What if Brazil held a key to saving the world from destroying itself through an inexorable process of man-made global climate change? Far-fetched? Perhaps. Then again, perhaps not. Having just returned from exploring energy issues in Brazil with experts from the policy, government and the private sectors, I’ve come back with some hard truths that must be addressed, and a better understanding of the role that Brazil can play in energy and climate change issues, but only if we get the market signals right
First, there’s no doubt that global energy demand will grow as incomes and populations increase. There is just no getting around the fact that energy demand could double—that’s right, double—by 2050. That’s only 40 years from now. Think of how quickly the last 40 years have gone, and understand that this is really not that far off.
That means current energy sources will be under significant strain to meet this growing demand. Alternative sources that are clean, plentiful and efficiently produced and delivered will be essential to develop and widely employ even as traditional fuels remain critically important for the foreseeable future. And in our drive to satisfy energy needs, the environment will be increasingly impacted, no matter what we do. The question will be whether we can find ways to mitigate the impact through conservation, energy efficiency and properly pricing the cost of energy, including the externalities created by energy usage.
Here’s where Brazil comes in. In addition to its title as the world’s largest exporter of biofuels, especially sugarcane ethanol, is also steward of the largest global environmental resources in the Amazon. In fact, Brazil’s greatest challenge at this point is to avoid doing the wrong thing. Deforestation of the Amazon is the primary cause of emissions in Brazil, not energy use per se, and it is a myth that the production of biofuels in Brazil contributes to deforestation (sugar, for example, does not grow well in the Amazon region). But deforestation must be reduced, and the use of clean fuels like sugar-based ethanol expanded. The key will be the creation of truly global markets for both, through proper pricing, regulations and market signals.
A start would be to put a price on carbon. No doubt this is hugely difficult politically, but once a market for carbon develops, energy usage can be properly priced. A second step would be to harmonize global ethanol standards, including life-cycle CO2 emissions, so that the product becomes a global commodity for both production and consumption. This would provide an incentive for greater production in regions such as Africa and Asia where sugarcane also grows effectively, as well as encourage efficiencies in transportation and consumption. As an aside, the creation of new markets along these lines would also open up new areas for the export of Brazilian technology, and know-how.
Disincentives to trade and investment in clean fuels also should be eliminated immediately, including U.S. tariffs on imported ethanol. I would even go further: why not call for duty-free and obstacle-free trade in clean energy, clean-energy technology and clean-energy services? If we want more of something, we should tax it less.
Finally, can deforestation be stopped or even reversed? Perhaps it can if a global market develops for the environment as a matter of supply and demand. If the world depends on the Amazon, for example, for its environmental well-being, then the protection of the Amazon (e.g. reduced deforestation) becomes an “export” from Brazil, say, to the rest of the world. To this point, the world has been “importing” environmental benefits from Brazil at no cost. But I wonder, could the market provide incentives for the preservation of the Amazon and other environmentally crucial yet fragile areas of the world if their benefit to the global environment were to be properly priced?
That’s something for deeper consideration and comment.