Dubeux: Fossil fuels need to finance transition – 04/04/2024 – Market

Appointed by the Lula (PT) government to the Petrobras board amid the crisis between the company’s management, shareholders and ministers, Rafael Dubeux argues that oil should finance the energy transition, but has reservations.

According to him, “a large part of the transition is self-financing” and there are “urgent short-term social demands” to be resolved, such as health and education. “It’s a challenge to balance all these factors and find the best solution,” he says.

Deputy Executive Secretary of the Ministry of Finance, he leads the Brazilian Ecological Transformation Plan, which creates the guidelines for the country’s sustainable development.

Dubeux spoke with Sheet at the Treasury office in São Paulo. He avoided talking about his likely new role at Petrobras, as the appointment to the position still needs to be processed. According to him, the company’s dividend distribution will soon need to have a “definitive solution”.

The Secretary of Climate Change at the Ministry of the Environment, Ana Toni, said that Brazil lacks planning on what to do with the oil money if the country continues exploring. Is this your concern too?
This is a super-relevant debate that was already had way back when, at the time of the discovery of the pre-salt, with the creation of the social fund, and I think that at some point we will have to return to the subject to discuss what the arrangement will be. of the social fund and royalty distributions.

We need to discuss where we are going to allocate this to guarantee an energy transition and at the same time a fair transition.

The Ministry of Mines and Energy even prepared a project that was taken to the CNPE (National Energy Policy Council) at some point, creating an energy transition program, so this is a debate that is being discussed by the government.

And why didn’t it move forward?
I think they chose to hold the vote at the other meeting and that meeting has not yet taken place. But the fact that it does not have a formally approved plan with that name does not mean that the country is not making an energy transition effort.

Mr. agrees with the idea of ​​using extraordinary dividends from companies that exploit natural resources to finance the energy transition, as proposed by the Norwegian Economy Minister in the G20?
Norway]is a developed country that, in a way, has other social demands reasonably met, and then you can focus almost all of the resources on the energy transition.

Brazil is a country where the energy matrix is ​​already comparatively cleaner than that of rich countries, and we have a series of urgent short-term social demands that we need to address, health, education, various topics. So it’s a challenge to balance all these factors and find the best solution.

There is no doubt that part of the transition needs to be made possible with fossil fuels, which still have a role to play for several years and, in some way, help the transition.

If not necessarily in clean energy, it is sometimes in enabling adaptation to climate change, mitigating the impacts caused by the emission itself.

Does the resource all have to go towards the energy transition? I don’t think so, especially because a large part of the energy transition is, so to speak, self-financing.

Would this change in extraordinary dividends have to come by law?
The change is by law, the distribution is fixed by law. I’m not proposing that. The law that today establishes the tax rate and distribution criteria […]. It is a judicialized issue and at some point there will need to be a definitive solution.

Does your presence on the Petrobras board help in this scenario?
I was very honored by the invitation to participate in the Petrobras board, but, for now, there is a recommendation from the government that is still being processed by Petrobras.

There will also be a general meeting, scheduled for the end of the month, and, until there is a formal deliberation, I prefer not to speak.

What is the real size of Brazil’s ecological transformation plan? Organizations say somewhere between $130 billion and $160 billion annually.
I saw this number recently, but we didn’t publish it. There are several studies being carried out on how much capital the set of actions being taken mobilizes. The vast majority are privately owned.

Energy projects in Brazil are left standing without any additional public support, such as wind, solar and biofuels.

In some areas of these promising new long-term markets, there is a discussion about whether it makes sense to have some type of subsidy, as is the case with hydrogen and low carbon, but this has not been addressed.

The bulk of the resources in the plan today are regulatory measures to stimulate and channel private resources towards decarbonization. Of what public resources actually have, it is a comparatively smaller value; There is no exact number.

Does the value of the plan include investments made by the companies themselves? It’s not like the US and European plans…
Our plan is not directly comparable to the US […]these are private investments that you are encouraging with this process.

The carbon market, for example, is made through private investment, as you create an incentive system that encourages a steel mill or a cement or glass industry to decarbonize its process.

It is a regulatory measure, with no budgetary impact. The fiscal space we have is exactly what is in the fiscal framework; it has no real beyond what is fixed within the limits.

But what about bonds launched abroad for this financing?
In the issuance of bonds and the allocation of the Climate Fund, which has some public contribution, it is money for credit. We are going to lend to companies, so it is not an expense budget.

The idea is to have US$2 billion every year and we will allocate these resources to the Climate Fund to make financing viable at a competitive rate.

Investors say the country needs to focus on a few areas if it wants to be competitive. Has the federal government already selected them?
In terms of technological routes for mobility and electricity generation, there is a clear dispute between some of them and it is possible that in 10, 20 years we will see that one has proven to be much superior to the others, but today it is not clear to say which will prevail. .

In some areas, the market tends to naturally narrow and in other areas we have done work to map the value chains. We want to identify, within these chains with the greatest potential, which are those in which Brazil already has some international competitive capacity.

Have these areas already been defined?
The major themes are defined. It will involve solar, wind, hydrogen and biofuels. Now, the full mapping of which specific tools will be used should be completed this month.

One of the tools that we intend to advance this year is the use of technological ordering, which is the use of the State’s purchasing power, not of national content, but to develop a technological solution that does not yet exist on the market.

Is it possible to imagine in a few decades all countries with an electrified fleet and only Brazil with ethanol, since the fuel seems to be more advantageous for the Brazilian production chain?
This is one of the possible scenarios. The automotive industry itself is debating whether it makes sense to continue producing a type of vehicle that may not have such easy access in some markets. But it is very difficult to imagine that South Asia, Africa and Latin America will electrify at the speed that Europe intends.

The potential that Brazil has with ethanol and biodiesel places Brazil in a different situation internationally.

Today, more or less 23% of our fuels come from biofuels, compared to a global average of below 10%.

The use of an ethanol car here in Brazil already promotes decarbonization practically equivalent to the use of an electric car in Europe, because there the electric car is fueled with fossil fuels to generate electricity. But Brazil did not choose a single solution and each company is making its assessment according to its market.

Why is Brazil taking so long to regulate the carbon market, offshore wind farms, green hydrogen production and other important projects on this agenda?
The Legislature has its own dynamics. In January the Legislature is in recess, in February and March there is all the discussion about the recomposition of committees and now it is the party window period. This all has an impact on the voting agenda, but we have been following all these issues closely and the issues are a priority for the government.

Sometimes political injunctions require holding off for a month or two while seeking to build a political agreement to make the vote viable.

With a lot of political power, agriculture can choose which environmental guidelines it adheres to and which it does not. In the carbon market, parliamentarians left the sector out. Does this resistance bother the government?
It was an opportunity for agriculture to be there, but it was an option made by the Senate and Chamber, so there is no way to change it. But, having said that, I don’t think it’s a serious impact on the carbon market, not by a long shot.

We look at other carbon markets in the world, almost none of which include agriculture.

The fact that agriculture is outside the carbon market does not mean that it is outside decarbonization policies. On the contrary, there are several decarbonization policies aimed at agriculture that continue to advance.

One of them is the effort to expand the criteria of the ABC plan and gradually merge it with the Safra plan.

Last year, there was already a first effort in this direction to introduce sustainability criteria that allow for a slightly cheaper interest rate, such as having a validated CAR (Rural Environmental Registry).

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X-ray | Rafael Dubeux, 41

Deputy Executive Secretary of the Ministry of Finance. Appointed to the board of directors of Petrobras, he has a doctorate in international relations from UnB, with a thesis on innovation in low-carbon energy. He has been a Union lawyer since 2005