Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform

The document examines Brazil's trajectory of energy subsidization from the 1930s to 2010, highlighting a cycle of industrial promotion, unsustainable financial deficits in the 1980s, and a partially successful liberalization process in the 1990s. It argues that subsidies distort price signals, discourage efficiency, and create entrenched political interests that make reform fragile and difficult, particularly when energy crises occur in related sectors.

• Fossil-fuel subsidies in Brazil were primarily used to promote industrialization and reduce regional economic disparities, but they eventually hindered economic growth by distorting price signals and discouraging energy conservation.
• During the 1970s and 1980s, Brazil used cross-subsidies where gasoline was priced above import-parity to fund cheaper diesel, fuel oil, and liquified petroleum gas (LPG).
• The use of an oil price stabilization fund to maintain consistent prices led to a massive financial deficit by the end of the 1980s, requiring the Brazilian Treasury to transfer R$5.8 billion (approximately US$3.1 billion in 2010 rates) to Petrobras in the mid-1990s.
• A liberalization program in the 1990s aimed to introduce competition and remove subsidies gradually, starting with low-impact products like lubricants in 1991 and ending with gasoline, diesel, and LPG adjustments to Brent prices in 2001.
• The 2001 electricity crisis, caused by under-investment and drought, provided political legitimacy to anti-reform lobbyists, leading the government to stall the energy liberalization process after 2002.
• The discovery of large offshore oil reserves in 2006 and high global oil prices led to the reintroduction of petroleum subsidies in 2008 to mitigate economic impacts.
• The document concludes that subsidies create entrenched stakeholder groups—such as ethanol producers and large industrial consumers—that resist reform, making any policy changes fragile and susceptible to reversal.

APA

de Oliveira, A., & Laan, T. (2010). Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/lessons_brazil_fuel_subsidies.pdf

Chicago

de Oliveira, Adilson, and Tara Laan. Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform. International Institute for Sustainable Development, 2010. https://www.iisd.org/system/files/publications/lessons_brazil_fuel_subsidies.pdf.

Wikipedia

{{cite report |last1=de Oliveira |first1=Adilson |last2=Laan |first2=Tara |title=Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform |publisher=International Institute for Sustainable Development |date=June 2010 |url=https://www.iisd.org/system/files/publications/lessons_brazil_fuel_subsidies.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{deoliveira2010lessons, author = {de Oliveira, Adilson and Laan, Tara}, title = {{Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform}}, institution = {International Institute for Sustainable Development}, year = {2010}, month = jun, url = {https://www.iisd.org/system/files/publications/lessons_brazil_fuel_subsidies.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }