Regional distributors out of compliance with Brazilian biofuels policy Renovabio started to take market share away from larger complying distributors in 2023, when more companies started falling short of government-set carbon credit targets, according to an Argus analysis.
Large fuel distributors — which have remained compliant with Cbio targets since the 2020 start of the program — expanded their share of diesel, ethanol and gasoline sales to the domestic market in the first two years of Renovabio, according to data from hydrocarbons regulator ANP.
But in the third year, 2023, companies that did not comply with Renovabio started to increase their market share at the expense of the compliant retailers, according to Argus' analysis of the historical data. Shifting Cbio acquisition costs to consumers puts compliant distributors at a disadvantage compared with non-compliant companies, especially in regions in Brazil's countryside.
But market participants do not attribute regional distributors' expansion to a price advantage stemming from non-compliance. Instead, they point to many other factors favoring non-branded retail stations — known as white flag networks — including higher volumes of cheaper diesel from Russia and tax advantages, such as tax incentives for fuel imports granted by Amapa state's government earlier this year.
A strong start
In the earliest days of Renovabio, distributor Vibra held 24pc of domestic fuel sales in the first half of 2020, followed by Ipiranga with almost 19pc and Raizen with just over 18pc. Vibra's share rose to 25pc in the first half of 2022, followed by Ipiranga with 20pc and Raizen with more than 18pc.
Defaulting distributors started to peel market share away from bigger competitors in 2023, a trend that deepened in 2024. The market share of regional distributors Larco, Royal FIC and Ciapetro climbed to 2.43pc, 1.68pc and 1.5pc, respectively, in the first six months of 2024 from 1.62pc, 1.49pc and 1.34pc in the same period in 2023. Those companies had stopped delivering Cbios in the 2022 cycle, which ran from January 2022 to September 2023, and also did not participate in the 2023 cycle, which ended in March 2024.
Vibra's share of the 62.4bn l (2.2mn b/d) of total road fuels sold in Brazil in the first six months of 2024 — a 5pc year-on-year increase — fell to 22.48pc from 25.44pc in 2023; Raizen's share dropped to 17.86pc from 19.16pc; Ipiranga's to 17.79pc from 18.18pc; and Ale's to 2.24pc from 2.4pc in 2023. The four companies have consistently met 100pc of their decarbonization targets.
Non-compliance grows
In recent years, regional distributors have obtained court-granted injunctions excluding them from Renovabio obligations, worsening the default rate.
The percentage of Cbios credits that complied with Renovabio from 2020-2021fluctuated between 96-97pc. That fell to 90pc in 2022, with 50 of the 143 obligated companies defaulting. Compliance rates dropped to 81pc in 2023, as 63 of the 145 companies defaulted. There are now 36 distributors that have failed to deliver a single Cbio credit for two consecutive years. This is what led to ANP revoking distributors' licenses to operate.
The high rate of companies failing to comply with Renovabio is concerning to market participants. The target for the 2024 Renovabio cycle now includes 7.6mn Cbios not delivered in previous years,which is higher than the combined individual targets for Raizen and Ipiranga for the year. Following the ANP's addition of previous shortfalls, the 2024 target is set at 46.4mn Cbios.
Under Renovabio, each Cbio generated with the sale of biofuel represents one ton of CO2 avoided. The program establishes annual greenhouse gas emission reduction targets for fuel distributors. The goals are achieved through the acquisition of Cbios marketed by biofuel producers.
