# Brazil Harnesses Natural Capital to Fuel Green Future

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 8 May 2024, 34 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/029b24f3-896a-4b2c-94b8-b16a0096f44b/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

As the host of this year’s G-20 meetings and next year’s COP30 climate conference, Brazil is in the spotlight. Ranked sixth globally for energy transition investment in 2023, and third for both wind and solar capacity additions, Brazil is aiming to use its vast array of natural resources to ensure its future as a clean energy powerhouse. On today’s show, Dana is joined by BloombergNEF’s head of Latin America research, James Ellis, and analyst, Vinicius Nunes. They discuss Brazil’s potential for green hydrogen production, growing electric vehicle (EV) adoption in a market that is already dominated by vehicles powered by biofuels, and the role of the Amazon forest in voluntary carbon markets. Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: Latin America Market Outlook 1H 2024: Brazil Drives Growth - https://www.bnef.com/insights/33999 See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Dana Perkins and you're listening to Switched on
[0:03] Speaker 1: the BNAF podcast. Brazil is in the spotlight as host
[0:07] Speaker 1: of this year's G twenty meetings and next year's COP
[0:10] Speaker 1: thirty climate conference. It's setting the tone for global negotiations.
[0:14] Speaker 1: Their influence doesn't end there. Though endowed with an array
[0:18] Speaker 1: of natural resources, Brazil is also an increasingly important country
[0:22] Speaker 1: for the energy transition. Everything from transition metals to biofuels
[0:26] Speaker 1: can be found in Brazil when it comes to clean energy.
[0:28] Speaker 1: In twenty twenty three, it ranked sixth globally in energy
[0:32] Speaker 1: transition investment by attracting over thirty five billion dollars. They're
[0:36] Speaker 1: also ranked third for wind and solar installations alone. Their
[0:39] Speaker 1: dominance and clean power could lead to future opportunities for
[0:42] Speaker 1: everything from green hydrogen to a cleaner manufacturing sector. On
[0:46] Speaker 1: today's show, we're joined by Bloomberg nef's head of Latam Research,
[0:50] Speaker 1: James Ellis, and BNF analyst based in Seal Paulo, Vensius, Newness,
[0:54] Speaker 1: and they take us on a whistlestop tour of the
[0:56] Speaker 1: various climate and transition priorities for Brazil. B and EF
[1:00] Speaker 1: subscribers can find James and Vinicius's recent market outlook for
[1:04] Speaker 1: Brazil at BNF dot com or at BNOF on the
[1:06] Speaker 1: Bloomberg terminal. Make sure to subscribe to the show and
[1:09] Speaker 1: if you give us a review on Apple Podcasts or Spotify,
[1:12] Speaker 1: that will help make us more discoverable by others who
[1:14] Speaker 1: are interested in the energy transition. But right now, let's
[1:17] Speaker 1: speak with James and Vinnie about the outlook for Brazil.
[1:29] Speaker 1: VINNI great to have you on the show today.
[1:32] Speaker 2: Thank you, Dana. It's a pleasure to talk to you.
[1:34] Speaker 1: And James, thank you for coming back.
[1:36] Speaker 3: Thank you, Dana, pleasure to be here.
[1:38] Speaker 1: We are here to talk about Brazil today, which is
[1:41] Speaker 1: a country that it seems like all eyes are on
[1:43] Speaker 1: at the moment. They are the host of this year's
[1:45] Speaker 1: G twenty, they are the host of next year's COP
[1:48] Speaker 1: thirty meetings, and that just brings a lot of attention
[1:51] Speaker 1: and interest to the country of Brazil when it comes
[1:54] Speaker 1: to the energy transition, but also when we think about
[1:56] Speaker 1: it as just the wider economy. I mean, as we've
[1:59] Speaker 1: been preparing for this show, we've been thinking about just
[2:01] Speaker 1: how incredibly diverse the energy assets are, but then also
[2:05] Speaker 1: all of the opportunity. So let's just rewind, let's set
[2:08] Speaker 1: ourselves a little bit of background. When we talk about
[2:11] Speaker 1: renewable energy goals, how ambitious would you say Brazil's goals
[2:15] Speaker 1: are compared to let's say other G twenty member nations.
[2:19] Speaker 2: In terms of renewable energy, Brazil is already really will
[2:22] Speaker 2: WELP position compared to it spears in g trenny. And
[2:25] Speaker 2: that's basically because Brazil electricity makers. It's already ninety percent
[2:28] Speaker 2: clean with a large presence of large hydro assets. But
[2:32] Speaker 2: also if a grow in presence of wind and solar generation,
[2:35] Speaker 2: and Brazil has a big ambitions to continue to grow
[2:37] Speaker 2: the share of renewable energy and to explore this cheap
[2:41] Speaker 2: electricity to industrialize and produce carbon carbon neutral goods.
[2:46] Speaker 1: So, with all eyes on Brazil from a policy standpoint,
[2:48] Speaker 1: from an energy standpoint, is it an area of interest
[2:51] Speaker 1: from a foreign direct investment standpoint? And I'm thinking specifically
[2:54] Speaker 1: about the fact that a lot of the Southern European
[2:56] Speaker 1: countries do invest in energy infrastructure in countries FROSUS South America.
[3:01] Speaker 1: Is Brazil one of those countries. It's really the recipient
[3:03] Speaker 1: of this attention from countries around the world from an investment.
[3:06] Speaker 2: Standpoint, Yeah, definitely. Like you said, you have already a
[3:11] Speaker 2: lot of European utilities that are present in Brazil, mainly
[3:13] Speaker 2: on the distribution, transmission and generation sector, and those twoties
[3:17] Speaker 2: are invested in a lot on renewable generation as well.
[3:20] Speaker 2: So if you look at the top asset owners in
[3:22] Speaker 2: Brazil for renewable projects, you see a lot of European
[3:26] Speaker 2: companies and growing presence for foreign direct investment in Brazil
[3:30] Speaker 2: for sure.
[3:31] Speaker 1: Can we talk about what that energy mix looks like
[3:33] Speaker 1: a little bit more because you had just mentioned, you know,
[3:35] Speaker 1: it has hydro, but there's also wind and there's also
[3:38] Speaker 1: solar in which of these spaces has grown the most
[3:40] Speaker 1: recently and potentially has the most room for growth.
[3:43] Speaker 2: Brazil historically has had a clean and electricity matrix basically
[3:48] Speaker 2: because of large hydro projects that were built a few
[3:50] Speaker 2: decades ago. But ten years ago, around twenty ten, Brazil
[3:54] Speaker 2: started doing renewable energy auctions for wind and solar generation
[3:57] Speaker 2: and those auctions really kicked off this revolution in Brazil
[4:01] Speaker 2: in terms of renewable generation. So nowadays the biggest sources
[4:04] Speaker 2: of all electricity that are increasing its capacity are wind
[4:07] Speaker 2: and solar, specifically solar on the last few years because
[4:11] Speaker 2: of the distributed generation sector, which are small scale solar
[4:16] Speaker 2: solar plants less than five megawatts in Brazil that are
[4:18] Speaker 2: capable of participating on the net media and legislation in
[4:22] Speaker 2: the country, and that has driven a lot of investments,
[4:26] Speaker 2: especially in the last couple of years. So small scale
[4:29] Speaker 2: solar is definitely the sector that it's booming in Brazil
[4:32] Speaker 2: right now and is responsible for most of the investments
[4:34] Speaker 2: not only in Brazil, but in Latin America as well.
[4:37] Speaker 1: And as you had mentioned, there was a Brazilian policy
[4:39] Speaker 1: that actually helps spur that along. Would you say that
[4:42] Speaker 1: that is the primary driver of why small scale solar
[4:44] Speaker 1: has taken off.
[4:45] Speaker 2: Yeah, definitely, the policy, the net media in legislation was
[4:49] Speaker 2: responsible for the growing of the solar industry, basically because
[4:52] Speaker 2: the legislation allowed for full net metering, which means that
[4:55] Speaker 2: residential and commercial consumers can produce energy and trade that
[5:00] Speaker 2: or power credits, and because of the high electricity prices
[5:02] Speaker 2: for those consumers in the country, this made a really
[5:05] Speaker 2: good business case for smast scale in Brazil, which led
[5:08] Speaker 2: for all of this investments in the past few years.
[5:11] Speaker 2: Because of the small scale solar. Brazil was the third
[5:14] Speaker 2: country that installed most capacity in the world in twenty
[5:16] Speaker 2: tiny three, and basically because this policy then net metering
[5:20] Speaker 2: policy was one of the main responsibles for that.
[5:22] Speaker 1: Now let's focus on wind for a second, which has
[5:24] Speaker 1: been an area that's actually done quite well in Brazil.
[5:27] Speaker 1: It has extraordinarily high capacity factors. But in other parts
[5:30] Speaker 1: of the world we've seen some real issues over the
[5:33] Speaker 1: last year when it comes to win generation in terms
[5:36] Speaker 1: of costs, in terms of supply chains, as Brazil suffered
[5:39] Speaker 1: the same consequences, or if things been better there, I.
[5:41] Speaker 2: Would say generally that Brazil was better in training Cheny
[5:44] Speaker 2: Tree than spears globally. Actually in change Chinny Tree Bazoo
[5:47] Speaker 2: installed roughly five gigawatts of wind, which was a record
[5:50] Speaker 2: for the country, and the same as solar was a
[5:53] Speaker 2: third country in terms of capacity installed in training Chenny Tree,
[5:56] Speaker 2: and that's mainly because Brazil has developed over the year
[5:59] Speaker 2: a pretty good supply chain infrastructure for wind development. That
[6:03] Speaker 2: was due to a lot of local content policies related
[6:07] Speaker 2: to finance in all those projects here in the country,
[6:10] Speaker 2: and because of that, the country has not suffered that
[6:13] Speaker 2: much in terms of wind development, although if you look
[6:16] Speaker 2: to our forecast for the next few years, we do
[6:19] Speaker 2: expect that wind installations will probably drop on the next
[6:22] Speaker 2: couple of years, mainly because in the country right now
[6:25] Speaker 2: there is a short term oversupply of renewable energy and
[6:28] Speaker 2: that's reducing the procurement for PPAs for wind energy.
[6:33] Speaker 1: So let's talk about another really hot area, an area
[6:37] Speaker 1: that all eyes are on as well, and that is hydrogen.
[6:40] Speaker 1: It's an area that a lot of investment has gone
[6:42] Speaker 1: into in the US with the Inflation Reduction Act, certainly
[6:45] Speaker 1: also in Europe. But I actually think that the energy
[6:48] Speaker 1: companies around the world are really looking at hydrogen as
[6:50] Speaker 1: a way to reduce emissions in hard to debate sectors.
[6:53] Speaker 1: And as we know and have gone into detail on
[6:56] Speaker 1: in the show, there's a lot of different ways to
[6:59] Speaker 1: make hydrogen. With the renewables that Brazil has and kind
[7:03] Speaker 1: of the way that their greate is currently structured, how
[7:05] Speaker 1: well presitioned is Brazil to be a producer of green hydrogen.
[7:10] Speaker 3: I mean something that needs to be said, just touching
[7:12] Speaker 3: on the topic we were just talking about about wind,
[7:15] Speaker 3: is that Brazil has this fantastic wind resource and as
[7:19] Speaker 3: Vinnie pointed, out that's a homegrown success story. Like the
[7:22] Speaker 3: first auctions were held well over a decade ago. It's
[7:24] Speaker 3: currently the second largest source of power generation by capacity,
[7:28] Speaker 3: and a conscious decision was made to sort of support
[7:30] Speaker 3: that industry, not just in terms of developing the power capacity,
[7:33] Speaker 3: but also developing the local supply chains to support it,
[7:36] Speaker 3: to create jobs and create industry locally. The interesting tie
[7:40] Speaker 3: in with green hydrogen is that Brazil's onshore wind resource
[7:44] Speaker 3: is so competitive. If you look at the sort of
[7:46] Speaker 3: national average of its wind plans compared to any other market,
[7:49] Speaker 3: it has the highest average capacity factors in the world,
[7:52] Speaker 3: which produce the lowest levelized costs of electricity in the world.
[7:55] Speaker 3: And since renewable energy is the largest single cost in
[8:00] Speaker 3: producing green hydrogen, that results, according to our modeling, in
[8:03] Speaker 3: the lowest level aised cost of hydrogen production in the world.
[8:07] Speaker 3: So that's what makes the hydrogen story really interesting in Brazil.
[8:10] Speaker 3: There are obviously many things that need to happen to
[8:12] Speaker 3: develop that sort of capacity and a domestic hydrogen ecosystem,
[8:16] Speaker 3: but clearly what's not in question is that the potential
[8:19] Speaker 3: is there and.
[8:19] Speaker 2: Just so added few words tough throughout, James said, the
[8:22] Speaker 2: interested in Brazil and producing hydrogen. It's mainly because the
[8:25] Speaker 2: country now is seeking ways to increase its demand for energy.
[8:29] Speaker 2: For many years, Brazil has developed a lot of solar
[8:31] Speaker 2: and wind projects, and now the country has come to
[8:34] Speaker 2: a point where it needs to increase demand for discline
[8:36] Speaker 2: electricity in order to continue to increase its renewable capacity,
[8:41] Speaker 2: and hydrogen is one of the topics that the country
[8:43] Speaker 2: most one should develop it because that's a really good
[8:45] Speaker 2: opportunity for renewables to continue to grow in Brazil.
[8:48] Speaker 1: So the production of hydrogen is something that you can
[8:50] Speaker 1: do with a energy system that is getting bigger and
[8:53] Speaker 1: has really great economics. As you've outlined. Are they also
[8:56] Speaker 1: selling electricity on to other nearby countries, and it is
[9:01] Speaker 1: essentially an engine for the eight entire continent.
[9:04] Speaker 2: Brazil does export electricity and also import from Argentina, Uruguay
[9:09] Speaker 2: and Paraguay, but that's not where most of the opportunities
[9:12] Speaker 2: are for Brazil in terms of exporting electricity or exported
[9:17] Speaker 2: clean molecules. That's where hydrogen can play an important role
[9:21] Speaker 2: for the country. But also hydrogen is a really good
[9:24] Speaker 2: opportunity if you think about a domestic market. So what
[9:27] Speaker 2: Brazil is trying to do. It's built a domestic demand
[9:30] Speaker 2: for hydrogen and hydrogen itself, but also another product that
[9:34] Speaker 2: can be decarbonized by hydrogen, such as green fertilizers or
[9:38] Speaker 2: production of green steels, and overall the carbonization of heartshobaya industries.
[9:43] Speaker 3: I just want to complement that. I mean, Brazil is
[9:46] Speaker 3: a country that is incredibly blessed in terms of natural resources.
[9:49] Speaker 3: We've been focusing on renewable energy so far, so like
[9:53] Speaker 3: step one Harness the largest freshwater resources in the world
[9:56] Speaker 3: with large hydro capacity, Step two Harness the best wind
[9:59] Speaker 3: resource in the world. Now we see solar absolutely skyrocketing.
[10:02] Speaker 3: There are other sort of like pieces to this equation
[10:04] Speaker 3: that we haven't touched on yet. Brazil has enormous iron
[10:07] Speaker 3: ore reserves and resources and accounts for about twenty percent
[10:11] Speaker 3: of the global iron ore market, so there are potentially
[10:13] Speaker 3: interesting niches for green hydrogen application in production of green steel,
[10:17] Speaker 3: which Vini just mentioned. Brazil is also, as I think
[10:20] Speaker 3: most people know, it is an absolute agricultural superpower. It's
[10:24] Speaker 3: the top producer of so many important agricultural commodities, yet
[10:28] Speaker 3: a huge proportion of its nitrogen fertilizers are actually important,
[10:31] Speaker 3: and those are produced in other countries using nitrogen fertilizer,
[10:34] Speaker 3: using gray hydrogen, or derived from fossil fuels. So there's
[10:38] Speaker 3: also an opportunity, as Vini mentioned fertilizers for Brazil to
[10:41] Speaker 3: not only, for example, produce clean ammonia and export that,
[10:44] Speaker 3: but perhaps use that ammonia to produce its own lower
[10:47] Speaker 3: carbon fertilizer for which there is a massive domestic market
[10:52] Speaker 3: right there.
[10:52] Speaker 1: Countries like Brazil that are endowed with incredible natural resources
[10:56] Speaker 1: are sometimes do fall victim to this resource curse. And
[10:59] Speaker 1: what we's is Brazil really in some respects pivoting and
[11:02] Speaker 1: looking at how they can use these resources to essentially
[11:06] Speaker 1: be a bigger player in the global economy and the
[11:09] Speaker 1: sort of things that they can actually use domestically, because
[11:11] Speaker 1: as you just highlighted, exporting electricity isn't necessarily the end game.
[11:15] Speaker 1: It's actually what they can do with the electricity within
[11:17] Speaker 1: their own borders and then what they can make out
[11:19] Speaker 1: of it, it's going to have a bigger impact. So
[11:22] Speaker 1: can you talk a little bit about kind of some
[11:24] Speaker 1: of the areas where you see a lot of potential
[11:26] Speaker 1: for Brazil in their strategy in breaking the resource curse.
[11:30] Speaker 2: Brazil has historically been in commodity exporter country, exporting during
[11:34] Speaker 2: his old history and with hydrogen. What I think the
[11:37] Speaker 2: country is trying to do is to break this tradition
[11:40] Speaker 2: and starting not to export only hydrogen itself, but products
[11:44] Speaker 2: with higher value aggregraated with the carbonized industry, products made
[11:48] Speaker 2: with this clean hydrogen. So the opportunity is not only
[11:51] Speaker 2: the domestic market for this green hydrogen and the subproducts,
[11:55] Speaker 2: but also to export not only hydrogen are ammonia itself,
[11:58] Speaker 2: but also products that can use this hydrogen inside the country,
[12:02] Speaker 2: produce goods and then export them. And that's where the
[12:04] Speaker 2: biggest opportunity is for the country. And for that, the
[12:07] Speaker 2: renewable energy industry and the industrialization the industry needs to
[12:11] Speaker 2: be tied together, and Brazil needs to boosts in its
[12:14] Speaker 2: industrial capacity with this clean electricity or clean molecule with hydrogen.
[12:19] Speaker 1: Let's talk about an area that I have really already
[12:23] Speaker 1: brought up when we talked about Brazil on a previous show,
[12:25] Speaker 1: but it was biofuels, because I really strongly associate biofuels
[12:29] Speaker 1: with Brazil, and I know they're not the number one
[12:31] Speaker 1: producer of this, but for some reason. In my head,
[12:34] Speaker 1: it's completely intrinsically linked, and right now there's so much
[12:37] Speaker 1: going on when it comes to some of the hard
[12:40] Speaker 1: to debate sectors. So I'm thinking of sustainable aviation fuel
[12:43] Speaker 1: and how this is one of the primary strategies for
[12:45] Speaker 1: greening that space at the moment. So can you talk
[12:48] Speaker 1: a little bit about biofuels and where Brazil is now
[12:52] Speaker 1: and whether or not, you know, my biases to associate
[12:55] Speaker 1: Brazil with biofuels is founded.
[12:57] Speaker 3: I think it's absolutely founded, because it's not the top
[12:59] Speaker 3: p it's number two, and it's number two after the US,
[13:03] Speaker 3: which is an even larger country in terms of population,
[13:06] Speaker 3: footprint in some senses resources. But there are key differences
[13:09] Speaker 3: between these markets. The US is producing corn based ethanol.
[13:12] Speaker 3: Brazil is producing largely cane based ethanol, and that has
[13:17] Speaker 3: a different carbon footprint and different cost structure, and I
[13:20] Speaker 3: think different opportunities as far as producing other products like
[13:23] Speaker 3: sustainable aviation fuel the other sort of key difference. I
[13:27] Speaker 3: think that just high level observation about the role of
[13:29] Speaker 3: biofuels in Brazil, is there much more integrated into the
[13:32] Speaker 3: transport sector than they are in the US in the
[13:35] Speaker 3: sense that almost any passenger vehicle car in Brazil is
[13:38] Speaker 3: fully flex fuel can run on any combination of one
[13:40] Speaker 3: hundred percent gasoline to one hundred percent ethanol, and this,
[13:44] Speaker 3: as with wind, comes from policies that were sort of
[13:46] Speaker 3: put in place at least a decade or decades ago
[13:49] Speaker 3: that made this conscious choice to develop biofuels and integrate
[13:52] Speaker 3: them into transport. So another important high level point to
[13:55] Speaker 3: make about Brazil is not only is the power sector
[13:58] Speaker 3: ninety percent clean energy, including larg hydroe so, but also
[14:00] Speaker 3: transport is significantly more decarbonized than it is in most
[14:03] Speaker 3: other major economies.
[14:04] Speaker 1: Are these completely different cars that are being sold there
[14:06] Speaker 1: than another parts of the world, and they're not capable
[14:08] Speaker 1: to handle the biofuels well.
[14:10] Speaker 3: They're produced for the domestic market. Brazil is a very
[14:12] Speaker 3: large car manufacturer, has a population of two hundred million
[14:16] Speaker 3: people and has a car industry, so all of the
[14:19] Speaker 3: major auto manufacturers pretty much produce cars there for the
[14:23] Speaker 3: domestic market. One thing that I think needs to be
[14:26] Speaker 3: said is that evs are only starting to make inroads recently,
[14:29] Speaker 3: so there's an important sort of tie in between biofuels,
[14:32] Speaker 3: electric vehicles, and some interesting ways we think that market's evolving.
[14:35] Speaker 1: Well, let's go ahead and talk about that now, because
[14:37] Speaker 1: the reason that I'm asking about kind of the domestic
[14:40] Speaker 1: versus international market for vehicles is that you think of
[14:43] Speaker 1: other parts of the world, in places like California that
[14:45] Speaker 1: have tighter emission standards, and so other parts of the
[14:48] Speaker 1: States actually end up having these cars with tighter emission standards.
[14:51] Speaker 1: You think about the fact that if the innovation has
[14:53] Speaker 1: taken place in Brazil, it would be great to see
[14:55] Speaker 1: the innovation expanded elsewhere in adoption actually happening there. Well,
[15:00] Speaker 1: that conversation around whether biofuels or electric vehicles are the
[15:05] Speaker 1: endgame when it comes to decarbonizing, and I think that
[15:08] Speaker 1: you know our stance very much within BNF is that
[15:10] Speaker 1: electric vehicles take us much closer to a paras aligned
[15:14] Speaker 1: net zero by twenty fifty future that it would be
[15:18] Speaker 1: a conversation more around electric vehicles now. Is the reason
[15:21] Speaker 1: there's been relatively slow uptake in Brazil have something to
[15:25] Speaker 1: do with the fact that there was early adoption of
[15:28] Speaker 1: biofuels or is there another reason that would lead to
[15:31] Speaker 1: why they're only now really starting to get traction?
[15:35] Speaker 2: I would say definitely the fact that Brazil has a
[15:37] Speaker 2: really good adoption of biofuels and is road transport is
[15:40] Speaker 2: one of the factors that are taking these longer than
[15:43] Speaker 2: usual than to kick off in the country and just
[15:46] Speaker 2: a compliment to jam was saying earlier. Early in the seventies,
[15:49] Speaker 2: Brazil started the problem which is called Provacol, which was
[15:52] Speaker 2: the project that really developed the the biofuels industry in
[15:55] Speaker 2: the country, the production of the massic flex fuel vehicles
[15:58] Speaker 2: and because of all of the the biofus policies in Brazil,
[16:02] Speaker 2: road transport in Brazil nowadays have a significant share of
[16:06] Speaker 2: renewables fuels. So if you think about passenger vehicles, roughly
[16:09] Speaker 2: forty percent of the energy consumption of this category is
[16:13] Speaker 2: due to biofuls and because of that, Brazil already has
[16:16] Speaker 2: a cleaner transport segment than other countries. But that's not
[16:19] Speaker 2: just say that EVIS will not be important in Brazil.
[16:22] Speaker 2: There's no silver bullet if you think about decarbonized and
[16:25] Speaker 2: transport and EVIS and also biofuels will play it important role.
[16:29] Speaker 2: The thing about Brazil is that since Brazil already has
[16:32] Speaker 2: a big adoption of biofules, probably hybrid vehicles and plugging
[16:37] Speaker 2: hybrid vehicles will play an important role on this transition
[16:40] Speaker 2: to a battery electricity fleet. It's not necessarily a competition
[16:45] Speaker 2: between biofuels and electric vehicles, and if Brazil actually adopts
[16:49] Speaker 2: electric vehicles, that doesn't mean necessarily that biofuels will lose
[16:53] Speaker 2: its space, because you have a lot of products that
[16:55] Speaker 2: can be made with those biofuels. You can make sustainable
[16:58] Speaker 2: aviation fuels, you can use then in odthers areas, and
[17:00] Speaker 2: you can also use it on transport because you also
[17:03] Speaker 2: have plugging hybrid vehicles for a long time on the country.
[17:06] Speaker 2: So it's just to highlight that in the transport sector
[17:08] Speaker 2: and in all sectors, there's no like silver bullet, and
[17:11] Speaker 2: both technologies can play an important role.
[17:14] Speaker 3: Dan I think it was correct and accurate of view
[17:16] Speaker 3: to sort of frame the question as biofuels and electric
[17:19] Speaker 3: vehicles as being in opposition, because that is in fact
[17:23] Speaker 3: how it's seen in some quarters in Brazil. It's seen
[17:26] Speaker 3: as a bit of a competition. It's possible, as Vinnie said,
[17:29] Speaker 3: that you know, or actually quite likely that the sort
[17:31] Speaker 3: of prevalence of biofuels in Brazil hasn't necessarily let's say
[17:35] Speaker 3: hastened the arrival of evs if anything had put a
[17:38] Speaker 3: stop on it. But there's no world in which anybody
[17:41] Speaker 3: thinks that the entire transport sector can be run on
[17:44] Speaker 3: ethanol y, because it would simply demand too much land,
[17:47] Speaker 3: right and it'd be like then you're talking, you get
[17:49] Speaker 3: into food crops and food security issues. So there's no
[17:51] Speaker 3: way that biofuels could meet the transport needs of the future.
[17:54] Speaker 3: So you need something else that's low carbon, and as
[17:57] Speaker 3: Vinnie said, in a country that doesn't have charging infrastructure, yeah,
[18:00] Speaker 3: that's on the cusp of producing chibvs. These two solutions
[18:03] Speaker 3: are going to co exist on the road and even
[18:05] Speaker 3: in the engine for a long time to come. So
[18:07] Speaker 3: definitely not a zero sum game on transport.
[18:10] Speaker 1: Historically, Brazil has not been a manufacturer of electric vehicles,
[18:13] Speaker 1: but that's all about to change. So can you talk
[18:16] Speaker 1: a little bit about some of the companies that are
[18:17] Speaker 1: going into Brazil and really starting to produce electric vehicles
[18:21] Speaker 1: within the country.
[18:22] Speaker 3: Yeah, I would put this as one of the more
[18:25] Speaker 3: exciting announcements in Brazil and energy transition. In the last
[18:29] Speaker 3: twelve to eighteen months period, we saw Ford exit the
[18:32] Speaker 3: country after one hundred years of producing cars and vehicles,
[18:35] Speaker 3: and at the same time we saw bid come in
[18:38] Speaker 3: and purchase a major facility of THEIRS in Bahia to
[18:40] Speaker 3: produce battery electric vehicles and hybrid vehicles, as Vinnie said,
[18:44] Speaker 3: which is going to be a big part of the strategy.
[18:46] Speaker 3: Then we also saw great Wall Motors enter the country
[18:48] Speaker 3: also last year, and both Chinese automakers pledged to have
[18:53] Speaker 3: the first vehicles roll off the line this year and
[18:56] Speaker 3: for them to be competitively priced with local flex fuel options.
[18:59] Speaker 3: Since we've also in Stallantis announced plans to produce cars
[19:02] Speaker 3: with batteries of some kind in the country, so the
[19:06] Speaker 3: scene is definitely changing. One thing that needs to be said, though,
[19:09] Speaker 3: is like to your question about why have evs not
[19:13] Speaker 3: sort of taken off to date, I think like the
[19:15] Speaker 3: most obvious answer. I think Vinny kind of covered it
[19:18] Speaker 3: in the sense that like it's partly because biofuels are
[19:21] Speaker 3: already well entrenched and have done a good job of
[19:23] Speaker 3: cutting the admissions of vehicles. I think it's just also
[19:26] Speaker 3: down to the fact that outside of specific areas in
[19:29] Speaker 3: the world, evs are pretty early everywhere, they haven't necessarily
[19:32] Speaker 3: been available widely and to a sort of mass audience
[19:35] Speaker 3: in Brazil, so consumer preferences haven't really had a chance
[19:38] Speaker 3: yet to like necessarily evolve. But what we have seen
[19:40] Speaker 3: in Brazil is as electric vehicles have become available at
[19:44] Speaker 3: different price points, there's been very strong uptake. So my
[19:47] Speaker 3: guess would be that as soon as you get very
[19:49] Speaker 3: competitively priced battery electric vehicles and plug in hybrid electric vehicles,
[19:53] Speaker 3: people are going to want them, as they do typically
[19:55] Speaker 3: anywhere else in the world.
[19:56] Speaker 1: I mean, that gap between the price of an internal
[19:58] Speaker 1: combustion engine electric vehicles still exists, it's just narrowing, and
[20:02] Speaker 1: maybe that does make the right conditions for this to
[20:05] Speaker 1: be the time for companies like BYD, who are huge
[20:09] Speaker 1: manufacturers in China of electric vehicles and have been able
[20:12] Speaker 1: to drive down price in such a dramatic way, to
[20:14] Speaker 1: bring it to other parts of the world like Brazil.
[20:18] Speaker 1: So how about the metals end of things. You know,
[20:20] Speaker 1: you had mentioned a little bit earlier that they're very
[20:23] Speaker 1: well endowed with natural resources and metals are certainly part
[20:26] Speaker 1: of it. Is Brazil a country that also has a
[20:28] Speaker 1: lot of the metals required for electric vehicles or actually
[20:31] Speaker 1: just you know, lithium, ion, batteries for stationary storage and
[20:35] Speaker 1: all the different things that it's applied to.
[20:37] Speaker 2: Yeah, Brazil is actually a crucial source of transition metals
[20:40] Speaker 2: and actually ranks third globally in BENEFS assessment of transition
[20:43] Speaker 2: metals reserves. Brazil has a lot of important metals and
[20:47] Speaker 2: for strategic minerals that exceed fifteen percent of global reserves.
[20:50] Speaker 2: They are graphied where herbs nico and manganese and Brazil
[20:54] Speaker 2: historically was a big mining country, with Valley being one
[20:58] Speaker 2: of the most important companies in the country, and the
[21:01] Speaker 2: transition likewise with the hydrogen story that you can also
[21:05] Speaker 2: export the mineral or export the clean molecule, and that's
[21:09] Speaker 2: a good commodity exporting opportunities. What you're seeing today is
[21:12] Speaker 2: that Brazil has also this capacity of mining, of exploring
[21:15] Speaker 2: this but also to producing goods domestically with that mining capacity.
[21:19] Speaker 2: So for example, Brazil has one of the biggest iron
[21:22] Speaker 2: R reserves on Earth, but doesn't produce a lot of steel.
[21:25] Speaker 2: So a big opportunity there is using this capacity, this
[21:28] Speaker 2: resource that it has on iron R and then produce
[21:31] Speaker 2: steel for example. So Brazil has a really good mining
[21:34] Speaker 2: infrastructure for a lidium for iron ore, and the country
[21:38] Speaker 2: has has opportunities both to export those products but also
[21:41] Speaker 2: to produce goods such as batteries. Are stel with this
[21:45] Speaker 2: mining resources that the country has.
[21:47] Speaker 1: I mean, you bring up a really good point when
[21:49] Speaker 1: you talk about steel, because there's mining, but then there's
[21:51] Speaker 1: refining and then there's the assembly of items on the
[21:54] Speaker 1: other end. So if we're thinking about all of the
[21:57] Speaker 1: mining resources and thinking about manufacturing of electric vehicles, does
[22:00] Speaker 1: make sense at least when we're thinking about global supply chains,
[22:03] Speaker 1: perhaps to onshore more of that refining capacity. Is Brazil
[22:07] Speaker 1: one of the countries that is on shoring more manufacturing
[22:11] Speaker 1: and is really becoming an area of interest for the
[22:14] Speaker 1: whole region or even for just their domestic market.
[22:17] Speaker 3: I think it's early days, Dana, like we as we
[22:20] Speaker 3: just talked about, we're starting to see or we're going
[22:23] Speaker 3: to see EV production very soon for the first time
[22:26] Speaker 3: in Brazil and in Latin America production for the domestic market.
[22:30] Speaker 3: Mexico currently produces evs, but they're largely exported models like
[22:33] Speaker 3: the Ford Machi. But when bid and Stillantis and great
[22:37] Speaker 3: Wall begin producing EV's in Brazil, those are going to
[22:39] Speaker 3: be produced for the local market. And that's a first one.
[22:43] Speaker 3: I think theme that's kind of emerged from this conversation
[22:46] Speaker 3: is the fact that the country has natural resources, and
[22:50] Speaker 3: that's already an opportunity, and it's an obvious one. What
[22:53] Speaker 3: I think is sort of interesting about this current moment
[22:55] Speaker 3: in time with the Lula administration and then it's international
[22:59] Speaker 3: leadership in the G twenty this year and then cop
[23:01] Speaker 3: next year, is that it creates this interesting opportunity for
[23:04] Speaker 3: the country to take concrete steps to sort of overlay
[23:08] Speaker 3: global energy transition priorities with its natural resource wealth to
[23:13] Speaker 3: move to different places in the value chain, whether we're
[23:15] Speaker 3: talking about like ethanol to staffs, or we're talking about
[23:18] Speaker 3: critical minerals and metals and development for example of a
[23:22] Speaker 3: domestic battery supply chain for example, that last topic, it's
[23:25] Speaker 3: very less clear to us that Brazil will develop a
[23:28] Speaker 3: domestic battery supply chain in the near future, simply because
[23:31] Speaker 3: its conscious decision of industrial policy. Like we've seen with
[23:34] Speaker 3: the Biden administration in the States, if you want to
[23:36] Speaker 3: do this, you really need everybody aligned and the decision
[23:38] Speaker 3: needs to be made at the very top, and that's
[23:40] Speaker 3: something that we sort of have yet to see in Brazil,
[23:42] Speaker 3: but I think it's early days and it's potentially coming.
[23:45] Speaker 1: So talk to me a little bit about the policy
[23:47] Speaker 1: situation there. How supportive is the government currently of renewables
[23:52] Speaker 1: and what sort of policies are in place to really
[23:55] Speaker 1: spur some of these exciting potential industries really into a
[23:59] Speaker 1: lot of growth action over the next few years.
[24:01] Speaker 3: Well, support for renewable energy, as we've said, goes back
[24:04] Speaker 3: a long way. Brazil installed had its first gigo out
[24:07] Speaker 3: of wind capacity Cumulating installed in twenty ten, and auctions
[24:10] Speaker 3: predate that. So first gig go out of cumultive installed
[24:12] Speaker 3: solar capacity in twenty seventeen, and then the hydro goes
[24:15] Speaker 3: back many decades. So support for renewable energy has a
[24:18] Speaker 3: long track record and has been consistent across different administrations.
[24:21] Speaker 3: That much is not in doubt. Decisions around leveraging that
[24:26] Speaker 3: clean energy resource and success into other areas of the
[24:30] Speaker 3: economy are where we're at today. So some of Brazil's
[24:33] Speaker 3: neighbors in the region, like Chile and Colombia and many
[24:36] Speaker 3: other countries have released concrete green hydrogen strategies with concrete
[24:40] Speaker 3: goals and targets. We haven't yet seen that in Brazil,
[24:42] Speaker 3: there's still regulatory steps that need to be taken around that,
[24:45] Speaker 3: and there are a couple other areas that kind of
[24:47] Speaker 3: fit into that category. Offshore wind is another one where
[24:51] Speaker 3: there's currently regulatory movement and discussion around it, but there's
[24:55] Speaker 3: yet to be announced a formal route to market for
[24:56] Speaker 3: offshore wind. Brazil's carbon market legislation is yet another one
[25:00] Speaker 3: where there's an expectation that Brazil will introduce a compliance
[25:04] Speaker 3: market patterned after the EUS in the coming months three years,
[25:07] Speaker 3: but sort of still in the sort of regulatory policy
[25:10] Speaker 3: development phase. So that's hence our characterization of Brazil at
[25:14] Speaker 3: this moment as it being sort of at a decisive
[25:16] Speaker 3: moment where it's success in renewable energy has been very clear.
[25:18] Speaker 3: That's amazing because as we know from our global modeling,
[25:22] Speaker 3: we think the power sector can account for about fifty
[25:24] Speaker 3: percent of emissions reductions from net between net zero and
[25:27] Speaker 3: business as usual. So Brazil sort of nailed it on
[25:30] Speaker 3: the power sector, and it's done a great job with
[25:32] Speaker 3: ethanol historically in the transport sector, but leveraging it into
[25:36] Speaker 3: other areas of industry is still, i would say a
[25:39] Speaker 3: bit of an open question.
[25:40] Speaker 2: There's something particularly of Brazil in terms of policies through
[25:43] Speaker 2: renewables and energy transitions general. That I think is really
[25:46] Speaker 2: interesting is that in terms of renewal energy development, regardless
[25:49] Speaker 2: of the government, we won't see a lot of bushbacks
[25:53] Speaker 2: for renewable development. And that's basically because the economic of
[25:56] Speaker 2: renewables are so good in Brazil that despite the government,
[25:59] Speaker 2: the port foreign ubles itself will continue. Of course, that's
[26:03] Speaker 2: not true for a lot of ESG related topics, like
[26:06] Speaker 2: James was saying about carbon markets and rainforest deforestation, all
[26:11] Speaker 2: of those topics they are really related in terms of
[26:14] Speaker 2: the government policies, But renewables developments in general are kind
[26:17] Speaker 2: of constant in the country despite of the government.
[26:20] Speaker 1: Well, let's keep talking about policy, but let's talk about
[26:23] Speaker 1: it in relation to biodiversity, because it's hard to have
[26:25] Speaker 1: a conversation about Brazil that doesn't in some way touch
[26:28] Speaker 1: upon the Amazon rainforest. And one of the things that
[26:31] Speaker 1: the Lula government has publicly stated is a commitment to
[26:34] Speaker 1: preserving the Amazon. So how has that been going and
[26:38] Speaker 1: what sort of policies are in.
[26:40] Speaker 2: Place during Lula's first and second term as presidents from
[26:44] Speaker 2: two thousand and three to twenty eleven, we have seen
[26:47] Speaker 2: a big drop in terms of deforestation of the Amazon.
[26:50] Speaker 2: That was one of the main policies at the time,
[26:52] Speaker 2: and he really managed to reduce legal deforestation in the area.
[26:56] Speaker 2: After that, we've seen an increase on deforestation in other governments,
[27:00] Speaker 2: which was concerning for the country because of Brazil's commitment
[27:02] Speaker 2: to reduce deforestation and overall emissions. But what we're seeing
[27:06] Speaker 2: since last year of flulus third term as presence is
[27:10] Speaker 2: that deforestation is actually decreasing again in the country. And
[27:13] Speaker 2: that's basically because there has been a lot of efforts
[27:15] Speaker 2: from the government in terms of reducing and actually trying
[27:19] Speaker 2: to achieve zero legal deforestation, which was what Lulas committed
[27:23] Speaker 2: a few years ago. And this is really important for
[27:25] Speaker 2: Brazil because deforestation is the single largest emissions source of
[27:30] Speaker 2: the country. So if Brazil really wants to become anat
[27:33] Speaker 2: zero country by twenty fifty, deforestation not only from the
[27:37] Speaker 2: Amazon region but from the country as how is the
[27:39] Speaker 2: most important topic for sure.
[27:41] Speaker 1: I mean, it really makes COP thirty extraordinarily iconic when
[27:45] Speaker 1: you think about it in conjunction with the location of
[27:48] Speaker 1: the Amazon and how important that is to global biodiversity
[27:52] Speaker 1: and global emissions.
[27:54] Speaker 2: Dan.
[27:54] Speaker 3: I think it's important just to contextualize when we're talking
[27:56] Speaker 3: about deforestation and we're talking about the Amazon, of which
[27:59] Speaker 3: a huge share falls within Brazil's borders. I mean it
[28:01] Speaker 3: it sort of recalls to me the discussion in US
[28:04] Speaker 3: domestic politics around border policies, because we're talking about geographically
[28:08] Speaker 3: a vast area. We're talking about thousands and thousands of
[28:11] Speaker 3: kilometer long border, right that is very very intense and
[28:15] Speaker 3: challenging terrain, with a lot of different economic interests going on,
[28:19] Speaker 3: some legal and some illegal, both in terms of mining,
[28:23] Speaker 3: in terms of organized crime, in terms of narcotics, in
[28:25] Speaker 3: terms of agriculture, and it's a border that's shared with
[28:28] Speaker 3: many different countries. So it's one thing to sort of
[28:30] Speaker 3: like we you know, we look at a chart and
[28:32] Speaker 3: we say, okay, you know, it's gone a little bit up,
[28:33] Speaker 3: it's gone a little bit down. But if you're the
[28:35] Speaker 3: Alula administration and all of the people in that chain
[28:38] Speaker 3: of command whose responsibility is for like monitoring and verifying
[28:42] Speaker 3: whether land is legally or illegally deforced it or even
[28:45] Speaker 3: who owns it, we're talking about like a massive challenge
[28:48] Speaker 3: and a very complex set of issues and that's where
[28:50] Speaker 3: the questions around international funding come in and whether, indeed
[28:55] Speaker 3: and to what extent there should be international and global
[28:57] Speaker 3: funding for supporting Brazil in this effort to combat illegal forestation,
[29:00] Speaker 3: because it's so important for the world. But it's such
[29:02] Speaker 3: a massive and extraordinary complex problem to tackle, I think,
[29:06] Speaker 3: and one.
[29:06] Speaker 1: Way that's been addressed is through kind of the voluntary
[29:08] Speaker 1: carbon space, but in the compliance carbon space, you mentioned
[29:11] Speaker 1: that the government was already looking at something to do there.
[29:14] Speaker 1: How close do you think that really is? Is a
[29:16] Speaker 1: way to kind of look at this really complex bace
[29:19] Speaker 1: and put some financial boundaries around it.
[29:21] Speaker 2: Brazil is developing a legislation for its regulated carbon markets.
[29:25] Speaker 2: The legislation should be voted this year and hopefully this
[29:29] Speaker 2: will also help in terms of avoiding the florestation on
[29:32] Speaker 2: the Amazon, but it's definitely not the only policy that
[29:35] Speaker 2: can reduce the forestation in the region. What Brazil needs
[29:38] Speaker 2: to do, and what has been struggled to do over
[29:40] Speaker 2: the last years, is find business models for the communities
[29:43] Speaker 2: in the Amazon in order for them to continue to
[29:47] Speaker 2: produce her to have a source of revenue without the
[29:49] Speaker 2: foresting the forest. And like James mentioned, the difficult there
[29:53] Speaker 2: is that's such a vast territory in the country, with
[29:56] Speaker 2: a lot of different covers, a lot of different Brazilian states,
[29:58] Speaker 2: with a lot of different borders, and with some regions
[30:01] Speaker 2: that's really hard success. And this cut in Brazil is
[30:03] Speaker 2: not only how those communities can guarantee a source of revenue,
[30:07] Speaker 2: but also how they can protect the force while having
[30:10] Speaker 2: a revenue of business there.
[30:12] Speaker 1: So we've talked about a lot of different things on
[30:15] Speaker 1: this show. Is this kind of whistle stop primer on
[30:18] Speaker 1: where is Brazil now when it comes to the energy
[30:20] Speaker 1: transition into missions. So as we go through and just
[30:23] Speaker 1: kind of recount, we're thinking about everything from biodiversity to
[30:27] Speaker 1: biofuels and what's happening on the agricultural and we're also
[30:31] Speaker 1: talking about natural resources, some coming from metals and mining.
[30:35] Speaker 1: We're talking about electric vehicles and the onshoring of manufacturing
[30:39] Speaker 1: on that end. We're talking about a renewable energy space
[30:42] Speaker 1: that has a long history and is growing with favorable
[30:46] Speaker 1: economics that could create increasingly favorable space for other parts
[30:50] Speaker 1: of that value chain, such as hydrogen. So if we're
[30:52] Speaker 1: talking about all of these different areas that are all
[30:55] Speaker 1: potentially growth opportunities for Brazil. What one are you most
[30:59] Speaker 1: excited about. I'm going to make both of you pick.
[31:01] Speaker 2: You know before saying what I'm most excited about. What
[31:04] Speaker 2: I think is interesting is that that's both a good
[31:07] Speaker 2: and a bad thing that Brazil is on the spotlight
[31:09] Speaker 2: in the next two years. The good thing is that
[31:11] Speaker 2: now the focus is on the country, there's a lot
[31:13] Speaker 2: of opportunities it can in fact start new business, but
[31:16] Speaker 2: also there's a responsibility of that Brazil needs in those
[31:19] Speaker 2: two years to do its homework and really do the
[31:22] Speaker 2: right policies and really take advantage of those opportunities. And
[31:26] Speaker 2: for me, what I'm most excited about, it's not a
[31:29] Speaker 2: topic specifically, but it's about Brazil stop only being a
[31:33] Speaker 2: commodity exporter and also becoming an industrialized country where it
[31:37] Speaker 2: can produce low carbon goods and actually have a big
[31:40] Speaker 2: impact globally with this cheap electricity matrix and all of
[31:44] Speaker 2: the good resources that the country have.
[31:47] Speaker 3: Yeah, I agree with Vinnie. If I were to identify
[31:49] Speaker 3: a theme that I'm most excited about, it's the fact
[31:52] Speaker 3: that the global priorities of energy transition aligned well with
[31:55] Speaker 3: Brazil's strengths. Brazil has very cheap and abundant renewal of
[31:59] Speaker 3: energy and already mostly decarbonized power sector, and that creates
[32:02] Speaker 3: this potential to produce almost anything with a lower carbon
[32:06] Speaker 3: footprint than almost anywhere else. If you produce an ev
[32:09] Speaker 3: a lithium ion battery in Brazil, it has a lower
[32:11] Speaker 3: carbon footprint than if you produce it in the US,
[32:13] Speaker 3: let alone China. So there's a sort of carbon competitiveness
[32:16] Speaker 3: to Brazil that I think is just only going to
[32:18] Speaker 3: grow in global importance across every single thing we produce
[32:21] Speaker 3: in the global economy almost in the decades to come.
[32:24] Speaker 3: And then because its renewable energy resources are generally so
[32:28] Speaker 3: strong that things that have to be made with clean energy,
[32:31] Speaker 3: like green hydrogen, for example, it can potentially produce it
[32:34] Speaker 3: more cheaply than in other places. So I guess, to
[32:37] Speaker 3: echo a bit what Vinnie said, what I think is
[32:39] Speaker 3: most interesting is how to leverage energy transition into industrialization,
[32:44] Speaker 3: job growth and sort of creation of new industries in Brazil.
[32:48] Speaker 3: So that would be my answer, moving from being a
[32:50] Speaker 3: clean energy powerhouse to economic growth and job creation and industry.
[32:54] Speaker 1: You are both excellent politicians giving not quite the debt
[32:58] Speaker 1: on answer, but honestly a much that are more comprehensive
[33:01] Speaker 1: and nuanced view of this incredibly complex country. Vinnie James,
[33:05] Speaker 1: thank you so much for joining today.
[33:06] Speaker 2: Thank you, Dana, Thanks so much, Dana.
[33:17] Speaker 1: Today's episode of Switched On was produced by Cam Gray
[33:20] Speaker 1: with production assistance from Kamala Shelling. Bloomberg NIF is a
[33:24] Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This
[33:27] Speaker 1: recording does not constitute, nor should it be construed, as
[33:30] Speaker 1: investment in vice, investment recommendations, or a recommendation as to
[33:34] Speaker 1: an investment or other strategy. Bloomberg ANIFF should not be
[33:37] Speaker 1: considered as information sufficient upon which to base an investment decision.
[33:40] Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes
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[33:47] Speaker 1: of the information contained in this recording, and any liability
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