8/26/2004 BNamericas.com - Brazil's federal government is planning toreduce taxes on biodiesel to encourage the use of the alternative fuel inthe country, local press reported.

The tax cuts could come through reductions in the Cofins social tax, andthe federal government would encourage state governments to reduce localtaxes, O Globo newspaper said.

In the fourth quarter this year, the federal government plans to unveilits program to increase biodiesel's role in Brazil's energy matrix.Initial comments by mines and energy minister Dilma Rousseff point to aninitial 2% mixture in diesel, gradually increasing to 5%.

Biodiesel is locally produced, and the government wants to increase itsuse to reduce imports of light crude for diesel production, reducepollution in urban centers and create jobs in rural areas.

Brazil can produce biodiesel at cost of 1.25 reais (US$0.42) a liter,according to tests in the northeastern state of Rio Grande do Norte, thenewspaper reported. Diesel in the same state sells at 1.25 reais a liter.

Federal energy company Petrobras would sign long-term contracts to buycastor oil for biodiesel production, the newspaper said.

The government's agronomy research company Embrapa said that biodieselcould power 16% of the national vehicle fleet, local press reported.