Decarbonization policy and risk management: the RenovaBio program as a hedging instrument in the Brazilian sugar-energy portfolio.

The RenovaBio program, by creating Decarbonization Credits (CBIOs), introduced a new source of revenue for Brazilian sugarcane mills, potentially changing the financial dynamics of the sector. This paper investigates whether CBIOs have modified the risk-return profile of the sugar-energy portfolio and whether this change is compatible with the program's objective of expanding the production of biofuels. To this end, three complementary methods are used: Bai-Perron structural breakage test, Mean-CVaR efficient frontier with counterfactual analysis, and stochastic dominance tests. The results show that the program did not generate a rupture in the trajectory of national ethanol production, that there was an improvement in the risk profile of the sector and that the sector systematically operates above the optimal ethanol portfolio, using CBIOs as an instrument of financial stabilization. The results suggest that RenovaBio acts as a financial hedging mechanism for the producing end, rather than catalyzing the expansion of biofuels.