Brazil does not need to invest in natural gas, says study – 04/05/2023 – Environment

The World Bank advises against the plan to offer in auctions the generation of 8 GW (gigawatts) of gas thermal energy, provided for by Law 14,182/2021, which took Eletrobras public. The federal government is preparing a MP (provisional measure) on the subject.

“The additional 8 GW of gas capacity is not necessary, even with greater water scarcity”, says a study by the agency published this Thursday (4).

“Forgoing the additional 8 GW of gas capacity would represent savings for Brazil of 20% in electricity system costs in the conventional scenario, which would fall from R$ 374 billion to R$ 250 billion”, calculates the World Bank, in a projection costs for the year 2050.

Brazil has been betting on increasing the use of thermal energy —which is powered by fossil fuels and contributes to global warming—to avoid energy shortages in scenarios of water scarcity.

The study, however, proposes that investment should be focused on renewable energies, especially onshore and offshore wind (on land and on the sea coast).

The cost of investing in renewable energies would be only 2.5% higher than the expenditure in the conventional scenario under water stress: R$ 442 billion against R$ 431 billion, according to mathematical models of the study, which adds investment costs, generation , transmission and operation and also deficit.

Entitled Report on Climate and Development for Brazil, the study is part of an unprecedented series by the World Bank with diagnoses and recommendations on the transition to a low-carbon economy in several countries.

The document emphasizes that Brazil must take advantage of what it calls “the country’s exceptional conditions” to decarbonize the energy system, which would support the decarbonization of other sectors of the economy, increasing Brazilian competitiveness.

“Brazil has fantastic potential for solar and wind power, we haven’t found that in any country. But of course we’re talking about the long-term cost. Renewable energy is cheap to generate, but you still need to invest. That’s the question. that the report leaves: how to finance this transition?” Sheet Stephane Hallegate, senior adviser on climate change at the World Bank and one of the authors of the report.

One possible avenue for funding is the redirection of subsidies.

“In the agricultural sector, this can be done by linking access to subsidized credit with the adoption of climate-smart agriculture,” the study suggests. “Other subsidies that could be reused include those available to the beef industry, of approximately R$ 12.3 billion between 2008 and 2017”, he points out. “Subsidies for coal-based power generation, which totaled almost BRL 1 billion in 2020, could be redirected to support the energy transition.”

On the other hand, the study recognizes that Brazilian offshore oil and gas reserves will remain competitive in global markets in the coming decades, becoming a risk only in the long term, with the possible drop in global demand.

“Relatively low production costs mean that the production of fossil fuels in Brazil and its revenues should increase in the medium term”, says the report on the export scenario, pondering that renewable sources are cheaper to supply domestic demand.

According to Hallegate, the analysis addresses two issues. “One is how to meet the country’s energy needs; another is: if you have fossil resources, what do you do with them?”, he says.

“There are countries willing to spend a lot of money on gas because they only have that option. You can sell gas at high prices to countries that are already tied to that option or you can lock yourself into that option too”, he assesses.

In a broad diagnosis, the report brings notes on the sectors of energy, industry, transport and agriculture and also on combating deforestation, in analyzes on structural reforms, measures to increase productivity and economic and sectoral policies.

“The additional investments needed for climate action represent approximately 1% of Brazil’s annual GDP”, states the study. The report also lists among the investment opportunities the gain in agricultural productivity added to the fight against deforestation; reindustrialization; and contributions to innovative value chains, such as the generation of green hydrogen for export and mining for the manufacture of electric vehicle components.

The study also points to the need for public policies for climate adaptation, in order to prevent environmental disasters from increasing social inequalities.

“Climate shocks could drive 800,000 to 3 million Brazilians into extreme poverty as early as 2030. It is crucial that Brazil accelerates its investments towards resilient, low-carbon growth,” says Johannes Zutt, World Bank director for the Brazil.