New Rules for Biodiesel Auctions / by Mark Langevin

Brasil Energy and Igor da Costa report that the Brazilian government is considering and moving quickly to implement a new biodiesel auction framework that would include three new rules.


1. The auctions will take place through the internet to speed up the buying and selling to avoid market fluctuations between the offer and purchases phases of the auction. The internet based bidding scheme will also allow the regulatory agency, the National Petroleum, Gas, and Renewable Fuels Agency (ANP) to hold monthly actions rather than quarterly.


2.  The new rules also include a “resubmission procedure” to stimulate greater competition.  The provision would allow plants carrying the Selo Combustível Social (Social Fuel Seal) to resubmit bids if they retained stock after the initial sales offer.  The effect would likely drive down the price during the second sales phase which includes suppliers without the Social Fuel Seal, and possibly encourage more suppliers to obtain the seal and compete in the first round of sales exclusively reserved for those suppliers with the Social Fuel Seal.


3. The ANP will be authorized and have the information technology available to establish the frequency of the auctions. This new rule will likely lead to more auctions, smoothing out the prices and increasing stability in the marketplace.


These new rules should improve the technical performance of the auctions, but they will not address a larger public policy and private sector challenge. How to encourage the most efficient and socially responsible production while keeping prices attractive to both producers and consumers?