By Victoria Barreto Vieira do Prado
NEW YORK, Feb 15 2023 – Eletrobras is Latin America’s biggest electricity company, responsible for around 30% of Brazil’s power capacity and 50% of all its transmission lines. In 2021, the Brazilian government announced it would reduce its controlling shares in this state-owned company from 72% to 10%.  Given Eletrobras’ dominant role in Brazil’s power sector, this divestment in the government’s controlling shares merits a more complete understanding of the implications for Brazil’s energy transition and energy security.

This is because the law that was passed to make this happen raises important risks to the decarbonization of the country’s power sector and has the potential to increase electricity tariffs.

How the legal process that open the door for the government’s controlling stake on Eletrobras raised questions about the energy transition

The government’s dilution of its participation as Eletrobras’ major shareholder required legal approval in congress, consolidated through a law now commonly known as Eletrobras’ privatization law (Law 14.182/2021).

Of all the amendments to the Eletrobras’ privatization law, the mandatory installation of 8 GW of additional thermal gas power capacity to be deployed between 2026 and 2030 was perhaps the most troublesome. To understand how massive this is, this provision in theory forces Brazil to expand natural gas installed capacity by 56%

Given how politically charged this law is and the electoral dynamics due to looming presidential elections in the following year (2022), the government decided to fast-track this bill in congress under a mechanism known as a provisional measure (medida provisória), thus expediting its approval process. The deadline for approval of bills using this fast-track provision is of 120 days.

While an effective legislative tool, the use of this fast-track provision in this law was criticized by some institutions in Brazil as not “conducive to the timeframe required to conduct a comprehensive study” that the privatization of a company like Eletrobras would have merited.

The bill was approved on the eve of the fast-track deadline for its approval. However, it contained over 500 amendments, many of which were unrelated to the company’s privatization.

This strategy is known as jabuti, where legislators take advantage of the provisional measure’s fast-paced characteristics to include amendments which may favor their own political interests. By adding amendments to key clauses of the bill, as was done in Eletrobras’ privatization, the likelihood of vetoing the added amendments is close to null.

Of all the amendments to the Eletrobras’ privatization law, the mandatory installation of 8 GW of additional thermal gas power capacity to be deployed between 2026 and 2030 was perhaps the most troublesome. To understand how massive this is, this provision in theory forces Brazil to expand natural gas installed capacity by 56% per cent from around 14.3 GW in 2021.

While this measure gave no responsibility to Eletrobras for the deployment of this thermal capacity, it signals the government’s direction and ambition for the power sector. In addition, this amendment included a provision that the new thermal power plants had to function constantly for 70% of the time throughout the next 15 years.

Such mandatory use for thermal in the future, would result if followed through, in an expected 33% increase of greenhouse gas emissions and redraw the country’s electricity matrix which is currently one of the cleanest globally with 82.9% renewables (world average being 28.6%).

The law, as approved today, also disfavors renewable sources, currently the cheapest form of energy in Brazil, which have no additional variable costs of operation to fuel the power grid.

The new law requirements may increase installation costs by up to R$ 6.6 billon (roughly USD 1.3 billion) when compared to the prior Brazilian national energy expansion strategy and thus reflect in price increases for the end-consumer. A requirement to operate the thermal powerplants for 70% of the time has negative implications for the future development of non-hydropower renewables given that it reduces wind and solar power capacity expansion in up to 12 GW and 3.5 GW until 2030, respectively.

The law does not significantly affect hydropower capacity expansion (already projected to slow down), which would increase modestly in about 0.2 GW in the same time frame and remain responsible for one of the largest shares of the Brazilian power mix.

The impact of this build up in thermal power in Brazil

The inclusion of gas-powered plants is supposed to address energy security and support the company’s efficiency in providing reliable energy nationwide as frequent droughts threaten hydropower capacity. While understandable as an objective, as it stands, the current provisions are problematic in many fronts, not only in terms of the GHG emission implications.

According to the law’s provisions, the mandatory regions where these thermal powerplants are to be installed are mostly in water-abundant regions. Second the natural gas infrastructure is lacking. Third, additional infrastructure investments may lead to higher energy prices for the end-consumer.

Gas feeding these power plants will mostly come from Brazil’s southeast region to be transported across the country, which adds to transportation costs and emissions. Through this lens, the government-issued Ten-Year Energy Plan (PDE 2031) acknowledges the difficulty and costs of implementation due to the necessary added infrastructure requirements. The report implies that meeting the mandated targets may be challenging. This was reflected in October 2022 auctions in which 1.17 GW of additional capacity for gas-powered power plants were contracted at a price seven times higher than those bided at similar auctions in previous years.

In addition, the implementation of new powerplants would require decades of on-going operation to ensure full amortization of costs. This may lead to stranded assets as demand for cleaner sources of energies outpace fossil fuels. Although the government has claimed that part of the additional installed capacity will be used to replace existing thermal power plants (to be switched off by 2024), emissions from additional infrastructure and the 70% intermittency requirement outpace the efficiency gains from the new installations.

This is reinforced when added to the additional requirement of developing 721 kilometers of transmission lines in the Amazon Rainforest region, 125 kilometers of which are located in indigenous land. This implies additional infrastructure costs and more emissions (linked to deforestation). Equally difficult is that such buildup of infrastructure in the Amazon Rainforest and disregard to social and environmental licenses infringes on Brazil’s Sustainable Development Goals, thus also going against national energy planning.

Even if it is in the law, will Brazil’s be able to attract capital for natural gas power plants?

While technically enforceable by the Eletrobras’ law, many questions remain on whether companies will be willing to invest in capital-intensive projects which may soon become stranded – especially when penalties for doing otherwise remain unclear.

In addition, it is unlikely that Eletrobras’ new shareholders would be on board with such a massive of buildout in thermal power plants. Singapore’s sovereign fund, GIC; Canadian pension fund, CPPIB; and, Brazilian Investment Management company, 3G Radar, each hold around 11% of Eletrobras.

All of these financial actors have shown considerable interests towards investing in the energy transition and decarbonizing their portfolios. It is thus believed that this could hinder their willingness in investing in high-cost gas power plants which require additional infrastructure investments in order to become profitable, not to mention that Brazil does not produce enough natural gas and thus might need to be imported via very expensive LNG.

Regardless, if the additional capacity of 8 GW of thermal gas power does go through, one should expect these power plants to be running for a considerably long time in order to fully amortize the investments. This could lead to a 33% emission increase which will slow down the Brazilian government’s energy transition strategy.

Lula, Brazil’s new president, has indicated that its government will revise this 8 GW mandate, an attempt to remove the 70% inflexibility requirement. Instead, the new government might make the additional power as back-up for renewable energy intermittence, diminishing the potential environmental hinderance foreseen in the law. In order to do so, a new motion would have to be approved in congress – a usually time-intensive measure. This regulatory uncertainty may in the meantime decrease energy investments and impact the pace of the energy transition.

The Eletrobras law also pushed for renewables

The Eletrobras law did promote measures which favor the energy transition. However, if all these requirements are fulfilled, they may also increase electricity prices for the end consumers.

The law dictated new concessions for hydropower generation for the next 30 years, ensuring dispatchable renewable energy, which contributes to the country’s energy transition. However, it favors hydropower plants which fall under the price quota regime, allowing them to sell the generated electricity under market prices rather than through imposed limits by the national electricity agency (ANEEL). This may lead to higher tariff prices, which could reach R$ 167/MWh in 2051 (compared to R$ 93/MWh today). The government tried to curtail this by mandating that half of the revenue generated through Eletrobras’ privatization shall be directed to diminishing the tariff increase. Despite this measure, this could still represent up to eight times less than the required investment needed to keep prices low.

An additional measure promotes the development of small hydropower plants, to be developed over the next 20 years. While this promotes dispatchable renewable energy and addresses the need to replace existing old hydro powerplants which would soon cease operations, it also favors the most expensive form of renewable energy available, again creating possible cost impacts for the end-consumer. The government addressed this by creating a price cap according to 2019 auction prices adjusted to inflation (R$ 314.55 / MWh). These prices remain 7.7% higher than those found in 2021 auctions.

The government also included the extension of PROINFA by 20 years. PROINFA is a governmental program established between 2002 and 2022 which created subsidies for biomass and small hydro power plants, wind, and solar farm owners in order to incentivize the production of renewable energy sources in the country.

While positive in theory, such extension would only favor previous contracts as opposed to a structural revision of the Brazilian power grid and costs of renewable technologies. Most of these investments have already been amortized and cost of technology has decreased significantly.

Its impact in promoting the energy transition therefore, can be questioned, as it is not necessarily deploying new renewable technologies, but rather favoring outdated contracts at higher costs. A more interesting alternative instead would have been to promote the expansion of new low-cost renewable energy projects through new auctions.

Final thoughts: The Mixed Outcome of Electrobras’ privatization Law

In conclusion, it is unclear what impact will Eletrobras’ privatization truly incur for the country’s energy transition. It is argued that through its privatization, the company will now be freed from bureaucracy, allowing it to speed up investments and increase its ability to invest in new (riskier) clean technologies.

Eletrobras’ CEO, has been known for his inclination towards green technologies and has advocated for green hydrogen investments in several occasions. The same is expected from the new shareholders, who have been seen to adopt decarbonization investment strategies. Eletrobras’ net zero strategies across scope 1, 2, and 3 are also contradictory to exactly the amendments of the law, claiming to decarbonize through the sales of thermal-powered power plants and I-REC purchases.

However, it is important to note that the law does push for thermal gas expansion, which, if occurs, may shift and delay Brazil’s energy transition. The absence of clear penalizations and accountability makes it unclear on whether the additional capacity of 8 GW of thermal gas powerplants will indeed be adopted.

While it is unclear how much the privatization will truly impact the energy transition, increase in tariff prices may be likely. The law and the subsequent auctions since its approval, seem to favor costly renewable contracts, which will likely increase tariffs for the end-consumer. Tariff increases may also happen due to the expansion of PROINFA, promotion of small hydro power plants, and implied cost of necessary added infrastructure for thermal gas-powered plants.

Victoria Barreto Vieira do Prado is a MSc. Sustainability Management student at Columbia University. Prior to her studies, she has worked in the development of the Brazilian Voluntary Carbon Market via her work at Carbonext, and in the decarbonization strategies of major players in the Brazilian hard-to-abate sectors as a consultant

References

ANEEEL. (2022)(A). Três usinas a gás natural são licitadas em Leilão de Reserva de Capacidade. Gov.br. Retrieved October 30th.

ANEEEL. (2022)(B). Resultados do Leilão – LEILÃO DE GERAÇÃO ANEEL Nº 008/2022 – Resumo Vendedor 02° LEILÃO DE RESERVA DE CAPACIDADE – ENERGIA. Epe.br. Retrieved Janyary 7th

CCEE. (2022). Resultados Leilão ANEEL Outubro 2022. CCEE. Retrieved from November 1st

Eletrobras (2022)(A). Apresentação de resultados 2T22. RI Eletrobras. Retrieved October 24th, 2022

Eletrobras (2022)(B). Estretatégica Climática. Portal Eletrobras. Retrieved January 7th, 2023

Empresa de Pesquisa Energética; Ministério de Minas e Energia. (2022). Plano Decenal de Expansão de Energia. Gov.br. Retrieved October 25th

Epbr. (2022). Primeiro leilão de térmicas da MP da Eletrobras não interioriza o gás. PSE Unicamp. Retrieved October, 30th, 2022

Instituto Escolhas; Escopo Energia. (August 2021). Relatório desestatização da Eletrobras: Impactos no planejamento do setor elétrico. Escolhas.org. Retrieved October 24th, 2022

Ministério de Minas e Energia. (2022). Visão do MME sobre os impactos da capitalização da Eletrobras. Gov.br. Retrieved October, 30th, 2022

Pamplona, Nicola. (2022). Eletrobras decide sair de carvão e desmobilizar térmicas mais poluentes. Folha de S. Paulo. Retrieved January, 7th, 2023

Ramalho, André. (2022). Tolmasquim defende térmicas flexíveis e vê renováveis como soft power para o Brasil. Epbr. Retrieved January 7th, 2023

República Federativa do Brasil. (2021). Lei Nº 14.182, de 12 de julho de 2021. Diário Oficial da União. Retrieved October 25th, 2022

Tomalsquim, Mauricio. (2022). Proposta de Privatização da Eletrobras e seus desdobramentos para o Setor Elétrico Brasileiro. PSE Unicamp. Retrieved October, 30th, 2022

By Joyce Chimbi
NAIROBI, Feb 15 2023 – As the effects of climate change escalate and natural disasters such as earthquakes, floods, and droughts become more frequent and severe, threatening lives and livelihoods, humanity is losing the climate battle.

A sharp decline in the variety and the number of both wild animals and species, severe food insecurities, high levels of malnutrition, disappearing streams, springs, and rivers in some areas, and dangerous rises in sea levels that threaten island nations are alerting the world to a climate-driven catastrophe.

Yet even as the world stares at unprecedented climate disasters, experts such as Hafez Ghanem caution that existing international institutions are not delivering on climate change mitigation and finance and are now calling for renewed efforts through the establishment of a Green Bank.

Hafez Ghanem says the creation of a Green Bank to solely address climate change adaptation and mitigation efforts is long overdue.

Ghanem, former regional Vice President of the World Bank Group and a current nonresident senior fellow in the Global Economy and Development Program at the Brookings Institution, Senior Fellow at the Policy Center for the New South, and Distinguished Fellow at the Paris School of Economics tells IPS that “the creation of a Green Bank as a new international institution to solely address climate change adaptation and mitigation efforts is long overdue.”

“Everybody is looking at how to finance investments in climate change. The estimate is that USD 2 trillion is needed every year for countries in the global South alone to address climate change.”

Today’s development assistance, he says, is about USD 200 billion per year, “so we need to multiply that figure 10-fold and only use the funds for climate change and forget about critical social sectors such as health and education.”

Choosing the climate agenda over critical social sectors or vice-versa is a lose-lose situation because they are both matters of life and death. This has led world leaders to a critical crossroads.

To meet the climate financing gaps, Ghanem says many of the developed countries are asking existing multilateral development banks, such as the World Bank, to reform and invest more in climate change.

Ghanem says reforms within existing institutions will not work and recommends a different approach: the establishment of a singular international institution that concerns itself solely with climate-related matters. An institution that would be a repository for global knowledge on climate change and advice governments on climate policies.

He says a Green Bank would also develop green projects across the Global South and support their financing and implementation. As currently constituted, multilateral development banks are yet to open up space for Global South to be heard at the same level as those in the North.

At the World Bank, for instance, he says, the voting power is such that the G7 countries control 39.8 percent of the World Bank while other donors control another 14.9 percent.

“Despite the World Bank conducting most of its business in Africa, the largest ten African countries control only about 3.5 percent of its voting power. A development bank that is controlled by its borrowers is not a good idea; neither is a development bank where beneficiaries feel that they don’t have enough voice,” he expounds.

A waterfall is on the verge of drying out. High temperatures and prolonged droughts are blamed on the devastating impact of climate change. Credit: Joyce Chimbi/IPS

Ghanem further emphasizes that the absence of the private sector will continue to curtail efforts to raise much-needed funds. “I believe that the Green Bank should be a public-private partnership where private corporations, foundations, and civil society organizations are invited to participate in its capital together with sovereign states.   I am calling for a tripartite approach where countries of the Global South have the same voice, same voting rights as those in the Global North and the private sector.”

The need to attract much-needed funds from the private sector cannot be over-emphasized, he says as it is now, “there is no voice from the private sector because the owners of, say, the World Bank and the African Development Bank are all sovereign states.”

The Green Bank would, therefore, primarily support private green investments through equity contributions, loans, and guarantees at the national, regional, or global level. The new institution would also free existing multilateral banks to direct scarce resources to social and development assistance.

This would significantly boost progress toward the delivery of critical social sectors services such as health and education, particularly in poorer, more vulnerable nations such as those classified as Least Developed Countries.

As such, the proposed Green Bank will not be in competition or opposition to existing multilateral banks but an instrument to partner with other institutions and complement their projects.

“Climate change is an external threat facing all of humanity, and all of humanity needs to unite to face it. But a major share of humanity and particularly the Global South lacks the necessary resources,” he says.

“There are many international meetings and summits at which resources are pledged, but the pledges are for much less than what is needed to deal with climate change. Moreover, not all pledges materialize as actual commitments and disbursements.”

As governments in the Global North face tighter budget constraints and competing interests, limiting their ability to provide much-needed finance for climate projects in the South even as climate catastrophes increase, Ghanem says a new approach in the form of a Green Bank that is a private, public partnership would be an important contribution to the solution.  You can read his full policy brief on the subject here.

IPS UN Bureau Report

Follow @IPSNewsUNBureau
!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?’http’:’https’;if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+’://platform.twitter.com/widgets.js’;fjs.parentNode.insertBefore(js,fjs);}}(document, ‘script’, ‘twitter-wjs’);  

By Louis Charbonneau
NEW YORK, Feb 15 2023 – United Nations member states agreed to fully fund UN human rights mechanisms that China, Russia, and their allies had sought to defund in the 2023 budget. This should set a precedent for UN human rights funding in the future.

Human Rights Watch has warned for years about China and Russia-led efforts to slash funding for UN human rights work, which was aimed at undermining decisions by the UN Human Rights Council, General Assembly, and Security Council.

During the General Assembly’s budget negotiations in late 2022, China, Russia and allies proposed a resolution to defund human rights investigations in Sri Lanka, Iran, Venezuela, Russia, Ukraine, Nicaragua, North Korea, Belarus, Syria, and Eritrea. Ethiopia proposed a resolution to defund an investigation of war crimes and abuses in Ethiopia itself.

Israel also urged states to deny funding for an International Court of Justice advisory opinion on the legal consequences of its 55-year occupation of Palestinian territory.

All these efforts failed. The Czech Republic, as European Union president, countered by proposing full funding for human rights mechanisms at the level proposed by Secretary-General António Guterres. The resolution passed by a sizable majority.

There’s more good news. Not only did the defunding efforts fail, the highly problematic recommendations put forward by the UN Advisory Committee on Administrative and Budgetary Questions (ACABQ) were rejected.

The Advisory Committee is supposed to be an independent body of experts, but in recent years, its “experts” from countries like China and Russia have been pushing their governments’ anti-human rights agendas and advocating for sharp cuts in funding for human rights work, with no good reasons.

Due to divisions between Western countries and developing states, the standard UN funding compromise had become accepting the non-binding Advisory Committee recommendations. For example, if its recommendations had been adopted, the staff and budget for the Iran commission of inquiry would have been cut in half.

UN member countries should treat the successful UN budget outcome as a blueprint for the future. The job of the Fifth Committee – which oversees UN budget matters – is to allocate resources, not question mandates approved by UN legislative bodies.

They should also reform or replace the Advisory Committee on Administrative and Budgetary Questions with an advisory body staffed by genuinely independent experts, not diplomats doing the bidding of their governments.

Meanwhile, UN delegations should build on this success and ensure reliable full funding for all UN human rights mandates.

Louis Charbonneau is UN Director Human Rights Watch

IPS UN Bureau

Follow @IPSNewsUNBureau
!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?’http’:’https’;if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+’://platform.twitter.com/widgets.js’;fjs.parentNode.insertBefore(js,fjs);}}(document, ‘script’, ‘twitter-wjs’);