chapter  5
14 Pages

Energy restrictions to growth: the past, present and future of energy supply in Brazil

ByADILSON D E OLIVEIRA , EDUARDO PONTUAL RIBEIRO ,

Introduction It is widely accepted that energy is a critical input for economic and social development (WEA 2000). Energy is used in every sector of human activity and energy consumption increases strongly in line with economic growth. Unsurprisingly, reliability of energy supply is a key objective of development policy. Shortages in the supply of energy, such as those experienced by the Brazilian economy in 1974 and 1978 (oil), 1990/1991 (ethanol) and 2001 (electricity), have a strongly attenuating impact on economic growth. Our chapter looks at the relationship between economic growth and the energy system, focusing on the Brazilian case in the post-war years. We provide a historic overview of energy supply and evaluate the Brazilian growth-energy elasticity for the first time using modern econometric techniques. We find that, paradoxically, there exists potential for the existence of energy supply shortages in a resource-rich environment over the coming years. This is the key challenge that the current institutional and regulatory arrangements face and will have to adapt to. After World War II, Brazil experienced not only significant economic growth, but also a remarkable change in its energy sector. This occurred against a backdrop of industrialization and urbanization. In 1950, 63.8 percent of the population was living in rural areas and industry was 24.1 percent of GDP. Nowadays, the rural population share is only 19.8 percent and industry 37.5 percent of GDP (UN 2007; Baer 2008). The change in the energy system was also radical, as will be examined more closely in the following section. Wood, a non commercial energy source, was substituted by commercial fuels. A modern multi firm energy sector emerged, able to supply all urban areas of the country and most rural ones too. External dependency on oil was removed while a national electricity grid has integrated the entire country bar the Amazon region. Energy supply growth was remarkable over the period, and stemmed from different sources. While in the 1970s electricity supply was guaranteed from the large hydro plants, at least in the south and southeast regions, Brazil was dependent on foreign imports for its refined oil product needs. In the 1980s transportation-related demand for such fuels was eased with the use of ethanol.1