Brazil is hosting the G20 Summit for the first time this year, a role that will allow it to lead the discussion on critical global issues. High on the agenda at this year’s summit, held in Rio de Janeiro on November 18 and 19, is the challenge of climate change and the capital-intensive energy transition required to reduce greenhouse gas emissions (GHG) that are contributing to it, as agreed in the 2015 Paris Agreement.
Brazil is one of the world’s top ten GHG emitters, but its existing endowments can support other regions to decarbonize more cheaply and efficiently. Among Brazil’s key advantages are its immense renewable-energy potential, connected through an integrated grid; its massive forests; and its unique biogenic potential, enabling the growth of food and biomass faster and more economically efficient. All these combined can enable Brazil not only to achieve net zero within the next decade but also to become an exporter of low-carbon materials such as green hot briquetted iron (HBI), green pig iron, methanol, ammonia, and carbon sequestration services.
If the country were to take the necessary steps to become a green powerhouse, Brazil’s economy could flourish: we estimate it could add as much as $100 billion to GDP and create 6.4 million jobs by 2030. A green transition could attract significant investment into the country and help address challenges that many green companies currently face, including rising inflation in their capital expenditure projects, a temporary decline in demand for green products, deteriorating access to financing, and declining valuations.
This article outlines some of the most important opportunities for Brazil to play a leading role in the global energy transition and details what the country would need to do to seize them. It is structured into three sections that correspond to recommendations from the B20’s Energy Transition and Climate Task Force, for which McKinsey has served as knowledge partner.
First is the energy solution portfolio, which would involve further development and use of renewable and other energy solutions to boost decarbonization in the short and longer term. Second is energy and resource efficiency, with the goal of doubling the annual average rate of global energy efficiency. The third recommendation is to promote effective natural climate solutions to mitigate climate change and enhance biodiversity. We conclude with details of the potential GDP prize and how Brazil could capture it.
Accelerating the development and use of renewable- and sustainable-energy solutions
Brazil could play a leading role in the global energy transition by using its renewable-energy potential for wind, solar, and biomass to decarbonize its economy and export clean energy. Exports could take the form of ammonia, second-generation (2G) ethanol, sustainable aviation fuel, biocarbon, and green metallics.
One path Brazil could follow is that of “power shoring,” a strategy to decarbonize the production of energy-intensive goods such as metallics by placing them in locations with efficient and safe green energy production. Such moves could reduce production costs and enable Brazil to reach emission targets, provided logistics emissions do not offset the gains. Power shoring is not a new concept; in the past, energy-intensive industries have migrated to where energy is cheapest. Aluminum is one example; in the past, its primary metallurgy (processing of alumina into aluminum) migrated to low-cost energy locations, while secondary metallurgy (semifinished products) and downstream were kept closer to demand. The key difference is that in addition to cost, power shoring today also focuses on sustainability and environmental impact.
Prior McKinsey research has estimated that the market size potential in renewables and bio-based energy in 2040 could be $90 billion (Exhibit 1).1 Two major aspects of Brazil’s energy solutions portfolio are renewable energy and bio-based solutions.
Renewables: Wind and solar energy are on track to become Brazil’s main power sources
More than 85 percent of Brazil’s power matrix is based on renewable sources, primarily hydro power, which accounts for about 60 percent. While wind and solar represent about 20 percent of Brazil’s electricity mix today,2 McKinsey research has suggested that their levelized cost of energy (LCOE) could decrease by 27 percent and 46 percent, respectively, by 2040 (Exhibit 2). These renewable energies would then become the country’s main power sources, potentially reaching 47 percent of total installed capacity and creating an additional market of $11 billion in 2040.3
The extensive hydropower infrastructure in place could complement the expansion of wind and solar energy. Controlled hydropower release could effectively address the intermittency challenges associated with these sources, potentially reducing the need for battery storage. This presents a significant advantage for companies seeking reliable, constant green electricity.
Capturing the full value from wind and solar would depend on filling two requirements. First is the need for a robust and stable electricity supply to foster broad electrification (especially for the industry, mobility, and logistics sectors). Second is the need to expand an already integrated grid infrastructure to enable accelerated incorporation of the generated supply. The National Electric System Operator (ONS) recognizes the importance of grid flexibility in accommodating future wind and solar energy transmission in Brazil. ONS estimates that about $9 billion in investments in the transmission grid will be necessary between 2024 and 2028 to allow the flow of the full surplus.4
Developing green hydrogen (GH2) would also require grid development, as 70 percent of hydrogen production cost comes from energy.5
Brazil is already a competitive producer of HBI and biocarbon-based blast furnace technologies. Our analysis indicates that the full landed cost of producing iron via the blast furnace route with carbon capture in the European Union is approximately $460 per metric ton. In contrast, Brazil can produce it using biocoal and deliver it to the European Union for about $265 per metric ton. Similarly, HBI produced in Brazil, with a projected full landed cost of $465 per metric ton by 2030, remains highly competitive against hydrogen direct reduced iron (DRI) produced in the European Union, which has a full landed cost of $560 per metric ton. Indeed, Brazil is now establishing itself as a cost-effective location for producing green hydrogen. Our analysis suggests that the LCOH for green hydrogen is expected is projected to reach approximately $2.50 per kilogram by 2030, positioning Brazil as one of the most competitive countries globally for large-scale hydrogen production. GH2 is a key component in developing a global green commodities market, including ammonia, green HBI (which uses GH2 instead of natural gas as a reductant), and e-methanol.
A recently enacted legal framework for hydrogen6 in Brazil will likely accelerate the development of GH2 projects. New incentive plans under this framework, including Rehidro and PHBC (Plano de Hidrogênio de Baixo Carbono, or Low-carbon hydrogen plan), may provide incentives of more than $100 per metric ton for ammonia.7 McKinsey estimates suggest that green ammonia could thereby competitively replace most imports of nitrogen and its derivatives, such as urea.
Bio-based solutions: A $40 billion market opportunity by 2040
Brazil is well placed to lead in several bio-based solutions, including sustainable biofuels, sustainable aircraft fuel (SAF), biocarbon, and biomethane.
For sustainable biofuels, Brazil has substantial feedstock and production capabilities. Our analysis suggests that the total market opportunity for sustainable biofuels could be as high as $40 billion by 2040.8 Exports could be a substantial contributor here: Brazil is the second-largest ethanol producer worldwide and the leader in industrial-scale production of E2G,9 which is second-generation biofuel production using biomass (sugarcane bagasse). E2Gs can achieve more than 14 billion liters per year10 and increase ethanol productivity by up to 50 percent in the same planted area, surpassing local demand and enabling exports.11
For SAF, Brazil could supply up to 25 million metric tons of per year by 2035, according to our estimates. This has the potential to drive large-scale restoration of degraded pasturelands and reorient them toward bioenergy crops. Multiple crops are eligible, including those that are aligned with the local biome and have high-density energy. For instance, macaúba, a type of palm, could represent up to 75 percent of Brazil’s SAF production in 2035, according to McKinsey estimates, and can be cultivated on severely degraded pasture without altering current land use. Moreover, the incorporation of bioenergy with carbon capture and storage (BECCS) systems into biofuel production could enable a new market potential for carbon-negative fuels.
Brazil could also be a potential global producer of biocarbon for metallic iron production. This would use biomass sourced from eucalyptus to replace pulverized metallurgical coal in existing blast furnaces, reducing integrated steel plant emissions by 20 to 30 percent and supporting the transition of an industry responsible for about 8 percent of GHG emissions globally, according to International Energy Agency (IEA) data.12 Biocarbon can also be used to replace other types of fuel, such as natural gas and fuel oil in high-heat-intensity (above 450°C) industrial applications such as calcination. In Brazil alone, the biocarbon market could represent $3 billion to $4 billion as soon as 2030, according to our analysis. The main restrictions would likely be the growth cycle of eucalyptus and the installation of continuous carbonization furnaces necessary for producing high-quality methane-free biocarbon. This would enable Brazil to produce green pig iron, which emits about 90 percent less emissions than traditional metallurgical coal, and thereby capture premiums in international markets.13
Finally, Brazil also has the potential to establish a robust biomethane industry, which is projected to exceed a market value of $15 billion by 2040.14 This growth could be achieved by capitalizing on waste and byproducts. Investments in biodigester, biogas upgrades, and biomethane transportation infrastructure would be required, focused on three main feedstocks: sugarcane vinasse or filter cake, animal waste, and municipal waste.
Energy and resource efficiency: Key roles for greater industry efficiency and recycling
Brazil could make its industries more energy efficient, although the path is challenging. In heavy industries, material substitution, efficient equipment, and advanced energy-management systems could all serve to improve efficiency. For light industries, expanding the use of efficient electric motor systems would be needed. Brazil also has room to step up its material recycling.
Industry efficiency
Biofuels dominate as the primary energy source for the Brazilian industry, accounting for 48 percent of the energy mix.15 However, fossil fuel sources still constitute 29 percent of the energy mix, while electricity, a key indicator of industrial energy efficiency, makes up 23 percent.16 This largely aligns with the global average.17
In Brazil, industrial energy intensity rose by 2 percent annually on average between 2005 and 2021, highlighting the critical need for the industrial sector to improve its energy efficiency (Exhibit 3).
Heavy industry—including cement, steel, pulp and paper, and mining—represents nearly 70 percent of the industrial segment in Brazil.18 Machinery is on average about 14 years old, with 38 percent nearing or exceeding the manufacturer’s recommended life cycle. In biofuels and metallurgy, the average machinery age is 20 and 18 years, respectively.19 These older assets, often equipped with outdated technologies, tend to be less energy efficient and increase greenhouse gas emissions. However, the depreciated capital costs make divesting fossil fuel assets and replacing them with electrified ones less attractive. As less carbon-intensive feedstocks such as biomass and biomethane become available, converting old fossil fuel–based infrastructure will become more feasible. This could potentially trigger investments in energy efficiency. In the short term, alternatives—such as material substitutions (for example, reducing the clinker ratio in cement production) and advanced energy-management systems to enhance the visibility of energy use—could help reduce energy intensity.20
Light industries, including food, beverages, machinery, construction, and textiles, constitute the remaining 30 percent of the industrial segment. For these industries, the keys to greater energy efficiency include technical measures such as expanding the use of efficient electric-motor systems and increasing the stringency of minimum energy performance standards (MEPS) for motors.21
Circularity improvement through recycling
Circularity represents a transformative approach to the economy and growth. This approach fosters the efficient use of natural resources and sustainable practices throughout the value chain. The circularity framework contributes to emissions reduction and creates value for businesses through four key levers: tightening the recirculation loop; recirculating for longer (extending the life cycle of products); cascading the use of products by repurposing them for new applications; and enhancing the reusability of products, parts, and materials.
In June 2024, the Brazilian government approved the National Strategy for Circular Economy (ENEC), marking a significant step toward promoting circular initiatives nationwide.22 The decree foresees establishing targets, KPIs, and standards; developing a market for circular goods; and devising financing mechanisms, among other goals.
While materials such as aluminum cans and paper are largely recycled in Brazil (97 percent and 67 percent, respectively), only 4 percent of Brazilian urban solid waste is currently recycled.23 This is substantially less than the European Union, India, and the United States, each of which recycles more than 30 percent of its urban solid waste (Exhibit 4).
Brazil has a well-established National Solid Waste Policy (PNRS) and National Solid Waste Plan (Planares), but targets have not been met historically: landfills should have been eliminated by 2014, but the deadline was postponed to 2024, and more than 3,000 landfills are still operating.24
Several challenges contribute to these low recovery rates. There is insufficient engagement with selective collection systems, largely due to inadequate infrastructure and a general lack of awareness. Local markets for commercializing and recycling materials need to be more present or organized. The logistics chain is inconsistent, failing to provide a stable and secure supply of materials. Also, substandard disposal alternatives such as landfills would need to be addressed.25
In addition to the financial gains, positive externalities such as job creation and reduction of pollution and emissions could also be considered.
To capture this potential, an end-to-end strategy is required. This would require setting clear recyclability targets throughout the value chain; promoting practical measures and design improvements, such as avoiding nonrecyclable and multilayered plastics; making secondary materials more competitive, including potentially through microfinancing; and improving selective collection, modernizing recycling plants, and mechanizing sorting units.
Natural climate solutions: The opportunity to play a leading role in the global CO2 removal market
Natural climate solutions could represent 20 to 50 percent of the emission-reduction opportunity until 2030, contributing reductions of five to 12 metric gigatons of CO2 equivalent (CO2e).26 Brazil alone has 15 percent of the potential of low-cost natural climate solutions—the largest alongside Indonesia.27
Among other advantages, Brazil is well positioned to establish itself as a global supplier of carbon removal certificates. This in turn could enable Brazil to play a central role in scaling the international carbon removal market while widening conservation projects to decrease or eliminate deforestation. Article 6 of the Paris Agreement aims to establish a global carbon credit market, enabling international cooperation for countries to reach their nationally determined contributions (NDCs).
Brazil’s full carbon sequestration opportunity—about two metric gigatons (Gt) of CO2 per year—is significantly larger than its projected domestic demand of 0.3 Gt of CO2 per year. If Brazil went beyond its own net-zero goal, it could potentially generate CO2 removal (CDR) certificates through the implementation of Article 6,28 creating a new global commodity and supporting the decarbonization of residual emissions worldwide.
Land use, land use change, and forestry (LULUCF) are currently responsible for 50 percent of Brazil’s emissions, and agriculture for about another 25 percent. Together, those industries account for more than three times the combined emissions of industry, transport, and energy generation, which together total 20 percent of Brazil’s emissions.29 The opportunity here is that LULUCF and agriculture are also the most economically efficient way to decarbonize, at a cost below $20 per metric ton of CO2e. In fact, agriculture and cattle ranching would have a negative cost. For example, every dollar invested in the decarbonization of cattle ranching translates to $2 in productivity gains, according to our analysis.30
We estimate that Brazil has the potential to issue CO2 certificates covering emissions of about 1.7 GtCO2e per year by 2050. This scenario would require the LULUCF and agriculture sectors to contribute with emissions abatement between 2.9 to 3.3 GtCO2e in 2050 compared with 2021 levels.31 Brazil could potentially achieve these reductions through three main actions: restoration of degraded pastureland to native biomes, reduction in deforestation, and improvement of land use practices (Exhibit 5).
Deforestation prevention
Brazil has committed to eliminating illegal deforestation by 2028. Despite progress in reducing the loss of primary forest by 2014, deforestation increased by 83 percent from 2015 to 2022, with 2022 reaching levels close to those of 2009 (Exhibit 6).32
Most of Brazil’s deforestation occurs in the Amazon, specifically in the Arc of Deforestation, a region located at the forest’s borders that includes parts of Mato Grosso, Rondônia, and Acre. Preserving this important forest would cost $1.9 billion to $2.3 billion annually. That compares with the Amazon’s value of $317 billion, as estimated by the World Bank.33
To live up to its pledge of zero illegal forestry, the country needs to tackle important roadblocks on funding (public and private) and land ownership, since the right to commercially explore land through projects requires a complex process to provide ownership traceability. For active projects, intensifying measurement, reporting, and verification (MRV) practices can ensure proper and continuous monitoring and promotion, and the “standing forest economy”34 can ensure long-lasting results through payment for carbon stock or environmental services.
In 2023, deforestation in the Amazon slowed to 0.78 million hectares (ha) from 1.25 million in 2022 but kept the pace in Cerrado (1.10 million ha) and grew in Caatinga (0.26 million ha versus 0.21 million ha in 2022).35 This topic could become more central in global trade discussions as international regulations on deforestation-free supply chains are implemented.
Restoration of native forests and afforestation
Brazil’s CO2 sequestration opportunity is still untapped. The estimated gross value-added potential ranges from $16 billion to $26 billion per year.36 However, Brazil is currently benefiting from less than one million metric tons of a market that could reach 1.7 gigatons for exports and 300.0 Mt domestically. Unlocking the opportunity through restoration, afforestation, and agroforestry initiatives could generate up to 880,000 jobs, of which about 57 percent would be located close to project sites.37
Restoration projects have high initial capital spending costs, and to scale them would take strong funding models, such as offtake agreements. Other important elements include capacity building, R&D, and the development of a robust value chain—covering seed collection and production, seedling nurseries, mechanized planting, health monitoring, project financing, certification, and verification—to enable the planting of an average of about one million trees per day between 2024 and 2050.
A potential $100 billion boost to Brazil’s GDP by 2030
As well as making a substantial impact on global emission-reduction efforts, the measures and opportunities detailed above could also be a boon for Brazil’s economy. As part of this research, we have sought to quantify both Brazil’s cost advantage in activating decarbonization and the potential implications for GDP and jobs.
For Brazil’s cost advantage in activating decarbonization, we estimated the level of emission reduction that could be possible if a carbon price were fixed. Our analysis suggests that Brazil could eliminate 80 percent of emissions given an activation carbon price of $15 per metric ton of CO2e and 95 percent of emissions at $20 per metric ton. Other major emitters would need a significantly higher carbon price—as much as five times that amount—to reduce 95 percent of emissions, according to our analysis. Furthermore, a theoretical carbon price of $35 would allow Brazil to begin a carbon-negative trajectory no later than 2035 and abate as much as 3.8 GtCO2e by 2050.
For the economic impact, we modeled the potential incremental growth in the economy from three scenarios (Exhibit 7). First is a status quo scenario, with economic activity growing broadly in line with macroeconomic indicators. Second is an action plan across sectors that seeks to align the Brazilian economy to a net-zero 2050 path. The third is a scenario we describe as the “green powerhouse.” This would use all the levers mentioned earlier in an attempt to reach net zero as quickly as possible and demonstrate Brazil’s ability to become carbon negative and a leading global force for decarbonization. Assuming that this latter path is accompanied by a carbon price of $35 per metric ton of CO2e, our activation analysis suggests that this could boost Brazil’s GDP by about $100 billion by 2050 and create about 6.4 million jobs, while also attracting significant investment to the country. From an economic perspective, this path would be more than twice as effective as Brazil’s current 2050 net-zero aspiration.
What would it take for Brazil to become a global green powerhouse?
This opportunity spans most sectors and virtually all regions, scaling relevant economic growth, employment, environmental conservation and restoration, and climate risk resilience. Capturing it would be challenging and require coordination among the three spheres of government, private capital, and civil society to build and scale new value chains. Some initial steps have already been taken, including the recently enacted “low carbon hydrogen” and “fuels of the future” regulations noted earlier. However, there is still much to do in providing additional regulatory frameworks, organizing MRV systems, enabling financing and offtakes, and building the future capabilities needed to operate this value chain.
Here we identify six nonexhaustive dimensions that public and private sector leaders may want to consider when defining their path:
- Understand the business ecosystem needed. The real value will require new local and global value chains, many of which are still unstructured or have not been deployed at scale. Thus, it will be important to understand which steps of the chain make sense for an organization and which will require collaboration through M&A, joint ventures, or partnerships to evaluate whether to enter these markets or develop the capabilities.
- Identify demand pools willing to pay premiums or commit to long-term offtake deals. In addition, determine which markets to enter, expand in, or even create, given that a big part of projected demand comes from nascent or underdeveloped markets. Securing long-term buyers and demand guarantees would be critical to overcome uncertainty and mitigate the risks associated with the high initial investments required. These guarantees would also potentially enable project financing across the value chain. Brazil’s experience in scaling renewables will be invaluable in this undertaking.
- Develop a ‘capital expenditures factory’ model. The green economy’s capital expenditure demands are structurally higher than those of their gray alternatives while yielding lower operating expenditure. A “capital expenditures factory” model built around efficient planning and execution of capital spending could help reduce implementation costs and accelerate project timelines, anticipating payback for high initial investments. This could be especially important given that inflation is currently rising in capital expenditure projects.
- Ensure an organizational setup that is well adapted to the green economy. This includes fit-for-purpose structure, governance, talent, and the capabilities required to seize the opportunity in a market that is driving transformation across value chains to comply with green-economy requirements. Developing, adopting, and integrating new technologies is an important part of this changing structure: new technologies would need to be deployed at unprecedented scale, using a knowledge base that is still advancing from theoretical, conceptual, or localized implementation levels to actionable at-scale applications.
- Activate a funding strategy that leverages sustainable financing alternatives. These include climate funds, incentivized debentures, offtake agreements, and green bonds, as well as traditional financing (such as project financing) to realize the venture and pave the way for scalability and sustainable growth. This is particularly important in light of the current challenges of limited access to financing and falling valuations.
- Understand the regulatory landscape. As legal and regulatory frameworks evolve in response to climate changes and public pressure, leaders will need to understand the regulatory landscape surrounding the green economy in Brazil and globally to determine what role to play in ongoing discussions among governments, entities, organizations, and key stakeholders nationally and internationally. These regulations affect the shaping of local and global markets for greener solutions and establish incentives or penalties within and across borders in different geographies, as well as shaping the dynamics of global demand and project economics.
The leaders of the new sustainable economy will be those who chart bold courses, navigating challenges with confidence while seizing the economic opportunities of the global green economy. Brazil has much to gain both environmentally and economically in embracing boldness. And in doing so, it has the potential to establish itself as a global sustainability leader.