Opinion – Ana Paula Vescovi: A Brazil in the climate

Squeezed between the most disputed elections in Brazil and the World Cup, COP27, or the 27th United Nations Conference on Climate Change, takes place in the next few days. As in these two events, the Brazilian participation in the international summit deserves our attention and our support so that the country achieves the best possible results.

Initially seen with skepticism or romanticism by many, the conference this year brings a pragmatic agenda, largely due to developments that bring economic impacts to governments and the private sector.

The costs of global warming have already materialized in the form of extreme weather events that occur with greater frequency, given the drought that devastates parts of Europe and Asia and made navigation on the River Rhine difficult for some period. In July, the UK experienced the hottest days in its history.

Here, the state of Amazonas is currently facing one of the worst droughts of all time. According to the United Nations Environment Programme, adaptation economics will move from US$300 billion to US$500 billion a year to address the consequences of the irreversible effects of climate change.

Central banks have also been discussing socio-environmental risk metrics in their banking supervision processes. It is expected that these risks will soon be included in the country risk and enterprise risk measures. The response to climate change will increasingly materialize as a relevant factor in world geopolitics.

In the coming decades, climate economics will impact markets exponentially. COP27 will focus on the design and governance of regulated markets, such as carbon markets, at the international level. These are based on the Nationally Determined Commitments (NDCs) of each of the 196 signatory countries to the Climate Agreement. Including Brazil, which committed to reducing emissions by 43% by 2030 compared to 2005.

However, the call to increase the countries’ ambition will once again be on the agenda at COP27, since the sum of all the commitments presented to the UN commission is not even remotely capable of reaching the goal of limiting the temperature to 1.5°C. global warming by 2050. Much more needs to be done.

Voluntary markets, in which companies seek to offset their emissions in projects capable of capturing or avoiding them, are already in full swing. They moved around US$ 2 billion in 2021, four times more than in 2020. This is a market that could reach US$ 120 billion by 2030. In this scenario, Brazil could meet up to 48.7% of the global demand for credits of carbon, well above the current 12%.

Business opportunities expand beyond carbon trading. For companies to get there, it will be necessary to develop consistent projects, with traceable and auditable results over time. These will be consulting, auditing, technology paths, registration and accreditation services that tend to grow at the same rapid pace as carbon markets, whether regulated or voluntary.

Obviously, not everything is rosy. The recent situation of the war between Russia and Ukraine has added unexpected geopolitical challenges. Europe, in the short term, needs to prioritize its energy security, given the impacts it has been suffering from the shortage of gas and oil supplies from Russia. In the medium and long term, it will be even more strategic for the region to accelerate the transition to a low-emissions economy and resume the plan for a clean and renewable energy matrix.

In any scenario, however, Brazil emerges as an indispensable player, both for the diversity of its environmental assets and for its potential to produce sustainable agriculture and clean energy. Of the domestic carbon generation potential, approximately 80% are forest restoration projects in degraded pasture areas.

In 2022, the government published the decree that regulates the carbon credit market in the country and established the preparation of sectoral plans to mitigate climate change for various sectors of the economy. Such sectors are preparing to present their decarbonization plans in the coming months, with the expectation of job creation and new technologies around the climate economy.

It does not seem feasible to think about greater commercial integration in Brazil without thinking about credible programs for the environmental management of our resources, in addition to our NDC, as this is already a minimum requirement. These are issues that, moreover, tend to condition the country’s entry into the OECD or the conclusion of the agreement between the European Union and Mercosur, strategic issues.

Finally, the global economic conditions could not be more favorable to Brazil, which can figure as a centerpiece in the commitments to be signed at COP27. I remain confident and in the crowd.