Brazilian government lifts cap on voluntary biodiesel blending, creates barrier to imports

Brazil's National Energy Policy Council, or CNPE, approved measures July 14 aimed at strengthening the country's biodiesel industry, including a ban on imports for compliance with the diesel blend mandate and the expansion of a voluntary use of the biofuel in percentages higher than the mandatory level.

The measures were approved alongside the increase in Brazil's mandatory ethanol blend in gasoline to E32 and form part of the government's broader Fuel of the Future strategy to expand renewable fuels and reduce dependence on imported fossil fuels.

Barrier to imports

Under one resolution, imported biodiesel may not be used to comply with Brazil's mandatory biodiesel blending requirement, which currently stands at 15%. The formal barrier to imports responds to a concern in the biodiesel sector regarding the CNPE resolution from April 1, which left pending whether the biodiesel market would partially open to imports.

The measure established at that time that at least 80% of the volume of biodiesel sold in the country had to come from family farming, but it did not clarify whether the remaining volume could be imported. The absence of formal regulations restricting imports could create market confusion, according to industry players, although uncertainty has also prevented distributors from venturing into importing the biofuel, market participants told Platts.

The decision is expected to be welcomed by Brazil's biodiesel industry, which has consistently argued that the country has sufficient installed production capacity to fully meet domestic demand. Industry groups have also warned that imported biodiesel could undermine investment, reduce utilization rates and pressure margins for local producers.

By reserving the mandatory blending market for domestic production, the measure is also expected to support demand for Brazilian biodiesel producers and, indirectly, soybean oil, the country's primary biodiesel feedstock.

Voluntary use of higher biodiesel blends

In a separate resolution, the CNPE also approved rules allowing the voluntary use of biodiesel in a volume exceeding the percentage mandated for the national blend in captive fleets, public transportation systems, agricultural machinery, mining equipment, railways, inland waterway transport and power generation applications.

The new measure allows consumers in those segments to voluntarily adopt higher biodiesel blends whenever technically compatible with their engines and equipment, creating an additional market for domestic producers beyond the mandatory national blend.

Although the Future Fuel Law had already allowed the practice of adding biodiesel levels exceeding the mandatory mandate, a 2015 CNPE resolution still required formal authorization from the national oil regulator ANP for commercially voluntary blends above 10,000 liters. This imbalance between the measures was considered a barrier to the sector's ability to blend larger volumes, even with more attractive prices.

Under the previous model, which required formal authorization from the ANP, 13 companies -- mostly biodiesel producers and firms in the river, road and rail transport sectors -- were permitted to use higher biodiesel blend for specific applications.

The new measure requires industry participants to just report the use of these blends to the ANP, waiving prior consent. This step is expected to facilitate the process for players considering increasing the biodiesel content in diesel, particularly given the more favorable price scenario that has emerged for the biofuel as the war in the Middle East disrupted the global fuel market.

Platts, part of S&P Global Energy, assessed Biodiesel DAP Paulinia for one- to seven-day delivery at Real 6,250/cubic meter July 14, from Real 6,394/cubic meter Feb. 27, prior to the war escalation. Meanwhile, Platts assessed Brazilian ultra low sulfur diesel in Paulinia at Real 5,301/cubic meter July 14, from Real 3,553/cubic meter Feb. 27.

CNPE said the repeal is administrative in nature and is intended to simplify and organize Brazil's biofuels regulatory framework. It does not alter the rules governing the commercialization of biodiesel or voluntary blending, nor does it create new obligations or modify rights established under current legislation.