Market participants are hopeful that changes to Brazil's national biofuel policy Renovabio signed into law in the final days of 2024 will increase decarbonization goal compliance, but legal challenges to the program linger.
The direction of the Brazilian Cbio decarbonization credit market in 2025 depends on how effective measures included in the law signed by President Luiz Inacio Lula da Silva will be in stimulating Cbio acquisitions to meet annual goals. Legal challenges to Renovabio rules lodged by distributors have increased default rates in recent cycles, cooling demand for Cbio credits — the price of which dropped by 30pc in 2024.
The default rate for the 2024 cycle ended in December should fall below 2023 cycle levels, as lower credit prices and changes to Renovabio bring defaulting distributors back into the fold. The bill signed on 30 December establishes harsher punishments for distributors failing to comply with decarbonization goals, restricts fuel sales from defaulting distributors, classifies default as an environmental crime, and increases the possible fines for non-compliance to R100,000-500mn ($16,000-80mn) range.
The new Renovabio changes are likely to attract challenges from smaller distributors locked in legal battles against the program. Some retailers were planning appeals to the new law even before it was passed, sources told Argus, citing the increased difficulty in absorbing the Cbio acquisition costs amid higher financial costs due to rising interest rates. "The judicialization remains a challenge, with injunctions in force focused on reducing the value of the Cbio," said a source from a company in full compliance with Renovabio.
There are 10 distributors that have obtained injunctions from complying with Renovabio goals, according to sources.
The new law also supports Renovabio by encouraging program compliance. Those who acquire Cbio credits to meet goals complain about the price advantage of competitors who do not need to pass on acquisition costs to the final consumer. The revised rules should go further in preventing that competitive imbalance.
Market participants retired around 77pc of the 2024 target of 46.4mn Cbios as of 27 December, according to data from hydrocarbons association ANP. In 2023, around 81pc of the 40.9mn retirement goal was met.
