Brazil’s government faces tough decisions over whether to back its expanding renewable energy sector or increase investment in its huge deep-water oil reserves, a new report warns.
But the Carbon Tracker Initiative‘s latest study reveals the country is well placed to exploit huge opportunities if international efforts to develop a low carbon economy progress.
Carbon Tracker has calculated that 60-80% of stated coal, oil and gas reserves cannot be burnt in the next few decades if the world it to stay within the 2C warming target agreed in 2010. As a result it says many fossil fuel companies with significant ‘assets’ are overvalued, and risk causing another financial crisis.
This report indicates Brazil is in a relatively good position, with a strong renewable energy sector and low cost oil reserves located in the ‘pre-salt’ region off its Atlantic coast.
Experts predict wind energy will increase rapidly in the country. (Source: Heitor Carvalho Jorge)
“Investing in a 2°C world will have winners and losers – Brazil may well be placed to come out ahead,” said Luke Sussams, senior researcher, Carbon Tracker.
The good news for Brazil is that much of its oil production is considered “burnable” because it is low cost and low risk. But the report says there will come a point when the Brazilian state-owned oil company Petrobras has to make a decision over future drilling.
“The challenge for investors that is unique to Brazil is that they will need to understand and identify at which point development of the pre-salt reserves becomes unviable in a carbon constrained environment,” the report says.
The estimated size of the pre-salt reserves in Brazil varies between 70 and 100 billion barrels of oil – approximately 7-10 times the size of current proven oil and gas reserves.
Energy options
The alternative to developing its oil and gas sectors in Brazil is to increase investment in its burgeoning renewable sector.
Brazil currently sources over 40% of its energy from renewables, and is currently the second largest producer of biofuels in the world behind the US according to a recent study by Bloomberg New Energy Finance (BNEF).
Combined with its established hydropower programme, Bloomberg estimates these two sectors alone have the ‘reserves’ equivalent to two fifths of Brazil’s oil and gas reserves. Wind energy is also predicted to increase rapidly in the country.
According to Carbon Tracker, renewables in Brazil’s energy mix are expected to increase by 4%, led by biofuels (+5.1%), while coal (+0.5%) and gas (+0.6%) are expected to grow more timidly. Furthermore, oil will decrease by 5.3%.
If these predictions are proved right, Brazil could continue on the path to achieve a low carbon economy with an energy mix based fundamentally on renewable sources, even with the increase in the production of fossil fuels.
“Brazil comes out very favourably when compared to other countries seeking to develop significant hydrocarbons. South Africa has a domestic focus on coal, whilst Australia is reliant on coal export,” the report says.
“The focus of Brazil on low-cost production of oil for the global market puts it in a strong competitive position to gain some of the carbon budget which is allocated to the combustion of oil for transport. Brazil’s strong renewable resources base also provides high exposure to alternative markets which should prosper in a low carbon world, whilst also maintaining Brazil’s domestic sustainability”.