The Future of a Green Recovery in Brazil

Authors: Clarice Lim Hui Wen, Pua Yen Ting

Region Head: Clarice Lim Hui Wen

Editor: Chok Geow

Abstract

Brazil has been undergoing a recession with little hope of recovery since 2014. Embarking on a green recovery is advantageous as it can stimulate trade and investments, while creating new jobs for its citizens, thus boosting the economy. Although the international community has been pressurising Brazil to put an end to deforestation in the Amazon, little to no changes have been made to curb these activities. In this paper, we will be analysing the potential that a green recovery plan has to kick-start Brazil’s economy and determining the feasibility of such a plan under the Bolsonaro administration.

Introduction

Brazil is struggling to pull itself out of its long recession worsened by the Covid-19 pandemic. GDP has fallen by greater than 6% while unemployment has soared to an all time high of 13.3% as of June 2020 (The World Bank, n.d.). The government has approved new legislations for key sectors which aim to stimulate the economy by increasing competitiveness, productivity and trade.

Figure 1: Overview of Brazil’s GDP

Many countries are putting environmental concerns and sustainable development at the forefront of their decision-making. The Bolsonaro administration continues to take an anti-environmentalist stance even though experts have said that a green recovery can put Brazil in good stead towards revitalising its economy. Despite mounting international pressure on Brazil to enforce environmental laws, the Bolsonaro administration has failed to take concrete action to prevent further destruction of the Amazon.

In Brazil, environmental protection has been a controversial topic. Moreover, the country is known to be deadly for environmentalists protecting the Amazon, with many of them being killed or injured over time (Human Rights Watch, 2019). As such, this begs the question - will a green recovery plan truly be beneficial and viable in a Brazil led by President Bolsonaro?

Brazil’s background

The country’s severe economic condition dates back to the 2014 Brazilian economic and political crisis. The impeachment of President Rousseff, caused an uproar that triggered the 2014 commodity price shock. Economic measures were insufficient to pull the country out of its recession. Brazil faced constraints in terms of poor quality infrastructure and weak competitiveness, which could be attributed to its limited investments which only accounted for 2.8% of GDP between 2008 and 2015 (Castillo, P., 2020). The Covid-19 pandemic has exacerbated its problems as seen in how unemployment has risen to 12.6% amidst an economic contraction that is estimated to go up to 9.1% (Lopez & Teixeira, 2020).

Due to widespread deforestation, society has experienced negative externalities such as increased health costs due to air pollution (Asher, C., 2019). Deforestation has caused the Amazon to lose 1.4 million hectares of primary forest cover in 2019 (Weisse, M. & Goldman, E.D., 2020). This drives backlash, with 230 investors calling on companies to publicly disclose and implement no-deforestation policies (Ceres, 2019). In Sāo Paulo alone, the cost of pollution with regards to respiratory issues has risen to as high as 49,000 cases as reported by WHO (2016).

As of today, the downturn of the Brazilian economy coupled with growing pressures from the international community force the government to seek new changes. One of their goals is to fully rely on renewable energy and reduce illegal deforestation in the Amazon to zero by 2030 (Angelo, M., 2020). To achieve their aim, Brazil must seek a low carbon recovery. However, many hurdles remain, as seen in how the government focuses heavily on fossil fuels and postpones the renewable energy projects that would boost the clean energy grid (Koop, F., 2020).

Benefits of renewable energy

In a new study led by the World Resources Institute (WRI), it states that if Brazil shifts to a low carbon economy, it will face a boost in economic growth, creation of 2 million jobs and “generate an extra US$325-525” billion in GDP over the next decade (Hanbury, S., 2020). Brazil, who has been ranked as the world’s 6th largest mining industry (OECD, 2017), has ample natural resources to provide them with much potential for economic recovery and emissions reductions.

Brazil is under utilising their solar and wind resources despite being well positioned to tap on renewable energy sources. By 2025, Brazil’s carbon emissions could fall by 42% instead of 37% below 2005 levels if the country embraces a low-carbon recovery now (IISD, 2020). Tapping on renewable resources can also alleviate the impact of the recession, and propel Brazil towards decarbonisation, which is in line with the 2015 Paris Agreement that dictates reaching net-zero CO2 emissions by 2050 (Gerretson, I., 2020).

Lack of government credibility

The government lacks credibility in upholding its promises to the international community. Although Brazil has committed to reducing its carbon footprint in the 2015 Paris Agreement, President Bolsonaro has implemented several anti-environmental policies which put these goals out of reach. In 2019 alone, these policies encouraged loggers to set fires in the Amazon which housed large volumes of natural resources and biodiversity, to clear space for agricultural purposes.

Notwithstanding, President Bolsonaro has publicly expressed opposition to Brazil’s existing climate policies. In 2017, the government slashed the budget for the Ministry of Environment by 43%, leaving it with $141 million Brazilian reals. Just this year, the government proposed cuts to the budget, making it the smallest budget yet for environmental protection (Reuters, 2021). All these signs signal the lack of commitment by the government to uphold their promises to the community. As such, it appears unlikely that Brazil will embark on a green plan to boost their economy.

Inadequate enforcement of laws and regulations

Poor enforcement of environmental laws is one of the key barriers deterring foreign investments in Brazil. Recently, a letter signed by 29 global investment firms was sent to the Brazilian government to reflect the general concern about the poor state of environmental protection of the Amazon. This can incentivise the government to consider moving the country in the direction of more sustainable developments, which will help the Brazilian green finance market to prosper, benefiting the economy.

Conflicting goals

Currently, Bolsonaro’s government places emphasis on primary production, which has a high emission intensity. In 2018, agriculture, which only accounts for 5% of GDP, contributed to 70% of Brazil’s carbon emissions. This is due to President Bolsonaro scaling back enforcement measures for the Amazon Rainforest. Although he once said that "protecting the forest is our duty, acting to combat illegal deforestation and any other criminal activities that put our Amazon at risk," his actions contradict his words as shown by his lack of involvement in protecting the Amazon (Fox, K. & Lang, M., 2019). This leads to strong criticism from foreign governments who have lost faith in Bolsonaro (Doyle, A., 2020).

The solution to reducing greenhouse gas emissions is to develop green innovations through science and technology. However, in 2021, Brazil’s government approved a 32% cut in the already record-low resources devoted to science and technology, further undermining any effort to go green (Romero & Cimini, 2020). Furthermore, Petrobras, Brazil’s oil company, has adopted a reconfiguration strategy (Pulice, 2020), which involves a greater emphasis on oil extraction and conversely, a reduction in investments in renewable energy. This certainly reflects the government’s perception of the importance of protecting the environment.

Recovery of the Brazilian economy

A new economy can be achieved by pursuing low-carbon innovations through green investments and sustainable agriculture. This can attract more private and foreign investments, in particular the funding that was previously channeled into fossil fuels, propelling the economy. Restoring degraded pasturelands in the Amazon can give rise to a value of $3.7 billion and generate $144 million in taxes (Studart, R. et al. , 2020). Improving the environmental regulatory system may in turn lead to an increase in international investments and green bonds, improving Brazil’s economic stability. This will guarantee Brazil’s access to more export markets and an increase in overall investment.

The demand for electricity in the long run is expected to maintain its growth trajectory. As such, it is important to diversify our energy sources. In recent years, periods of drought have compromised Brazil’s hydropower production capability. Thus the government needs to diversify its energy matrix especially since Brazil has a higher-than-average wind quality and solar radiation, which suggests the huge untapped potential present in the wind and solar energy industries. Greater investment in renewable energy will create more job opportunities, providing the citizens with a source of income. Productivity may increase and could eventually be on par with that of developed countries (Koch-Weser, 2020).

Figure 2: Overview of Brazil’s energy market

It is essential that Brazil transits towards sustainable agriculture as approximately two-thirds of the cleared Amazonian land are barren (Moloney, 2020). The government ought to impose and enforce strict laws which ban deforestation to preserve its natural land before it is too late. They should restore the degraded lands so that they can be utilised to their fullest potential. Lastly, the government must support and empower environmental activists and punish those who continue to engage in illegal activities that harm the environment.

Conclusion

The Bolsonaro administration seems set in their ways for the time being. Nonetheless, Brazil might be forced to pursue a green development plan if they continue to face increasing pressure from the international community to curb deforestation (Pasquale, G. D., 2020). If Brazil continues to downplay the importance of combating climate change, they will face the threat of losing valuable foreign investment from organisations that value environmental protection efforts. Currently, it seems that Brazil will renege on their promise to reach net-zero emissions unless they can be convinced of the promising potential green recovery.

India, a developing country, has a 780 million rupees stimulus set aside to fund afforestation and forest management efforts. This has increased accessibility to water, and also played a role in combating climate change and providing jobs to those residing in rural areas. Similar to India, Brazil is a resource-rich nation whose economy is heavily reliant on commodities. As such, if widespread deforestation and destruction of forests are allowed to continue, this will have far-reaching consequences that will be detrimental to the economy in the long run (Roy, 2020). Brazil can take a page out of India’s book to drive the country towards the path of sustainable economic recovery.

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