⚡️ No climate pass

Good morning! This week, we talk about the new, stricter, government-approved rules for energy companies. The Supreme Court is close to altering congressional benches. And Brazilians’ drive for change.

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Brazil brings in stricter rules for energy concessions

The Brazilian government issued on Friday a decree with guidelines for the renewal of energy distribution contracts, aiming at improving the quality of services rendered by companies. The rules are stricter, with power distributors being particularly worried about a provision saying that disruptions caused by climate events will not spare them from the need to meet quality standards.

What they are saying. “There will be mandatory targets for restoring [power supply] after the occurrence of extreme weather situations,” Mines and Energy Minister Alexandre Silveira said. 

• “That is very important because current contracts foresee a temporary suspension of quality standards in situations of extreme climate, which happened specifically to [energy giant] Enel in São Paulo,” Mr. Silveira added.

Chaos in São Paulo. The minister was referring to the successive power outages that plagued the city of São Paulo, Brazil’s wealthiest and most populated, last year. Following a massive storm (with winds of over 150 kilometers per hour), millions were left without electricity for hours — in some cases, several days. Other rain-related outages have happened since.

• According to Mr. Silveira, if the rules passed on Friday were valid last year, Enel, the Italian multinational group responsible for power distribution in São Paulo, would be at great risk of losing its contract in São Paulo.

 Why it matters. Extreme rainfall has become more common in several parts of the country. The number of days with more than 80 millimeters of rain has doubled between 2011 and 2020, according to a recent report from the National Institute of Meteorology. But Brazil remains ill-prepared to deal with extreme climate events. 

Blame game. Most of Brazil’s power cable network is above ground. Extreme rainfall often topples trees, which hit power lines and interrupt supplies. Cities blame energy companies for not pruning trees as they should, while energy companies say that is the responsibility of municipal officials.

• Putting the network underground would be very expensive and mean higher electricity bills for consumers — something politicians are always reluctant to do.

• For the government, the new rules force energy companies to plan ahead. As Mr. Silveira puts it, they “remove any excuses not to solve a situation.”

Other rules. Energy companies will also be forced to provide the same quality of service to all neighborhoods they supply to. Failing to comply can forfeit the renewal of a contract.  

Supreme Court close to removing seven lawmakers

Back in February, the Supreme Court ruled to strike down legislation passed in 2021 to reduce party fragmentation in the House. Now, the court has formed a majority to apply that decision retroactively — which would change how House seats were distributed in 2022 and remove seven lawmakers currently serving in Congress.

Flip-flop. In its February trial, justices ruled that their verdict would only be applied from the 2024 municipal elections onwards, with the distribution of city council seats following the same pattern as congressional calculations. But two parties appealed that decision based on technicalities, and the court is again debating when the rules should be enforced.

Understand the case. To make things clearer, we need to briefly go into the weeds of how congressional seats are allocated in Brazil. Here’s what you need to know:

• After discarding spoiled ballots and adding up all the votes for a given party, authorities calculate so-called “electoral thresholds” by dividing the number of valid votes by the number of seats up for grabs in each state. 

• In theory, if a party gets 10 percent of the vote in a given state, it gets 10 percent of that state’s House seats. But the numbers are rarely that straightforward.

Leftovers. The first round of apportionment leaves some seats unfilled, because dividing votes by seats rarely yields round numbers. For instance, a party can get 73,000 votes in a state where the threshold for a seat is 70,000, meaning there are 3,000 “leftover” votes. With the same happening for all parties, some seats are left empty.

• At that point, a more complicated formula is applied, distributing the leftover votes to the parties with the best vote averages. 

• In 2021, Congress decided that leftover seats would be distributed only to candidates who alone received at least 20 percent of their state’s threshold and whose party obtained a minimum of 80 percent of that quotient.

• For the Supreme Court, though, that rule hurt the will of the people by punishing smaller parties. The majority opinion stated that the legislators “wanted to make it really difficult for small parties to form and survive” and ruled that the leftover votes should be distributed among all parties, not just the top vote-getters.

Impact. Seven lawmakers — one from Brasília (the capital located in the Center-West) and the other from northern states: four from Amapá, one from Tocantins, and one from Rondônia — would face losing their seats. All come either from Jair Bolsonaro’s Liberal Party or from parties of the so-called “Big Center,” an ideologically fluid group whose reason for existence is to be close to power.

• Their replacements would include three members from center-left or left-wing parties.

 Why it matters.  Brazil has one of the most fragmented legislatures in the world, with more than nine “effective parties,” that is, the number of parties strong enough to sway congressional votes. This is one of the highest numbers among Western countries, surpassing even the most fragmented legislatures in European history.

Markets

President Luiz Inácio Lula da Silva said he will not seek to veto legislation legalizing casinos and other forms of gambling in the country if Congress approves it. A casino bill has cleared the House and is moving forward in the Senate with support from both sides of the aisle, but opposition from the evangelical caucus.

Chart of the week: Change needed

According to a new Ipsos survey with citizens in G20 countries, Brazilians are among those most yearning for deep changes to the economic and political systems — both locally and globally. That drive for change is more prevalent in emerging countries with high levels of inequality.

Stories we’re following

According to Argus, which covers commodity markets, the U.S. government has urged the European Commission to delay the implementation of the EU’s deforestation regulation, due to come into force on December 30. Any changes would directly affect Brazilian farmers (the Brazilian government calls the regulation “harmful” to Brazilian sovereignty). 

The Health Ministry expanded the target audience for dengue vaccination to avoid wasting vaccines close to expiration. Now, people aged 4 to 59 can get immunized.

Shell wants to expand its activities in Brazil — with eyes on the controversial (and potentially massive) reserves on the Equatorial Margin, along the northern and northeastern coasts. Petrobras is bullish about drilling for oil there, despite environmental concerns.

This week’s legislative agenda has been hollowed out due to the Feast of St. John (“São João”). These harvest celebrations are deeply rooted in Brazilian culture, blending religious customs with vibrant folklore, music, and dance — and are a must-attend for politicians, especially those from the Northeast.

In case you missed it

The Central Bank’s Monetary Policy Committee unanimously decided to keep Brazil’s benchmark interest rate unchanged at 10.5 percent, citing concerns about how inflation will behave and the state of public accounts.

Brazil’s Pantanal wetlands have recorded 2,333 fire alerts since January. That is higher than they were in the first six months of 2020, the year the Pantanal went on to record its all-time worst fire season.

Brazil is on track to lose 800 millionaires this year, more than any Latin American country and the sixth-most worldwide. In 2022 and 2023, Brazil’s total number of millionaires fell by an estimated 3,000.

Brazil’s data protection watchdog revealed plans to question Meta for failing to inform Brazilian users that their posts on Instagram and Facebook would be used to train artificial intelligence software.

A survey of 1,001 Brazilians showed great acceptance of the introduction of a “sin tax.” Two-thirds of respondents were in favor of making alcoholic beverages more expensive as a way to deter consumption.

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