et al. 2024). In addition, the insufficient infrastructure for hydrogen storage and distribution exacerbates the difficulties in expanding the hydrogen market. Despite these challenges, there are growth opportunities. Brazil’s extensive ethanol production network provides a strong foundation for hydrogen generation. Fostering partnerships between the public and private sectors could stimulate investment and drive the regulatory reforms necessary for market growth (Macedo and Peyerl 2023).

2.3. Research Gaps in Literature

This section provides research gaps in the literature based on a new green hydrogen industry in Brazil, based on the reform of ethanol in Brazil. Another point researched in Section 2, brought together by the methodology used by Bispo et al. (2024), revealed gaps in existing research. As summarized in

Table 1. Comparative study.

Articles	Year	I-O	Reform of Ethanol	GH2 in I-O	Impact of GH2
dos S. Gonçalves et al. (2023)	2023	✓	×	×	×
Poggio et al. (2024)	2024	✓	×	×	×
Nogueira et al. (2023)	2023	×	✓	×	✓
Soares de Carvalho Freitas et al. (2022)	2022	×	×	×	×
Grangeia et al. (2022)	2022	×	×	×	×
Bharathiraja et al. (2022)	2022	✓	×	×	×
Patel et al. (2020)	2020	✓	×	×	×
Pasha et al. (2021)	2021	✓	×	×	×
Tiburcio et al. (2023)	2023	✓	×	×	×
Maia and Bozelli (2022)	2022	×	✓	×	✓
Hassan et al. (2024)	2024	×	×	×	✓
Martin et al. (2023)	2023	×	×	×	✓
Franco and Rocca (2024)	2024	×	×	×	✓
Uku and Shehu (2024)	2024	✓	×	×	×
Li et al. (2024)	2024	✓	×	×	×
Yadav et al. (2024)	2024	✓	×	×	×
Wagialla et al. (2024)	2024	✓	×	×	×
da Silva et al. (2024)	2024	×	✓	×	✓
Li et al. (2024)	2024	×	✓	×	✓
Pal et al. (2022)	2024	×	✓	×	×
Meng et al. (2023)	2024	×	✓	×	✓
Gurgel et al. (2024)	2024	×	✓	×	×
Current Paper	2024	✓	✓	✓	✓

, previous studies have mainly focused on the assimilation of green hydrogen (GH2) into input–output (I-O) models and their prospective ramifications. Although numerous investigations have scrutinized the general utilization of I-O models, particularly within the framework of diverse industrial sectors, a shortage of scholarly inquiry addresses the integration of GH2 within these analytical models.

Table 1 also demonstrates that, while certain studies have examined the reform of ethanol in isolation, exemplified by Nogueira et al. (2023) and Maia and Bozelli (2022), these investigations do not amalgamate I-O modeling or GH2. This type of segregated examination of ethanol reform underscores the constrained scope of prevailing research, which predominantly concentrates on discrete elements rather than adopting an integrated perspective that analyses GH2 as a plausible complementary energy resource. Furthermore, although these investigations recognize the implications of GH2 in specific instances, they neglect to merge this with an I-O analysis.

Therefore, the surveyed literature lacks exploration of GH2 within I-O models, as no research from the present study incorporates GH2 within such frameworks. The lack of this integration, particularly concerning ethanol reform, signifies a pivotal shortcoming in elucidating the broader economic and environmental ramifications of large-scale GH2 adoption.

While studies by Hassan et al. (2024) and Martin et al. (2023) assessed the effects of GH2 in isolation, these examinations did not employ I-O models, thereby constraining the profundity of their impact evaluations on interconnected sectors. The present study intends to rectify these deficiencies by encompassing all essential components: I-O modeling, ethanol reform, and GH2 integration. This all-encompassing methodology constitutes a pioneering contribution to the discipline by investigating the individual ramifications of GH2 and ethanol reform and their effects within an I-O framework.

3. Materials and Methods

Figure 1 demonstrates that the methodology is divided into four essential parts. The initial phase (a) encompasses the synthesis of green hydrogen via ethanol steam reforming methods. This phase entails the computation of capital expenditure(s) (CapEx) and operational expenditure(s) (OPEX), which furnish the economic parameters requisite for the ensuing stages.

In the subsequent phase (b), a hybrid analytical approach is executed by amalgamating input–output (I-O) tables from the IBGE with the distinctive characteristics of the green hydrogen sector. The RAS methodology maintains coherence and precision, recalibrating the I-O tables to incorporate the emergence of green hydrogen. This recalibrated table extrapolates indicators such as GDP, and employment levels, thereby facilitating a comprehensive evaluation of green hydrogen’s economic and environmental ramifications.

The tertiary phase (c) is focused on scrutinizing the linkage effects of green hydrogen within the economic framework. This phase examines the backward and forward linkages and delineates the economic sectors that supply inputs to—or utilize outputs from—the green hydrogen sector. Thus, it is responsible for elucidating the economic interdependencies this type of industry engenders.

In the concluding phase (d), the prospective applications of green hydrogen within industrial sectors are systematically assessed. This examination yields insights into the modalities through which green hydrogen can be assimilated into these energy-intensive industries, thereby enriching the understanding of its contribution toward the decarbonization of industrial processes and the promotion of sustainable development.

3.1. Input–Output (I-O) Analysis Framework

The methodology used in this study applies an input–output (I-O) analysis to evaluate the macroeconomic impacts of developing a green hydrogen industry in Brazil, as demonstrated by Gupta et al. (2023). This technique maps out how sectors are interconnected by identifying the flow of goods and services between industries. The aim is to assess the economic viability of emerging industries, such as green hydrogen, by modeling how their development influences various economic sectors and how these sectors, in turn, provide inputs to the new industry.

Once the green hydrogen sector was integrated into the Brazilian I-O table, the analysis simulated the economic ripple effects of green hydrogen production. These ripple effects encompass direct impacts on job creation and GDP growth in industries directly involved in green hydrogen production, as well as indirect effects that arise from increased demand for inputs from upstream sectors like steel production, machinery, and logistics. Furthermore, the I-O analysis allows for the evaluation of induced effects, which refer to the broader economic impacts generated by the wages spent by workers employed in the green hydrogen supply chain and related sectors.

3.2. Data Collection and Model Development

The data in this analysis come from Brazil’s most recent national input–output tables, regularly updated by the Brazilian Institute of Geography and Statistics (IBGE). Since green hydrogen is a relatively new and emerging sector, it was not part of the original I-O table. Therefore, the I-O table was updated by adding a green hydrogen sector to accommodate this new industry. This was done by mapping the capital expenditure(s) (CapEx) and operational expenditure(s) (OPEX) associated with green hydrogen production to corresponding sectors in the existing I-O framework. CapEx, which includes the costs of establishing green hydrogen production facilities, was allocated to relevant construction and industrial sectors. Similarly, OPEX, which covers the costs of running these facilities (electricity, water, maintenance, and labor), was mapped to industries such as utilities and services.

All costs were then categorized based on the Brazilian National Classification of Economic Activities (CNAE). The RAS method was used to balance the updated I-O table. This method allowed for the re-balancing of the input and output columns while accounting for both positive and negative elements within the matrix, ensuring that total inputs equaled total outputs, as mentioned by Temurshoev et al. (2013). The RAS method was applied in R, and the balancing process followed the guidelines outlined by Temursho et al. (2021).

3.3. Integration of Ethanol Reform Process

A fundamental component of the analysis hinges upon the ethanol reform process for the generation of green hydrogen in Brazil. This analysis uses the ethanol derived from sugarcane, a resource abundantly available in Brazil, as a feedstock for hydrogen production, emphasizing reform processes modeled using the methodology demonstrated by Ishaq and Crawford (2023).

The calculations around CapEx and OPEX were predicated on the design parameters of a 1 megawatt (MW) ethanol reform facility, which yielded financial inputs pertinent to the Brazilian economic landscape. The capital expenditure for essential equipment, including reactors, heat exchangers, and compressors, was calculated, while the Operational Expenditure encompassed ongoing costs such as electricity, water, and maintenance. Therefore, a simulation of the project and operational expenditures associated with this process was executed.

3.4. Impact Indicators and Linkage Effects

The research also assessed the direct and indirect economic impacts of establishing a green hydrogen industry in Brazil, as demonstrated by Gupta et al. (2023). Direct impacts focused on industries that supply critical inputs for green hydrogen production, such as renewable energy, water, and technological infrastructure. These industries are essential for the green hydrogen value chain and shape large-scale hydrogen production’s cost structure and feasibility. On the other hand, indirect impacts examined the broader upstream effects on different sectors of the economy, particularly those that may not be directly involved in green hydrogen production but are influenced by changes in demand and supply within related industries.

For this, the wage income and employment multipliers were used. Income multipliers are calculated based on the value added through employee compensation or wages. This can be incorporated, standardized, and multiplied by the Leontief matrix:

$$W_j=\sum _{i=1}^n{\omega }_i{l}_{ij}$$

where ${\omega }_i={\displaystyle \frac{w_i}{X_i}}$ represents the wage $w_i$ divided by the total output $X_i$ for the respective region–sector combination, and $l_{ij}$ is the element in the i-th row and j-th column of the Leontief matrix.

Employment multipliers were calculated using the employment data from the matrix of technical input coefficients (A). This matrix quantifies the relationships between different sectors of the economy by indicating the amount of labor required from each sector to produce a unit of output in another industry:

$$E_j=\sum _{i=1}^n{ϵ}_i{l}_{ij}$$

where ${ϵ}_i$ corresponds to the employment coefficient in the i-th row, and $l_{ij}$ is the element in the i-th row and j-th column of the Leontief matrix.

Additionally, the research calculated backward and forward linkages to comprehensively understand the interconnections between the green hydrogen sector and the broader economic system. To this, let r denote the dimension of the block in the transaction matrix for the region of interest and s denote the dimension of the blocks for the remaining regions. If there are n sectors and m regions, then $r=n$ and $s=(m-1)·s$. For backward linkages, the equation below is the column sum of the input matrix of technical coefficients A:

$$B{L}_j={\displaystyle \frac{{\sum }_{i=1}^n{a}_{ij}}{1/n·{\sum }_{j=1}^n{\sum }_{i=1}^n{a}_{ij}}}$$

On the other hand, for forward linkages, the formula below is the row sum of the output matrix of technical coefficients B:

$$F{L}_i={\displaystyle \frac{1}{n}}\sum _{j=1}^n{b}_{ij}·{\displaystyle \frac{1}{n^2}}\sum _{j=1}^n\sum _{i=1}^n{b}_{ij}$$

Backward linkages measured the extent to which the green hydrogen sector’s demand for inputs stimulates production in upstream industries, such as manufacturing, construction, and services that support infrastructure development (Gupta et al. 2023). This ripple effect signifies the potential for green hydrogen to act as a catalyst for growth in various sectors that supply goods and services necessary for its production. Forward linkages, in contrast, assessed how the output of green hydrogen could generate growth in downstream industries, including transportation, energy storage, petrochemicals, and heavy industry.

4. Analysis and Results

This section analyzes the composition of the final stream of the process, the costs related to implementing and operating the described project, and the impact of the green hydrogen industry in Brazil.

4.1. Financial Analysis

The financial analysis reveals a relatively low investment compared to the plant’s production capacity. The total capital required is BRL 3,974,853.19, while the total cost of production amounts to BRL 143,172,908.99 per year, both values as of October 2024. A significant portion of the production costs is associated with the burner, which is critical for ensuring the plant’s energy needs are met, as it provides the necessary heat input to sustain the entire process under high-demand conditions.

In terms of fixed operating costs, the high value is primarily driven by the substantial demand for ethanol, which serves a dual purpose in the production process: as both a reagent in the chemical reaction and as a supplementary energy source. In this manner, ethanol offsets the need for additional utility energy, particularly electricity and natural gas, which are traditionally used in similar industrial operations. This reliance on ethanol reflects broader trends in industrial energy management, where alternative energy sources are being integrated to improve process sustainability and reduce dependence on conventional utilities.

Moreover, labor costs also constitute a notable portion of the fixed expenses. Following established industry standards within the chemical sector, the plant requires a workforce of 37 operators distributed across three shifts to ensure continuous operation. Each shift comprises eight operators, with an additional operator assigned to handle contingencies to ensure that operations remain uninterrupted in case of absenteeism or unexpected challenges.

Beyond the direct production-related expenditures, the analysis also includes administrative and site costs, which form part of the overall fixed costs. These include supervision expenses, office-related spending, and government taxes. These elements are calculated based on the regulatory and operational framework specific to São Paulo, Brazil, where the plant is located. Given the city’s industrial landscape and regulatory requirements, such costs are expected to reflect local taxation rates and compliance-related expenses, further adding to the plant’s financial obligations.

Table 2. Composition of the financial costs involved in the process.

CNAE	Type of Indicator	Value (in BRL)
Agriculture, including agricultural and post-harvest support	OPEX	BRL 109,958,882.58
Water, sewage, and waste management	OPEX	BRL 4520.76
Other administrative activities and complementary services	OPEX	BRL 4,573,971.59
Real estate activities	OPEX	BRL 416,282.18
Maintenance, repair, and installation of machinery and equipment	OPEX	BRL 238,413.43
Non-real estate rentals and management of intellectual property assets	OPEX	BRL 4,280,435.85
Financial intermediation, insurance, and pension funds	OPEX	BRL 524,509.56
Wholesale and retail trade, except motor vehicles	OPEX	BRL 15,694,931.47
Other professional, scientific, and technical activities	OPEX	BRL 7,480,961.58
Manufacture of electrical machinery and equipment	CapEx	BRL 3,974,853.19

presents a breakdown of the financial results, categorized on the distribution of costs across different areas of the plant’s operations and related to the Brazilian National Classification of Economic Activities (CNAE).

The largest OPEX is attributed to agriculture, including agricultural and post-harvest support, amounting to BRL 109,958,882.58. This is followed by wholesale and retail trade, excluding motor vehicles, amounting to BRL 15,694,931.47, and non-real estate rentals and intellectual property asset management contributing to BRL 4,280,435.85. Other sectors with notable OPEX values include administrative activities and complementary services, with expenditures ranging from BRL 35,762.01 to BRL 2,312,678.78, as well as professional, scientific, and technical activities, with OPEX values of BRL 7,134,059.76 and BRL 346,901.82, respectively. Smaller OPEX values are observed in sectors such as water, sewage, and waste management (BRL 4520.76) and maintenance, repair, and installation of machinery and equipment (BRL 238,413.43).

The total cost of production, which translates into direct, fixed, and general expenses, is BRL 143,172,908.99 per year and yields a hydrogen output of 907.62 kg/h. This translates to a manufacturing cost of BRL 18.00/kg. When benchmarked against the leveled cost of hydrogen production via ethanol reforming, which ranges from USD 2.87/kg to USD 3.56/kg (equivalent to BRL 14.86/kg to BRL 18.44/kg) (Bisognin Garlet et al. 2024), the process demonstrates competitive pricing, particularly because it operates independently of external energy sources.

The economic competitiveness of this hydrogen generation process is expected to improve even further shortly. Projections suggest that production costs could be halved due to tax incentives provided by the government, as indicated by Clean Energy Latin America (CELA) (Galván et al. 2022). These incentives are part of broader policy efforts to foster the growth of clean energy technologies, reduce carbon emissions, and align with national and international environmental sustainability commitments. As such, the financial viability of hydrogen production through this method is poised to strengthen in response to these policy developments.

4.2. Inter-Industry Linkage Effects in Brazil

Figure 2 presents a scatter plot that illustrates the forward and backward linkage patterns for various industry sectors in Brazil, including the newly emerging green hydrogen industry. The horizontal axis represents the backward linkages, reflecting the degree to which a sector relies on inputs from other sectors. The vertical axis represents the forward linkages, indicating how much a sector provides inputs to other industries.

The new hydrogen industry is highlighted in green, positioned toward the lower end of both backward and forward linkage axes. This suggests a relatively modest interaction with other sectors in its early stages. In contrast, “Arts, culture, sport, and recreation” sectors display high forward linkages with a relatively low backward linkage, indicating their output to other sectors without requiring substantial inputs. Another sector, “Water, sewage, waste management, and decontamination activities”, shows moderate backward and forward linkages, suggesting a balanced level of integration with other industries both as a supplier and consumer of inputs.

The distribution of the backward linkage effect for the emerging green hydrogen industry reveals that its value is less than one, indicating a relatively limited impact on the national economy regarding input demand from other sectors. This metric reflects how the green hydrogen sector stimulates upstream industries through investment and production activities. Given that the backward linkage effect remains lower than established industries, it suggests that the green hydrogen sector currently exerts minimal pressure on the supply chains that feed into it. As a result, the industry’s capacity to drive demand and production in other economic sectors is currently constrained. At this stage of its development, the green hydrogen industry plays a more modest role in fostering intersectoral growth and stimulating broader economic activity. This is likely due to its developing status and the relatively lower scale of operations compared to more traditional and established sectors, such as fossil fuels or manufacturing, which have more mature supply chains and higher input demands.

Additionally, the green hydrogen sector’s relatively lower backward linkage suggests that its contributions to Brazil’s overall economic growth remain limited in the short term. However, as the green hydrogen industry expands and matures, its backward linkage effect is expected to strengthen, potentially driving more substantial intersectoral interactions and exerting greater pressure on upstream sectors. In the long term, this could lead to a more significant role in Brazil’s industrial landscape as demand for clean energy technologies accelerates and the green hydrogen sector scales up to meet both domestic and international energy needs.

This relatively low backward linkage implies that while the green hydrogen industry is emerging as a strategically important sector due to its potential for decarbonization and sustainable energy production, its capacity to generate immediate economic spillovers is constrained. In the short term, its contribution to inter-industry demand and production chains may remain limited until further investments, technological advancements, and scaling of its activities occur. As such, the sector’s ability to bolster upstream industries will depend on its growth trajectory and the extent to which it can integrate domestically sourced inputs and resources over time.

However, these findings diverge from those presented by Gupta et al. (2023). A possible explanation for this discrepancy lies in the geographical, economic, and infrastructural differences between Brazil and Switzerland. Brazil is a vast, continental-sized country with unique challenges and opportunities regarding energy distribution, market access, and transportation networks. In contrast, with its smaller, more centralized geographical area, Switzerland benefits from a highly developed infrastructure and different regulatory frameworks. These structural variances likely contribute to the differing outcomes observed in each context, highlighting the importance of considering national characteristics when analyzing similar phenomena.

Secondly, the green hydrogen industry’s forward linkage effect is smaller than one, indicating that this sector is less responsive to the overall growth of other industries compared to more established sectors. In periods of economic expansion, when industrial activities are booming, the green hydrogen industry is not as heavily stimulated by increased output demand. This suggests that the green hydrogen sector is relatively insulated from fluctuations in business cycles and is not significantly driven by short-term shifts in industrial growth.

In this context, the green hydrogen industry could stabilize the Brazilian economy, acting as a net contributor to long-term economic growth rather than being overly influenced by cyclical economic conditions. As assumed throughout this analysis, its resilience to economic fluctuations enhances its potential as a strategic sector for fostering sustainable development, particularly if the industry can develop a robust supply chain based on domestically produced equipment and inputs. By reducing reliance on imports and fostering local industrial development, the green hydrogen sector could help to create a more self-sufficient and resilient economic structure, further contributing to Brazil’s financial sustainability and energy transition efforts.

4.3. Impact Analysis for GDP and Employment of Green Hydrogen

Table 3. GDP, employment, and emission multipliers of key industries involved in the new green hydrogen industry.

Sector	GDP	Employment
Green Hydrogen	1.5	1.4
Agriculture, including support for agriculture and post-harvest	1.3	4.1
Manufacture of machinery and mechanical equipment	3.7	3.7
Wholesale and retail trade, except motor vehicles	2.3	5.4
Real estate activities	2.7	2.1
Other professional, scientific, and technical activities	2.9	4.6
Non-real estate rentals and management of intellectual property assets	3.3	3.2
Other administrative activities and complementary services	4.0	9.4

presents an overview of the GDP and employment multipliers associated with various industrial sectors engaged in Brazil’s emerging green hydrogen industry. These multipliers represent the economic and labor market impacts triggered by a unit increase in the output of each sector, offering insight into the potential ripple effects of investments and production expansions within the green hydrogen value chain.

Notably, the green hydrogen sector displays a GDP multiplier of 1.5, and an employment multiplier of 1.4. This indicates moderate economic growth and job creation potential within the sector. However, these figures suggest that while green hydrogen production is critical to Brazil’s energy transition, its direct impact on employment may be more limited than other sectors that support or complement the industry. This underlines the need for integrated policies and investments that leverage synergies between green hydrogen and other high-employment sectors.

In contrast, sectors such as agriculture—including post-harvest and agricultural support activities—demonstrate significantly higher employment multipliers, at 4.1, highlighting their critical role in absorbing labor within the green hydrogen supply chain, particularly in rural and agricultural areas. Wholesale and retail trade, with an employment multiplier of 5.4, also plays a prominent role in labor market impacts, likely due to the extensive distribution and service networks these industries require to support green hydrogen production and distribution.

Manufacturing machinery and mechanical equipment, a crucial sector for deploying green hydrogen infrastructure, shows a high GDP and employment multiplier of 3.7. This indicates the sector’s significant contributions to economic output and job creation. Investments in this area drive technological advancements and stimulate wider economic activity through demand for specialized labor and components.

Real estate activities, with a GDP multiplier of 2.7 and an employment multiplier of 2.1, reflect its influence on economic growth, although its impact on employment is less pronounced. Meanwhile, professional, scientific, and technical activities essential for research, development, and technical support in green hydrogen initiatives exhibit strong multipliers (2.9 for GDP and 4.6 for employment). These figures underline the importance of a skilled workforce in driving innovation and ensuring the successful implementation of hydrogen technologies.

Non-real estate rentals and management of intellectual property assets also show notable multipliers (3.3 for GDP and 3.2 for employment), demonstrating the role of intellectual property management and leasing services in supporting technological advancements in the gross macroeconomic impacts associated with establishment activities and complementary services” stands out with an employment multiplier of 9.4, the highest among all industries, underscoring its vital role in providing the administrative, logistical, and ancillary services that underpin the broader functioning of the green hydrogen ecosystem.

Moreover, the outline of the gross macroeconomic impacts associated with establishing a 1 MW green hydrogen industry in Brazil was made (

Table 4. Total gross macroeconomic impacts generated due to a new 1 MW green hydrogen industry.

Macroeconomic Indicator	Total Gross (/MW)
Gross GDP contribution per installed capacity of green hydrogen industry	BRL 28,010.00
Gross employment contribution per installed capacity of green hydrogen industry	0.457974 FTE jobs

). The estimation of GDP and employment contributions per megawatt (MW) installed capacity highlights the broader economic effects of expanding this emerging sector.

The gross contribution to GDP per installed megawatt of green hydrogen capacity is anticipated to reach BRL 28,010.00, illustrating the sector’s potential to enhance economic performance. This figure reflects the immediate economic ramifications of green hydrogen production and encapsulates the extensive multiplier effects that influence upstream and downstream industries. The proliferation of the green hydrogen sector is projected to catalyze demand for inputs such as renewable energy, manufacturing, and transportation, thereby augmenting economic activity across these interconnected sectors. Moreover, the GDP contribution emphasizes the significance of green hydrogen in bolstering Brazil’s energy autonomy and promoting sustainable economic development by diversifying its industrial framework.

Concerning employment, the gross contribution of jobs per megawatt is approximated at 0.457974 full-time equivalent (FTE) positions. This denotes the direct and indirect jobs generated by each megawatt of installed capacity and encompasses roles in production, infrastructure enhancement, and supply chain operations. Although the employment multiplier may initially seem relatively low in comparison to labor-intensive sectors, it is acknowledged that green hydrogen constitutes a capital-intensive industry. As the sector evolves and expands, there exists a potential for job creation not only within hydrogen production facilities but also in related industries such as equipment manufacturing, research and development, and maintenance services. Furthermore, as Brazil seeks to contribute significantly to the global green hydrogen market, additional employment prospects may emerge in export logistics, international commerce, and regulatory governance.

The initially modest employment impact highlights the necessity for complementary policies advocating workforce development and skills training to facilitate a seamless transition to a hydrogen-centric economy. Strategic investments in educational and vocational training initiatives could bolster the local labor force’s proficiency in addressing the technical requirements of the green hydrogen sector. Over time, as the sector becomes more integrated into the broader energy framework, it could emerge as a substantial catalyst for long-term job creation, particularly in regions endowed with renewable energy potential.

Consequently, the GDP and employment contributions underscore the green hydrogen sector’s transformative capacity for Brazil’s economic landscape. While the immediate effects may be modest, the enduring advantages of nurturing this industry—from economic diversification to sustainable job creation—are considerable, reinforcing the role of green hydrogen as a fundamental component in the nation’s transition toward a low-carbon economy.

5. Conclusions

In conclusion, Brazil’s green hydrogen sector signifies a promising trajectory for economic enhancement and sustainable energy advancement; however, its immediate ramifications for GDP and employment appear modest. The financial evaluation demonstrates that this sector is economically feasible, characterized by competitive production expenses that are anticipated to further improve due to governmental incentives. Moreover, the industry’s dependence on ethanol as both a reagent and an energy substrate underscores a transition toward more sustainable production methodologies that mitigate reliance on traditional utilities.

Nonetheless, examining inter-industry linkages indicates that the green hydrogen sector is still in its formative phase, exhibiting limited backward and forward connections to other sectors. This observation implies that the sector’s capacity to engender economic spillovers will be restricted in the short term until additional investments and technological innovations are realized. Despite being relatively modest, the employment implications underscore the industry’s capital-intensive characteristics and emphasize the necessity of policies directed at workforce development to guarantee that the sector can contribute to job creation as it evolves.

On the other hand, the gross GDP and employment contributions per megawatt of installed capacity further substantiate the sector’s potential for long-term economic advantages. Although the initial multipliers for GDP and employment are moderate, the sector’s capability to catalyze growth in associated industries such as equipment manufacturing, renewable energy, and logistics will be pivotal in determining its future impact. Furthermore, as Brazil endeavors to establish itself as a determinant actor in the global green hydrogen marketplace, the industry’s role in supporting the nation’s broader energy transition and promoting sustainable economic development will assume increasing significance.

In light of these findings, the green hydrogen sector should be perceived as a strategic domain with substantial long-term prospects. Its progression, bolstered by conducive policies and investments in infrastructure and skill development, will be essential for Brazil’s initiatives to diversify its economy, enhance energy autonomy, and fulfill its environmental sustainability objectives. Additionally, by harmonizing green hydrogen production with local supply chains and renewable energy resources, Brazil has the potential to diminish its carbon footprint and establish a resilient, low-carbon energy framework. This integration aligns with the country’s international obligations toward climate change mitigation and provides a pathway toward enhanced industrial competitiveness within the global green technology market.

The prospective expansion of the green hydrogen sector could also facilitate regional development, particularly in locales with abundant renewable resources. This regional aspect accentuates the industry’s capacity to promote inclusive growth by generating employment opportunities in less industrialized areas, where investment in green infrastructure could enact transformative changes. Within this framework, green hydrogen may function as a lever for addressing economic inequalities across Brazil, fostering more equitable economic advancement while bolstering the nation’s long-term energy security.

Moreover, a primary limitation of utilizing I-O tables is their inherently static nature, which constrains the capacity to account for dynamic economic changes over time, including shifts in technology, energy prices, and consumer preferences that may influence the adoption of green hydrogen. Furthermore, I-O analysis assumes a fixed production structure, potentially overlooking the complex interactions and substitutions that may emerge as green hydrogen technologies and infrastructure develop. As a result, the findings presented should be understood as indicative of potential impacts within the current economic structure, rather than as forecasts of future conditions.

Future research should explore the potential impact of the emerging green hydrogen sector on carbon emissions, particularly about the sustainable development goals (SDGs). A promising avenue for further investigation would be to expand the scope of this study to incorporate a more detailed analysis of this issue, examining the implications of green hydrogen production and its integration into the energy matrix. Alternatively, employing other input–output (I-O) models could provide deeper insights into how this sector might influence carbon emissions, offering a more comprehensive understanding of its environmental and economic effects.