SAO PAULO, April 25 (Reuters) - The Brazilian government is evaluating setting biofuel mandates to fuel distributors with the aim of increasing consumption of renewable fuels and cutting carbon emissions, the country’s biofuels director Miguel de Oliveira said on Tuesday.
Ethanol and biodiesel mills would issue certificates of emissions reductions (CERs) that would be transferred to fuel distributors when they buy the biofuels. Each distributor would be required to hold a certain number of CERs at the end of a year, according to mandates that would be set by the government.
The system would also create a secondary market for the CERs, possibly at local exchange B3, Oliveira said, since fuel distributors that do not have enough certificates would have to buy them the market to fulfill their mandates, similar to requirements in carbon markets in Europe and California.
The proposal is the main component of a program called RenovaBio that intends to revamp Brazil's biofuels sector, which is competing with cheaper gasoline and diesel as international oil prices remain near historical low levels.
Oliveira said the system would give a lifeline to sugar and ethanol mills and biodiesel producers.
"If this sector remains in the situation it is in today, companies are likely to close down, production of hydrous ethanol could be sharply reduced,” he said during an international sugar and ethanol seminar hosted by F.O. Licht in Sao Paulo.
Hydrous ethanol competes with gasoline as the choice of flexible-fuel vehicle owners in Brazil, since the vehicles can run on any combination of the two fuels.
Hydrous ethanol has lost market share over the last two years in Brazil, and the trend is expected to continue since oil giant Petrobras recently adopted a new pricing policy that will closely follows international oil values.
As a consequence, mills are allocating much more cane to sugar production, which currently offers better returns. Ethanol production fell last season and is expected to decline again as the new crop starts in Brazil.
The mandates system may require approval by both houses of Congress before it can be adopted. Oliveira said the proposal could be put to a vote this year. He expects it to be implemented around 2019. (Editing by Jeffrey Benkoe)