Despite having a relatively clean energy and electricity matrix, Brazil has a strong structure of fossil fuel subsidies, which stimulates the country’s production and consumption of oil, natural gas, and mineral coal.
A survey by the Institute of Socioeconomic Studies (INESC), released on November 16, 2022, at COP27 in Egypt, shows that Brazil spent BRL 118.2 billion on fossil fuel subsidies in 2021.
Most of the total subsidies granted last year, R$ 71.9 billion, were destined for consumption. For production, R$ 46.3 billion was allocated.
According to the report, Brazil’s most significant subsidy for oil and gas production comes from “REPETRO,” a mechanism that exempts from taxes the importation and domestic production of machinery and equipment for oil and gas exploration. The second largest subsidy benefited gasoline and diesel consumers, with successive reductions in fuel taxes.
Brazil has very efficient oil fields, which do not need tax incentives to be profitable, such as the pre-salt layer. However, the government still offered BRL 40 billion for this purpose. Such subsidies generate extraordinary profits by oil companies: Petrobras recorded the highest profit in its history in 2021 – R$ 106 billion, primarily passed on to its shareholders as dividends.”
Reviewing this type of tax benefit in light of the challenges posed by climate change and Brazil’s Paris Agreement pledge to reduce its emissions is essential.
Submitted by Climate Scorecard Brazil Country Manager Carlos Alexandre de Oliveira