Subsidies, Net Zero Transition and Public Debt: An Analysis for the Oil and Gas Industry in Brazil

Abstract Despite awareness of the challenges in promoting the decarbonization of the economy, explicit fossil fuel subsidies have increased considerably worldwide in the past decade, reaching an all‐time high at US$1 trillion in 2022. Considering the net‐zero transition and the increase of modern public debt, this article assesses the most relevant subsidies for fossil fuels in Brazil and how, due to some conflict with ongoing deficits in the national public budget, they neither adhere to energy justice principles nor foster energy transition. Brazil currently allocates a substantial 2.0% of the country's gross domestic product for subsidies, considering both implicit and explicit calculated values. We observe that in certain years, almost one‐third of the nominal investment budget has been waived in tax revenue from Repetro, a production‐focused preferential tax treatment for the oil and gas industry, with no performance standards set on the beneficiaries. Conclusions indicate that the country should consider an early phase‐out of Repetro and would be better served through the expansion of policies aimed at reducing fuel poverty by increasing direct financial transfers to low‐income consumers, such as Gas Aid, which is currently relatively modest in value and has a relevant regional and social distributional outcome.