President Lula Launches National Energy Transition Policy, Expected to Bring BRL 2 Trillion in Investment

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August 28, 2024

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(Office of the President of Brazil) Initiative approved by National Energy Policy Council (Conselho Nacional de Política Energética/CNPE) to boost green economy. Body approved six other measures -- On Monday, August 26, President Luiz Inácio Lula da Silva launched the National Energy Transition Policy (Política Nacional de Transição Energética/PNTE), approved at a meeting of the National Energy Policy Council (Conselho Nacional de Política Energética /CNPE) which he led, alongside the Minister of Mines and Energy, Alexandre Silveira, who is Council chair. Brazil could receive an estimated BRL 2 trillion in investments towards the green economy over ten years.

"We are not going to throw away the meaning of the energy transition. This country has already thrown away too many opportunities. We cannot throw away opportunities. We need to bear in mind that we have everything. We have everything that nature has given us. We have skilled labor — we still need more. We have technically qualified people. In the energy sector, we have hundreds of excellent people in this country. We can do whatever we want," said the president.

Lula said that Brazil is already a world leader in clean energy adoption, but there is room for progress. "People respect us, because we can go anywhere and say: 80% of our electricity is renewable and 51% of our total energy matrix is already renewable and we can reach 100%. Who would have thought, 30 years ago, that we'd be talking about biomass, biodiesel, ethanol, that we are going to make the energy transition, that we are going to have wind, solar and green biodiesel?"

NEW ECONOMY — The PNTE will articulate and coordinate the energy transition in Brazil, creating synergy between government policies — such as the National Climate Change Policy and the Ecological Transformation Plan (Política Nacional de Mudança do Clima) and the Ecological Transformation Plan (Plano de Transformação Ecológica) — to strengthen the new global economy with job and income generation in the country, promoting a just and inclusive transition.

"Brazil is going to lead the world in the new economy, the green economy. Wind, solar, hydro, nuclear, biomass, biodiesel, ethanol, green diesel, carbon capture and storage, sustainable aviation fuel, green hydrogen. It is the rebirth of Brazil's industry on a sustainable basis. It is adding value to Brazilian products produced with clean, renewable energy, an opportunity to boost the use of our local content.” emphasized Alexandre Silveira.

Silveira informed that the New PAC already has BRL 700 billion in planned investments in energy transition and recalled that President Lula sanctioned the legal framework for green hydrogen this month. "We already have 27 gigawatts of hydrogen projects registered with the Ministry of Mines and Energy, which will bring in BRL 200 billion in investment. With the projects that we are making feasible and that are not in the PAC, we will increase this number even more and present it to Brazil," he said.

Finance Minister Fernando Haddad stressed the potential of the energy transition to boost national development. "The Ministry of Mines and Energy, together with the Ministry of the Environment and Climate Change, the Staff Office House, and the MCTI, is taking care of the heart that will pump blood to the new Brazil. A new Brazil that will be born from a process of ecological transformation, based on the energy transition, and that will radiate a new energy that will allow the countryside to do better, industry to do better, and in a business environment favored by the reforms that are underway in the National Congress. One of them, the most essential of all, is tax reform, which will change the quality of Brazil's economic growth," he affirmed.

TRADING — On Monday, the CNPE deliberated another six proposals aimed at creating new opportunities for sustainable economic development, mainly in the oil and gas sectors. A resolution was approved that establishes additional guidelines for the Union's oil and natural gas trading policy. The rule creates conditions for the Union's natural gas to reach consumer agents more closely, defining that PPSA, a state-owned company linked to the MME, will now be able to contract the flow and processing of the volume of natural gas that falls to the Union in production sharing contracts.

The aim of this resolution is to optimize the use of inputs from production sharing contracts, boosting industrialization and strengthening security in the national supply of energy, oil inputs, nitrogen fertilizers and other chemical products.

"What we have approved today is the effective result of the efforts of the Gas to Employ Program. We are balancing the national gas market, offering increased availability and moderate prices to the end consumer," said Alexandre Silveira.

DECARBONIZATION — Another measure authorized by the CNPE is the resolution that establishes guidelines aimed at decarbonizing activities of oil and natural gas exploration and production in Brazil. The rules include fostering technological development, minimizing natural gas flaring, maintaining routine zero flaring and promoting the sharing of installed infrastructure, among other points.

FUELS — E In another decision, the CNPE approved a resolution aimed at updating the strategic guidelines for the development of the fuel, biofuel and oil derivatives market in Brazil. The document provides for the strengthening of national processing capacity, which currently faces challenges with significant imports of derivatives. Among the strategic guidelines listed in the resolution are the search for an increase in biofuel production, the expansion and modernization of the refining park and the promotion of the energy transition.

It was also decided to set up a Working Group (WG) to carry out specialized studies on the waterway fuel, aviation fuel and liquefied petroleum gas (LPG) markets. The WG, coordinated by the MME, will be made up of 17 institutions and should establish guidelines of interest to the National Energy Policy on the subject.

PRODUCTION — The CNPE also approved two resolutions on oil and natural gas exploration in new blocks. The first defines Petrobras' expression of interest in the Jaspe block, which will be tendered under the production sharing regime in the next Permanent Offer Cycle. The resolution also establishes that the company must be the mandatory operator of the block, with a minimum stake of 40%. It is estimated that revenues from signature bonuses will generate BRL 401 million.

The second resolution approved the technical and economic parameters of the Rubi and Granada blocks for bidding under the production sharing regime, in the Permanent Offer system. The measure reaffirms the importance of the exploration and production of oil and natural gas in the Pre-Salt Polygon, which is responsible for most of Brazil's production. The parameters for the bidding process estimate signature bonuses that could generate revenue of BRL 118 million. More than BRL 60 billion is expected to be invested, which could generate more than 280,000 direct and indirect jobs, as well as government revenues of around BRL 119 billion over the lifetime of the projects. READ MORE

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Excerpt from Bloomberg/Yahoo!: New legislation in Brazil is set to support farmers by pushing additional demand toward biofuels — and away from the fossil fuels produced by state-controlled oil giant Petroleo Brasileiro SA.

At its final stages in Congress, the “Fuel of The Future” bill from President Luiz Inacio Lula da Silva’s government creates broader mandates for biofuels, reinforcing Brazil’s strategy of relying on its bountiful crops to address the energy transition. It’s also a strong reminder for Petrobras of increasing pressure to invest in low-carbon alternatives.

Brazil is already a huge biofuels’ consumer, producing flexible-fuel cars that can run on ethanol alone. The legislation, which passed Wednesday in the Senate and now returns to the lower house, would further boost demand for the crop-based fuel by increasing the allowable blend of ethanol in regular gasoline to as much 35% from 27.5% currently.

It would also increase the allowable blend of biodiesel in regular diesel to 20% from 14% over the next six years. And the government plans to oblige natural gas suppliers to gradually reduce emissions by purchasing biomethane.

“Petrobras is the biggest loser under the bill, and should see production drop in three of its main fuels: gasoline, diesel and natural gas,” Adriano Pires, a director at energy consultancy Brazilian Center for Infrastructure, said in an interview.

Gasoline consumption could drop as much as 11% with the increase of ethanol’s share in the blend, according to StoneX Group market analyst Isabela Garcia. While government technicians still need to validate the change, a 30% blend is already being tested — a move set to raise ethanol demand by 1.3 billion liters (343 million gallons) a year, according to agricultural consultancy Datagro. That’s equivalent to nearly 4% of Brazil’s total ethanol output for this season.

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But in another hurdle for Petrobras, its so-called diesel R isn’t a part of the mandatory green diesel blend defined in the new legal framework. Diesel R is made by co-processing fossil fuel with animal or vegetable oil, and an attempt to include it in the bill faced strong opposition from Brazil’s agribusiness caucus, which counts about 60% of lawmakers as members. READ MORE

Excerpt from S&P Global: "There is space for everyone, fossil fuels and renewables. The increase of ethanol in gasoline and biodiesel in diesel can even reduce the refining deficit," fuel importers' consortium Abicom chief Sergio Araujo said Sept. 18.

Brazil's Congress on Sept. 11 passed a bill, known as PL 528/2023, to implement the new program as part of the country's energy transition plan. It sets rules to expand the use of biofuels and establishes regulatory regimes for sustainable aviation fuel, biomethane, biorefining and carbon capture in Latin America's largest economy. The bill is still pending President Luiz Inácio Lula da Silva's final approval before it can become law, and he is expected to sign it soon.

Among other energy transition initiatives, two of the Fuel of the Future program's key initiatives will result in substantial changes to current fuel consumption.

The program will raise the range for anhydrous ethanol blended with gasoline sold at the pump to 22%-35%, up from 18%-27.5%. Brazil currently blends 27.5% anhydrous ethanol with gasoline sold at the pump, but is expected to raise the mandate to 30%. Additionally, it will increase the blend content of biodiesel in diesel to 20% by 2030.

The final passage of the green package represents a legislative victory for Lula as his administration amps up efforts to expand Brazil's use of renewable energy and biofuels, which had trended downward during former President Jair Bolsonaro's four years in power.

In practical terms, the program replaces previous initiatives, such as the RenovaBio program for biofuels, providing incentives for renewable energies and attracting investments to make biofuels competitive when compared with fossil fuels.

Supporters of the legislation within the biofuels industry saw its approval as a bittersweet victory because of the time it took to pass Congress. But it has been met with almost universal acclaim. The bill has also received some praise from refiners, despite its direct call to phase down fossil fuel production.

"Refining is not just the refining itself. It is an entire chain. It is a natural transformation for our sector to migrate to biorefining," said Evaristo Pinheiro, president of Refina Brasil, an association of private refiners that represents more than 20% of the Brazilian refining market.

Evaristo said Brazil is short around 650,000 b/d in refined products output to meet domestic demand.

"If GDP grows by 2% per year until 2035, this need will increase to 1 million b/d. Brazil will still need to invest in refining," Evaristo said Sept. 18.

Meanwhile, the new program is not expected to reduce demand for imported refined products, Abicom chief Araujo said. "Even with the green alternatives, we are discussing, a 50% increase in imported diesel demand is expected by 2032," he added, pointing to research from Brazil's Energy Research Office, or EPE.

S&P Global Commodities at Sea data showed Sept. 13 that 11.08 million barrels of gasoil/diesel were scheduled to be discharged at Brazilian ports in September, the largest volumes in at least a year.

The most recent data from Brazil's National Petroleum Agency, or ANP, pointed to record-high year-to-date diesel and biodiesel sales in the local market. From January to July, sales amounted to 38,571 cu m, up from 36,924 cu m in the same period of 2023 and from 36,045 cu m in 2022.

Brazilian sugar-alcohol trade association UNICA expects the rise in anhydrous-gasoline blending to require extra production of 1.5 billion liters/year, or about 5% of the total current ethanol processing – a target that the sector maintains it has the conditions for ensuring an adequate supply. Most analysts agree that ethanol production in the ongoing 2024-25 season is projected to lag slightly behind last year's record-breaking 35.61 billion liters. READ MORE

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