Scenario for 2023 Brazilian Biodiesel Mandate Remains Unclear

by Nicolle Monteiro de Castro (S&P Global) Biodiesel mandate to be at 14% starting in January; Producers and distributors still unaware of targets; Narrowed diesel and biodiesel price spread to support a higher blending -- Less than two months prior to the start of 2023, Brazil's biodiesel industry is unaware of details about the mandate the country is set to impose.

The National Agency of Petroleum, Gas, and Biofuels released Oct. 31 volumetric targets for the first two months of 2023 based on a mandatory biodiesel blending of 14%, up from the 10% that was in place during 2022, and then up 15% starting in March, but this last detail has not been on the ANP website since Nov. 7, increasing market participants' perception of instability.

While the ANP release could be considered a relief for biodiesel producers, which according to sources have an idle installed producing capacity near 10%, volumes that the regulatory agency settled were not considered enough to encourage producers to rely on it.

The lack of certainty can be attributed to the multiple changes seen in 2021 when the biodiesel mandate was expected to be at 13% starting in March but was reduced to 10% from May to August, then rose back to 12% between September and October and lowered again to 10% in the last two months, with all the movements attributed to a negative impact in the Brazilian inflation basket.

After a volatile mandate scenario Nov. 29, 2021, the National Council of Energetic Policies confirmed that the blending would keep at 10% for 2022, a year where the trading environment would change from the auction system to direct sales, not even knowing how the tax credits would be paid back to biodiesel producers since Petrobras would no longer be involved in the deals.

The last-minute decisions CNPE had taken in 2021 to change the official mandate formerly scheduled in the CNPE resolution 16/2018, are avoiding producers to celebrate the possible 40% increase in the biodiesel demand, while distributors are not feeling encouraged to start to plan the acquisition of the biofuel ahead of a more clear and official guides from the CNPE.

Market concerns

More than 400 decision makers were together in a biodiesel market event Nov. 7-8, and it was not possible to find a consensus on whether a mandate of 14% from January would be widely favorable or not for the industry. READ MORE

Excerpt from Reuters: Brazil's incoming government will look to revoke a decision to keep the mandatory blend of biodiesel in diesel at 10% until March 31, 2023, a member of the transition team for President-elect Luiz Inacio Lula da Silva said on Tuesday.

Senator Carlos Favaro said the Lula administration would "reaffirm" its commitment with the biodiesel industry by keeping the blending mandate at a higher level than the current one, known as B10.

On Monday, President Jair Bolsonaro's government decided to keep the biodiesel mandate at 10% for the first three months of 2023 before increasing it to 15% from April 1.

The decision angered the biodiesel industry, with producers association Aprobio saying it could represent a "death blow to the entire sector."

The industry has been calling for reinstatement of a previous plan under which the mandatory biodiesel blend would stand at 14% in January and February of 2023 before reaching 15% in March.

But the Bolsonaro administration changed that plan last year when the failure of the soybean crop sent prices of the oilseed soaring, fueling local inflation. Soybeans represent some 75% of biodiesel content in Brazil.

"We already have a structure in place to revoke what will interfere with the new government," Favaro said at a biodiesel event in Brasilia. The lawmaker, who is close to agribusiness interests, was tapped earlier this month by Lula's team to participate in the government transition.

"We will reaffirm our commitment to the sector, which is of fundamental importance for agribusiness and the environment," Favaro said.

Brazil has been gradually increasing the mandatory blend of biodiesel in diesel in order to cut greenhouse gas emissions. READ MORE