Hydrous ethanol is no longer competitive in 151 municipalities since the ICMS (Tax on Circulation of Goods and Services) ceiling was implemented. The data were compiled by Power 360 based on the weekly price survey of the ANP (National Agency for Petroleum, Natural Gas and Biofuels).
In the week immediately prior to the implementation of the ceiling, from June 19 to 25, it was worth supplying with alcohol in 46.3% of the 438 municipalities surveyed by the ANP. Last week, from July 9th to 15th, it was only advantageous in 11.9%.
To be competitive, ethanol needs to be sold for less than 70% of the price of gasoline. This percentage is adopted as a reference by the market, since biofuel has a lower calorific capacity — the amount of energy released during combustion.
The 70% reflects the difference between the generation of energy in the burning of the 2 fuels. To travel the same distance, more ethanol is used. Below parity, the lower the percentage, the more competitive alcohol is.
“We use this energy efficiency of 70%, but there are those who believe that above 70% it is also advantageous to use ethanol over gasoline. Or, in other situations, people end up considering the positive externalities of ethanol [como menor nível de emissões]”, said the researcher Cepea (Center for Advanced Studies in Applied Economics) at USP (University of São Paulo), Ivelise Rasera Bragato.
Since its adoption by the States, the ICMS cut has reduced gasoline prices by 17.9%. State tax rates cannot exceed 17% to 18% for fuel.
The ICMS ceiling was sanctioned on June 23, but was only adopted by the States from the 27th, starting with São Paulo. According to ANP data, in the week before its application, ethanol was advantageous in the average of 4 states: Mato Grosso do Sul, São Paulo, Goiás and Minas Gerais.
Then, in the last week, it was only competitive in the average of Mato Grosso do Sul and São Paulo, where it is sold at the lowest price in the country: R$ 3.91 and R$ 4.12 per liter, in that order. Even so, in São Paulo, it had lost competitiveness in 64 municipalities within 3 weeks.
“Normally, when you look at the main Brazilian producing markets, the price ratio ends up being close to 70% and below. This applies not only to Mato Grosso do Sul and São Paulo, but also to Minas Gerais, the State of Goiás itself –the 2nd largest national producer-, Mato Grosso itself, which has large-scale production of corn ethanol, and normally Paraná, where it should be very close to 70%”, said Bragato.
The researcher says that state taxation also affects the relationship between alcohol and gasoline at the pump. “In São Paulo, there is a lower taxation for hydrated than in other states, such as Goiás, where it was 25% [antes do teto].”
“Competitive Differential”
Vehicle for the approval of a package of benefits 3 months before the elections, the Constitutional Amendment 123 establishes that taxation of fossil fuel substitute biofuels must maintain “competitive differential”.
The text stipulates May 15, 2022 as the minimum benchmark, to be followed until Congress passes a complementary law. In addition, future legislation cannot establish rates lower than the May 15 benchmark for a period of 20 years.
“If the 2 products [gasolina e etanol] have the same ICMS, the prices will automatically be very similar. We have an energy difference of 30% from ethanol [em relação à gasolina]. If you know that you are going to do 15 km with gasoline and you are going to do 11 km with ethanol per liter, for the same price, you choose gasoline. This ends up killing ethanol in the Brazilian market”, declared the director of the Legal Fuel InstituteCarlo Faccio.
So far, 6 states have already reduced their ICMS rates on ethanol. According to Bragato, from Cepea, these effects should reach the pumps in up to 4 weeks.
“We need to take into account fixed and variable costs –which are those of acquiring the products– and inventories. Normally, we consider 4 weeks for transfers to take place.”, he stated.
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