Set of measures makes meeting the goals of the Paris Agreement economically viable and financially profitable for Brazilian companies
The Brazilian Business Council for Sustainable Development (CEBDS) launches the study Opportunities and Challenges of the Brazilian NDC for the Business Sector. The document raises the business possibilities that open up with the implementation of the commitments that Brazil assumed in the Paris Agreement (Brazilian NDC) and also the barriers that may limit its full use.
“The country's current productive structure, together with natural attributes, gives Brazil comparative advantages and a privileged position in a context of global mitigation efforts. And our study demonstrates that achieving the NDC is not only economically viable but also financially profitable. The creation of a low-carbon economy driven by the Paris Agreement, although it has multiple challenges, is an unprecedented opportunity to requalify the country's development on a truly sustainable basis”, says the president of CEBDS, Marina Grossi.
According to the study, investments in mitigation actions, which reduce greenhouse gas (GHG) emissions, can have a positive effect on future revenues from productive activities. In other words, mitigation in these cases has a negative cost, increasing the expected profit of economic agents the smaller the emission.
In addition to evaluating the goals assumed by Brazil from a macroeconomic perspective, the publication launched by CEBDS also breaks down the opportunities and challenges posed for the five sectors covered in the NDC: forestry, energy, agriculture, industry and transport. Check out:
Forestry
The use of forested areas has a synergistic effect with different measures proposed by the Brazilian NDC. Considering the commitment to restore and reforest 12 million hectares, by 2030, for multiple uses, the planting of productive plant species, with negative abatement costs, presents itself as one of the opportunities. Parts of these areas, for example, can be used to meet the goal of increasing the share of sustainable bioenergy in the Brazilian energy matrix.
Other activities associated with these areas can further increase the profitability of reforestation. Integrated Crop, Livestock and Forestry Systems (iLPF) associated with the Recovery of Degraded Pastures (RPD), presented a financial return of R$ 13 thousand/ha. RPD is capable of quadrupling the productivity of livestock activities and, in some cases, generating a return on investment (ROI) of around 170%.
Agriculture
For the producer, these forested areas increase financial resilience by reducing dependence on external inputs and diversifying sources of income. The expansion of Payments for Environmental Services (PSA) programs can make it possible to capitalize on other environmental services generated by the maintenance of natural or recovered areas, such as the regularization and purification of water resources or the pollination of plant species. Furthermore, the Environmental Reserve Quota (CRA) market allows the owner of land, with a Legal Reserve area (RL) larger than that required by the Forest Code, to be paid by owners with deficits in these areas. This market further increases the profitability of restoration actions and reduces regularization costs by being able to take advantage of areas more suitable for this purpose.
Industry
A significant part of the mitigation potential in the industrial sector (40%) can also be achieved with negative abatement cost investment options. In addition to energy efficiency measures, the main part of these options, and process optimization, the use of waste as raw material in other production lines, characteristic of a circular economy, can bring large revenue gains in the long term. It is estimated that circular production systems in Europe will earn EUR 1.8 trillion by 2030, compared to revenues of EUR 900 billion in a linear economy.
Transport
Investments in low-carbon transport infrastructure have the potential to reduce freight costs and benefit the Industrial and Agricultural sectors. Modal integration, with the expansion of waterway and rail transport, can mean a reduction of more than 50% in the total cost per ton transported per km. Furthermore, the electrification of the railway mode and the development of hybrid propulsion systems on vessels can reduce the energy consumption of these modes by up to 33%.
Energy
The significant increase in the use of renewable fuels, predicted by the NDC, will require major growth in several sectors. For example, the rapid increase in demand for ethanol, made possible by the predominant fleet of flex-fuel automobiles, will imply the need to build 75 new plants to expand the national sugar and ethanol park, creating 250 thousand new direct jobs by 2030. Still , just so that electrical generation in charcoal-fired thermal plants can reach the 70 TWh predicted for 2050, it is estimated that the area planted for this purpose needs to reach 3.8 million hectares, which represents 50% of the total area of eucalyptus plantations and pine in Brazil.
Outputs for financing
It is estimated that the investment required to comply with the NDC will be in the order of R$ 890 to R$ 950 billion by 2030. Despite the range of opportunities for companies with positive returns, financing them presents a major challenge. Various financial instruments can help overcome these barriers.
The forestry, agricultural and energy sectors have specific credit lines, such as for commercial forest management, pasture recovery and renewable electricity generation. Other instruments – such as incentives for technological innovation, financing energy efficiency and issuing Green Bonds – can be used by different types of producers or service providers. The still limited use of some of these instruments may be associated with a lack of information or the need for their readjustment, with more appropriate interest rates and a broader list of beneficiaries.
Paris Agreement
With the ambition of trying to limit the increase in global temperature to 1.5 °C, compared to pre-industrial levels, the Paris Agreement was signed by 194 countries, including the largest global emitters, the United States and China. The main basis for this international cooperation are the Nationally Determined Contributions (NDC), to be prepared by each country. Taking as a reference the emissions observed in 2005, the Brazilian NDC commits the country to reduce, in 2025, its greenhouse gas (GHG) emissions by 37% and, indicatively, by 2030, to reduce a further 6% - totaling a reduction of 43% of emissions – in relation to the same base year.
In 2005, Brazil emitted 2.1 billion tons of CO2e. This means that in 2025 the country should emit no more than 1.3 billion tCO2e and, in 2030, 1.2 billion tCO2e. To achieve this goal, a major change in the national GHG emission profile is expected. It is estimated that the Forestry and Land Use sector, which was responsible for more than half of total emissions in 2005, will begin to contribute to negative net emissions in 2030, removing 131 million tCO2e from the atmosphere this year.
