Today's Letter IEDI discusses the “Brazil Country Climate and Development Report,” recently published by the World Bank, with the objective of examining the implications of climate change for the objectives, priorities and paths of socioeconomic development in Brazil.

According to the study, Brazil has a great opportunity to promote stronger and more inclusive economic growth, compatible with building greater resilience to climate change and with commitments to zero net greenhouse gas (GHG) emissions by 2050.

This theme has been part of IEDI reflections, such as, for example, in Letter IEDI n. 1075 "Green Transition: opportunities and challenges for Brazil," Apr'21, because the climate urgency and the development of new technologies can make the production of "green" or low-carbon footprint goods and services an important avenue for the country's development.

Brazil is well positioned due to its renewable energy potential and to its greenhouse gas emissions being very concentrated in land use (52%), which makes the emission reduction process less capital-intensive than in other countries, and in agriculture (24%), enabling focused actions of high impact in the short term. 

The World Bank estimates that investment needs in Brazil for climate action represent about 1.2% of GDP for the period 2022–2050, and only 0.8% of GDP between 2022 and 2030. This would also account for 22% of the investments needed to cover the country's infrastructure deficit. 

Meanwhile, investment needs are partially offset by energy savings in transport or industry, with reductions in congestion or air pollution, etc., of 0.3% and 0.7% of GDP in 2022–2030 and 2022–2050, respectively. 

With this, the costs of building resilience and zeroing net emissions fall to about 0.5% of Brazil's GDP, according to the World Bank.

Despite this privileged situation, there are considerable risks. Global warming is expected to affect all Brazilian biomes, especially the Amazon and Cerrado, causing changes in temperature and rainfall regime, which can be aggravated by soil degradation and increased illegal deforestation. Extreme weather events will negatively affect the performance of the agricultural sector and put the most vulnerable cities and populations under stress. 

In addition, as the World Bank emphasizes, our current economic model does not provide a high and consistent pace of productivity growth, which is a necessary condition for Brazil to become a high-income country.

Thus, the country's adaptation to climate change must be accompanied by an “economic transition” towards a more modern, diversified and productive structure. This will entail facing real challenges and will require efforts on several fronts, the World Bank warns. 

As discussed in the report, systemic interventions are needed to boost productivity, but these are not sufficient. They need to be complemented by comprehensive economic policies and targeted actions. 

Achieving superior economic performance by combining productivity and sustainability requires, according to the Bank, a transition to less carbon-intensive agricultural practices and technologies, a reinforcement of forest protection and greater productivity gains in manufacturing, especially if guided by clean sources of energy supply.

Such a trajectory would also favor a greater integration of Brazil into the world economy. Value chains with lower GHG emissions have become a reality in the world and Brazil has the potential to benefit from this trend, supported by the advantage it already has due to the characteristics of its energy matrix, which differentiates the country from the rest of the world.

The World Bank recommends three types of sectoral actions with high potential impact for reducing greenhouse gas emissions in the Brazilian case: 

•  Reduction of illegal deforestation and improvement of agricultural productivity through: change in agricultural land management, recovery of degraded pastures, preservation of protected areas and indigenous lands and restoration of native forests; zero net deforestation, eliminating illegal deforestation, by 2028; a more productive agriculture so that production growth occurs essentially in areas already used.

•  Transition to more resilient and low-carbon energy and transport systems: full decarbonization of the energy sector (99% renewable and 1% nuclear), with green hydrogen supply; electrification of all sectors, switching fuel away from fossils and changing freight transport mode (in favor of rail and water) and urban public transport.

•  Improving the conditions of cities as climate mitigation hubs through: urban planning to improve land use and reorient city traffic; electrification of urban bus fleets; green building certifications; solid waste management; investments in water and sanitation; strengthening the National Fund for Public Calamities.

Many of these policies and actions do not necessarily entail high costs, such as a stricter application of environmental legislation to preserve natural ecosystems or even a change in the generation of energy based on fossil fuels. 

The World Bank warns, for example, that the expansion of the use of natural gas, established in mid-2021 at the time of the privatization of Eletrobrás, and the extension of fiscal subsidies for coal until 2040, added to the expected rise in pre-salt production, will increase the carbon intensity of the Brazilian economy, resulting in even greater challenges for the country to achieve its emission reduction goals and take advantage of the opportunities opened by global decarbonization. 

Policies for sustainability, the study emphasizes, require strong political negotiation to undo pressures and interests of specific groups. At the same time, it is necessary to ensure a fair transition, with appropriate compensation to sectors and social groups most affected during this process.

Sectoral immersions, such as the fight against illegal deforestation, the adaptation of energy and transport sources, and the transformation of cities to more resilient and low-carbon spaces, are important vectors to explore opportunities and face challenges created by climate change.

A fully decarbonized energy system, for example, could also help reduce emissions from other sectors, such as transportation and manufacturing, increasing Brazilian competitiveness and innovation, including via technological learning for decarbonization.

It is up to the country to define a long-term decarbonization strategy that is compatible with commitments to zero its net GHG emissions by 2050, carrying out a transition in a fair and inclusive way. Existing initiatives, according to the World Bank, need to be articulated and coordinated to become more effective.

The various sources of funding—public and private, national and international—must therefore converge so that investment needs in each area, particularly in transport and energy infrastructure, can be met. The BNDES, according to the World Bank, may have an important role to play in this regard.

At the same time, the urgency of reviewing some decisions stands out, given the lasting nature of their impacts, as in the case of the expansion of energy production based on gas and coal generation. 

Brazil can thus develop synergies to implement robust climate actions towards a high-income, socially inclusive and environmentally sustainable country.

The full text is available in Portuguese.