chapter  23
5 Pages

Conclusions

ByEDMUND AMANN, WERNER BAER

The chapters in this volume covered many aspects of the socio-economic relations between energy and economic growth and development, as exemplified by the Brazilian and US experiences. The initial chapters focused on the effects of policy change on the emergence of the bio fuels sector in both Brazil and the United States. In their chapter Cavalcanti and Jalles compared the US and Brazilian experiences. They showed that although there was a sharp increase in oil import dependence of the United States, output growth volatility decreased over time, as well as the impact of oil price shocks to such volatility. And while inflation volatility has also been decreasing, oil price shocks are accounting for a larger fraction of this volatility. On the other hand, oil import dependence has dropped dramatically for Brazil and oil price shocks have little impact on the Brazilian economy. Amann and Baer focused on the relation between energy and income distribution in Brazil and found that energy played an important role in affecting it, both in the past and at present. During ISI the state used its regulatory powers to set tariffs in such a manner as to encourage industrial growth at the cost of equity. The great weight of the auto industry and investments in road rather than rail transportation resulted in increased dependence on the consumption of petroleum; this favored the upper income classes. The distributional impact of the development of the bio fuel industry was shown to reinforce inequalities. Adilson de Oliveira et al., however, stressed the need for Brazil to develop institutional and regulatory arrangements which will promote the country’s energy system. If this is not done, the country will be unable to attract the financial resources to invest in the system. Paiva examined the relationship between oil prices and inflation in the period 1994-2008. He found that a 10 percent rise in fuel prices raises inflation by about 1.5 percentage points after one year and the impact of fuel prices on inflation has declined with the introduction of inflation targeting. Coes found that Brazil’s apparent success in reducing its dependence on foreign energy supplies has attracted international attention. Even though much of the perception is indeed justified, a substantial part of Brazil’s success has come from expansion of domestic hydrocarbon production, rather than changes in consumption or alternative energy production. The sustainability of Brazilian energy independence raises important questions about which paths

to greater energy autonomy are more economically efficient than others. Possible answers to this question will depend in large part on a variety of hypotheses about the evolution of energy supplies and future technologies in this sector. Cavalcante and Uderman evaluated the role played by the BNDES, Brazil’s government development bank, in supporting electric power investments. Their analysis concentrated on two main periods: the first one dominated by large direct investments by the state (from the 1950s to the 1980s), and the second (from the 1990s onwards) characterized by privatization and new regulation patterns. Each period had different financing patterns and different roles played by the BNDES. The main conclusion is that during the first period, the BNDES, due to its “institutional nature” (a state bank endowed with more autonomy than the government), not only coordinated the actions but also made the investments in the electric power sector possible. During the privatization process, as foreign companies were afraid of exchange rate devaluations, a way of hedging against this risk was to contract BNDES credits in local currency. Besides, to cope with the problems associated with “weak regulation” and uncertainties about energy prices, the BNDES was also used, from 1990s onwards, as a “regulation hedge”, i.e. as a way of sharing the risk of changes in the rules of the game with the government itself. Gottheil found that, indeed, “we are running out of oil” since, as economists and geologists have long argued, that the supply of recoverable oil itself must be finite. An alternative view suggests that there is an abundance of oil in reserve and undiscovered, and that the reason for the industry’s less-than-aggressive drilling performance is that, with profit in mind, it prefers not to hold unnecessary inventory. Oil prices, it appears, reflect market control by industry, not the “running out” of the resource. Azzoni, Haddad and Kanczuk projected scenarios for Brazil’s economy in the period 2008-2035, using a Dynamic General Equilibirum model to estimate the macroeconomic scenario, and a multiregional Computable General Equilibrium model for various sectoral scenarios. Global scenarios for climate change were taken from an IPCC study and their influence was used to calibrate national scenarios. They found that under an environmentally-friendly scenario the Brazilian economy will grow a little faster, though still at lower annual rates. Gervásio Ferreira dos Santos et al. evaluated the spatial interactions between energy-intensive sectors and Brazil’s regional economies. Energy-intensive sectors play an important role due to their strong forward and backward linkages. Thus, knowledge about spatial interactions between these sectors and regional economies provide a more accurate assessment of the regional impacts of disturbances from energy markets or energy policies. To evaluate these interactions, the spatial heterogeneity of both economic activity and the electricityintensity of economic sectors were considered. Using the field of influence methodology, electricity-intensity coefficients were used to extract the analytically important sectoral and spatial energy links in the Brazilian economy. They found that energy intensive sectors like cement, iron and steel, aluminum and copper presented the most important sectoral links. Also, although the energy-

intensity coefficients in the Center-South of Brazil are considerably lower than other regions, it is this region that presents the most important spatial energy links, following the pattern of spatial concentration in Brazil. Mary Arends-Kuenning developed a framework which can be used to calculate the change in poverty rates that resulted from the increase of food prices in Brazil in 2007-2008. She found that that the rise of world food prices had little impact on São Paulo’s poverty rate, while the poverty rates in other parts of Brazil, especially in the Northeast, were more affected as food made up almost half of their total expenditures. Tavares de Araújo Júnior et al. examine competition in the fuel market in Brazil based on the assumption that lower dispersion of fuel prices, together with higher gross margin, is evidence of anti-competitive practices, i.e. the formation of cartels. They found that unbranded stations tend to have lower margins; proximity to supermarkets, the existence of convenience stores and parking lots tend to increase margins. Turning to the social and economic impacts of bio and alternative fuels, Blaschek began with a survey of current US bioenergy platforms for producing bio fuels. He discussed the new biology of genomics, emphasizing the next generation of cellulosic-based feedstocks. Examples were presented of the next generation of bio fuels and bioproducts in the context of the University of Illinois Integrated Bioprocessing Research Laboratory as the precursor of the biorefinery of the future. Scheffren delved into the socio-economic implications of Brazil’s ethanol production, providing a survey of the many faceted problems that it presents. Bacha finds that a rising share of renewable energy production comes from agriculture. While production of energy from agriculture takes place mainly in the Center-West, Southeast and South Brazil, livestock (mainly cattle) are being driven away to the Amazon region, consequently stimulating increased deforestation. But no scarcity of food has occurred because per capita production of fruits, agricultural raw materials, food and beverages increased. He found that land prices behave cyclically and are not totally related to the related to the expansion of agriculture-based energy production. Dias and Guilhoto examined the trade-offs between bio-fuels, fossil fuels, and food. They conducted an analysis which takes into consideration the differences in relative prices and the productive structure of countries. They found that, in general, food puts a greater stress on economies than energy, especially in developing economies. As a consequence, the possibilities for the growing use of biofuels is limited and restricted to countries where it is possible to expand bio-fuel production without compromising the production of food and without placing more stress on the environment. This, in turn, restricts the possibilities for a world policy on bio-fuels with the consequence that bilateral agreements would prevail. Mueller and Martha Jr. concentrated on the Cerrado savannas in central Brazil. They found that the expansion of sugar cane has not had major impacts on land use. They noted that there still are substantial stocks of degraded land which can be cultivated with sugar cane without major displacements of other activities. However, they pointed out that as sugarcane and other crops move

into such lands, the displaced beef cattle activities will be driven to lands, especially the Amazon region. And thus, the growing sugarcane production in the Cerrado may indirectly contribute to Amazon deforestation. Holanda et al. considered the feasibility of the biodiesel program being used as a new strategy against poverty, with the main focus being on the small farmers in Northeast Brazil. They show that the capacity of the biodiesel program from castor oil as an instrument of social inclusion is limited. The combination of low productivity with low market prices results in an income which is below the poverty line. Dias de Moraes examined the evolution of socioeconomic indicators for workers in the sugarcane sector and tries to identify the determinants of income of workers in the agro-industry by comparison of the North-Northeast with the Center-South regions of Brazil. She found that the growth of sugarcane production had both positive and negative aspects. It created jobs and the enforcement of labor laws reduced child labor and generally improved working conditions. On the negative side, she found schooling to be low, that a large number of workers were illiterate, that women earn lower wages than men, and that the growth of mechanization reduced the demand for unskilled laborers. Finally, the presence of unions in the state of São Paulo had a greater positive impact than was the case of the Northeastern state of Alagoas. Summerfield et al. compared the impact of bio-fuel development on two US Midwestern communities. One of them used social capital effectively in pulling together a coalition of farmers, investors and politicians, and drew on the human capital from nearby universities. The proposed ethanol plant used water and other resources of the area that were perceived to be abundant and reduced the threat to natural capital by designing a facility to minimize discharge contaminants. The other community decided to halt the construction of an ethanol plant, as it was perceived to threaten various community interests. Goldsmith et al. tested the hypothesis that bio-energy models employ capital poorly because of their weak density properties and they test it through a case study of extending the operating season of a sugarcane mill. They studied the impact of introducing a second feedstock during a period when the mill was usually idle and found such an approach increased the efficient use of a mill. Chagas, Toneto Jr. and Azzoni examined the effect of the expansion of sugarcane cultivation on tax revenues in municipalities across the state of São Paulo. They found that while the expansion of sugarcane cultivation creates pressures for higher municipal expenditures, local governments can obtain much higher tax revenues which offset higher spending. Their statistical analysis revealed that tax revenues increase substantially with the expansion of sugar cane production for all revenue categories. Thus, the expansion of sugarcane cultivation and the replacement of other crops and animal husbandry activities provide a net fiscal benefit. Taking the chapters together, the complex relationships between changes in the energy mix, regulation, technological change, and economic and social development become quite apparent. Both Brazil and the United States were found to have adopted distinctive routes to overcome the potential develop-

mental constraints associated with energy demand outstripping domestic supply. The resulting quest to raise domestic energy output has on both sides involved contrasting regulatory systems, quite distinctive modes of state intervention and, most of all, different approaches to the development of alternative fuels, especially bio fuels. The latter, of course, formed the special focus of this volume. It was established that the rise of bio fuels in both Brazil and the United States has played a key role in broadening the energy mix in both countries. This, in turn, has considerably assisted the movement toward energy selfsufficiency in Brazil. In the United States, it can be argued that the increasing use of corn-based ethanol has gone some way toward restraining the acceleration in fossil fuel imports. Still, it should not be imagined that bio fuels represent some form of panacea. As the chapters demonstrated, there are clear limits to the efficiency and cost effectiveness of current bio fuel production technologies, regardless of whether a sugar cane or corn route is adopted. In Brazil, as in the United States, considerable subsidies are still required to incentivize the widespread use of bio fuels. The scale of such subsidies is only likely to increase if recent fallbacks in the oil price are sustained. At the same time, while the impact on food production should not be overstated, this volume does find some evidence of adverse effects. Equally, from the perspective of rural livelihoods and social development, bio fuels are by no means always an unalloyed good. All in all then, the evidence points to the need to treat much of the current hype surrounding the potential of bio fuels with circumspection. That said, there is no doubt that bio fuels have firmly established their place in the energy mix of the United States and, most especially, Brazil. In the case of Brazil, it can be argued that their role is likely to intensify given surging energy demand, accelerating GDP growth and the emergence of that country as a major economic power.