Balancing economic growth and the environment: lessons from Brazil

In many ways, Brazil is a global leader in the energy transition. Coupled with a strong domestic oil and gas sector that makes up almost 11% of its economy, more than 46% of Brazil’s energy mix is powered by renewable energy sources and Brazil also has the third- largest renewable electricity generation capacity globally. Last year, the World Economic Forum’s Energy Transition Index ranked Brazil at 45^th out of 115 countries, driven by its strong performance in in areas such as near-universal energy access and access to clean cooking fuels, a high degree of energy security and the relatively low carbon-intensity of its energy mix.

Building on this success, three key opportunities have been identified for the next stage of Brazil’s energy transition roadmap:

At the recently held Brazil Energy Roundtable – a collaborative effort by the World Economic Forum and Empresa de Pesquisa Energetica – policy-makers, business leaders and key stakeholders in Brazil came together to look at how the country can foster an effective energy transition that balances the priorities of energy security, economic growth and environmental sustainability. Three key themes emerged from the discussion:

Modernising and deregulating its energy market will ensure that Brazil can better leverage market mechanisms to accelerate the energy transition. Past policies that were highlighted as successes include the development of a competitive and dynamic natural gas market in Brazil and RenovaBio, Brazil’s federal biofuel policy that aims to reduce carbon emissions through the use of tradeable carbon credits. Brazil’s Energy Plan 2050, released for public consultation in December 2020, will build on these experiences to further promote market forces whilst enabling inclusive growth and sustainable development.

Technology and digitalization will be critical in enabling Brazil to take the next big step on its energy transition journey. Modernising the transmission and distribution network, and adopting ultrahigh-voltage direct current (UHVDC) transmission lines as well as smart grids, will be critical in enabling the integration of an increasing share of variable renewables and distributed resources such as wind and solar into the electricity grid, while at the same time minimising the cost of grid investment and operations and providing a resilient and reliable electricity supply.

Research and development in areas such as carbon capture, utilization and storage (CCUS) and methane leakage detection will be key for lowering the carbon intensity of oil and gas operations. While product innovations and research and development in areas from biofuel and biodiesel to bio-jet fuels were highlighted as important developments that will help the sector thrive in a low-carbon economy. This will be critical for Brazil’s transformation into a low cost, low carbon, leading energy supplier of the future. Lastly, digital technologies that enable better energy demand management as well as better matching of energy supply and demand will become increasingly important as Brazil starts to decarbonize its key energy demand centres, such as cities and electrified transport networks.

Financing is a key enabler in all dimensions of the transition – and Brazil is emerging as one of the most dynamic destinations for sustainable infrastructure investment, having attracted over $56 billion of clean energy asset investment between 2009-2018. Examples such as innovative PPAs and green bond issuance, both domestic and international, are evidence that innovation and diversity are growing in the financing of clean energy investment in Brazil. As the Brazilian market continues to mature, opportunities for improvement remain. Private sector infrastructure financing, co-financing and syndication are relatively immature in the Brazilian market today and will be key in increasing overall capital inflow as well as enhancing knowledge and technical expertise sharing.

Pursuing a balanced approach to the energy transition is one of the defining challenges of our times, not least when faced with the compounding health and economic challenges brought on by the global pandemic. Realising Brazil’s potential and ambition in the energy transition requires embracing continuous innovation, mobilizing large amounts of public and private investments and active participation from all key stakeholders. With the upcoming public consultation of Brazil’s 2050 Energy Plan, there are opportunities to set Brazil on a path to sustainable and inclusive growth and to be an energy transition leader in a low-carbon future.