Challenges for the energy industry are emblematic of a misconception that economic and social development, and environmental sustainability, do not converge. The growing world population needs more energy, especially in developing and emerging countries, in order to pursue social and economic progress. At the same time, energy use is responsible for two-thirds of greenhouse gas emissions, and of considerable local pollution, thus threatening ecosystems and altering the climate over the long term. As last year’s Earth summit in Brazil, Rio+20, clearly showcased, many people believe indeed that a “green growth” economic model, integrated within the long-term vision of sustainable development, is incompatible with the economic growth countries like Brazil strive to achieve in order to bring prosperity and progress to all. Is this antagonism relevant, or is there a way to reconcile these major objectives?

Brazil’s long-term energy outlook poses all of these questions. The country has a huge renewable energy resource base that it already exploits to its advantage, having one of the cleanest energy balances in the world (nearly 45% coming from renewable energy sources). It also has the potential to become the 6th largest oil producer in the world, according to the recently published World Energy Outlook (WEO) by the International Energy Agency (IEA)[1], with access to some of the largest offshore reserves, along the Atlantic coast.

The WEO report states that Brazil’s energy resources are abundant and diverse, and that by 2035 they have the potential to move the country into the top-rank of the world’s energy producers. To make this happen, the country needs to invest on average $90 billion a year – to fulfill its energy supply potential, but also to respond to national energy consumption which grows robustly, led by industry (80% increase by 2035). This should also lead to reaching the national goal of providing energy access to all early on in the forecast period. Thanks to hydropower and despite significant oil developments, CO2 emissions per capita reach only 70% of the world average in 2035.

Overall, from an energy resource perspective, Brazil is a very lucky country. Having a huge hydroelectricity potential means the country should be able to rely on a stable long-term supply of clean energy at low marginal cost. And at the same, having access to such oil reserves should lead to potentially high revenues in the next decades. But Brazil also bears a major responsibility towards the rest of the world, by possessing the majority of the Amazon rainforest which is paramount in preserving the carbon balance of the planet. Therefore the country needs to achieve an optimal combination between industrial development, social progress, and preserving the environment.

Brazil’s national hydropower potential, Amazon included, is estimated by the IEA to be 245 GW (two-thirds of which is undeveloped). But if the Amazon were off limits, due to environmental concerns, then the forecasted hydro developments by 2035 will exhaust the remaining non-Amazon hydropower potential. From an ESG perspective, there is an apparent clash between the E (environment), standing for preserving ecosystems and the climate balance, and the S (social), where social and economic progress is sought for communities often having no access to energy and modern facilities. Bringing such progress, with energy supply, media access, schools and hospitals is valuable, but its impacts are being questioned by NGOs working to also preserve ethno-diversity and traditional ways of life. The “E” in ESG is itself at the core of the dilemma: Brazil needs to build dams in order to tap into this invaluable clean energy source, but by doing this it risks disrupting ecosystems, and more importantly, if projects are inside the Amazon, putting the rainforest at more risk. Also, some hydropower technologies, notably involving reservoirs, are suspected of actually being large sources of CO2 from stagnating water. How can this dilemma be solved?

While developing dams deep inside the Amazon seems to be quite challenging, even unwise, dam project developers have seized this as an opportunity to build up social and environmental competencies, beyond just managing the usual risks associated with such endeavors. Indeed, massive projects such as hydropower plants disrupt their environment; it is therefore paramount that companies understand that, and take action. The Jirau hydropower plant, for example, has led to a significant investment, both human and financial, to ensure the negative impacts of the dam construction are properly known, and where possible, addressed. The company has earmarked 10% of the funds invested in the project – over BRL 1 billion (USD 430 million) – for the 34 social and environmental programs as well as for all the mitigation activities, including programs on public health, deforestation and fauna rescue, indigenous communities support, affected population resettlement and ichthyofauna, among many others[2]. Allying environmental and economic performance at the basis of business strategies is a prerequisite for a stable, long-term success of energy projects, towards local populations, customers, shareholders and the international community.

But there is much more than the hydro-oil duo in the country’s energy potential: wind and solar are abundant, and there are also alternative energies such as wave power, of which a prototype is being tested on the north coast of Brazil[3]. Beyond developing renewable energies on a larger scale, one major item should also figure high up in the national energy agenda: energy efficiency. The WEO reminds in their central scenario that the potential of energy efficiency remains largely untapped, while it could provide an affordable policy answer to both economic growth concerns and climate change imperatives. According to the IEA, with appropriate energy efficiency solutions it is possible to reduce final energy consumption of the country by 11%, which corresponds to 100 TWh of power consumption in 2035, equivalent to the output of the Itaipu hydropower plant (14 GW of installed capacity).

Last but not least, the “G” in ESG is key if Brazil is to succeed in becoming an outstanding energy producer and consumer. More transparency and better accountability are expected from energy companies. Petrobras has for example adopted the ISO 26000 reference for communicating on social responsibility, and discloses ESG data according to GRI principles.[4] EDP, the Portugal-based electricity operator with substantial operations in Brazil, not only discloses data according to GRI, but has specific eco-efficiency and environmental protection goals that include reducing CO2 specific emissions by 70% until 2020 (vs. 2008 levels). [5]  Such a proactive stance matters for investors, but it is also important for customers, to ensure better and more efficient energy use, to create confidence that Brazil will use its energy potential wisely, sustainably, and safeguard its resources for future generations.

[1] World Energy Outlook 2013, International Energy Agency (OECD). http://www.iea.org/
[2] Source: GDF SUEZ Latin America; http://www.energiasustentaveldobrasil.com.br/ , http://www.gdfsuezla.com
[3]http://www.coppenario20.coppe.ufrj.br/english/?p=805
[4] Petrobras; http://www.investidorpetrobras.com.br/en/governance/sustainability-report/relatorio-de-sustentabilidade-detalhe-4.htm
[5]EDP; http://www.edp.pt/en/Investidores/publicacoes/relatorioecontas/2013/Annual%20Report%202013/Interim%20Report%201H13.pdf