Why Brazil's energy policy is a mixed bag

The role Brazil plays at the COP28 climate conference in Dubai exposes the complexity and contradictions of its energy transition.

While having presented several decarbonization initiatives since the conference started on November 30, Brazil has also been at the center of controversies over the promotion of its oil industry.

Ricardo Assumpção, ESG partner leader for Latin America South and chief sustainability officer at EY Brasil, said the energy transition must consider three pillars: energy security, energy affordability and sustainability.

"Brazil still has dependence on oil, but I believe that, in the coming years, this should be reduced, given the investments in cleaner matrices, such as wind and solar, as well as the growing interest in green hydrogen," he told BNamericas.

Assumpção said most of Brazil's greenhouse gas emissions do not come from fossil fuels, as in the case of countries in the northern hemisphere, but from deforestation and illegal land use.

In this context, Brazil has a comparative advantage. "We need to have clear policies to curb illegal deforestation, while at the same time producing innovation to manage the soil more efficiently and thus reduce our emissions," he said.

On December 1, Brazil announced more than 20bn reais (US$4bn) to finance projects focused on energy transition, bioeconomy, and decarbonization of industry and advanced mobility in Brazil.

On December 2, development bank BNDES signed agreements with the World Bank’s development arm, IBRD, and the European Investment Bank, which could result in up to 6.5bn reais in new green investments in Brazil, including support for green hydrogen projects.

BNDES additionally signed a deal with Brazilian electric power holding Eletrobras to promote the decarbonization of the Amazon and the recovery of watersheds.

One day later, the government signed a bilateral agreement with the UK to develop green hydrogen projects, and on Monday, Brazil highlighted that the production of sustainable aviation fuel (SAF), green diesel (also called HVO), second-generation ethanol, in addition to hydrous ethanol and biodiesel, should attract more than 200bn reais in investments to the country by 2037.

Also on Monday, the government announced that Brazil has joined the Global Methane Pledge and committed to submitting guidelines for regulating gas emissions in the local oil industry by the end of 2024. 

But such announcements were overshadowed by the formal invitation to join OPEC+, which is being analyzed by the government. 

In response, Climate Action Network (CAN), an association of NGOs, awarded Brazil the anti-prize Fossil of the Day. 

"Brazil seems to have confused oil production with climate leadership. Brazil's oil rush undermines the efforts of Brazilian negotiators in Dubai who are trying to break old deadlocks and act with a sense of urgency," CAN, which represents more than 1,900 entities from 130 countries, said in a statement. 

CAN also criticized plans to explore the geologically promising but environmentally sensitive Equatorial Margin between Amapá and Rio Grande do Norte states. 

President Luiz Inácio Lula da Silva justified Brazil’s OPEC+ entry as an observer by claiming Brazil could better influence the energy transition this way. 

"I think it's important for us to participate because we need to convince the countries that produce oil that they need to prepare for the end of fossil fuels and preparing means taking advantage of the money they make from oil and making investments so that the African and Latin American continents can produce the renewable fuels they need, especially green hydrogen. Because if we don't create alternatives, we won't be able to say that we're going to do away with fossil fuels," he said in a statement.

PETROBRAS

The CEO of federal oil company Petrobras, Jean Paul Prates, previously argued that oil revenues should finance the energy transition, which is a process that should take around 50 years. 

"The energy transition for oil companies is a walking metamorphosis, you have to invest in oil to pay for the energy transition," he said.

Petrobras’ new business plan foresees up to US$11.5bn in investments for low-carbon projects over the next five years, considering various segments.

On Sunday, Petrobras signed a protocol of intentions with Rio de Janeiro state for the joint evaluation of pilot projects for a CO2 capture and storage hub, dubbed CCUS.

ENERGY MATRIX

While oil, together with deforestation and illegal soil utilization, weaken Brazil’s sustainability efforts, the rising share of renewable sources in the energy and electric power matrices is unambiguously positive. 

In 2022, the share of renewable sources in the national energy matrix increased from 45% to 47.4%, due to the growth in the share of hydroelectric and other renewable sources, especially wind and solar.

Renewable sources accounted for 87.9% of domestic electricity supply, 9.8 percentage points more than in 2021.