Coauthors: Ricardo Esparta and Karen Nagai, Technical-Scientific Director and Carbon Specialist at BlockC, respectively

Companies in the sugar and alcohol sector or landfills that produce biomethane can earn quite significant financial income generating different types of decarbonization environmental assets. This is the case with the Decarbonization Credits of the federal program RenovaBio, the Renewable Energy Certificate or the carbon credits generated by Verified Reduction of Greenhouse Gas Emissions.

However, the indiscriminate overlap of these environmental attributes can generate double counting, compromising their value for buyers who seek in these assets the reduction, abatement or mitigation of their own greenhouse gas emissions. Before pointing out solutions to this problem, it is important to have clear the characteristics of each of these environmental assets.

First, let's understand what decarbonization credits are. RenovaBio is a Federal Government program to encourage producers of fuels from renewable sources, such as ethanol, biodiesel and biogas. Companies that produce fuels of this type can issue certificates called decarbonization credits. For each ton of carbon equivalent that the production and consumption of this clean fuel fails to throw into the atmosphere, compared to oil, for example, a certificate attested by the National Agency of Petroleum, Natural Gas and Biofuels is issued. Companies interested in offsetting or neutralizing their emissions can then purchase these certificates.

RenovaBio creates a regulated environment where fossil fuel distributors are required to purchase decarbonization credits. To participate in the program, producers of renewable fuels must complete three stages. The first is to fill out the RenovaCalc, an extremely detailed form about its operation, for the evaluation of the National Agency of Petroleum, Natural Gas and Biofuels, since the certificate evaluates not only the amount of fuel produced, but also the energy efficiency and the “ cleaning” of the production process from the point of view of greenhouse gas emissions.

The second is to hire an independent audit to validate the data entered in RenovaCalc, a requirement of the National Agency for Petroleum, Natural Gas and Biofuels so that the producer can issue decarbonization credits. Thirdly and lastly, the fuel producer must look for a securities distributor to keep and account for its certificates, so that they can be traded in over-the-counter environments of the stock exchange, as in the case of B3.

Let's understand what Renewable Energy Certificates are, in this case, BioREC, Biomethane Renewable Energy Certificates generated in the sector's production process. These papers attest to the guarantee of the renewable origin of the biomethane generated, allowing its traceability, in order to guarantee that it does not come from fossil fuels. This guarantee of origin of the renewable attribute is not a mandatory instrument. Depending on the form of commercialization, the certificate can be negotiated separately from the “energy product”, or, relating the generation of energy to the consumption of this energy. In cases of generators and consumers not connected to pipelines, for example, the analysis model is more complex, requiring operationalization rules.

The carbon credits generated by the Verified Reduction of Greenhouse Gas Emissions are emitted from a set of activities implemented to reduce emissions. These emissions are monitored, verified and accredited by an independent audit and approved by an emission reduction program that can be regulated or voluntary.

Each program has its own eligibility criteria, implementation deadlines, operating schedules, verification, registration and issuance procedures, among others. Regardless of the program, all emission reductions must be proven against a baseline scenario, which is called a baseline. All carbon credit projects must demonstrate their positive impact through additionality, proving that the project is indispensable and that the reductions it generates would not be achieved without its implementation.

Taken together, decarbonization credits, BioRECs and carbon credits generated by Verified Reduction of Greenhouse Gas Emissions are instruments for proving environmental attributes with different characteristics and purposes. Carbon credits are measured in ton of carbon dioxide equivalent reduced or avoided and are based on additional emission reduction projects. After registration, the project will obtain the carbon credits certificate after presenting the results obtained in a monitoring report, prepared in accordance with the monitoring plan audited by a third party and approved by the program in which it was registered.

1 decarbonization credit is equivalent to 1 ton of carbon dioxide equivalent of avoided emissions, by simply comparing the difference in life cycle emissions of biofuel production and the substituted fossil fuel (diesel, gasoline, natural gas). However, the decarbonization credit does not assess additionality, that is, whether the decarbonization credits generated play an important role in the decision to produce the biofuel.

In fact, the simple production of biofuel and certification by RenovaBio gives the automatic right to issue decarbonization credits. As there is no assessment of additionality, there is no way to say that, in fact, there was a reduction in emissions differently from what would occur in the absence of the decarbonization credit issued.

Finally, BioRECs are emitted in commercialized units (cubic meters or one million British thermal units) from these renewable sources of biomethane biogas, that is, they do not include, in their calculation, the reduction of emissions, guaranteeing “only” the origin renewable energy generated.

Taken together, there is potential for overlapping environmental attributes, since the three certificates deal with the same measure: the reduction of greenhouse gas emissions. When issuing the carbon credit, the producer receives credits related to renewable energy. When issuing the decarbonization credit for the same period, the same producer certifies that the biofuel produced will emit less greenhouse gases than the equivalent fossil fuel. When issuing BioREC, although the producer does not receive credits for a fuel substitution, the purpose of this certificate is often the abatement in an emission inventory of the energy use of an equivalent fossil fuel.

In practice, depending on the way it is structured, the risk of double counting can be eliminated, by determining that projects will only be registered if they undertake not to issue any other credit related to emission reductions. For this, documentary evidence will be required. In other words, the instruments could only coexist if there is a guarantee that the tracking will not be used for any purpose of offsetting or abatement of emissions where these environmental attributes overlap. The overlap will occur in a portion between 10% and 20% of the volume of biomethane produced and commercialized.