by Rafaella Barros
(Reuters) – As the Brazilian government rushes to approve measures to ease fuel prices, the costs of decarbonization credits (CBios) for distributors are moving in the opposite direction, indicating a greater impact of this item for consumers at gas stations.
The average prices of CBios – which fuel distributors are required by law to buy according to the targets of each one – reached a record level in the first half of June, with the average for the fortnight at 142.07 reais, according to a report by Itaú BBA released on Wednesday.
Year-to-date, the average price is 98.46 reais, more than double the 39.31 reais in 2021.
The uptrend renewed protests by the National Federation of Fuel, Natural Gas and Biofuels Distributors (BrasilCom), which had already expressed concerns about the escalation of CBios in March.
For BrasilCom, CBio is a factor that sustains fuel prices at a time when the government seeks to reduce ICMS to alleviate costs, and some measure would need to be taken.
“As the government seeks alternatives to combat rising fuel prices, a reduction in CBios purchase obligations would certainly have an impact, as the full cost of CBios acquisitions is passed on to gasoline and diesel prices,” said Sérgio Massillon, institutional director of the federation.
The rise in CBios prices draws attention because, in the first years of the program, it was observed at the end of the year, when distributors used to buy larger quantities to meet their targets.
According to data from Itaú BBA, the volumes of retired CBios that are in the hands of distributors represent around 55% of the target for the year.
DISTRIBUTORS ADVANCE PURCHASES
Plinio Nastari, CEO of consultancy Datagro, explains that fuel distributors have advanced this year the purchase of CBios for 2023.
This is because, for next year, there is no forecast of a surplus result in the market as in 2022.
“In this year of 2022, in our assessment, the balance of supply and demand for CBios still has a surplus of around 6.3 million CBios. For 2023, considering the carry-over stock of 6.3 million, the trend is towards equilibrium. In other words, as the balance will be very fair, the distributors do not want to have surprises”, said Nastari.
This tight relationship between supply and demand is still related to the impacts of last year’s drought –which affected sugarcane and ethanol production– in addition to the projection of an increase in the mandatory acquisition targets of CBios.
Each credit is equivalent to one ton of CO2 equivalent that is no longer emitted into the atmosphere, while the ethanol sector is the main emitter of CBios, followed by the biodiesel industry.
BrasilCom estimates that, on average, the costs with the mandatory acquisition of CBios are around 0.10 reais per liter, both for gasoline and diesel sold at pumps. Datagro estimates that this value is 0.14 reais.
“It ends up being, yes, a cost for the distributors, for the fossil fuel. But it is a limited effect, in addition to being an element that walks in the direction of valuing the positive effect on the environment”, said the consultant.
MINISTRY PREPARES CHANGES
According to the Ministry of Mines and Energy, the annual target for credits should rise from the current 35.98 million to 42.35 million in 2023, reaching 50.85 million. The numbers show that the pressure on prices caused by compulsory demand tends to intensify.
During the seminar “The Energy of the Future”, held on Tuesday by the consultancy StoneX, the general coordinator of the RenovaBio program, Lorena Souza, said that the ministry monitors the CBios market weekly and that it is finalizing the draft of the new ordinance that will be published after the public consultation.
One of the main objectives of the consultation is to bring about changes that reduce the intensity of price volatility and bring greater predictability to distributors, such as through futures contracts.
“The main change that we are proposing is the inclusion of a provision that establishes that the CBio is traded in an environment that guarantees non-identification between counterparties… This was designed to allow future contracts, which will be negotiations with the objective of promoting the hedge, that is, this protection against sudden fluctuations in prices”, said Lorena.
At the same time, there is a public consultation on the reduction of individual targets for the purchase of decarbonization credit by fuel distributors, through the acquisition of biofuels through long-term supply contracts.
In a note, the Sugarcane Industry Association (Unica) stated that, in fact, unlike the first two years of RenovaBio, when the securities negotiations were concentrated in the final months of the calendar, this year the commercialization is more regular over the months.
“As the security is traded on the stock exchange, the average price follows the market logic of supply and demand…”, said the entity.
Unica estimates a CBios surplus result, at the end of 2022, greater than that projected by Datagro. The entity’s forecast is that the year will end with a surplus of approximately 10 million titles.
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