Markets & Policies

Brazil’s energy and climate issues in Bolsonaro’s era

The election of the new President of Brazil Jair Bolsonaro has drawn the attention of the whole world. And within all the socio-economic implications of his election, he is probably going to have a pivotal role in particular for the energy and climate future of Brazil and the entire world.

Brazil’s energy and climate issues in Bolsonaro’s era

Bolsonaro is widely known for being a conservative, far-right, homophobic, xenophobe and misogynist politician with a military background. His election might be seen as the natural consequence of the wasteland of corruption of Lula’s left wing Presidency, and it was applauded by many leaders with similar views, while many others seem to be pretty worried, and in particular environmentalists and supporters of the Paris Agreement.

Privatisations?

Generally speaking Bolsonaro’s administration seems to be favourable to full privatisations, but this might not be the case for the energy sector companies. The new Government could indeed decide to preserve as much as possible its power over the national public electricity utility Electrobras and the Brazilian oil company Petrobras (one of the largest oil companies in the world).

But even if the state wants to maintain a certain degree of control over those companies, some liberalisation plans are on the horizon. The need to reduce the risks for Petrobras related to new upstream operations and to try to reduce the public debt could be at least two good reasons to remove Petronas’s monopoly over the national offshore fields. This would open up the nation’s resource-rich “pre-salt” assets to foreign and private investors, boosting oil production from Brazil, and addressing, at least partially, the massive budget deficit of the country.

Environmental concerns

Well in advance of his election Bolsonaro threatened he wanted to follow Trump’s example withdrawing Brazil from the Paris Agreement. But if today this doesn’t seem to be any more in his intentions, the possibility of much less strict environmental policies and regulations under Bolsonaro’s administration still appears pretty real.

In particular the main international concerns are related to the destiny the lungs of the Earth, upheld by rumours about merging the environment and agriculture ministries. The largest tropical rainforest could see an increased rate of exploitation in order to favour agricultural and mining activities.

Addressing deforestation and forest degradation represents indeed a key action needed to fight global warming. Reducing deforestation and its consequences has also a central role in the Brazil pledges to lower its carbon emissions[1]. Brazil’s policies can lead to global consequences in terms of biodiversity and climate change.

A limited power…

But then the question is… can Brazil afford this? The eyes of many companies, countries and people around the world are more and more wide open and concerned about environmental issues and, in particular, climate change. Denying anthropogenic global warming is considered as going against scientific evidence, and the main results of the huge work of the IPCC scientist are today reported in all newspapers and magazines.

And companies, countries and people opinions matter, especially when they reach a critical mass that can affect the economics of a nation. In particular international trading can be severely affected if certain social-environmental standards are not met, and those standards are raising pretty quickly. A pretty important message toward this direction is coming from the EU, which is set to reject trade deals with countries outside the Paris Agreement.

If (properly) supporting the oil industry is still acceptable and deemed as needed considering the world oil demand trends, discarding environmental protection, or mainly investing in fossil fuels without also fostering energy transition is becoming inadmissible.

While waiting for Bolsonaro’s actual steps, and see how much he will resemble Trump’s path, the Katowice COP24 might be a good arena to test the new Brazil’s leader intentions.

 

[1] Equal to, according to the Intended Nationally Determined Contribution submitted for the purposes of the Paris Agreement, a commitment to reduce greenhouse gas emissions by 37% below 2005 levels in 2025, and by 43% below 2005 levels in 2030.

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