Consumers and investors now closely observe climate questions and their everyday impact on business and society. Companies therefore have an unparalleled opportunity to rethink strategies or make them more visible, permanently adding to the equation a subject that mitigates risk and increases business opportunities.
In this context, let’s talk about the Decarbonization Credits (CBIOs). These originated in the National Biofuels Policy (RenovaBio), instituted by Law 13.576/2017, to allow Brazil to meet commitments taken on in the Paris Agreement and to increase biofuels in the country’s energy mix.
As part of this objective, RenovaBio has established targets to reduce greenhouse gas emissions for fossil fuel distributors. These targets are met through the acquisition of decarbonization credits (CBIOs), with each CBIO representing the equivalent of a ton of CO2 not released into the atmosphere.
Biofuel producers and importers that are authorized by the National Petroleum Agency (ANP) issue credits, after hiring and receiving authorization from an ANP-accredited inspection company. After this they must hire an underwriter (bank or financial institution), which will issue and register the credit in a Financial Market Infrastructure (FMI) that is approved by the Financial Market regulators.
The CBIO process passes through the following stages:
1 – The Biofuels producer requests authorization from the ANP to issue the CBIO.
2 – ANP analyses the guarantees and grants authorization to issue the CBIO, having as a point of reference the quantity of carbon dioxide that ceased to be released into the atmosphere with the production (and use) of the biofuel.
3 – The biofuels producer hires an underwriter to request issuance of the CBIO.
4 – The underwriter issues the CBIO in book entry form and registers it in the FMI.
5 – The CBIOs are available for trading in an OTC environment (including Electronic Platform), in compliance with rules established by law, such as no knowledge of the counterparty to the transaction.
6 – When the obligated party wishes to use the acquired CBIOs for compliance with its commitments, it retires this CBIO which is then removed from circulation.
The CBIO does not have an expiration date and will be valid until its holder requests that the credit be retired. Each distributor reaches its targets through the quantity of CBIOs that it owns being retired in the period.
Even though the Renovabio program has arisen in a specific market niche, any investor, and not only the program’s obligated parties, may acquire this ownership. And why have investors been looking at the product and placing it in their strategies? We have noted that some have been doing so with the objective of voluntarily compensating their own cardon dioxide emissions, action that we have seen grow alongside Brazilian companies’ consciousness raising about ESG practices.
With CBIOs, Brazilian agribusiness has also shown that it is possible to reconcile environment and production in an agenda that is significant for investors and managers. B3 is responsible for fostering ESG best practice in the Brazilian market, supports clients in this evolution and connects the subject to trading. Since April 2020, furthermore, it has been the market infrastructure responsible for registering the environmental asset and publishing information about it.
Do you want to find out more? Access information about the product at the website of B3, Brazil’s exchange.
Fábio Zenaro is OTC Products, Commodities and New Business Director at Brazil’s financial market infrastructure B3.