Brazil's national biofuels policy Renovabio faces a "natural" test of legal pressure against decarbonization targets and should consider reducing them, said Miguel Novato, a former biofuel chief in Brazil's mines and energy ministry. Known as one of the creators of Renovabio, he is now a researcher at national agriculture research center Embrapa. Novato talked with Argus about three points of improvement for Renovabio.
Since the approval of the law that established the national biofuels policy to now, what has gone well and what has gone wrong?
Renovabio has worked, it has become a policy. But public policy is not always built to last forever. Renovabio is a step towards evolution. If an alternative arises, then it could be replaced by something better. But as policy, regulation and structure, Renovabio works.
There is always a question of price sensitivity. But in the long run it certainly works as a stabilizer of the energy transition to bioenergy. Finally, there have been legal actions, political discussion, but Renovabio has already settled in. And the fact that supports it is the large, traded volume of decarbonization credits (Cbios).
I believe it is difficult to end Renovabio. A policy should not be seen as too short term. I think Renovabio uses the best science in models of greenshouse gas mitigation, but that does not mean it is perfect, it requires improvements.
Fuel distributors are taking legal actions and pressuring to revise Renovabio's rules. More recently, a direct action of unconstitutionality (ADI) was lodged by the Democratic Renewal Party at the supreme court against the program. What do you think about that?
All legal remedies are part of the constitutional relationship. Problems arise when these legal actions against Renovabio affect market prices. That does not allow the program to consolidate itself. But it is a part of the game for any mandatory carbon capture policy in Brazil. All of them go through these instruments to test its operation. I think this is important, and let's look at the ADI result because you cannot say what will happen yet.
It creates legal uncertainty, but it is part of the process to make the policy strong. Major policies around the world have always had some questions.
I think there is a great effort to legalize the fuel industry in the country. In Brazil, those who do not pay taxes earn a lot of money. Renovabio only issues Cbios with a formal fiscal voucher. I think behind legal actions there is the interest in preserving a share of the market for tax evasion.
One of the major fears in the market, especially on the buyer side, is the balance between supply and demand of Cbios, already looking ahead to the target of 38.8mn Cbios for December. Are there enough Cbios available for target fulfillment?
Perhaps the goals that are set today are not the right ones and may require a reduction. You need to update production data, considering the years after the program was established.
The government needs to be careful not to overpress fuel distributors. You need a finely tuned adjustment of the target, looking to 2024 and the following years. I think the target is very tight.
In your opinion, what would be the improvement points of Renovabio?
There are three things. The first is to make the methodology for calculating targets publicly available, so that universities can check if goals are wrong or not. That is a short-term problem to solve.
The second would be stretching Renovabio's reach. We need an extension of the program lifecycle beyond the biofuel producing chain, from "well-to-wheel" to "cradle-to-grave." For example, before you started planting, did you drive the tractor over a forest, what was that impact? And regarding the car, account for the efficiency of the use of ethanol and also its disposal process. That is necessary to give credibility to the program.
The third point would be to develop a policy for trading Cbios outside the compulsory market. That would reduce the burden of distributors' decarbonization obligations and increase the return for biofuel producers. I do not see the government working on these points, but I think the managers who are taking care of Renovabio right now are doing a good job.
