RenovaBio – A Step Ahead

Nordic countries have a tradition of environmental awareness. Nordic companies are commonly concerned with the impact of the usage of fossil fuel on the environment and have long directed their commercial strategies and investments to the development of biofuels. Such strategies will now pay off in relation to their investments in Brazil.

Biofuels may be defined as any and all energy source of biological and non-fossil origin, whether in solid, liquid or gaseous state. Increasing attention worldwide has been given to such kind of fuels as substitutes for petroleum-derived fuels.

From the environmental point of view, biofuels contribute to the reduction of greenhouse gas emissions, which results in an improvement in the quality of the air. By ratifying the Paris Agreement in 2016, Brazil committed to reduce the greenhouse gas emission by 37% below 2005 levels by 2025, and by 43% below 2005 levels by 2030. To reach these goals, Brazil undertook to increase the share of sustainable bioenergy in the national energy matrix to 18% by 2030.

An important step toward the achievement of the said goals has been taken by the Brazilian Government upon the publication of Federal Law nº 13.576/17, partially regulated by Federal Decree nº 9.308/18, instituting the National Policy of Biofuels, named “RenovaBio”. Aligned with the commitments taken by the country under the Paris Agreement, the law seeks to contribute with the energy efficiency, promote the expansion of the production and use of biofuels, and provide predictability to a competitive participation of different biofuels in the national market.

According to the Federal Law, a primary biofuel producer or importer authorized by Brazil’s National Petroleum Agency (ANP) is allowed to request the issuance of a Decarbonization Credit proportional to the volume of biofuel produced or imported and sold. The Credit is calculated based on the Energy and Environmental Efficiency Rating, which represents the difference between the carbon intensity or its substitute fossil fuel and the carbon intensity established in the biofuel certification process.

The Decarbonization Credit (CBio) is a document registered on the book-entry form and issued by a bank or financial institution on behalf of the producer or importer of biofuels, and may be traded with fuel distributors in organized markets.

Fuel distributors, in their turn, must comply with annual mandatory individual decarbonization targets to be established by ANP, which shall be proportional to their respective market share in fossil fuel sales in the previous year and seek to ensure lower carbon intensity in the national fuel matrix. The purchased CBios may be used in the verification of the achievement of the targets.

Annually, ANP discloses the compliance with individual target of each fuel distribution company; in case of non-compliance, the Agency imposes the due administrative and monetary sanctions, which may vary from R$ 100,000 to R$ 50 million, proportionally to the quantity of Decarbonization Credit not acquired and considering the highest monthly average of CBio’s quotations in the non-compliance exercise, without prejudice to other penalties foreseen in spare legislation.

According to the Federal Decree 9.308/18, the mandatory individual targets to be complied with by fuel distributors shall be defined up to July 1, 2019, to be effective as of December 24 of the same year.

Even though some provisions of the law may still trigger controversy, RenovaBio seems to represent a step ahead from Carbon Taxation: while the latter provides average provisions applicable to all the players without stimulating or rewarding efficient gains, the former foments the recognition of the energetic efficiency by promoting technological development and innovation in order to enhance competitivity of the biofuels in Brazil and abroad.

Concerned companies should be aware of the targets and terms in order to be prepared to meet the new requirements, to which some legal advice may be of great value to anticipate and define the measures to be taken.

Marilene Novelli Siragna is associate at Pacheco Neto Sanden Teisseire Law Firm.