Letter IEDI n. 1075—Green transition: opportunities and challenges for Brazil
For some years now, movements have been underway on the world stage to leverage the green economy and the environmental sustainability of business models, consumption patterns and government action. The COVID-19 pandemic, by making evident the economic and socio-environmental weaknesses worldwide, required strengthening public policies and should accelerate the transition to more environmentally responsible structures. This Letter deals with the topic drawing on the study carried out for the IEDI by economists Lourenço Faria (USP/Copenhagen University) and Paulo Morceiro (USP/University of Johannesburg).
The IEDI believes that Brazil is in a strategic position not only to make a greater contribution to sustainability, but also to lead the discussion globally. Our tropical forests, for example, have planetary influence as regulators of the climate and the rainfall regime, which imposes on us the responsibility and the opportunity to lead the global warming mitigation guidelines. Nowadays we are moving away from this goal of Brazil being a possible international reference for certification of sustainable origin.
In the rest of the world, however, despite the seriousness of the global economic crisis and the uncertainties resulting from the COVID-19 outbreak, there was an increase in spending on technologies related to energy transition (renewable energy, electric vehicles, etc.): in 2020 they totaled US$ 501.3 billion globally, representing a 9% rise compared to 2019, according to a report by BloombergNEF.
About 3/4 of the electricity generation projects completed in the world in 2019 are from renewable technologies, such as wind and solar. Between 2014 and 2019, growth in the global installed capacity of wind and solar energy was equivalent to 70.5 times the installed generation capacity of the Itaipu plant, the largest in Brazil. In China, only the increase in solar power generation capacity in 2014–2019 was equivalent to the total installed electricity capacity in Brazil.
For the next few years, the governments of the great powers are going to associate policies to recover their economies in the post-pandemic period with environmental sustainability, by supporting clean markets and technologies. Apparently, it will be a green recovery, although the environmental transition is not something to be done in a short period of time.
Examples of actions in the rest of the world include:
• European Green Deal: seeks to stimulate economic activity in the bloc through financing, investment and regulation in sustainable solutions and reassessment of existing policies to enable the green transition in the next 30 years;
• Germany announced a € 130 billion stimulus package, € 40 billion of which will be earmarked for green investments aimed at restructuring the industry, with € 2.5 billion in electric cars and charging infrastructure in the automotive industry;
• South Korea's Green New Deal indicates an investment of US$ 61 billion by 2025 in renewable energy, electric vehicles, in addition to refurbishing public buildings to make them more efficient and transforming urban areas into smart green cities;
• Build Back Better, a plan by the new American president Joe Biden that includes the mobilization of the production structure and the research and development system to generate green solutions for resuming growth, in addition to the return to the Paris Agreement;
• One of the objectives of the 14th Chinese Five-Year Plan, to be implemented in 2021, is to achieve leadership in the development and manufacture of green technologies such as solar panels and electric cars. The most recent estimate is that there are already 200 million electric motorcycles and 2.6 million electric cars in circulation in China, which was also responsible for half of the sales of electric vehicles in the world in 2019.
In addition to these recovery programs, environmental issues have increasingly become part of international relations. This is the case of the Paris Agreement and the Sustainable Development Goals (SDGs) of the United Nations (UN) which, among other actions, establish commitments by the signatory countries to reduce greenhouse gas emissions.
It is also possible to verify the growing influence of environmental issues in international agreements and trade treaties. A recent case involving Brazil concerns the signing of the free trade agreement between the European Union and Mercosur, which is strongly resisted by members of the European parliament, who criticize the current Brazilian environmental management and wish to suspend the agreement.
In Brazil, the composition of our energy matrix combined with the size of our natural reserves and biodiversity have given the country a position of relative comfort in the environmental debate, while other countries need to increase their degree of sustainability. This, however, is an important challenge for Brazil, which runs the risk of being trapped in its “comfort zone”.
It is worrying, for example, that the CO2 emissions per unit of value added by our industry increased from 0.47 KgCO2/US$ to 0.50 between 2000 and 2017, while there was a decline in the G20 average from 0.69 to 0.53, signaling clear progress in the environmental efficiency of the industry in these countries. Reversing this trajectory will require modernizing our industrial structure based on cleaner technologies.
The cost of negligence for companies and countries that ignore environmental issues involves the deterioration of their public image, loss of customers, suppliers, employees, investors and business opportunities in general. It is also worth mentioning the loss of technological and innovative dynamism, given that environmental concerns already dominate the technological race in various sectors (electric or hybrid cars in the automotive sector, solar and wind energy in the energy sector, etc.).
For Brazil, the opportunities are many. For example, few countries have access to a solar and wind energy potential as large as we do. The country receives more than 3,000 hours of sunshine per year, the highest rate in the world, and our coast is extensive and concentrates our population and economic activity, facilitating the generation and transmission of wind energy.
According to estimates by the WRI Brasil Institute, a sustainable trajectory for the country's economy may lead to accumulated GDP gains of R$ 2.8 trillion and the generation of 2 million jobs between 2020 and 2030 in relation to the baseline scenario.
For this reason, the green transition can become a north for an industrial strategy for the country. It has the potential to stimulate several production chains and generate demand for consumption and investment, as one of its objectives is the continuous replacement of consumer goods, machinery and equipment, and existing infrastructure with more efficient and sustainable alternatives.
Therefore, it is essential to strengthen environmental policies and science, technology and innovation policies so that we can, through coordinated foreign relations actions, take greater advantage of the carbon market and the use of our biodiversity as a source of knowledge and new products.
To cite some examples, the demand for equipment, components and labor required to develop, produce and install solar panels, wind turbines, energy management systems and energy efficiency in buildings can generate an economic boost in the sectors of machinery and equipment, civil construction and specialized services.
The list of sustainable consumer and capital goods also includes manufacturing and service activities related to electric and hybrid vehicles and their components, batteries, household appliances and more efficient production architectures that can be incorporated in various sectors.
Brazil has already achieved some positive results in this direction in the recent past. As discussed in Letter IEDI no. 866, for the case of wind energy, the signs of success in the articulation of the energy policy, the BNDES financing strategy and the policy for supporting local production are clear, resulting in the internalization of (more complex) technological activities hitherto nonexistent, and the gradual incorporation of new components and production processes.
What the country lacks at the moment is awareness of the central role it can play in this global movement towards a green transition. Many efforts are required, but a starting point is to raise awareness among the population, entrepreneurs and policy makers about the opportunities and risks of being left behind in yet another technological revolution.
Isolation from this world trend can have far more lasting adverse effects on the country's competitiveness and the future of our society than is currently recognized.
International collaboration for sustainability can be an important accelerator, but the orientation of priorities in Brazil is a matter for us and we should not depend on external resources to protect the country's environmental heritage. We could redirect funds currently earmarked for subsidies and exemptions toward modern policies that promote knowledge and the development of innovations based on biodiversity and on the cultural heritage of the populations of the Amazon region.
Environmental issues certainly pose challenges for the country, but they also offer many opportunities. If well coordinated, the green transition process, through its various dimensions, can help combat or even reverse longstanding problems in Brazil, related to insufficient and obsolete infrastructure, loss of industrial skills, limited technological development, low productivity dynamism, poor income distribution, among others. In addition, as Europe, China, the USA etc. are showing, it can also mitigate the economic and social impact of the COVID-19 pandemic.