Energy policy implications of carbon pricing scenarios for the Brazilian NDC implementation

This study assesses the expansion of the Brazilian energy system across three GHG emissions pathways simulating the achievement of the Brazilian Nationally Determined Contribution. In the Reference scenario, the NDC is achieved through command-and-control policies. We then compare this pathway to an Emissions Pricing Scenario (EPS), which simulates a carbon pricing scheme. The Sensitive Fuels Exemption Scenario (SFE) is similar to the latter, but gasoline, diesel and liquefied petroleum gas are exempted from pricing, strengthening political buy-in to the mechanism. An integrated modelling approach combines bottom-up models representing energy demand and supply and a macroeconomic framework to ensure consistency across them. The adoption of carbon pricing schemes enables the use of a large potential of offsets (from the restoration of native vegetation) at a limited cost. This allows meeting NDC targets with bounded use of expensive mitigation actions comprised in command-and-control tools in the reference scenario. This study shows that a carbon pricing policy can increase the effectiveness of meeting climate commitments in Brazil, reducing GDP losses against business-as-usual trends. However, the mechanism's scope and sectoral coverage are key to ensure that decarbonisation is pursued in all economic sectors and in line with climate targets beyond the NDC horizon.