OECD Inventory of Support Measures for Fossil Fuels: Country Notes

Brazil

Energy resources and market structure

Brazil is Latin America’s largest economy, and its energy consumption has risen rapidly in recent years. In 2022, it ranked as the sixth-largest energy consumer and the tenth largest energy producer in the world.

Hydropower represents 63% of the Brazilian electricity matrix. Wind power is the second largest source of energy in Brazil with 15 GW of installed capacity and an additional 4.6 GW already contracted or under construction and expected to come online by 2023. Brazil has 601 wind farms utilising 7 000 wind turbines.

Brazil is a relatively small producer of coal, extracting about 5.85 Mt in 2022. Due to its high ash and low calorific content, Brazilian coal is unsuitable for use in the steel industry. Therefore, 85% of coal consumed in the country is imported, and coal produced domestically is used primarily for generating electricity.

 

Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balance  (database).

The national oil and gas company, Petrobras (Petróleo Brasileiro SA) enjoyed a monopoly in hydrocarbon production until 1997 and currently retains a dominant position in the market. Brazil’s oil and gas industry is regulated by the National Agency of Petroleum, Natural Gas and Biofuels (ANP). In 2007, the domestic production of oil and gas went through a significant process of expansion when large deposits of these resources were discovered in Brazil, estimated to be around 5 to 8 billion barrels of oil equivalent. Brazil also boasts significant natural gas reserves, mainly located in its South-eastern coast. Petrobras controls over 90% of these gas reserves, as well as the production, transportation, and import of natural gas in the domestic market. However, as a part of its disinvestment strategy, the state company announced in 2018 a USD 20 billion-asset sale and partnership plan to reduce its debt, which is amongst the highest of the world’s oil companies.

According to the Brazilian Electric Energy Trading Chamber (CCEE), electricity consumption in Brazil increased by 1.5% in 2022, as the economic situation improved after the COVID-19 pandemic. State-owned Eletrobras (Centrais Elétricas Brasileiras SA) is the dominant power generator, while 41 other private and state-owned companies are responsible for the distribution.

Energy prices and taxes

Prices for natural gas and for petroleum products in Brazil were officially deregulated in January 2002 with the elimination of formal price controls. Coal prices in Brazil have been deregulated since 1990 and are set by the market. Currently, electricity tariffs are set by Agência Nacional de Energia Elétrica (ANEEL, the electricity regulator), which establishes maximum values to be charged in each concession agreement with contracted distributors.

Figure 2. Total tax rebates and support for fossil fuels in Brazil

 

 

1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).

2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.

4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.

Source: OECD Inventory of support measures for fossil fuels (2023).

Recent developments and trends in support

Brazil’s coal sector attracts support mainly through the Energy Development Fund (Conta de Desenvolvimento Energético — CDE) and through tax exemptions for coal used in generating electricity. Declines in the total support seen in the graph for years 2016, 2017 and 2019 were mainly due to the absence of estimates for the CIDE Fuel-Tax Reductions and the Energy Development Fund measures. The administrative oversight for these measures were transferred to the Electricity Energy Trading Chamber (CCEE) in May 2017.

In Brazil, oil and gas production is taxable under two general social contributions: the federal PIS (Programa de Integração Social) and COFINS (Contribuição para o Financiamento da Seguridade Social). Refined oil products are additionally subject to other taxes namely CIDE (Contribuição sobre Intervenção do Domínio Econômico), and ICMS (Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações), with the latter levied at the state level.

Rates for PIS and COFINS and CIDE contributions were increased in February 2015, and then dropped again in May 2015 when the CIDE fuel-tax reductions, which assigned zero rates in June 2012 for gasoline and diesel, were increased in May 2015. In May 2018, following an increase in the price of diesel and a major strike by truck drivers all over the country, the CIDE fuel-tax rate for diesel was set to zero again. In March 2021, the Brazilian government provided a temporary tax exemption on PIS-COFINS tax levied on diesel and LPG in order to offset increases in ex-refinery prices. To cushion domestic consumers from the effects of the global energy crisis, the Brazilian government increased in 2021 its support to the energy consumption of poor households, by providing vouchers covering half of the cost of a 13kg LPG cylinder every two months. The voucher value was doubled for the August and October payments.

In 2022, the Federal Government of Brazil enacted a cap on electricity, fuels and transportations services VAT (ICMS) at 18% in the country. As the tax is administered by States, who are also in charge of rate-setting, a compensation is planned by law if loss in revenues is higher than 5% of the amounts collected in 2021.

The fiscal cost of support measures for fossil fuels in Brazil was estimated at BRL 29.16 billion in 2022. Fifty per cent (50%) was directed at end user beneficiaries, as opposed to 50% directed to firms. Support was mainly given out in the form of tax expenditures (BRL 25.43 billion) accounting for 87% of the total fiscal cost of support measures. Direct transfers amounted to BRL 3.72 billion.

The fiscal cost of support measures for fossil fuels has decreased by 4% since 2017. Since last year, tax expenditures have decreased by 12%, from BRL 28.04 billion to BRL 25.43 billion and direct transfers decreased by 39%, from BRL 5.10 billion to BRL 3.72 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.

Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)

	2017	2018	2019	2020	2021	2022
Tax expenditures	26.764	23.451	22.595	21.707	28.038	25.434
Direct transfers	3.559	8.254	5.543	3.519	5.097	3.723
Total	30.323	31.705	28.138	25.226	33.135	29.157

1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.

2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.

4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.

Source: OECD Inventory of support measures for fossil fuels (2023).

Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.

Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)

Measures associated with large fiscal cost in 2022		2022	2017	Variation since 2017
Tax expenditures
	PIS/COFINS Fuel-Tax Reduction	12.842	14.263	-1.421
	Special Tax Regime for Goods used in the Exploration and Production of Oil and Natural Gas Fields — REPETRO	10.000	10.000	0.000
	Tax Reduction on the Import and Retail Sale of Naphtha and Other Petroleum Products	1.783	1.761	0.023
Direct transfers
	Energy Development Fund (Conta de Desenvolvimento Energético (CDE)	2.727	2.662	0.066
	Fuel Consumption Fund (Conta de Consumo de Combustíveis (CCC) - Reembolso mensal	0.967	0.895	0.072
	National Plan for Research and Development in the Oil and Gas Sector – CT-Petro	0.029	0.002	0.027

1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).

2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.

3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.

4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.

Source: OECD Inventory of support measures for fossil fuels (2023).

Table 3. Description of selected support measures for fossil fuels

PIS/COFINS Fuel-Tax Reduction	This measure was introduced in 2004 by the Federal Government to limit domestic fuel-price variations. It provides for a reduction in the PIS/COFINS fuel tax that is levied on the import and retail sale of gasoline, diesel fuel, aviation kerosene, and natural gas in Brazil. PIS/COFINS tax rates are specific in that they are levied on the basis of fixed prices and the volume sold or imported. In March 2021, the Brazilian government has extended this measure to LPG, introducing a tax exemption on PIS/COFINS tax levied on LPG intended for domestic use and packaged in containers up to 13 kilos. PIS/COFINS fuel-tax rates are calculated on a cubic meter basis and have varied across the years. Since data on individual exemptions are not available, the Inventory estimated the value of revenue foregone by subtracting the revenue generated using the reduced fuel-tax rates from the revenue generated when standard fuel-tax rates are applied using IEA data on the volume of fuel sales for final consumption. Following the types of fuel included in the published rates of exemption, annual amounts of the revenue foregone for this measure are allocated to gasoline, jet kerosene, diesel fuel and natural gas.
Special Tax Regime for Goods used in the Exploration and Production of Oil and Natural Gas Fields — REPETRO	The REPETRO programme started in 1999 to allow upstream oil and natural-gas operators to benefit from a special tax regime on their imports and presumed exports of machines, equipment, instruments, tools, and spare parts intended for use in Brazil in connection with the exploration, development, production, and storage of oil and natural gas. REPETRO provides exemptions from PIS and COFINS social contributions, the IPI excise tax, customs duties, as well as exemptions from an additional tax on goods imported to Brazil by sea (Adicional de Frete para a Renovação da Marinha Mercante – AFRMM). ICMS tax reductions may also be available, depending on the tax legislation of the State concerned. This measure is scheduled to remain in force through 31 December 2040. According to the Brazilian Federal Court of Auditors, tax exemptions due to REPETRO reach BRL 10 billion annually. Annual transfers related to this measure are allocated to crude oil and natural gas on the basis of the IEA’s Energy Balances for Brazil’s extraction sector.
Tax Reduction on the Import and Retail Sale of Naphtha and Other Petroleum Products	This provision was introduced in 2005 to provide oil companies with reductions from PIS and COFINS social contributions on their imports and retail sales of naphtha and other petroleum products. This measure is allocated to naphtha and natural gas liquids.
Energy Development Fund (Conta de Desenvolvimento Energético (CDE)	Created in April 2002, the Energy Development Fund (Conta de Desenvolvimento Energético (CDE) is a fund aimed at promoting the energy development in Brazil, based on a programme from the Ministry of Mines and Energy (MME). The Electric Energy Trading Chamber (CCEE) has been responsible for financial and operational management of the fund since May 2017. The resources of the CDE are collected through annual quotas set by the National Electric Energy Agency (Aneel), paid by the agents that sell energy to the consumer, through a tariff charge to be included in the tariffs of the distribution and transmission systems, among other sources. The CDE must also provide resources for its administration and movement, including administrative and financial costs and tax charges (CAFT). The Energy Development Fund aims to grant tariff discounts to low-income, rural, irrigating users; to pay for the generation of energy in isolated systems through the Fuel Consumption Account (CCC); pay concession damages; encourage the subsidy program for the expansion of the natural gas network; guarantee the tariff modicity; promote the competitiveness of national coal; among others. Transactions are ensured by an independent audit, which periodically issues compliance reports.
Fuel Consumption Fund (Conta de Consumo de Combustíveis (CCC)) - Reembolso mensal	Cash transfers provided to electricity suppliers not connected to the national grid - sistemas isolados nao integrados ao Sistema Interligados Nacional (SIN). These transfers are to cover extra costs associated with: i) purchases of fossil fuels (Custo de combustível e despesas acessórias); ii) generation costs (Custo de geração própria); iii) electricity purchases from other suppliers (Custo com contratação de potência e energia elétrica). This measure dates to 1970 and allows diesel-fired thermal power plants located in the northern region of Brazil (known as “isolated systems”) to benefit from refunds meant to offset the high costs of electricity generation in this area. The Fuel Consumption Fund (Conta de Consumo de Combustíveis — CCC) thus reimburses the difference between the region’s high costs for electricity generation and the national average cost, taking into account the costs associated with the purchasing and shipping of diesel fuel to this area. The fund was initially financed through a direct charge levied on electricity distribution and transmission companies. The Fuel Consumption Fund was managed by Eletrobras until May 2017, when the Electricity Energy Trading Chamber (CCEE) took over the financial and operational management.
National Plan for Research and Development in the Oil and Gas Sector – CT-Petro	In 1999 the Brazilian Government established the CT-Petro programme to conduct research in connection with enhanced oil and natural-gas recovery techniques. The programme encourages the training and qualification of workers and the development of partnership projects involving companies, higher-education institutions, and research centres linked to the oil and gas sector in the country. CT-Petro Programme was initially financed out of royalty revenues. However, under the new regulatory framework of the Brazilian oil and gas sector (Law 12.351 approved in 2010), which changes the form of oil royalties sharing, as of 2014 CT-Petro has been financed by the National Treasury. According to the Brazilian Financial Institution for Studies and Projects (FINEP), manager of the Fund, CT-Petro received approximately BRL 175 million in 2014. Experts fear for the future of the sector fund, since there is no guarantee that these Treasury contributions will be on a regular basis. The royalties which in previous years would finance CT-Petro Programme are now allocated to the new Pre-salt Social Fund, which is allocated 75% for public education and 25% for public health investments. This programme is allocated to the GSSE since it benefits Brazil’s oil and gas sector as a whole and does not necessarily increase the current production or consumption of fossil fuels. This inventory uses production data from the IEA’s Energy Balances to allocate the annual amounts reported in budget documents to oil and natural-gas extraction.

Data sources

Country data in OECD.stat

OECD Fossil Fuel Support Portal

National data sources

Note on the Methodology

Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.

The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.