The process of growth and modernization in Brazil has been always described as an example to be followed by other developing countries. Nevertheless, the Brazilian ‘locomotive’ has stopped.
The country is going through a period of dramatic political and economic instability. Although the Olympics Games should have been an international show of Brazilian power, they revealed the structural weakness of a country full of ambiguities and contradictions instead. Petrobras’ inquiry, combined with negative effects of the economic crisis, seem to have temporarily buried the China of South America. Oil wealth becoming yet another time not a blessing but a curse.
“In a broader sense, the hydrocarbons and its scarcity phychologization, its monetization (and related weaponization) is serving rather a coercive and restrictive status quo than a developmental incentive” – diagnoses prof. Anis H. Bajrektarevic, and concludes: “That essentially calls not for an engagement but compliance.“
To describe the history of the nation we need to focus our attention on oil, because the black gold is the embodiment of the success -and fall- of the Brazilian economy.
Oil – how black is gold
One the central drivers of Brazilian economic growth has been the production and the export of natural resources and their products. Looking at Brazil’s GDP between 1982 and 2015, three main trends can be observed. (i) A stable growth pattern from 1982 to 2002. (ii) The GDP rocketing up between 2003 and 2012, with a light slowdown during 2009-2010 caused by the financial crisis. (iii) A fall of GDP’s values between 2012 and 2015. Analyzing the evolution of the percentage of annual GDP growth’s, it is not possible to identify a specific trend. The most significant point that can be made is the constant growth of the GDP between 2004 and 2008, which was around 5% per year. The economic growth does not just imply a dramatic increase of GDP but also the improvement in social-economic status of millions of poor brasilians. Starting from 2001 the level of absolute poverty – defined as the percentage living with less than two dollars per day – decreased 12%. The levels of relative poverty – defined as the percentange of people with less than 50% of the average income – fell by 25% between 2002 and 2013.
Graph 1: Trend of Brazilian GDP 1982 e il 2014
Graph 2: Percentage of GDP Grotwh 1982-2014
Graph 3: Trends of poverty levels 1995-2013
The value of export and of the satellite activities of natural resources for Brazilian is represented by their proportion on the total GDP. As clearly shown in Graph 4, one of the engines of the Brazilian boom in the 2000s has been oil. Its incidence on GDP increased remarkably from 1999, a stable growth that reached its peak during 2000s. Between 2003 and 2006 oil rents produced around 3% of total GDP. Graph 5 shows the cost of oil per barrel from 1980 to 2015. To clarify, the most important oil reserve in Brazil is Pré-Sal, which needs to compete in a market in which the price is of at least 70 dollars per barrel in order to be profitable. The fall of the international price of oil, then, has been penalizing the Brazilian economy that was already damaged by the crisis of Chinese demand and the slowdown of FDI.
Graph 4: Percentage of oil and natural resources on Brazilian GDP 1982-2012
Graph 5: Trends of oil barrel 1980-2014
Eike Batista, imagine of Brazilian fable
The story of Erike Batista is bond with the growth and the fall of Brazilian economy. Batista has been one of the richest man in the world, 8th in the Forbes rank of worldwide billionaires and owner of 30 billion dollars in 2012. However, this changed in 2014 when he admitted to the loss of his wealth and his debt of one billion dollars. How is it possible that this self-made billionaire lost his wealth totalling a whopping 30 billion dollars? The success and the fall of Batista’s business is connected to oil. In the 80s, after completing his metallurgic studies, he went to Amazon forest to implement machines in the research and the extraction of gold. In the 1983 he bought a small society in the Canadian stock exchange, of extraction and trade of natural resources., that gained the value of 1.7 billion dollars in a few years. In 2002 he sold his company for 875 million. The devaluation of the asset was due to wrong investment done by the society in Greece, Russia and Czech Republic, which cost million of loss.
Batista exploited new opportunities that arose during the Brazilian economic boom. Between 2001 and 2002 he created and subsequently sold two companies to the Brazilian state; a thermodynamics and an iron production company. The holding that would make a Batista billionaire was OGX (Petròleo e Gàs Participacoes), specialized in the research and refinement of oil and gas. The market strategy of OGX was aggressive from the beginning. In 2007 he arranged the rights of exploration for 21 areas for OGX doubling the amount offered by its competitors. The next year OGX was able to produce barrels at the cost of 145 dollars per barrel and it announced their structures would be able to produce 1 million barrel per day in 2019. Batista’s ambitions and his confidence in Brazilian economy encouraged him to invest a large amount of money to build up an harbour at Acu, 400 km away from Rio de Janeiro. The project was supposed to create a centre for the refinement and the trade of oil products, thereby radically increasing OGX’ productivity.
From 2008 onwards, the Brazilian magistrate started to investigate bribes that Batista allegedly gave to the Governator of Amapà, Waldex Gòez, concessions of privileges for his companies. Even though the media caught wind of the investigation, the judiciary case was closed without any charges. The slowdown of Brazilian economy and the fall of the oil barrel started to strain foreign investors and foreign shareholders and lead them to reduce investments into Batista’s companies. The final blow was caused by the Abu Dhabi fund, Mudabala Development, which retired from EBX – one of Batista’s holdings – and asked for the liquidation of all their stock options which totaled 1.5 billion dollars. The financial pressure then cut the liquidity of Batista’s companies, which, having invested a lot of money, survived using financial leverage. Like a balloon, EBX snapped under the weight of financial debts that made Batista lose all of his assets.
In March 2014, a group of Brazilian judges started to investigate the relationship between the Worker’s Party and the public oil company Petrobras. The charge was that executive directors of Petrobras and of the main building societies (Btp) developed a corrupt system in which Btp would receive contracts for the construction of oil platforms increasing the building costs between 1% and 3%. In exchange, governmental parties would obtain illegal funds to sponsor political campaigns. The companies involved were Camargo Corrêa, Oas, Utc-Constram, Odebrecht, Mendes Júnior, Engevix, Queiroz Galvão, Iesa Óleo & Gás e Galvão Engenharia and members of the Workers’ Party, the Brazilian Democratic Movement Party (Pmdb) and the Progressive Party. (Pp).
The main consequence of the inquiry was the delegitimization of the Workers’ Party that led Brazil from 2002 onwards. The President, Dilma Rouseleff was forced to leave office despite the fact she was not personally involved in the investigation. The successor of former President Lula endured immediate pressure to resign for her knowledge of systematic corruption as Chairman of Petrobras and Minister of Energy (2003-2005). Nevertheless, the impeachment of Rouseleff regarded the charge of having transferred public funds from national banks to finance social expenses that went beyond the fixed amount allocated for public expenses. However, the charges that led to her dismissal did not include the Petrobas scandal. Eduardo Cunha was the political leader leading the group that called for Dilma’s dismissal. Paradoxically, he was not only found with a secret million dollar bank account in Switzerland, but was also barred from assuming any public position for eight years due to an investigation for his involvement in corruption and bribes. Some representatives of worldwide left-wing parties talk about a conspiracy to dismiss the Workers’ Party. The Brazilian and international elite allegedly exploited the economic crisis to destroy the consensus of Lula and Rouseleff’s party, which had always had significant popular support. Lula won the election in 2002 with 46.4% of the votes against just 23.3% of his opposing candidate José Serra. In 2006, Lula was confirmed President with 48.6% in the next election. His successor, Dilma Rouseleff, won in 2010 with 46.9% of the votes. Even though she experienced a small decline, Rouseleff won the election in 2014 with 41.6% of the votes. These Brazilian governments made enemies in the international market due to their politics of nationalization and semi-nationalization of natural resources. For example, Petrobras, founded in 1953, was partially privatized during the 90s. However, Lula started a propagandist campaign in 2007 to return company under state control. In addition, to prevent the private exploitation of the Pré-Sal oil reserve, Lula’s government passed a law to give to Petrobras the monopoly to explore the area and extract oil from Pré-Sal.
Some influential voices, such as independent Brazilian experts and academics raised concerns about the nature of the process. Pedro Fassoni Arruda argues that there were secret powers behind the impeachment that were also involved in the coup d’etat in 1964. In a similar vein, Pablo Ortellado criticised the framing of Rouseleff in the media. Sapelli contends that the modern political history of Brazil is characterized by a deep fragmentation of parties, which means every President has to deal with many small personalist parties. The external support that every government needs to administrate generated the construction of a system of corruption intrinsic to Brazilian society. Many experts believe that judge’s actions could enforce the trust of markets and investors in Brazilian institutions. Cutting the ambiguous bonds that exist between parties and companies should help to make the legal framework more stable and safe, strengthening the power of the Law. This could be a message from Brazil to all the world, that whoever is corrupted, no matter what status, will be punished.
Recently, the news reported the Brazilian parliament approved a law with 292 in 393 to abolish the monopoly of Petrobras on the reserve of Pré-Sal. This law seems to be just the first step of a greater project of privatization pursued by President Michel Temer. With strong politics of liberalization for Brazilian natural resources, Brazil seems to offer intriguing opportunities for business and investments for many multinationals. If Petrobras’ inquiry is just conspiracy or smart intuition is hard to understand. Surely, the destiny of Brazil will be, another time, defined by black gold. For better or worse.
Solar powering sustainable development in Asia and the Pacific
The way energy is produced, distributed and used causes environmental damage – most visibly air pollution – that in turn harms people’s health. It is also one of the major drivers of climate change. Recognising this, countries are urgently looking to shift to more sustainable energy, but the transition has so far been slow. Put simply, our future depends on our ability to decarbonize our economies by the end of the century. This was recognised by the Paris climate agreement in 2015 and is central to the United Nations 2030 Agenda for Sustainable Development. Sustainable Development Goal 7 (SDG 7) sets countries the twin challenge of meeting new benchmarks in renewable energy and energy efficiency, while ensuring universal access to modern energy.
In Asia and the Pacific, progress towards SDG 7 needs to be accelerated. While 99 percent of the population is expected to have access to electricity by 2030, access to clean cooking fuels will reach only 70 percent of our region’s population, leaving far too many people exposed to the deadly impacts of indoor air pollution. Energy intensity – a measure of our economies’ energy efficiency – is set to decrease but will fall short of 2030 Agenda targets if no further action is taken. At the same time, the share of renewable energy in total energy consumption is only expected to reach 14 percent, well under the 22 percent share required.
Solar energy has a major part to play in closing these gaps. It is an opportunity we must seize for low carbon development, energy security and poverty alleviation. Because solar power can bring clean, emissions-free and evenly distributed energy. This is particularly relevant to Asia and the Pacific, where developing countries have abundant solar energy resources. Solar energy technology increasingly offers a cost-effective alternative to extending networks to outlying and often challenging geographical locations. A potential which has been captured by the Indian leadership’s ambition for “one world, one sun, one grid”.
Governments, the private sector and investors are now thinking over the horizon, planning for a more sustainable and low carbon future. The cost of renewable technologies, very much including solar power has dropped rapidly, bringing these solutions within reach. India now has the newest and cheapest solar technology of anywhere in the world. Mini-grids or standalone solar home systems can be deployed quickly and help reduce greenhouse gas emissions. Due in part to unsustainable subsidies and in part to inertia, coal fired electricity is set to continue to grow in the short to medium term, but wind and solar must play a much more substantial role sooner rather than later for us to have a chance of meeting the SDGs or achieving the aspirations of the Paris Agreement.
India is supporting this solar revolution. By founding and hosting the International Solar Alliance, it has moved decisively to increasing access to solar finance, lowering the cost of technology and building the solar skills needed among engineers, planners and administrators. But it has also set an unparalleled deployment target for solar power generation. The National Solar Mission aims to reach 100 GW of solar power generation by 2022 and has spurred intense activity in solar development across India which has captured the imagination of the region.
At the Economic and Social Commission for Asia and the Pacific, the development arm of the United Nations in the region, we are clear solar energy can boost renewables’ share in our power mix, increase energy efficiency and bring electricity to remote parts of the region. Our research is focused on overcoming the challenges of achieving these three elements of SDG7. Upon request, we support countries maximize the potential to adopt sustainable energy through technical support and capacity building, including through the development of energy transition roadmaps. Work is also underway to develop a develop a regional masterplan on sustainable energy connectivity, vital to make the most of solar power by supporting the growth of cross border power systems.
A core purpose of sustainable development is to ensure we leave future generations a world which affords them the same opportunities we have enjoyed. This is within our grasp if we work across borders to promote solar energy throughout Asia and the Pacific. India has a major role to play. Its experience gives us a historical opportunity to shape best practices in solar energy for our region and reduce carbon emissions. This is experience we cannot afford to waste.
Phasing Out Coal and Other Transitions: Lessons From Europe
Climate change reports are seldom sanguine. Carbon dioxide, the principal culprit, is at record levels, about twice the preindustrial value and a third higher than even 1950. Without abatement it could rise to a thousand parts per million in a self-reinforcing loop spiraling into an irredeemable ecological disaster. The UN IPCC report warns of a 12-year window for action.
Contrasting President Trump’s boast of US energy independence based on coal and other fossil fuels in his SOTU address on Tuesday, two Democrats, Senator Ed Markey and Rep. Alexandria Ocasio Cortez, have introduced a 10-page Green New Deal resolution to achieve carbon neutrality within ten years. While this target may not be technically feasible, it is an admirable start to the discussion. At the same time, the Germans are attacking the problem forcefully as demonstrated by their new coal commission report issued last week.
In November 2016, the German Federal Government adopted its Climate Action Plan 2050. It outlined CO2 reduction targets in energy, industry, buildings, transport and agriculture. Energy is the most polluting; its emissions total the sum of all the others except industry and energiewende (energy change) was a key aspect of the plan.
So even as our atavistic president is promoting coal, Germany, the EU economic powerhouse, announced it is planning to phase out all coal-fired power stations by 2038. As outlined in the November 2016 plan, a commission comprising delegates from industry, trade unions, civil society including environmental NGOs and policy makers was appointed in 2018 to examine the issue and prescribe an equitable solution. After eight months of negotiations and discussions, concluding with a final 21-hour marathon session, it has produced a dense 336-page document. Only one member out of 28 cast an opposing vote, and Greenpeace added a dissenting option as it wants the process to begin immediately.
Such an objective was a special challenge because of Germany’s long industrial history coupled with coal mining. The plan shuts down the last coal-burning power station by 2038 as the final step in the pathway outlined — an ambitious alternative is to exit by 2035 if conditions permit. Total capacity of coal-using stations in Germany is about 45 gigawatts, and the report sets out a four-year initial goal of 12.5 gigawatts to be switched-off i.e. about two dozen of the larger 500+ megawatt units by 2022. Progressively, eight years later (by 2030) another 24 gigawatts will have been phased out leaving just 9 gigawatts to be eliminated by 2035 if possible but definitely by 2038 at the latest.
It is a demanding plan for coal has been deeply embedded with German industry. To ease the pain for tens of thousands of workers and their families, the plan allocates federal funding to deal with its broad ramifications i.e. job loss and displacement. An adjustment fund will be used for those aged 58 and over to compensate pension deficits. Funds are also directed towards retraining for younger workers and for education programs designed to broaden skills.
It includes 40 billion euros to develop alternative industry in coal mining states plus money not directly project-related. In addition further investments in infrastructure and a special funding program for transport adding up to 1.5 billion euros per year are allocated in the federal budget until 2021.
The change-over will raise electricity prices, so a 2 billion euro per year compensation program for users, both private individuals and industrial, will continue until 2030. This is designed to relieve the burden on families, and to maintain industrial competitiveness.
Germany is not alone. The EU has issued an analysis of accelerated coal phase-out by 2030. The Netherlands has its own energiesprong (energy leap) focused on energy transition and energy neutral buildings, meaning that the buildings generate enough energy through solar panels or other means to pay for the energy deficit from their construction and use. It can now clad entire apartment blocks in insulation and solar panels, and is reputed to be so efficient that some buildings are producing more renewable energy than consumed. This expertise is also being utilized in the UK.
Given the forests, the Norwegians have tried something different. They have built the world’s tallest wooden skyscraper, the Mjøs Tower, 85 meters high in Brumunddal. Its wood sourced from forests within a 50 km radius uses one-sixth the energy of steel and of course much less, if at all, emission of greenhouse gases.
By the end of Germany’s enormous sector-wide endeavor, it expects to reduce CO2 emissions to roughly half through 2030 and 80-95 percent by 2050. The comprehensive and complete nature of the program
could serve as a blueprint here in the US. Thus the obvious question: If Germany with a far larger proportion of its workforce associated with coal can do it, why can’t the US?
The mysterious case of disappearing electricity demand
Authors: Stéphanie Bouckaert and Timothy Goodson*
Electricity is at the heart of modern life, and so it’s easy to assume that our reliance on electricity will increase or even accelerate. However, in many advanced economies the data reveals a surprisingly different story.
Electricity demand has increased by around 70% since 2000, and in 2017, global electricity demand increased by a further 3%. This increase was more than any other major fuel, pushing total demand to 22 200 terawatt-hours (TWh). Electricity now accounts for 19% of total final consumption, compared to just over 15% in 2000.
Yet while global demand growth has been strong, there are major disparities across regions. In particular, in recent years electricity demand in advanced economies has begun to flatten or in some cases decline – in fact electricity demand fell in 18 out of 30 IEA member countries over the period 2010-2017. Several factors can account for this slowing of growth, but the key reason is energy efficiency.
There have been a range of new sources of electricity demand growth in advanced economies, including digitalization and the electrification of heat and mobility. However savings from energy efficiency have outpaced this growth. Energy efficiency measures adopted since 2000 saved almost 1 800 TWh in 2017, or around 20% of overall current electricity use.
Over 40% of the slowdown in electricity demand was attributable to energy efficiency in industry, largely a result of strict, broadly applied, minimum energy performance standards for electric motors. In residential buildings, total energy use by certain classes of appliances has already peaked. For example, energy use for refrigerators (98% of which are covered by performance standards) is well below the high point reached in 2009, and energy use for lighting has also declined. In the absence of energy efficiency improvements, electricity demand in advanced economies would have grown at 1.6% per year since 2010, instead of 0.3%.
Changes in economic structure in advanced economies have also contributed to lower demand growth. In 2000, around 53% of electricity demand in the industrial sector came from heavy industry, but by 2017 this figure had fallen to less than 45%. Advanced economies now account for 30% of global steel production, for example, down from 60% in 2000, and for 25% of aluminium production, also down from around 60% in 2000.
Finally, electricity demand for heat and mobility increased by only 350 TWh between 2000 and 2017. Today, electric cars represent only 1.2% of all passenger vehicle sales in advanced economies and account for less than 0.5% of the passenger vehicle stock. Since 2000, only around 7% of households in advanced economies have switched from fossil fuels (mainly gas) to electricity for space and water heating purposes, and use of electricity for meeting heat demand in the industrial sector remains marginal. In many regions, the price of electricity relative to fossil fuels limits its competitiveness for heating end-uses.
When we look to the future, the pace of electrification is set to pick-up somewhat in advanced economies. Nonetheless, electricity demand growth is projected to remain sluggish in the IEA’s New Policies Scenario (NPS), as improvements in energy efficiency continue to act as a brake on increasing demand for many end-uses. In addition, fewer purchases of household appliances (most households in advanced economies today own at least one of each major household appliance such as refrigerators, washing machines and televisions), and a shift from industry to the less electricity-intensive services sector, all contribute to lower electricity demand growth.
On average, electricity demand in advanced economies is projected to grow at just 0.7% per year to 2040 in the NPS, with the increase largely due to digitalization and policies that incentivise the use of electric vehicles and electric heating. Without those policies, electricity demand would continue to flatten or even decline in many advanced economies.
There are other factors at play. For example, population growth in many advanced economies is barely exceeded by electricity demand growth, meaning that further growth in GDP per capita does not lead to an increase in electricity demand per capita (as an exception, the industry sector in Korea accounts for a large share of electricity demand, and so it is one of the few advanced economies that sees industry contribute to overall electricity demand growth on a per capita basis).
Ultimately, despite moderate growth in electricity demand, fuel-switching to electricity and energy efficiency improvements in the use of other fuels mean the share of electricity in final consumption is projected to increase to 27% in advanced economies by 2040, up from 22% today.
*Timothy Goodson, WEO Energy Analyst
Pulwama Attacks: Pakistan takes on India again
The attacks by Jaish-e-Muhammed on Indian security forces has come at a tricky time; Modi led government’s reaction to the...
Disaster management: Boosting the EU’s emergency response
MEPs have approved plans to improve disaster response by updating the EU’s civil defence mechanism and creating additional reserve capacity....
Portugal can use its economic recovery to build up resilience
Portugal’s economic recovery is now well established, with GDP back to pre-crisis levels, a substantially lower unemployment rate and renewed...
RASAI: The car-sharing tool seeking to breathe life into Pakistan’s congested cities
When Hassam Ud-din started studying in Islamabad in Pakistan, he had a three-hour round-trip commute from his home in Rawalpindi....
ISIS Smuggler: Sleeper Cells and ‘Undead’ Suicide Bombers Have Infiltrated Europe
Authors: Anne Speckhard, Ardian Shajkovci & Hamid Sebaly Europe is bracing for a new wave of jihadist attacks by terrorists...
What Can the Afghan Government and Taliban Learn from Colombia’s Peace Deal with FARC?
The experience of Colombia’s peace with FARC has always been the subject of Western experts working on the war in...
Iran: How to Avoid a War
Upon closer inspection, it appears that the Islamic Republic of Iran has a relative near dearth of human rights organizations...
South Asia3 days ago
The Saudi Crown Prince’s maiden visit to Pakistan
Africa2 days ago
Russia wants to bolster economic ties with Lesotho
Middle East2 days ago
The new strategic axis between the Russian Federation and Iran
South Asia2 days ago
Kashmir: Aftermath of Pulwama attack?
Newsdesk3 days ago
Green and Blue Finance Will Help Bridge Infrastructure Investment Gap in Southeast Asia
Energy24 hours ago
Solar powering sustainable development in Asia and the Pacific
Eastern Europe3 days ago
Expansion of Georgia’s Black Sea Ports: Modus Vivendi for Georgia
Environment3 days ago
UN announces roadmap to Climate Summit in 2019