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Latin America Faces a Fossil Fuel Riddle – Eduardo Porter/Bloomberg

(Source: US Energy Information Administration)
(Source: US Energy Information Administration)

By Eduardo Porter

Oil is sending Brazil into a tizzy.

The government of President Luiz Inácio Lula da Silva has been twisting itself into a pretzel since the environmental police agency, Ibama, which has authority over the exploitation of natural resources, denied a request by the national oil company Petrobras to drill in the Atlantic off the coast of the state of Amapá, close to the mouth of the Amazon river.

The inter-agency brawl took off from there. The Attorney General’s office declared that the environmental assessment requested by Ibama from Petrobras when it denied the license was unnecessary. But the Ministry of Environment and Climate Change which houses Ibama clarified that the failure to provide an assessment was not the reason for the denial.

Meanwhile, the Federal Prosecution Office, which can take the government to court, agreed with Ibama that the license should be denied, based on the inadequacy of Petrobras’s request, which didn’t properly address how it would deal with potential environmental risks in this most vulnerable of ecosystems. And the prosecutors threatened to take “appropriate judicial measures.”

As this chaotic drama unfolded, President Lula went on the radio in the Amazon to state how he “continued to dream” about oil production in the area.

The internecine conflict is not as absurd as it might seem. Lula’s dream is not crazy for a relatively poor country such as Brazil. The oil he yearns for is in the “equatorial margin” that hugs the northernmost coastline of Brazil, seen as one of the world’s most plentiful sources of undiscovered oil.

Sitting northwest of Amapá, Guyana, a tiny neighboring country 1/40th the size of Brazil, tapped into this resource and produced some 275,000 barrels of oil a day last year, from nothing in 2018. It boasts 11 billion barrels of oil reserves, not far from Brazil’s 15 billion, which are mostly off the coasts of Rio de Janeiro and Sao Paulo in the southeast.

Guyana’s bonanza points to the broader, more complicated debate underlying the push and pull over the development of Brazil’s potential oil reserves off the mouth of the Amazon. As much as the imperative of development beckons, what is the wisdom of developing more reserves of oil — oil that would only start flowing after 2030 — when the world’s climate imperative calls for leaving much of it in the ground?

No more than 380 billion tons of additional CO2 can be released into the atmosphere if we are to achieve 50% odds of keeping the average global temperature no more than 1.5 degrees Celsius above its average in the late 19th century, a threshold considered essential to prevent serious damage to human societies and natural ecosystems.

A barrel of oil packs almost half a ton of CO2, in the best of cases. By the estimates of the US Energy Information Administration, current known oil reserves thus contain at least 800 billion tons, enough to blow the budget two times over. There is definitely no space for more.

Reports by the Intergovernmental Panel on Climate Change and the International Energy Agency have assessed that the exploitation of new investments in fossil fuels will need to be curtailed, and in some cases abandoned, in order to remain under the 1.5 degree Celsius threshold and to achieve net zero CO2 emissions by 2050.

A study published two years ago by researchers at University College London estimated that to stay under 1.5 degrees, roughly 60% of the world’s oil reserves — including over 70% of those of Mexico, Central and South America — would have to remain in the ground by 2050.

Suely Araújo, who as head of Ibama five years ago denied French oil firm Total SA’s requests to drill right next to the spot Petrobras is hoping to tap, argues that the undersea and coastal ecosystems in the area are fragile and little understood. The currents are strong, stronger than what Petrobras knows how to deal with. Total has left the area, she notes, as has BP. Only Petrobras remains.

But, she adds, Petrobras’s plans would be a bad idea even if the risks to local ecosystems were more manageable. “Just exploiting oil is already a problem,” she said.

The US Environmental Protection Agency has estimated the so-called “social cost of carbon” at $51 per ton — meant to represent the dollar cost of the present and future damages that would be caused to the world’s ecosystems and economies by emitting more CO2 into the atmosphere. But the agency acknowledges this is too low. Following new analysis about the costs of likely climate change, it proposed a much higher range of price tags, centered on about $190 a ton. At that price, keeping one barrel of oil in the ground would yield the world a benefit close to $100.

But Caetano Scannavino, coordinator of the Health and Joy Project, an Amazon non-profit that supports sustainable projects in the Tapajos basin, points out that plenty of those costs would accrue to Brazil, where rising temperatures are expected to bring about drought, lower agricultural yields, more infectious diseases and other costly impacts.

Will President Lula snap awake from the dream? Foregoing new oil exploration would present a political challenge: convincing the many Brazilians for whom oil conjures images of 800,000 Guyanese enjoying a gross domestic product of around $60,000 per person. That’s the average in Western Europe, and roughly three times Brazil’s per capita GDP.

As many Brazilians will point out, it is a little unfair to demand that Brazil shoulder the cost of ending fossil fuel investments when companies in most other countries, many of which are much richer, keep investing in developing sources of the stuff.

Environmental activists cheered when Ecuadorans voted to stop oil production in the Yasuni national park in the middle of the Amazon rainforest. But that accounts for only 12% of Ecuador’s production. In Colombia, the government of Gustavo Petro has refused to issue new oil-exploration licenses. But so far, only Denmark, New Zealand and France have committed to stop new oil and gas exploration on their territory, (which is why French Guyana is not rushing to exploit its likely reserves). Even climate darling Norway is still investing heavily in oil production.

Araújo stresses that the government’s dream of oil-fueled development is misplaced. Oil revenue rarely funds broad, equitable development. Indeed, Guyana’s GDP might rival Finland’s, but its Human Development Index is lower than that of Ecuador, Mexico or Brazil.

“Choosing oil revenues to solve social problems is unrealistic,” she says. There are more riches to be made from the natural products of a healthy, standing Amazon rainforest. “The forest is a pharmacy.”

These are not bad arguments. Scannavino adds that keeping the oil in the ground would bolster Brazil’s leadership in the global debate over climate change and further the cause that the rich of the Global North should shoulder more of the costs imposed on the Global South. If the Amazon benefits the entire world, the entire world might help pay for its preservation.

And yet, in the battle against climate change, these sorts of arguments tend to lose the day. As Scannavino put it, “sooner or later that oil is going to be exploited.” The people of Brazil must yet be convinced that the alternative will not just preserve the environment but provide a livelihood. If President Lula wants to retire as a champion of sustainable development, he must stop dreaming of oil riches and prove this case.


Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration. He is the author of “American Poison: How Racial Hostility Destroyed Our Promise” and “The Price of Everything: Finding Method in the Madness of What Things Cost.” Energiesnet.com does not necessarily share these views.

Editor’s Note: This article was originally published by Bloomberg Opinion, on August 30, 2023. All comments posted and published on EnergiesNet.com, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet.com or Petroleumworld.

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energiesnet.com  09 01 2022

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