Tight carbon credit market adds to fuel price woes in Brazil

2 minute read

Cars line up at a gas station following the announcement of increased fuel prices at the Brazilian oil company Petrobras, in Rio de Janeiro, Brazil March 11, 2022. REUTERS/Pilar Olivares

Register now for FREE unlimited access to Reuters.com

SAO PAULO, March 30 (Reuters) - As the war in Ukraine pushes up fuel prices in Brazil, President Jair Bolsonaro has blasted profit margins at the state-run oil company, tinkered with fuel taxes and entertained new subsidies.

But one factor driving fuel prices appears to have flown below his radar: the price of homegrown carbon credits, called CBIOs, have more than tripled in the past year to a record high.

Fuel distributors in Brazil are required to offset the sale of fossil fuels with CBIOs, which are sold by producers of biofuels, such as sugarcane ethanol. The price of a single CBIO rose above 100 reais ($20.90) this month for the first time, adding to costs that will be passed to consumers, analysts say.

Register now for FREE unlimited access to Reuters.com

"CBIOs have an impact on prices, no doubt, as companies used to work with values close to 40 reais, and today it's at 100 reais," said a source at a major fuel distributor, who requested anonymity as he was not allowed to speak to media.

The CBIO market was worth more than 2 billion reais in 2021, a number that should grow further this year, analysts say.

Fuel distributor association Brasilcom has raised concerns that CBIOs may be vulnerable to speculation because producers can hold them indefinitely.

In a statement to Reuters, the body estimated that the spike in the CBIO market had pushed up pump prices by roughly 0.10 reais per liter. Retail gasoline prices are around 7.25 reais per liter.

Although that is a fraction of the recent price surge, the additional pressure has come at a tough time for Bolsonaro, who faces an uphill reelection battle in October. As voter frustration with double-digit inflation boils over, he has frequently complained about prices at the pump.

His government announced this week it would replace the CEO of state-controlled oil company Petroleo Brasileiro (PETR4.SA), or Petrobras, after less than a year on the job. read more

Brazil's main sugarcane industry association, Unica, called the surging price for the carbon credits a normal swing due to rising demand from distributors and short supply among biofuel producers.

Antonio de Padua Rodrigues, Unica's technical director, said distributors had purchased 75% more credits this year though March 25 compared to the same period last year, while new CBIO issuance fell 23%.

"All this has an impact on the market. It had this impact on pricing," he said.

($1 = 4.78 reais)

Register now for FREE unlimited access to Reuters.com
Reporting by Nayara Figueiredo; Writing by Gram Slattery; Editing by Brad Haynes and Cynthia Osterman

Our Standards: The Thomson Reuters Trust Principles.