1. The Biodiesel Program and Sustainable Development in Brazil Toronto, June 17 - 18, 2010 Alexandrina Sobreira de Moura Recife, Brazil

2. THE BRAZILIAN PROGRAM FOR PRODUCTION AND USE OF BIODIESEL (PNPB) 7/2/2003: The Presidency of the Brazilian Republic establishes via Decree an Interministerial Working Group to explore the viability of using biodiesel as an alternative energy source. 7/2/2003: The Presidency of the Brazilian Republic establishes via Decree an Interministerial Working Group to explore the viability of using biodiesel as an alternative energy source. 12/6/2004: Launch of the Brazilian Program for Production and Use of Biodiesel (PNPB - Programa Brasileiro de Produção e Uso de Biodiesel) 12/6/2004: Launch of the Brazilian Program for Production and Use of Biodiesel (PNPB - Programa Brasileiro de Produção e Uso de Biodiesel) 1/13/2005: Act Nr. 11097 introduces biodiesel into the Brazilian energy grid and enhances the administrative competencies of the National Oil, Gas and Biofuels Agency (ANP) which took on the responsibility for regulating and supervising all activities related to production, quality control, distribution, retailing and sales of biodiesel and diesel-biodiesel blends (BX. 1/13/2005: Act Nr. 11097 introduces biodiesel into the Brazilian energy grid and enhances the administrative competencies of the National Oil, Gas and Biofuels Agency (ANP) which took on the responsibility for regulating and supervising all activities related to production, quality control, distribution, retailing and sales of biodiesel and diesel-biodiesel blends (BX.

3. Aims of the National Program - PNPB To implement the production and use of Biodiesel in a sustainable way with a focus on social inclusion and regional development, creating employment and generating income. To implement the production and use of Biodiesel in a sustainable way with a focus on social inclusion and regional development, creating employment and generating income.

4. PNPB Guidelines To implement a sustainable program promoting social inclusion To implement a sustainable program promoting social inclusion To ensure competitive prices, quality and supply To ensure competitive prices, quality and supply To produce biodiesel from different oil-producing plants and in several different regions To produce biodiesel from different oil-producing plants and in several different regions

5. Phases of the PNPB Phase 1 (starting July 2003) Feasibility studies Phase 1 (starting July 2003) Feasibility studies Phase 2 (starting March 2004) Develpment of the regulatory framework once biodiesel was not acknowledged as a fuel by Brazilian legislation. Phase 2 (starting March 2004) Develpment of the regulatory framework once biodiesel was not acknowledged as a fuel by Brazilian legislation. Phase 3 (December 2004) Official launching of the Program Phase 3 (December 2004) Official launching of the Program Phase 4 (2005) Consolidation of the Program through fuel purchasing auctions carried out by the National Agency - ANP. Phase 4 (2005) Consolidation of the Program through fuel purchasing auctions carried out by the National Agency - ANP. Phase 5 (starting 2008) Increase of biodiesel percentages in the obligatory blend, from 2% in 2005 to 3% in 2008, currently achieving 5% in the diesel mix sold throughout Brazil. Phase 5 (starting 2008) Increase of biodiesel percentages in the obligatory blend, from 2% in 2005 to 3% in 2008, currently achieving 5% in the diesel mix sold throughout Brazil.

6. Anticipation of the Legally Established Blend Source: Federal Government (2010)

7. Biodiesel Production in Brazil Promotes the development of a sustainable energy source under environmental, economic and social aspects. Promotes the development of a sustainable energy source under environmental, economic and social aspects. Creates good prospects for reducing diesel oil imports. Creates good prospects for reducing diesel oil imports. In 2008 the use of biodiesel prevented importing 1.1 billion liters of petroleum diesel fuel resulting in savings of approx. US$ 976 million and helping maintain foreign currency reserves. In 2008 the use of biodiesel prevented importing 1.1 billion liters of petroleum diesel fuel resulting in savings of approx. US$ 976 million and helping maintain foreign currency reserves. Created around 600 thousand jobs in the rural area according to data from the Ministry of Agrarian Development. Created around 600 thousand jobs in the rural area according to data from the Ministry of Agrarian Development.

9. Environment The PNPB considers biodiesel fuel less polluting than conventional diesel fuel. Surveys point out that the CO2 emission rates are 80% lower than those of petroleum diesel fuel, making it an option that is non-aggressive to the environment

10. Biodiesel Production vs. Consumption -2008 Source: Federal Government (2010)

11. Challenges to the Implementation of the Program in Brazil Social inclusion policy Social inclusion policy Use of oilseeds and oil- producing plants according to regional diversity Use of oilseeds and oil- producing plants according to regional diversity Supply security for new fuel Supply security for new fuel Assuring quality to consumers Assuring quality to consumers Competitiveness against petroleum diesel fuel Competitiveness against petroleum diesel fuel

12. Raw Materials Brazil is among the main producers and consumers of biodiesel worldwide: Brazil is among the main producers and consumers of biodiesel worldwide: - annual production in 2009: 1.6 billion liters - annual production in 2009: 1.6 billion liters - installed capacity in January 2010 for approx. 4.7 billion liters - installed capacity in January 2010 for approx. 4.7 billion liters Dozens of plant species can be used for biodiesel production: soybean, palm oil, sunflower, babassu, peanuts, castor beans and jatropha Dozens of plant species can be used for biodiesel production: soybean, palm oil, sunflower, babassu, peanuts, castor beans and jatropha

14. Share of Raw Materials in Brazilian Biodiesel Source: ANP (2010)

15. Social Inclusion Data - PNPB INCLUSION OF FAMILIES IN THE BIODIESEL PRODUCTION CHAIN THSD FAMILIES 2008 24* 2009 54* 2010 103** Source: Federal Government (2010) Source: Federal Government (2010) * Achieved ** Estimate

16. FAMILY FARMING Under Act Nr 11326 from 7/24/2006 family farmers are those who: Under Act Nr 11326 from 7/24/2006 family farmers are those who: Hold a piece of land smaller than four fiscal units (100ha) Hold a piece of land smaller than four fiscal units (100ha) Predominantly use labor provided by family members to operate their establishments Predominantly use labor provided by family members to operate their establishments Have a family income that derives from economic activities related to their own establishments Have a family income that derives from economic activities related to their own establishments Run their establishments with their families Run their establishments with their families

17. Social Fuel Label The Social Fuel Label is a set of incentives granted by the Ministry of Agrarian Development (MDA) to industrial producers who purchase raw materials from, and provide training to family farmers. The Social Fuel Label is a set of incentives granted by the Ministry of Agrarian Development (MDA) to industrial producers who purchase raw materials from, and provide training to family farmers.

18. Social Fuel Label Social & Economic duties towards the families Biodiesel Producer Federal Government - MDA Project Tax Incentives Producer

19. Duties of the Producers Awarded with the Label To purchase a minimum amount of raw-materials from family farmers: 50% Northeast To purchase a minimum amount of raw-materials from family farmers: 50% Northeast 30% North 30% North 10% other regions 10% other regions To close contracts with family farmers To close contracts with family farmers To ensure technical assistance and training to the farmers To ensure technical assistance and training to the farmers Label-related Incentives Differentiated tax reductions, access to financing facilities provided by the National Bank for Economic and Social Development (BNDES).

20. Tax Reductions Related to the Social Fuel Label Type of Biodiesel Producer Any raw material (South, Southeast and Midwest) Palm and Castor beans (North and Northeast) Without Social Fuel Label 0%31% With Social Fuel Label 68%100% Source: Federal Government (2010)

21. Benefits Related to the Value-added Tax on Sales and Services (ICMS) Until 2006 the VAT tax (ICMS) levied on biodiesel was higher than that on diesel in the three main consumer states (São Paulo, Rio de Janeiro and Minas Gerais) Until 2006 the VAT tax (ICMS) levied on biodiesel was higher than that on diesel in the three main consumer states (São Paulo, Rio de Janeiro and Minas Gerais) The tax was unified and a rate of 12% was established for the whole country. The tax was unified and a rate of 12% was established for the whole country. (Confaz ICMS Agreement Nr 113 (Oct /2006), altered by Nr 160 – Dec /2006) (Confaz ICMS Agreement Nr 113 (Oct /2006), altered by Nr 160 – Dec /2006)

22. Source: Federal Government (2010) Out/2006

23. Hierarchy of Legal Norms Constitution of 1988: Fundamental law of the Brazilian Republic Constitutional Amendment: Allows punctual changes to the Constitution International Treaty: Diplomatic convention signed between two governments Act: Legal norm created through legislative procedures Provisional Measure: Proposed by the President in cases of urgency, has force of law, allows the Executive to overrule the Legislative power. It depends on approval by Congress. Decree: Decision taken by the Executive Power to define the rules by which the institutional principles established by Law will be put in place. Resolution: Legal norm that regulates issues related to the internal functioning (“interna corporis”) of each body. Administrative Rule: Official document containing administrative orders, issued by a public authority to provide instructions or provisions for their enforcement. Ordinance: Bylaw issued internally by each body. Sets out service related details, actions to be taken, criteria and procedures, in accordance with the immediate issues addressed.

24. PNPB Program Norms BodyActDecreeResolution Admin. Rule Ordinance Congressx PresidencyX ANPXX MMEX MDAX National Council for Energy Research X Federal Revenue Department X BNDESX

25. National Oil, Gas and Biofuels Agency – ANP (1997) Linked to the Ministry of Mining and Energy (MME) Implements the national policy for the oil, gas and biofuels energy sector Regulates the activities pertaining to the industry of oil, natural gas and biofuels in Brazil Promotes biddings and tenders and closes contracts with concession holders related to the exploration, development and production of oil, gas and biofuels Supervises the activities of the industries regulated, either directly or through agreements with other public bodies or authorities

26. Specifies the quality of biodiesel Specifies the quality of biodiesel Authorizes Authorizes - construction of industrial plants - construction of industrial plants - production of biodiesel - production of biodiesel - commercialization - commercialization Carries out biodiesel auctions since 2005. Refineries purchase biodiesel to blend it with petroleum derived diesel. Carries out biodiesel auctions since 2005. Refineries purchase biodiesel to blend it with petroleum derived diesel. The aim of the auctions is to create a market and stimulate the production of biodiesel amounts that are high enough so that refineries and distributors can achieve the legally established mix (BX). The aim of the auctions is to create a market and stimulate the production of biodiesel amounts that are high enough so that refineries and distributors can achieve the legally established mix (BX).

27. White Paper The "White Paper on Internationally Compatible Biofuel Standards“ is the result of the work of a Brazilian group made up of the ANP and other bodies under coordination of the Ministry of Foreign Affairs, which brought together Brazil, the EU and the US. The "White Paper on Internationally Compatible Biofuel Standards“ is the result of the work of a Brazilian group made up of the ANP and other bodies under coordination of the Ministry of Foreign Affairs, which brought together Brazil, the EU and the US. It focused on common issues in the specifications of biodiesel and ethanol with a view to the international harmonization of biofuels. It focused on common issues in the specifications of biodiesel and ethanol with a view to the international harmonization of biofuels. The aim of the study, which was supported by the respective governments, is to stimulate the international trading of biofuels. The regions involved took part in the International Biofuels Forum and will seek the support of the other member countries – South Africa, China and India – to engage themselves in the work towards the international harmonization of biofuels. The aim of the study, which was supported by the respective governments, is to stimulate the international trading of biofuels. The regions involved took part in the International Biofuels Forum and will seek the support of the other member countries – South Africa, China and India – to engage themselves in the work towards the international harmonization of biofuels.

28. Environmental Licensing It is the administrative process by which environmental authorities grant a license for the location, installation, expansion and operation of undertakings and activities that involve the use of environmental resources, and which are considered to be polluting or may cause environmental damages (Conama Resolution 237/1997). It is the administrative process by which environmental authorities grant a license for the location, installation, expansion and operation of undertakings and activities that involve the use of environmental resources, and which are considered to be polluting or may cause environmental damages (Conama Resolution 237/1997). The license, once granted, unfolds into the following stages: The license, once granted, unfolds into the following stages: a) Previous License: act by which the administrator confirms the environmental viability of the undertaking or activity and establishes basic requirements and terms to be complied with during the subsequent stages of implementation, a) Previous License: act by which the administrator confirms the environmental viability of the undertaking or activity and establishes basic requirements and terms to be complied with during the subsequent stages of implementation, b) Installation License: expresses consent for the start of the implementation of the undertaking or activity in accordance with the specifications contained in the plans, programs and projects approved, b) Installation License: expresses consent for the start of the implementation of the undertaking or activity in accordance with the specifications contained in the plans, programs and projects approved, c) Operation License: manifests agreement with the operation of the undertaking or activity after the effective compliance with the terms contained in the former licenses has been confirmed. c) Operation License: manifests agreement with the operation of the undertaking or activity after the effective compliance with the terms contained in the former licenses has been confirmed. There is no specific environmental licensing legislation for producing biodiesel. There is no specific environmental licensing legislation for producing biodiesel.

29. Public Hearing It is based on the Government’s obligation to publicize the prior Environmental Impact Assessment Study (EIA) and ensures the holding of public hearings (Constitution, Art. 225 and Resolution 237/1997 of the National Environment Council – Conama). Hearings can be summoned in four cases: It is based on the Government’s obligation to publicize the prior Environmental Impact Assessment Study (EIA) and ensures the holding of public hearings (Constitution, Art. 225 and Resolution 237/1997 of the National Environment Council – Conama). Hearings can be summoned in four cases: - whenever the environment authority deems necessary - whenever the environment authority deems necessary - by request of civil organizations - by request of civil organizations - by request of the public attorney’s office - by request of the public attorney’s office - by request of 50 or more citizens - by request of 50 or more citizens

30. Main Conclusions The Program is achieving the physical production targets, once domestic diesel has been classified as B5 already since January 2010, a goal initially set out in the Program for 2013. The Program is achieving the physical production targets, once domestic diesel has been classified as B5 already since January 2010, a goal initially set out in the Program for 2013. The social objective of the PNPB to engage “family farmers and small producers of the poorest regions in the country with the biodiesel production chain” is not achieving the same success as the physical production. The social objective of the PNPB to engage “family farmers and small producers of the poorest regions in the country with the biodiesel production chain” is not achieving the same success as the physical production.

31. Improvements in production management after the creation and development of coperatives of small farmers have been important achievements towards the inclusion of family farming. However, the low organizational capacity of these farmers is an obstacle to the social inclusion set out in the PNPB, particularly in the Northeastern region. Improvements in production management after the creation and development of coperatives of small farmers have been important achievements towards the inclusion of family farming. However, the low organizational capacity of these farmers is an obstacle to the social inclusion set out in the PNPB, particularly in the Northeastern region. 88.4% of the total amount of biodiesel are being produced in the Center-South region, while only 11.6% come from the North and Northeast. There is a trend towards a strong concentration in the Midwest, with an installed capacity of 1.2 billion litres of biodiesel per year. 88.4% of the total amount of biodiesel are being produced in the Center-South region, while only 11.6% come from the North and Northeast. There is a trend towards a strong concentration in the Midwest, with an installed capacity of 1.2 billion litres of biodiesel per year. As to the regional development to be brought about by the biodiesel sector there has been a concentration of production in the Center and South regions, thus increasing the inequalities between these regions and the North and Northeast of the country. As to the regional development to be brought about by the biodiesel sector there has been a concentration of production in the Center and South regions, thus increasing the inequalities between these regions and the North and Northeast of the country.

33. Muito obrigada Thank you! Alexandrina Sobreira de Moura Joaquim Nabuco Foundation Federal University of Pernambuco www.fundaj.gov.br alexandrina.sobreira@gmail.com 55-81-3073 6494