Coping with climate change and the challenge of energy transition to reduce greenhouse gas (GHG) emissions, as agreed in the 2015 Paris Agreement, were priority topics in the 2024 meetings of the group of the world's twenty largest economies (G20), held in Brazil. 

Brazil aims to achieve climate neutrality by 2050. At COP 29, held in Baku also in November'24, the country announced the new Nationally Determined Contribution (NDC), making a commitment to, by 2035, reduce net GHG emissions by 59% to 67%, taking the year 2005 as basis.

Given the relevance of the topic to Brazil, which will host the next United Nations Annual Conference on Climate Change (COP30) in 2025, today's Letter IEDI summarizes a McKinsey study entitled “Greener shores: Brazil's $100 billion decarbonization opportunity”, detailing opportunities associated with decarbonization that Brazil can take advantage of.

McKinsey's research estimates that Brazil could add up to US$100 billion to its GDP by 2030 if it knows how to take advantage of the opportunities that are opening up. In addition, they account for a potential generation of 6.4 million jobs in the period.

The gains can be increased over time by the attraction of foreign investments in energy-intensive activities —amid transformations in global value chains, derived from the escalation of geopolitical tensions and the search for a cleaner energy matrix— and by indirect effects on the rest of the economic sectors.

Although the quantification of opportunities of this nature depends greatly on the hypotheses used, the evolution of the international scenario, the implementation of international negotiation agendas and of domestic public policies, it illustrates well the advantages that Brazil has in the global decarbonization process.

In the Brazilian case, half of greenhouse gas emissions comes from land use, land-use change and forestry (LULUCF), while agriculture accounts for about 25%. Together, these activities are responsible for more than 3 times the combined emissions of manufacturing, transportation and power generation, which total 20% of Brazilian emissions. This is a pattern that distinguishes Brazil from the global context.

According to McKinsey, Brazil stands out for having attributes that can contribute to global decarbonization, in a cheaper and more efficient way. Among its advantages are: the immense potential of renewable energy; the huge areas of forests; and the unique biogenic potential, which allows for the rapid and economically efficient growth of food and biomass. 

The combination of these assets could allow Brazil not only to reach net-zero emissions in the next decade, but also to become an exporter of sustainable biofuels, low-carbon materials such as green metals, methanol, ammonia, and carbon sequestration services, among others. 

With this, the country can play a leading role in the global energy transition.

Discussions within the G20 Working Group on Energy Transition and Climate, in which McKinsey participated, resulted in three sets of recommendations: 

 •  accelerate the development and use of renewable energy solutions and other energy solutions with a view to decarbonization in the short and long term; 

 •  stimulate energy and resource efficiency, especially in manufacturing, promoting circularity through recycling; and 

 •  promote effective natural climate solutions to mitigate climate change and increase biodiversity. 

Regarding the recommendation to accelerate the development and use of renewable and/or bio-based energy solutions, the McKinsey study highlights that with the reduction of the levelized cost of energy (LCOE) of wind and solar sources, which currently represent about 20% of the Brazilian electricity matrix, these renewable energies could become preponderant in the country's energy matrix. 

Accompanied by the expansion of grid infrastructure, the expansion of these new renewable energy sources, in addition to hydropower, would ensure the stable supply of electricity for broad sustainable electrification of manufacturing, mobility and logistics sectors.

The study also highlights the potential to develop green hydrogen and sustainable biofuels, such as second-generation ethanol, sustainable aircraft fuel (SAF), biocarbon and biomethane, for which Brazil has substantial raw materials and production capacities. 

The country is already a leader in industrial-scale production of second-generation biofuel (E2G), using biomass (sugarcane bagasse), and estimates indicate that, by 2030, Brazil will be positioned as one of the most competitive countries globally for large-scale green hydrogen production.

Regarding the promotion of energy and resource efficiency, there are challenges to be faced by Brazilian industrial companies to become more efficient in the use of energy and to intensify the recycling of materials. 

For example, in heavy industries such as cement, steel, paper and pulp, as well as mining, it would be necessary to promote the replacement of materials, the acquisition of machinery and equipment with modern and energy-efficient technologies and advanced energy management systems.

In light industries, such as food, beverages, machinery, textiles and construction, McKinsey points out that it is necessary to expand the use of efficient electric motor systems and increase the rigor of minimum energy performance standards (MEPs) for motors. 

It would also be necessary to expand the use of electricity from renewable sources and reduce the use of fossil fuels, which account for 29% of the energy matrix of the industrial sector.

As for material recycling, according to McKinsey, spreading the circularity approach would promote efficient use of natural resources and sustainable practices across the value chain. In addition to reducing GHG emissions and generating employment, this approach would create value for companies. 

With regard to the promotion of natural climate solutions, the document highlights that, by improving land use, preventing and reducing deforestation, restoring native forests and reforestation, Brazil has the potential to play a leading role in the world market for CO2 elimination. 

Given that Brazil's total carbon sequestration opportunity (2 gigatonnes metric – Gt – of CO2 equivalent per year) is significantly greater than projected domestic demand (0.3 GtCO2e/year), the country could become a global provider of carbon removal certificates (CDRs), thereby supporting the decarbonization of waste emissions worldwide.

According to McKinsey, seizing Brazil's opportunities to become a green power, with increases in both economic growth and employment, as well as environmental conservation and restoration and resilience to climate risk, would require coordination between the three spheres of government, private capital and civil society to build and expand new value chains. 

The report suggests that public and private sector leaders, when defining their decarbonization trajectories, consider the following aspects: 

 •  Understand the business ecosystem required. Decarbonization will require new local and global value chains. Therefore, it will be important for business organizations to evaluate which steps in the chain make sense and which will require collaboration through mergers and acquisitions, joint ventures, and/or partnerships. 

 •  Identify demand pools willing to pay premiums or commit to long-term purchase agreements. It is essential to secure long-term buyers and obtain demand guarantees to overcome uncertainty and mitigate the risks associated with the high initial investments required. 

 •  Develop a “capital expenditures factory” model. A “capital expenditures factory” model built around an efficient planning and execution of investment spending can help reduce implementation costs and accelerate green economy project timelines, anticipating the return of high initial investments.

 •  Ensure an organizational setup that is well adapted to the green economy. Meeting the requirements of the green economy and seizing the opportunities associated with transformation across all value chains will require purpose-appropriate structure, governance, talent, and capabilities. 

 •  Activate a funding strategy that leverages sustainable financing alternatives. This includes climate funds, incentivized debentures, offtake agreements and green bonds, as well as traditional financing (such as project financing) to realize the venture and pave the way for scalability and sustainable growth. 

 •  Understand the regulatory landscape. Public and private sector leaders will need to understand the regulatory landscape around the green economy, in Brazil and globally, whose legal and regulatory frameworks evolve in response to climate change and public pressure. Such regulations affect the formation of local and global markets for greener solutions and establish incentives or penalties within and across borders in different geographies, as well as shape the dynamics of global demand and the project economics.

The full text is available in Portuguese.