Brazil, Energy Transition Paradoxes

Brazil is a country with great potential for the use of renewable energy sources. The humid tropical climate guarantees abundant water resources, easy production of plant biomass, and intense sunlight throughout the year. Besides, in the arid regions of the country, in the northeast, strong winds promote the use of wind energy.

Today, fossil fuels account for approximately 36% of total energy consumption in Brazil, and renewable sources already account for 47% of this consumption. By comparison, fossil fuels make up about 71% of the total energy used by the European Union, and renewables make up only about 17% of the total volume (although some countries, such as Sweden, have much higher percentages).

For those seeking to rise to prominence on the international stage, being at the forefront of the energy transition that most countries are moving towards today will be a distinct advantage. This is why a series of moves in 2023 involving President Lula’s government and Brazilian oil company Petrobras, a joint state-owned enterprise, came as a surprise to many.

Starting with the decision to explore for oil on the Amazon coast, increasing environmental risks in a fragile and strategic region from an environmental standpoint. Then, simultaneously with COP 28, it was announced that the country could join the OPEC+ group of oil exporting countries and open a Petrobras Arabia branch in the Middle East. It was the Petrobras company, which, after an international scandal, was said to be forced to devote itself to the production of fertilizers…

The controversial position of the Brazilian government helps to understand some of the obstacles to the world’s energy transition that do not concern the availability of alternative sources or even technological development (objective difficulties, but perhaps less decisive than one might imagine). These are obstacles related to the pursuit of profit and market pressures that go beyond the mere will of social actors.

Whether we like it or not, we live in a market economy, and it looks like markets will survive the energy transition. Understanding its conditions and requirements is therefore critical to the success of the energy transition.

Brazil is a commodity-exporting country that faces difficulties in adding value to its products through industrial processing. Its oil reserves, most of which have not yet been explored, are an obvious target for the greed of not only private entrepreneurs, but also the state itself. Petrobras, born and raised in the logic of development, is today the largest Brazilian company and the only Latin American company among the ten most profitable in 2022. It is a vector of development that directs investment, resources, and services to where it is created, as well as an important tool for political bargaining.

The financial importance of Petrobras to the Brazilian state is obvious at a time like this, when the government is trying to eliminate public deficits and restore confidence in private investors. In 2023, Brazil’s deficit (revenues minus expenses) is estimated to be between 1.3% and 1.7% of GDP. That same year, due to lower international oil prices, net federal revenues from the oil company were estimated to decline by approximately 0.6% of GDP. In other words, a third of the government’s primary deficit could be attributed to the decline in Petrobras’s revenues.

But oil and natural gas extraction poses a risky gamble for Brazil, creating political tensions among governments that want to present themselves as progressive. Moreover, the financial return on new investments will occur in the uncertain future in terms of fossil fuel use and cost.

Moreover, in the new conditions of a globalized world, the social return from extractive activities is itself questionable. In the oil and gas production areas already created in the Amazon (Coari and Silves), social life is degrading, traditional types of economic activities are being lost without the population integrating into the newly created ones. At the same time, urban conditions in small towns are deteriorating critically.

Another peculiar situation in Brazil concerns the use of nuclear energy. The country has three power plants, all located in the municipality of Angra dos Reis in Rio de Janeiro. Construction of the plants began in 1972: the first came into operation in 1985, the second in 2001. The third should be commissioned in 2026. These plants are also operated by the Electronuclear joint venture and currently produce about 3% of the country’s electricity consumption.

Does Brazil need nuclear energy? If so, why weren’t more power plants built? The fact is that the country has numerous alternative energy sources and does not need investment in nuclear energy. The decision to build a nuclear power plant was made by the then military government, which considered the dominance of atomic energy a matter of national security.

Today, these nuclear power plants are at the center of intense disputes. They are built on a tectonic fault, in one of the rare geologically unsafe areas of the country, on a mountainous coastline unsuitable for rapid evacuation in case of emergency. The problem with nuclear power plants is that accidents are rare but devastating…

However, they exist and produce energy. It is unlikely that a country with an unstable economic situation, in dire need of investment in infrastructure and services, will choose the direct and indirect costs of decommissioning these power plants.

Brazil now ranks third in the world in installed capacity of renewable energy sources, mostly due to hydroelectric generation. Over a 10-year period, renewable energy in Brazil grew by about 30%. However, there are still challenges that need to be addressed, such as the need to invest in infrastructure and technology to improve production and reduce costs.

Hydropower, although non-polluting, has important socio-environmental impacts associated with the construction of dams. Moreover, the climate crisis will continue to have unclear implications for water availability in the country. To make its use guaranteed and efficient in the future, integration is necessary with other renewable sources, such as wind, solar, and biofuels. These are alternatives that require creativity, innovation, and investment.

For Brazil, traditional energy sources currently represent an option for the known past rather than for the desired future. Nobody here questions the feasibility and future of new energy sources, but they imply new energy fleet configurations and radical changes in the market.