This paper examines the occurrence of a decoupling between the growth rates in economic activity and CO2 emissions from energy consumption in Brazil from 2004 to 2009. This decoupling was highlighted when economic activity and CO2 emissions moved in opposite directions in 2009. More generally, we observe several periods of relative decoupling in Brazil, but not to the extent witnessed in 2009. To identify the determinants of emissions change, we develop a decomposition model based on a log-mean Divisia index (LMDI) framework. The results indicate that the carbon intensity and energy mix are the main determinant of emissions reduction in Brazil between 2004 and 2009. Modifications in the economy structure are also associated to emission mitigation in the period. Such evidence demonstrates similarities with events of decoupling registered for the interval 1980–1994 in Brazil. Finds from Brazil differ from observations in other countries in which improvement in energy intensity has been the most common determinant of emissions reduction.
Historically, economic growth in Brazil has occurred along with rising emissions levels. Brazil is now considered a developing nation for which economic growth will be influenced by growing environmental pressure. In particular, national authorities worry if Brazil's ability to maintain current levels of economic growth will be affected adversely by the need to reduce emissions. To the international community, the link between economic activity and environmental pressure represents a risk to the global efforts toward emission reductions (OECD – Organization for Economic Co-operation and Development, 2002).
Notwithstanding the persistent link between economic growth and emissions in Brazil, the recent release of the energy balance with updated data for 2009 disclosed a possible change in the trend. The estimation of CO2emissionsfrom the recently released dataset reveals that emissions decreased by 4.7% in 2009 compared to records for 2008, even though national GDP increased by 0.3% in the same period (EPE – Empresa de Pesquisa Energética, 2010b). Fig. 1 outlines the focus of this study.
Fig. 1
The events that culminated in the decline in emissions in 2009 started after 2004 when emissions growth rate began to diverge from GDP. Despite this, the decline had precedence in the period 1980 to 1994, but not with the intensity observed for 2009.
The decoupling effect in Fig. 1 keeps similarities to the stagnant growth in emissions in China, another transition nation, between 1996 and 1999. During that period, China experienced no significant growth in emissions at a time of strong economic growth, which attracted the attention of the international community. In general, researchers identified that for China the decline in energy intensity (Ma and Stern, 2008, Wang et al., 2005, Wu et al., 2005, Zhang et al., 2009a) was the main factor associated with emissions deceleration. Fan et al. (2007) decomposed energy intensity and concluded that the decline in this factor was mainly driven by the change in primary energy-related carbon intensity and material sectors' final energy-related carbon intensity.
Could the decline in emissions in Brazil be caused by similar factors to the decline in China? Indeed, what are the driving factors underlying the changes in emissions from energy consumption in Brazil? This article examines these questions by identifying the determinants of emissions change in Brazil for the period 2004 to 2009.
To achieve the objectives of this study, emissions are estimated out of final energy consumption and after decomposed into select factors using a log-mean Divisia index (LMDI) framework. Thus, the analysis is undertaken in two stages. First, the CO2 emissions associated with energy consumption are calculated using the methodology for inventory composition developed by IPCC (2006). In this stage, all energy sources are considered as well as the energy consuming sectors of the Brazilian economy. Second, emissions change is decomposed into several determinants allowing for the estimation of the main determinants of emissions change. Evaluations of the period 2004 to 2009 are compared with the period 1980 to 1994 when Brazil also experienced an apparent decoupling. Such comparison aims to observe eventual pattern in decoupling events in Brazil.
This study is organized as follows. The next section examines the macro indicators of the Brazilian economy for the periods 1980 to 1994 and 2004 to 2009. Furthermore, it describes the background to emissions change in Brazil, with special emphasis on the improvements in the quality of energy through the introduction of renewable energy sources in the national energy matrix. Section 3 describes the methodology of the study and the data sources. Section 4 discusses the empirical results, including the identified determinants of emissions change. Section 5 provides concluding remarks.
2. Background
2.1. Macro Indicators of Brazilian Economy Performance: The “Lost Decade” of the 1980s and Trends After 2004
At the beginning of the second half of the 19th century, the Brazilian economy was a rising star among the semi-industrialized countries organized under the so-called market-economy regimes (Malan and Bonelli, 1977). The reason for this status was several consecutive years of annual economic growth in excess of 7% and unprecedented inflows of foreign investment that ultimately transformed the productive structure of the country (Malan and Bonelli, 1977, Nazmi, 1998). Records from that time show remarkable development of the productive capacity of capital goods, basic materials, energy, transport and communications, associated with robust expansion of public investments pushed by developmental policies, including imports substitution policies (Hewings et al., 1989, Szklo and Cunha, 2006). The exceptional performance of the Brazilian economy, especially during the period between 1967 and 1973, is usually referred to as the “economic miracle”(e.g. Bresser-Pereira, 1984).
The associated prosperity enjoyed during this period would change, however, at the beginning of the 1980s, triggered by the oil shock of 1979 and the world economy recession that imposed limits on international demand of commodities and foreign investments that adversely affected the Brazilian economy (Baer et al., 1987). The international crisis resulted in the domestic mismanagement of public accounts, and along with the fragile structure of the domestic institutions, caused the longest period of economic stagnation in Brazil since World War II. The period was a counterbalance to the previous decade, and is labeled in Brazilian economic development history as the “lost decade”.
Evidence from studies about the lost decade reveal, for example, that between 1978 and 1979 the national external accounts experienced a change from a US$4.2 billion surplus in the balance of payments in 1978 to a US$3.2 billion deficit by 1979 (Nazmi, 1998). Reports from several sources associate the economic deceleration of the 1980s with adverse changes in virtually all aspects of the Brazilian economy and social indicators. For instance, some examples of the retrocession experienced in Brazil in the 1980s include a reduction in household consumption, which was associated with a decline in household income and higher rates of inflation (Cardoso et al., 1995);a significant increase in national debt (Giambiagi, 2002); and the cessation of inflows of international capital (Nazmi, 1998).
A period of political instability and quasi-stagnation marked the transition from the lost decade to the recovery at the beginning of the 2000s. The structural reforms of the 1990s allowed the country to recommence strong economic growth (Bresser-Pereira, 2003). Two events of major importance were the release of the Plano real in 1994, which effectively stabilized inflation, and the privatization of public companies, which provided a boost to Brazilian development by reducing involvement of the state in the economy and promoting market initiatives.
The energy sector, one among others productive sectors under state control, was privatized in the 1990s and a central regulatory authority established. To a large degree, the reform of the energy sector was motivated by the exhaustion of the managerial model that reduced investment in the sector and used energy suppliers as a mechanism of macroeconomic policy to control inflation (Jannuzzi, 2005).Within the new framework, market-based mechanisms were introduced into the energy sector and a special incentive for the entry of independent electricity producers was introduced. Despite of the modernization of the sector, controversial results of the reform include increases in energy prices for consumers and the diffusion of fossil fuel based thermoelectricity power plants (La Rovere, 2002).
Notwithstanding the efforts to reshape the energy sector, the pressure of increasing demand during the 1990s put the performance of the sector at risk. For the period from 1990 to 2000, electricity consumption increased 44.6% compared with growth in installed capacity of below 30% (Rosa and Lomardo, 2004).This situation would contribute ultimately to a crisis in electricity supply that overwhelmed the country between 2001 and 2002.
There are several important lessons from the reform of the energy sector. Regarding environmental issues, little attention was given to the themes of energy conservation, energy intensity and emissions reduction. This reflects the negligence of the government during the privatization process when the environmental aspects and targets for energy conservation and efficiency were not negotiated adequately with potential candidates in order to achieve a better functioning sector (Menkes, 2004).
The period after 2004 is regarded as the start of a new stage of prosperity in terms of economic and social development. Gains from macroeconomic stability that were a result of the reforms of the 1990s, the development of democratic institutions, improvement in the operation of fiscal and monetary policies and an increase in the size of the middleclass are among the reasons for the economic growth experienced in Brazil during this time (Layton, 2008, Yamakawa et al., 2009).
Recent events in the world economy in general and the Brazilian economy in particular could potentially provoke unexpected changes in the nature of the Brazilian economy in the near future. Some controversial themes discussed currently within Brazil include the high level of public debt, and high domestic interest rates relative to foreign rates that attract inflows of international capital, which has contributed to the appreciation of the Brazilian currency. The associated effects on the trade balance and successive political scandals in the context of a government in transition are some reasons for concern about the performance of the economy (DBR – Deutsche Bank Research, 2010, IMF – International Monetary Fund, 2010).
Table 1 provides a summary of select macro indicators for Brazil during the two periods considered in this study.
Table 1
| Indicator | Unit | 1980 | 1994 | 2004 | 2009 |
|---|---|---|---|---|---|
| GDP | Billions of 2009 US$ | 742.37 | 962.19 | 1333.16 | 1576.91 |
| Population | Millions | 119 | 156 | 181 | 191 |
| GDP per capita | Thousands of US$ per capita | 6.26 | 6.15 | 7.36 | 8.24 |
| Renewable energy final consumption | Billion Toe | 43.8 | 60.21 | 78.12 | 96.82 |
| Nonrenewable energy final consumption | Billion Toe | 60.58 | 82.47 | 113.08 | 124.52 |
Source: EPE(2010b).
The indicators in Table 1 emphasize the differences between the periods 1980–1994 and 2004–2009.On the one hand, the first period (1980 to 1994) witnessed relatively lower economic growth (average 1.9% annual GDP growth)with shrinking income, mild expansions in both renewable and nonrenewable energy final consumption, and strong annual average population growth of around 2%. On the other hand, the second period (2004 to 2009) witnessed robust economic growth (average yearly 3.7% GDP growth) with a sharp increase in income. Energy consumption in this five-year period increased for both renewable and nonrenewable sources and demographic growth decelerated to reach an average 1.1% yearly growth.
2.2. Primary Energy Supply, Final Energy Usage and Emissions Change in Brazil: Emerging Energy Potency and the Systematic Linkage Between Emissions and Economic Activity
It was in the context of the economic stagnation of the lost decade that policies for energy diversification and oil substitution were implemented following the first oil shock in 1973 (Araujo and Ghirardi, 1987). Between 1975 and 1985, the inauguration of several hydropower plants and the launch of the National Alcohol Program (Proalcool) allowed an extraordinary reshaping of the national energy matrix. Data from the National Energy Balance (EPE – Empresa de Pesquisa Energética, 2010b) indicates that between 1970 and 1985 hydropower energy supply increased 348%. Fuel ethanol, which was virtually nonexistent in 1970, surpassed the consumption of gasoline (in terms of equivalent energy units) in 1988 (EPE – Empresa de Pesquisa Energética, 2010b). The first nuclear power plant was connected to the grid in 1982 (Eletronuclear, 2009).These developments permitted a stable energy supply throughout the 1980s and currently constitute the basis of non-fossil fuel energy supply in Brazil. Fig. 2 illustrates final energy consumption in Brazil by source since 1970.
Fig. 2
Oil and its by-products were the most important source of energy consumed in Brazil in the period from 1970 to 2009. In 1978, oil had the highest share in the last four decades, accounting for 52.70% of total energy consumed in the country, while in 2008, it reached the lowest share with 40.76% of total energy consumption. Regarding energy sources with a lower carbon content, sugarcane energy by-products accounted for 18.7% of total energy consumption in 2009, with the growing importance of sugarcane bagasse (fuel for electricity cogeneration) highlighted by a 13.03% share of total energy consumption in the country in 2009 (EPE – Empresa de Pesquisa Energética, 2010b).
When evaluating Brazil's energy composition, Szklo and Cunha (2006) observed an emphasis on policies to develop indigenous energy sources, which started in the 1970s and early 1980s, designed to replace high-cost oil imports. The development path choice of these periods, the extensive experience in the cultivation of sugarcane, and the underlying sense of nationality associated to the creation of a national fuel and the imports substitution policy were some of the most important elements pushing the development of new domestic energy technologies. The development of new energy sources with significant emphasis on renewable energy such as biomass, hydropower and nuclear power, allowed improvements in the quality of the Brazilian energy matrix and converted it into the cleanest matrix among the transition economies (Gouvello, 2010). Fig. 3 shows the trend in energy demand, domestic primary energy production and the dependence of imported energy in Brazil from 1970 to 2009.
Fig. 3
Fig. 3 demonstrates the shrinking gap between energy demand and total primary energy produced in Brazil for the period 1970 to 2009. Particularly, the oil demand and supply data from EPE (2010b), presented in Fig. 4, show a progressive reduction in oil dependence with an annual average growth in oil production of 7.05% compared with growth of 3.60% for demand. Ultimately, domestic production exceeded demand in 2006, turning the country into a net exporter of oil and oil derivatives.
Fig. 4
Notwithstanding the effective efforts in diversifying the energy mix, these initiatives have fundamentally been divorced from concerns over the environment. To this extent, the extensive development of renewable energy sources did not offset growth in emissions from fuel combustion. Today, Brazil is the fifth-largest emitter of CO2 in the world (IEA – International Energy Agency, 2009), with fossil fuel combustion being the second-largest source of CO2 emissions after land-use change and forestry related activities (MCT – Ministry of Science and Technology, 2009).
According to the 2009 greenhouse gas emission inventory estimated by the Ministry of Science and Technology (MCT – Ministry of Science and Technology, 2009), emissions from energy consumption increased by more than 70% from1990 to 2005 (MCT – Ministry of Science and Technology, 2009), making it the fastest-growing emissions source. There are several reasons for this trend, including the strong historical link between economic activity and CO2 emissions (see references in Table 2). Table 2 summarizes a sample of decomposition studies that address the issue of emissions from energy consumption in Brazil.
Table 2
| Reference | Period | Level | Main emissions determinant | Main emissions mitigation factor |
|---|---|---|---|---|
| Mendonça and Gutierez, 2000 | 1970–1990 | Energy sector | Economic activity and energy intensity | Energy mix |
| Medeiros and Dezidera, 2006 | 1970–2004 | National | Economic activity | Energy mix |
| Luukkanen and Kaivo-oja, 2002 | 1971–1999 | National | Energy intensity | Energy mix |
| Bacon and Bhattacharya, 2007a | 1994–2004 | National | Energy intensity and population | Carbon intensity |
| Kojima and Bacon, 2009b | 1994–2006 | National | Economic activity and population | Structure of the economy |
| Vehmas, 2009 | 1990–2003 | National | population | none |
- a
- Results in this table refer to average values for the periods 1994–1999 and 1999–2004.
- b
- Results in this table refer to average values for the periods 1994–1996, 1999–2001 and 2004–2006, estimated according to two sources of data (US EIA, IEA).
Table 2 provides evidence of differences in the determinants of emissions change for the different periods. Economic activity and population pressure are consistently found to be important determinants of emissions growth, while the energy mix is pointed as the main emissions mitigation factor. Variances in energy intensity have been reported to be the most volatile factor across periods of high and low economic growth (Machado and Schaeffer, 2006).
An examination of the energy matrix diversification indicates a systematic link age between initiatives toward the development of new energy sources and events of supply shortages. Remarkable examples include the two oil shocks in the 1970s and the electricity supply shock, labeled by Brazilians as the “apagão”, that plunged the country in darkness for the period between mid-2001 to the beginning of 2002(Anuatti-Neto and Hochstetler, 2002, Rosa et al., 2002). While the oil price shocks prompted the development of hydropower capacity and the Proalcool, the apagão was a trigger for the latest initiative toward national energy matrix diversification, carried out under the Program of Incentives for Alternative Electricity Sources (Proinfa). The program launched the foundations of a regulatory framework that has the main objective of encouraging independent electricity producers to commercialize excess energy supply to local electrical operators (Brazil, 2004). Some examples already in operation include the commercial usage of cogenerated electricity from sugarcane bagasse and some photovoltaic and wind power projects; except for the biomass-cogenerated usage, others have produced only marginal results so far (EPE – Empresa de Pesquisa Energética, 2010b).
Furthermore, studies indicate that within the debate around the reasons for and effects of the electricity blackout, several initiatives toward energy efficiency were voluntarily or mandatorily deployed that could have potentially created more awareness of the energy conservancy theme with potential effect on energy-intensity improvement (Rosa and Lomardo, 2004). Energy conservancy initiatives, such as the national electricity conservation program (PROCEL), have also gained importance as measures adopted following the apagão and were further incorporated into the regulatory apparatus of the state (Geller et al., 2000). Statistics for the period after the energy supply shock indicate a relatively stable energy sector, a result of, among others reasons, stable levels of hydropower and efforts toward establishing a network of backup thermopower plants connected to the grid and ready to be activated in emergencies (Castro et al., 2010).
The latest major events regarding energy in Brazil are the double announcement by public authorities of oil self-sufficiency in April 2006, and the discovery of reserves of offshore oil in the coastal area of the southeast region in Brazil (Berman, 2008, GCA – Gaffney, Cline and Associates, 2010). Although the reserves are still unexplored because of technological limitations and operational costs, specialists have suggested that the new oil sources can potentially convert Brazil into one of the leading oil producers in the world (Fidelis and Mathias, 2010, Langevin, 2010, Petrobras, 2009). Others have reported concerns regarding the maintenance of ethanol and the still fragile biodiesel as competitive fuels or even jeopardize efforts in the development of new fuels in a scenario of lower oil price (Nogueira and Alencastro, 2009, Pires and Schechtm, 2008).
If you are interested in this research article, you can download the full length article through the download page using the link below, both PDF file and Word file are provided.
No comments:
Post a Comment