Brazil’s Emerging Market

Already one of the world’s leading ethanol exporter, Brazil is recognized as one of the world leaders in biofuel development. While initial federal research began as early as 1970, new interest arose in 2003 with an extensive effort by President Luiz Inacio Lula da Silva to evaluate the benefits of the production and use of biodiesel. The end result was the creation of Brazil’s National Biodiesel Program (PNPB) on December 6, 2004. The main objective of the program is to ensure the viability of biodiesel production, social inclusion and regional development. Several initiatives were immediately put into place including: (i) Selo Combustivel Social Programme (“Social Fuel Seal”), which provides tax incentives to biodiesel producers to purchase feedstock from small family farms; (ii) additional tax credits to encourage plant operations in designated regions; and (iii) a biodiesel market structured around purchase auctions.

A Government Supported Marketplace

The purchase auctions serve to regulate the price and quantities of biodiesel consumed in Brazil. ANP sets a maximum price and estimated volume for each auction. Suppliers then submit their most competitive price and the quantities they are willing to produce at such price. Only a limited number of suppliers are allowed to participate in the auctions and suppliers are typically selected based on their purchases of feedstock from local farmers via the Social Fuel Seal. The Brazilian Government (via Petrobras, Brazil’s largest energy company) supports the biodiesel industry by purchasing biodiesel indirectly through the purchase auctions.

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