The economic and environmental impacts of Brazilian National Biofuel Policy

Abstract

AbstractThe Brazilian National Policy on Biofuels (Renovabio) sets targets to reduce greenhouse gas emissions (GGE) in the transportation mix. Through the policy, a financial asset known as CBIO (a Decarbonization Credit) was created. CBIOs represent the equivalent CO2 emissions prevented when substituting fossil fuels for renewable fuels and are traded on the stock market, which sets the price. Fossil fuel distributors are obliged to buy these assets and biofuel producers can issue the CBIOs on the stock market. A dynamic computable general equilibrium model was applied to estimate the CBIO prices and the annual economic and environmental impacts of RenovaBio from 2021 to 2029. The impacts on fuel and energy consumption, fuel prices, inflation, gross domestic product (GDP) and agricultural productivity considering ethanol, gasoline, biodiesel and diesel were calculated. To achieve the required decarbonization level by 2029, ethanol production must increase by 87.7%, led by a drop in its price relative to gasoline. The total fuel energy consumed would drop by 7.10% and inflation would increase by 0.35 percentage points, while GDP would increase by only 0.08% in the scenario of the last year, when the CBIO price would reach R$223.35 (~US$74.45). RenovaBio can be an effective policy to promote carbon intensity reduction and works as a hedge against unfavorable scenarios for biofuel production. Therefore, the policy can help Brazil reach its intended nationally determined contribution by boosting the use of biofuels in the country's transportation sector. © 2021 Society of Chemical Industry and John Wiley & Sons, Ltd