Climate finance in Brazil

Climate finance in Brazil drives the transition to a low-carbon economy, as well as climate change adaptation and mitigation.  The country receives resources from various sources, such as international development institutions and the private sector.

Brazil occupies a large portion of the South American continent and is considered a megadiverse country, with species spread across six terrestrial biomes and three marine ecosystems. Greenhouse gas emissions in the country come primarily from land use (about 44% from forest burning) and agriculture.

Recent extreme events demonstrate Brazil's exposure: for example, official studies recorded that approximately 295,000 people were displaced by climate disasters in 2019. In light of this, the federal government has elevated the environmental agenda, recognizing sustainability as a national development priority and seeking to integrate climate goals into the economy. The United Nations Environment Programme (UNEP/UN) monitors biodiversity loss and supports initiatives that promote environmental conservation and the sustainable use of natural resources.

Among the national challenges is the coordination of sectoral and financial policies across different levels of government. A recent study notes difficulties in coordinating actions under the new Climate Plan with other public investment programs, such as the Growth Acceleration Program (PAC), which follow disconnected sectoral visions. On the other hand, Brazil has the potential to attract resources.

Brazilian context

Climate vulnerabilities

Torrential rains caused losses exceeding R$55.5 billion between 2017 and 2022, damaged more than 549,000 homes, and affected approximately 28.9 million people. On the other hand, prolonged droughts and heat waves reduce agricultural and water productivity; it is estimated that between 2013 and 2022, Brazil lost US$19.5 billion in annual income due to excessive heat (6 billion hours of work lost per year). These phenomena, which include episodes such as the April/May 2024 floods in the South and droughts in the Amazon. Studies by the National Institute for Space Research and international agencies show that, without action, adverse weather can exacerbate inequalities and increase costs in sectors such as health and agriculture. Thus, climate finance is needed not only to cut emissions, but also to strengthen adaptation and reduce future negative economic impacts.

Brazil occupies a large portion of the South American continent and is considered a megadiverse country, with species spread across six terrestrial biomes and three marine ecosystems. However, up to 90% of Brazilian species could be negatively impacted by climate change, with about a quarter of them at potential risk of extinction. Between 2020 and 2023, extreme weather events affected 32 million people and caused losses of 45.9 billion reais.

Brazil's energy matrix, with 83% renewable sources, represents a positive differential, but the energy sector still accounts for 18.22% of national greenhouse gas emissions. The country has set a national target of reducing emissions by 59% to 67% by 2035, compared to 2005 levels, seeking to contribute to the 1.5°C global warming limit established in the Paris Agreement.  The United Nations Environment Programme (UNEP/UN) monitors biodiversity loss and supports initiatives that promote environmental conservation and the sustainable use of natural resources.

Energy panorama

The Brazilian energy sector is one of the least carbon-intensive in the world, a direct result of the high share of renewable sources in the energy matrix and the historical dependence on hydropower. It is estimated that approximately 45% of primary energy demand in Brazil is met by renewable sources. Since 1990, electricity consumption has more than doubled, driven by economic growth and increased transportation demands.  Approximately 80% of the electricity generated in the country still comes from large hydroelectric plants.

As a result of prolonged drought events, there was a strategic move towards diversification with investments in solar, wind, and bioenergy.  These investments are encouraged by a favorable regulatory environment, anchored in a national energy auction system, which drives private capital for generation and expansion of transmission infrastructure.  The auction policy helps to expand installed capacity and mitigate risks related to long-term energy security.

Brazil is the main energy producer in Latin America and leads the region in energy exports, with a 1.579% growth in export volume between 2000 and 2023.  The majority of Brazil's total energy supply comes from oil (37%), followed by biofuels and waste (33%).  Domestic production is composed mainly of crude oil (49.7%), biofuels (29%), hydropower (10%), and natural gas (8.4%).  Oil refining capacity has increased by 32% in recent decades, improving the production of derivatives.

Total electricity generation in Brazil reached 707,596 GWh in 2023. The installed capacity of the electricity grid exceeds 150 GW.

To modernize the grid, approximately US$1.2 billion was allocated in 2024, with a projection of reaching US$4.2 billion by 2032. The sectors that consume the most electricity are transportation (37%), industry (34%), and residential use (12%). The average price of electricity increased from US$159.21 per MWh in 2022 to US$165.83 per MWh in 2023. On average, Brazilians spend about 4.5% of their annual income on electricity bills. Among the factors driving up costs are water shortages and rising tariffs, which impact inflation.

Climate finance and legal frameworks

Climate finance in Brazil has been consolidated since the mid-2000s through various government initiatives and international partnerships. In 2008, the country created the Amazon Fund it proposed at COP13, managed by BNDES and focused on REDD+ actions for forest protection.  The following year (Law 12.114/2009), the National Fund on Climate Change (Fundo Clima) was established, with resources for mitigation and adaptation projects. In the agricultural sector, the Low Carbon Agriculture Program (Plano ABC), launched in 2010 by the Ministry of Agriculture, offered subsidized agricultural credit lines (2 billion reais at 5.5% per year in 2010/11) for sustainable technologies, although in the first year only 20% of these resources were used.

In the 2010s, Brazil expanded the scope of climate finance with multilateral and private instruments. National companies began issuing green bonds to finance renewable energy and efficiency; for example, BRF launched the first Brazilian green bond in 2015.  Multilateral institutions financed key programs: in 2022, the Inter-American Development Bank (IDB) approved US$250 million (US$75 million of which came from the Green Climate Fund) for the BB Amazônia Program for a sustainable bioeconomy, implemented by Banco do Brasil.  In the same year, the World Bank allocated a US$500 million loan to Banco do Brasil for credit lines linked to emissions reductions.  At the federal level, in 2024 the Brazil Climate Investment Platform (BIP) was launched to coordinate strategic public and private projects in sectors such as bioeconomy, green industry and energy, with the support of BNDES and international partners (Bloomberg Philanthropies, GFANZ, GCF).

The national legal framework encompasses laws and agencies dedicated to climate change. Law No. 12,187/2009 established the National Policy on Climate Change (PNMC), and Law No. 12,114/2009 created the National Fund on Climate Change (FNMC).  Subsequent decrees, such as 7,343/2010, and government resolutions, such as CMN resolution 4,267/2013, regulate these instruments.  At the institutional level, the main climate governance body is the Interministerial Committee on Climate Change (CIM), chaired by the Civil House (with the MMA as executive secretary), reactivated in June 2023.  The Ministry of the Environment and Climate Change (MMA) coordinates federal policy, with support from the Ministry of Science and Technology (MCTI) in environmental monitoring and from other sectoral ministries. The FNMC, linked to the MMA, allocates accounting resources to mitigation and adaptation projects, applying reimbursable credits via BNDES and non-reimbursable credits via MMA.  Another relevant fund is the Amazon Fund, administered by BNDES, which raises international donations for conservation and sustainable use projects in the Legal Amazon.

In 2024, the Brazilian Sustainable Taxonomy (TSB) was established by Decree 11.961/2024, creating the Interinstitutional Committee of the Brazilian Sustainable Taxonomy (CITSB), chaired by the Ministry of Finance. The TSB establishes specific criteria for classifying activities that contribute to climate, environmental, and social objectives.  The regulation of the TSB will be the responsibility of sectoral bodies such as the Central Bank (BCB), the Securities and Exchange Commission (CVM), and the Superintendence of Private Insurance (SUSEP). Since 2022, the Central Bank has implemented mandatory climate testing and ESG requirements for financial institutions.

Financing

Public

The public sources of climate finance come from various national and subnational mechanisms. The National Fund on Climate Change (Fundo Clima ), created in 2009 and managed by BNDES under the coordination of the Ministry of the Environment, represents the main public climate finance instrument.  At the regional level, the constitutional funds of the North, Northeast, and Central-West (FNO, FNE, FCO) stand out, which reserved portions of their budgets for "green" or "low-emission" lines – for example, the FNO allocated approximately R$1.6 billion to low-carbon agriculture and forest restoration, and the FCO raised R$500 million through the "FCO Verde" line for sustainable projects.

After a period of depletion during the Bolsonaro administration, when it had only 400 thousand reais in annual budget, the fund was reactivated in 2023 with 630 million reais and expanded to 10.4 billion reais in 2024.  Interest rates vary according to the type of project: 1% per year for forest restoration, 6.15% for general projects and 8% for solar and wind energy.

The Amazon Fund, created in 2008 to receive international donations to combat deforestation, has raised 3.4 billion reais in donations in its history.  After four years of inactivity, the fund broke its fundraising record in 2023 with 726 million reais, diversifying its donor base to include the United Kingdom, the United States, Switzerland, the European Union and Denmark, in addition to the traditional Norway and Germany.

BNDES, the main financier of renewable energy in the country, disbursed 133.8 billion reais between 2000 and 2020 for renewable projects.  Between 2015 and 2020, the bank supported 138 projects with an installed capacity of 10,260 MW, enough to supply 16.4 million homes and benefit 54 million people.

The Alternative Energy Sources Incentive Program (PROINFA), created in 2002, offers long-term contracts for wind, solar, biomass, and small hydroelectric plants.  Beginning in the 1990s, the federal government began privatizing energy distribution companies in the country, with energy auctions, held since 2004, offering long-term contracts for renewable energy projects.

Private The private sector has a growing role in Brazilian climate finance. In recent years, companies and financial institutions have launched several green instruments. In 2024, for example, Brazil was the largest issuer of sustainable-labeled bonds in Latin America (approximately US$11 billion in total issuance), including corporate green bonds and thematic sovereign bonds (the second US$2 billion sovereign green bond was issued in 2023).