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Brazil's CNPE reduces biodiesel blend mandate to 10% for 2022

Highlights

Supply, price concerns drive move

Undermines plan for 15% blend by 2023

Biodiesel producers blast change

Brazil's National Energy Policy Council fixed the volume of biodiesel blended with diesel at the pump to 10% for 2022 amid supply and price concerns, throwing into doubt the country's broader plan to increase the mandate to 15% by 2023.

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"The decision made Nov. 29 fits with society's interests and reconciles measures to contain diesel prices with the maintenance of the National Biofuels Policy as well as granting predictability, transparency and legal and regulatory security to the sector," the council, known in short as CNPE, said in a statement released by the Mines and Energy Ministry.

Brazil expects the lower mandate to limit the impact of higher biodiesel prices on diesel prices at the pump, which were already under significant pressure throughout 2021 because of rising international oil and refined products prices. Biodiesel acquisition and blending costs add about 13% to the price of a liter of diesel, according to state-led oil company Petrobras.

The move, however, undercuts Brazil's much-lauded RenovaBio program and interrupts the steady march Latin America's largest economy was on to dramatically expand biofuels production and consumption. President Jair Bolsonaro relaunched RenovaBio in 2019 with an eye on meeting emissions-reductions targets and reducing the country's dependence on imported barrels of diesel and gasoline.

"The Brazilian Biodiesel and Biokerosene Union believes that this decision puts at risk the country's entire biodiesel program and spoils the advances sought in Brazil's biofuels program," the Ubrabio trade group said Nov. 29.

RenovaBio included a plan to implement annual, 1% increases to the country's biodiesel mandate until arriving at 15% in March 2023. That included an increase to 13% on March 1, 2021, as well as a move to 14% on March 1, 2022. Brazil, however, was forced to adjust its plan due to supply and price concerns related to the coronavirus pandemic.

Each 1% increase in the biodiesel-diesel blend sold at the pump represents about 600 million l/year of additional production, according to Ubrabio and the Brazilian Vegetable Oil Industry Association.

The trade groups estimated the change will cost the industry about 2.4 billion liters of output in 2022, with output forecasts falling to 6.2 billion liters in 2022 under the current blend compared with 8.6 billion liters under the previously proposed 13%-14% blend.

Biodiesel imports, however, were expected to rise to 2.5 billion liters in 2022, according to the trade groups.

CNPE's decision caps a period of unprecedented volatility for biodiesel producers, which started in March 2020 with the implementation of the first social-distancing lockdowns to contain the burgeoning pandemic. Biodiesel producers shuttered facilities amid expectations for lower demand.

Brazil's massive agriculture sector, however, continued to churn, with record-setting oil seed and sugarcane harvests stoking demand for diesel. Diesel is Brazil's top refined product in terms of consumption.

The demand recovery caught the biodiesel industry unprepared, while the broader global rebound also caused prices for key raw materials such as soybeans and soy oil to simultaneously skyrocket. About 71% of Brazil's biodiesel is made from soy, with the rest coming from animal fats and other oils such as recycled cooking oil.

Soaring raw materials prices caused additional price and supply concerns with biodiesel, and forced Brazil to make a series of changes to the country's biodiesel mandate throughout 2020 and 2021. That included the March 1 increase to a 13% biodiesel blend, which was only in effect for a total of four months in 2021. The blend was reduced to 10% from 12% for the November-December supply period on Sept. 13.

New sales model

The 10% blend, however, does clear the way for producers and distributors to start work on direct-sales contracts, which will be the new sales and supply model for the sector. Brazil's National Petroleum Agency, or ANP, will no longer serve as the liaison between producers and fuel distributors, ending its bimonthly supply auctions in October.

The new direct-sales model, however, has generated concerns, especially with regard to tax issues, blending requirements and other issues pending publication of full regulations by the ANP. The tax issues could lead to higher prices for end-consumers, trade groups representing biodiesel producers have said.

The CNPE, however, has rejected the complaints and declined to delay implementation of the new sales contracts. The direct-sales model will start Jan. 1, 2022, as planned, according to the CNPE.

Brazil's biodiesel output was up 6% year to date through October at 5.592 billion liters, according to the latest production report from the ANP.