National Oil Companies and the Politics of Renewable Energy in Brazil and Angola

• In Event: National Oil Companies and Climate Politics

Abstract

Controlling over half of global oil and gas production, accounting for 40% of oil and gas investment, and with rights over two-thirds of proven reserves, National Oil Companies (NOCs) are key to determining whether the world meets its climate targets. However, NOCs have generally been less proactive than Oil Majors in decarbonizing their operations. Moreover, they have also displayed substantial variation in their choice of decarbonization strategies, with most NOCs choosing to decarbonize their operations but shying away from more demanding diversification strategies, which most typically involve investments in renewable energy.

From an oil company’s perspective, the decision to invest in renewable energy is far from obvious, given the much lower financial returns of the sector when compared to their core business. In addition, it is not clear that the large overheads associated with oil companies’ operations dovetail with the much smaller projects common to the renewable energy sector. This problem is exacerbated in the case of NOCs by their dual nature as profit-oriented firms and instruments of government policy, which arguably reduces their effectiveness in smaller-scale, more competitive sectors of the economy. Their disadvantages and the inferior profitability of the sector make renewable energy investments relatively unattractive. At the same time, the prospect of declining oil demand due to the global energy transition implies that short-term profitability must be balanced against NOCs’ long-term viability, particularly in view of their importance for the economy and energy security of their host states.

Against this backdrop, identifying the drivers of investments in renewable energy requires opening the black box of NOCs’ decision-making. This paper does so for the cases of Brazil’s Petrobras and Angola’s Sonangol, drawing on semi-structured elite interviews and textual analysis of secondary sources. Despite patent differences in terms of governance, technological capacity, and centrality for their respective countries’ economies, the two NOCs have displayed similarities in the timing of their investments in renewable energy, though the scales of these investments have differed substantially. Between 2008 and 2014, both companies spent considerable sums setting up subsidiaries in the biofuels sector, which in both cases turned out to be unprofitable. Following a negative oil price shock, corruption scandals, and economic crises in their respective economies, the renewables agenda was cast aside, as NOC administrations sought to divest non-core assets and maximize profitability to recover from heavy debt burdens. Nonetheless, from 2021 onwards, both companies ramped up their climate-related discourse and, by 2023, had invested in solar photovoltaic and (in the case of Petrobras) wind energy projects.

By examining the drivers of company decision-making, including the pre-eminent role of national executives, and the outcomes of renewable energy projects, I argue that the logic of renewable energy investments in the face of poor profitability can only be understood with reference to the interaction between each NOC’s characteristic political-economic logic and their exposure to international finance and technical partnerships.

I conceive of NOCs’ political-economic logics as being composed of a core economic function and of a coalitional function, in line with NOCs’ hybrid nature as both commercial and political entities. In Brazil, Petrobras has served as both purveyor of national development strategies and as an instrument of coalition-building in Brazil’s coalitional presidentialism. In Angola’s rent-seeking political economy, Sonangol has served both as guarantor of the MPLA regime’s financial viability and as an enabler of elite rentierism. I show how each NOC’s characteristic logic, in interaction with the greening of international finance and of oil majors’ activities, drove variations in renewable energy policy over time.

By showing how renewable energy policy is embedded in the characteristics of each political economy, including its insertion in the international financial system, this paper contributes to the study of the political economy of climate transitions. Moreover, by bringing to light the logics behind NOCs’ investments in renewables, it contributes to the incipient literature on NOCs and climate politics.

Author

• Nicolas Lippolis, Columbia University