Expert observes that the world is working on expensive ways to capture and store carbon, while trees do this, and restoring forests costs less than other technologies. Luciana Costa advocates for investments in reforestation, helping to preserve the environment and combat climate change-one of the priorities of Brasil's G20 presidency.
Brasil's energy matrix is 88% renewable, and the country's potential to invest in new technologies that enable transition to clean energy sources is admittedly great. Certain challenges must be overcome, however-such as the lack of a carbon market and the cost of capital to invest, extremely high in the country.
Luciana Costa, director of Infrastructure, Energy Transition and Climate Change at Brasil's National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social/BNDES), gave an exclusive interview to the G20 Brasil website, and commented on the bank's investments to help preserve the environment and transition to renewable energy sources.
Costa has a degree in Economics from the State University of Campinas (Universidade Estadual de Campinas/Unicamp) and a Master's in Finance from Fundação Getúlio Vargas (Fundação Getúlio Vargas in São Paulo) and the University of Chicago, USA. Before joining the BNDES, she worked for the private financial market for more than 25 years.
What are the bank's main initiatives to invest in and support projects that contribute to a greener society and economy?
Currently, Brasil's energy matrix and electrical matrix are 88% and 47% renewable, respectively-a much higher average than global matrices, and the BNDES has been supporting projects from the beginning. The bank has financed the construction of hydroelectric plants and the installation of solar and wind farms since the early 2000s and, due to investments such as these, Brasil is ahead of the world in this regard.
BNDES finances large urban mobility and logistics projects; it is impossible to think about Brasil's infrastructure and energy without it. The institution has always been concerned with financing structuring and transformational projects which do not necessarily generate returns in the short term. Moreover, the capital market and commercial banks are not always willing to allocate capital for periods of 25, 30 years. The bank has monitored the entire implementation of infrastructure in the country, which produces studies before launching into financing new projects.
A few months ago, BNDES approved BRL 186 million in funds for the forest restoration initiative Regreen. Please comment.
This is an emblematic initiative, because financing forest restoration is a new frontier for BNDES. Presently-and by 2050-many countries have committed to becoming neutral in carbon emissions, which does not mean zero emissions, but that net emissions will be zero. And the cheapest technology for capturing carbon today is planting trees.
The world is working on carbon capture and storage technologies, but these are expensive. Trees capture carbon; despite the cost of restoring or maintaining forests, it is still smaller than that of other carbon capture technologies. Brasil's potential for reforestation is the greatest in the world, and it harbors the largest rainforest on the planet. The largest forest in the world is in Russia, but the largest rainforest is here.
However, Brasil is the world's fifth largest emitter of greenhouse gasses. Our gross emissions are more or less 2.4, and our net emissions are 1.7 trillion gigatons of carbon. Our net emissions are so much smaller precisely because we harbor so many forests.
Nonetheless, 50% of Brasil's carbon emissions presently come from deforestation, and 24% from land use-only 17% from energy. This is a different pattern from the rest of the world's, in which emissions are connected to energy and industrial processes. Therefore, if we manage to restore forests on a large scale-and for that we will need financing-Brasil's net emissions can be zeroed out before 2050. To this end, we have to promote the market for forest restoration and reconstruction of biomes.
Nonetheless, 50% of Brasil's carbon emissions presently come from deforestation, and 24% from land use-only 17% from energy. This is a different pattern from the rest of the world's, in which emissions are connected to energy and industrial processes. Therefore, if we manage to restore forests on a large scale-and for that we will need financing-Brasil's net emissions can be zeroed out before 2050. To this end, we have to promote the market for forest restoration and reconstruction of biomes.
Latin America has defined sustainability as a priority source of growth, based on its enormous potential in hydraulic, solar, and wind energy, as well as energy production from biomass, biogas, and biofuels. What is this market's potential in Brasil?
Brasil may be among the world's five largest producers of biomethane, because the input for production comes from livestock farming, industrial solid waste, urban solid waste and sugar cane. Biomethane has a molecule that is the same as the natural gas molecule, so it can be injected directly into gas pipelines. This is Brasil's enormous potential. Another potential is a combination of the country's three forms of energy: hydroelectricity, solar, and wind powers, allowing not only for renewable energy but an integrated electrical system that harbors more than 190 thousand kilometers of transmission lines in a continental-sized country. We can deliver renewable energy anywhere in Brasil, something that few countries can do.
The US, for example, does not harbor an integrated electrical system like we do. So, combining the comparative advantages of the electricity sector with those we have in producing biogas and biomethane-as well as an ethanol industry with distribution across the country, allowing our fleet of light vehicles to run on biofuel-Brasil is very well positioned from an energy point of view.
Our strategy now is to focus on sustainable aircraft fuel, because Brasil may be one of the five largest producers-as well as green hydrogen, because we will have the cheapest green hydrogen in the world according to BloombergNEF. This advantage will allow us to contribute to the decarbonization of hard-to-abate industries such as steel, fertilizers, cement, long-distance transport, navigation, trucking... So Brasil is the world's best-positioned major economy in terms of comparative advantages.
As for the sea, what are the bank's projects for maritime preservation?
We launched BNDES Azul for marine preservation and decarbonization of navigation. Navigation is a difficult field to abate, because ships use diesel. Everything we produce has to travel by ship due to our geographical location; we must work on decarbonizing shipping because soy, iron ore-everything we export-leaves by ship. In this sense, BNDES is launching a major study of the Brazilian coast to assist in the task of decarbonizing navigation.
What are the challenges?
The challenge is that the world still does not price carbon. There is no large global carbon market. So we produce energy-intensive products with less carbon, but we are not able to benefit from this yet. Our green products come at no premium.
The moment we control deforestation, manage to restore forests and improve land use-and doing so is cheaper than having to change the electricity matrix-we will even be able to export carbon credits. For this to happen, however, this market must be developed.
We do not have a matrix whose main source is gas or coal, like Europe, and it is very expensive to change an energy matrix. It is much cheaper to control deforestation and improve land use.
However, in my opinion, the world is behind: there is no global effort for decarbonization. The world is slow to create this global carbon market. Therefore, all of Brasil's comparative advantages do not translate into value creation for the country, because we are unable to export products with a green premium.
Another major challenge for the country is the cost of capital; the structuring projects for energy transition require high investment and the cost of capital in Brasil is much higher than in Europe or the US. So I would say that this scenario is one of great opportunities and great challenges. Brasil can become a climate leader; it has a window of opportunity that will not last forever. That is why I think we need to evolve in regulating the carbon market.
Another major challenge for the country is the cost of capital; the structuring projects for energy transition require high investment and the cost of capital in Brasil is much higher than in Europe or the US. So I would say that this scenario is one of great opportunities and great challenges. Brasil can become a climate leader; it has a window of opportunity that will not last forever. That is why I think we need to evolve in regulating the carbon market.
Well, that is it: the world is moving forward, not at the speed it should be, but it is moving forward.
