This paper attempts to estimate the technical and economic potential for natural gas-fired cogeneration (NGCHP) in Brazil's chemical industry as well as also analyses the impacts of specific incentive policies on the economic feasibility of this potential. Currently, the NGCHP installed capacity at Brazil's chemical industry is still quite a low figure, although the chemical plants are under heavy pressures to: (1) cut costs; and (2) show a rising awareness of the importance of power service quality, underscored even more heavily by Brazil's recent power crisis. According this study, a natural gas-fired remaining technical potential of 1.4 GW is noted in the Brazilian chemical industry. Financing policies showed to be the stand-alone policy that would be most successful for ensuring the economic feasibility of this technical potential. Nevertheless, this policy proved to be affected by the economic scenario under consideration, which includes world oil prices, electricity tariff and foreign exchange ratio possible paths. Consequently, the key issue is related to the ability to assess which economic scenario is rated as more probable by possible future investors in NGCHP, and then selecting the most appropriate incentive policy. (C) 2003 Elsevier Ltd. All rights reserved.