Fiscal Resilience Strategy for Pará's Low-Carbon Transition

Team Members: Diana Chipak (Manager), Peyton Choo (Deputy Manager), Brendan Chapko, Haejin Kim, Maira de Roussan, Muskaan Khemani, Ana Roxana Spanache, Yanrong Li, Yelena Arkhangelskaya, Yichun Huang

The State of Pará, the second-largest in the Brazilian Amazon and Brazil's leading mining state, has set an ambitious goal of net-zero land use and forest emissions by 2036. But it faces a "Fiscal Paradox": greenhouse gas reductions are undermining its primary revenue source. Fossil-fuel linked revenue, historically 25% of the state's ICMS and 10% of its 2024 budget, is projected to fall from 23.1% to 10.6% by 2035 as sectors like mining shift to cleaner, more efficient fuels such as LNG. This "Efficiency Trap" is accelerated by state incentives that tie tax discounts to carbon reductions, inadvertently eroding the taxable fuel base. This report proposes a 10-year fiscal resilience strategy for SEFA-PA built on three pillars: aligning the Brazilian Sustainable Taxonomy and institutionalizing Green Budgeting, establishing a State Sovereign Fund capitalized from mining royalties, and unlocking R$170 billion by 2050 through nature-based climate finance. Together they position the energy transition as a catalyst for long-term fiscal resilience rather than a revenue vulnerability.