
Climate advocates have long emphasized the importance of integrating climate considerations into all aspects of government policy, particularly economic policy, to effectively reduce emissions. Brazil stands out as a nation where this strategy has gained significant traction.
During an interview with Brazil’s Finance Minister, Fernando Haddad, at an event in L.A. in May, his U.S. tour focused on promoting Brazil as a destination for investment and engaging in discussions about global trade. However, climate and the energy transition were central to his thinking. The discussion covered topics such as a novel financing mechanism for forest conservation, the introduction of a domestic carbon price in Brazil, and the alignment of industrial policy with climate goals. Even his promotion of data centers highlighted Brazil’s sustainable electricity grid as a key advantage for meeting the energy demands of AI.
“One of our greatest strengths lies in our clean energy resources, which can be effectively combined with a forward-thinking digital policy,” he stated.
In the current complex global landscape, assessing the direction of the energy transition can be challenging. Haddad’s efforts provide a valuable example. Brazil, an emerging market with a large export-based economy and strong diplomatic ties across geopolitical lines, is committed to green development. This commitment stems not only from the country’s vulnerability to climate change but also from its recognition of the economic opportunities it presents.
Brazil’s ability to base its economic growth on the green transition is largely due to its abundant resources. Its agricultural land is suitable for biofuel production, and its extensive tropical forests play a vital ecological role. Furthermore, the country’s vast network of waterways enables its electric grid to primarily rely on hydropower.
However, utilizing these ecological assets for positive change was not guaranteed. Under the previous administration of President Jair Bolsonaro, rapid deforestation was permitted in pursuit of short-term economic benefits, disregarding international calls for climate action. With Luiz Inácio Lula da Silva’s assumption of office in 2023, Brazil swiftly shifted towards a more sustainable approach, launching an Ecological Transformation Plan centered on sustainable finance, the circular economy, and the development of the bioeconomy. “Government action is being aligned with these priorities,” Haddad noted.
Haddad’s finance ministry plays a crucial role in facilitating policies such as the country’s new carbon market. It focuses on developing mechanisms to attract investment in forest protection and collaborates with the Brazilian National Development Bank, a key institution for facilitating private investment, to ensure that finance supports green development plans. For instance, a recently launched program uses Brazilian public funds to subsidize interest rates for the restoration of degraded land, encouraging private investment in reforestation initiatives.
Given the U.S.’s reduced involvement in global climate collaboration and other nations’ more subtle hesitations, there are concerns about a potential ripple effect. Following a meeting with U.S. Treasury Secretary Scott Bessent, Haddad was asked whether his green agenda posed challenges for collaboration with the U.S. “On the contrary, our ecological transformation policies do not affect our relationship with the U.S.,” he replied. “Companies interested in this agenda are welcome in Brazil.”
Haddad envisions international climate cooperation as a collaborative effort among like-minded nations, each pursuing their own strategies while maintaining business relationships with countries outside this coalition. “I don’t expect unanimous agreement on the need to accelerate the ecological transformation,” he said. “However, I believe that many countries will uphold their commitments.”
This perspective was instrumental in the development of Brazil’s cap-and-trade system, enacted last year and currently being implemented. The program establishes emissions reduction targets for industry, allowing companies to purchase credits if they fail to meet those targets. Establishing a domestic program prepares Brazil for seamless trade with other countries that have implemented a carbon price and may offer Brazil a competitive advantage due to its decarbonized grid. “The carbon market should be internationalized rather than viewed solely as a national program,” he stated. “We anticipate it evolving into an international framework over time.”
Historically, Brazil has been seen as opposing policies that create climate-related trade barriers, such as the European carbon border adjustment mechanism (CBAM), which taxes high-carbon imports. However, during the interview, Haddad expressed a more nuanced view, stating that Brazil seeks “an adjustment of the adjustment.” An aide described Brazil’s stance as “constructive opposition.” Haddad believes that if countries worldwide adopt carbon pricing, policies like CBAM can deepen climate policy. “An international arrangement with nations committed to green development may change the rules of the game,” he said.
One of the most pressing issues in the climate arena is whether a consensus can be achieved. The U.S. plays a central role in many institutions that have shaped the post-War world, and long-standing climate institutions face the challenge of managing persistent divisions.
Brazil participates in various groups, avoiding close alignment with any side of the current global divisions. Haddad does not foresee climate action being driven solely by existing blocs. “There will not be a simple division between clubs that are for or against,” he said. “There is no unity at the G7 today, nor is there unity at the BRICS… The environmental agenda will emerge through other arrangements.”
Brazil has the opportunity to influence these emerging arrangements. The country will host the upcoming United Nations climate conference, COP30, in Belém, a city in the Amazon, in November. Regardless of the outcome of COP30, Brazil has the foundation to shape the global agenda for decades to come.
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