Brazil: Policies and Scenarios Summary: Rafael Kaliski Critique: Tom Wright

Introduction  Brazil is the 5 th most populous country  GDP US $3,300 as of  Energy use has increased 250% between 1975 and  Hydropower accounts for 90% of all electricity / 39% of total energy use.  Petroleum 2 nd -largest energy source 34% of total energy use.  Bio-Energy 16% of energy consumed.  Renewable energy sources 56%.

Objectives  Similar to U.S. –Diversify energy sources –Reduce import dependence –cut inefficiency  Ensure Adequate energy supply –Hydropower  A Drought resulted in a power shortage (2001)  Reduce Energy Sector Investments –Privatize –For Profit state-owned companies  Reduce Adverse Environmental Impacts  Contribute to Social Development

Acronyms  PROCEL – The National Electricity Conservation Program.  ANEEL – The federal Regulatory agency for the Electricity Sector.  NTSA – The National Testing and Standards Agency.

Policy 1: Adopt Minimum Efficiency Standards for Appliances, Motors and Lighting Products  If adopted, consumers would automatically purchase relatively efficient products.  PROCEL and NTSA have already established energy efficient test procedures and an efficiency labeling program.  Efficiency standards might provide 20 to 30 percent energy savings for new refrigerators / freezers, AC, and lighting products.  For motors efficiency standards might provide 2 to 8%, depending on size.

Policy 2: Expand Utility Investments in End-Use Energy Efficiency  In 1998, ANEEL began requiring distribution utilities to invest at least 1% of their revenues in energy efficiency programs. But only ¼ of 1% must be spent on efforts that help consumers use electricity more efficiently. This later changed to ½ of % to be invested in R&D.  This policy would expand funding for energy efficiency programs to about 2% of utility revenues.  Part of the money would be spent by utilities and part would be directed to state and federal energy efficiency programs.  The additional cost of these energy efficiency programs could be recovered by utility rates.  A 10-20% Bonus could be given to utilities based on the net societal benefit, evaluated by ANEEL.  PROCEL could assist the utilities to design effective programs and implement coordinated market transformation initiatives regionally or nationally.

Policy 3: Adopt Energy Codes for New Commercial Buildings  No city or state has adopted energy efficiency requirements for new commercial buildings.  This policy would convene a group of experts to develop and publish a national model energy code, including requirements for different climate zones.  A key part would be to train builders, architects, building inspectors, and code enforcement officials from municipalities. PROCEL could carry out this effort with experts from educational institutions.  Energy demand grew nearly 8% per year from 1995 to The Electricity demand is projected to increase 6% per year in the future.  This policy could eliminate 10 to 15% of the future growth in electricity demand.

Policy 4: Expand Use of Combined Heat and Power Systems Fueled by Natural Gas  CHP systems have cost-effective cogeneration potential estimated to be between 9 and 17 GW.  The recent increase in Natural Gas supply opens up new opportunities for CHP systems.  The below policies should be implemented in support of CHP. –Require utilities to purchase surplus power via long term contracts. –Require utilities to interconnect CHP systems to the power grid. –Give priority to CHP projects as new gas supplies become available. –Provide financial incentives for CHP systems. –Reduce import duties on CHP equipment.

Policy 5: Adopt Minimum Efficiency Standards for New Thermal Power Plants  The increased supply of natural gas has sparked interest in the construction of natural gas-fired power plants.  The majority of Thermal Power plants being constructed are simple cycle plants, 30 to 35% efficiency.  If minimum efficiency standards were adopted, 55% efficiency, all new thermal power plants would have to be combined-cycle plants, 50 to 60% efficiency.  Also current simple cycle plants, which are used more than a nominal amount would be required to add extra generators and operate as a combined-cycle power plant, so they would meet the minimum efficiency level.  This requirement would also narrow the difference in capital cost between electricity only and CHP plants.

Policy 6: Adopt Industrial Energy Intensity Reduction Targets  It is feasible to reduce energy use by 30+% in a wide range of energy- intensive industries.  This policy would establish energy intensity reduction targets for major industries through voluntary agreements between the government and industry.  PROCEL and the government could provide technical and financial assistance in the form of energy audits of industrial facilities, training, and tax incentives for investments in energy-efficient equipment.  Companies that enter into these agreements to improve energy efficiency by 2% per year, could be protected from any raises in fuel taxes. Also these companies could be given preferential access to power should electricity shortages recur.  This policy would yield a 12% reduction in overall industrial energy use by % of the savings would come from reduced fuel consumption. 20% from improving the efficiency of electricity use.

Policy 7: Adopt Minimum Fuel Economy or CO 2 Emissions Standards for New Passenger Vehicles  There are no fuel efficiency standards for new cars or light trucks.  Vehicle manufactures receive some tax incentives for producing engines with 1 liter or less in volumetric capacity % of all new passenger vehicles sold in Brazil have 1-litre engines.  In 1998 the Fuel Economy was 10 km/l while the fuel economy, in 2000, was about 11km/l.  Most of the 1-litre engines, are derived from 1.6-litre engines, from older models.  The policy would require adopting fuel efficiency standards.  These standards could be expressed in terms of either an increase of fuel efficiency or a reduction in CO 2 efficiency.  If a CO 2 emissions standard were adopted, manufacturers most likely would comply through some combination of efficiency improvement and fuel shifting.  This policy would require a 40% reduction in CO 2 emissions, by 2010, 75% would be from fuel efficiency improvement and 25% from through increased sales of ethanol vehicles.  The average fuel economy would be 16km/l, by 2010.

Policy 8: Expand the Production and Use of Ethanol Fuel  Increase demand and supply for ethanol fuel  Low interest loans to stimulate construction of distilleries.  Strategic Ethanol Reserve  New price or tax incentives to stimulate purchase of neat ethanol cars again.  Ethanol could be blended with diesel, up to 12%.

Policy 9: Stimulate CHP Systems Using Bagasse and Other Sugarcane products.  Potential to generate excess electricity using more efficient power generation technologies.  Some Policies would be similar to Policy 4 (CHP with natural gas).  Adopting this policy could result in 2,400MW of bagasse CHP Capacity by 2005 and 6,300 MW by  The shift from manual to mechanized harvesting would be gradual.

Policy 10: Stimulate Grid-Connected Wind Power  Substantial potential (i.e. state of Ceara has 25,000 MW potential).  ANEEL established buyback rates –originally 48$/MWh –increased to $57/MWh(for approved projects by the end of 2001, $52/MWh(for approved projects by the end of 2002)  Law enacted requiring 80%, of average retail electricity price, over a 15-year period (2002).  Many new wind farms were proposed or under construction as of mid  Possible to implement 7,000+MW of wind power capacity by 2010, if this policy could be extended.

Policy 11: Stimulate Renewable Energy Use in Off-Grid Applications  PRODEEM installed approximately 5,700 solar photovoltaic (PV) systems in off-grid areas, for no cost.  Many of these systems were not maintained.  Develop a private sector PV supply which will provide micro-financing and subsidies to households (subsidies would be reduced as technology improves).  Could lead to as many as half of rural households obtaining solar PV systems by  Could foster social and economic development in poorer regions.

Policy 12: Improve the Efficiency of Freight Transport  R&D and demonstration programs  Tax incentives to encourage production and purchase of higher-efficiency trucks and locomotives.  This policy could yield fuel economy improvements of 16% for freight trucks and 12% for rail transport by  Shift cargo among modes.  Possible to increase/decrease fraction of freight shipped by: –Rail 21%->29%. –Water 14%->18%. –Truck 60%->48%. From 2000 to 2010.

Energy and Other Impacts  IMEP – Integrated Model for Energy Planning

Conclusions  The Policies proposed may be difficult to implement by  If the some or all of the Policies are Implemented Social and Economic Development can occur faster.

Brazil is highly urbanized  80% Brazilians live in urban areas (Geller, 2000)  31% urban in low income countries (WB, 2001)  Geller does not emphasize rural energy issues

Energy in Brazil: Critique Tom Wright

Brazil: poor country or rich?  The 9 th largest economy in the world  Per capita income in 2000 was $3300  73 of 208 countries under $1000 in 2002

Brazil is highly urbanized  80% Brazilians live in urban areas (Geller, 2000)  31% urban in low income countries (WB, 2001)  Geller does not emphasize rural energy issues

Author knows Brazil well  He worked there extensively as a consultant  Hesitates in presenting full historical and political context so as not to offend future clients?

What Brazil shares with other developing countries…  High inflation makes the “long term” short  Economic transition means unemployment too  Weak institutions mean no stable regulations  Donations: “Nobody has ever washed a rental car”

“Could, could, could…would, would, would”  Scenario analysis can isolate the analyst  Need historical and cultural context or else…  Policies meant for elsewhere miss the mark

Privatization: cure-all or (!) conspiracy?  Geller seems to accept privatization as a given  World Bank and IMF have imposed privatization as a condition for granting loans…  But government sector is often the only domestic employer for the educated elite in poor countries

Role of us engineers  We need to tell the policy wonks, “No that’ll never work!” And then show them a better way  Go work overseas! And not for two weeks!  Stay long enough to learn the local scene  Bring their better ideas back to the US