SAO PAULO (Reuters) - Brazil's huge offshore oil find, though an economic treasure chest, threatens to undermine the renewable energy industry the country has worked so hard to build.

A possible oversupply of oil products in the local market once expensive exploration, production and refining initiatives are up and running could make ethanol, biodiesel and hydroelectricity less competitive.

This possibility is feeding a vigorous debate about the country's relatively "green" energy matrix falling into a fossil fuel trap.

The government says it won't make the same mistakes that some oil-rich countries have made -- such as selling gasoline cheaply at home and neglecting other industrial sectors as oil cash flows in -- but market fundamentals can undermine the best of intentions.