Energy transition: projects have disputes and ‘tortoises’ – 03/09/2024 – Market

After failing to approve the package of proposals relating to the energy transition at the end of 2023, the National Congress will once again focus on the issue in the first half of this year.

In the view of members of the government of Luiz Inácio Lula da Silva (PT), representatives of the energy sector and parliamentarians, there are five projects of great importance: the carbon credit market, green hydrogen, biofuels, offshore wind energy and Paten (Energy Transition Acceleration Program).

Currently, Fernando Haddad’s Ministry of Finance works in partnership with departments such as Environment (Marina Silva), Industry (Geraldo Alckmin) and Mines and Energy (Alexandre Silveira) to build plans aimed at decarbonization and energy transition.

And the approval of these projects in the Legislature is seen as fundamental for the application of such guidelines, which are still being developed by the Executive.

At the end of 2023, most of these proposals came to the attention of the Chamber of Deputies.

The president of the House, Arthur Lira (PP-AL), wanted them to be approved before COP28, the annual UN (United Nations) climate conference, which he intended to attend.

Lira actually traveled to Dubai, in the United Arab Emirates, for the event, but did not take the entire package in her luggage.

Deputies were unable to agree on the wording of all the projects.

The project that regulates the operation of offshore wind farms on the Brazilian coast began in the Federal Senate in 2022, under the rapporteur of Carlos Portinho (PL-RJ).

In the Chamber, it was approved right before the Dubai COP. However, the text was defaced with so-called “jabutis”, which created incentives worth R$39 billion, and for highly polluting technologies, such as gas and coal plants.

Now it is once again being considered by the Senate. The president of the House, Rodrigo Pacheco (PSD-MG), still needs to define who will be the rapporteur.

By convention, the position should belong to whoever held it in the first place, therefore, Portinho. But both the discussion about whether or not to maintain the “jabutis” as well as negotiations involving the Lula government and Congress delay the choice and could result in a new name in the report.

If the “jabutis” are maintained, they can increase the price of the electricity bill by 11%.

The carbon credit project was approved by the Senate in 2023, but with an exception created so that agribusiness is not part of the regulated market — which also exempts the sector from complying with the gas emission reduction obligations planned for this Marketplace.

In the Chamber, it was only approved at the end of the year, after COP28, and underwent several changes that made the proposal less consensual.

Back in the Senate, he is also awaiting a definition of who will be the rapporteur, who will need to negotiate the wording with agriculture and the federal government.

The deputies used a regimental maneuver to increase their control over its final draft. The text sent by the senators was incorporated into another project that was already in progress.

Thus, the Chamber became the House initiating the proposal and, therefore, if the proposal undergoes changes in the Senate, it will need to go through the deputies again.

The Paten project, seen as a potential driver of the energy transition, creates financing mechanisms through credits receivable from the Union — these amounts can be used as guarantees for loans in sustainable projects.

The proposal was also not voted on in 2023. Among the differences that remain to be resolved are the possibility of using court orders as a guarantee and the restriction that initiatives related to ethanol are limited to the second generation type.

Second generation ethanol is a form of fuel production that causes less environmental impact, but is also less widespread on the market.

The biofuels project creates incentive programs for biodiesel, biomethane and SAF (aviation fuel with a lower environmental impact).

Currently in the Chamber, under the rapporteur of Arnaldo Jardim (Cidadania-SP), the text is in the midst of disputes between the ruralist bench, the oil sector and the federal government.

The main obstacle concerns the device that provides for a mandatory mixture of 15% of biodiesel in diesel sold in Brazil, and annual growth of 1% in this rate. This measure is defended by agribusiness.

Critics, however, ask that the percentage not be enshrined in the law. For this wing, the CNPE (National Energy Policy Council) should have more power to define the percentage to prevent the final price from being susceptible to the unpredictability of sugarcane and soybean harvests, for example.

Green hydrogen is seen by environmentalists as the fuel with the greatest potential to revolutionize the energy transition, but the technology is still not widespread in the world.

There are two projects being processed in Congress, one that started in the Senate and is now in the Chamber and another that went the other way.

The main difference between the two is that the first provides for more incentive mechanisms for the sector — but there is also more resistance from parliamentarians.

Both texts create legal definitions of what can be considered green hydrogen (basically, hydrogen produced from non-polluting sources) and general guidelines for its production and commercialization in the country.

Other important proposals in progress include Mover (Green Mobility and Innovation Program), which aims to decarbonize Brazilian transport, and the project that regulates bio-inputs — for example, fertilizers produced with less environmental impact.

Currently, according to a survey by the Parliamentary Energy Front, there are more than a thousand projects being processed on the green transition in Congress.

“The issue of energy transition will have an impact on all sectors of the economy. Furthermore, these same sectors are increasingly investing in clean energy. The most recent report from the International Energy Agency even shows that global investment in the energy transition increased by 17% and reached the US$1.8 trillion mark in 2023”, says Tiago Santana, partner at Perman Advogados.

“This is a historic record. This investment is also driven by the fossil fuel sector itself, as this industry currently has a large investment in the energy transition, which is vital for this development”, he says.

Main projects on energy transition in Congress

Carbon Credit (PL 2,148/2015)

• What is it: Regulates the Brazilian carbon market, the maximum parameters for greenhouse gas emissions and the general guidelines for compensating this pollution
• Subsidy: No
• Reporter: Waiting definition
• Processing: It started in the Senate, passed (and was changed) in the Chamber, returned to the first House and must once again have to pass through the Chamber
• Obstacles: The text was significantly changed in relation to what had initially been approved by the senators. There is still no consensus between the government and Congress, nor on the inclusion of agriculture in the regulated market. A change in the Chamber’s internal regulations transformed the House into the proposer of the text, therefore, even if approved a second time by the Senate, the project must need to return to the deputies

Offshore wind (PL 11.247/18)

• What is it: Regulates the exploration of offshore wind energy off the Brazilian coast
• Subsidy: Yes
• Reporter: Waiting definition
• Processing: Approved in the Senate, it received a series of tortoises in the Chamber and is now waiting to be appreciated again by the senators
• Obstacles: The section that regulates the activity is practically consensual. The impasse is whether tortoises that benefit the gas and coal industries will be maintained in the text or not

Energy Transition Acceleration Program, Paten (PL 327/2021)

• What is it: Creates the Green Fund and other financing mechanisms for programs aimed at the energy transition based on credits receivable from the Union
• Subsidy: No
• Reporter: Marussa Boldrin (MDB-GO)
• Processing: The project is on the agenda of the Chamber plenary, waiting to be voted on
• Obstacles: There is still no final, consensual text on the program. The main discussions are about the use of court orders for financing, the restriction of programs to second-generation ethanol (less polluting than regular ethanol) and the addition of electric cars explicitly mentioned as one of the focuses of the fund

Biofuels (PL 528/2020)

• What is it: Creates programs and incentives for the production of biodiesel, biomethane and SAF (less polluting aviation fuel)
• Subsidy: No
• Reporter: Arnaldo Jardim (Citizenship-SP)
• Processing: It is in the Chamber plenary. If approved, it will still go to the Senate
• Obstacles: The biggest obstacle is the percentage of biodiesel to be mixed in regular diesel. The project foresees an annual increase of 1%, starting from 15%, a proposal supported by agriculture. Government and the oil sector argue that the percentage is not fully defined by law

Green Hydrogen (PLs 2,308/2023 and 5,751/2023)

• What is it: Both texts regulate and typify what green hydrogen is (hydrogen
• produced from renewable sources) and how its production and commercialization should work
• Subsidy: No
• Rapporteurs: Otto Alencar (PSD-BA) and awaiting definition
• Processing: The first has already been approved in the Chamber of Deputies and is awaiting in the Senate, while the second follows the opposite path.
• Obstacles: The main obstacle is the construction of a single, convergent text. One of the main obstacles is that the text that started in the Senate had more incentives and included subsidies for the sector, while the one that started in the Chamber of Deputies did not