Measuring the Effects of an Optimization in Brazilian Environmental Regulation in the Oil and Gas Sector

Abstract

This paper aims to investigate the oil and gas sector in Brazil by assessing how much its results would improve if there were an optimization in environmental regulation. To this end, data from 5 companies traded on the São Paulo stock exchange, the capital asset price model, and input-output matrices are considered. The difference between the CAPM betas of Brazilian firms and firms from benchmark countries is used to estimate the weighted average cost of capital with more efficient environmental governance in the country, which is then used to perform simulations in the input- output matrices. The results indicate that the destruction of the value of investments can vary between 33 and 110 billion reais in 5 years for delays in licensing of 6 and 24 months, respectively, and negative effects on GDP can reach 70 billion reais in 5 years for delays of 6 months in the licensing process. These findings underscore the importance of effective environmental governance for the country and are valuable for policymakers, investors, and supply chain agents who consider the sector in their decision-making.