Energy-related climate change mitigation in Brazil: Potential, abatement costs and associated policies

Energy-related climate change mitigation in Brazil: Potential, abatement costs and associated policies

Energy Policy 49 (2012) 430–441 Contents lists available at SciVerse ScienceDirect Energy Policy journal homepage: www.elsevier.com/locate/enpol En...

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Energy Policy 49 (2012) 430–441

Contents lists available at SciVerse ScienceDirect

Energy Policy journal homepage: www.elsevier.com/locate/enpol

Energy-related climate change mitigation in Brazil: Potential, abatement costs and associated policies Bruno S.M.C. Borba n, Andre´ F.P. Lucena, Re´gis Rathmann, Isabella V.L. Costa, Larissa P.P. Nogueira, Pedro R.R. Rochedo, David A. Castelo Branco, Mauricio F.H. Ju´nior, Alexandre Szklo, Roberto Schaeffer ~ ´ria, Ilha do Fundao, Energy Planning Program, Graduate School of Engineering, Universidade Federal do Rio de Janeiro, Centro de Tecnologia, Bloco C, Sala 211, Cidade Universita Rio de Janeiro, RJ, 21941-972, Brazil

H I G H L I G H T S c c c c

We estimate the potential for energy-related GHG emission reductions in Brazil. We cover industry, transports and petroleum sector. The potential to reduce energy-related GHG emissions is around 27% in 2030. The low carbon scenario in 2030 is above the current level emission in Brazil.

a r t i c l e i n f o

a b s t r a c t

Article history: Received 14 June 2011 Accepted 21 June 2012 Available online 18 July 2012

This paper estimates the potential for energy-related greenhouse gas emission (GHG) reductions in Brazil, their abatement costs and proposes a number of policies to achieve these reductions. The Brazilian energy system is very peculiar as renewable energy accounts for some 45% of total primary energy and 85% of electricity production. The following sectors are covered in this paper: industry, transports and petroleum sector. Compared to a business-as-usual reference scenario, results show a potential to reduce future energy-related GHG emissions by 27% in 2030. However, in spite of that, the mitigation potential identified here is not large enough, in absolute terms, to reduce energy-related GHG emissions below the current level in Brazil by 2030. & 2012 Elsevier Ltd. All rights reserved.

Keywords: GHG emission reductions Abatement costs Brazilian energy system

1. Introduction The most recent assessment report of the Intergovernmental Panel on Climate Change (IPCC) contains the latest scientific evidence on climate change and highlights the urgency of adopting mitigation measures (IPCC, 2007a). Faced with the challenge of global climate change, many research teams have developed computer-based economic models and have calculated abatement costs of greenhouse gas (GHG) emissions that are consistent with long-term climate policy targets in terms of maximum GHG concentrations or temperature increases (Den Elzen et al., 2005; Cai et al., 2007; Enkvist et al., 2007; Holmgren and Sternhufvud, 2008; Ribbenhed et al., 2008; Henriques et al., 2010; Mckinsey, 2009b; Castelo Branco et al., 2010; De Gouvello, 2010; Hasanbeigi et al., 2010; Ko et al., 2010; 2011). It is possible to interpret the abatement costs as the carbon prices that would enable, from an

n

Corresponding author. E-mail address: [email protected] (B.S.M.C. Borba).

0301-4215/$ - see front matter & 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enpol.2012.06.040

economic standpoint, implementing the emission reduction measures considered. Although Brazil is not currently listed as an Annex I country under the Kyoto Protocol, pressure is mounting for it to assume binding commitments to reduce its GHG emissions in a possible post-Kyoto agreement. As a matter of fact, today Brazil is already the world’s fourth-largest GHG emitter (Frischtak, 2009). Although an agreed outcome was not reached at COP 15 in Copenhagen, the Government of Brazil indicated voluntary mitigation actions leading to an expected reduction of 36% to 39% regarding projected GHG emissions of Brazil by 2020, an objective that was further stressed at COP 16 in Cancun, and then more recently again at COP 17 in Durban. This paper estimates the potential for energy-related GHG emission reductions and their average abatement costs in Brazil and proposes some policy measures to reduce those emissions. In doing so, this study updates, improves and summarizes the list of mitigation measures proposed by the authors in Gomes et al. (2009), Castelo Branco et al. (2010), Henriques et al. (2010) and Schaeffer et al. (2009a). The Brazilian energy system is very peculiar because the major potential for carbon emission reductions does not lie within its

B.S.M.C. Borba et al. / Energy Policy 49 (2012) 430–441

Industrial 32%

Services Sector 1%

Agriculture 5%

Energy Production 17% Residential Sector 5% Non-energy Consumption 2%

Transportation 38%

Fig. 1. GHG emissions from energy use in different economic sectors in Brazil. Source: MCTI (2009).

power sector. In 2008, renewable energy accounted for 45% of the primary energy supply and 85% of the electricity supply (MME, 2009). Most of Brazil’s GHG emissions (around 58%) come from deforestation (MCTI, 2009). In terms of final energy use, the industrial and transport sectors are responsible for 70% of Brazil’s energy-related GHG emissions (see Fig. 1). In the transport sector, over 90% of emissions come from road vehicles, while in industry the largest share comes from the iron and steel sector (42%). Therefore, our analysis of mitigation options and their costs is focused on the following sectors: industry, transports and petroleum industry. This paper is organized into six sections including this introduction. Section 2 presents the theoretical formulation adopted; Section 3 describes the reference scenario; Section 4 presents the measures considered along with the respective abatement costs and policies necessary for a low-carbon scenario in the Brazilian energy sector; Section 5 sets out the results in aggregate form; Section 6 discusses barriers and policy implications of abatement measures implementation; and Section 7 concludes.

2. Methodology In this paper, several carbon emission mitigation measures are formulated and estimated, along with their respective costs and potentials for abatement. The measures presented here expand, update and summarize previous estimates produced by the authors in other studies, such as Gomes et al. (2009), Castelo Branco et al. (2010), Schaeffer et al. (2009a) and Henriques et al. (2010). These updates include the revision of all mitigation options (costs and potentials) of these previous works performed by the authors as well as an addition of new alternatives for curbing GHG emissions in the Brazilian petroleum sector. The paper also provides estimates for the transport sector, which were not contemplated in previous studies. Therefore, the three sectors analyzed here are industry (including some key segments), transports and energy supply, focusing on the petroleum sector. Actually, this latter sector will account for a significant share of the expected additional GHG emissions from Brazil, given the prospects of increased petroleum production and refining, which were not considered in previous studies. Corporate scenarios signal that the oil industry in Brazil will grow substantially in the next decades. These scenarios indicate that the Brazilian petroleum production will increase due to new discoveries in the Pre-Salt1 area, from 0.6 billion boe in 2011 to 1.4 billion boe in 2020 (Petrobras, 2011). Moreover, the 1 Deepwater oil fields located in the Pre-salt area are at a depth of 6000 m below a salt layer of 2000 m. These fields are also located 200 km from the Brazilian shore line and have been recently discovered (Petrobras, 2011). The offshore fields will be responsible for most of the Brazilian oil and natural gas production in the next decades (Petrobras, 2011).

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country’s oil refining sector is expected to be expanded significantly, from 319,000 m3/day in 2011 to 561,000 m3/day in 2020 (Bonfa´, 2011). For the industrial and petroleum sectors, we estimated the abatement costs based on the investments along with the energy and operational costs of the measures considered. In this analysis, as in Holmgren and Sternhufvud (2008), we used three discount rates, two reflecting companies’ perspectives (15% a year for average-risk investments and 25% a year for high-risk investments), and the other reflecting society’s perspective (8% a year). These rates were based on Gomes et al. (2009), Castelo Branco et al. (2010), De Gouvello (2010), Henriques et al. (2010) and (2011). In the transport sector, due to the heterogeneity of the specific data available, we collected the abatement costs based on the literature and only forecast the potential abatements by employing the methodology developed by Borba (2008) and Schaeffer et al. (2008), along with the premises presented by Schaeffer et al. (2009a). For the power sector, since most of Brazil’s electricity comes from renewable sources (mainly hydropower), which already have a low carbon footprint, we discuss the peculiarities of the sector and possible impacts from climate change. Finally, we summarize and compare the potential abatements of the three sectors considered (industry, transports and energy supply) against the Reference Scenario proposed by the Brazilian government for the energy area in the National Energy Plan (PNE2030), which is detailed in EPE (2007) 2.

2.1. Abatement cost of CO2 emissions The GHG emissions abatement cost of a project is, by definition, the difference between the cost in a reference scenario and the cost in a scenario with mitigation (here called low-carbon scenario), expressed in monetary terms (US$) per tonne (metric ton) of CO2 equivalent (tCO2e). Hence, it is an additional cost.3 The cost term generally denotes a negative impact, while the benefit denotes a positive impact. According to this concept, benefits can be expressed by negative costs. The abatement cost can also be defined as a price, in the face of policy decisions in a global context (Enkvist et al., 2007; Kesicki and Strachan, 2011; Ekins et al., 2011). This method has been widely used in several studies to estimate abatement costs and potentials of different economic sectors in many countries, such as Cai et al. (2007), Ribbenhed et al. (2008) and Hasanbeigi et al. (2010). Decisions to implement GHG emission mitigation measures rely not only on political considerations but also entail important economic considerations. Obviously, after conducting an evaluation of the mitigation costs, the technical options or actions with the best cost-benefit ratio should be prioritized. On the other hand, those that are more costly in relation to the benefits can be included in longer-term strategies and can be negotiated with the various stakeholders to work out ways to share the costs. Evaluation of the costs and reductions in environmental damages is not trivial and is also filled with uncertainties, despite the substantial scientific progress in recent years. According to Kuik et al. (2009) and Ekins et al., (2011) the abatement costs are 2 EPE is the Empresa de Pesquisa Energe´tica, or the Energy Research Company. It is an agency of the Ministry of Mines and Energy. 3 The abatement cost of GHG emissions must be evaluated by definition as the cost of following an ‘‘incremental’’ mitigation strategy in relation to a baseline scenario. From the standpoint of a country, there is a distinction between the total cost of a project and the incremental cost. Both concepts are relevant in a decisionmaking process. The concept of incremental cost is relevant from the social standpoint while the total cost of a project better reflects the financial requirements.

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influenced by various factors, such as the reference scenario chosen, possible induced technological advances and the model’s degree of aggregation. Two approaches can be used to estimate GHG abatement costs: the technology/activity, the sector/program or macroeconomic approach (IPCC, 2007b; De Gouvello, 2010). The abatement costs in the technology/activity approach are the easiest to estimate, because they depend on a set of specific abatement measures and on cost-benefit models, which require less information and are easy to interpret and understand (De Gouvello, 2010). In this approach, each technological mitigation option or activity is evaluated separately, on a project basis, in terms of implementation costs and the respective GHG emissions avoided. Hence, the total abatement costs are constructed adding the results of each of the technological options or for each individual segment. This approach, on the other hand fails to capture the effects of a technology or activity on other sectors and economic agents, which can lead to an overestimation of total abatement (IPCC, 2007b). Despite this fragility, the technology/activity approach has been widely used in various studies to estimate the costs and potential abatements of different economic sectors in many countries. Examples are Mckinsey (2009a), Holmgren and Sternhufvud (2008), Hasanbeigi et al. (2010), Ribbenhed et al. (2008), Cai et al. (2007), Ko et al. (2010) and Castelo Branco et al., 2011). This method has also been applied in studies with a global perspective, such as WRI (2005), Den Elzen et al. (2005), Vattenfall (2006), McKinsey (2009b), Akimoto et al. (2010) and Bennaceur & Gielen (2010). In the technology/activity approach, the net present values of the technological options of a reference scenario are compared against lower GHG emission counterparts in a low-carbon scenario. However, the objective is not limited to comparing technologies from the reference to the low-carbon scenarios in a static analysis, but also developing a path to reduce GHG emissions considering scenarios for the level of penetration of abatement measures over time. The average abatement costs consider the investments and operating costs (including energy costs) of each abatement measure (Halsnaes et al., 1998). The cost for each mitigation option is determined from the incremental cost of implementing the measure, compared to a reference scenario, divided by the avoided annual GHG emissions (Eq. 1).

Table 1 Basic parameters from the PNE2030-Macroeconomic. Source: EPE (2007). Parameter

2010

2020

2030

Population (thousand) GDP (109US$ [2005])

198,040 955.8

220,086 1,377.4

238,555 2,133.2

Table 2 Basic parameters from the PNE2030-Electricity. Source: EPE (2007). Parameter

2010

2020

2030

Electricity emission factor (tCO2e/MWh) Average expansion cost (US$/MWh)

0.094 56.9

0.069 56.4

0.079 55.9

3. Reference scenario

company. As explained in Castelo Branco et al. (2010), the crude oil price threshold is a reference price used by oil companies to analyze the feasibility of each of their projects individually. It is the minimum price to guarantee a positive NPV for a project. Petrobras has set this at approximately US$55.00/barrel. Moreover, for the industrial sector we updated costs based on the more recent ‘‘low-oil prices’’ scenario of Annual Energy Outlook 2011 (EIA, 2012). The PNE2030 is an official study by the Brazilian government that projects the evolution of the country’s energy system as a whole. The main macroeconomic figures (GDP and population growth) for this scenario are presented below. The average annual growth of GDP projected for Brazil is 4.1%, with the service and agriculture sectors growing 4.2% and the industrial sector 3.7%. The main electricity data from the PNE2030 that were used in this study are presented below. According to EPE (2007), the average emission factor of the Brazilian grid should decline from 0.094 tCO2e/MWh in 2010 to 0.069 tCO2e/MWh in 2020 and then rise to 0.079 tCO2e/MWh in 2030. In 2005 the Brazilian energy sector emitted 0.35 billion tCO2e, out of a global total of roughly 28.40 billion tCO2e emitted, corresponding to 1.9 tCO2e per year per inhabitant, compared with the global average of 4.4 tCO2e (Frischtak, 2009)4. Even considering an increased participation of renewable sources in the country’s energy mix, the level of emissions should rise over the long run according to the EPE’s projections. On the energy consumption side, the transport and industrial sectors will continue to be the main contributors to emissions growth in the long term. The highest average growth of emissions in the period (25 years) is from electricity generation, nearly 7% a year, increasing the participation of this sector from 6% in 2005 to over 10% of total emissions from the energy sector in 2030. Petroleum-based fuels (diesel oil, gasoline, LPG and kerosene) will remain as the most important contributors to energy sector emissions at the end of 2030—about 50%. The contribution of natural gas, which has a lower emission factor than other fossil fuels, will expand to approximately 17% of the total in 2030 as a result of its greater penetration in industry and power generation. The projected expansion of iron and steel production and the construction of new coalfired thermoelectric plants should lead to an increased consumption of coal (and its by-products), so that it is projected to account for some 16% of total energy-related CO2e emissions in 2030 Tables 1 and 2.

In this work we used Scenario B1 from PNE2030 (EPE, 2007) as a baseline/reference scenario. However, we updated it to better reflect the growth of the petroleum sector activities in Brazil, as mentioned before. Crude oil prices from PNE2030 were also altered to reflect the oil price threshold scenario adopted by Petrobras, the Brazilian oil

4 At the same time, the situation appears very different when one considers the emissions due to changes in land use. Brazil is the second-largest emitter of carbon dioxide from deforestation, which makes the Brazilian case atypical. Currently around 58% of the country’s GHG emissions come from deforestation (MCTI, 2009).

AACOption ¼

X NAClowcarbon NACref erence t

t

t

erence AEref AElowcarbon t t

ð1Þ

where AAC is the average abatement cost of avoiding one tCO2e from each mitigation option in year t; NAC represents the net annual cost of implementing the option; and AE is the annual GHG emission in each scenario. The net annual cost (NAC) (Eq. (2)) represents the difference in the annualized investment cost and the annual financial result of implementing the option. This financial result is given by the total revenue less operating and maintenance expenses. NAC ¼

INV:r:ðð1 þ rÞT =ð1 þrÞT 1Þ þ OMþ FUEL-REV ð1 þrÞðn2010Þ

ð2Þ

where REV is revenue; OM is operating and maintenance costs; FUEL is fuel costs; INV is the investment cost; r is the discount rate; T is the useful life of the project; and n is the year of analysis.

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Nuclear 2%

Fossil 17%

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Table 3 Average emission factors (tCO2/MWh) of the Brazilian Grid—Operating Margin. Source: MCTI (2012).

Other renewable 6% Hydropower 75% Fig. 2. Brazilian electricity mix (share of installed capacity). Source: ANEEL (2010).

4. Abatement Costs related to Brazil’s energy sector

Year

2011

2010

2009

January February March April May June July August September October November December Average

0.026 0.029 0.021 0.020 0.027 0.034 0.031 0.030 0.027 0.035 0.036 0.035 0.029

0.021 0.028 0.024 0.024 0.034 0.051 0.044 0.077 0.091 0.082 0.087 0.053 0.051

0.028 0.024 0.025 0.025 0.041 0.037 0.024 0.020 0.016 0.018 0.018 0.019 0.025

4.1. Power sector The majority of Brazil’s electricity comes from hydro-generation (Fig. 2), with nationwide interconnections that allow the integration of regions with different demands and hydrological regimes. Thermal power generation (mostly natural gas) acts as a complementary source to hydropower, helping to optimize the system’s operation by increasing the amount of energy that can be obtained from hydraulic sources.5 As a result, GHG emissions from electricity production in Brazil are very low, 0.029 tCO2/MWh in average, as Table 3 shows. This should be compared to the world average intensity of 0.587 tCO2/MWh, and the intensity found in countries such as USA and China, respectively 0.521 tCO2/MWh and 0.890 tCO2/ MWh (IEA, 2011). According to the PNE2030 (EPE, 2007), the projected share of non-renewable sources in the country’s power generation capacity in 2017 will be near 19%, compared to the current 15%. Brazil’s remaining exploitable hydropower potential is mostly concentrated in the Amazon region, where local environmental constraints hamper the expansion of this type of generation. Although a rise in emissions from power generation is inevitable, according to Frischtak (2009), the increase in GHG emissions resulting from this change in the composition of power generation sources would represent only 1–3% of the country’s total emissions in 2017. Hence, given the high share of renewable sources in electricity production in Brazil, the abatement potential for the Brazilian power sector is low and the costs are high. For example, on the supply side, Hoffmann and Szklo (2011) and Rochedo and Szklo (2012) found that coal-fired thermal power plants with CCS would reach an abatement cost above 100US$/tCO2 in Brazil; while, for solar power plants in Rio de Janeiro state, Schaeffer et al. (2012) found that abatement costs exceed 500US$/tCO2. On the demand side, Jannuzzi et al. (2010) assessed different electricity saving measures whose abatement costs were estimated hovering between 160 and 2800US$/tCO2. Therefore, unlike other countries where electricity supply and demand have a large potential for GHG mitigation at carbon prices below 30US$/ tCO2, as shown by the results achieved in the first two phases of the European Carbon Market—EU ETS (Ellerman and Joskow,  2010), in Brazil this is 2008; Blanco and Rodrigues, 2008; Clo, certainly not the case.

5 The operation of hydropower systems depends on present and future affluences to the plants’ reservoirs. Because affluences are seasonal, flexible thermal power generation allows the depletion of hydropower plants’ reservoirs by guaranteeing future energy supply. It reduces the risk of shortages if future river flows are insufficient to refill the reservoirs.

Renewable energy, however, can be highly vulnerable to changing climate conditions. Lucena et al. (2009) analyzed the impacts that projected changes in the local hydrological cycle might have on Brazil’s hydropower production. They showed that, according to long-term climate projections based on the A2 and B2 IPCC emission scenarios (IPCC, 2000), the Brazilian hydropower system could lose some reliability6 and have strong regional losses in generation. These impacts would result in future emission of GHG due to increased fossil fuel based electricity generation. It is projected that the loss of reliability would require building additional power generation capacity of around 60 GW in 2035, which would require an investment of aroundUS$ 50 billion and operating costs of 25–27US$/MWh (Lucena et al., 2010). 4.2. Petroleum industry For the upstream segment of the Brazilian petroleum industry, we elaborated a long-term scenario for petroleum production, which was based on Petrobras’ forecasts to 2020 (Petrobras, 2011) and on the Hubbert model developed by Szklo et al. (2007). According to our estimates, Brazil’s petroleum production will grow from 0.6 billion boe in 2011 to 1.6 billion boe in 2030. This will result in emissions of 37.8 MtCO2e in 2030. For the downstream sector – oil refining and petrochemicals production – the current refineries are being optimized and adapted to process acid and heavy crude oils and to produce highly specified fuels. Also, the country’s oil refining sector needs to be expanded to meet the projected future demand for fuels. This would also increase the sector’s GHG emissions (see Table 4). Finally, the Brazilian petroleum industry is going through a vertical integration movement between refineries and petrochemicals complexes, both in terms of industrial facilities and assets property (Gomes, 2011), by raising the investment in greenfield projects for steam crackers (Gomes et al., 2009). Indeed, Petrochemical complexes are usually integrated with oil refining units, and in Brazil this vertical integration will increase after the construction of the Petrochemical Complex of Rio de Janeiro–Comperj (Moreira et al., 2007; Castelo Branco et al., 2011). In sum, the petroleum sector GHG emissions will increase significantly in the next 20 years (Table 4). This paper has formulated several mitigation measures to minimize the estimated petroleum industry emissions for the next years. 6 Meaning that the amount of electricity that the system could guarantee 100% of the time would be lower.

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Table 4 Capacity (Production) and Emissions (MtCO2e) estimates in 2011 and estimates to 2030. 2011 Sectors

Capacity (production)a

Table 5 Mitigation alternatives for the oil industry sector.

Discount rate (%)

Gross emission Average abatement cost reduction potential (2012–2030) (US$/tCO2e) (MtCO2e) 8% 15%

Upstream Install vapor recovery units DI&M program Rod packing Reducing gas flaring (GTL)a

4.0 10.7 33.0  3.0

4.8 12.7 40.0 82.0

12.6 5.4 3.6 102.4

33.9 60.3 92.3  39.4  21.4  10.5  2.8

34.8 62.6 94.3 13.6  19.1  5.5  0.7

30.1 6.0 12.6 5.1 9.2 0.5 3.6

 2.4  1.1

 0.3 1.3

0.8 0.6

2030 Capacity Annual emissions (production)a (Mt CO2e)

Upstream 600 million boe/y 14.5 Oil refining 93,090,000 m3/y 14.4 Petrochemicals 3740 kt ethene/y 5.9

Annual emissions (Mt CO2e)

1,6 billion boe/y 37.8 163,725,000 m3/y 45.1 4740 kt ethene/y 7.1

a Production capacity for oil refining considers an average utilization factor of 0.80 (thus, it is the throughput capacity of the Brazilian refinery park).

In the upstream sector, GHG emissions7 derive basically from the combustion of fossil fuels for power generation, gas venting and gas flaring. A few mitigation options can be implemented to reduce these GHG emissions in offshore platforms, such as: 1) Install Vapor Recovery Units in the crude oil storage tanks to reduce gas venting. During crude oil storage, light hydrocarbons vaporize out of solution and vent to the atmosphere. Vapor recovery units capture these vapors for fuel or sales (Robinson et al., 2009). 2) Implement Directed Inspection & Maintenance (DI&M) Programs at Compressor Stations. Conduct leak detection surveys of facilities to identify and repair leak sources that are cost effective (Bylin et al., 2010). 3) Reciprocating Compressor Rod Packing. Reciprocating compressors are sealed through a series of rings within a packing to prevent leakage of natural gas around the rod (Bylin et al., 2010). 4) Reducing gas flaring in offshore platforms. Offshore Gas-toliquids (GTL) is an option for using the associated natural gas that is currently wasted in flares in offshore oil platforms, by converting it into low-sulfur diesel oil. This alternative considers the use of offshore GTL plants to produce syncrude. This case would require investments in hydrocracking units to obtain diesel S10 and would also mean a significant reduction in gas flaring (Castelo Branco et al.,2010). We updated the estimates by Castelo Branco et al. (2010) to consider a new scenario of crude oil prices and the current and projected costs for offshore GTL facilities to be installed in oil platforms in Brazil.

For the oil refining sector, several mitigation options can be implemented. Those considered in this study can be separated in three main categories: conventional options with high reduction potential, options related to process heaters and furnaces, and those related to motor and electrical consumption. First, three conventional measures were identified to help reduce emissions in the existing and planned oil refineries: energy integration, fouling mitigation and use of advanced sensors. We simulated these alternatives based on Szklo and Schaeffer (2007). However once again we updated a previous study by the authors to, first, consider a new and updated scenario for oil prices and costs, and, second, consider not only the existing Brazilian refineries, but also greenfield refineries to be installed in the next 20 years.

7 Specific GHG emission for a Brazilian offshore platform is about 24 kgCO2e per produced boe.

Oil refining Energy integration Fouling mitigation Advanced control Low-NOx burners Oxygen control Air pre-heating Pumps (monitoring, oversized, ASD) Compressors (monitoring, ASD) Air-Coolers (monitoring, ASD) Basic petrochemicals Low-NOx burnersb Boiler efficiency improvementc Process innovationd

 120.5  14.8 1.0  39.6 59.3 1.4 825.3 1.629.2 9.6

a Discount rate considered for GTL is 25% due to the great risk that this technology represents to its investors. b Based on DOE (2003). c Based on Neelis et al. (2008) and DOE (2003). d Substitution of steam cracking process for catalytic pyrolysis, based on Ren et al. (2006) and Ren (2009).

Since the majority of the refineries in Brazil were constructed more than thirty years ago, it can be safely assumed that there is room for improving and replacing older equipments. For process heaters and furnaces, we analyzed the replacement of old burners for state-of-the-art Low-NOx burners, the control of the air-fuel ratio (a monitoring program to decrease the excess-oxygen), and the addition of air pre-heater systems. For motors, the measures were divided by the nature of the equipment and its service. We considered a few options such as proper monitoring, equipment replacement, correcting for motor oversizing and the use of Adjustable Speed Drives (ASD) (Worrell and Galitsky, 2003, 2005; URS, 2007). Finally, a few mitigation options were suggested for the basic petrochemicals sector in Brazil. First, we proposed two mitigation options focusing on the reduction of energy consumption: adoption of Low-NOx technology in furnaces and improvement of boilers efficiency. And then, we evaluated the possibility of process innovation through catalytic pyrolysis, according to Ren (2009). These mitigation options were evaluated for the steam cracking in all four existing units and in the one to be built in Brazil, with start-up scheduled for 2018. The results of the abatement costs and potential reduction of CO2e emissions for the Brazilian petroleum industry, in the period from 2012 to 2030, are summarized in Table 5. For the upstream sector, the first three mitigation options depend on the optimization of platforms’ design and also on the enhancement of operational safety on offshore platforms. For the mitigation option to reduce gas flaring (GTL), the abatement costs shown in the Table 5 were updated from Castelo Branco et al. (2010). These results required new estimates for the number of platforms that should be implemented in the next decades considering the increase in oil and gas production in the presalt area.

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The most promising alternative for oil refineries is directly related to process heaters. Notably, the investment in new LowNOx burners has a considerably negative abatement cost from a social perspective, which is not perceived from a private perspective. To a certain extent this difference between the values at annual discount rates of 8% and 15% indicates a need for public policies to reduce carbon emissions in Brazilian refineries. Although all mitigations options related to the reduction of power consumption by mechanical equipments proved to be appealing at both perspectives, the three options with higher mitigation potentials have presented higher abatement costs. From a private investor’s perspective, a cost above 25US$/tCO2e is still considerably high, in the sense that these options would not be implemented without an incentive mechanism. Actually, the carbon price in the EU-ETS and even under a CDM mechanism has never overcame this limit (Bloomberg, 2012). When it comes to basic petrochemicals production, results show that improvements in furnaces’ burners and in steam generation in boilers can mitigate almost 2% of overall CO2e emissions in the 2012–2030 period, at an abatement cost of  73.2US$/tCO2e from a social perspective, or 28.5US$/tCO2e from a private agent perspective8. The adoption of Low-NOx burners is the cheapest option among these two, but it has the lower abatement potential. The most uncertain option due to its technological maturity (catalytic pyrolysis) was, naturally, the most expensive option, with an abatement cost significantly above 100US$/tCO2e. 4.3. Transport sector The Brazilian transport sector is characterized by an unbalanced distribution of transportation modes, with high concentration on road transport. Although oil products are the main energy source, renewable fuels (mostly sugarcane ethanol, but also biodiesel9) also have an important share, both as fuel and as an additive to gasoline (or diesel). Diesel is the single most important fuel source in the transport sector, accounting for 50% of total energy consumption.10 The Brazilian transport sector emitted 136 MtCO2e11 in 2005, which accounted for 38% of total energy related GHG emissions in the country (IEA, 2006b; MCTI, 2009). Hence, there is an evident need for government policies to discourage the consumption of fossil fuels, particularly in freight transport due to the great share of trucks and their high consumption of fuel. Some countries have applied measures, such as raising fuel taxes (Dender, 2009). Other measures include vehicle fuel efficiency requirements, road tolls and improved roadway infrastructure (Poudenx, 2008). Greater vehicle fuel efficiency can be encouraged by a variety of measures, such as minimum fleet-wide fuel economy limits, vehicle certification and labeling programs12 8 These abatement costs reflect the weighted average of abatement costs of Low NOx technology adoption and boiler efficiency improvement as explained in Table 5. 9 In 2005, biodiesel was inserted into the Brazilian energy matrix through a regulation that stipulated addition of 2% biodiesel to diesel oil in 2008, rising to 5% in 2013. 10 Mostly because great part of cargo and passenger transportation is by trucks and buses. 11 This figure only considers the vehicle emissions from burning petroleum derivatives. 12 In November 2008 the Brazilian government announced a vehicle fuel efficiency labeling program, which went into effect in April 2009, by affixing a ‘‘National Energy Conservation Sticker’’, provided by the National Institute of Metrology, Standardization and Industrial Quality (INMETRO), on new cars in showrooms. However, the program is only voluntary in its current stage, so although it represents an advance for the sector, it is not as efficient as similar mandatory programs in the United States, China, Japan and other countries.

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and voluntary agreements with automakers (Mandell, 2009). Currently there are various technological options available to increase vehicle energy efficiency, particularly of diesel engines, such as high-pressure fuel injection, variable compression ratios and turbocharging (which permits higher pressures), among others (IEA, 2008). Urban road tolls can be an effective way to discourage car usage at certain times or in certain areas. The revenue raised can also be used to finance mass transit systems. These measures have been widely adopted in Europe and Asia (Ribeiro, 2001). Infrastructure investments, in turn, are essential both to make transportation more efficient and to increase intermodal possibilities. In Brazil this is particularly important because of the poor conditions of most highways. According to CNT (2006), nearly 30% of the country’s highways can be classified as having poor or extremely poor paving and/or signaling. Another factor affecting fuel consumption, especially of diesel, is the old age of the nation’s truck fleet. According to Fleury (2006), the average age of the country’s trucks is over 14 years, with 75% of them older than 10 years. Finally, expanded intermodality would help mitigate fuel consumption, given the nation’s overdependence on truck transport, instead of more efficient modes, such as rail, pipeline and river navigation.13 Table 6 shows the mitigation options considered in this study14 for passenger transport based on data from IEA (2008), IPCC (2007b) and Vattenfall (2007). These studies considered a social discount rate in estimating abatement costs. There are few studies of the potential to reduce emissions in the cargo transport sector in Brazil as a whole. Therefore, to quantify the possibility of reducing CO2e emissions, we used the state of Minas Gerais as a proxy, based on the study by Schaeffer et al. (2008). This state is very important for the country’s transport system, since it serves as a corridor for cargo transport between the Midwest (producer of grains and meat) and the ports in the Southeast region. According to this study, the transport system in Minas Gerais is representative of the country’s, with a predominance of roadway mode and an average old truck fleet. The study examines an alternative scenario with increased vehicle inspection (to remove older vehicles from circulation) and the adoption of policies to encourage integration of trucks and trains to reduce fuel consumption. The low carbon scenario envisions a greater participation of railroads, and thus less of trucks, with development of intermodal connections to take the best advantages of both means.15 Extrapolating the results for Brazil, the accumulated reduction in CO2e emissions between 2010 and 2030 could reach 435 Mt CO2e in comparison to the baseline scenario. Therefore, the potential for reducing emissions from passenger and cargo transport through new technological options, improvements in the system and more intermodal transport is around 610 Mt CO2e for the 2010–2030 period.

13 This overdependence on highway transport is explained by a combination of low availability and limitations of transport by railway and coastal/river shipping. For many years public investments have favored highway building, a policy that has acted as a barrier to the development of intermodal transport as well as other single modes. 14 In this study we did not consider inter-energy substitution in favor of biofuels, because ethanol is not an option in this segment, but rather is already a reality. We also did not evaluate the penetration of second-generation biofuels because this technology is not yet commercially feasible and there is no precise information available on the prospective contribution of these fuels to reduce emissions. 15 Railway transport stands out for its capacity to carry large volumes, with high energy efficiency, mainly over medium and long distances. It is also safer than trucks, with lower rates of accidents and robbery/theft.

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Table 6 Mitigation options for the transport sector. Source: calculate based on data from IEA (2008), IPCC (2007b) and Vattenfall (2007). Mitigation measure

Average abatement cost (US$/tCO2e)

Gross emission reduction potential (2010–2030) (MtCO2e)

Engine efficiency gains Other efficiency gains Smart transport systems Optimization of bus systems Infrastructure improvements Electric-hybrid vehicles

 120.0  105.0 0.0 35.0 66.0 360.0

20.2 29.7 51.6 47.0 7.5 19.4

Table 7 Mitigation alternatives in the industrial sector.

Discount rate (%)

4.4. Industrial sector The industrial sector accounts for one-quarter of Brazil’s GDP and over 40% of its final energy consumption (MME, 2009). With the trade liberalization process started in the early 1990s, the Brazilian industry has gained competitiveness by, among other things, increasing its energy efficiency. However, there are still many opportunities for efficiency improvements and GHG emission reductions in the sector. One advantage of Brazilian industry is the large availability and use of renewable energy sources: hydroelectricity, sugarcane bagasse, black liquor, charcoal and wood. However, these last two sources are not entirely renewable since they partially come from deforestation. Within the industrial sector, the iron and steel industry account for great part of emissions (42%). This is due to the large energy requirements of this industry, which is supplied by both fossil fuels and charcoal from deforestation16. The chemical industry is the second largest emitter (11%), mostly because of its high consumption of natural gas (MCTI, 2009). The proposed mitigation measures for the industrial sector can be generalized into six categories: energy efficiency, recycling, fuel substitution, higher use of renewable energy, achieving full renewability in charcoal and wood and cogeneration17. Table 7 presents the mitigation alternatives for the industrial sector. These mitigation alternatives were first assessed by Henriques et al. (2010). In this paper, the mitigation measures proposed in that study were updated using new oil–price scenarios from EIA (2012) 18. Over the entire period (2010 to 2030), the avoided emissions would amount to 1.473 billion tCO2e, a significant figure that corresponds to twelve times the current emissions from the industrial sector in 2007. Among all abatement measures, energy efficiency would account for the main share of mitigation in the industrial sector: 598 million tCO2e (40.6%). These measures can be applied across all industrial segments, including improving combustion in boilers and furnaces/kilns in general, implementation of heat recovery systems using varied processes and incorporation of new production routes and technologies. Individually the various efficiency measures can result in energy savings ranging from 2 to 35%, depending on the industrial segment and type of measure. A large share abatement comes from heat recovery

16 It is estimated that around 50% of the charcoal used in the Brazilian steel industry comes from native forests. 17 Carbon capture and storage (CCS) can also be an interesting alternative in the future, particularly in the cement, iron & steel and petrochemicals sectors, but it is still expensive and faces other commercial difficulties (Al-Juaied and Whitmore, 2009; IEA, 2006a). 18 In this paper the projections for the ‘‘low oil prices’’ scenario (EIA, 2012) were used in order to get a more conservative measure of mitigation costs.

8%

15%

Gross emission reduction potential (2010–2030) (MtCO2e)

 194.6  402.0  382.6  142.6  187.6  96.3

 186.1  388.6  365.2  119.8 0.6  87.0

105.2 19.0 37.3 283.0 135.4 18.3

Average abatement cost (US$/tCO2e)

Energy efficiency measures Improved combustion Heat recovery Steam recovery Heat recovery from furnaces/kilns New processes Other efficiency improvement measures Recycling Higher use of renewable energy (solar) Fuel substitution (with natural gas) Fuel substitution (with biomass) Eliminating non-renewable biomass Cogeneration

 118.2  115.6 74.8  147.5  124.2 25.8  67.2  61.4  11.4  49.3

 6.3  35.5  0.9 185.9

43.8 69.2 567.0 93.8

from furnaces/kilns and implementation of new processes, which together would account for 50% of energy efficiency measures. New processes, for example, can enable substantial energy savings but also require heavier investments. Eliminating the use of non-renewable biomass (charcoal from deforestation) represents the second largest potential for abating CO2e emissions, equal to 567 million tCO2e (38.5% of the total). To entirely replace this biomass with biomass from planted forests would require an area of some 3.8 million hectares, 62% of which to produce renewable charcoal for the iron and steel industry and the rest to produce firewood mainly for use in ceramics (bricks/tiles), pulp and paper and food segments. Cogeneration can reduce emissions by 94 million tCO2e (6.4%) in the 2010–2030 period. In the particular case of Brazil, cogeneration reduces GHG emissions through two basic configurations: burning of residual biomass, especially sugarcane bagasse in the alcohol/sugar industry and black liquor from turning wood into pulp for paper making; recovering gases and heat in segments like steel and petrochemicals. Currently there is a legal framework that favors cogeneration in the country, including rules requiring purchase of excess energy by power utilities at fixed tariffs, government auctions for new cogeneration projects, etc. As of today, the Brazilian cogeneration installed capacity is 5300 MW, 74% of which using sugarcane bagasse (ANEEL, 2010). Nevertheless, there is still a huge potential for improvement, especially in the sugar/alcohol industry. Considering projections for the production of fuel ethanol to meet future domestic and foreign demand (Leite et al., 2009), up to 174,000 GWh can be generated from cogeneration units in this segment in 2030. In this case, besides the increase in bagasse supply, it would be necessary to modernize existing mills/distilleries, build new and more advanced technology ones, use cane straw and stem tips and implement bagasse gasification technologies by the time they reach a commercial stage. The use of renewable sources (biomass) to replace fossil fuels has an outstanding potential to reduce emissions in the iron and steel, food and beverage and pulp and paper segments: 69.2 million tCO2e (4.7%). In the iron and steel segment, for example, the use of charcoal (from planted forests) to make pig iron can rise from the current 34% (where only half of the charcoal used is renewable) to 45% in 2030 (100% renewable). To achieve the emissions abatement from fossil fuel substitution, the amount of planted area would be 940 thousand hectares (88% to meet demand from iron and steel makers).

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Table 8 CO2e emissions abatement from energy supply and use by segment in 2030 and in the period from 2010 to 2030, and respective percentage contributions. Emissions abated

In 2030 (MtCO2e)

Share in 2030

Accumulated 2010–2030 (MtCO2e)

% Industry Petroleum Upstream Oil refining Basic petrochemicals Others Transports Generation and use of electricity Total Resulting emissions

Accumulated share

437

vehicles), the emission reduction potential would reach 1.85 billion tCO2e in the 2010–2030 period, as shown in Table 9.

6. Policy considerations and barriers of abatement measures implementation

%

124.3 12.2 7.6 3.6 1.0 6.7 74.4 8.5

55.0 5.4 3.4 1.6 0.4 3.0 32.9 3.8

1,472.7 204.5 124.0 68.5 12.0 97.4 609.9 93.8

59.4 8.3 5.0 2.8 0.5 3.9 24.6 3.8

226.1 601.4

100.0 100.0

2,478.3 9,848.8

100.0 100.0

Another measure considered is to switch from high-carbon content fossil fuels to natural gas. The quantity of CO2e avoided could reach 43 million tonnes (3.0%), with an additional consumption of 19.4 million m3 of natural gas per day. Finally, solar energy could also be implemented in some lowtemperature processes, particularly in the food processing and lumber industries. The emissions avoided could amount to 25.6 million tCO2e (1.7%).

5. Summary of results From the revisions and updates of the CO2e emission projections made by PNE2030 (EPE, 2007), we estimate that, in the reference scenario, Brazilian emissions from energy consumption in 2030 should amount to slightly over 827 million tCO2e19, with small changes in the relative shares of sources and sectors. The transports and industrial sectors that year should remain as the main emitters of GHGs (75%). Emissions from oil refining and other sectors (agriculture, commerce and residential) should grow, without a significant effect on total emissions though. In relation to this business-as-usual scenario, it would be possible to reduce future emissions in relative terms by adopting the mitigation measures summarized in this paper. The abatement in this ‘low carbon scenario’ is projected to reach 226.1 million tCO2e, which leads to energy-related emissions 27% lower, when compared to the reference scenario in 2030 (see Table 8 and Fig. 3). Over the 2010–2030 period, the accumulated GHG abatement by the measures analyzed in this study would reach 2.5 billion tCO2e, representing about six times energy-related emissions fit Brazil in 2010. The industrial and transport segments, for the full 20 years, would contribute to over 85% of the avoidable emissions. This highlights the need of public policies focusing on the most cost-effective measures in the industrial sector, and on the transport sector, especially given the positive side-effects of mitigation measures in the latter. Measures applicable to the other sectors also deserve attention and should be included in future programs to reduce GHG emissions. Considering only the mitigation options presented in three of the sectors of this study (industry, petroleum and light-duty 19 This figure differs from that estimated by the EPE (2007) for 2030 of 970 million tonnes of CO2e, because it is based on more recent data on the evolution of electricity consumption and updated CO2e emission factors from electricity generation forecast for the period from 2010 to 2030, according to the most recent plans from EPE itself.

The total abatement potential, considering all analyzed sectors and a social discount rate of 8%, reaches 1.85 billion tCO2e in the 2010–2030 period. For a discount rate of 15% per year, the abatement potential totals 1.68 billion tCO2e in the same period. The difference between scenarios derives from not including the transport sector in the 15% discount rate scenario, since the measures for this sector were only obtained for an 8% discount rate. Much of the abatement alternatives analyzed could be obtained with negative costs (see Table 10) under a social perspective. This is the case for all measures in the industrial sector and for part of the measures in the petroleum sector. These negative costs imply that, at a social discount rate, 1.65 billion tCO2e (89% of the accumulated potential estimated in this study) could be abated in the 2010–2030 period with no-regret measures. Moreover, an additional 8% of potential abatement could be achieved with CO2e costs below 50US$/tCO2e. The remaining potential (only 3%) would become economically viable with CO2e prices above 50US$/tCO2e. However, decarbonization investment decisions are not made under a social perspective. The private sector will make decisions within the context of its own cost calculations, based on higher implicit discount rates (or on its opportunity cost). At a private-sector rate, some no-regret measures at the social discount rate become less attractive. In this case, 25% of the measures have costs above 25US$/ tCO2e – or would not be feasible even if Brazil adopt market-oriented mechanisms to curb its energy-related GHG emissions. As mentioned before, on rare occasions have carbon prices under the European cap and trade system overcome 25US$/tCO2e (Bloomberg, 2012). Therefore, by comparing our findings from the social and private perspectives for the opportunity cost of capital, one can find that there is a significant potential to reduce GHG emissions in Brazil. However, a variety of public policies need to be applied as barriers for the implementation of low carbon options may restrict the attainment of this potential. There are several market failures that partly explain this limitation. One of such market failures is financing hurdles and other barriers to capital markets. These can prevent both individuals and businesses from implementing emission reduction measures that require high upfront payments (Ekins et al., 2011; Kesicki and Strachan, 2011). Furthermore, in some cases, such as energy efficiency gains, the investor is, in many cases, not the agent who benefits from lower energy expenses. Finally, information failures, which result in suboptimal decisions and consequently reduce the GHG mitigation potential, accrue due to uncertainty about future energy prices, or due to the lack of information relating to the cost of energy efficiency measures. Notwithstanding, carbon abatement measures with low cost (less than US$25/tCO2e) require information and technological capacity of suppliers and users, as well as adoption of regulatory frameworks. For the industrial sector and the petroleum industry, the main mitigation actions focus on energy efficiency (Table 9). Even though in many cases these measures are economically attractive by having negative abatement costs, their implementation is difficult to be achieved spontaneously, even with the support of government programs and actions.20 Those same 20 Energy conservation programs (PROCEL and CONPET); specific legislation requiring using money in the electricity sector on energy efficiency measures; sectorial scientific and technological development funds in the oil and gas and

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1,000

106 tCO2e

800 600 400 200 0 2010

2012

2014

2016

2018

2020

2024

2022

2026

2028

Low carbon scenario

Industry

Petroleum sector

Others

Transportation

Eletricity generation

2030

Fig. 3. Evolution of CO2e emissions in the low-carbon scenario (blue) and the portions that will be abated in each energy consuming segment. (For interpretation of the references to colour in this figure legend, the reader is referred to the web version of this article.)

Table 9 Total abatement cost (social discount rate of 8%) for measures considered—2010 to 2030. Measure by sector [number]

Industrial sector Energy efficiency measures Improved combustion [1] Heat recovery [2] Steam recovery [3] Heat recovery from furnaces/kilns [4] New processes [5] Other efficiency improvement measures [6] Recycling [7] Higher use of renewable energy (solar) [8] Fuel substitution (with natural gas) [9] Fuel substitution (with biomass) [10] Eliminating non-renewable biomass [11] Cogeneration [12] Transport sector Engine efficiency gains [13] Other efficiency gains [14] Smart transport systems [15] Optimization of bus systems [16] Infrastructure improvements [17] Electric-hybrid vehicles [18] Petroleum sector Upstream Install vapor recovery units [19] DI&M program [20] Rod packing [21] Reducing gas flaring (GTL)a [22] Oil Refining Energy integration [23] Fouling mitigation [24] Advanced control [25] Low-NOx burners [26] Oxygen control [27] Air pre-heating [28] Pumps (monitoring, olversized, ASD) [29] Compressors (monitoring, ASD) [30] Air-coolers (monitoring, ASD) [31] Basic petrochemicals Low-NOx burners [32] Boiler efficiency improvement [33] Process innovation [34] Total a

Average abatement cost (US$/tCO2e)

Gross emission reduction potential (2010–2030) (MtCO2e)

Total cost of abatement (million US$)

 194.6  402.0  382.6  142.6  187.6  96.3  118.2  147.5  67.2  61.4  11.4  49.3

105.2 19.0 37.3 283.0 135.4 18.3 74.8 25.8 43.8 69.2 567.0 93.8

 20,471.9  7,638.0  14,271.0  40,355.8  25,401.0  1,762.3  8,841.4  3,805.6  2,943.4  4,248.9  6,463.8  4,624.3

 120.0  105.0 0.0 35.0 66.0 360.0

20.2 29.7 51.6 47.0 7.5 19.4

 2,424.0  3,118.5 0.0 1,645.0 495.0 6,984.0

4.0 10.7 33.0  3.0

12.6 5.4 3.6 102.4

50.4 57.8 118.8  307.2

33.9 60.3 92.3  39.4  21.4  10.5  2.8  2.4  1.1

30.1 6.0 12.6 5.1 9.2 0.5 3.6 0.8 0.6

1,020.4 361.8 1,163.0  200.9  196.9  5.3  10.1  1.9  0.7

 120.5  39.6 825.3

1.0 1.4 9.6 1,852.5

 120.5  55.4 7,922.9  127,450.0

Discount rate considered for GTL is 25% due to the great risk that this technology represents to its investors.

(footnote continued) electricity sectors; Energy Efficiency Act; Program to Encourage Alternative Energy Sources (PROINFA); regulations and auctions for purchase of energy from independent generators; sectorial programs for modernization and enhanced

(footnote continued) industrial competitiveness; and two recent federal government programs (Growth Acceleration Program and Plan to Combat Climate Change), which have strong interfaces with the industrial sector.

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Table 10 Abatement potential under different cost ranges and discount rates. Abatement potential (MtCO2e) by cost

Measures by discount ratea

Discount rate 8%

15%

8%

15%

Abatement cost less than 0US$/tCO2e

1647.1

1258.5

[1–14,22]

[1–4,6–11]

Abatement cost between 0 and 25US$/ tCO2e

69.6

159.1

[26–33] [15,19,20]

[27–30,32] [5,19,20]

Abatement cost between 26 and 50US$/ tCO2e Abatement cost over 50US$/tCO2e

80.7

33.7

[16,21,23]

[26,31] [21,23]

55.1

225.8

[17,18]

[12,22,24]

[24,25,34]

[25,33,34]

Totalb

1852.5

1677.1

a b

Barriers

Technical assistance Human resources training Culturally entrenched attitudes Regulatory frameworks Regulatory frameworks Carbon market Culturally entrenched attitudes Carbon prices Financing hurdles Financing hurdles Maturity of technologies Investments in R&D

Numbers from Table 9. The measures for the transport sector were only obtained for a discount rate of 8% per year, which explains the difference in potential for each discount rate.

difficulties have been faced by other sectors with negative abatement costs (transport, oil refining and basic petrochemicals). Generally, there is a lack of incentives, financing, information, deficient articulation among agents, low technical training, culturally entrenched attitudes, among other obstacles that need to be overcome (Table 10). Two policy options stand out to overcome these barriers: cap and trade and carbon taxes. Both policies can stimulate low-cost carbon abatement measures and constrain carbon emission in the industrial and petroleum sectors. However, as noted by Wittneben (2009), carbon taxes are not equivalent to carbon prices negotiated in markets. The first is related to the carbon content of a good or service and is passed on to its final price, depending on how price-elastic the demand for that good or service is. The carbon price, on the other hand, results from the supply and demand interactions within the market for emissions where only production activities need to buy permits. Therefore, carbon prices are not necessarily related to the carbon content of a good or service because (Green et al., 2007; James, 2009; Carraro and Favero, 2009): 1. Increases in cost due to an emissions trade scheme are not necessarily passed on to final consumer prices; 2. Not all industrial activities have their emissions limited in the market for emissions, which depends on the initial allocation of permits defined by the regulatory authority; and 3. Emission permits can be distributed at no charge (grandfathering) and then traded in the market.

In addition, Wittneben (2009) points out that a carbon tax is usually negotiated at the national level and firms will abate when the marginal abatement cost is lower than the tax. In the carbon market, on the other hand, carbon prices can be highly volatile, since permits supply and demand not only adjusts constantly to new information, but also is affected by political bargaining. Therefore, even though both policies are market-based approaches that put a price on carbon, competitiveness studies are necessary to verify the most appropriate policy for each sector. With respect to outreaching energy efficiency abatement, technical information programs or packages could be made available for firms on a sectoral or transversal basis—containing manuals, informative bulletins, case studies, examples of good practice, economic evaluations, guidance about expected results, among others (De Gouvello, 2010).

Furthermore, a significant mitigation potential could be reached by eliminating the use of biomass from deforestation— or, replacing it with renewable sources. Some difficulties to implement these measures are caused by credit restrictions and low prices for biomass from deforested areas. Other problems arise from the high cost of land, competition with other land uses and the large distances between industrial centers and plantations, which increases the cost of transport. To overcome these barriers, ideally, command and control policies should be proposed: for instance, the legal prohibition of the use of biomass originated from deforested areas. Ideally, the legalization of charcoal burning activities in or near ‘‘planted forests’’ has to take into account the need to create new jobs or compensate dislocated low income charcoal workers that live on the extraction of native wood. A significant abatement potential can also be found in reducing gas flaring in oil platforms in Brazil. However, the key factor inhibiting reducing gas flaring through the investment in GTL plant is the high cost of this technology as well as its lack of maturity. Private agents (in this case the oil platform operator) therefore choose to work with a high discount rate, usually around 25% per annum. Despite these barriers, especially those associated with the different perceptions of opportunity costs by private and public agents (expressed in the social and private discount rates), some policies can make the proposed measures feasible, both for refineries and GTL plants. CT-Petro21, a fund composed from a percentage of royalties collected on domestic production of crude oil administered by the Ministry of Science and Technology, is an interesting alternative to promote R&D for offshore GTL plants. The employment of resources from this fund could reduce the technical uncertainties through R&D investments and promotion of technical learning. Another source of financing in Brazil is the BNDES22 , through FINAME23 .

21 The money in this sectorial fund, according to the Petroleum Act (Law 9478 of 1997), comes from 25% of the royalties that exceed 5% of the amount received from production of oil and natural gas. 22 BNDES is the Portuguese initials for the National Bank for Economic and Social Development (BNDES), which is linked to the Ministry of Development, Industry and Foreign Trade. Its aim is to provide long-term financing at favorable interest rates to undertakings to develop the country. The BNDES finances large industrial and infrastructure projects, amount others. 23 FINAME is the Special Agency for Industrial Financing, part of the BNDES. Between January 2010 and December 2010 it lent out more than US$ 28 billion, while in 2010 other BNDES lending amounted to around US$ 30 billion just to the industrial sector (BNDES, 2011).

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Finally, the implementation of carbon measures in the transport sector with costs lower than $25/tCO2e could be achieved by adopting command and control mechanisms such as performance standards, or market oriented policies such as carbon taxes. For carbon measures with costs above $25/tCO2e, policies based on subsidies and R&D would be necessary.

7. Conclusions Although Brazil has what can be considered as a ‘‘clean’’ energy matrix, based heavily on hydropower and biofuels, there are still good opportunities for the abatement of GHG emissions related to energy use in different economic sectors. In this article we sought to identify the potential for reducing emissions from energy use and the costs involved for the transport, industrial and petroleum sectors in Brazil. We analyzed different measures, their potentials for abatement, their costs and the policies necessary to implement them. As shown, these policies have specific sectorial focuses, but in all segments they include questions linked to financing, incentives (including tax relief), information, training, R&D investments and facilitation of technology transfer. The main result of this study is identification that it is possible to reduce emissions from energy use in relative terms—i.e., in a low-carbon scenario in comparison with the reference scenario. The accumulated emissions by 2030 are 27% lower than the business-as-usual emissions, without adopting any of the mitigation measures analyzed here. This study shows, however, that in relation to a reference year (2007), the examined abatement measures, along with the socioeconomic dynamics of an emerging country such as Brazil, would not be enough to attain absolute reductions in GHG emissions by 2030. This result is valid both each sector individually and for the sum of the emissions from all the sectors analyzed. Even if we had included other energy consuming sectors in the analysis (the residential and commercial sectors, for instance), the conclusions would not change substantially, given the small participation of these other sectors in overall GHG emissions from energy use in Brazil. Just for illustration purposes, we should mention that in a recent study of the Brazilian residential sector, Schaeffer et al. (2009b) estimated, also in relation to a reference scenario for 2030, a potential emission reduction of 21 million tCO2e. Adding this figure to the numbers found here would not significantly change our findings. In closing, we should mention that this study was restricted to the direct emissions from the supply and use of energy. In Brazil the question of land use is extremely important and can be partly involved with indirect emissions associated with the production of biofuels. However, this was outside the scope of this study. For more details, see De Gouvello (2010).

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