McKinsey: Brazil's Decarbonisation Could be Worth US$100bn
Brazil is poised to play a leading role in the global energy transition with vast renewable energy potential and unique biogenic capabilities positioning it as a "green powerhouse" that could add US$100bn to its GDP by 2030.
As the host of the 2024 G20 Summit in Rio de Janeiro, Brazil has the opportunity to steer the discussion on critical climate issues. The country is one of the world's top 10 greenhouse gas emitters, but its existing natural advantages can support other regions to decarbonise more cheaply and efficiently.
"Brazil holds the key to many potential decarbonisation solutions, thanks to its rich natural endowments," says a report by McKinsey. "If the country were to take the necessary steps to become a green powerhouse, Brazil's economy could flourish."
Nelson Ferreira, Senior Partner at McKinsey and a co-author of this report, says: "Brazil has the opportunity to take a leading position in the global energy transition towards the green economy."
Sustainable solutions from Brazil's biogenic potential
Brazil's renewable energy capacity, integrated grid, vast forests and unique biogenic potential can enable it not only to achieve net zero within the next decade, but also to become one of the world's foremost exporters of low-carbon materials and carbon sequestration services. This is the conclusion made in research by McKinsey titled "Greener shores: Brazil’s $100 billion decarbonization opportunity".
The report outlines three key opportunity areas for Brazil to play a leading role in the global energy transition: scaling up renewable and sustainable energy solutions, improving energy & resource efficiency across industries and leveraging natural climate solutions.
On the renewable energy front, wind and solar are poised to become Brazil's main power sources, potentially reaching 47% of total installed capacity by 2040 and creating an additional US$11bn market. The country's extensive hydropower infrastructure can also complement the expansion of intermittent renewables, reducing the need for costly battery storage.
"More than 85% of Brazil's power matrix is based on renewable sources, primarily hydro power, which accounts for about 60%," says the report. "While wind and solar represent about 20% of Brazil's electricity mix today, their cost of energy could decrease by 27% and 46% respectively by 2040, making them the country's main power sources."
Brazil is also well-placed to lead in several bio-based solutions, including sustainable biofuels, sustainable aviation fuel, biocarbon and biomethane. The report estimates the total market opportunity for these solutions could reach US$40bn by 2040.
"Brazil has substantial feedstock and production capabilities for sustainable biofuels," the report explains. "Exports could be a substantial contributor here: Brazil is the second-largest ethanol producer worldwide and the leader in industrial-scale production of second-generation biofuels."
"The G20 and B20 in Brazil this year makes the world's spotlight turn here, highlighting the positive trends that have, according to McKinsey estimates, the potential to add up to US$100bn to our economy in the next 10 years," says Reinaldo Fiorini, Senior Partner at McKinsey and co-author of this report.
Unlocking Brazil's industrial potential for improved efficiency
In terms of energy and resource efficiency, the report highlights opportunities to improve the performance of Brazil's energy-intensive industries, such as cement, steel and mining, through measures like material substitution, efficient equipment and advanced energy management systems.
The country also has significant room to step up its materials recycling, with only 4% of urban solid waste currently being recycled - substantially less than other major economies.
"Circularity represents a transformative approach to the economy and growth," the report notes. "This approach fosters the efficient use of natural resources and sustainable practices throughout the value chain."
Brazil's carbon sequestration advantage
On natural climate solutions, Brazil holds 15% of the global potential of low-cost options, the largest alongside Indonesia. The country's land use, land use change and forestry (LULUCF) sectors, which currently account for 50% of its emissions, could generate CO2 removal certificates for the international market, creating a new global commodity.
"Brazil alone has the potential to issue CO2 certificates covering emissions of about 1.7 GtCO2e per year by 2050," the report explains. "This scenario would require the LULUCF and agriculture sectors to contribute with emissions abatement between 2.9 to 3.3 GtCO2e in 2050 compared with 2021 levels."
Seizing the green opportunity
Capturing Brazil's green opportunity will require coordination among government, private capital, and civil society to build and scale new value chains.
As the McKinsey report concludes: "The leaders of the new sustainable economy will be those who chart bold courses, navigating challenges with confidence while seizing the economic opportunities of the global green economy. Brazil has much to gain both environmentally and economically in embracing boldness.
"If the country were to take the necessary steps to become a green powerhouse, Brazil's economy could flourish: we estimate it could add as much as US$100bn to GDP and create 6.4 million jobs by 2030."
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