João Carlos de Souza Marques
Developing Countries & Global Climate Change: Electric Power Options in Brazil
Prepared for the Pew Center on Global Climate Change
Roberto Schaeffer, Federal University of Río de Janeiro
Jeffery Logan, Battelle, Advanced International Studies Unit
Alexandre Salem Szklo, Federal University of Río de Janeiro
William Chandler, Battelle, Advanced International Studies Unit
João Carlos de Souza Marques, Federal University of Río de Janeiro
Eileen Claussen, President, Pew Center on Global Climate Change
Brazil is the fifth largest country in the world and its economy is roughly equal to that of all other South American countries combined. Yet, its greenhouse gas emissions are less than one-third of the continent's total due to the dominant role of hydropower. Total energy consumption is less than one-tenth the level in the United States and per capita carbon emissions are just 0.5 tons, compared to approximately 1.0 ton in Argentina and Mexico.
Brazil is already considered an environmental leader among developing countries and plays a significant role in the international climate change debate. Whether it is able to stay on this path will depend in part on its energy choices over the next fifteen years. This report describes the context for new power sector investments and presents three alternative policy scenarios for 2015. The report finds that:
- Construction of new hydroelectric plants is increasingly expensive and controversial due to social and environmental impacts. As a result, many new investors may favor natural gas-fired combined-cycle plants. Under a business-as-usual trajectory, carbon dioxide emissions will grow from 3.4 million tons in 1995 to 14.5 million tons in 2015, mainly due to this shift to natural gas.
- Further tightening of local environmental regulations and adoption of renewable energy policies could reduce carbon dioxide and sulfur dioxide emissions by 82 percent and 75 percent, respectively, by 2015 compared to the baseline scenario, at little additional cost.
- Creating a carbon-free power sector would require an additional $25 billion in cumulative costs by 2015 — about 15 percent more than the business-as-usual scenario — and would expand the use of renewable energy resources.
- Wind power potential could be harnessed — increasing from zero to 2 percent of total installed capacity by 2015 — depending on the extent of government subsidies.
Developing Countries and Global Climate Change: Electric Power Options in Brazil is the fifth 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 of Korea, India, China, and Argentina.
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.
Brazil generates over 90 percent of its electricity by capturing the energy in falling water. Per capita carbon emissions in Brazil are less than half the world average, largely because of the country's heavy reliance on hydropower, which produces few greenhouse gas emissions. Many of the country's new power plants, however, will likely use natural gas since many investors view hydroelectric plants as increasingly costly, controversial, and risky.
This study analyzes the options for meeting power demand in the Brazilian power sector through 2015. Meeting this demand at least-cost — including the estimated costs of environmental impacts — is a topic of great concern for decision-makers in government and industry. The electric power choices Brazil makes may influence the global response to climate change out of proportion to its emissions, as Brazil is considered an environmental leader among developing countries.
Current reforms in the power sector have been designed mainly to cut costs by introducing competition in electricity generation. Other objectives include reducing government investment in power plant construction and the risk of electricity shortages. These reforms have catalyzed institutional changes in Brazil: privatization, elimination of tariff equalization across regions, and the introduction of supply contracts between power generation and distribution utilities.
The authors begin with a brief review of Brazil's economic and energy situation, then turn to a detailed account of the nation's electric power sector. The report presents results of regional electric power demand forecasts through 2015 and assessments of available energy resources and technologies. An analysis using a linear programming model determines the least-costly combinations of power supply technologies that meet projected power demand.
Three policy cases were devised to test economic and environmental policy measures against a baseline: advanced technologies, local environmental control, and carbon elimination. Least-cost modeling simulated these scenarios through changes in emissions fees and caps, costs for advanced technologies, demand-side efficiency, and clean energy supplies.
The authors conclude that, without alternative policies, new additions to Brazil's electric power sector will shift rapidly from hydroelectricity to combined-cycle natural gas plants. Greenhouse gas emissions will thus increase rapidly, although the absolute quantities will remain relatively low. While combined-cycle natural gas plants generate power with 60 percent less carbon dioxide emissions than coal units, greenhouse gas emissions will still rise rapidly as the gas plants replace hydropower facilities that are nearly carbon-free. Specifically, the scenarios produced the following results:
Baseline Scenario. This scenario assumes that institutional reform such as privatization and increased competition among generators is successfully implemented over the coming decade. The installed capacity grows from 56 gigawatts in 1995 to 94 gigawatts in 2015, an increase of 68 percent. Natural gas plants increase from essentially zero to 11 percent of installed capacity over the period of analysis. Energy efficiency and cogeneration play important roles in limiting an even greater reliance on fossil fuel power generation. The total cost of meeting demand is $183 billion,1 which includes capital, fuel, and operation and maintenance costs. Carbon dioxide emissions rise more than four-fold from 3.4 million tons of carbon in 1995 to 14.5 million tons in 2015. However, the intensity of CO2 emissions in Brazil remains low, even in 2015, as hydropower still accounts for 74 percent of total generation. Sulfur dioxide and particulate emissions grow proportionately with power generation, while nitrogen oxides increase five-fold to reflect the greater use of natural gas in power generation turbines.
Advanced Technology Scenario. The advanced technology scenario simulates capital cost reductions for power plant equipment due to technological progress driven by government incentives. Environmental costs are also at least partially accounted for in the least-cost analysis by including some of the external costs of emissions, hydropower construction, and nuclear decommissioning that are normally ignored. Wind power increases from zero to almost 2 percent of total installed capacity by 2015 due to the environmental fees imposed on fossil-fuel use. The total cost of this scenario is $181 billion, 1.6 percent less than the baseline, mainly due to the cheaper costs of building and operating combined-cycle power plants in the later years. This figure does not include the research, development, and deployment costs needed to improve technologies. Carbon dioxide emissions drop slightly from the baseline, reaching 13.3 million tons of carbon in 2015. Sulfur dioxide emissions decline by approximately 50 percent due to the elimination of diesel generators after 2005.
Local Environmental Control Scenario. In this scenario, renewable energy policies and the use of higher environmental externalities influence the technologies employed. The environmental costs of pollution are assessed at a higher value than in the technology scenario, and cost reductions for cleaner, advanced technologies are also assumed. Hydropower plays a larger role in this scenario, rising to over 88 percent of total installed capacity. The environmental and social impacts of expanding hydroelectric power production this much are difficult to estimate, but could be significant. Biomass capacity rises from 2 percent in the 2015 baseline case to 5 percent. The cost of this scenario is $179 billion. Carbon dioxide emissions drop from 3.4 million tons of carbon in 1995 to 2.6 million tons in 2015. Sulfur dioxide emissions decline substantially, while particulate emissions increase due the growth in biomass combustion for power generation.
Carbon Elimination Scenario. In the carbon elimination scenario, Brazil installs electric power generation technologies that produce no net carbon dioxide emissions and only minor impacts on watersheds and landscapes. Installed capacity in 2015 reaches 97 gigawatts, and hydropower continues to account for over 80 percent of installed capacity. Renewable energies account for 97 percent of power generation in 2015, with biomass accounting for over 16 percent. The remaining 3 percent is generated from existing nuclear power plants. The total cost of the expansion is $208 billion, 14 percent above the baseline scenario. Carbon emissions cease and sulfur dioxide emissions drop, but particulate emissions rise five-fold due to the heavy reliance on biomass.
Brazilian power supply will continue to rise at appreciable rates over the next two decades regardless of the country's current economic difficulties. Reforms under way in the power sector, however, will greatly influence how power demand is met and the emissions that result. Hydropower will continue to play a dominant role through 2015, although its relative share will most likely decrease.
Carbon emissions more than quadruple in the baseline scenario to 14.5 million tons, but remain extremely low in absolute terms. (For comparison, the U.S. power industry released approximately 550 million tons of carbon dioxide in 1998.2) This output is equivalent to the emissions from 10 large coal-fired power plants. Biomass and wind power might play a larger role in Brazil's power future if the government focuses on developing advanced technologies and accounts for at least some of the costs to the environment. Coal-based technologies are not competitive with other forms of power generation, allowing Brazil to largely avoid the tradeoff between improving the quality of the local environment and reducing global greenhouse gas emissions.
In the local environmental control and carbon elimination scenarios, there is a strong interdependence between electricity generation based on sugar cane bagasse and ethyl alcohol production for automotive use. By accounting for the environmental impacts of local pollutants or restricting power generation options to those with no carbon dioxide emissions, sugar cane bagasse becomes feasible, making it the power generation technological option that is most widely used in both scenarios after hydropower. This indicates that Brazil has the potential to service the electricity market without carbon emissions if the market or the international community can support the 14 percent higher costs.
In all four scenarios, energy efficiency and cogeneration play an important role in the least-cost power solution. Saving electricity through increased efficiency offsets the need for new supply and has enormous potential in Brazil's industrial sector. Efficiency also reduces the environmental burden associated with electricity production and transmission (most likely via natural gas combined-cycle plants) without compromising the quality of services that end users demand.
Carbon dioxide emissions from Brazil's power sector will remain low in absolute terms over the next two decades. Brazil appears able to play a unique role within the context of the UN Framework Convention on Climate Change by fostering economic growth that does not sacrifice local or global environmental quality. Achieving cleaner development would serve as a powerful example for other developing countries.