Europe’s green business praxis is a one-way street. From the European Green Agreement of 2019, launched by Jean-Claude Juncker’s EU Commission presidency, to the EU Next Generation Recovery Plan, launched in July 2021 by Ursula Von der Leyen’s presidency, a forecast of reforms is required and the review of subsidy legislation. The objective is for the countries in the bloc to adapt their transport, industry, energy and waste management sectors to the new environmental goals.
The European Union took advantage of the investment need for post-COVID 19 economic recovery to link European transfer and loan money to its member states’ commitments to the energy and green transition. The counterpoint of this transitional reality – which includes the pursuit of compliance with the goals of reducing 55% of greenhouse gases by 2030 and neutrality by 2050 – is that international trade with the countries of the European Union will suffer an impact.
The European Union is Brazil’s second trading partner, adding imports and exports. For this trade relationship there are two central themes: one is the Mercosur-EU Agreement; the other is the forecast of new tax mechanisms in Europe on the emission of polluting gases and the use of non-renewable energy in agricultural and industrial production, with an impact on the price of imports from polluting countries.
About three decades later, the Mercosur-EU Agreement finds itself once again paralyzed. After the negotiations resumed by President Michel Temer being an important advance given in 2019, with the signing of the agreement under the Bolsonaro government, we saw the European Parliament pronounce itself against its approval due to the lack of transparency mechanisms and guarantee of control over environmental crimes in Brazil. Countries like France, Ireland and Austria, raised their suspicions and criticisms related to Brazil, the lack of legal mechanisms to control the breach of commitments on deforestation and other environmental issues.
The European Union Commission has linked the use, by member countries, of investments in the EU Next Generation economic recovery package, to the approval of reforms that conceive “environmental taxes”, in addition to a carbon tax to increase direct European and as a disincentive to polluting production and “carbon leakage” (when an industry transfers its production to countries where carbon is cheaper or norms are not as strict as national rules).
The Commission recommends the elimination of fossil fuel subsidies and investment and action plans that require reforms to ensure that the green transition goals are met. The new generation of taxation seeks, on the one hand, compensation for environmental responsibility and, on the other hand, to ensure that those who pollute (or waste more resources than they support) suffer the consequences – following the “polluter pays” principle “.
In this context, the realization of a normative and technological transition, and the implementation of the necessary reforms to fulfill the goals of sustainable trade, are inevitable changes for Brazil due to the dependence of trade with European countries.
This implies reforms for the technological and energy transition in producing companies and in Brazilian industry in sectors dependent on foreign trade with the member countries of the Union and with the United Kingdom (which also adhered to the energy and green transition goals). If there is no production chain committed to the green goals, there is a forecast of change in the Brazilian trade balance, which should impact the relationship not only with Europe, but also with the United States.
However, in Glasgow, we saw a new posture by the Bolsonaro government regarding the commitments made at COP26. On November 1, 2021, the Environment Minister announced a “new” climate target, which actually – after the calculations and criteria changes had been explained – meant a resumption of the Paris Treaty commitment.
But in addition to this picturesque fact, Brazil is part of two relevant environmental agreements, in which the signatory countries commit to the reduction of methane gas emissions and the protection of forests (Forest Deal). The first agreement directly affects agricultural activities in Brazil and involves the immediate implementation of measures to meet the goal of reducing methane gas emissions by 30% by 2030.
Under the second agreement, Brazil commits to zero deforestation by 2030 in a pact that highlights the importance of traditional communities that depend on the forest (indigenous peoples) and proposes an embargo on international trade and on the financing of products from countries that do not respect protected lands, their peoples and forests. We can say that we had another surprise from the current government, this time a positive one.
However, the legacy of Glasgow and the dilemma of ratification of the Mercosur-EU Agreement teach that the status quo of trade conditions between Brazil and the countries of the European Union will not remain. Once European countries fulfill their commitments, regardless of whether Brazil fulfills its commitments, the impact of the European green transition will reach the Brazilian export sectors.
In this context, in addition to expectations about the upcoming chapters regarding the commitments assumed by Brazil at COP26, it is in the interest of the Brazilian exporting sectors to carry out a radical transformation in their energy models and in the management of resources and technology, in line with the global commitment regarding climate risk. Brazilian export sectors that depend on trade with the EU will need adaptations and investments to guarantee the existing export flow. In other words, it will be necessary to change so that they remain as they are in the international trade scenario
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