Summary: Brazil's Energy Agenda - Launch of Energy Action Group Working Paper

Introductory Remarks:

• Rob Mosbacher, Chairman, Mosbacher Energy Company

Panelists:

• Ramón Espinasa, Lead Oil & Gas Specialist, Inter-American Development Bank
• Craig O’Connor, Director, Office of Renewable Energy & Environmental Exports, Export-Import Bank of the United States
• Ambassador Francesco Olivieri, Head of Washington, DC Office, Enel Green Power North America, Inc.
• Christian Gómez, Jr., Director of Energy, Council of the Americas
• Eric Farnsworth, Vice President, Council of the Americas (moderator)

Summary

A September 4 Council of the Americas event marked the release of the Energy Action Group’s report entitled Brazil’s Energy Agenda: The Way Forward, the latest in its series on hemispheric energy issues. The result of high-level meetings between members of the public and private sectors in Brasilia in June, the report provides recommendations for sound strategies to develop Brazil’s energy policy. Panelists with diverse areas of expertise—from oil and gas to power generation to renewables—shared their insights on the future of Brazil’s energy sector as well as the political and economic challenges the country faces.

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Natural Resources: Blessings and Challenges

Rob Mosbacher of Mosbacher Energy Company noted in his opening remarks that Brazil has an incredible abundance of natural resources at its disposal. Over 80 percent of the country’s energy currently comes from hydroelectric power, and Brazil contains huge oil and natural gas reserves, as well as potential for wind and solar power. However, these blessings do not come without their challenges. COA’s Christian Gómez explained that hydroelectric power was vulnerable to droughts and that there was a need to compliment it with alternative forms of power generation such as natural gas, a resource that has not been fully taken advantage of in Brazil. The wind and solar energy sectors have not reached their full potential; only 15 percent of projects auctioned in 2009 have come online.  According to Ramón Espinasa of the Inter-American Development Bank, even oil production has fallen steadily since 2009, and investment and drilling activity have decreased throughout Brazil and the region as a whole.

Policy Challenges and Attracting Investment

Panelists cited policy limitations as the most significant obstacle to investment in and development of Brazil’s energy sector. Local content laws require at least 60 percent of materials used in energy technologies to be manufactured in the country, discouraging many companies from investing in Brazil. Petrobras also operates every oil well in Brazil and requires a minimum 30 percent stake, further deterring companies that may otherwise look to invest in developing Brazil’s oil infrastructure. Craig O’Connor of the Export-Import Bank’s Office of Renewable Energy and Environmental Exports noted that countries utilizing incentives to retain jobs—as the United States has done by providing tax credits for companies that manufacture locally—are the most likely to attract and retain international investment. Countries with onerous restrictions are less appealing to investors, he noted. Political developments, such as the recent protests in Brazil, pose a challenge to further development of the energy sector as politicians face the tension between using state resources to advance oil production, especially in the complex and investment-intensive pre-salt reserves, or diverting these resources to social services as protestors have demanded. However, the energy sector can also drive policy innovation, explained Ambassador Francesco Olivieri of Enel Green Power North America. His company has been engaging in a cutting-edge project to increase energy efficiency in Brazil’s favelas and to reduce electricity theft by distributing efficient appliances and injecting funds into local communities.

International Energy Cooperation

Overall, panelists felt optimistic that Brazil could overcome these hurdles to reach its full potential as a self-sufficient energy powerhouse at the regional and global level. The country’s history at the forefront of the biofuel industry and sugar-based ethanol demonstrates its dedication to developing renewables and new forms of technology, in addition to traditional fuels. According to Mosbacher, new technologies such as hydraulic fracturing to access shale reserves will require a great deal of cooperation to share resources, knowledge, and best practices throughout the hemisphere. Recent visits to Brazil by U.S. cabinet officials, the launch of the strategic Energy Dialogue during President Barack Obama’s March 2011 visit to Brazil, and President Dilma Rousseff’s upcoming visit to Washington all highlight the present and growing importance of energy within the bilateral dialogue.