On December 27, 2017, Law No. 13.576/2017 was published in the Official Gazette , establishing the National Biofuel Policy (“RenovaBio”), given the strategic role played by biofuels in the national energy mix and its contribution to the security of the national fuel supply.

The provisions proposed by RenovaBio aim to: (i) comply with the commitments established under the Paris Agreement concerning the United Nations Framework Convention on Climate Change, (ii) contribute to the proper relation between energy efficiency and reduction of greenhouse gas emissions, (iii) promote the production and use of biofuels in the national energy mix and (iv) collaborate in a predictable way for the competitive participation of biofuels in the Brazilian market.

In order to accomplish its objectives, RenovaBio sets forth certain mechanisms, which include: (i) targets for the reduction of greenhouse gas emissions in the fuel mix, (ii) Decarbonisation Credits, (iii) Biofuel Certification, (iv) mandatory addition of biofuels to fossil fuels, (v) incentives on tax, finances and credits, and (vi) actions under the Paris Agreement.

It is worth noting that the above-mentioned mechanisms - regarding emission reduction targets – will be compatible with the targets set for other sectors.

Annual and Individual reduction targets

The annual mandatory targets for the reduction of greenhouse gas emissions for the trading of fuels will be defined by regulation, taking into account the improvement of the carbon intensity in the Brazilian fuel mix over time, for a minimum period of ten years.

According to RenovaBio, the annual mandatory target will be split for each year into individual targets and applied to all fuel distributors – in proportion to their respective market share in the fossil fuel trade of the previous year.

The individual targets of each fuel distributor must be made public, preferably by electronic means, and the verification of compliance with such targets will be carried out based on the amount of Decarbonisation Credits owned by each fuel distributor, on a date defined in regulation.

Furthermore, each fuel distributor will have to prove achievement of its individual target in accordance with its strategy, without prejudice to the volumetric additions provided for in a specific law, such as the addition of ethanol to gasoline and of biodiesel to diesel – for more on this, please follow here: Legal Update. Up to 15% of the individual target may be proven by the fuel distributor in the subsequent year, as long as it has met full compliance with the target in the previous year.

Negotiation of Decarbonisation Credits

The primary issuance of Decarbonisation Credits will be made in book-entry form - in the books or records of the bookkeeper - at the request of the primary issuer, in proportion to the volume of biofuel that was produced, imported and traded.

The definition of the amount of Decarbonisation Credits to be issued will consider the volume of biofuel produced, imported and traded by the primary issuer, in accordance with the respective Energy-Environmental Efficiency Rating contained in the primary issuer’s Certificate of Efficient Production of Biofuels.

The negotiation of Decarbonisation Credits will be carried out in organized markets, including auctions, and the bookkeeper will be responsible for maintaining the business records that occurred during the period in which the credits were registered.