Brazil fuel distributors win lower carbon credit target

A Brazilian court has temporarily slashed a 2020 target for carbon credit (Cbio) purchases by some medium-sized fuel distributors, escalating a battle with the biofuels industry over the emissions-fighting credit program.

A federal judge from Brazil's fourth circuit in Brasilia issued a temporary injunction reducing this year's Cbio purchase requirements to 25pc of the original target for members of fuel distributor association Brasilcom.

Brasilcom successfully argued that there is not enough time for distributors to meet the target, warning that rising Cbio prices will push up fuel prices at the pump.

Brasilcom represents medium-sized fuel distributors, including the country's fourth and fifth largest actors Alesat and Ciapetro.

Failure to meet the Cbio purchase target can result in "heavy fines and even the suspension of activities" for fuel distributors and therefore a ruling on the reduction of the target needed to be made in a timely manner, the court said in the injunction.

Brasilcom accused biofuel producers of holding back Cbio issuances in an effort to boost prices.

In response, Brazil's biodiesel producers association Ubrabio said Brasilcom's lawsuit is unjustified because the number of Cbios is sufficient to meet the targets. It added that the lawsuit is "inadmissible" following broad public consultations that took place in September to debate the revised target.

Brazil's leading sugar and ethanol producers association Unica said it hopes that authorities impede these legal efforts, highlighting that any changes to the target would violate Brazil's environmental law.

Biofuels producers registered 13.6mn Cbios on the B3 exchange as of 9 November, approaching a revised government target of 14.5mn credits for 2020. Unica expects them to issue enough Cbios to meet the 2020 target by the end of November.

Both Unica and Ubrabio are evaluating taking legal action to overturn the injunction.

Brazil's top three fuel distributors – BR Distribuidora, Ipiranga and Raizen – were not included in the lawsuit.

Leading distributor BR Distribuidora alerted both the mines and energy ministry and the hydrocarbons regulator ANP about the challenges it has faced in meeting the targets, the company told Argus.

The company warned that the costs of an entire year's Cbio target could not be passed on to consumers in the final months of the year.

The injunction creates market imbalances and heightens the risk of further lawsuits, BR Distribuidora added. The company remains confident that the dispute will be resolved by government authorities and that the court injunction will be overturned.