Brazil's sustainable fuel program to stimulate demand, provide legal security

Brazil’s congress approved the so-called fuel of the future bill (PL 528/2020), which establishes guidelines for the development of sustainable fuels. 

Local experts told BNamericas the law will stimulate biofuel demand and provide legal security for investors.  

The bill, which now goes to President Luiz Inácio Lula da Silva for signing, implements programs to promote green diesel, aviation biokerosene, decarbonization of natural gas producers and importers and incentives for biomethane, as well as the creation of a legal framework for the capture and geological storage of carbon dioxide.

The measure promotes the integration of various public policies related to the transport sector, such as the national biofuels policy (RenovaBio), the green mobility program (Mover), the Brazilian vehicle labeling program (PBEV) and the vehicle air pollution control program (Proconve).

The bill also establishes new minimum and maximum percentages for the mixture of ethanol with gasoline and biodiesel with diesel sold to consumers at gas stations across the country. 

It will be up to the energy policy council (CNPE) to assess the viability of the targets for increasing the blends. The council can reduce or increase the percentage within the limits of 13% and 25% in the case of biodiesel, and 22% and 35% for the blend of ethanol and gasoline.

A study by consultancy Oliver Wyman estimates that the program could create additional annual demand of 11.7Bl of liquid biofuels and 3.4Bm3 of biomethane and require up to 58bn reais (US$10.4bn) of investment in increased capacity. 

The director of the energy and natural resources area at Oliver Wyman and one of the authors of the study, Rodolfo Taveira, drew attention to the inclusion in the text of biomethane as an alternative to natural gas. 

“The law establishes the creation of biomethane generation certificates that can be marketed independently by producers and importers, which should encourage this biofuel,” Taveira told BNamericas. 

He highlighted the role that watchdog ANP would play in regulating the initiatives provided for in the bill, dealing with issues such as criteria for calculating greenhouse gas emissions, quality control, and traceability of biofuels and credits related to biomethane. “As well as defining the profiles that will be obliged to use biomethane as a mixture with natural gas, especially in the transport sector,” added Taveira. 

Leonardo Correa, of law firm VLF Advogados, said the new regulatory framework guarantees predictability and legal certainty for investors in the sector and for the production chain.

“Brazil has a great environmental competitive advantage due to its green matrix of sustainable fuel production. The big question is how to transform this advantage into effective commercial leadership in the new economy,” Correa told BNamericas. 

DISTRIBUTED GENERATION

Before the bill was approved, the lower house removed an amendment from the text that provided for the extension of benefits to distributed generation (DG). 

The jabuti – referring to an article or amendment introduced to a bill that is unrelated to the subject of the proposed legislation – was heavily criticized by local energy associations, who claimed it would increase power bills. 

The power distributors association Abradee, which is in dispute with the distributed generation segment, was among the groups that signed a statement sent to the press on Monday. 

“With the migration to the free energy market, this choice by the consumer to leave the local distributor has an impact on the distributor's cash flow. This is also a major point of resistance to the growth of DG in Brazil,” Paula Padilha, energy partner at law firm Vieira Rezende, told BNamericas.

“We need to look at and adjust the electricity sector universally so that neither side suffers impacts so great that they are ultimately felt by end consumers.”

Pedro Vasconcellos, from law firm Marcelo Tostes Advogados, says the issue of tax benefits is a critical one, as those who don't receive exemptions are burdened. 

Another problem, in the lawyer's opinion, is the time limit that starts to run from the issuance of the opinion on access to the distribution grid for DG projects. 

“Often, the entrepreneur meets all the requirements, sets up the plant, imports the equipment, and is ready to generate energy but faces delays on the part of the distributors in making the connection. This ends up jeopardizing the process and needs to be carefully assessed by both sides,” he told BNamericas.