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Energy Policy in Brazil Perspectives for the Medium and Long Term

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Energy Policy in Brazil Perspectives for the Medium and Long Term Energy Policy in Brazil Perspectives for the medium and long term Background report to PM 2014:05 Dnr: 2013/164 Swedish Agency For Growth Policy Analysis Studentplan 3, SE-831 40 Östersund, Sweden Telephone: +46 (0)10 447 44 00 Fax: +46 (0)10 447 44 01 E-mail: [email protected] www.growthanalysis.se For further information, please contact Mikael Román Telephone: +55 613 442 5211 E-mail: [email protected] ENERGY POLICY IN BRAZIL Table of Contents Summary .............................................................................................................................. 5 1 The Brazilian Energy Sector* .................................................................................... 6 1.1 Energy Supply ...................................................................................................................6 1.2 Energy Consumption .........................................................................................................8 1.3 Institutional Framework and Policy Instruments ................................................................9 2 Brazilian Energy Strategies in the medium and long term .................................. 12 3 Energy Sources and Priorities ................................................................................ 15 3.1 Non-Renewables ............................................................................................................. 15 3.1.1 Oil and Gas .......................................................................................................... 16 3.1.2 Coal ...................................................................................................................... 18 3.2 Renewables .................................................................................................................... 19 3.2.1 Hydropower .......................................................................................................... 19 3.2.2 Wind power .......................................................................................................... 21 3.2.3 Bioenergy ............................................................................................................. 21 4 Carbon Capture and Storage ................................................................................... 24 5 Energy Efficiency...................................................................................................... 25 6 Sustainability ............................................................................................................ 27 7 Challenges and Choices .......................................................................................... 29 8 References ................................................................................................................ 35 3 ENERGY POLICY IN BRAZIL Summary Brazil is endowed with abundant energy resources and is well known for its unusually clean energy matrix. But with recent discoveries of large oil reserves, the long term demand for oil is expected to increase. Other challenges to the current development model include growing internal energy demands, ageing infrastructure, and the emerging impacts of climate change. The renewable sector is expected to continue to grow and play a vital role in the county’s energy mix. Currently hydropower is well developed, but faces challenges regarding its expansion. Onshore wind power capacity is expanding rapidly, particularly in the Northeast, and the plants are operating at high capacity levels. Bioenergy is already used extensively in the transport (ethanol and biodiesel) and industrial (sugarcane bagasse) sectors, and the country has developed advanced technologies and policies to incentivise the use of bioenergy. In addition, an increase in the use of biofuels for electricity generation (thermo power) could be expected for the medium/long term. But investment in R&D for second generation biofuels is lagging behind, even though there are recent government and industry efforts to reverse this trend. Large investment in the oil and gas sector is planned, as Brazil seeks to become one of the largest oil producers in the world by 2021. Demand for fossil fuels is also expected to increase, not least because historically, part of the profit margin of state controlled Petrobrás (the national oil company) has been used to keep petrol prices in the domestic market low. Demand is then fuelled by the price incentive. The importance of natural gas in the country's overall energy mix is also growing, and there are signs of renewed interest in exploring Brazil’s gas potential, including its unconventional gas resources. Besides the use in industry, and because of shortages in rainfall, gas has increasingly been used to fire thermoelectric power plants – this trend is expected to continue. Sustainability has been part of the government’s rhetoric as one of the key priorities for the Brazilian energy sector, alongside security of supply and affordability. There are a number of positive developments with regards to reducing environmental impacts and CO2 emissions. An example is the large investments in CCS technologies being made by Petrobrás, as part of its EOR in offshore fields. In addition, Brazil’s energy sector has large potential for energy efficiency gains (savings of 40 TW per year have been estimated), but one of the key challenges has been the lack of a strong institutional framework to ensure the delivery of planned goals. In the industrial sector most of the opportunities lay in the less energy-intensive sectors such as food processing, whilst investment in public transport options could provide an opportunity for wider energy efficiency gains. However, the structural issue of changing consumption patterns more generally seems to be given very little attention. The Brazilian energy sector faces a strategic moment, with a number of challenges and opportunities being presented to policy and decision-makers. In the long run, a critical issue relates to the implementation of policies and strategies. Brazil has a well-developed regulatory and policy framework in place, however growing political interference to achieve short term goals, lack of strong implementation mechanisms and other structural problems may hamper the implementation of such plans. 5 ENERGY POLICY IN BRAZIL 1 The Brazilian Energy Sector* Brazil occupies a privileged position in the global energy system. It is blessed with abundant energy resources, and the recent government program “Luz para Todos” (Light for All) has enabled nearly all households to have access to electricity1. The country generates over 75 per cent of its electricity from hydro-power and is also well known for its extensive use of biofuels, mainly in the form of ethanol, in the transportation and industry sectors2. In addition, extensive deepwater oil and gas reserves were found in early 2000 outside the coast of Rio de Janeiro.3 The country is the largest energy consumer in Latin America, with a final energy 4 consumption of 253,422,000 toe . Yet, it is also an anomaly in the global energy context, mainly because of its relatively clean energy mix. In 2012, non-renewable energy constituted 57.6 per cent of Brazil’s Total Primary Energy Supply (see Figure 1), while renewable energy, including sugarcane products (15.4%) and hydropower (13.8%), made 5 up for a remarkable 42.4 per cent. This strong emphasis on renewables, which compares with a corresponding 8 per cent for the OECD, makes the Brazilian energy system one of 6 the least carbon-intensive in the world. Despite generous conditions, the energy situation in the country is increasingly complex. Growing internal energy demands, ageing infrastructure, and the emerging impacts of climate change are a few challenges that recently came to question the present development model. 1.1 Energy Supply In spite of its high share of renewable sources, Brazil relies on a higher share of fossil fuels in its total energy supply (39.2%) than both the global average in 2010 (32.4%), and the OECD mean in 2011 (36.3%). 7 In the medium to long term the demand for oil is projected to increase at a rate well above world average mainly due to: 1) an expected expansion of the transport sector; and 2) the ongoing exploration of the deepwater oil and gas reserves (pre-salt). While the latter should in principle affect primarily the global supply of oil, there is a reasonable possibility that it will also boost demand. The reason is that, historically, part of the profit margin of state controlled Petrobrás (the national oil * For more detailed background information about the current Brazilian Energy sector, please refer to the report: Energy in Brazil – resources, trade-off and strategies for the future. http://www.growthanalysis.se/sv/publikationer/svar-direkt/svar-direkt/2013-10-31-energy-in-brazil---r- esources-trade-off-and-strategies-for-the-future.html (Accessed 2013-11-17) 1 Ministério de Minas e Energia. Programa Luz para Todos. https://www.mme.gov.br/luzparatodos/asp/default.asp?id=1 (Accessed 2013-11-17) 2 Ministério de Minas e Energia (2013) Balanço Energético Nacional: Ano base 2012. MME, Brasília, DF 3 Brasil garante um terço da expansão de óleo até 2035. Valor Econômico 13 November. http://www.valor.com.br/empresas/3336930/brasil-garante-um-terco-da-expansao-de-oleo-ate-2035 (Accessed 2013-11-13) 4 Ibid 2 5 In the Brazilian Energy Balance, the TPES is referred as Domestic Energy Supply (DES) but, as we compare the Portuguese and English
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