Created to contribute to the reduction of greenhouse gases (GHG) in the production, commercialization, and use of biofuels, the National Biofuels Policy (Política Nacional de Biocombustíveis or “RenovaBio”), established by Federal Law 13,576/17 and regulated by Federal Decree 9,888/19, has proved to be one of the most important policies to promote the decarbonization of the Brazilian energy matrix.

In summary, RenovaBio is based on three pillars:

  • The fulfillment of annual mandatory GHG reduction targets by fossil fuel distributors, considered as obligated parties by RenovaBio. These targets are determined by the National Agency of Petroleum, Natural Gas and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis or “ANP”) taking under consideration the carbon intensity in the fuel market projected by the National Energy Policy Council (Conselho Nacional de Política Energética or “CNPE”) for the period of ten years, as well as based on the participation of the distributor in the commercialization of fossil fuels in the previous year;
  • The certification of the efficient production or import of biofuels by inspection firms accredited by ANP. Inspection firms assess the products’ life cycle to verify whether biofuels emit less GHG than their substitute fossil fuels, which results in the issuance of an Energy and Environmental Efficiency Score (Nota de Eficiência Energético-Ambiental). Then, a Certificate of Efficient Production of Biofuel (Certificado de Produção Eficiente de Biocombustível) is issued, a document necessary for the participation of producers and importers of biofuels in RenovaBio; and
  • The issuance of Decarbonization Credits (CBIOs), which is considered the link between the two aforementioned steps. CBIOs represent one metric ton of carbon dioxide equivalent that was not emitted into the atmosphere. The calculation is made from the difference between the GHG emissions in the life cycle of a biofuel and the emissions of its substitute fossil fuel.

Credits are issued by biofuels producers and importers duly certified by ANP after fuels sales, based on the invoices of purchase and sale of the product. Subsequently, credits are traded on the Brazilian stock exchange. Fossil fuel distributors must acquire CBIOs to meet their goals.

In 2022, there was intense discussions about the CBIO market between stakeholders, including the change of the deadline for distributors to prove the fulfillment of individual goals. In July, Federal Decree 11,141/22 amended Federal Decree 9,888/19 and determined that fossil fuel distributors shall prove compliance with their targets by March 31 of the following year.

Exceptionally, the proof of compliance with the individual 2022 target has been extended to September 30, 2023. The change was justified mainly due to the impacts caused by the covid-19 pandemic on the fossil fuel, biofuels, and CBIOs markets.

Recently, CBIOs were again at the forefront of discussions related to GHG removals. On December 8, 2022, the Ministry of Mines and Energy (Ministério de Minas e Energia or “MME”) presented proposals of new rules for the transitional government within the Mines and Energy Market Initiative (Iniciativa Mercado Minas e Energia or “IMME”). Measures related to fuel, natural gas, and biofuels were included.

Among these instruments, MME presented a proposal to amend RenovaBio, aiming to establish, among others:

  • the creation of CBIOs+, considered fungible assets, allowing parties obliged by RenovaBio to meet their individual targets with investment in various GHG reduction projects, not restricted to emission reductions from the biofuels sector;
  • the gradual alteration of the obligated parties, replacing distributors with producers and importers of fossil fuels. In theory, MME argued that this replacement would make monitoring compliance with targets easier for the competent authorities; and
  • the possibility of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários or “CVM”) supervising the CBIOs market, which could represent an important precedent for the Brazilian market.

According to the proposal and as a result of one of the public hearings with the largest number of contributions, CVM published, on December 23, 2022, CVM Resolution 175/22, which provides for the constitution, operation, and disclosure of information from investment funds.

Through this rule, which will come into force on April 3, 2023, CVM reinforced the understanding that CBIOs are financial assets, provided that they are registered in a system of registration and financial settlement of assets authorized by CVMor by the Central Bank of Brazil (Banco Central do Brasil), or traded in a market managed by an organized market management entity authorized by CVM.

It is important to mention that RenovaBio has been widely discussed in Brazil to ensure that national policies are coordinated with international negotiations.

This policy is especially important for Brazil to meet its GHG reduction targets. For instance, it was mentioned in the Brazilian Nationally Determined Contribution (NDC),[1] submitted to the United Nations Framework Convention on Climate Change (UNFCCC) following the United Nations Conference on Climate Change held in 2021 (COP 26).

In addition, there is growing international concern about energy issues. The last United Nations Conference on Climate Change (COP 27), held in Egypt in 2022, for example, had a day dedicated to the theme, called "Decarbonization Day". This undoubtedly influences countries' internal decision-making in relation to fighting climate change.

Considering the above and the importance given by Brazil to the matter, it is expected that the proposed amendment of RenovaBio will be debated throughout this year. In case Renovabio is amended, program participants and investors will need to adjust.

 

[1] NDCs are voluntary commitments made by countries that ratified the Paris Agreement to reduce GHG emissions. Brazil has committed to reducing its emissions by 37% by 2025 and by 50% by 2030 – taking as a reference the emission levels of 2005 – and achieving carbon neutrality by 2050.