By Gustavo Pinheiro
Governments and society have mobilized in the emergency response to the crisis, in health, in the protection of jobs and in the relief of those socially vulnerable. In advanced economies, stimulus packages are already being discussed to restart the economy after overcoming the medical emergency.
Public investment via economic stimulus packages should not lead us in the same direction as the global economy was heading before the pandemic. The crisis caused by Covid-19 should not be wasted. It is an opportunity to accelerate the alignment between investment and the transition to a low carbon economy. The state and the market should focus investments in sectors that reconcile the generation of the jobs required to recompose the global supply and demand and overcome the crisis, while increasing the resilience to future crises.
In the case of Brazil, the debate so far has concentrated on the emergency measures. It is necessary to unite the national intelligence in an effort to align the proposals of measures for a post-pandemic recovery with the objectives already assumed by Brazil to reduce greenhouse gas emissions.
To reduce the fragility and vulnerability of the Brazilian economy in the long term, the best strategy of action is to review and expand the scope of the PNA (National Adaptation Plan) and the ambition of our NDC (Nationally Determined Contribution) to the Paris Agreement, associated with a plan to leverage private investments aligned with public policy objectives and measures to recover household consumption capacity.
In this regard, we must prioritize the investments that contribute to the decarbonization of the economy and the reduction of the historical weaknesses of our country, thereby contributing to the economic recovery in the short term and, at the same time, the repositioning of Brazil as a destination for foreign investments.
CHANNELING PUBLIC AND PRIVATE INVESTMENT TOWARDS THE NEW RESILIENT AND LOW CARBON BRAZILIAN ECONOMY IS THE WAY TO OVERCOME THE CURRENT CRISIS
Brazil has an enormous demand for investments in infrastructure. However, most of the projects assembled in the last two government packages – PAC and PPI – were still based on the developmentalist paradigm of the 1970s. One part of the unfinished 2nd National Development Plan was inviable due to the large socioenvironmental impacts and the low conformity with 21st century investment standards.
Before the pandemic, Brazil was already experiencing low growth caused by investment meltdown. The GFCF (Gross Fixed Capital Formation), measured from public and private investments, reached 15.5% of the GDP in the first quarter of 2019, the lowest level in the last 50 years.
To leverage investments, generate jobs and overcome the economic crisis, we need a new cycle of priorities, and productive and infrastructure projects aligned with a new low carbon economy, which contribute to leverage national and external investment, generate jobs and overcome the economic crisis.
Two priority agendas have potential to quickly leverage the resumption of investments and the Brazilian economic recovery.
1. Resilient and low carbon infrastructure: the Brazilian infrastructure deficit is evident both in large urban centers, where most of the population lives, and in the productive regions of the interior. Our current infrastructure also suffers from a resilience deficit, low quality and availability of transport routes for people and cargo, energy, communications and sanitation, which impacts lives and depresses the productivity of the Brazilian economy. A new generation of infrastructure projects can be financed with regulatory improvements that guarantee legal certainty to investors and risk mitigation instruments associated with greenfield projects in emerging markets, such as guarantee funds and blended finance. Renewable energy, rail transport and shipping, high speed internet, waste management and sanitation are some of the national priorities that can increase energy security, improve mobility in the cities, produce productivity gains and improve the health of the population.
2. Carbon pricing in all the economy: carbon pricing is an instrument for correcting a market failure, negative externalities generated by the activity of large emitters of greenhouse gases today financed by all society through losses of productivity, an increased incidence of respiratory diseases and large transfers of income from the productive sectors to the fossil fuel industry. Advancing the implementation of carbon pricing through the review of subsidies to the oil and gas industry, which today receives incentives in excess of 1% of the annual GDP in the form of tax reductions and other fiscal benefits. The regulation of the MBRE (Brazilian Market for the Reduction of Emissions) and the obligation to reduce emissions in the economic sectors would still leverage investments with the potential to transform the quality of Brazilian growth and to finance investments in forestry activities, energy efficiency, renewable energy, modes of low emission transport, waste management and sanitation.
Channeling public and private investment to a new resilient and low carbon Brazilian economy is the way to overcome the current crisis and to emerge from it better positioned than when we entered. Governments and the private sector have the opportunity to create an economy with fewer weaknesses and a healthier planet.
* Gustavo Pinheiro is a public administrator from EAESP-FGV (School of Economy of São Paulo at the Getúlio Vargas Foundation) and coordinator of low carbon economy at the Institute for Climate and Society, with over 15 years of experience in public policy related to climate change.
This text was originally published on May 16, on the Nexo Jornal website.