Renovabio Brazil: CBIO Price More Than Triples Since Jan

Opinion Focus

  • The average price of Brazilian CBIO carbon credits hit a record, high of over BRL170 Tuesday
  • Distributors have already met more than 50% of their targets
  • Demand for non-binding parties registers significant increase in June
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CBIO Prices Soar

  • In May, the volume of CBIOs rose 54% from April to 7.5m.
  • Since mid-May CBIO prices began to climb sharply.

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We believe that the behavior of the CBIO price is down to:

  • The distributors are bringing forward CBIO purchases, afraid that offers on the market could become lower in upcoming months – the number of CBIOs offered so far in 2022 was 13.95m, almost 1 million lower yoy.
  • This year the mandate is also higher than in 2021. The mandatory volume last year was 24.86mi CBIOs while the current mandate is 35.8mi,
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  • In May there was an uptick in CBIO issuance because ethanol sales by mills rose due to favorable biofuel prices.
  • However, an imminent tax change has created uncertainty about ethanol demand, which may affect the issuance of CBIOs.
  • In addition to the political and tax insecurity of the market, the uncertainty of the size of this crop can be added to this – which impacts the supply of CBIOs for this year.
  • And finally, a significant increase in the market share of non-obligated parties.
  • So far, speculators (a non-obligated party) have had a meager share of the market.
  • However, from May until now, the volume purchased from the non-obliged sector has almost tripled.
  • We believe that this movement may have pushed the average prices up even though the volume is still low compared with obligated parties’ total volume.
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Balance 2022 and forecast of 2023

  

  • Our balance sheet so far shows that this year’s CBIO balance is already lower than 2021 by almost 4m.
  • Moving forward to 2023, a possible reduced supply combined with a higher target could result in a structural deficit in the CBIOs market.
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  • This can result in:
  1. A continuation of high CBIO prices
  2. A reduction in the preliminary target of 42.4m CBIOs for 2023
      

Reminder: What is RenovaBio?
  

  • RenovaBio is the Brazilian national biofuels program launched in 2016
  • The main instrument of the program, in accordance with the Paris Agreement, is the establishment of annual national decarbonization targets for the fuel sector.
  • The national targets will be divided into mandatory individual targets for fuel distributors
  • To meet their goal, fuel distributors will need to acquire CBIO certificates on the stock exchange
  • Each CBIO corresponds to a tonne of carbon that is not released into the atmosphere.
  • Biofuel producers voluntarily issue CBIOs, and the amount each mill can issue is based on their energy-environmental efficiency rating of the volume of biofuels sold.
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Brazil Fuel Price Crisis


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Adelia Lei

Stein Chingen Haugan

4 days ago

3 min