Fernando Groisman

Developing Countries & Global Climate Change : Electric Power Options in Argentina

Developing Countries & Global Climate Change : Electric Power Options in Argentina

Prepared for the Pew Center on Global Climate Change
May 2000

By:
Daniel Bouille, Institute for Energy Economics, Bariloche Foundation
Hilda Dubrovsky, Institute for Energy Economics, Bariloche Foundation
William Chandler, Battelle, Advanced International Studies Unit
Jeffery Logan, Battelle, Advanced International Studies Unit
Fernando Groisman, Institute for Energy Economics, Bariloche Foundation

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

The Republic of Argentina is positioning itself at the forefront of the climate change debate among non-Annex I countries. It initiated market reforms in the early 1990s that made the economy more efficient while providing mixed, but on balance, positive, environmental results. In 1999, Argentina set a voluntary target to lower greenhouse gas emissions to between 2 and 10 percent below the projected baseline emissions for 2012. Additional policy choices that it makes to improve economic growth and lower emissions could serve as important examples for others facing similar challenges.

Argentina's electric power demand is expected to more than triple over the next 15 years, expanding by 6 percent a year. Emissions of greenhouse gases, however, do not have to increase at the same rate. The successful implementation of the market-based reforms and increased competition in power generation could continue to play an important role in the near future in lowering emissions from projected levels. This report describes the context for new investments in this sector and identifies principal trends under three alternative policy scenarios. The report finds that:

  • Under a business-as-usual scenario, electric power generating capacity, primarily from large natural gas turbines and combined-cycle plants, is expected to increase 170 percent, growing from 17 gigawatts in 1995 to 46 gigawatts in 2015, at a cost of $26 billion. Carbon dioxide emissions are expected to nearly triple, growing from 4.8 million tons in 1995 to 14 million tons in 2015.
  • Natural gas combined-cycle plants have become the most competitive alternative over hydro and nuclear power, and are currently the main choice of private sector power developers in Argentina. These plants produce less than half the greenhouse gas emissions of similar coal-fired plants, and have essentially no emissions of sulfur dioxide and particulates. If low-cost natural gas resources become restricted due to shortages, however, investments would flow to nuclear and coal-fired power plants. This outcome could raise total costs to nearly $45 billion, although greenhouse gas emissions would remain essentially unchanged due to the offsetting characteristics of nuclear and coal-fired plants.
  • Adopting policies that favor renewable energy sources and nuclear power cost $32 billion by 2015 — about 23 percent more than the baseline — and would decrease carbon dioxide emissions from 14 million tons in the baseline to 11 million tons in 2015.
  • Increasing energy efficiency by end-users and demand-side management would reduce total costs by $6.3 billion and carbon dioxide, sulfur dioxide and nitrogen oxide emissions would all decline 20 percent compared to the baseline.

Developing Countries and Global Climate Change: Electric Power Options in Argentina is the last of a series commissioned by the Center for Climate and Energy Solutions to examine the electric power sector in developing countries, including four other case studies in Brazil, China, India, and Korea.

The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. We believe that climate change is serious business, and only through a better understanding of circumstances in individual countries can we hope to arrive at a serious response.   

Executive Summary

Argentina boasts a distinctly market-oriented electricity generating system. Power sector reforms have progressed further than in most nations, including the United States, and hold important lessons for climate policy. Competition in Argentina has favored natural gas over hydropower and nuclear power, thus increasing emissions at the margin, but has also virtually eliminated coal from the market despite its abundance. While competition has lowered the price of electricity, and thereby increased demand, it has done so by reducing inefficiency that in turn reduced carbon emissions. Privatization and competition in the energy sectors of Argentina and several other South American countries is influencing power reform across the continent.

There are numerous trends driving growth in energy demand. The electric power sector consumes about 22 percent of Argentina's total energy supply. Today, overall energy demand growth is driven by transportation energy use, which increased by half since 1990. The residential sector grew by more than one-quarter over the same period. Abundant natural gas provides one-third of total energy use and continues to increase market share. Transportation and agriculture still rely on petroleum, but industry, commercial buildings, and residences have increasingly switched to direct use of natural gas. Argentina also exports petroleum and natural gas, currently about one-eighth of total production. The country has a relatively strong energy conservation and efficiency program focusing on cogeneration of heat and power, energy appliance labeling, and efficient lighting.

Argentina is emerging as a leader in environmental issues. In October 1999, Argentina announced a voluntary effort to restrict greenhouse gas emissions within a range of 2 to 10 percent below the projected baseline level during 2008-2012. Argentina became the first developing country under the United Nations Framework Convention on Climate Change to establish a voluntary target. The impact of this action on other developing countries is still not clear, but it could catalyze some of the relatively small emitters to take on similar voluntary targets.

While Argentinian power demand is expected to continue to grow rapidly at over 6 percent each year, growth will not necessarily mean a corresponding increase in emissions. Carbon emissions in particular can be offset by improving energy conversion efficiencies, promoting carbon-friendly renewable energy sources, and introducing policies such as the Clean Development Mechanism (CDM) or domestic actions to change fuel-choice decisions. This study explores these and other issues in four scenarios including a baseline of continuing policies and trends, an emissions mitigation case, a natural gas shortage scenario, and a scenario of end-use efficiency improvements.

The scenarios provided the following results:

Baseline Scenario. This scenario, which assesses power supply and demand based on current trends and fuel availability, projects installed power generating capacity to grow from about 17 gigawatts1 in 1995 to 46 gigawatts in 2015, an increase of 170 percent. The share of power provided by hydroelectric resources will fall from half of all generation in 1995 to about one-quarter, while nuclear power will drop from 10 percent of supply to only 3 percent in 2015. Gas-fired plants provided about 46 percent of power in 1995, a share that will grow to 72 percent over the next decade-and-a-half. Total cost in the baseline scenario from 1995 to 2015, including discounted capital, operations and maintenance, and fuel components, is estimated to be $26 billion. Carbon dioxide emissions from the power sector grow from 4.8 million tons of carbon in 1995 to an estimated 14 million tons in 2015, almost tripling.

Emissions Mitigation Scenario. This scenario tests the impact of policies to reduce the capital cost of power supply in order to favor non-carbon energy sources such as hydropower and wind. The reduction in capital costs is simulated by lowering the discount rate from 12 percent in the base case to 5 percent, and would require an outright social or environmental subsidy. This approach might simulate the use of domestic subsidies and soft loans or investments from the CDM. In this scenario, hydropower's share continues to fall but only to 39 percent, while nuclear's share drops to 4 percent. Power supply grows 7 percent more than in the baseline, thus requiring a total of almost 49 gigawatts of capacity in 2015. The value of the "subsidy" would amount to $6 billion over the 20-year period as total costs increase by 23 percent to $32 billion. Carbon dioxide emissions are around 11 million tons, or one-fifth less than baseline levels.

Natural Gas Shortage Scenario. This scenario assumes that low-cost natural gas resources are restricted — compared to the baseline scenario — for use in the power sector starting in 2005. Methodologically, the scenario applies the 12 percent discount rate used in the baseline but severely constrains gas supply to reflect the assumed resource depletion. Consequently, the least-cost model simulation predicts investment flowing to nuclear and coal-fired power stations. Total power capacity reaches 48 gigawatts, 4 percent above the baseline, although actual power generation remains the same. Nuclear power's share in generation rises dramatically to over 15 gigawatts by 2015. The scenario also applies environmental externalities to coal use, and this accounts for the marked increase in nuclear power. Power demand would exceed 181 terawatt-hours, compared to roughly 55 terawatt-hours today. Total costs would rise to nearly $45 billion, over 70 percent higher than the baseline. Carbon emissions would decline by 2 percent, but sulfur dioxide and particulate emissions would increase dramatically due to the increased use of coal-burning power plants. The likelihood of a natural gas shortage this severe is remote so the scenario results should be viewed as an upper-end outcome.

Efficiency Scenario. This scenario tests the effect of demand-side energy-efficiency policies, including strengthening standards for appliances and buildings, increasing competition in energy-using equipment by liberalizing trade, and providing informational or financial assistance to industrial consumers. Efficiency is assumed to reduce energy use in the buildings sector by 9 percent and by 7 percent in the industrial sector by 2015 compared to the baseline. Industrial cogeneration plays a significant role in this scenario. Total power costs are $6.3 billion lower than in the baseline and more than 50 percent below the natural gas shortage scenario. Carbon dioxide, sulfur dioxide, particulate, and nitrogen oxide emissions would all decline by approximately 20 percent compared to the baseline.

Several of the above scenarios raise questions about implementation costs. While the CDM might be one option in the mitigation scenario, this study makes no claim to describe how such a mechanism could be implemented to achieve the major shift in private discount rates. The efficiency scenario, similarly, depends on policies with uncertain effectiveness and does not indicate the level of effort that would be required. Achieving the potential revealed in these scenarios will depend on major new policy initiatives and on policy research to describe an effective set of policies that decision-makers can adopt.

The impact of increased use of market forces on the environment and specifically on greenhouse gas emissions in Argentina has been mixed but, on balance, positive. While hydropower and nuclear are seriously disadvantaged by market economics, gas is highly favored over coal. Because the environmental and social considerations of hydropower, nuclear, and coal are substantial, it cannot be said that the market produces an unfavorable environmental result. More to the point, the market in Argentina has provided a prudent path for energy development and environmental protection, one that sensible public policy can build on to further protect Argentina's environment and the global climate.

About the Authors

Daniel Bouille
Daniel Bouille is Senior Researcher at the Institute for Energy Economics/Bariloche Foundation in Buenos Aires, Argentina. An economist by training, his academic background includes post-graduate studies in Energy Economics at the University of Cologne in Germany.

His professional background presently focuses on research and technical assistance related to climate change issues. Professor Bouille was National Coordinator of the Argentine Report on Greenhouse Gas Mitigation in the Energy Sector. He has served as Coordinator of numerous projects including, "Study on Flexibility Mechanisms within the Context of the United Nations Framework Convention on Climate Change and the Kyoto Protocol;" "Study of the Andean Pact: the Benefits of the Integration on Greenhouse Gas Emissions;" Technical Assistance to the First Mitigation Study for El Salvador; and Energy Study to fix the Argentine Voluntary Commitment.

Professor Bouille is also a member of the expert roster of the GEF, and Lead Author of the IPCC Working Group III Third Report.


HILDA SUSANA DUBROVSKY

CURRICULUM VITAE

NAME AND SURNAME: Hilda Susana Dubrovsky
CITIZENSHIP: Argentine
BIRTH DATE: September 6th, 1953
PRESENT POSITION: Instituto de Economía Energética Academic Researcher

MAJOR FIELDS OF STUDY:

Civil Engineer directed to hydraulic vocational guidance.
Researcher, Postgraduate in Economic and Energy Planning.

PROFESSIONAL AND RESEARCH BACKGROUND:

Experience obtained through different research-studies and works dealing with Economics and Energy Planning, requested by national and international agencies such as: PNUD, FAO, CEE (DG XVII), IDRC (Canada), IDB, OLADE, The World Bank, CIER (Commission of Regional Electricity Integration) and The Andean Promoting Corporation- CAF. Other institutions as the National Secretariat for Energy (Argentina) and different national and provincial public or private bodies: INVAP, CNEA, also with various universities and electricity companies.

SUBJECTS:

Electricity Planning, energy prices and tariffs, energy and agriculture-husbandry production techniques; projection methodology covering energetic requirements; integral energy planning at national level; energy integration; strategies dealing with national use of the energy, environment impacts of the energy systems.

Author and collaborating member in numerous research studies, covering the above mentioned areas.


WILLIAM CHANDLER

William Chandler is currently Senior Staff Scientist and Director of Advanced International Studies at Battelle Memorial Institute's Pacific Northwest National Laboratory in Washington, D.C. He is a member of the international energy panel of the U.S. President's Council of Advisors on Science and Technology, and an adjunct professor at Johns Hopkins University.

Mr. Chandler has authored or co-authored ten books, and has often published in both technical and popular journals, including Climatic Change and Scientific American. He occasionally appears on national radio and television, most recently in a Peter Jennings ABC special on climate change.

His international work has included institution building, policy development, and project finance. He led the creation of independent, not-for profit energy efficiency centers in six nations, including Russia and China. Chandler received the 1992 Champion of Energy-Efficiency Award from the American Council for an Energy Efficient Economy for his work. He has also led case studies of energy and climate in most of the transition economies and is lead author for the Intergovernmental Panel on Climate Change, currently focusing on technology transfer.

Mr. Chandler manages the U.S.-Ukrainian collaborative program on energy-efficiency investment under the Gore-Kuchma Commission and is a member of the National Committee on U.S.-China Relations. He holds a B.S. from the University of Tennessee, and an MPA from Harvard University.


JEFFREY LOGAN

Jeffrey Logan is a Research Scientist in the Advanced International Studies Unit of the Pacific Northwest National Laboratory in Washington, D.C. His work focuses primarily on the environmental and economic impacts of energy system decisions, with a heavy geographic focus on China.

He has published extensively on China's electric power sector, natural gas industry, energy conservation efforts, and renewable energy potential. He led a 1998 study entitled "China's Electric Power Options: An Analysis of Economic and Environmental Costs, " which received wide attention. He has also advocated greater natural gas use in China as a substitute for coal and published related articles in the Oil and Gas Journal and the China Business Review.

Mr. Logan began his career at General Electric modeling satellite orbits. He later joined the Peace Corps and taught applied science in rural Nepal. A growing interest in the rapid development of Asian economies and their associated environmental and social dislocations then took him to China where he worked with the United Nations. He has five years of field experience in Asia and speaks Chinese and Nepali.

Logan has a B.S. degree in Aerospace Engineering from the Pennsylvania State University. He also holds a joint Masters degree in Environmental Science and Public Administration from the School of Public and Environmental Affairs at Indiana University. He has also worked at the East-West Center in Hawaii researching the dynamics of Chinese energy and economic activity.


FERNANDO GROISMAN

CURRICULUM VITAE

NAME AND SURNAME: Fernando Groisman
CITIZENSHIP: Argentine
BIRTH DATE: June 30th, 1921
PRESENT POSITION: Instituto de Economía Energética Senior Researcher

MAJOR FIELDS OF STUDY:

Mechanical-Electrician Engineer, Senior. Expertise in Economics, Energy Policy and Planning. Methodologies and Applications directed to Energy Planning connected to the requirements, supply and environment impacts.

PROFESSIONAL AND RESEARCH BACKGROUND:

Experience and training in: Integral Energy Studies worked in different Argentine provinces and National regions, as well as in foreign countries. Studies covering the diagnosis, energy demand and supply scenarios, on medium and long term; environment impacts and mitigation sceneries related to environmental pollution. Studies dealing with the rational use of energy. Energy and environment policies patterns; assessment and supply by means of non-conventional energy sources. Various study-works referred to the different effects of technology. Advisor on subjects referred to Energy Legislation.

Author and collaborating member in numerous research study-works in the above mentioned fields.   

 

Daniel Bouille
Fernando Groisman
Hilda Dubrovsky
Jeffrey Logan
William Chandler
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