OPINION: Brazilian President Jair Bolsonaro was not always convincing when he declared himself a convert to the virtues of the free market.

The appointment of Paulo Guedes as Economy Minister and the promise that he would get a free rein on policy pleased the markets when he took office, as did his role in choosing Roberto Castello Branco as Petrobras chief executive.

Castello Branco's focus on debt deleveraging and shareholder value served Petrobras well when the current industry crisis hit, but he was sacrificed when Bolsonaro took the side of Brazilian truckers over the issue of diesel prices.

Bolsonaro has hardly disguised his populist instincts when it comes to currying favour with the powerful trucking syndicates and their drivers — but there is a cost to this.

The President has discarded a Petrobras boss who was bringing the oil giant back toward robust health.

Oil output has been surging forward in recent months, with Petrobras now highly focused on ultra-productive pre-salt fields, having exited less profitable areas of business.

Bolsonaro has also suspended federal taxes from diesel and LPG, leaving a hole in Brazil's budget finances.

He is reportedly leaning toward new bank taxes to fill this hole, but there are also the environmental implications about subsidising diesel at a time when carbon dioxide emissions are a pressing concern.

Upstream's cartoon from the issue of 26 February, 2021 Photo: Image RYTIS DAUKANTAS/UPSTREAM

Bolsonaro is more concerned about the difficulties that rising oil prices and a depreciating currency pose to his voters than what environmentalists think of his policies, but some of his advisers know that Petrobras has just lost some ground at a time when capital is becoming more scarce for fossil fuel producers.

Yet there is space for building some shock absorbers into fuel pricing in Brazil without draining Petrobras of cash and resorting to subsidies.

It should also be remembered that Brazil is a country with more than 80% of its electricity generated from renewable sources — with scope to take this to 100% — yet there is negligible penetration of electric vehicles.

With emissions reduction now on the agenda from Beijing to Baltimore, a broader vision is needed in Brasilia.

(This is an Upstream opinion article.)