Sustainable Industry

paulo gala

“We need to have policies designed to help us make the green transition”

Economist Paulo Gala says that sustainability is a great business opportunity for the country, and that the government is key to achieving decarbonization

In April, economist Paulo Gala was one of the guest speakers of the second panel of the seminar cycle “200 Years of Independence: Industry and the future of Brazil”, which was organized by the National Confederation of Industry (CNI) and the Federation of Industries of the State of São Paulo (FIESP). He participated in the panel on Economic Development and Sustainability.

Inviting Mr. Gala to speak was no coincidence: the economist believes that sustainability is a great business and growth opportunity for Brazil. In this exclusive interview for Industria Verde, Mr. Gala highlights the areas in which Brazil is already leading the green transformation and states that the country is one of the major world players in terms of the ability to contribute to the energy transition. However, he points out that the government has a crucial role in this regard, establishing laws, regulatory frameworks, and public funding. “It is a matter of mobilizing the government and coordinating with Brazilian companies. We have a gigantic opportunity to move forward,” he summarizes.

Graduated in Economics from the Faculty of Economics, Business Administration, Accounting and Actuarial Science of the University of São Paulo (FEA-USP), Mr. Gala holds a master’s degree and a PhD in Economics from Getúlio Vargas Foundation in São Paulo. He was a visiting researcher at the Universities of Cambridge UK and Columbia NY, as well as chief economist, fund manager and CEO of financial market institutions in São Paulo. He has been a professor of economics at FGV-SP since 2002. “Brazil, an economy that does not learn” is his most recent book.

Industria Verde – You usually say that sustainability is a great business opportunity for Brazil to move forward. How is the Brazilian industry taking advantage of this opportunity? Is reindustrialization already taking place?

Paulo Gala – I think so. There are several frontiers in which Brazil is already undergoing reindustrialization, and investing and advancing. I would highlight wind energy, green hydrogen, biogas and biomethane, ethanol and corn ethanol, just to name a few.

As for wind energy, the Northeast region’s wind farms are an incredible frontier for investment. Today, more than 10% of the country’s energy comes from wind farms, not to mention that wind turbines are being manufactured by Brazilian companies. This is a notable example of where Brazil is advancing the most. Today we produce more wind energy than the Itaipu Hydropower Plant: this means so much!

We are also advancing in the field of green hydrogen. There is an incredible complex being built in the State of Ceará, in the Industrial and Port Complex of Pecém, where several companies are setting up and increasing their capacity for the coming years. This is a text-book case of green industrialization, where plants can produce green hydrogen – which can even result in green ammonia, something that would help our fertilizer production chain.

And Brazil has set a world benchmark in ethanol production, with emphasis on second-generation ethanol, from sugarcane bagasse, and corn ethanol, an area of industrialization that is advancing in the Midwest, in the State of Mato Grosso.

Now we are also advancing in biogas and biomethane, which is also an interesting frontier of re-industrialization and a terrific opportunity for Brazil to advance even further. It goes without saying that we would need more volume, more scale – but there are definitely several frontiers in which Brazil is advancing.

IV – Is investing in green energy today one of Brazil’s greatest assets in the international scenario, if not the greatest? Are we playing a leading role in this field?

PG – I think the areas I mentioned are those in which Brazil can really become a reference worldwide. The problem is that transition has a high cost. Governments should focus on designing public policies and regulatory frameworks. For example, the government needs to step-up the creation of the green hydrogen regulatory framework.

Second comes infrastructure. The government is starting to build routes to bring pre-salt gas to the continent, especially with Petrobras. We already have two routes built, but we depend a lot on this type of investment in infrastructure.

Broadly speaking, we need more policy design to help us make the green transition – because Brazil has everything it needs to produce green hydrogen, ethanol, second-generation ethanol, and solar and wind energy, but there is a cost transition that needs to be addressed. The government can help with public funding. Northeast’s wind farms, for example, were largely built because the National Bank for Economic and Social Development (BNDES) took risks to make this investment.

Green transition plans need help from the government, whether in subsidies, new legislation and regulatory frameworks, or public funding. It is a matter of mobilizing the government and coordinating with Brazilian companies. We have a gigantic opportunity to move forward, especially with green hydrogen and green ammonia and fertilizers.

IV – Are foreign assessments of our sustainability policies unfair?

PG – Many changes in this government regarding the environment went the wrong way. Deforestation in the Amazon, for example, is terribly high. We have earned a terrible reputation in this sense. Therefore, if we do not make the move forward with energy transition, the planet will not take it – and Brazil will be the one to blame.

One thing is the current situation, though. With structure it is a different matter. Brazil continues to be one of the great global players in terms of its potential of green energy and energy transition. We have one of the largest hydroelectric capacities in the world; an absolutely fantastic wind power potential; and an amazing photovoltaic potential, especially in the Northeast region. Ethanol is already largely consolidated – and we even have an enormous potential to develop a methanol industry in Brazil (which is already taking its initial steps).

Despite our poor reputation abroad, the world knows that Brazil is one of the major global players in energy transition.

The situation is bad cyclically, but structurally Brazil is certainly among the top five countries today in terms of the ability to make the energy transition, contribute to decarbonization and produce clean energy – including as a developer and exporter of technology.

We are developing partnerships with South Africa, for example, to explore sugarcane and ethanol technology. We have a lot to export and to teach the world about first- and second-generation ethanol technology. Flex fuel engines are an amazing achievement of the Brazilian industry. We also started to move towards electric vehicles, especially with 100% Brazilian electric buses. This is another beautiful example that deserves to be highlighted. Industry is the royal road to technological dominance. We need to embrace this with public policies, with the entire industrial sector altogether.

 That is why I usually say that the green energy transition means big business for Brazil: there is a lot of money out there for Brazil to earn – and there is a lot to contribute to the country’s environmental sustainability and re-industrialization.