Brazil: RenovaBio reaches 10 million CBIOs issued — 67% of the 2019–2020 target

The Brazilian agency ANP announced on 30 September 2020 that, under the RenovaBio programme, the platform had approved 10 million CBIO decarbonisation credits. That is 67% of the combined pool of 14.9 million CBIOs needed to settle the 2020 target (14.53 million after the reduction) and the 2019 residual (about 368 thousand). For the biofuel sector – cane ethanol, biodiesel and, in future, biomethane – it is a signal that Brazil's emission allowance market has started to work.

How RenovaBio works

The National Biofuels Policy (RenovaBio), established by Law No. 13.576/2017, imposes annual CBIO purchase targets on fuel distributors. A CBIO is a decarbonisation credit issued by certified biofuel producers in proportion to the emission reduction relative to fossil fuel (1 CBIO corresponds to avoiding the emission of 1 t CO₂e). A distributor meets its target by acquiring CBIOs on the exchange (B3). A producer whose biofuel has a low carbon intensity receives more credits per unit of energy.

Why only at the end of 2020

The first year of the targets was disrupted. As ANP describes, because there was no CBIO trading in 2019 (RenovaBio came into force at the end of 2019, but CBIO issuance was not yet operational), the remaining (unfulfilled) part of the 2019 target had to be met in 2020. Law 13.576/2017 allows distributors to carry over up to 15% of the target to the following year, but only on condition that the previous year's target is fully met, so in 2020 this option was not used. At the same time CNPE reduced the 2020 target by about half (from 28.7 million to 14.53 million CBIOs) because of disruption in the fuel market during the pandemic; the regulation was published in September 2020.

What this means for biogas

RenovaBio also concerns biomethane, which can generate CBIOs if the producer is certified. Sugar cane and its wastes – vinasse and filter cake – are an important resource for biogas, so sugar mills and distilleries can combine ethanol production with the production of biogas and biomethane, using the same credit mechanism.

Risks

CBIO prices depend on delivery of the target, the supply of certified producers and CNPE decisions. Revisions of targets, like the one in 2020, affect market liquidity. Investors should allow for the possibility of changes to the rules.

What this means for Poland and Europe

The Brazilian mechanism is similar to Poland's National Indicative Target and EU obligations on fuel suppliers, but with a separate, exchange-traded CBIO instrument. It shows how linking the target to a tradable credit makes it possible to reward the lowest carbon intensity, and how regulators react to market shocks.