New Paths of Brazil-China Energy Cooperation: Going Green?

New Paths of Brazil-China Energy Cooperation: Going Green?

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Erik Herejk Ribeiro and Carlos Renato Ungaretti

The rise of the Global South over the last decades has changed the geometries of international cooperation for development. In 1993, one of the first strategic partnerships in the developing world was signed between Brazil and China. At that point, Brazil was a stakeholder in China’s economic opening, importing Chinese oil and investing in onshore and offshore fields in the country. Since then, Sino-Brazilian relations grew closer in the diplomatic, economic, and technological fields. In the late 2000s, China saw an opportunity to develop a strong energy partnership with Brazil in the electricity, oil and gas sectors, but this relationship is currently evolving to include renewable energy as one of its main pillars.


While China has become a major economic powerhouse, Brazil has focused on the development of its vast natural resources. In this sense, the Brazil-China relationship has evolved due to their novel economic complementarity. China’s rapid industrialisation generated strong public-owned companies and greater demand for energy and raw materials. As China became the world’s largest manufacturer and the biggest producer, consumer and importer of energy, it sought to diversify its external partners. In turn, Brazil began to explore its vast Pre-Salt oil reserves, leaning on cutting edge technologies developed by Petrobrás S.A.


In 2004, Brazil and China institutionalised their partnership through the China-Brazil Commission of High Level of Agreement and Cooperation (COSBAN). In the late 2000s, China became Brazil’s largest trading partner and one of its largest foreign investors, with energy taking a central role in bilateral relations. So far, Chinese investments in the Brazilian energy sector have been concentrated in electricity, oil and gas. Between 2005 and 2020, Chinese Foreign Direct Investment (FDI) in Brazil was US$ 68.58 billion, while investments allocated to the energy sector were US$ 50.31 billion. In addition, the China Development Bank (CDB) and the China Export-Import Bank provided US$ 28.9 billion in loans to Brazil between 2007 and 2019, of which US$ 26.1 billion were allocated to the energy sector.


China’s institutional and financial promotion of national companies in the global oil market can be explained by the desire to access and control natural resources, while investments in the electric sector can be characterized by the search for markets and acquisitions of strategic assets. Over the last decade, Chinese companies like State Grid and China Three Gorges have made strategic investments in the Brazilian energy market, winning bids for electricity generation, distribution and transmission. In the oil sector, Chinese companies also made strategic investments, like Sinopec's acquisition of 40% of Repsol’s shares in Brazil for US$ 7.1 billion in 2010. In 2013, China National Petroleum Corporation (CNPC) and China Oil Offshore Corporation (CNOOC) participated in the winning consortium for exploration of the Libra field, the largest in the Pre-Salt.


Recent trends indicate new paths of Sino-Brazilian energy cooperation, which is increasingly oriented towards the development and commercialisation of renewables. The logic behind this move is China’s national aim of leading the global energy transition, which requires economies of scale. Currently, China is the main generator of renewable energy and also leads the manufacturing of key inputs such as solar panels and wind turbines. Favorable climatic conditions in Brazil for generating wind and solar energy further contribute to the potential for bilateral cooperation.


Recent trends also suggest that China intends to play a major role in the Brazilian renewable energy market. In 2019, China General Nuclear Power Group (CGN) became one of the largest clean energy producers in Brazil, after the acquisition of solar power plants - including the second largest in the country - and six wind farms. The company owns 16% of Brazil's wind capacity and 21% of its solar capacity, totaling 2,822 megawatts. In the first half of 2019 alone, Brazilian imports of solar modules grew 24%, equivalent to 1.26 gigawatt and a third of the national installed capacity. Jinko, BYD, JA Solar, Trina and Canadian Solar - all Chinese-origin companies - have an outstanding performance and share of the Brazilian market. BYD recently opened a battery plant and aims to be a leader in solar panel manufacturing in Brazil. Following the recent measure of the Brazilian government to zero import taxes for solar modules, further sectoral trade with China is expected.


The new paths of Sino-Brazilian energy cooperation in renewables have been fostered by bilateral engagement between presidents Jair Bolsonaro and Xi Jinping. In 2019, they signed the Memorandum of Understanding on Cooperation in Renewable Energy and Energy Efficiency during Bolsonaro's visit to China. Besides the domestic markets’ potential for a shared energy transition, it is expected that technological progress and economies of scale will reduce generation and distribution costs of renewable sources. There is also a potential for the insertion of Brazilian biofuels in China, as national policies increase the share of ethanol in the gasoline mix. Another way of advancing bilateral cooperation comes from the BRICS New Development Bank, which prioritizes sustainable development projects.


In sum, China's surplus capital and technical expertise in clean and renewable sources have helped to widen its greenfield investment portfolio in Brazil beyond traditional sectors. The Brazilian government’s ideological alignment to the United States and hostility towards China - shown in several episodes since 2019 - could potentially hamper its long-standing partnership with Beijing. Despite the relative uncertainty of Brazil-China relations in the diplomatic sphere, economic relations have steadily progressed. In this sense, Sino-Brazilian complementarity will be a further incentive for cooperation, as Brazil will need Chinese expertise and investment to boost its energy sector.

Erik Herejk Ribeiro is a Senior Fellow and Carlos Renato Ungaretti is an Associate Researcher at the South American Institute of Policy and Strategy (ISAPE).