ARTICLE IN PRESS

Energy Policy 32 (2004) 1141–1146

How adequate policies can push renewables

Jose! Goldemberga, Suani Teixeira Coelhoa, Oswaldo Lucona,b,*
a
* Paulo State Secretariat for the Environment (SMA-SP), Av. Prof. Frederico Hermann Jr. 345, Sao
Sao * Paulo 05489090, Brazil
b
CETESB—The Sao * Paulo State Environment Agency, SMA-SP, Brazil

Abstract

The growing interest in the establishment of a minimum share of renewable sources in the world energy matrix, after the
Johannesburg’s World Summit for Sustainable Development (WSSD), has raised the question about the means for such new
technologies to compete with the traditional ones. The Brazilian experience in the last 25 years with ethanol as a replacement for
gasoline can illustrate this possibility. Moreover, recent policies introduced by the Federal government for a minimum share of new
renewable sources—wind, modern biomass and small hydro—in the Brazilian electricity matrix reinforces the country’s commitment
to utilize adequate policies for achieving sustainable development.
r 2003 Elsevier Science Ltd. All rights reserved.

Keywords: Renewable energy policies; Brazil

1. Introduction sources’’, which amount, worldwide, to 2.2% of the

National governments and private companies spend
$40–60 billion per year on new energy-supply infra-
structure, more than $1 trillion per year on direct energy
purchases, and much larger sums on the infrastructure
that consumes energy. Even small positive shifts in these
investments and purchases can influence sustainable
development. In particular, governments have a wide
choice of policies to affect these expenditures at national
and local levels, and in rural and urban contexts.
Approximately 80% of all energy used in the world
comes from fossil fuels, which are the main contributors
to environment and health problems at the local,
regional and global levels. The other 9.5% comes from
traditional biomass, mainly fuelwood burned ineffi-
ciently (IEA, 2002a, b). Although part of this biomass
can be collected in a sustainable way by rural villagers, a
great part comes from deforestation, either done by
poorer populations or by industries, commerce and even
public services in developing countries.
To reduce these adverse effects, efforts are made in
developing the so-called ‘‘new renewable energy
*Corresponding author. S*ao Paulo State Secretariat for the
Environment (SMA-SP), Av. Prof. Frederico Hermann Jr. 345, S*ao
Paulo 05489090, Brazil. Tel.: +55-11-3030-6159; fax: +55-11-3030-
6177.
E-mail addresses: sma.suani coelho@cetesb.sp.gov.br
(S.T. Coelho), oswaldol@cetesb.sp.gov.br (O. Lucon).
primary energy supply, representing some 20 billion
dollars per year of energy expenditures. These ‘‘new
renewable sources’’ include modern biomass, small
hydropower, geothermal energy, wind energy, solar
energy (including photovoltaics) and marine energy.
‘‘Modern biomass’’ excludes traditional uses of biomass
as fuelwood and includes electricity generation, heat
production and liquid fuels for transportation from
agricultural and forest residues and solid waste.
The advantages of new renewable energy sources over
fossil fuels, which dominate the energy scene today
(81% of supply in OECD countries and 70% in
developing countries), are well known. They enhance
diversity in energy-supply markets, secure long-term
sustainable energy supplies, reduce atmospheric emis-
sions (local, regional and global), create new employ-
ment opportunities in rural communities offering
possibilities for local manufacture and enhance security
of supply since they do not require imports that
characterize the supply of fossil fuels.
In addition to that, new renewables are powerful
instruments to reduce poverty since they can improve
access to pumped drinking water—clean water and
cooked food reduce hunger (95% of food needs
cooking), using indigenous sources. They also reduce
the time spent by women and children on basic survival
activities (gathering firewood, fetching water, cooking,
etc.). Lighting permits home study, increases security

0301-4215/03/$ - see front matter r 2003 Elsevier Science Ltd. All rights reserved.
doi:10.1016/S0301-4215(03)00077-6
 ARTICLE IN PRESS
1142 J. Goldemberg et al. / Energy Policy 32 (2004) 1141–1146
Fig. 1. Brazilian total primary energy supply (shares of 172 ktoe TPES) in 2000 (MME, 2002; Patusco, 2002).
and enables the use of educational media and commu-
nication in school and reduces deforestation, through
replacing traditional biomass burning.
However, renewable energy technologies face difficul-
ties in competing with the consolidated market of
conventional sources, especially fossil fuels. A large
market is necessary to reduce the gap in the costs
between such options. To collaborate with this discus-
sion, this paper analyses the Brazilian experience in
implementing a successful program on renewable energy
based upon sugarcane ethanol as an automotive fuel. It
presents also a discussion on new policies for the
introduction of a minimum share of modern renewables
(wind, small hydro and biomass thermal plants) in the
electricity matrix.
2. The Brazilian energy matrix
In 1999 Brazil’s total primary energy supply1 was
similar to South Korea and corresponded to 9% of that
from the US. The latter presents an average per capita
energy consumption approximately 8 times higher than
the Brazilian (IEA 2002a, b). The country has a low
electricity consumption per capita together with an
energy-intensive economy.
Although having a considerable amount of renew-
ables in the energy matrix, Brazil is still quite dependent
on fossil fuels, mostly oil products for transportation.
Applying the IEA criteria to another official source, the
National Energy Balance (MME, 2002), Fig. 1 presents
1
TPES (indigenous production plus imports minus exports and
international marine bunkers, adjusted by internal stocks changes) is
basically the internal energy consumption.
country shares in 2000. Traditional biomass (mostly
fuelwood) was split into two categories: renewable
(sustainably used) and non-renewable (from e.g. defor-
estation practices). New renewable sources account for
13.5%.
The country is well endowed with hydroelectric
resources, supplying 93% of internal electricity demand
in the year 2000. The total installed capacity is
79 000 MW. As a large tropical country, Brazil has a
high potential for the use of biomass. Besides traditional
woodfuel burning, now declining, the main modern
sources are sugarcane products (ethanol fuel and
bagasse for energy cogeneration) and wood from
reforestation.
Sugarcane products are today the most economically
important biomass source, accounting for 19.5 Mtep in
2001. With the alcohol program, started in 1975 with 0.9
billion liters, the participation of sustainable biomass in
the Brazilian Energy Matrix has reached 19% in 2000,
corresponding to 14 billions liters per year of ethanol
produced from sugarcane. The use of bagasse for
electricity production in sugar mills yields a considerable
energy surplus potential of up to 4000 MW, around 5%
of current installed power capacity (Cenbio, 2002).
Traditional woodfuel use, basically residential, has
declined significantly over the last decades, substituted
by more efficient fuels and end-use technologies.
Governmental subsidies to reforesting has accounted
to 5.5 millions hectares in 2001 (compared to 3.3 million
hectares in the 1965–1980 period), to produce charcoal,
woodfuel, pulp, and paper. Charcoal and bagasse wood
were the predominant fuels in Brazil until 1954; since
then their use has remained approximately constant,
although this means that in relative terms, its contribu-
tion has decreased rapidly. About 40% of Brazil’s steel
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J. Goldemberg et al. / Energy Policy 32 (2004) 1141–1146
production makes use of charcoal (now from sustainable
forests) instead of imported coke (Cenbio, 2002).
The country has developed strong policies to imple-
ment renewable energy, as be presented below.
3. Policies for transport: the Brazilian alcohol program
The Brazilian Alcohol Program (PROALCOOL)—to
produce ethanol from sugarcane—was established dur-
ing the 70s, as a consequence of the oil crisis, aiming to
reduce oil imports, as well as to solve the problem of
fluctuating sugar prices in the international market. The
program has strong positive environmental, economic
and social aspects, and has become the most important
biomass energy program in the world.
In Brazil, ethanol is used in one of the two ways: (a) as
octane enhancer in gasoline in the form of 20–26%
anhydrous ethanol and gasoline, in a mixture called
gasohol or (b) in neat-ethanol engines in the form of
hydrated ethanol.
The decision to use sugarcane to produce ethanol in
addition to sugar was a political and economic one that
involved government investments. Such a decision was
taken in Brazil in 1975, when the Federal Government
decided to encourage the production of alcohol to
replace gasoline, with the idea of reducing petroleum
imports, which were putting great constraints on the
external trade balance. Besides, the program presented
strong positive environmental, economic and social
aspects, and has become the most important biomass
energy program in the world.
Ethanol consumption has been growing overall by its
addition to gasoline as a carburant. The increase in the
production and use of ethanol as a fuel was made
possible by three governmental actions during the
launching of the ethanol program: (a) the decision that
the state-owned oil company, Petrobra! s, must purchase
a guaranteed amount of ethanol, (b) the provision of
economic incentives for agro-industrial enterprises will-
ing to produce ethanol, offering loans with low interest
rates from 1980 to 1985, (c) steps to make ethanol
attractive to consumers, by selling it at the pump for
59% of the price of gasoline. This was possible because
the government at that time set gasoline price. Nowa-
days, there are no subsidies for ethanol production and
it is sold in general for 60–70% of the price of gasoline
at the pump station in a free market, due to significant
reduction on production costs. These results show the
economic competitiveness of ethanol when compared to
gasoline. Considering the higher consumption rates for
net-ethanol cars, ethanol prices at the station could be as
much as 80% of gasoline prices (Coelho and Gold-
emberg, 2002).
In fact, policies have led to a significant and successful
change in the economy. The Alcohol Program in Brazil
1143
was possible because of the high price of gasoline and
the special policies established to favour the program. In
the period 1975–1989 a total of US$ 4.92 thousand
million was invested in the program (Goldemberg and
Moreira, 1999). However, savings with oil imports were
much higher, reaching US 43.5 thousand million (2001
US$) from 1975 to 2000 (Moreira, 2003).
The large amounts of ethanol produced allowed a
substantial decrease in alcohol production costs, as
shown in the learning curve of Fig. 2. Ethanol price paid
to producers fell quickly after 1985, due to technological
progress and economics of scale. The progress ratio of
the technology has shifted from 92% in the period 1980–
1985 to 75% in 1985–2002. The lower the progress ratio,
the more the prices have dropped. Thus, an efficient
technology penetration is the one that has achieved low
PRs. In October 2002 US dollars, ethanol progress
ratios were 93% (1980–1985) and 71% (1985–2002).
Another interesting comparison is in Fig. 3, with the
price paid to alcohol producers in Brazil versus
Rotterdam gasoline prices. Prices were converted into
US$ per GJ of each fuel, assuming the corresponding
low heating values. These results illustrate the economic
competitiveness of ethanol when compared to gasoline.
Trend lines demonstrate the decrease in ethanol costs
and the stable maturity of the one-century old gasoline
technology.
It is well known that the strongest argument against
renewables, in general, is their high cost and, therefore,
their lack of competitivity with conventional fuels, a
common characteristic of new products and infant
industries. This was indeed the case in the beginning
of the commercial use of such renewable sources but, as
consumption of renewable energy increases, its cost
falls, as demonstrated by the Brazilian ethanol program.
Social considerations are today strong determinants
of the Program. Presently, ethanol production generates
some 700,000 jobs in Brazil, with a relatively low index
of seasonal work. Job generation in most other
industries is less intensive (Fig. 4) and requires higher
investments (Fig. 5).
The environmental standpoint is another to mention.
All gasoline used in Brazil is blended with anhydrous
ethanol. In addition to the alcohol–gasoline (gasohol)
vehicles, there is a 3.5 million fleet running with pure
hydrated ethanol in the country, 2.2 million of which are
in the S*ao Paulo Metropolitan Region. Initially, lead
additives were reduced as the amount of alcohol in the
gasoline was increased and they were completely
eliminated by 1991. Aromatic hydrocarbons were
eliminated, sulphur and carbon monoxide significantly
reduced. Alcohol hydrocarbons exhaust emissions are
less toxic than gasoline’s, with lower atmospheric re-
activity. Acetaldehydes from alcohol use are less aggres-
sive to human health than aldehydes from gasoline and
diesel (Cetesb, 2002). With almost null greenhouse
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1144 J. Goldemberg et al. / Energy Policy 32 (2004) 1141–1146

E
Fig. 2. Ethanol learning curve (Nastari, 2003a). Progress ratio PR=2 , where E is the inclination of the logarithmic curve of prices (y axis) by
cumulative sales (x axis).

Fig. 3. Ethanol prices in southeast Brazil compared to international gasoline prices in Rotterdam (Nastari, 2003b).

emission balance, in the 1975–2000 period ethanol has
saved gasoline emissions of about 110 million tonnes of
carbon (MCT, 2002). In 2000, 9.2 million tonnes of
carbon dioxide were avoided due only to the gasoline
replacement by ethanol (Cenbio, 2002).
4. Policies for electricity
Besides the ethanol program for transport, also in the
electricity sector policies for renewable energy were
recently introduced. The Federal Government has
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J. Goldemberg et al. / Energy Policy 32 (2004) 1141–1146
Fig. 4. Jobs provided by energy source (Goldemberg, 2002).
Fig. 5. Job creation costs in the ethanol and other industries in Brazil
(Goldemberg, 2002).
introduced several measures to stimulate renewables, to
simplify authorization processes and to make commer-
cial prices flexible, in order to cover up a 100%
difference between wind and hydro cost. The Federal
Law 9648/98 extended to renewable sources, in isolated
communities, the subsidies to diesel generation in the
North of Brazil.
Moreover, the National Bank of Social and Economic
Development (Banco Nacional de Desenvolvimento
#
Economico e Social (BNDES) is arranging credits to
finance electrical connection to rural households that are
already incurring expenditures on kerosene and batteries
and can afford a R$12 (around US$ 3.4) electricity bill
per month.
1145
The recently approved Law 10438/02 determined the
Incentive Program for Alternative Electric Generation
Sources (PROINFA—Programa de Incentivo a Fontes
Alternativas), which provides incentives to wind, small
hydro and biomass thermoelectric plants, to be con-
nected to the national grid.
After the mandatory purchase of 3300 MW from
renewables until 2006, the second phase of PROINFA
aims at achieving a share of 10% of alternative
renewable sources for electricity production in the next
20 years. The 15 years guaranteed electricity purchasing
contracts with ELETROBRAS (the federal electricity
utility) will have the price based upon the weighted
average cost of generation from natural gas thermo-
electric plants and hydro plants above 30 MW. Price
paid for energy will be equally distributed to final
consumers. Producers will be inspected and provided
with Renewable Energy Certificates.
5. Conclusions
Renewable energy is gaining increased support in
Brazil due to factors like external energy dependence
from fossil fuels, currency devaluations, political pro-
blems in oil producing companies, environmental
restrictions to air pollution, climate change issues and
increased public awareness of a broader concept of
sustainable development. The latter includes job crea-
tion and energy integration of isolated communities.
The Brazilian alcohol program is now a paradigm to
be followed. Subsidies applied to this renewable energy
technology during its initial phase were crucial to
provide conditions to compete in the fossil fuels market.
As shown in the learning curve, costs decay as
accumulated sales volumes rise. This benchmark is
now being applied throughout the world to a wide range
of innovative technologies. Worldwide consumption of
fossil fuels has been growing in the last 5 years at a rate
of 2% per year, while wind energy and solar photo-
voltaics grow at 30%/yr, solar heat at 8%/yr, small
hydros and biomass at 3%/yr each.
Based on its own experience, the country has
proposed the Brazilian Energy Initiative at the Johan-
nesburg 2002 World Summit on Sustainable Develop-
ment (WSSD), aiming at the establishment of global
targets and timeframes of minimum shares of energy
from renewable sources, allowing non-compliant devel-
oped countries to purchase energy certificates produced
by the developing ones. The proposal was designed to
achieve the Millenium Goals for poverty alleviation and
eradication of social exclusion with support from
environmentalists.
After the WSSD, discussions proceed in order to
determine a common ground amongst regional targets,
 ARTICLE IN PRESS
1146 J. Goldemberg et al. / Energy Policy 32 (2004) 1141–1146
especially those from the EU and Latin American and
Caribbean countries.
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