Climate Change Mitigation Policy & Economic Growth: Lessons from the Brazilian Case

Prof. Emilio Lèbre La Rovere

Head of CentroClima/COPPE/UFRJ COPPE - Institute of Graduate Studies and Research in

Engineering UFRJ - Federal University of Rio de Janeiro

OECD Global Environment Forum Session 3

Environmental Degradation and Economic Growth Paris, 24 October 2016

MAPS PROJECT IN BRAZIL (IES-BRASIL): THE PROCESS Climate Change Mitigation Action, Plans and Scenarios (MAPS) Project: Scenario Building Process with stakeholders involvement in support to the iNDC preparation in Brazil, Chile, Colombia and Peru

In Brazil, under the umbrella of the Brazilian Forum on Climate Change, a Scenario Building Team (SBT) brought together a group of experts pertaining to the government, private sector, academia and civil society. The SBT was responsible for:

• Identifying the mitigation measures that would be adopted in the scenario simulations; estimating their viability and costs; and selecting the hypotheses for their adoption during the period

The Research and Modelling Team, coordinated by CentroClima at the Institute of Post-graduate Studies and Research in Engineering (COPPE) at the Federal University of Rio de Janeiro (UFRJ), was responsible for:

• Processing the selected mitigation measures and input data in mathematical models and analysing the implications for the Brazilian economy

METHODOLOGY COORDINATION BY THE BRAZILIAN FORUM ON CLIMATE CHANGE

RESEARCH TEAM

SCENARIO BUILDING TEAM

AFOLU

WASTE

TRANSPORT ENERGY

INDUSTRY

ACADEMIA

PRIVATE SECTOR

GOVERNMENT

CIVIL SOCIETY

NGOs

OTHERS

PLENARY OF THE FORUM

MODELLING TOOL

AFOLU WASTE

TRANSPORT

ENERGY

INDUSTRY

MACROECONOMY

IMACLIM-BR MODEL

BLUM MODEL

LEAP MODEL

MESSAGE MODEL

A hybrid computable general equilibrium model:

Double accounting top-down framework monetary values physical values (toe, tons, pass.km, tons.km)

Up to 19 productive sectors:

6 energy: biomass, oil, coal, natural gas, petroleum refining products, electricity 7 industrial (steel, non-ferrous, cement, paper and pulp, chemicals, mining, other industrial sectors) 2 transportation (passenger, load) 4 other (agriculture, livestock, construction, services)

Up to 6 income classes

Interaction with bottom-up sectoral models

The IMACLIM-BR model

THE SCENARIOS

TO ASSIST UNDERSTANDING OF THE RESULTS • The scenarios are exploratory • They are not forecasts of the most probable future • They are resultant of a series of premises chosen by the experts and researchers involved in a participative

manner • The Governmental Plan Scenario was strongly based on the long-term National Energy Plan 2050

GOVERNMENT PLAN

SCENARIO (GPS)

MEASURES ALREADY BEING IMPLEMENTED UNDER THE

NATIONAL CLIMATE CHANGE PLAN

ADDITIONAL MITIGATION 1 (AM1)

EXPANSION OF MEASURES CONSIDERED IN THE GPS,

PLUS ADDITIONAL MEASURES

ADDITIONAL MITIGATION 2 (AM2)

EARLY IMPLEMENTATION OR EXPANSION OF MEASURES

FROM AM1, PLUS ADDITIONAL MEASURES

SCENARIOS WITH A GLOBAL CARBON TAX

During the course of the project, the IES-Brasil team analysed what might happen, should a worldwide carbon pricing strategy be adopted. This was explored by considering a carbon tax on the burning of fossil fuels.

As such, two additional scenarios were simulated:

AM1+T adopting the same

mitigation measures as those tested in AM1 in

addition to a global carbon tax of US$ 20/tCO2

AM2+T adopting the same

mitigation measures as those tested in AM2 in

addition to a global carbon tax of US$ 100/tCO2

1372

2583

2075 2017

1214 1272

1669

1144

1306

1042

1026

500

1500

2500

1990 1995 2000 2005 2010 2015 2020 2025 2030

CPG MA1 MA2GPS AM1 AM2

In AM1, in 2030 emissions reach 1.3 billion tCO2e, 5% below the 1990 level and 35% below the 2005 level

In AM2, in 2030 emissions reach 1.0 billion tCO2e, 25% below the 1990 level and 49% below the 2005 level

RESULTS – GHG EMISSIONS (MtCO2e)

(MtCO2e)

RESULTS – ECONOMIC & SOCIAL IMPLICATIONS The unemployment rate falls across all additional mitigation scenarios, compared to GPS.

This is a result of a higher level of labour intensive activities (e.g. reforestation and renewable energy). In the scenarios with a global carbon tax, this is due to the hypothesis adopted by the SBT, that the revenues from the carbon tax offset the reduction of labour taxes in order to stimulate job creation.

UNEMPLOYMENT RATE (%)

4.35% 4.08% 4.20%

3.50% 3.81%

AM2 GPS AM1 AM1+T AM2+T

RESULTS – ECONOMIC & SOCIAL IMPLICATIONS GROSS DOMESTIC PRODUCT (GDP) Trillion US$ (2005 constant)

In the scenarios that do consider a global carbon tax, GDP grows slightly less than in the GPS, but in additional mitigation scenarios implemented without a global carbon tax, then GDP growth is higher than in the GPS.

2.14

5.55 5.59 5.54 5.68

5.46

2005 AM2 GPS AM1 AM1+T AM2+T

RESULTS – ECONOMIC & SOCIAL IMPLICATIONS

Even in the scenarios that consider a global carbon tax, there is also an increase in the average annual household income as a result of the increasing employment rate.

The difference in relation to the scenarios that do not consider a carbon tax, is that consumption for Class 3 actually falls slightly in AM2+T, due to the fact that the richest are more affected by

the adoption of carbon pricing.

HOUSEHOLD CONSUMPTION BY INCOME CLASS (BRL - 2005 constant)

1,959

3,629

3,621

3,844

4,847

8,650 8,772

9,077

18,594

37,601

38,025

39,010

3,652

3,688

8,680

8,686

37,704

37,590

2005 GPS AM1

Class 2 (to 2 - 10 MW) Classe 3 Class 1 (to 2 MW)

AM2+T AM2+T AM2

Class 3 (10+ MW)

2005 GPS AM1 AM2+T AM2+T AM2 2005 GPS AM1 AM2+T AM2+T AM2

CONCLUSIONS: ECONOMIC AND SOCIAL IMPLICATIONS

Even in a scenario of high economic growth it is possible to reduce emissions considerably by 2030, thanks to the reduction witnessed in the emissions/GDP ratio.

The ratio between emissions and GDP (measured in tCO2eq/million US$ of 2005), which was halved from 2 to 1 tCO2eq per US$ million between 2005 and 2010, would be 0.7 in the GPS, 0.5 in AM1, and 0.4 in AM2, in 2030

PARTIAL DECOUPLING OF GDP GROWTH AND GHG EMISSIONS (2005=100)

GPS AM1

AM2

GDP

Population

GHG Emissions

COMPARISON – INDICATORS iNDC-Brasil x IES-Brasil

SELECTED INDICATORS 2010 2030 iNDC-Brasil

2030 AM1

2030 AM2

TOTAL GHG EMISSION REDUCTIONS (compared to 2005) 40% 43% 35% 49%

TOTAL ENERGY SUPPLY (Mtoe) 268.8 520.8 533.6 % Renewable Energy 45% 45% 46% 49% % Renewable Energy without Hydropower 32% 33% 35% 38% % Sugarcane products + Biodiesel 18% 18% 22% 22%

% Sugarcane 17,5% 16% (UN speech) 21% 21%

% Hydropower in the National Interconnected Grid (SIN) 83% 66% (UN speech) 69% 71%

TOTAL POWER GENERATION (average GW) 68.9 131.4 130.1 % Renewable Power Generation 86% 85% 87% % Hydropower 75% 61% 63% % Sugarcane products + Other renewables 11% 23% 25% 24%

TOTAL POWER GENERATION / GDP (av MW/billion R$ 2005) 25.3 23.7 23.0

% of 2010 100 94 91 Improvement of “electricity productivity" (related to 2010) (or efficiency gains in the electricity sector, in the iNDC) - 10% 6% 9%

Outcomes of IES-Brasil: capacity building, evidence generation, impact on policy making :

• A Scenario Building Team mobilised for IES-Brasil and motivated to go forward, involving the key stakeholders of the country

• Evidence about the opportunities to get positive economic and social implications from climate change mitigation policies

• Policy-relevant inputs to the iNDC, future review of voluntary goals and a long-term Low Emission Development Strategy

Illustration of the Relevance of a dialogue between quantitative research, qualitative storylines and policy making

Conclusions