The Ministry of Mines and Energy (“MME”) opened Public Consultation No. 122/2022 in order to receive contributions for revision of MME Ordinance No. 419/2019 until April 08, 2022. The Ordinance regulates the issuance, bookkeeping, registry, trading and retirement of Decarbonization Credits (“CBIOs”) based on the National Biofuels Policy (RenovaBio).
RenovaBio is a federal policy established in Law No. 13,576/2017, which aims to recognize the strategic role of biofuels (ethanol, biodiesel, biomethane, biokerosene, second generation, among others) in the Brazilian energy matrix, contributing to energy security, market predictability and mitigation of greenhouse gas emissions.
This policy is composed of three axes: 1) Decarbonization Targets; 2) Biofuel Production Certification; and 3) Biofuel Decarbonization Credits.
The first axis is carried out by establishing a compulsory annual target, which will be broken down into individual targets for each current year and applied to all fuel distributors in proportion to their respective market share in the commercialization of fossil fuels in the previous year.
Biofuel Production Certification is a set of procedures and criteria established by a certifier, and which are aimed at assessing compliance with requirements involving the measurement of biofuel production and import aspects, in the sphere of energy efficiency and greenhouse gas emissions. Through Biofuel Production Certification, the producer or importer of biofuel is granted authorization by the National Agency of Petroleum, Natural Gas, and Biofuels (“ANP”) to issue CBIOs, in an amount proportional to the volume of biofuel produced or imported and sold.
In turn, the CBIO corresponds to a total of 1 ton of CO2 prevented from being released into the atmosphere, which is calculated from the difference between greenhouse gas emissions in a biofuel’s life cycle and the emissions of its substitute fossil fuel. Once issued, CBIOs can be used to meet decarbonization targets and can be acquired by national and international investors.
In order to enable the carrying out of transactions related to CBIOs, in 2019 the MME published Ordinance No. 419/2019, regulating the issuance, bookkeeping, registration, trading and retirement of the bonds related to such credits.
This Ordinance is currently undergoing a review through Public Consultation No. 122/2022, which has been published for interested parties to contribute to the topic, including a draft proposing a new wording of MME Ordinance No. 419/2019. Through this Public Consultation, the MME establishes as main objectives (i) the clarification of certain provisions present in the ordinance, and (ii) the introduction of a new device to improve the trading of CBIOs. Such goals are aimed at enabling the operation of a mechanism for future purchase and sale, in order to protect issuers and buyers of CBIOs from price fluctuations.
To meet these objectives, the main changes involve the inclusion of:
- a device that will determine that financial institutions operate as counterparties without the need for non-identification, as should occur between primary issuers and buyers of CBIOs, in order to enable future purchase and sale mechanisms, thus protecting the parties involved (issuers and buyers) from sudden fluctuations in asset prices;
- a provision determining that the bookkeeping agent of CBIOs must be an institution registered before the Brazilian Securities and Exchange Commission (“CVM”);
- a requirement that the registering entity that wishes to initiate the offer for registration of CBIOs before the start of operations, proves interoperability with the registering entity(ies) that already carry out transactions with CBIOs; and
- a provision requiring the inclusion of individualized information by the registering entities to MME and ANP on their platforms about existing business activities .
Interested parties can contribute to or comment on the proposed amendments to MME Ordinance No. 419/2019 until April 08, 2022 through the following link.
In addition, as indicated by MME, contributions to be presented within this public consultation may include additional proposals related to topics of interest with regards to RenovaBio and to MME Ordinance No. 419/2019.
Demarest’s ESG team remains available to provide any further clarifications and information that may be necessary regarding contributions to Public Consultation No 122/2022 or any other queries regarding Decarbonization Credits, including to assist in the drafting of possible contributions to the public consultation or other related work.