Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the BNAF podcast. Brazil is in the spotlight as host
Speaker 1: of this year's G twenty meetings and next year's COP
Speaker 1: thirty climate conference. It's setting the tone for global negotiations.
Speaker 1: Their influence doesn't end there. Though endowed with an array
Speaker 1: of natural resources, Brazil is also an increasingly important country
Speaker 1: for the energy transition. Everything from transition metals to biofuels
Speaker 1: can be found in Brazil when it comes to clean energy.
Speaker 1: In twenty twenty three, it ranked sixth globally in energy
Speaker 1: transition investment by attracting over thirty five billion dollars. They're
Speaker 1: also ranked third for wind and solar installations alone. Their
Speaker 1: dominance and clean power could lead to future opportunities for
Speaker 1: everything from green hydrogen to a cleaner manufacturing sector. On
Speaker 1: today's show, we're joined by Bloomberg nef's head of Latam Research,
Speaker 1: James Ellis, and BNF analyst based in Seal Paulo, Vensius, Newness,
Speaker 1: and they take us on a whistlestop tour of the
Speaker 1: various climate and transition priorities for Brazil. B and EF
Speaker 1: subscribers can find James and Vinicius's recent market outlook for
Speaker 1: Brazil at BNF dot com or at BNOF on the
Speaker 1: Bloomberg terminal. Make sure to subscribe to the show and
Speaker 1: if you give us a review on Apple Podcasts or Spotify,
Speaker 1: that will help make us more discoverable by others who
Speaker 1: are interested in the energy transition. But right now, let's
Speaker 1: speak with James and Vinnie about the outlook for Brazil.
Speaker 1: VINNI great to have you on the show today.
Speaker 2: Thank you, Dana. It's a pleasure to talk to you.
Speaker 1: And James, thank you for coming back.
Speaker 3: Thank you, Dana, pleasure to be here.
Speaker 1: We are here to talk about Brazil today, which is
Speaker 1: a country that it seems like all eyes are on
Speaker 1: at the moment. They are the host of this year's
Speaker 1: G twenty, they are the host of next year's COP
Speaker 1: thirty meetings, and that just brings a lot of attention
Speaker 1: and interest to the country of Brazil when it comes
Speaker 1: to the energy transition, but also when we think about
Speaker 1: it as just the wider economy. I mean, as we've
Speaker 1: been preparing for this show, we've been thinking about just
Speaker 1: how incredibly diverse the energy assets are, but then also
Speaker 1: all of the opportunity. So let's just rewind, let's set
Speaker 1: ourselves a little bit of background. When we talk about
Speaker 1: renewable energy goals, how ambitious would you say Brazil's goals
Speaker 1: are compared to let's say other G twenty member nations.
Speaker 2: In terms of renewable energy, Brazil is already really will
Speaker 2: WELP position compared to it spears in g trenny. And
Speaker 2: that's basically because Brazil electricity makers. It's already ninety percent
Speaker 2: clean with a large presence of large hydro assets. But
Speaker 2: also if a grow in presence of wind and solar generation,
Speaker 2: and Brazil has a big ambitions to continue to grow
Speaker 2: the share of renewable energy and to explore this cheap
Speaker 2: electricity to industrialize and produce carbon carbon neutral goods.
Speaker 1: So, with all eyes on Brazil from a policy standpoint,
Speaker 1: from an energy standpoint, is it an area of interest
Speaker 1: from a foreign direct investment standpoint? And I'm thinking specifically
Speaker 1: about the fact that a lot of the Southern European
Speaker 1: countries do invest in energy infrastructure in countries FROSUS South America.
Speaker 1: Is Brazil one of those countries. It's really the recipient
Speaker 1: of this attention from countries around the world from an investment.
Speaker 2: Standpoint, Yeah, definitely. Like you said, you have already a
Speaker 2: lot of European utilities that are present in Brazil, mainly
Speaker 2: on the distribution, transmission and generation sector, and those twoties
Speaker 2: are invested in a lot on renewable generation as well.
Speaker 2: So if you look at the top asset owners in
Speaker 2: Brazil for renewable projects, you see a lot of European
Speaker 2: companies and growing presence for foreign direct investment in Brazil
Speaker 2: for sure.
Speaker 1: Can we talk about what that energy mix looks like
Speaker 1: a little bit more because you had just mentioned, you know,
Speaker 1: it has hydro, but there's also wind and there's also
Speaker 1: solar in which of these spaces has grown the most
Speaker 1: recently and potentially has the most room for growth.
Speaker 2: Brazil historically has had a clean and electricity matrix basically
Speaker 2: because of large hydro projects that were built a few
Speaker 2: decades ago. But ten years ago, around twenty ten, Brazil
Speaker 2: started doing renewable energy auctions for wind and solar generation
Speaker 2: and those auctions really kicked off this revolution in Brazil
Speaker 2: in terms of renewable generation. So nowadays the biggest sources
Speaker 2: of all electricity that are increasing its capacity are wind
Speaker 2: and solar, specifically solar on the last few years because
Speaker 2: of the distributed generation sector, which are small scale solar
Speaker 2: solar plants less than five megawatts in Brazil that are
Speaker 2: capable of participating on the net media and legislation in
Speaker 2: the country, and that has driven a lot of investments,
Speaker 2: especially in the last couple of years. So small scale
Speaker 2: solar is definitely the sector that it's booming in Brazil
Speaker 2: right now and is responsible for most of the investments
Speaker 2: not only in Brazil, but in Latin America as well.
Speaker 1: And as you had mentioned, there was a Brazilian policy
Speaker 1: that actually helps spur that along. Would you say that
Speaker 1: that is the primary driver of why small scale solar
Speaker 1: has taken off.
Speaker 2: Yeah, definitely, the policy, the net media in legislation was
Speaker 2: responsible for the growing of the solar industry, basically because
Speaker 2: the legislation allowed for full net metering, which means that
Speaker 2: residential and commercial consumers can produce energy and trade that
Speaker 2: or power credits, and because of the high electricity prices
Speaker 2: for those consumers in the country, this made a really
Speaker 2: good business case for smast scale in Brazil, which led
Speaker 2: for all of this investments in the past few years.
Speaker 2: Because of the small scale solar. Brazil was the third
Speaker 2: country that installed most capacity in the world in twenty
Speaker 2: tiny three, and basically because this policy then net metering
Speaker 2: policy was one of the main responsibles for that.
Speaker 1: Now let's focus on wind for a second, which has
Speaker 1: been an area that's actually done quite well in Brazil.
Speaker 1: It has extraordinarily high capacity factors. But in other parts
Speaker 1: of the world we've seen some real issues over the
Speaker 1: last year when it comes to win generation in terms
Speaker 1: of costs, in terms of supply chains, as Brazil suffered
Speaker 1: the same consequences, or if things been better there, I.
Speaker 2: Would say generally that Brazil was better in training Cheny
Speaker 2: Tree than spears globally. Actually in change Chinny Tree Bazoo
Speaker 2: installed roughly five gigawatts of wind, which was a record
Speaker 2: for the country, and the same as solar was a
Speaker 2: third country in terms of capacity installed in training Chenny Tree,
Speaker 2: and that's mainly because Brazil has developed over the year
Speaker 2: a pretty good supply chain infrastructure for wind development. That
Speaker 2: was due to a lot of local content policies related
Speaker 2: to finance in all those projects here in the country,
Speaker 2: and because of that, the country has not suffered that
Speaker 2: much in terms of wind development, although if you look
Speaker 2: to our forecast for the next few years, we do
Speaker 2: expect that wind installations will probably drop on the next
Speaker 2: couple of years, mainly because in the country right now
Speaker 2: there is a short term oversupply of renewable energy and
Speaker 2: that's reducing the procurement for PPAs for wind energy.
Speaker 1: So let's talk about another really hot area, an area
Speaker 1: that all eyes are on as well, and that is hydrogen.
Speaker 1: It's an area that a lot of investment has gone
Speaker 1: into in the US with the Inflation Reduction Act, certainly
Speaker 1: also in Europe. But I actually think that the energy
Speaker 1: companies around the world are really looking at hydrogen as
Speaker 1: a way to reduce emissions in hard to debate sectors.
Speaker 1: And as we know and have gone into detail on
Speaker 1: in the show, there's a lot of different ways to
Speaker 1: make hydrogen. With the renewables that Brazil has and kind
Speaker 1: of the way that their greate is currently structured, how
Speaker 1: well presitioned is Brazil to be a producer of green hydrogen.
Speaker 3: I mean something that needs to be said, just touching
Speaker 3: on the topic we were just talking about about wind,
Speaker 3: is that Brazil has this fantastic wind resource and as
Speaker 3: Vinnie pointed, out that's a homegrown success story. Like the
Speaker 3: first auctions were held well over a decade ago. It's
Speaker 3: currently the second largest source of power generation by capacity,
Speaker 3: and a conscious decision was made to sort of support
Speaker 3: that industry, not just in terms of developing the power capacity,
Speaker 3: but also developing the local supply chains to support it,
Speaker 3: to create jobs and create industry locally. The interesting tie
Speaker 3: in with green hydrogen is that Brazil's onshore wind resource
Speaker 3: is so competitive. If you look at the sort of
Speaker 3: national average of its wind plans compared to any other market,
Speaker 3: it has the highest average capacity factors in the world,
Speaker 3: which produce the lowest levelized costs of electricity in the world.
Speaker 3: And since renewable energy is the largest single cost in
Speaker 3: producing green hydrogen, that results, according to our modeling, in
Speaker 3: the lowest level aised cost of hydrogen production in the world.
Speaker 3: So that's what makes the hydrogen story really interesting in Brazil.
Speaker 3: There are obviously many things that need to happen to
Speaker 3: develop that sort of capacity and a domestic hydrogen ecosystem,
Speaker 3: but clearly what's not in question is that the potential
Speaker 3: is there and.
Speaker 2: Just so added few words tough throughout, James said, the
Speaker 2: interested in Brazil and producing hydrogen. It's mainly because the
Speaker 2: country now is seeking ways to increase its demand for energy.
Speaker 2: For many years, Brazil has developed a lot of solar
Speaker 2: and wind projects, and now the country has come to
Speaker 2: a point where it needs to increase demand for discline
Speaker 2: electricity in order to continue to increase its renewable capacity,
Speaker 2: and hydrogen is one of the topics that the country
Speaker 2: most one should develop it because that's a really good
Speaker 2: opportunity for renewables to continue to grow in Brazil.
Speaker 1: So the production of hydrogen is something that you can
Speaker 1: do with a energy system that is getting bigger and
Speaker 1: has really great economics. As you've outlined. Are they also
Speaker 1: selling electricity on to other nearby countries, and it is
Speaker 1: essentially an engine for the eight entire continent.
Speaker 2: Brazil does export electricity and also import from Argentina, Uruguay
Speaker 2: and Paraguay, but that's not where most of the opportunities
Speaker 2: are for Brazil in terms of exporting electricity or exported
Speaker 2: clean molecules. That's where hydrogen can play an important role
Speaker 2: for the country. But also hydrogen is a really good
Speaker 2: opportunity if you think about a domestic market. So what
Speaker 2: Brazil is trying to do. It's built a domestic demand
Speaker 2: for hydrogen and hydrogen itself, but also another product that
Speaker 2: can be decarbonized by hydrogen, such as green fertilizers or
Speaker 2: production of green steels, and overall the carbonization of heartshobaya industries.
Speaker 3: I just want to complement that. I mean, Brazil is
Speaker 3: a country that is incredibly blessed in terms of natural resources.
Speaker 3: We've been focusing on renewable energy so far, so like
Speaker 3: step one Harness the largest freshwater resources in the world
Speaker 3: with large hydro capacity, Step two Harness the best wind
Speaker 3: resource in the world. Now we see solar absolutely skyrocketing.
Speaker 3: There are other sort of like pieces to this equation
Speaker 3: that we haven't touched on yet. Brazil has enormous iron
Speaker 3: ore reserves and resources and accounts for about twenty percent
Speaker 3: of the global iron ore market, so there are potentially
Speaker 3: interesting niches for green hydrogen application in production of green steel,
Speaker 3: which Vini just mentioned. Brazil is also, as I think
Speaker 3: most people know, it is an absolute agricultural superpower. It's
Speaker 3: the top producer of so many important agricultural commodities, yet
Speaker 3: a huge proportion of its nitrogen fertilizers are actually important,
Speaker 3: and those are produced in other countries using nitrogen fertilizer,
Speaker 3: using gray hydrogen, or derived from fossil fuels. So there's
Speaker 3: also an opportunity, as Vini mentioned fertilizers for Brazil to
Speaker 3: not only, for example, produce clean ammonia and export that,
Speaker 3: but perhaps use that ammonia to produce its own lower
Speaker 3: carbon fertilizer for which there is a massive domestic market
Speaker 3: right there.
Speaker 1: Countries like Brazil that are endowed with incredible natural resources
Speaker 1: are sometimes do fall victim to this resource curse. And
Speaker 1: what we's is Brazil really in some respects pivoting and
Speaker 1: looking at how they can use these resources to essentially
Speaker 1: be a bigger player in the global economy and the
Speaker 1: sort of things that they can actually use domestically, because
Speaker 1: as you just highlighted, exporting electricity isn't necessarily the end game.
Speaker 1: It's actually what they can do with the electricity within
Speaker 1: their own borders and then what they can make out
Speaker 1: of it, it's going to have a bigger impact. So
Speaker 1: can you talk a little bit about kind of some
Speaker 1: of the areas where you see a lot of potential
Speaker 1: for Brazil in their strategy in breaking the resource curse.
Speaker 2: Brazil has historically been in commodity exporter country, exporting during
Speaker 2: his old history and with hydrogen. What I think the
Speaker 2: country is trying to do is to break this tradition
Speaker 2: and starting not to export only hydrogen itself, but products
Speaker 2: with higher value aggregraated with the carbonized industry, products made
Speaker 2: with this clean hydrogen. So the opportunity is not only
Speaker 2: the domestic market for this green hydrogen and the subproducts,
Speaker 2: but also to export not only hydrogen are ammonia itself,
Speaker 2: but also products that can use this hydrogen inside the country,
Speaker 2: produce goods and then export them. And that's where the
Speaker 2: biggest opportunity is for the country. And for that, the
Speaker 2: renewable energy industry and the industrialization the industry needs to
Speaker 2: be tied together, and Brazil needs to boosts in its
Speaker 2: industrial capacity with this clean electricity or clean molecule with hydrogen.
Speaker 1: Let's talk about an area that I have really already
Speaker 1: brought up when we talked about Brazil on a previous show,
Speaker 1: but it was biofuels, because I really strongly associate biofuels
Speaker 1: with Brazil, and I know they're not the number one
Speaker 1: producer of this, but for some reason. In my head,
Speaker 1: it's completely intrinsically linked, and right now there's so much
Speaker 1: going on when it comes to some of the hard
Speaker 1: to debate sectors. So I'm thinking of sustainable aviation fuel
Speaker 1: and how this is one of the primary strategies for
Speaker 1: greening that space at the moment. So can you talk
Speaker 1: a little bit about biofuels and where Brazil is now
Speaker 1: and whether or not, you know, my biases to associate
Speaker 1: Brazil with biofuels is founded.
Speaker 3: I think it's absolutely founded, because it's not the top
Speaker 3: p it's number two, and it's number two after the US,
Speaker 3: which is an even larger country in terms of population,
Speaker 3: footprint in some senses resources. But there are key differences
Speaker 3: between these markets. The US is producing corn based ethanol.
Speaker 3: Brazil is producing largely cane based ethanol, and that has
Speaker 3: a different carbon footprint and different cost structure, and I
Speaker 3: think different opportunities as far as producing other products like
Speaker 3: sustainable aviation fuel the other sort of key difference. I
Speaker 3: think that just high level observation about the role of
Speaker 3: biofuels in Brazil, is there much more integrated into the
Speaker 3: transport sector than they are in the US in the
Speaker 3: sense that almost any passenger vehicle car in Brazil is
Speaker 3: fully flex fuel can run on any combination of one
Speaker 3: hundred percent gasoline to one hundred percent ethanol, and this,
Speaker 3: as with wind, comes from policies that were sort of
Speaker 3: put in place at least a decade or decades ago
Speaker 3: that made this conscious choice to develop biofuels and integrate
Speaker 3: them into transport. So another important high level point to
Speaker 3: make about Brazil is not only is the power sector
Speaker 3: ninety percent clean energy, including larg hydroe so, but also
Speaker 3: transport is significantly more decarbonized than it is in most
Speaker 3: other major economies.
Speaker 1: Are these completely different cars that are being sold there
Speaker 1: than another parts of the world, and they're not capable
Speaker 1: to handle the biofuels well.
Speaker 3: They're produced for the domestic market. Brazil is a very
Speaker 3: large car manufacturer, has a population of two hundred million
Speaker 3: people and has a car industry, so all of the
Speaker 3: major auto manufacturers pretty much produce cars there for the
Speaker 3: domestic market. One thing that I think needs to be
Speaker 3: said is that evs are only starting to make inroads recently,
Speaker 3: so there's an important sort of tie in between biofuels,
Speaker 3: electric vehicles, and some interesting ways we think that market's evolving.
Speaker 1: Well, let's go ahead and talk about that now, because
Speaker 1: the reason that I'm asking about kind of the domestic
Speaker 1: versus international market for vehicles is that you think of
Speaker 1: other parts of the world, in places like California that
Speaker 1: have tighter emission standards, and so other parts of the
Speaker 1: States actually end up having these cars with tighter emission standards.
Speaker 1: You think about the fact that if the innovation has
Speaker 1: taken place in Brazil, it would be great to see
Speaker 1: the innovation expanded elsewhere in adoption actually happening there. Well,
Speaker 1: that conversation around whether biofuels or electric vehicles are the
Speaker 1: endgame when it comes to decarbonizing, and I think that
Speaker 1: you know our stance very much within BNF is that
Speaker 1: electric vehicles take us much closer to a paras aligned
Speaker 1: net zero by twenty fifty future that it would be
Speaker 1: a conversation more around electric vehicles now. Is the reason
Speaker 1: there's been relatively slow uptake in Brazil have something to
Speaker 1: do with the fact that there was early adoption of
Speaker 1: biofuels or is there another reason that would lead to
Speaker 1: why they're only now really starting to get traction?
Speaker 2: I would say definitely the fact that Brazil has a
Speaker 2: really good adoption of biofuels and is road transport is
Speaker 2: one of the factors that are taking these longer than
Speaker 2: usual than to kick off in the country and just
Speaker 2: a compliment to jam was saying earlier. Early in the seventies,
Speaker 2: Brazil started the problem which is called Provacol, which was
Speaker 2: the project that really developed the the biofuels industry in
Speaker 2: the country, the production of the massic flex fuel vehicles
Speaker 2: and because of all of the the biofus policies in Brazil,
Speaker 2: road transport in Brazil nowadays have a significant share of
Speaker 2: renewables fuels. So if you think about passenger vehicles, roughly
Speaker 2: forty percent of the energy consumption of this category is
Speaker 2: due to biofuls and because of that, Brazil already has
Speaker 2: a cleaner transport segment than other countries. But that's not
Speaker 2: just say that EVIS will not be important in Brazil.
Speaker 2: There's no silver bullet if you think about decarbonized and
Speaker 2: transport and EVIS and also biofuels will play it important role.
Speaker 2: The thing about Brazil is that since Brazil already has
Speaker 2: a big adoption of biofules, probably hybrid vehicles and plugging
Speaker 2: hybrid vehicles will play an important role on this transition
Speaker 2: to a battery electricity fleet. It's not necessarily a competition
Speaker 2: between biofuels and electric vehicles, and if Brazil actually adopts
Speaker 2: electric vehicles, that doesn't mean necessarily that biofuels will lose
Speaker 2: its space, because you have a lot of products that
Speaker 2: can be made with those biofuels. You can make sustainable
Speaker 2: aviation fuels, you can use then in odthers areas, and
Speaker 2: you can also use it on transport because you also
Speaker 2: have plugging hybrid vehicles for a long time on the country.
Speaker 2: So it's just to highlight that in the transport sector
Speaker 2: and in all sectors, there's no like silver bullet, and
Speaker 2: both technologies can play an important role.
Speaker 3: Dan I think it was correct and accurate of view
Speaker 3: to sort of frame the question as biofuels and electric
Speaker 3: vehicles as being in opposition, because that is in fact
Speaker 3: how it's seen in some quarters in Brazil. It's seen
Speaker 3: as a bit of a competition. It's possible, as Vinnie said,
Speaker 3: that you know, or actually quite likely that the sort
Speaker 3: of prevalence of biofuels in Brazil hasn't necessarily let's say
Speaker 3: hastened the arrival of evs if anything had put a
Speaker 3: stop on it. But there's no world in which anybody
Speaker 3: thinks that the entire transport sector can be run on
Speaker 3: ethanol y, because it would simply demand too much land,
Speaker 3: right and it'd be like then you're talking, you get
Speaker 3: into food crops and food security issues. So there's no
Speaker 3: way that biofuels could meet the transport needs of the future.
Speaker 3: So you need something else that's low carbon, and as
Speaker 3: Vinnie said, in a country that doesn't have charging infrastructure, yeah,
Speaker 3: that's on the cusp of producing chibvs. These two solutions
Speaker 3: are going to co exist on the road and even
Speaker 3: in the engine for a long time to come. So
Speaker 3: definitely not a zero sum game on transport.
Speaker 1: Historically, Brazil has not been a manufacturer of electric vehicles,
Speaker 1: but that's all about to change. So can you talk
Speaker 1: a little bit about some of the companies that are
Speaker 1: going into Brazil and really starting to produce electric vehicles
Speaker 1: within the country.
Speaker 3: Yeah, I would put this as one of the more
Speaker 3: exciting announcements in Brazil and energy transition. In the last
Speaker 3: twelve to eighteen months period, we saw Ford exit the
Speaker 3: country after one hundred years of producing cars and vehicles,
Speaker 3: and at the same time we saw bid come in
Speaker 3: and purchase a major facility of THEIRS in Bahia to
Speaker 3: produce battery electric vehicles and hybrid vehicles, as Vinnie said,
Speaker 3: which is going to be a big part of the strategy.
Speaker 3: Then we also saw great Wall Motors enter the country
Speaker 3: also last year, and both Chinese automakers pledged to have
Speaker 3: the first vehicles roll off the line this year and
Speaker 3: for them to be competitively priced with local flex fuel options.
Speaker 3: Since we've also in Stallantis announced plans to produce cars
Speaker 3: with batteries of some kind in the country, so the
Speaker 3: scene is definitely changing. One thing that needs to be said, though,
Speaker 3: is like to your question about why have evs not
Speaker 3: sort of taken off to date, I think like the
Speaker 3: most obvious answer. I think Vinny kind of covered it
Speaker 3: in the sense that like it's partly because biofuels are
Speaker 3: already well entrenched and have done a good job of
Speaker 3: cutting the admissions of vehicles. I think it's just also
Speaker 3: down to the fact that outside of specific areas in
Speaker 3: the world, evs are pretty early everywhere, they haven't necessarily
Speaker 3: been available widely and to a sort of mass audience
Speaker 3: in Brazil, so consumer preferences haven't really had a chance
Speaker 3: yet to like necessarily evolve. But what we have seen
Speaker 3: in Brazil is as electric vehicles have become available at
Speaker 3: different price points, there's been very strong uptake. So my
Speaker 3: guess would be that as soon as you get very
Speaker 3: competitively priced battery electric vehicles and plug in hybrid electric vehicles,
Speaker 3: people are going to want them, as they do typically
Speaker 3: anywhere else in the world.
Speaker 1: I mean, that gap between the price of an internal
Speaker 1: combustion engine electric vehicles still exists, it's just narrowing, and
Speaker 1: maybe that does make the right conditions for this to
Speaker 1: be the time for companies like BYD, who are huge
Speaker 1: manufacturers in China of electric vehicles and have been able
Speaker 1: to drive down price in such a dramatic way, to
Speaker 1: bring it to other parts of the world like Brazil.
Speaker 1: So how about the metals end of things. You know,
Speaker 1: you had mentioned a little bit earlier that they're very
Speaker 1: well endowed with natural resources and metals are certainly part
Speaker 1: of it. Is Brazil a country that also has a
Speaker 1: lot of the metals required for electric vehicles or actually
Speaker 1: just you know, lithium, ion, batteries for stationary storage and
Speaker 1: all the different things that it's applied to.
Speaker 2: Yeah, Brazil is actually a crucial source of transition metals
Speaker 2: and actually ranks third globally in BENEFS assessment of transition
Speaker 2: metals reserves. Brazil has a lot of important metals and
Speaker 2: for strategic minerals that exceed fifteen percent of global reserves.
Speaker 2: They are graphied where herbs nico and manganese and Brazil
Speaker 2: historically was a big mining country, with Valley being one
Speaker 2: of the most important companies in the country, and the
Speaker 2: transition likewise with the hydrogen story that you can also
Speaker 2: export the mineral or export the clean molecule, and that's
Speaker 2: a good commodity exporting opportunities. What you're seeing today is
Speaker 2: that Brazil has also this capacity of mining, of exploring
Speaker 2: this but also to producing goods domestically with that mining capacity.
Speaker 2: So for example, Brazil has one of the biggest iron
Speaker 2: R reserves on Earth, but doesn't produce a lot of steel.
Speaker 2: So a big opportunity there is using this capacity, this
Speaker 2: resource that it has on iron R and then produce
Speaker 2: steel for example. So Brazil has a really good mining
Speaker 2: infrastructure for a lidium for iron ore, and the country
Speaker 2: has has opportunities both to export those products but also
Speaker 2: to produce goods such as batteries. Are stel with this
Speaker 2: mining resources that the country has.
Speaker 1: I mean, you bring up a really good point when
Speaker 1: you talk about steel, because there's mining, but then there's
Speaker 1: refining and then there's the assembly of items on the
Speaker 1: other end. So if we're thinking about all of the
Speaker 1: mining resources and thinking about manufacturing of electric vehicles, does
Speaker 1: make sense at least when we're thinking about global supply chains,
Speaker 1: perhaps to onshore more of that refining capacity. Is Brazil
Speaker 1: one of the countries that is on shoring more manufacturing
Speaker 1: and is really becoming an area of interest for the
Speaker 1: whole region or even for just their domestic market.
Speaker 3: I think it's early days, Dana, like we as we
Speaker 3: just talked about, we're starting to see or we're going
Speaker 3: to see EV production very soon for the first time
Speaker 3: in Brazil and in Latin America production for the domestic market.
Speaker 3: Mexico currently produces evs, but they're largely exported models like
Speaker 3: the Ford Machi. But when bid and Stillantis and great
Speaker 3: Wall begin producing EV's in Brazil, those are going to
Speaker 3: be produced for the local market. And that's a first one.
Speaker 3: I think theme that's kind of emerged from this conversation
Speaker 3: is the fact that the country has natural resources, and
Speaker 3: that's already an opportunity, and it's an obvious one. What
Speaker 3: I think is sort of interesting about this current moment
Speaker 3: in time with the Lula administration and then it's international
Speaker 3: leadership in the G twenty this year and then cop
Speaker 3: next year, is that it creates this interesting opportunity for
Speaker 3: the country to take concrete steps to sort of overlay
Speaker 3: global energy transition priorities with its natural resource wealth to
Speaker 3: move to different places in the value chain, whether we're
Speaker 3: talking about like ethanol to staffs, or we're talking about
Speaker 3: critical minerals and metals and development for example of a
Speaker 3: domestic battery supply chain for example, that last topic, it's
Speaker 3: very less clear to us that Brazil will develop a
Speaker 3: domestic battery supply chain in the near future, simply because
Speaker 3: its conscious decision of industrial policy. Like we've seen with
Speaker 3: the Biden administration in the States, if you want to
Speaker 3: do this, you really need everybody aligned and the decision
Speaker 3: needs to be made at the very top, and that's
Speaker 3: something that we sort of have yet to see in Brazil,
Speaker 3: but I think it's early days and it's potentially coming.
Speaker 1: So talk to me a little bit about the policy
Speaker 1: situation there. How supportive is the government currently of renewables
Speaker 1: and what sort of policies are in place to really
Speaker 1: spur some of these exciting potential industries really into a
Speaker 1: lot of growth action over the next few years.
Speaker 3: Well, support for renewable energy, as we've said, goes back
Speaker 3: a long way. Brazil installed had its first gigo out
Speaker 3: of wind capacity Cumulating installed in twenty ten, and auctions
Speaker 3: predate that. So first gig go out of cumultive installed
Speaker 3: solar capacity in twenty seventeen, and then the hydro goes
Speaker 3: back many decades. So support for renewable energy has a
Speaker 3: long track record and has been consistent across different administrations.
Speaker 3: That much is not in doubt. Decisions around leveraging that
Speaker 3: clean energy resource and success into other areas of the
Speaker 3: economy are where we're at today. So some of Brazil's
Speaker 3: neighbors in the region, like Chile and Colombia and many
Speaker 3: other countries have released concrete green hydrogen strategies with concrete
Speaker 3: goals and targets. We haven't yet seen that in Brazil,
Speaker 3: there's still regulatory steps that need to be taken around that,
Speaker 3: and there are a couple other areas that kind of
Speaker 3: fit into that category. Offshore wind is another one where
Speaker 3: there's currently regulatory movement and discussion around it, but there's
Speaker 3: yet to be announced a formal route to market for
Speaker 3: offshore wind. Brazil's carbon market legislation is yet another one
Speaker 3: where there's an expectation that Brazil will introduce a compliance
Speaker 3: market patterned after the EUS in the coming months three years,
Speaker 3: but sort of still in the sort of regulatory policy
Speaker 3: development phase. So that's hence our characterization of Brazil at
Speaker 3: this moment as it being sort of at a decisive
Speaker 3: moment where it's success in renewable energy has been very clear.
Speaker 3: That's amazing because as we know from our global modeling,
Speaker 3: we think the power sector can account for about fifty
Speaker 3: percent of emissions reductions from net between net zero and
Speaker 3: business as usual. So Brazil sort of nailed it on
Speaker 3: the power sector, and it's done a great job with
Speaker 3: ethanol historically in the transport sector, but leveraging it into
Speaker 3: other areas of industry is still, i would say a
Speaker 3: bit of an open question.
Speaker 2: There's something particularly of Brazil in terms of policies through
Speaker 2: renewables and energy transitions general. That I think is really
Speaker 2: interesting is that in terms of renewal energy development, regardless
Speaker 2: of the government, we won't see a lot of bushbacks
Speaker 2: for renewable development. And that's basically because the economic of
Speaker 2: renewables are so good in Brazil that despite the government,
Speaker 2: the port foreign ubles itself will continue. Of course, that's
Speaker 2: not true for a lot of ESG related topics, like
Speaker 2: James was saying about carbon markets and rainforest deforestation, all
Speaker 2: of those topics they are really related in terms of
Speaker 2: the government policies, But renewables developments in general are kind
Speaker 2: of constant in the country despite of the government.
Speaker 1: Well, let's keep talking about policy, but let's talk about
Speaker 1: it in relation to biodiversity, because it's hard to have
Speaker 1: a conversation about Brazil that doesn't in some way touch
Speaker 1: upon the Amazon rainforest. And one of the things that
Speaker 1: the Lula government has publicly stated is a commitment to
Speaker 1: preserving the Amazon. So how has that been going and
Speaker 1: what sort of policies are in.
Speaker 2: Place during Lula's first and second term as presidents from
Speaker 2: two thousand and three to twenty eleven, we have seen
Speaker 2: a big drop in terms of deforestation of the Amazon.
Speaker 2: That was one of the main policies at the time,
Speaker 2: and he really managed to reduce legal deforestation in the area.
Speaker 2: After that, we've seen an increase on deforestation in other governments,
Speaker 2: which was concerning for the country because of Brazil's commitment
Speaker 2: to reduce deforestation and overall emissions. But what we're seeing
Speaker 2: since last year of flulus third term as presence is
Speaker 2: that deforestation is actually decreasing again in the country. And
Speaker 2: that's basically because there has been a lot of efforts
Speaker 2: from the government in terms of reducing and actually trying
Speaker 2: to achieve zero legal deforestation, which was what Lulas committed
Speaker 2: a few years ago. And this is really important for
Speaker 2: Brazil because deforestation is the single largest emissions source of
Speaker 2: the country. So if Brazil really wants to become anat
Speaker 2: zero country by twenty fifty, deforestation not only from the
Speaker 2: Amazon region but from the country as how is the
Speaker 2: most important topic for sure.
Speaker 1: I mean, it really makes COP thirty extraordinarily iconic when
Speaker 1: you think about it in conjunction with the location of
Speaker 1: the Amazon and how important that is to global biodiversity
Speaker 1: and global emissions.
Speaker 2: Dan.
Speaker 3: I think it's important just to contextualize when we're talking
Speaker 3: about deforestation and we're talking about the Amazon, of which
Speaker 3: a huge share falls within Brazil's borders. I mean it
Speaker 3: it sort of recalls to me the discussion in US
Speaker 3: domestic politics around border policies, because we're talking about geographically
Speaker 3: a vast area. We're talking about thousands and thousands of
Speaker 3: kilometer long border, right that is very very intense and
Speaker 3: challenging terrain, with a lot of different economic interests going on,
Speaker 3: some legal and some illegal, both in terms of mining,
Speaker 3: in terms of organized crime, in terms of narcotics, in
Speaker 3: terms of agriculture, and it's a border that's shared with
Speaker 3: many different countries. So it's one thing to sort of
Speaker 3: like we you know, we look at a chart and
Speaker 3: we say, okay, you know, it's gone a little bit up,
Speaker 3: it's gone a little bit down. But if you're the
Speaker 3: Alula administration and all of the people in that chain
Speaker 3: of command whose responsibility is for like monitoring and verifying
Speaker 3: whether land is legally or illegally deforced it or even
Speaker 3: who owns it, we're talking about like a massive challenge
Speaker 3: and a very complex set of issues and that's where
Speaker 3: the questions around international funding come in and whether, indeed
Speaker 3: and to what extent there should be international and global
Speaker 3: funding for supporting Brazil in this effort to combat illegal forestation,
Speaker 3: because it's so important for the world. But it's such
Speaker 3: a massive and extraordinary complex problem to tackle, I think,
Speaker 3: and one.
Speaker 1: Way that's been addressed is through kind of the voluntary
Speaker 1: carbon space, but in the compliance carbon space, you mentioned
Speaker 1: that the government was already looking at something to do there.
Speaker 1: How close do you think that really is? Is a
Speaker 1: way to kind of look at this really complex bace
Speaker 1: and put some financial boundaries around it.
Speaker 2: Brazil is developing a legislation for its regulated carbon markets.
Speaker 2: The legislation should be voted this year and hopefully this
Speaker 2: will also help in terms of avoiding the florestation on
Speaker 2: the Amazon, but it's definitely not the only policy that
Speaker 2: can reduce the forestation in the region. What Brazil needs
Speaker 2: to do, and what has been struggled to do over
Speaker 2: the last years, is find business models for the communities
Speaker 2: in the Amazon in order for them to continue to
Speaker 2: produce her to have a source of revenue without the
Speaker 2: foresting the forest. And like James mentioned, the difficult there
Speaker 2: is that's such a vast territory in the country, with
Speaker 2: a lot of different covers, a lot of different Brazilian states,
Speaker 2: with a lot of different borders, and with some regions
Speaker 2: that's really hard success. And this cut in Brazil is
Speaker 2: not only how those communities can guarantee a source of revenue,
Speaker 2: but also how they can protect the force while having
Speaker 2: a revenue of business there.
Speaker 1: So we've talked about a lot of different things on
Speaker 1: this show. Is this kind of whistle stop primer on
Speaker 1: where is Brazil now when it comes to the energy
Speaker 1: transition into missions. So as we go through and just
Speaker 1: kind of recount, we're thinking about everything from biodiversity to
Speaker 1: biofuels and what's happening on the agricultural and we're also
Speaker 1: talking about natural resources, some coming from metals and mining.
Speaker 1: We're talking about electric vehicles and the onshoring of manufacturing
Speaker 1: on that end. We're talking about a renewable energy space
Speaker 1: that has a long history and is growing with favorable
Speaker 1: economics that could create increasingly favorable space for other parts
Speaker 1: of that value chain, such as hydrogen. So if we're
Speaker 1: talking about all of these different areas that are all
Speaker 1: potentially growth opportunities for Brazil. What one are you most
Speaker 1: excited about. I'm going to make both of you pick.
Speaker 2: You know before saying what I'm most excited about. What
Speaker 2: I think is interesting is that that's both a good
Speaker 2: and a bad thing that Brazil is on the spotlight
Speaker 2: in the next two years. The good thing is that
Speaker 2: now the focus is on the country, there's a lot
Speaker 2: of opportunities it can in fact start new business, but
Speaker 2: also there's a responsibility of that Brazil needs in those
Speaker 2: two years to do its homework and really do the
Speaker 2: right policies and really take advantage of those opportunities. And
Speaker 2: for me, what I'm most excited about, it's not a
Speaker 2: topic specifically, but it's about Brazil stop only being a
Speaker 2: commodity exporter and also becoming an industrialized country where it
Speaker 2: can produce low carbon goods and actually have a big
Speaker 2: impact globally with this cheap electricity matrix and all of
Speaker 2: the good resources that the country have.
Speaker 3: Yeah, I agree with Vinnie. If I were to identify
Speaker 3: a theme that I'm most excited about, it's the fact
Speaker 3: that the global priorities of energy transition aligned well with
Speaker 3: Brazil's strengths. Brazil has very cheap and abundant renewal of
Speaker 3: energy and already mostly decarbonized power sector, and that creates
Speaker 3: this potential to produce almost anything with a lower carbon
Speaker 3: footprint than almost anywhere else. If you produce an ev
Speaker 3: a lithium ion battery in Brazil, it has a lower
Speaker 3: carbon footprint than if you produce it in the US,
Speaker 3: let alone China. So there's a sort of carbon competitiveness
Speaker 3: to Brazil that I think is just only going to
Speaker 3: grow in global importance across every single thing we produce
Speaker 3: in the global economy almost in the decades to come.
Speaker 3: And then because its renewable energy resources are generally so
Speaker 3: strong that things that have to be made with clean energy,
Speaker 3: like green hydrogen, for example, it can potentially produce it
Speaker 3: more cheaply than in other places. So I guess, to
Speaker 3: echo a bit what Vinnie said, what I think is
Speaker 3: most interesting is how to leverage energy transition into industrialization,
Speaker 3: job growth and sort of creation of new industries in Brazil.
Speaker 3: So that would be my answer, moving from being a
Speaker 3: clean energy powerhouse to economic growth and job creation and industry.
Speaker 1: You are both excellent politicians giving not quite the debt
Speaker 1: on answer, but honestly a much that are more comprehensive
Speaker 1: and nuanced view of this incredibly complex country. Vinnie James,
Speaker 1: thank you so much for joining today.
Speaker 2: Thank you, Dana, Thanks so much, Dana.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
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