Brazil Subsidies

Brazil—$59.3 billion per annum from subsidies to private companies. Infrastructure incentive grants and state-owned energy company investments

Subsidies to fossil fuels continue to be a major part of the developmental strategy in Brazil. In a 2015 study for the ODI and the G20 by Canadian researcher Ravenna Nuaimy-Barker, the authors found that Brazil´s subsidies to fossil fuels cover mostly oil and gas production and supply, amounting to an estimate R$ 11.6 billion (equivalent to USD 4.9 billion at the time). These include R&D investments, drilling and fuel transport, as well as power generation by SUDENE, a development agency for the Northeast of the country, responsible for most subsidies to the energy sector in Brazil. Other national and state development banks and agencies also subsidize the oil industry, such as BNDES, SUDAM and BNB. Investments in refining, transport and marketing by Petrobras has reached USD 7.5 billion in 2014 alone. Investments by Petrobras in Brazil, during 2013-2014 added up to USD 41.6 billion.

Another key source of subsidies for oil and gas in Brazil is tax exemption. Along with incentive programs for the northern, northeastern and central-western regions of the country where areas isolated from the main grid use mostly diesel-powered generators, tax exemptions, suspensions and reductions are a key form of directly subsidizing fossil fuel industries. Although taxes are levied at all levels of government, most are collected through the federal government. Some of the fiscal benefits to the fossil fuel industry involve the suspension of one or more of the following taxes: PIS – Program of Social Integration (Programa de Integração Social); COFINS – Social Security Financing Contribution (Contribuição para o Financiamento da Seguridade Social); IPI – Excise Tax on Industrialised Products (Imposto sobre Produtos Industrializados); IPRJ – Corporate Income Tax (Imposto de Renda sobre Pessoa Jurídica), and the II – Import Duty (Imposto de Importação).

REPENEC, for instance, is a special regime of incentives for the development of infrastructure for the petroleum industry in the northern, north-eastern and central-west regions that exempts companies from a range of taxes in these specific regions. They do not have to pay the PIS and COFINS social contributions, or the IPI excise taxation for domestic sales and imported machinery and materials for infrastructure projects, such as drilling rigs, pipelines and access routes. The reported value of the REPENEC tax breaks for companies averaged $299 million annually in 2013 and 2014.

The second largest source of funding for the power sector, and largest budgetary transfer supporting fossil fuel production in Brazil is the Fuel Consumption Fund (Conta de Consumo de Combustíveis – CCC), a mechanism established in 1973 to secure power supply in the most isolated areas of the North and Northeast regions. It was estimated at an annual average of USD 1.7 billion in 2013 and 2014. However, as of 2015, a tax reform phased out subsidies that are now covered by consumers. Along with the Energy Development Fund (CDE) and the Global Reversal Reverse (RGR), the CCC also provides funding for other energy sources, therefore making it impossible to single out fossil fuel subsidies.
Eletrobras is the state owned (55%) energy company responsible for electricity generation in Brazil. Along with Petrobras, it is the most important player in the energy sector. In 2013, the company invested $5 billion in generation, distribution and R&D. In 2014 the company invested $4.6 billion, shared between generation ($2.6 billion), transmission ($1.6 billion), distribution ($297 million), and other areas ($150 million). However, only 6.5% of the energy came from fossil fuels. According to the assessment by Nuaimy-Barker, given the relatively small portion of electricity generated from fossil fuels and the lack of fully disaggregated data, it was not possible to estimate the size of the company’s investment in fossil fuel production specifically.

Additional direct subsidies include federal programs addressing infrastructure, capacity building for the sector, and carbon capture and storage projects. According to the ODI study, domestic financing for fossil fuels (from state owned banks such as BNDES and Banco do Brasil) amounted to USD$ 6.3 billion over 2013 and 2014. Furthermore, an important source of indirect subsidies benefits the auto industry. Tax exemptions made available directly to consumers purchasing cars during that period had a significant impact on the economy and on carbon emissions as from 2008. Finally, Brazil contributes to international funds and projects that benefit the oil sector, through its shares in the World Bank Group, the Inter-American Development Bank and the African Development Bank, ranging between 0.4% and 11% in the same period.

Learn More

In Portuguese

Independent news website Agencia Social de Notícias (ASN). Story on the ODI report for Brazil.
http://agenciasn.com.br/arquivos/5033

Story by news website Carta Capital on the increase of investments in solar and wind energy in the North and Northeast regions of Brazil available at https://www.cartacapital.com.br/especiais/nordeste/no-nordeste-cresce-investimento-em-energia-renovavel

Story on use of ethanol to reduce CO2 emissions from transport sector in Brazil http://www.observatoriodoclima.eco.br/etanol-brasil-pode-resolver-o-problema-das-emissoes-de-co2-no-transporte-revela-estudo/

Article by Climate Observatory´s Executive Secretary Carlos Rittl on Brazil´s trajectory of fossil fuel investments, available at http://www.observatoriodoclima.eco.br/pre-sal-cleptocracia-e-nova-aposta-suicida-brasil-artigo-de-carlos-rittl-para-o-el-pais/

In Spanish: Article by Manuel Planelles of the newspaper El País, available at
https://brasil.elpais.com/brasil/2017/09/22/ciencia/1506075705_547083.html?rel=mas

In English

Report by the Oil Change International (OCI) and the Overseas Development Institute (ODI), published in November 2015, “Empty promises: G20 subsidies to oil, gas and coal production”, is available at https://www.odi.org/publications/10058-empty-promises-g20-subsidies-oil-gas-and-coal-production

For a detailed account on fossil fuel subsidies in Brazil during 2013-2014, see the ODI report Brazil study available at https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/9989.pdf

Study by IISD by Tara Laan and Adilson Oliveira, for IISD, “Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform”, available at http://www.iisd.org/library/lessons-learned-brazils-experience-fossil-fuel-subsidies-and-their-reform

International Energy Agency (IEA) statistics, news on Brazil and energy subsidies available at
https://www.iea.org/statistics/resources/energysubsidies/ and report on Brazil at https://www.iea.org/countries/non-membercountries/brazil/

Article on Brazil´s association status at IEA as from 31 October 2017. https://www.iea.org/newsroom/news/2017/october/brazil-joins-iea-as-an-association-country-reshaping-international-energy-govern.html

New York Times story on the first round of the auction for deep-sea oil drilling rights in Brazil, in 27 September 2017. https://www.nytimes.com/2017/09/27/business/energy-environment/brazil-oil-auction.html