The Mismatch Between Supply and Demand in the Green Agenda

Much has been said about Brazil’s potential in the new green economy. The dominant narrative celebrates our comparative advantages: a largely renewable electricity matrix, an abundance of natural resources and capital, a privileged position in the race for sustainable fuels, and a potential leadership role in the bioeconomy. However, there is a major structural problem — rarely discussed — on this path: an excessive focus on supply and too little attention to demand.

Indeed, Brazil has been enthusiastic about building production capacities in solar and wind energy, hydrogen, SAF, green steel, green fertilizers, among others. Auctions and permits, incentive policies, regulatory frameworks, industrial policies, subsidies, and other measures have been implemented — but little is said about who will buy the resulting production. Even less is discussed about the challenges of accessing international markets for green goods, which are highly regulated and demanding. This asymmetry between supply and demand has already caused worrying imbalances, capital waste, and the risk of frustration from unfulfilled promises.

For example, according to Absolar, there are 119 GW of licensed capacity for centralized solar power generation that have not yet started construction. This figure represents nearly half of Brazil’s entire installed electrical capacity.

The abundance of renewable energy in Brazil is celebrated as a strategic asset — and it is. However, we are witnessing a major distortion: the accelerated construction of generation capacity, especially solar and wind, without corresponding firm demand or guaranteed access to consumer markets.

The result is growing idle capacity, curtailment (generation restrictions), and increasingly pressing problems with prices and investment returns — a classic symptom of supply-demand mismatch. Some plants are generating electricity with no buyers, either due to lack of market access or insufficient transmission infrastructure, while the power system faces cost overruns and overcontracting.

This supply-demand imbalance is not unique to Brazil. In China, for example, overinvestment in solar energy has caused major collapses — this week, it was Sunnova Energy — leading to falling prices and major sectoral adjustments.

It’s clear that investment in clean energy alone does not create sustainable or sustained development. This energy must be used to produce competitive green goods and services that are in demand both domestically and internationally. Surplus clean energy is of little value without associated productive consumption. In this context, short-sighted ideas with limited scope have begun to emerge, such as redirecting this energy to data centers.

Brazil’s green steel industry offers another example. The country has biomass, planted forests, foundational technology, renewable energy, and high-grade iron ore. Yet the construction of a green steel value chain hits the same barrier: who will buy this steel? Europe? The U.S.? Asia?

Even though demand for decarbonized products is growing, rich-country markets impose strict technical, regulatory, and traceability requirements — particularly visible in the European Union’s many discriminatory and protectionist measures. Moreover, green products must compete on price with producers from countries that heavily subsidize their industries, like Germany, the United States, and China. The competition, therefore, is not just technological — it is also geopolitical.

SAF illustrates the limits of the current approach well. Brazil is exceptionally well-positioned — and internationally recognized — for producing aviation biofuels: abundant biomass, extensive experience with ethanol and biodiesel, a mature domestic biofuels market, and robust technological capabilities. Yet there are massive barriers to inserting this product into the main consumer markets.

Europe, for instance, imposes very strict sustainability criteria for SAF, including traceability standards for feedstock, restrictions on agricultural land use, and requirements for net lifecycle emissions. Some of these criteria are difficult to meet and effectively act as intentional barriers.

Even when Brazilian biofuels are technically and economically competitive, they may still fail to gain access to the European market — and similar risks apply elsewhere. One can easily imagine Brazil becoming a major SAF producer without any viable export channels — a sort of “luxury producer” confined to a still-nascent domestic market for this fuel.

This supply-demand mismatch is not new. In the past, Brazil heavily invested in infrastructure, factories, and even megaprojects without securing markets or integrated production chains. The history of Brazilian industrialization is filled with examples of projects that failed due to a lack of strategic coordination among production, demand, financing, and international integration. We risk repeating the same mistakes — now dressed in green — and the result may be the loss of a historic opportunity, along with damage to our credibility among investors and international partners.

This disconnect makes it difficult for potentially attractive projects to secure financing, especially from private financial institutions. After all, bankers don’t typically finance projects whose supply chains aren’t linked to markets — beautiful PowerPoint presentations landing on bankers’ desks must go beyond good intentions.

Brazil urgently needs a green policy anchored in demand. This means developing domestic consumer markets, with sustainable public procurement policies, carbon pricing instruments, and progressive environmental requirements in sectors such as construction, mobility, and logistics; fostering the creation of complete, integrated value chains, so that clean energy is used to manufacture competitive green goods with real export potential and local impact; establishing robust regulatory frameworks and internationally recognized certification systems that enable traceability and sustainable origin guarantees; taking a proactive stance in green trade diplomacy, seeking agreements, transparency, mutual recognition of environmental standards, and opening markets to sustainable products; promoting international trade as a key tool to accelerate decarbonization; and aligning industrial, environmental, and trade policies into an integrated strategy for insertion into the global green economy. Such measures are essential to advancing investments.

Brazil’s green future will not be built solely through more solar plants, wind farms, or SAF projects. It depends, above all, on ensuring there are buyers for that energy and for the goods produced with it. It depends on an integrated and holistic vision — on building bridges with the world, understanding the rules of the global game, and aligning supply and demand within a systemic logic. Without this, we risk once again becoming exporters of potential — rather than of actual wealth.

This article was originally published in my column in the business newspaper Valor Econômico on June 12, 2025.