On September 21, 2016, Brazil ratified the Paris Agreement executed under the United Nations Framework Convention on Climate Change (UNFCCC) with the objective to promote greenhouse gases reduction as well as to avoid the increase of the global average temperature, among others. In such context, parties have committed to reduce their greenhouse gas emissions through the so-called Nationally Determined Contributions, which in the case of Brazil corresponds to a reduction of 37% of the 2005 greenhouse gas emissions levels, until the year of 2025, and 43% until the year of 2030.

In this context, Federal Law No. 13.576/2017 created the National Biofuels Policy (RenovaBio), a governmental policy that aims to contribute for the reduction of the greenhouse gas emissions in the country. Annual mandatory targets of emission reductions were created for the fuels trading sector, which may be evidenced through Decarbonisation Credits (CBios) generated from biofuels production, importation and commercialization.

In order to regulate RenovaBio, Federal Decree No. 9,308 was promulgated on March 16, 2018, establishing guidelines for the annual mandatory targets of greenhouse gas reduction for fuels trade. The Decree defined penalties for noncompliance with the targets and established that “RenovaBio Committee” should annually recommend to the Energy Policy National Council the target maximum limits, considering the proportionality of the emissions reduction efforts in various sectors of the economy.

If the target is not fully or partially met, the fuel distributor will be subject to a penalty equivalent to the amount of the non-purchased CBios, with some exceptions being established by the Decree. For instance, if the amount obtained with the CBios acquisition is higher than R$ 50,000.000.00, this should be the amount of the penalty. Likewise, if the amount obtained is lower than R$ 100,000.00, this should be the value of the penalty to be paid by the distributor that did not achieve the target. In any event, the penalty may not be higher than 5% of the company annual revenue, according to the two previous years balance sheets.

The annual targets must be defined by June 15, 2018 in order to be applied from June 24, 2018 to December 31, 2028.