The Non-Decarbonization Puzzle in Brazilian Energy Policy

Abstract

The Brazilian economy is not decarbonizing and current policies are highly unlikely to change this. Expanding and diversifying the supply of renewable energy would improve price stability and enhance energy supply and access. Why do Brazilian governments adopt policy objectives and instruments which forego the significant benefits available from ambitious decarbonization objectives, and how can we explain differences across sectors? We analyze objectives and instruments in hydropower, transport fuels, solarand wind energy. With the exception of hydropower, we find that the principle barrier to decarbonization are policy inconsistencies. In solar and, to a lesser extent, wind energy, national content requirements, a lack of R&D; subsidies for building up domestic manufacturing capacities as well as the design of electricity auctions have stymied expansion. In transport fuels, the combination of inconsistent fiscal incentives and a price cap on gasoline have weakened the bioethanol sector in recent years. Emissions from the energy system are on a long-term upwards trajectory, present policies also limit Brazil’s ability to contribute to global mitigation efforts.