Original title: Environmental Governance in Brazil for the Oil and Gas Sector: Economic Impact of Environmental Regulation.
Authors: Rose Mirian Hofmann, Thiago Costa Monteiro Caldeira, Danny de Castro Soares, Felipe Fernandes Reis, Mathias Schneid Tessmann, Rafael Richter Oliveira da Silva, and Rogério Boueri Miranda.
Location of the intervention: Brazil
Sample size: National sectoral data (2000-2024) and projections (2025-2029).
Sector: Oil and Natural Gas.
Main variable: Economic impact of regulatory inefficiency in environmental licensing.
Type of intervention: Analysis of environmental governance and its economic effects.
Evaluation method: Economic modeling (Input-Output Matrix and CAPM).
Summary
This study offers a comprehensive analysis of how environmental governance, especially licensing processes, directly affects the development of the oil and gas sector in Brazil. The results indicate that the current Brazilian environmental licensing model generates high economic costs, considerable delays, and profound uncertainty for investors and operators in the sector.
This reality ends up affecting not only the agents directly involved in the oil and gas production chain, but also reverberates throughout the Brazilian economy, with significant impacts on job creation, tax revenue, economic growth, and industrial development. One of the main problems detected lies in the absence of robust instruments for proactive environmental planning, such as the Environmental Assessment of Sedimentary Areas (AAAS). Unlike countries such as Norway, the United Kingdom, the United States, and Australia, which have incorporated strategic environmental assessments into their sectoral planning process, Brazil concentrates almost all environmental analysis in the licensing phase of individual projects. This results in lengthy, uncertain, and costly processes, which ultimately discourage investment and increase the cost of capital for companies operating in the country.
The study concludes that, in addition to the possibility of reconciling economic development and environmental protection, this reconciliation is, in fact, a necessary condition to guarantee a virtuous cycle of sustainable growth. Modernizing environmental governance in Brazil, with a focus on greater integration, transparency, and earlier environmental assessments, is the recommended path to overcome the obstacles that currently exist.
Policy Problem
The oil and gas sector represents one of Brazil's largest economic drivers, accounting for a significant portion of the Gross Domestic Product, a large part of the trade balance, and substantial revenue from royalties and taxes. However, the current environmental regulatory framework, while fundamental to ensuring the sustainability of economic activities, has become a structural obstacle to the sector's development.
The absence of environmental planning instruments at the strategic scale, combined with institutional fragmentation and the overburdening of environmental licensing for individual projects, generates a dysfunctional dynamic characterized by uncertainty, unpredictability, and legal insecurity. This is not about questioning the importance of environmental protection, but about acknowledging that the model currently adopted in Brazil fails both in the efficient protection of ecosystems and in guaranteeing a minimally predictable business environment for investors. Centralizing environmental challenges in the licensing of each project, without a robust prior stage of territorial and sectoral planning, increases litigation, insecurity, and costs.
The results are clear: strategic projects for the country face delays that can exceed two years, with significant losses in investment, employment, and revenue. In many cases, unpredictability leads investors to abandon projects or demand risk premiums far exceeding those practiced internationally, harming the country's competitiveness. The problem is exacerbated in new exploration frontiers, where the absence of structured environmental data and the lack of prior definitions regarding land use conditions make the processes even slower and more costly.
Policy Implementation Context
The Brazilian model of environmental governance in the oil and gas sector has evolved without fully incorporating strategic planning instruments capable of anticipating the analysis of environmental and social impacts. While other countries have incorporated Strategic Environmental Assessment as an integral part of sectoral planning, Brazil still concentrates almost all of its assessment on the individual licensing phase. This means that, for each new project, the developer and environmental agencies practically have to start from scratch in data collection, impact analysis, and the definition of conditions.
The attempt to introduce Sedimentary Area Environmental Assessment (SAEA) sought to bring the country closer to this international model, but its implementation was slow, inefficient, and limited. The most emblematic example is the Sergipe-Alagoas Basin, whose SAEA process took almost eight years, a timeframe completely misaligned with the sector's planning and investment cycles. Meanwhile, competing countries operate under models in which areas are pre-classified according to their environmental suitability, with a clear definition of restrictions, requirements, and counterparties. This practice provides not only greater environmental protection, by anticipating risks and proposing mitigating measures even before auctions are held, but also greater legal and economic security for investors.
In Brazil, the overlapping responsibilities between federal, state, and, in some cases, municipal agencies exacerbate the situation. The absence of an integrated environmental database, the lack of standardization of technical criteria, and the poor coordination between different levels of government result in a business environment marked by uncertainty and frequent litigation.
Policy and Evaluation Details
The study structured a detailed assessment of the economic impacts of environmental governance in the sector, combining Input-Output Matrix models and CAPM financial analysis to measure the cost of regulatory risk. Using data from the National Petroleum Agency, IBAMA, IBGE, and financial systems such as Economática, the researchers constructed scenarios that measure the impacts of delays in licensing processes on macroeconomic variables.
The results show that delays of 12 to 24 months in the environmental licensing of large offshore projects can result in the loss of up to R$33,5 billion in direct investments in the sector, with an indirect impact of more than R$70 billion on aggregate economic output. The population's income suffers an estimated contraction of R$7,9 billion, and public revenue loses approximately R$10,8 billion in taxes and royalties. The effect on employment is equally significant: more than 210 jobs are not created, directly impacting the economic dynamics of coastal regions and associated production chains. These effects are not limited to the oil and gas sector, but reverberate throughout the Brazilian economy, with approximately half of the tax losses occurring in sectors outside the oil and gas complex.
Financial analysis also reveals that the cost of capital for companies in the sector in Brazil is significantly higher than that of companies operating in markets with more efficient environmental governance, reflecting the risk premium associated with regulatory uncertainty. This means that, even when projects are technically feasible, the additional financial cost often compromises their attractiveness, leading companies to prioritize investments in other countries.
Lessons in Public Policy
The study concludes that modernizing environmental governance in the Brazilian oil and gas sector is not merely an environmental issue, but also an economic, social, and international competitiveness agenda. International experience demonstrates that it is entirely possible to reconcile environmental protection with robust economic development, provided that the environmental variable is incorporated from the initial phases of sectoral and territorial planning. In the Brazilian case, this means systematically adopting Strategic Environmental Assessments, institutionally strengthening the application of Sedimentary Area Environmental Assessments, and ensuring that these assessments occur before the definition of the areas to be offered in exploration auctions.
It is also essential to create and maintain accessible and up-to-date public environmental databases that allow both regulatory bodies and companies to plan their actions based on high-quality information. Another key element is the adoption of cause-and-effect matrices that allow for an objective analysis of the environmental impacts of each activity, replacing the subjectivity that often characterizes current technical reports. A review of the legal and institutional framework, with a clear definition of competencies and workflows, is equally indispensable to eliminate overlapping responsibilities and reduce opportunities for institutional conflicts and litigation.
Finally, implementing compliance audits in licensing processes, with periodic monitoring of deadlines, technical criteria, and imposed conditions, can ensure greater legal certainty, procedural efficiency, and environmental quality. By implementing these measures, Brazil would not only unlock billions of dollars in investments in the energy sector but also strengthen its capacity to generate highly skilled jobs, expand its export base, and consolidate a path of sustainable development aligned with both global environmental goals and the country's economic and social needs.
Reference
Hofmann, RM, Caldeira, TCM, Soares, DC, Reis, FF, Tessmann, MS, Silva, RRO, & Miranda, RB (2024). Environmental Governance in Brazil for the Oil and Gas Sector: Economic Impact of Environmental Regulation. Brazilian Institute of Education, Development and Research (IDP).
