* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
Brazil is at an energy cross-roads and choosing oil and fossil fuels would be a mistake
Over the last few months, three unrelated events gave Brazil a stern warning that the Latin American giant is increasingly putting itself in danger by pursuing a newfound addiction to fossil fuels.
If the government correctly reads the signs, it may help avert unnecessary economic and environmental risks, as well as create job and business opportunities for Brazilians.
The first event was a string of record droughts that affected the southeastern portion of the country and culminated in a water crisis in São Paulo, South America’s biggest city, in 2014.
The expected summer rains didn’t come to replenish dams: what came instead was a heat wave, and the state government now admits rationing water. Since dams in the southeast are also used for producing much of Brazil’s electricity, energy rationing may also be underway: in January, 11 states suffered a blackout because there wasn’t enough power in the system in the hottest hour of the day – a symptom of bad planning and poor choices.
A few days after the October presidential elections, Brazilian Justice unveiled the full length of a corruption scandal that struck the heart of Petrobras, the state oil giant and sole operator of the offshore ultradeep oil fields in the so-called pre-salt layer.
The amount of money involved was so huge that Petrobras had to scrap its 2014 balance sheets. The scandal has potential impacts not only for President Dilma Rousseff’s government, but also for oil supply worldwide: according to the World Energy Agency, Brazil should account for one third of the growth in global crude supply by 2035.
FALLING OIL PRICE
Then there was the oil price. How far down it can go and how long it will stay low are both hard to predict. But crude prices below $50 clearly have a negative impact on revenues, since the technology Petrobras is developing to reach reservoirs in the pre-salt layer, under 2,500 meters of water and often six or more kilometers of rocks and salt, is novel and expensive.
Ever since the new offshore reserves were discovered, in 2007, Brazil has had a sudden crush on fossil fuels. It has abandoned its biofuels policy. It has put $60 billion of taxpayers’ money toward pumping up Petrobras so as to enable the company to exploit the pre-salt layer. It has subsidised gasoline and diesel.
In the electricity sector, the choice has also been for fossil fuels, for different reasons: hydropower, which used to provide 80 percent of the electricity, has showed to be vulnerable to extreme climate events.
Oil, gas and coal power plants, expensive to operate but quick to build, were commissioned in order to minimise the risk of rationing – which is due anyway. All in all, 70 percent of the new energy investments in Brazil over the next decade, some $300 billion worth, are projected to go to fossil fuel projects.
From almost every standpoint, such policy was a disaster. Gas subsidies helped drive ethanol mills to bankruptcy; electricity bills are set to shoot up, which in turn will drive inflation upwards; and Brazilian greenhouse gas emissions, as well as GDP carbon intensity, went up in 2013 even without economic growth. In the transport sector, they went up 23 percent from 2010 to 2013.
If Brazil is serious about its economy, its energy security, and the global climate, it should seize on the opportunity presented by the current oil landscape and steadily wean from fossil fuels. A good place to start would be slashing back gas subsidies in order to help biofuels back into the pump.
Another, bolder, step would be to lift the insane incentives for fossil fuel electricity in public auctions and let photovoltaics take their rightful place in Brazil’s energy mix instead.
HOW ABOUT SOLAR?
Cost is no longer an issue. After all, last year, solar energy sold as cheap as coal. It’s also quick to build and deploy. If Brazilian energy planners are afraid of staying in the sun, they should look at Saudi Arabia: the world’s number one petrocracy is planning to have 6 gigawatts (GW) of photovoltaic solar energy by 2025.
Even this pales compared to China’s goal of reaching 70 GW of photovoltaic solar in three years. Brazil aims at a mere 2 GW by 2023. Even the United States has sunshiny figures to show: its installed capacity increased fivefold since 2010 to nearly 5 GW, and today solar industry workers are twice as numerous as coal miners.
The best way of framing a new energy policy is around climate change. Brazil should present ahead of the Paris climate change conference an ambitious, absolute, and economy-wide target for the post-2020 period – like China and the U.S. already said they would.
By setting itself a target that’s proportional to Brazil’s capacity and climate responsibility, the government would help the right incentives fall into place for the energy sector.
In fact, the oil jackpot might even become a liability. According to a study published in the journal Nature by British researchers, to have a chance of stabilising global temperatures below the agreed 2-degree Celsius threshold rise, the world must leave a third of oil reserves, half of gas reserves and 80 percent of coal reserves below the ground.
For Latin America, the allocated amount is 40 percent of oil reserves, most of them in the pre-salt layer. Smart policy-makers should have that in mind.
Carlos Rittl, 45, is the executive secretary of the Brazilian Climate Observatory, a coalition of civil society organisations.
