In a move that has gone largely unnoticed by the general public, the National Petroleum, Natural Gas and Biofuels Agency (ANP) took an important step in February of this year towards consolidating Brazil's leading role in the global energy transition process.

On February 10th, the ANP board approved ANP Resolution 866/22, which significantly expanded the list of projects eligible to receive investments that oil companies are required to make annually in research, development research, and development and innovation (RD&I).

With this expansion, the regulation of RD&I now expressly encompasses the possibility of investments in projects related to topics unrelated to the oil sector, including those involving decarbonization, energy transition, and renewable energy.

The change represents an important paradigm shift, since it is the first time that the ANP, an authority born to stimulate the development of the Brazilian oil industry, explicitly recognizes, in its regulations, the strategic role of oil companies in the development of technologies that, in the near future, will mitigate the environmental impacts of this industry and eventually replace the use of fossil fuels in the national energy matrix.

RD&I Regulation

The oil and natural gas exploration and production contracts signed in Brazil include a provision that requires, under certain circumstances, that companies invest a percentage of the gross revenue from their oil and natural gas production in RD&I projects (RD&I Provision). In the last five years alone, this obligation resulted in investments of almost R$10 billion in RD&I in Brazil, equivalent to 20% of the federal public budget directed to scientific research in the same period.

It is important to note that only RD&I projects in compliance with ANP regulations are eligible to receive investments based on the RD&I Clause. Since 2015, the main standards that regulate and direct investments in RD&I are ANP Resolution 50/15 and ANP Technical Regulation 3/15.

Originally, these rules required that investments in RD&I have the purpose of promoting scientific and technological development in the oil, natural gas, and biofuels sector. In addition, they authorized investments in "other renewable energy sources corresponding to that sector." Therefore, even investments in renewable energy should be related to the oil industry. There was no reference to projects aimed at energy transition or decarbonization.

With the publication of ANP Resolution 866/22, these standards have been significantly changed. Four new categories of RD&I projects have been included that are eligible to receive resources from oil and natural gas producing companies:

• renewable energy and energy transition;
• new actions for innovation and startups;
• innovation in micro and small enterprises; and
• reduction in risks and bureaucracy in regulations.

In addition to creating regulatory definitions for concepts such as renewable energy , energy transition, and decarbonization,^[1] the resolution brought in a central clarification: the express provision that the expenses qualified as RD&I encompass not only projects directly related to the petroleum sector, but also those from related sectors of renewable energy, energy transition, and decarbonization.

Impacts of the new regulation

According to a clarification released by the ANP itself, "the new version of the resolution proposes more clarity in the eligibility of RD&I projects related to renewable energy and energy transition, including decarbonization, CO₂ capture, and environmental characterization and protection studies.”

The agency also stated that it will establish a priority procedure for projects and programs that prioritize the allocation of RD&I resources to hydrogen, biofuels, energy storage, and digital transformation.

This change has a double importance:

• It confers greater legal security, from the regulatory point of view, to companies that have already been directing their investments in RD&I projects beyond the oil, natural gas, and biofuel areas. Even before the change, several companies had already submitted and obtained exceptional approval from the ANP for research not directly related to the oil sector, on topics involving, for example, CO₂ capture, storage, and transformation.

• The regulatory change seeks to stimulate the development of more projects aimed at decarbonization and energy transition beyond the companies and research institutions that had already been spontaneously proposing this type of project.

A few months after the publication of the new regulation, the analysis of data on RD&I projects submitted to the ANP for approval points to a strong indication that the change in rules has already started to produce concrete effects.

Between 2016 and 2021, RD&I projects classified in the categories "biofuels" and "other energy sources" represented a percentage of 3.74% of all projects approved by the ANP. By 2022, this percentage has more than doubled to 7.65% of the total.

It is possible that the proportion is even higher, because some lines of research, such as projects involving capture and underground storage of CO_2, are often approved by the ANP as part of larger projects related to improving the efficiency of oil fields, which ends up leading to their inclusion in the "exploration and production of oil and natural gas" category.

Brazil as a world protagonist

Knowing that more than 89% of global CO₂ emissions come from burning fossil fuels, it is evident how fundamental the expansion of a renewable energy matrix and the decarbonization of energy production sources is.

The effects of the conflict between Russia and Ukraine have also highlighted the issues of energy security and the high dependence of some countries on natural gas and oil. The skyrocketing fuel prices are just another undesirable consequence of this scenario. All these problems reinforce the urgency of rethinking the world's energy matrix.

Recently, the International Renewable Energy Agency's World Energy Transitions Outlook 2022 estimated that it will be necessary to invest around $5.7 trillion per year by 2030 in energy transition. Renewable energy’s share will have to grow strongly in all sectors, from 14 percent today to about 40 percent of all energy produced in 2030. The report also points out that governments will need to act with cross-cutting structural policies capable of accommodating the different technological routes and social demands.

The increase in investments in RD&I projects focused on renewable energy, energy transition, and decarbonization is a growing trend not only in our country, but worldwide. Given Brazil's continental dimensions and natural vocation for a cleaner energy matrix, we have the potential to lead the global energy transition movement and consolidate our position among the countries with the cleanest energy grid in the world.

Furthermore, as a signatory to the Paris Agreement and the Kyoto Protocol, Brazil has assumed international commitments that involve ambitious targets in terms of carbon reduction. The ANP's posture in recent years, aimed at a series of revisions to its regulatory framework and greater adaptation to the global energy scenario, could not be more in tune with these goals.

^[1] "1.21C. Decarbonization - The process of reducing and, in the long term, eliminating the emission of greenhouse gases, especially carbon dioxide."