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Brazil's Inovar-Auto fiscal incentive program updates

Published Wed, 2015.11.11 | By

Cristiano Façanha

Summary

If automakers meet the minimum corporate average vehicle energy consumption target, Inovar-Auto will reduce the average energy consumption of new LDVs by at least 12% between 2012 and 2017.


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In October 2012, the Brazilian government approved by decree a new program to encourage vehicle technology innovation. Inovar-Auto fosters industrial competitiveness by encouraging automakers to produce more efficient, safer, and technologically-advanced vehicles while promoting the national automotive industry. Since its original publication, many updates have been made to the original decree, most notably, the definition of penalties for non-compliance with the energy consumption target, credits for hybrid vehicles, and off-cycle credits.

If automakers meet the minimum corporate average vehicle energy consumption target, Inovar-Auto will reduce the average energy consumption of new LDVs by at least 12% between 2012 and 2017. Automakers can also qualify for an additional 2% discount on IPI taxes by meeting more aggressive targets (up to 19% reduction of average energy consumption of new LDVs over 2012 levels). Figure 3 illustrates the expected effects of Inovar-Auto on Brazil’s energy consumption from LDVs, assuming both a moderate case (12% improvement) and an aggressive case (19% improvement). If automakers meet their energy consumption targets, Inovar-Auto could reduce fuel consumption (gasoline and ethanol combined) between 11% and 19% in 2030, equivalent to a reduction of GHG emissions between 15 million and 30 million metric tons of CO2-equivalent (MtCO2e). The cumulative effects of Inovar-Auto through 2030 could result in fuel savings between of 65 billion and 100 billion liters, equivalent to R$ 150-240 billion in savings (USD 42-67 billion) based on 2014 average fuel prices.

Figure 3