Brazil’s Complementary Law 235/2026 sets a temporary safeguard for federal fuel-tax relief in 2026: if the government reduces taxes on fossil fuels, including through subsidies, it must preserve the corresponding biofuel’s pre-conflict competitive tax differential in both percentage and absolute terms per unit. The law also sets a special rule that can reduce ethanol tax rates to zero if federal gasoline taxation falls by at least 30% from its pre-conflict level. Neither provision sets a pump price or guarantees that consumers will pay less.
What Brazil’s 2026 law changes
Complementary Law 235/2026 allows, exceptionally in fiscal year 2026, revenue losses from executive-branch measures intended to mitigate energy-market impacts to be offset by extraordinary Union revenue connected directly or indirectly to the energy shock. The specified relief may cover federal taxes on imports, production and sales of road diesel, biodiesel, gasoline and its streams, ethanol, and aviation kerosene. The law’s text defines the temporary framework.
The central safeguard applies when federal taxation on fossil fuels is reduced, whether by a tax measure or a subsidy. The reduction must preserve the competitive differential in favor of the corresponding biofuel at the level that applied before the conflict, in both percentage and absolute amount per unit of measurement. In practical terms, the rule is designed to prevent temporary relief for fossil fuels from eroding the relative tax advantage of their biofuel counterparts.
How the ethanol rules work
The differential is based on blended gasoline
For the statutory comparison, the federal tax burden on hydrated ethanol is measured against the gasoline A and anhydrous-ethanol portions reflected in gasoline C, using the mandatory anhydrous blend proportion in force. That means the law does not simply compare the standalone tax rates for ethanol and gasoline; the blend composition is part of the calculation.
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The 30% trigger
If federal taxation on gasoline is cut by 30% or more from its pre-conflict level, the respective ethanol rates are reduced to zero under the law’s conditions. This specific zero-rate treatment operates alongside—not instead of—the requirement to preserve the competitive differential. The threshold concerns the reduction in the federal gasoline tax burden, not a 30% reduction in the retail price of gasoline.
A time-bound producer subsidy
The law authorizes an exceptional subsidy capped at R$1.2 billion for hydrated-ethanol producers and cooperatives. Its stated purpose is to maintain the competitive differential while the gasoline A subsidy was in force, from May 25 to August 11, 2026. The cap is not evidence that the full amount was paid, and the provision is not a consumer rebate or an open-ended payment.
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How the emergency safeguard differs from Brazil’s broader biofuel framework
The 2026 law did not originate Brazil’s general policy of taxing biofuels below comparable fossil fuels. Complementary Law 214/2025 establishes the structural rules for the future IBS/CBS tax system. Article 175 requires lower taxation for biofuels and low-emission hydrogen than for comparable fossil fuels, with biofuel rates set between 40% and 90% of the corresponding fossil-fuel rate. The calculation criteria include energy equivalence, market prices, units of measurement, and environmental impact potential. Complementary Law 214/2025 is the source for that broader framework.
These are distinct legal layers: Law 235 provides a temporary 2026 safeguard for specified emergency tax-relief measures, while Law 214 establishes the longer-term IBS/CBS differential. A joint Ministry of Finance and CGIBS methodology published in October 2026 sets out future implementation, with CBS beginning in 2027 and IBS in 2029. Those future rates should not be read as current 2026 pump-tax rates. CGIBS’s published material describes the implementation methodology.
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How the future blend calculations are described
Under the October 2026 methodology, IBS on anhydrous ethanol and pure biodiesel used in mandatory blends is set at 90% of the rate on gasoline A and diesel A, respectively. For hydrated ethanol, the minimum differential is calculated against gasoline C using specified historical tax, sales-volume, and weighted consumer-price inputs. These are implementation rules for the future system, not a statement of the tax charged at the pump in 2026.
Why the law is tied to the energy shock
The Senate reported that federal revenue from petroleum and natural gas was R$28 billion in January–March 2026, compared with R$9 billion in January–March 2025. The Senate attributed the figures to the Executive and linked the increase to higher oil prices following the conflict. Agência Senado’s report provides that context; the figures describe government revenue, not fuel-tax savings passed on to households.
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What the law does—and does not—mean for drivers
The law sets tax and subsidy conditions for government action. It does not specify a retail price change, require a particular reduction at the pump, or establish how much of any tax change reaches consumers. Pump prices can reflect other costs and market conditions, so the statutory differential alone cannot show whether or by how much a driver will save.
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