To former president of Energy Research Company (EPE) Luiz Barroso, rising oil prices may drive demand for biofuels

03/07/2022

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Luiz Barroso — Foto: Leo Pinheiro/Valor

Luiz Barroso, former president of Energy Research Company (EPE) and the current president of consultancy PSR, sees opportunities, especially in Brazil, for renewable energy with the rise in oil and gas prices caused by the Russian invasion of Ukraine. Last week, after the outbreak of the conflict, the international prices of the oil barrel went over the barrier of $100 and saw the highest prices of the last eight years.

For Mr. Barroso, the global geopolitics are already aligned towards the replacement of fossil sources, with higher carbon emissions, by renewable ones. With the scenario of rising fossil fuel prices, the search for clean energy and greater consumption efficiency is likely to accelerate, as well as the development of new technologies, he believes. “Access to energy transition technologies is a geopolitical tool,” he emphasizes.

In this context, the expert says that Brazil may pay more attention to biofuels, in addition to pre-salt gas, as a way to become less dependent on liquefied natural gas (LNG), which is imported.

On the energy planning side, he also believes that the crisis will lead to questions about energy integration in Europe and, consequently, to the search for reducing European dependence on Russian gas, which can increase exports from regions such as North Africa and the United States. Below are the main excerpts from the interview.

Valor: What are the impacts of the Russia-Ukraine crisis for the energy transition in Brazil?

Luiz Barroso: Brazil automatically aligns the main objectives of the energy transition: the cleanest energy, the renewable ones, are the most competitive. This foundation remains and already places us among the global leaders in terms of low carbon intensity in the energy sector. With the crisis, LNG [liquefied natural gas] becomes more expensive, which increases the attractiveness of renewables. This scenario also brings pre-salt gas into the energy equation, with the attribute of greater independence from international prices.

Valor: And biofuels?

Mr. Barroso: The increase in oil prices may stimulate the demand for biofuels, a sector in which Brazil is self-sufficient, in addition to accelerating the discussion of other forms of sustainable mobility. Brazil can also seek to reduce its international dependence on other important components, such as fertilizers, and increase its role in other energies that will redesign the future of energy, such as green hydrogen and, who knows, carbon capture and sequestration.

Valor: Is there any other source that can benefit, in the Brazilian market, from the geopolitical crisis?

Mr. Barroso: The current scenario reminds us of the importance of actions on the demand side and is an opportunity to organize the national energy efficiency agenda. There is room for much gain in commerce and industry. Reducing consumption, through efficiency, is the cheapest and most self-sufficient energy the system can achieve, in addition to being a permanent energy gain. This adds to dynamic demand response actions at prices and tariffs [mechanisms to charge more for energy at times of peak consumption]. On the other hand, there is the reflection that it is essential to transform the way we consume energy with new emerging technologies. There is no point in having an abundant supply of hydrogen and electricity if most of the demand does not run on hydrogen and electricity.

Valor: Could there also be a trend towards greater search for the use of oil, gas and coal in Brazil?

Mr. Barroso: For purely economic reasons, I don’t believe so; all these energy sources will be much more expensive in this decade.

Valor: What are the immediate impacts that you see on global energy policy, especially in Europe, as a result of the current crisis?

Mr. Barroso: More immediately, there will be a quest to reduce dependence on Russian gas, which supplies 40% of European gas consumption, and to ensure sufficient storage levels to ensure consumption in the coming winter. Russia is responsible for more than 60% of the total energy imported by the European Union.

Valor: How can Europe replace Russian gas?

Mr. Barroso: On the supply side, abandoning Russian gas means importing non-Russian gas, basically from North Africa, Norway and the United States, increasing coal production and relying on nuclear power plants. It will also be important to reduce energy consumption. This can be done through energy efficiency actions, such as reducing the temperature of heaters, which are mostly gas-powered in Europe.

Valor: How will conflict impact the energy transition? 

Mr. Barroso: The European energy transition was already one of the most ambitious before the war and it could be accelerated. The geopolitical imperative is aligned and the current environment puts further pressure on reducing dependence on fossil fuels. This can accelerate the development of the technologies we will need in a carbon-neutral future. Massive investments have made it possible to create economies of scale that, together with increases in oil and gas prices, reduce the additional cost of choosing a clean technology over one that emits a greater amount of greenhouse gases, making renewables more accessible to others parts of the world, such as Brazil. But it is not possible to say that it will be a global trend, as each country has its reality and its energy transition.

Valor: May it be necessary to review the emission reduction targets?

Mr. Barroso: I don’t believe in expanding emission reduction targets right away, but the possible increase in emissions in the short term could, in fact, impact the planet’s carbon budget. Further on, this can challenge the sufficiency of the targets, which can trigger a global discussion about who should raise the target and when.

Valor: Could an eventual increase in military spending in the world as a result of this crisis lead to a reduction in resources and collaborative efforts between countries for the energy transition?

Mr. Barroso: It’s still too early to talk about that. In absolute terms, the North Atlantic Treaty Organization [NATO] has planned military expenditures that have not always been met, in amounts currently lower than the annual budgets of government stimulus programs and private direct investment to new technologies for energy transition. So, in theory, I don’t believe in resource reduction. However, and speculating a bit, we may have Western sanctions that ban some countries, like Russia, from accessing some key technologies. Access to energy transition technologies is a geopolitical tool.

Source: Valor Econômico