“Dancing to other people’s music” in the energy transition could cost Brazil dearly

The government of Luiz Inácio Lula da Silva (PT) chose the energy transition as one of the showcases of its international policy. However, the lack of a strategic plan with clear definitions of how this process will be carried out could leave Brazil at the mercy of external interests.

“Dancing to other people’s music”, experts warn, could cost the country dearly. One of the main risks is being subject to rigid rules created by third parties, which can be used by competitors as an instrument of market control.

Continuing the government’s “green” external agenda, the Minister of Mines and Energy, Alexandre Silveira, spent the week in Washington (USA) and Paris (France) participating in meetings to prospect bilateral business. The minister’s agenda in North America included the launch of the US-Brazil Clean Energy Industry Dialogue Carbon and Methane Management Action Committee, participation in a workshop on carbon capture, utilization and storage, as well as meetings with businesspeople on Brazilian low-carbon hydrogen.

“Here in Washington, we come together to share information about legislation and regulation in our countries. The purpose of this event is to seek the harmonization of our regulatory requirements. We want to facilitate trade and the development of the CCS industry in Brazil and the United States”, said the minister.

Next, Silveira went to Paris where he met with the Minister of Energy Transition of the French Republic, Agnès Pannier-Runacher. The two countries will structure a permanent work agenda with emphasis on nuclear energy. The prospects for Brazil’s presidency of the G20 next year were also discussed.

The commitments are in line with the protagonism that Lula and his team have been giving to the issue. Last month, the president spoke about climate change and energy transition in his speech to the United Nations (UN) General Assembly in New York.

“We are at the forefront of the energy transition, and our matrix is ​​already one of the cleanest in the world. Eighty-seven percent of our electrical energy comes from clean and renewable sources. The generation of solar, wind, biomass, ethanol and biodiesel energy grows every year. The potential for producing green hydrogen is enormous. With the Ecological Transformation Plan, we will invest in sustainable industrialization and infrastructure,” said Lula.

A member of that delegation, the Minister of Finance, Fernando Haddad, defended opportunities for decarbonization and storage of Brazilian renewable energy. Haddad invited foreign investors to bring resources and establish public-private partnerships in the country.

Transition needs to consider cost to the consumer and security of supply

The energy transition is complex in itself. There are several sources and sectors involved, and the replacement of fossil fuels (oil, gas, coal) with renewables is a process that needs to take into account the cost to the consumer and security of supply.

Just as the government needs to get everyone on the same page, local businesses need to do their part too. The idea is not simply to sell Brazilian energy, but to form contracts in which national companies can also acquire techniques and knowledge to develop over time.

One point subject to discussion is incentives to leverage Brazilian projects, helping them to gain scale and competitive prices. Other countries are already opening their coffers to subsidize their industries – which, with this anabolic steroid, can suffocate outside competitors. In Brazil, lobbies are already moving in Congress and the Executive to guarantee their fair share of tax incentives.

The question is how to stimulate national production without repeating the history of inefficiency that is usually linked to the granting of subsidies. The cases of the Brazilian IT and vehicle industries are classic, which for many years were accommodated under overprotection against imports. The consumer was the one who lost, paying dearly for inferior quality products.

The state’s ability to forgo revenue also appears limited. Only in the federal government, tax waivers for the benefit of restricted groups of taxpayers amount to more than 4% of the Gross Domestic Product (GDP) and are successively extended even without proof of return, which keeps taxes high for people and companies not granted the benefits. .

The challenge is to balance Brazil’s interest with the need for partnerships

Foreign investments are welcome and relevant, in the general assessment of the market. The capital injection helps to leverage projects more quickly, taking advantage of windows of opportunity, since the country does not have the funds to finance this alone.

“It’s difficult to think about expanding without commercial partners. Having the natural resource does not allow us to do without international resources”, says Felipe Gonçalves, research superintendent at FGV Energia.

Another advantage of international partnerships is the import of knowledge. China, for example, is far ahead of Brazil in solar energy generation and car electrification technology. Furthermore, Brazil depends on foreign inputs and components for the energy transition, such as solar modules.

“Developing national industry is the government’s motto and understandable, but it doesn’t happen overnight. Chinese industry is very strong. So, we cannot stop counting on imports of photovoltaic panels from China”, says Carlos Dornellas, technical and regulatory director of the Brazilian Photovoltaic Solar Energy Association (Absolar).

But, so that these international ties do not become us against Brazil, it is necessary to have a defined and comprehensive strategic plan on what the energy transition will be like here. A well-designed policy is the path to balance between Brazilian interests and the need for partnerships with abroad, assesses Gonçalves, from FGV Energia.

Clear rules regarding State interference, deadlines, goals and other aspects would bring more security to both foreign investors and Brazilian businesspeople.

“The energy transition ended up becoming a means of making foreign policy. If there is no strategic plan saying what will be done, from which sources, what will be the State’s interference, in short, something that gives certainty about the direction for companies and investors , it could become ‘greenwashing'”, observes an energy expert who has followed the sector for decades.

Greenwashing is a term used to describe deceptive marketing strategies in which companies promote a false or exaggerated ecological image in order to attract environmentally-conscious consumers.

“A plan is a reference to guide economic agents, banks, investors. Then it would be necessary to know what Brazil’s industrial policy is, to know what the energy of the future will be, where these sources will be, what their role is, if there will be incentives, if the market will play a role”, adds the expert, who asked not to be identified.

Another consequence of leaving loose ends in the energy transition is that, without well-defined guidelines, Brazil may be subject to environmental standards dictated by other countries, which are potentially unfair and incompatible with our reality. “This will be an instrument of market control,” he says.

“Overrun” replacement could harm the economy

In addition to running the risk of sanctions if it fails to meet decarbonization targets, for example, the Brazilian economy could be harmed if the energy transition leads to a “run over” substitution of products and technologies.

“I believe we need to work more on the national product. If not, you end up creating a demand [de importados] which is not necessary due to lack of adequate planning. Today there are many initiatives for the energy transition, but we are not seeing national coordination”, says lawyer specializing in environmental law Antonio Fernando Pinheiro Pedro, responsible for a World Bank study on the carbon market in Brazil.

The generation of renewable energy in the country is progressing at a rapid pace, especially with wind and solar farms. But there are doubts about the transmission capacity and reliability of these sources for system stability. The lawyer recalls that the August 15 blackout, which affected almost all states in the country, was related to performance problems in wind and solar plants in the Northeast.

Pinheiro Pedro also cites the trend towards electrification of the vehicle fleet. “This means that there will be an overload to charge the vehicles. What do we intend to do to meet this demand?, he asks.

Government promises “green” industrial policy until the end of the year

Elbia Gannoum, executive president of Abeéolica, which represents the wind energy sector in the country, sees a “very strong alignment” between government, private sector and Legislature. According to her, the country will have “many things” to show at the 28th United Nations Conference on Climate Change (COP28), in November, in the United Arab Emirates.

“The Brazilian government is already clear about the energy transition and what they are doing now. Both the Ministry of Finance, with the Ecological Transformation Plan, which is broader, as well as the Ministry of Development, which is preparing a green industrial policy, and those of the Environment and Mines and Energy. Everyone is very attentive and so is the Legislative Branch”, says the executive.

The guidelines for the new industrial policy will be delivered by the end of the year, according to the Ministry of Development, Industry, Commerce and Services (MDIC).

The ministry restructured and reactivated the National Industrial Development Council (CNDI), which will be made up of 20 ministries, BNDES and 21 representatives from the productive sector. The new policy is based on six “missions”, including innovation, sustainability and the generation of quality employment and income. Ecological transition and technological leap are at the center of this strategy, according to Pasta.

The Ministry of Mines and Energy (MME), in turn, reported that it is working “in line with the public agenda of the federal government and in an integrated manner in the various efforts to combat climate change and to fulfill the commitments assumed by the country ”.

The team led by Minister Silveira said it is formatting the National Energy Transition Policy (PNTE), whose main pillars will provide space for dialogue and conflict management and “effective actions for sectoral transformation with the objective of reducing emissions”.