Market Effects, Greenhouse Gas Reductions and Costs of Brazil's RenovaBio Programme

ABSTRACT

Brazil's RenovaBio programme aims to reduce transportation sector greenhouse gas (GHG) emissions. The programme sets falling carbon emission limits that fuel producers meet using tradable decarbonisation credits (CBIOs). This programme creates a system of new links between biomass product markets and bioenergy markets, with producer and consumer implications, that can be assessed using appropriate forward‐looking economic methods. We model the CBIO and fuel markets using a structural model to simulate the impacts of RenovaBio. We link this model to a widely used model of agricultural and agricultural markets to analyse crop and crop product interactions. If implemented as announced, the programme would expand biofuel consumption and feedstock prices while decreasing petroleum product use. Our estimates highlight the potential for large impacts, similar by some measures to the impacts of US biofuel use mandates, subject to uncertainty about how the reduction targets evolve and how the industry responds. A programme of this type in a major biofuel and agricultural commodity producer and user affects global agricultural and food systems, as Brazil's supply to the world market diminishes and prices of ethanol and biofuel feedstocks worldwide are increased, depending on how the programme is implemented.