Brie�ng Note 005/10 77312 Brazil Low Carbon Country Case Study LOW C A R B O N G R OW T H CO U N T RY ST U D I E S P R O G R A M MITIGATING CLIMATE CHANGE THROUGH DEVELOPMENT Mitigating Climate Change Through Development | e LOW C A R B O N G R OW T H CO U N T RY ST U D I E S P R O G R A M TABLE OF CONTENTS A Commitment to Low Carbon Development 1 Objective and Approach 2 The Reference Scenario 4 Economic Analysis 17 A National Low Carbon Scenario 18 Financing 21 Implementation Challenges 24 Acronyms and Abbreviations 28 f Brazil Low Carbon Country Case Study A COMMITMENT TO LOW CARBON DEVELOPMENT b razil demonstrated early commitment to climate action at the 1992 United Nations Conference on Environment and Development, also known as the Rio Earth Summit. Today, Brazil remains strongly committed to voluntary action to reduce greenhouse gas (GHG) emissions. Brazil launched the 2008 National Plan on Climate Change (PNMC) that calls for a 70 percent reduction in deforestation by 2017 and adopted a National Climate Change Policy in 2009 that lays out voluntary GHG reduc- tion targets (a 36.1 percent to 38.9 percent reduction of projected emissions by 2020). The PNMC states that the development rights of the poor should not be adversely affected by actions to avoid future GHG emissions. Brazil, the world’s largest tropical country, has a unique GHG emissions profile. Agriculture and livestock, which account for 25 percent of national gross domestic product (GDP), have required the steady expansion of crop land and pasture leading to the conversion of native vegetation. Land-use change, in particular deforestation, is the main source of national GHG emissions in the country today. Brazil’s abundant natural resources and vast territory have enabled the development of low carbon renewable energy. Historically, large investments in renewable energy—hydropower at 75 percent of installed generation capacity and sugar cane-based ethanol substituting 40 percent of gasoline fuel—have lowered the carbon intensity of Brazil’s energy matrix1 and reduced emissions from transport. At the same time, it is important to recognize that Brazil is likely to be sig- nificantly impacted by climate change. A phenomenon known as the Amazon dieback, combined with shorter term deforestation due to fires, could reduce rainfall in the Central-West and Northeast regions, leading to smaller crop yields and less water for hydropower-based electricity.2 Urgent solutions are needed to reduce Brazil’s vulnerability and to enable adaptation. 1 Fossil fuel–based emissions amount to about 1.9 tCO2 per year per capita or less than one-fifth of the Organisation for Economic Co-operation and Development (OECD) country average. 2 “Assessment of the Risk of Amazon Dieback,� World Bank, 2010. Box 1. Getting Started Brazil Low Carbon Country Case Study was two years in the making based on a study by the World Bank assisted by the United Nations Development Programme (UNDP) and the Energy Sector Management Assistance Program (ESMAP). It supports Brazil’s integrated effort to- wards reducing national and global-emissions GHG while promoting long-term development. It builds on the best available knowledge and is underpinned by a broad consultative process and survey of available literature. The study was coordinated by Christophe de Gouvello, a Senior Energy Specialist in the Sustainable Development Department of the Latin American and the Caribbean Region. The study’s scope was discussed with the Ministries of Foreign Affairs, Environment and Science and Technology, as well as representatives of the Ministries of Finance, Planning Agriculture, Transport, Mines and Energy, Development, Industry and Trade. Several public agencies and research centers participated in, or were consulted, in- cluding EMBRAPA, INT, EPE, CETESB, INPE, COPPE, UFMG, UNICAMP, and USP. More than 15 technical reports and 4 synthesis reports have been commissioned in the course of this work. For a quick overview of priority issues, analysis is presented using reader-friendly charts, graphs, and annotations organized in chapters according to the four key emission sectors—land use, land-use change, and forestry (LULUCF), including defores- tation; energy production and use, particularly electricity, oil and gas and bio-fuels; trans- port systems; and solid and liquid urban waste. Christopher de Gouvello. (2010, June). “Brazil Low-Carbon Country Case Study.� The World Bank. OBJECTIVE AND APPROACH The Brazil Low Carbon Country Case Study identifies opportunities to reduce GHG emissions while fostering economic development. It provides technical inputs on ways to assess mitigation potential and conditions for low carbon de- velopment in key GHG emitting sectors of the economy. Consistent with long-term development objectives, the study (Table 1): • Establishes a reference scenario by anticipating the future evolution of Bra- zil’s GHG emissions • Identifies and quantifies actions that could be taken to mitigate emissions and increase carbon uptake • Assesses the costs of implementing low carbon actions, identifies poten- tial implementation barriers, and explores measures to overcome them • Builds a low carbon scenario that meets development expectations • Analyzes the macroeconomic effects of shifting from the reference sce- nario to a lower carbon pathway and additional financing needs More than 30 recognized Brazilian experts participated directly in the elabo- ration of this study and dozens more were consulted, including government representatives, to integrate the best available knowledge and avoid duplica- 2 | Low Carbon Growth Country Studies Program Table 1. The Approach to Brazil’s Low Carbon Country Case Study STEP LULUCF ENERGY TRANSPORT WASTE 1. Build the Project land use and Project energy Project regional and Project waste and reference land-use change demand (consistent urban transport effluent production, scenario (consistent with with demand from demands, transport carbon content projected liquid and other sectors; using modes shares for and methane (CH4) solid biofuels; develop MAED projections); regional and urban potential, waste and geospatially explicit, optimized energy- transport (using effluent disposal land-use modeling), supply mix (using TRANSCAD modeling), mix, and emissions. deforestation (adapt MESSAGE projections); fuel mix for transport existing modeling), and emissions. modes, and emissions and emissions. (using adaptatition of COPERT modeling). 2. Explore Analyze options to Analyze options to Analyze options to Analyze options to mitigation reduce deforestation manage demand and improve regional reduce waste and and carbon pressure and protect reduce carbon intensity transport efficiency effluent production uptake forests, mitigate of supply; conduct an and scale up low and scale up options emissions from economic analysis carbon interurban collection and low agriculture and (abatement cost) of modes; improve urban carbon disposal livestock, and the proposed options. transport efficiency modes; conduct an sequester carbon; and scale up low economic analysis conduct an economic carbon urban modes; (abatement cost) of (abatement cost) and switch to biofuels; the proposed options. analysis of the conduct an economic proposed options. analysis (abatement cost) of the proposed options. 3. Assess the Identify barriers Identify barriers that Identify barriers that Identify barriers that feasibility that limit or prevent limit implementation limit implementation of limit implementation of the implementation of of the energy-demand regional and urban of waste and effluent options the options analyzed, management and transport efficiency production reduction identified environmental and emissions-mitigation and low carbon modes, and low carbon waste economic co-benefits, options analyzed, environmental and and effluents disposal and measures to environmental and economic co-benefits, modes, environmental overcome the barriers. economic co-benefits, and measures to and economic and measures to overcome the barriers. co-benefits, and overcome the barriers. measures to overcome the barriers. 4. Build the Project new land use Revise energy demand Project new transport Project new waste and low carbon and land-use changes (including new fuel mix demand (consistent effluent production, scenario (including added land from transport); define with new land use), new carbon content needed for mitigation new and internally new modal distribution and CH4 potential, and carbon uptake consistent, low carbon for regional and urban new waste and options), estimate energy mix for energy transport, new fuel effluents disposal- reduced deforestation, supply; and project mix, and reduced mode mix, and and project reduced reduced emissions. emissions. reduced emissions. emissions. Brazil Low Carbon Country Case Study | 3 tion of efforts. Together these actions informed the selection and the analysis of four areas with large potential to lower carbon emissions.3 • Land Use, Land-Use Change, and Forestry (LULUCF), including deforestation • Energy production and use, particularly electricity, and oil and gas • Transport systems • Waste Management, specifically solid and liquid urban waste THE REFERENCE SCENARIO The reference scenario builds on these four areas and existing government plans, such as the Ministry of Mines and Energy’s “2030 National Energy Plan (PNE 2030)� and the National Logistic and Transport Plan both launched in 2007, the Government Accelerated Growth Plan and other published policies and mea- sures at the time the reference scenario was developed.4 The study built its own reference scenarios where published plans were unavailable by either developing or adapting sector models that maintain consistency with the goals laid out in the PNE 2030. Key interfaces (e.g., determining the land needed for solid and liquid biofuel production used by transport and energy) were addressed jointly by the teams working in these areas. The reference scenario does not cover all of the country’s emission sources and is not a simulation of future national emission inventories. Deforestation remains the key driver of Brazil’s future GHG emissions to 2030 in the reference scenario. Emissions from deforestation are projected to stabilize (at about 400–500 Mt CO2 per year) after declining slightly in 2009-11. As the energy, transport, and waste management sectors continue to grow, the relative share of emissions from deforestation declines (from 40 to 30 percent between 2008 and 2030). Subsectors, such as urban transport, thermal power generation and industrial processes, which are dependent on fossil fuels, have high emissions 3 Certain industrial sources of nitrous oxide (N2O), hydroflourocarbons (HFCs), perflourocarbons (PFCs), sulfur hexafluoride (SF6), and other non-Kyoto GHG gases are not covered in this study. Without a recent complete inventory, it is not possible to determine precisely the share of other sources in the national GHG balance. However, based on the first Brazil National Communication (1994), it is expected that they would not exceed 5% of total Kyoto GHG emissions. Not all agricul- ture activities were taken into account when estimating emissions from that sector; crops taken into account in LULUCF emissions calculations represent around 80% of the total crop area. 4 As a result of the methodology used to establish this reference scenario, it differs from the projec- tions of national and sectoral emissions, based mainly on extrapolation of past trends, officially announced by the Brazilian Government in 2009 along with the voluntary commitment to reduce emissions, which are reflected in Law 12.187. The difference between the reference scenario defined in this study and the one established by the Brazilian government on the basis of past trends reflects the positive impact on emission reductions of the policies already adopted at the time this study’s reference scenario was established. Noticeably, the reference scenario was defined before the elabo- ration of the PNMC and the adoption of Law 12.187, which institutes the National Climate Change Policy of Brazil, and set a voluntary national GHG reduction target. 5 From 1970 to 2007, the Amazon lost about 18% of its original forest cover; over the past 15 years, the Cerrado lost 20% of its original area while the Atlantic Forest, which had been largely deforested earlier, lost 8%. 6 After peaking at 27,000 km² in 2004, deforestation rates have declined substantially, falling to 11,200 km² in 2007, the second lowest historical rate recorded by the Amazon Deforestation Monitoring Program (Programa de Cálculo do Desflorestamento da Amazônia). 4 | Low Carbon Growth Country Studies Program growth to 2030 while emissions from subsectors dependant on less carbon inten- sive energy forms (e.g., bio-ethanol powered vehicles or hydropower generated electricity) remain relatively stable. Land Use and Land-Use Change |  Towards a New Dynamic Deforestation is the largest source of emissions (about 40 percent in 2008), reduc- ing Brazil’s carbon stock by about 6 Gt over the past 15 years, the equivalent of two-thirds of annual global emissions.5 Without recent action to protect forests, emissions would be significantly higher.6 Deforestation in the Amazon and Cerrado regions is driven by agricultural and livestock expansion, new road construction, and related immigration while broader national and international market forces affect meat and crops demand that, in turn, contribute to deforestation. Agricultural production and livestock account for 25 percent of Brazil’s gross emissions. Fertilizer use, the mineralization of nitrogen in soil, the cultivation of wetland-irrigated rice, burning of sugar cane, and use of fossil fuel–powered Brazil Low Carbon Country Case Study | 5 agricultural equipment drive agricultural emissions. Live- stock emissions mostly result from the digestive processes of beef cattle. Modeling Land Use, Land-Use Change, and Forestry Future demand for land and land use, land-use change, and forestry (LULUCF) is projected using two models devel- oped under this study Brazilian Land Use Model (BLUM), an econometric model that estimates land allocations and measures changes in land use; and Simulate Brazil (SIM Brazil), a georeferenced spatialization model that estimates future land use over a period of time for various scenarios (Box 2). Projecting Emissions in the Reference Scenario An additional 17 million ha of land is estimated to be required in the 2010–30 reference scenario. Land allocated for productive uses grows 7 percent—from 257 to 276 million ha over 2008-30—with a quarter of this growth occurring in the Amazon region. In 2030, as in 2008, pastures occupy most of this area (rising from 205 to 207 million ha). Native vegetation is con- verted to productive use mostly in frontier regions like the Amazon region in the states of Maranhão, Piaui, Tocantins, and Bahia to accommodate this growth. LULUCF emissions rise to about 895 Mt CO2e per annum by 2030.7 Land-use change via deforestation accounts for 533 Mt CO2e of emissions per year by 2030. Direct emissions from agriculture and livestock increase over this period (346 Mt CO2e per year on average to 2030). Less than one percent of gross LULUCF emis- sions are offset through carbon uptake. Managing Emissions from Agriculture Accelerated dissemination of zero-tillage cultivation can reduce net emissions caused by altering soil carbon stocks and using equipment powered by fossil fuels. Zero tillage cultivation can also help control soil temperature, improve soil structure, increase soil water-storage capacity, reduce soil loss, and enhance the nutrient retention of plants. In the low carbon scenario, if 100 percent zero-tillage is achieved in propitious areas by 2015, 356 Mt CO2e of avoided emissions could be realized over the 2010–30 period (Figure 1). Lowering Direct Emissions from Beef-Cattle Farming Shifting to more intensive meat-production systems, implementing genetic- improvements, and improving forage for herbivores and genetically superior bulls with a shorter life cycle can reduce methane emissions from the digestive process of the cattle without reducing total meat production. With these measures, direct livestock emissions could decline from 272 to 240 Mt CO2 per year by 2030, from the reference versus the low carbon scenario respectively (Figure 2). 7 When calculating national carbon inventories, some countries consider the contribution of natural regrowth towards carbon uptake; therefore, although this study does not compute this contribution in the carbon balance of LULUCF activities, it would be fair to add that information for comparison purposes. If the carbon uptake from the natural regrowth of degraded forests were to be included, then the potential uptake would increase by 109 Mt CO2 per year, thus reducing the net emissions. 6 | Low Carbon Growth Country Studies Program Box 2. Modeling Future Land Use and Deforestation in Brazil Exploring options for mitigating deforestation emissions requires projection of future de- forestation. To simulate future land use and land-use changes in Brazil, the Low Carbon Growth Study team integrated two models: 1.  Economic model: The Brazil Land Use Model (BLUM), developed by the Institute for International Trade Negotiations, is an economic modeling process that estimates the allocation of the country’s area and measures land-use change as a result of the dynamics of supply and demand for all of the main products competing for land, such as soy, corn, rice, beans, cotton, sugar cane, pastures, and production forests. Geo-referenced spatialization model: Simulate Brazil (SIM Brazil), developed by the 2.  Remote Sensing Center of the Cartography Department of the University of Minas Gerais, enables future land use to be spatially projected over time for the whole country according to different scenarios. Both models were developed to meet the needs of this study. SIM Brazil does not alter the data from the BLUM economic model for the projection of land use; rather, it finds a place for them, taking into account a variety of criteria, such as agricultural aptitude, distance to roads, urban attraction, the cost of transport to ports, declivity, and distance to a converted area. SIM Brazil works at a definition level of 1 km2, allowing for the generation of very detailed, dynamic maps. The methodology can be described as follows: Step 1: Identify the areas suitable for expansion. Step 2: Build an economic model to project the amount of land-use change within each activity (deforestation, livestock, and agriculture). Step 3: Create a geographic model to distribute spatially the quantities of land required by each activity by year; hence, allocating where and how the land-use changes take place. Step 4: Calculate the emissions resulting from changes in carbon stocks through conver- sion of native vegetation and soils, as well as direct emissions from cattle and agriculture operations. The calculations are done twice, first for the reference scenario and then for the low car- bon scenario. Emission abatements achieved under the low carbon scenario can then be compared to the emissions projected under the reference scenario. Adapted from World Bank, “Brazil Low Carbon Country Case Study,� June 2010. Improving Carbon Uptake Through measures that: (i) Recover native forests by complying with legal actions for mandatory reconsti- tution laid out in laws for riparian forests and legal reserves.8 This option has high carbon-uptake potential of about 140 Mt CO2e per year on average.9 8 In areas with optimal conditions, forest recovery can remove 100 tC per ha on average in the Ama- zon Region. In the reference scenario its contribution is limited in terms of quantity. 9 If the carbon uptake from the natural re-growth of degraded forests were to be included the poten- tial uptake would increase by 112 Mt CO2 per year on average. Brazil Low Carbon Country Case Study | 7 Figure 1: Emissions Avoided through Zero-Tillage Cultivation, Low Carbon Scenario (2010–30) 120 100 CO2e Emissions (Mts) 80 60 40 20 0 2010 2015 2020 2025 2030 Avoided Emissions through No-Tillage Low Carbon Emissions Figure 2: Comparing Methane Emission from Beef Cattle, 2008–30 (MtCo2e per year) 275 270 265 Emissions 106 Mt CO2e 260 255 250 245 240 235 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Baseline Year Low Carbon (ii) Establish production forests for the iron and steel industry. If total substitu- tion of nonrenewable plant charcoal were effected by 2017 and 46 percent of iron and steel ballast production were based on renewable plant charcoal by 2030, sequestered emissions could amount to 377 Mt CO2 in 2030— 62 Mt CO2 more than in the reference scenario. Tackling Deforestation Brazil has developed forest-protection policies and projects to counter the pro- gression of pressure on forests at the expansion frontier and is experienced in 8 | Low Carbon Growth Country Studies Program economic activities compatible with forest sustainability. However, shifting to a low carbon scenario that ensures growth of agriculture and the meat industry— both important to the Brazilian economy—would also require acting on the pri- mary cause of deforestation: demand for more land for agriculture and livestock. Reducing Demand for Land through Improvements in Livestock Productivity 53 million ha of land, including more than 44 million ha for forest recovery, are required in the low carbon scenario to absorb land demand for agricultural and livestock activities. This increases to a total of 70 million ha—more than double the land planted with soybeans and sugar cane in 2008—when the additional land requirements under the reference scenario are taken into account (Table 2). To drastically reduce deforestation, this study proposes a dual strategy: (i) Eliminate the structural causes of deforestation by dramatically increasing livestock productivity (ii)Protect the forest from illegal attempts to cut Reducing Pasture Areas. Forest-protection policies, projects, and programs are already in place. Eliminating the structural causes of deforestation would require a dramatic increase in productivity per hectare. Increasing livestock productivity could free up large quantities of pasture. This option is technically possible since Brazil’s livestock productivity is generally low and existing feedlots and crop-live- stock systems could be scaled up. Use of more intensive production systems could trigger higher economic returns and a net gain for the sector economy. Releasing and recovering degraded pasture can accommodate the most ambitious growth scenario. Table 2: Additional Land Needed in the Reference and Low Carbon Scenarios SCenARio ADDitionAL LAnD neeDS (2006–30) Reference Scenario: Expansion of agriculture and livestock production 16.8 million ha Additional volume of land to meet the needs anticipated in 2030 required for the expansion of agriculture and livestock activities Low Carbon Scenario: Elimination of nonrenewable charcoal in 2017 2.7 million ha Additional volume of land and the participation of 46% of renewable planted required for mitigation charcoal for iron and steel production in 2030 measures Expansion of sugar cane to increase gasoline 6.4 million ha substitution with ethanol to 80% in the domestic market and supply 10% of estimated global demand to achieve an average worldwide gasoline mixture of 20% ethanol by 2030 Restoration of the environmental liability of “legal 44.3 million ha reserves� of forests, calculated at 44.3 million ha in 2030 Total 70.4 million ha Brazil Low Carbon Country Case Study | 9 10 | Low Carbon Growth Country Studies Program It is possible to reduce the demand by around 138 million ha by 2030 in the low carbon scenario through the increased livestock productivity measures below: • Promote recovery of degraded pasture • Stimulate the adoption of productive systems with feedlots for finishing • Encourage the adoption of crop-livestock systems Consolidating Forest Protection Measures. However, the model results show that the ebbing of additional demand for crops and livestock may not be enough to eliminate the complex dynamics that currently lead to forest clearing, either in protected forested areas or in areas where deforestation is still legally possible. These results reflect the need for additional measures to contain the process, at least in areas where deforestation is illegal, to thus achieve the goal set by the PNMC to reach zero illegal deforestation. Many measures have already been put into practice through the implementation of the Plan of Action for the Preven- tion and Control of Deforestation in the Legal Amazon, which increases the ca- pacity for enforcement and consolidation of conservation policies for the Ama- zon rainforest. The efficiency of this strategy has been demonstrated in 2004–07 when new forest-protection efforts, combined with a slight contraction in the livestock sector and pasture area,10 led to a 60 percent reduction in deforestation (from 27,000 to 11,200 km²). This rapid reduction is due to a decline in the marginal land expan- sion for agriculture and livestock11 and the conversion of native vegetation. How- ever, if these efforts were to be neglected, emissions would resume immediately. Broad implementation of such a strategy is projected to reduce deforestation by about 68 percent in 2030 compared to projected levels in the reference sce- nario; in the Atlantic Forest, the reduction would be about 90 percent while the Amazon region and Cerrado would see reductions of 68 percent and 64 percent, respectively (Figure 3). In these ways, the result would be a net GHG emission of 331 Mt CO2 per year from LULUCF in 2030 instead of the net of 816 Mt CO2e per year, which was observed in 2008, and is expected to continue under the reference scenario. Energy  |  Sustaining a Green Energy Matrix Energy production and consumption, excluding transport, contributed about 20 percent to Brazil’s GHG emissions in 2010; mostly due to the large share of re- newable energy (particularly hydropower) in the domestic energy mix. The GHG emission intensity of the energy sector is comparatively low by international standards: annual average emissions per capita from the energy sector were 1.77 tCO2 in 2005 compared to an annual global per capita average of 4.22 tCO2 and OECD country per capita average of 11.02 tCO2 (Table 3). As a result, lowering emissions in the energy sector is more difficult in Brazil than in most of other countries. 10 The 2005–07 period witnessed the first decline in herd size (from 207 million to 201 million heads), following a decade-long increase, together with a slight contraction in pasture area (from 210 mil- lion to 207 million ha). 11 Unlike other sectors, whose energy-based emissions are usually proportional to the full size of the sector activity, emissions from deforestation are related only to the marginal expansion of agricul- ture and livestock activities. Brazil Low Carbon Country Case Study | 11 Figure 3: Comparing Cumulative Deforestation | Reference and Low Carbon Scenarios (2007–30) Reference Scenario Low Carbon Scenario Energy Sector Emissions Rise by 97 Percent in the Reference Scenario Most emissions, and most of the mitigation potential, depend on the technology used in industry, which continues to use mostly fossil fuels. While the PNE 2030 assumes greater use of renewable energy sources over 2010–30, GHG emissions from the energy sector rise 97 percent to 458 Mt CO2 in 2030 (excluding fuels for transport) in the reference scenario (Figure 4). Cumulative GHG emissions from the energy sector are estimated at 7.6 Gt CO2 over this 20-year period. Limited Potential for Emission Reduction in the Low Carbon Scenario Brazil could reduce annual energy sector emissions by 35 percent in the year 203012 compared to the reference scenario, with most actions being taken by the industrial sector, if the following measures were implemented: • Domestic Action: Energy efficiency and fuel switching in industry, refining and gas-to-liquid (GTL), wind-energy generation, bagasse-based cogeneration and high-efficiency appliances. Most of Brazil’s large-hydropower poten- tial will have been exploited by 2030 under the reference scenario and hydropower expansion opportunities are not considered in the low carbon scenario. • Action Abroad: Hydro-complementarities to reduce CO2 emissions of ener- gy sectors in Brazil and Venezuela and large-scale ethanol exports to reduce fossil-fuel emissions of transport sectors worldwide. 12 In 2030, annual emissions would be reduced from 458 to 297 Mt CO2 (excluding transport) or from 735 to 480 Mt CO2 (including transport); that is, an annual reduction similar to Argentina’s emissions in 2000. 12 | Low Carbon Growth Country Studies Program Figure 4: Energy Sector Reference Scenario and Co2 Emissions Mitigation Potential in the Energy Sector 2005-30, Reference Scenario (PNE 2030) Avoided Emissions through No-Tillage Low Carbon Emissions 500 400 Reference Scenario 300 200 Low Carbon Scenario 100 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 Others Energy E ciency in Industry Power Generation Even so, energy sector emissions in the low carbon scenario remain about 28 percent higher in 2030 than in 2008. Scaling-Up of Ethanol Exports By increasing ethanol exports Brazil could serve the growing international de- mand for low carbon vehicle fuels and deliver economic benefits for Brazil and its trade partners, as well as reduced GHG emissions. This opportunity could be realized by reducing or eliminating trade barriers and subsidies in many countries. This study adopted an export target of 70 billion liters by 2030; 57 billion more than in the PNE 2030 reference scenario and slightly more than 2 percent of estimated global gasoline consumption for that year. This would result in GHG emission reductions of 73 Mt CO2 per year in 2030 or 667 Mt CO2 over the 2010–30 period. An additional 6.4 million ha of land would be required in 2030 for sugar cane plantations (from 12.7 to 19.1 million ha).13 If ethanol production does not outpace the implementation of the dual strategy proposed for freeing up pastures and protecting forests, additional land re- quired for sugar cane expansion would not result in deforestation. Transport  |  Modal Shifts and Fuel Switching Brazil’s transport sector has a lower carbon intensity compared to that of most other countries because of its widespread use of ethanol as a fuel for vehicles. As a consequence, the potential for emissions reduction appears relatively lim- ited. For this reason, the study simulated the sector emissions that would result 13 The measures proposed to reduce deforestation under the low carbon scenario considered the added land required for planting sugar cane for ethanol export to avoid carbon leakage. Brazil Low Carbon Country Case Study | 13 Table 3: Energy Sector Emission Reduction Potential (2010–30) Low CARbon mitiGAtion oPtionS emiSSion ReDuCtionS 2010–30 (mtCo2) % Demand Side 1,407 77 Electricity 28 2 Solar heating 3 0 Air conditioning 3 0 Air conditioning (“PROCEL Seal�) 0 Refrigerators 10 1 Refrigerators (low-income populations) 6 0 Motor 2 0 Residential lighting 3 0 Industrial lighting 1 0 Commercial lighting 2 0 Fossil Fuels 1,378 75 Fuel combustion optimization 105 6 Heat recovery systems 19 1 Steam recovery 37 2 Oven heat recovery 283 15 New processes 135 7 Other efficient energy use measures 18 Thermal solar energy 26 1 Recycling 75 4 Natural gas substitution (including ducts) 44 Biomass substitution 69 4 Substitution of nonrenewable biomass with charcoal from tree plantings 567 31 Supply Side 423 23 Power Generation 177 10 Wind generation 19 1 Biomass cogeneration 158 9 Oil and Gas 246 13 GTL 128 7 Refining Improved energy use in existing refinery units (heat integration) 52 3 Improved energy use in existing refinery units (fouling mitigation) 7 0 Improved energy use in existing refinery units (advanced control) 7 0 Optimized design of new refineries 52 3 Total 1,830 100 if biofuels were substituted by fossil fuels (mainly gasoline). In that case, reference scenario emissions would be inflated by 50 percent in 2030 (Figure 7). Despite the low emission intensity of Brazil’s transport sector, the sector still accounts for more than half the country’s fossil fuel consumption. Transport sector emissions were about 149 Mt CO2e in 2008 (12 percent of national emissions) with 51 percent linked to urban transportation and the in- creased use of private cars, congestion, and inefficient mass transportation sys- tems. However, the increased use of flex-fuel vehicles and the switch from gaso- line to bio-ethanol are expected to stabilize GHG emissions from light-duty vehicles over the next 25 years despite a projected rise in the number of kilome- ters traveled (Figure 5). The low carbon scenario estimates transport sector emissions at 174 Mt CO2 per year in 2030 (rather than 245 Mt CO2 per year in 2030 under the reference 14 | Low Carbon Growth Country Studies Program scenario; Figure7). Total avoided emissions over the 2010- 30 period are nearly 524 Mt CO2, roughly equivalent to the combined emissions of Uruguay and El Salvador. Emissions could be reduced through the following mitigation options: • Urban. Encouraging a shift to Bus Rapid Transit (BRT) and Metro, and implanting traffic management mea- sures can reduce emissions by about 26 percent in 2030 (Figure 6); however, policy, coordination, and financ- ing issues for capital intensive mass transit options often prevent and/or delay their implementation. De- centralized administration—more than 5,000 munici- palities oversee transit and transport systems—makes resource mobilization difficult. • Regional. Modal shifts for passenger and freight trans- port—such as expansion of high-speed passenger trains between São Paulo and Rio de Janeiro to replace the use of planes, cars, and buses, or increased use of water and rail transit for freight—could reduce emissions by about 9 percent in 2030. Inadequate infrastructure for efficient intermodal transfer and a lack of coordination among public institutions present barriers. • Fuel. Increasing the switch from gasoline to bio-ethanol fuels from 60 per- cent in the reference scenario to 80 percent in 2030 could deliver more than one-third of total emissions reduction targeted for the transport sector over the period (nearly 176 Mt CO2). The key challenge is to ensure that market price signals are aligned with this objective; an appropriate financial mecha- nism would be needed to absorb price shocks and maintain ethanol’s attrac- tiveness for vehicle owners. Waste Management  |  Financial Resources Emissions from Brazil’s waste management sector amounted to 62 Mt CO2e in 2008 (4.7 percent of national emissions). In the reference scenario, GHG emis- sions are projected to rise to 99 Mt CO2e per year in 2030 as more people benefit from solid and liquid waste collection services—as a result of the government’s plans for the universalization of basic sanitation services. In the low carbon sce- nario, annual emissions could be reduced by 80 percent in 2030 (to 19 Mt CO2e per year comparable to Paraguay’s annual emissions) avoiding 1,317 Mt CO2 over 2010-30. The following actions are envisaged in the low carbon scenario: • Carbon market incentives through the Clean Development Mechanism to encourage participation in projects designed to destroy landfill gases • Developing municipal capacity for long-term planning and project develop- ment; raising awareness and use of existing legal structures, regulations, and procedures; and improving access to financing resources • Creating intermunicipal and regional consortia to handle waste treatment • Developing public-private partnerships through concessions under long- term contracts Brazil Low Carbon Country Case Study | 15 Figure 5: Linking Regional and Urban Transport to Fuel Consumption Regional Transport Transport Urban Transport Energy Freight Passengers Consumption Passengers Freight (PNLT’s 2007 Alcohol (Numbers from Numbers/ Cars recent research Logit 2009 Cars and Mobility Modeling) Plans/Logit’s Buses Gasoline 2009 Modeling) Trucks CGN Buses Railway Waterway Diesel Trucks Pipeline Electric Energy Metro (ANAC’s Numbers/ Aircraft Logit’s 2009 Kerosene Modeling) Urban Train Air Transport (PNE’s 2030 Numbers) Figure 6: Example of Modal Shift for Urban Transport—Belo Horizonte, Brazil 16 | Low Carbon Growth Country Studies Program Figure 7: Emission Reduction Potential in the Transport Sector and Comparison of Emissions in Reference, Low Carbon, and “Fossil-Fuel� Scenarios, 2008–30 400 350 Reference Scenario 300 Additional emissions from gasoline if no ethanol 250 MtCO2e/year 200 150 100 Low Carbon Scenario Emissions 50 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Additional emissions from gasoline if no biofuels Increase of Ethanol compared to Reference Scenario Railways freight Railway passengers BRT Metro Demand Side Management Bicycle ECONOMIC ANALYSIS The economic analysis looked at the financial conditions under which proposed mitigation and carbon uptake measures might be implemented and prioritized. Two complementary economic analyses were undertaken: • A microeconomic assessment of the options considered from both social and private sector perspectives • A macroeconomic assessment of the impacts of these options, either individually or collectively, on the national economy using an input-output (IO) model The social approach compared the cost-effectiveness of mitigation and carbon uptake measures for society overall, calculating a marginal abatement cost (MAC) for each measure using a social discount rate of 8 percent. Results were sorted by increasing value and plotted in a single graph, known as the marginal abatement cost curve (MACC), to permit a quick comparison of the associated costs and Brazil Low Carbon Country Case Study | 17 volumes of GHG emissions (Figure 8). The study prioritized and selected mitiga- tion and carbon uptake options for Brazil’s 2010–30 low carbon scenario. The following criteria were used: the MAC, which represents the social perspective adopted in most government planning exercises, should not exceed US$50, ex- cept for options with large cobenefits and positive macroeconomic impacts (of- ten seen in transport and waste sectors). The private sector approach explored the conditions under which the pro- posed measures would become attractive to individual project developers. It esti- mates the minimum economic incentive—the “break-even carbon price�—that should be provided for the proposed mitigation measure to become attractive using the expected rates of return from existing economic agents in each sector as observed by major financing institutions in Brazil. The required rates of return for the private sector are generally higher than the social discount rate and hence the break-even carbon price is higher than the MAC. In some cases the MAC is negative and the break-even carbon price is positive (e.g., cogeneration from sugar cane, measures to prevent deforestation, fuel substitution with natural gas, electric lighting and motors or GTL), which helps one to understand why a mea- sure with a negative MAC is not automatically implemented. Most mitigation and carbon uptake options presume an incentive to become attractive, with the exception of energy efficiency measures. The total volume of incentives needed over the 2010-30 period is US$445 bil- lion or US$21billion per year on average. Of this, about US$34 billion over the period 2010-30, or the equivalent of US$1.6 billion per year (US$6 per tCO2),14 is needed for measures that reduce deforestation (Figure 8). Under the low carbon scenario, more than 9 Gt CO2 (80 percent) of emission reduction potential re- quires incentives of US$6 per tCO2e or less (Figure 9). Economic incentives can be provided through a variety of means that includes—but is not limited to—the sale of carbon credits, capital subsidies for low carbon technologies, investment financing conditions, and tax credits. A simple Input-Output (IO) model was used to estimate the individual and collective macroeconomic effects of mitigation and carbon uptake measures and compared the low carbon and reference scenarios. While results only suggest the magnitude of the impact, the IO-based simulation indicates that investment un- der the low carbon scenario is not expected to negatively affect economic growth. Over 2010-30, slight improvement could be expected in GDP (0.5 percent per year) and employment (average 1.13 percent annually) due to economy-wide spillover effects associated with low carbon investments. A NATIONAL LOW CARBON SCENARIO The Brazil Low Carbon Country Case Study constructs a national low carbon scenario by consistently integrating the low carbon scenarios for each of the four areas described and taking into account the macroeconomic analysis. The meth- ods and results were presented and discussed on various occasions with a range of government representatives to facilitate cross-sector coordination and trans- parency (Box 3). 14 Includes forest protection costs of US$24 billion over 2010-30. 18 | Low Carbon Growth Country Studies Program Figure 8: Marginal Abatement Cost Curves for Mitigation Measures with MACs below US$50 per tCo2e (8% Social Discount Rate) Note: The assumption for oil prices is that of the PNE 2030 (US$45 per barrel on average), which is low compared to current prices (US$70 per barrel); thus, a sensitivity analysis is required, particularly for options that avoid oil and gas (e.g., gasoline substitution with bio-ethanol). Figure 9: Break-Even Carbon Price of the Mitigation and Carbon Uptake Measures with MACs below US$50 Brazil Low Carbon Country Case Study | 19 Box 3. Brazil: Collaboration in the Public Sphere Initial stakeholder engagement included a series of consultations and three organizational meetings. Seriesofconsultations:February–May2007. Intensive discussions were held with about 60 people from government, private, academic, and NGO communities to explain, test, and adjust the study concept. Stakeholder committees were formed to map out the study process, including identification of state-of-the-art technical information and tools, prepa- ration of an inventory of current local knowledge, setting priorities for investment of re- sources, and mapping human resources (both national and within the development com- munity). Relevant official government plans were also identified together with areas for significant mitigation potential (axis for study and project boundary) and where addition- al study was required in light of currently available information (incremental information). Firstmeeting:September2007.This meeting developed the foundation for the study. The meeting took place over three days and involved about 60–70 people, including NGOs, 10 government ministries, and academia. It built government ownership of the study; strength- ened partnerships with the Ministries of Foreign Affairs, Science and Technology, and Envi- ronment; and helped to establish the study as an interactive process taking place in Brazil’s public sphere. Local experts presented their views on the study design at the meeting. Secondmeeting:April2008. A presentation was made to the special committee tasked with preparing a national climate change plan in a one-day event that involved key local experts. Important feedback was gleaned at this meeting that also discussed inclusion of a legality scenario: What are climate mitigation gains if all relevant laws are enforced? The team was tasked with delivering early results to the committee for their feedback. Thirdmeeting:March2009. A presentation was made of the emerging results to repre- sentatives of 10 ministries. SeriesofConsultations:October2009-March2010. Technical details, final results and recom- mendations were widely discussed with representatives of several ministries and agencies, leading to a better understanding among government authorities and a significant improve- ment of conclusions. Adapted from: “Low Carbon Growth Country Studies—Getting Started: Experience from Six Countries.� Brief- ing Note 001/09. Energy Sector Management Assistance Program. This national low carbon scenario does not explore all possible mitigation op- tions or represent a recommended mix. Instead, it simulates the combined result of all prioritized measures examined under this study. It should be considered as a menu of options and not prescriptive since the political economy between sec- tors or regions may differ significantly making some mitigation options that at first appear more expensive easier to harvest than others that initially may appear more economically attractive. The national low carbon scenario presented below reduces estimated gross GHG emissions by 37 percent over the 2010-30 projected period when compared to the reference scenario,15 avoiding more than 11.1 Gt CO2e. Projected gross 15 See note 4. 20 | Low Carbon Growth Country Studies Program Table 4: Sectoral Emissions Distribution in the Reference and Low Carbon Scenarios, 2008–30 Ref. SCenARio 2008 Ref. SCenARio 2030 Low CARbon SCenARio, 2030 (mtCo2e) % (mtCo2e) % (mtCo2e) % Energy 232 18 458 27 297 29 Transport 149 12 245 14 174 17 Waste 62 5 99 6 18 2 Deforestation 536 42 533 31 196 19 Livestock 237 18 272 16 249 24 Agriculture 72 6 111 6 89 9 Total 1,288 100 1,718 100 1,023 100 Carbon uptake -29 (2) -21 (1) -213 (21) emissions in 2030 are 40 percent lower in the low carbon scenario (1,023 Mt CO2e per year) than the reference scenario (1,718 Mt CO2e per year) and 20 percent lower than total emissions in 2008 (1,288 Mt CO2e per year; Table 4; Figure 10). Measures to reduce deforestation and increase carbon uptake proved to be the most effective to reduce emissions in the low carbon scenario. Deforestation could be reduced by more than 80 percent by 2017, compared to the 1996–2005 average, and would ensure compliance with Brazil’s recent voluntary commitment to re- duce both deforestation and national emissions. The implementation of forest plantations and the recovery of legal reserves could further sequester the equivalent of 16 percent of reference scenario emissions in 2030 (213 Mt CO2e per year).16 In the energy and transport sectors, it is more difficult to reduce emissions since they are already low by international standards. As a result, these sectors’ relative share of national emissions increases more in the low carbon scenario than in the reference scenario (Figure 11). FINANCING In addition to the financial incentives detailed above, the investment needed to implement the low carbon options would be more than twice the level of in- vestments required in the reference scenario; about US$725 billion in real terms versus US$336 billion over 2010–30. Of this, US$344 billion is needed for the en- ergy sector, US$157 billion for land use and land-use change, US$141 billion for transport, and US$84 billion for waste management (Table 5). Overall this rep- resents an average of US$20 billion in added annual investments. This is equiva- lent to less than 10 percent of national investments in 2008 (about 19 percent of GDP17), less than half the US$42 billion in loan disbursements by the Brazilian Development Bank in 2008, and two-thirds of the US$30 billion foreign direct investment in 2008. Public and private investments are needed to implement the reference and low carbon scenarios. Under both scenarios, the transport and waste sectors require 16 If the carbon uptake from the natural regrowth of degraded forests were to be included, then the potential uptake would increase by 112 Mt CO2 per year on average, thus reducing the net emissions. 17 GDP of US$1.573 trillion per the CIA the World Factbook. Brazil Low Carbon Country Case Study | 21 Figure 10: GHG Mitigation Wedges in the Low Carbon Scenario, 2008–30 1,800 Reference Scenario 1,700 Wind (Does not reflect Brazil's historical 1,600 Sugarcane cogeneration GHG emissions) 1,500 Energy Conservation Residential (Elec) 1,400 Energy Conservation Commercial/ 1,300 Industrial (Elec) 1,200 Re�neries 1,100 Gas to liquid (GTL) MtCO2 1,000 Energy Conservation—Industry 900 (fossil fuels) 800 Regional Transport 700 Low Carbon Scenario Urban Transport 600 Land�ll and wastewater treatment 500 methane destruction 400 Reduction of deforestation and 300 livestock 200 Scaling up no tillage cropping 100 Reforestation 0 Referência 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Ethanol exports displacing gasoline Level of Emissions in 2010 Year Figure 11: Comparing Gross Emissions Distribution among Sectors in the Reference and Low Carbon Scenarios, 2008–30 2000 1500 Sequestratioin Energy 1000 Transport MtCO2e Waste Livestock 500 Agriculture Deforestation 0 -500 Reference 2008 Reference 2030 Low Carbon 2030 higher levels of private sector investments than today while the energy sector con- tinues to benefit from significant public sector participation. For land use, public sector intervention would be required to reduce emissions from deforestation, al- beit in the form of special funds like the Amazon Fund, and for legal enforcement while increased livestock productivity relies on better access to both public and private sector financing. Public sector enforcement and potentially greater private sector participation are needed to support forest restoration for compliance with the Legal Reserve Law. Incentives would be needed to mobilize private sector investment in low carbon measures. The transport sector requires the greatest amount of annual incentives 22 | Low Carbon Growth Country Studies Program Table 5: Comparing Sectoral Investment Requirements for the Reference and Low Carbon Scenarios, 2010-30 AnnuAL RefeRenCe- Low CARbon Low CARbon SeCtoR/ AbAtement AbAtement SCenARio SCenARio inveStment AnnuAL AbAtement PotentiAL PotentiAL inveStment inveStment DiffeRentiAL DiffeRentiAL meASuRe (mtCo2e) (mtCo2e) (biLLion uS$) (biLLion uS$) (biLLion uS$) (biLLion uS$) Land Use and Land-Use Change Reforestation 1,085 52 - 54.140 54.140 2.578 Scaled-up zero-tillage cropping 355 17 0.215 0.153 (0.062) (0.003) Avoided deforestation plus livestock 6,041 288 41.845 102.420 60.575 2.885 Total Land Use and Land-Use Change 7,481 356 42.060 156.713 114.653 5.460 Energy Electricity generation Transmission line (Brazil-Venezuela) 28 1 1.676 0.455 (1.221) (0.058) Sugar-cane cogeneration 158 8 16.756 52.264 35.508 1.691 Wind 19 1 4.287 12.898 8.611 0.410 Electricity conservation Residential solar heater 3 0 3.439 4.605 1.166 0.056 Residential lighting 3 0 0.903 1.197 0.294 0.014 Refrigerators (air conditioning) 10 0 42.734 48.785 6.051 0.288 Commercial lighting 1 0 0.265 0.748 0.483 0.023 Electric motors 2 0 3.399 4.601 1.202 0.057 Industrial lighting 1 0 0.108 0.286 0.178 0.008 Recycling 75 4 - 0.249 0.249 0.012 Fossil-fuel production Gas-to-liquid (GTL) 128 6 2.310 6.986 4.676 0.223 New refineries 52 2 116.753 120.908 4.155 0.198 Existing refineries (energy integration) 52 2 - 4.028 4.028 0.192 Existing refineries (incrustation control) 7 0 - - - Existing refineries (advanced controls) 7 0 - 1.492 1.492 0.071 Fossil-fuel conservation Combustion optimization 105 5 - 2.215 2.215 0.105 Heat-recovery system 19 1 - 0.323 0.323 0.015 Steam-recovery system 37 2 - 0.819 0.819 0.039 Furnace heat-recovery system 283 13 - 8.074 8.074 0.384 New industrial processes 135 6 - 37.995 37.995 1.809 Other energy-efficiency measures 18 1 - 0.827 0.827 0.039 Fossil-fuel substitution Solar thermal energy 26 1 - 1.482 1.482 0.071 Renewable charcoal displacement of nonrenewable charcoal 567 27 - 8.794 8.794 0.419 Natural gas displacement of other fuels 44 2 - 4.088 4.088 0.195 Ethanol exports displacement of gasoline abroad 667 32 3.817 19.680 15.863 0.755 Total Energy 2,447 117 196.447 343.799 147.352 7.017 Transport Regional Ethanol displacement of domestic gasoline 176 8 9.992 20.158 10.166 0.484 Rail and waterways investment vs. roads 63 3 32.074 41.707 9.633 0.459 Bullet train (São Paulo-Rio de Janeiro) 12 1 - 28.759 28.759 1.369 Urban 0 Metro and bus rapid transit (BRT) 174 8 6.562 49.182 42.620 2.030 Traffic optimization 45 2 - 1.050 1.050 0.050 Bike lane investment 17 1 - 0.303 0.303 0.014 Total Transport 487 23 48.628 141.159 92.531 4.406 Waste Management Landfill methane destruction 963 46 1.984 5.687 3.703 0.176 Wastewater treatment plus methane destruction (residential and commercial) 116 6 40.075 41.678 1.603 0.076 Wastewater treatment plus methane destruction (ind.) 238 11 7.314 36.569 29.255 1.393 Total Waste Management 1,317 63 49.373 83.934 34.561 1.646 Total 11,732 559 336.508 725.605 389.097 18.528 Note: Excludes Air Conditioning and BRT alone. Brazil Low Carbon Country Case Study | 23 on average (approximately US$9 billion) compared to energy (US$7 billion), waste (US$3 billion), and LULUCF (US$2.2 billion; Figures 12, 13). Most energy efficiency measures would not require additional incentives. Specific financing in- struments and new sources of finance would be required to successfully promote the implementation of low carbon measures. IMPLEMENTATION CHALLENGES The implementation of a national low carbon scenario faces a number of chal- lenges. Land Use and Land-Use Change. Four main challenges and areas require support: • Productive livestock systems are capital-intensive at the investment stage and in terms of working capital. Farmers and the banking system need financial incentives and more flexible lending terms to implement the low carbon sce- nario. An order of mangnitude estimate of the volume of incentives required is US$1.6 billion per year or US$34 billion during 2010–30. • Extension services require intensive development. • Rebound effect. Improved livestock productivity might trigger increased pro- duction of meat and the conversion of more native forest into pasture. This risk is especially high in areas where new roads have been opened or paved. Incentives need to be selective, especially in the Amazon region. Incentives should be clearly established, based on valid and georeferenced land owner- ship title, and include conditions regarding land conversion. • Carbon leakage. For example, replanting forest under the Legal Reserve Law would remove a large amount of CO2 from the atmosphere but the area would not be available for other activities. An equivalent additional amount of pasture, therefore, needs to be freed up to avoid reducing production or the destruction of native forest elsewhere. A more flexible legal obligation for forest reserves could make the goal of accommodating all agriculture, live- stock, and forestry activities without deforestation less difficult but it might also mean less carbon uptake. Energy. Significant effort is needed to implement measures in the reference and low carbon scenarios: • Generation. PNE 2030 projects that hydroelectricity will represent more than 70 percent of power generation in 2030; hydropower generation capacity will need to increase at a pace not yet observed. The environmental licens- ing process has constrained the participation of hydro-energy at new energy auctions and fossil fuel-based generation has increased as a result. Licensing processes would need to be improved.18 • Transmission. The main barrier for bagasse cogeneration and wind energy is the cost of interconnecting with the sometimes distant or capacity-constrained subtransmission grid. If this cost continues to be fully borne by the respective 18 See “Environmental Licensing for Hydroelectric Projects in Brazil: A Contribution to the Debate,� Summary Report. World Bank Country Management Unit, March 28, 2008. 24 | Low Carbon Growth Country Studies Program Figure 12: Evaluating Marginal Abatement Costs, Capital Intensity, and Potential for Emissions Reduction, by Sector 50 Transport Waste CI 183.64, Abatement Cost US$ per tCO2e CI 54.91, MAC 49.43 30 MAC 43.35 10 –25 –10 25 75 125 175 LULUCF Energy CI 13, MAC 3.9 CI 61.47, –30 MAC (9.94) –50 Capital Intensity Cost US$ per tCO2e Note: Bubble size corresponds to the amount of avoided emissions. Figure 13: Evaluating Required Incentives and Capital Intensity, by Subsector 700 Regional 600 Transport 500 Carbon incentive US$ per tCO2e 400 Energy 300 Conservation (Electricity) Urban Transport Energy 200 Substitution Energy Conservation (FF—Industry) Electricity 100 Waste Generation Fossil Fuels production 0 –25 25 75 125 175 225 Reforestation Avoided deforestation and livestock Capital Intensity Cost US$ per tCO2e Note: Bubble size corresponds to the sum of annual incentive plus annual incremental investment required in US$. Brazil Low Carbon Country Case Study | 25 sugar mills and wind-farm developers, the contribution of cogeneration and wind energy will likely remain low, resulting in the entry of more fossil fuel– based alternatives. The key question is how to finance the required grid con- nection. An ambitious smart-grid development program would help to op- timize the exploration of this promising but distributed low carbon generation potential. • Energy Efficiency. Progress has been made in implementing the energy effi- ciency law and a number of existing mechanisms address the needs of all con- sumer groups (e.g., PROCEL, CONPET, and EPE planned auctions). These initiatives offer the possibility of creating a sustainable energy-efficiency mar- ket. Key issues to address are: price distortions that introduce disincentives for energy conservation and the separation of the energy-efficiency efforts of power and oil-and-gas institutions. Better institutional coordination might be achieved via a committee responsible for the development of both programs. Transport. The main challenges for urban transport center on financing con- straints and institutional coordination. Over 5,000 municipalities independently administer transportation systems, making it difficult to harmonize nation- wide plans and policies, and urban mass transport systems are capital intensive. Public-private partnerships (PPPs) could be one option to overcome financing constraints. Better integration and improved partnerships are needed among rail conces- sionaires and between concessionaires and government (including regulatory authorities) to promote regional transport measures. Most transport modes are operated by the private sector and public support is needed to ensure efficient integration and the construction of new infrastructure and terminals. Adequate planning, resource allocation and measures to facilitate large investment financ- ing are needed to build and adapt intermodal transfer projects and mitigate neg- ative impacts (e.g., when opening new roads in Amazon forests). The key challenge for switching from gasoline by bio-ethanol fuel is the align- ment of market price signals since most new cars produced in Brazil are flex-fuel vehicles. A financial mechanism needs to be designed and implemented to absorb oil price shocks and maintain the attractiveness of ethanol for vehicle owners. Waste Management. Institutional complexities and decentralized structures make it more difficult to leverage large financial resources. Intermunicipal coor- dination, clear regulations, and PPPs, as well as the continuation of carbon-based incentives for landfill gas recovery/use are needed to scale up the collection, treat- ment, and disposal of waste and avoid emissions. Brazil harbors large opportunities for GHG emissions mitigation and carbon uptake and is thus a key player in tackling global climate challenges. The Brazil Low Carbon Country Case Study demonstrates technically feasible measures to reduce overall GHG emissions. Yet implementing these proposed measures would require large volumes of investment and incentives, which may exceed a strictly national response and require international financial support. More- over, for Brazil to harvest the full range of opportunities to mitigate GHG emissions, market mechanisms would not be sufficient. Public policies and planning would be pivotal, with management of land competition and forest protection at the center. 26 | Low Carbon Growth Country Studies Program Brazil Low Carbon Country Case Study | 27 ACRONYMS AND ABBREVIATIONS BLUM Brazil Land Use Model BRT Bus Rapid Transit C Carbon Ce Carbon equivalent CETESB São Paulo State Waste Management Agency (Companhia de Tecnologia de Sa- neamento Ambiental) CH4 Methane CO2 Carbon dioxide CO2e Carbon dioxide equivalent CONPET National Program for the Rationalization of the Use of Oil and Natural Gas Derivatives (Programa Nacional de Racionalização do Uso dos Derivados de Petróleo e Gás Natural) COPERT Model to calculate air pollutant emissions from transport COPPE Post-graduate engineering programs coordination EMBRAPA Brazilian Agricultural Research Corporation (Empresa Brasileira de Pesquisa Agrícola) EPE Energy planning company (Empresa de Planejamento Energético) ESMAP Energy Sector Management Assistance Program GDP Gross domestic product GHG Greenhouse gas Gt Billions of tons GTL Gas-to-liquid ha Hectare HFC Hydrofluorocarbon INPE National Institute for Space Research (Instituto Nacional de Pesquisas Espaciais) INT National Technological Institute (Instituto Nacional de Tecnologia) IO Input-output km2 Square kilometer LULUCF Land use, land-use change, and forestry MAC Marginal abatement cost MACC Marginal abatement cost curve MAED Model for Analysis of Energy Demand MESSAGE Systems engineering optimization model Mt Millions of tons N2O Nitrous oxide OECD Organisation for Economic Co-operation and Development PFC Perfluorocarbon PNE National Energy Plan (Plano Nacional de Energia) PNMC National Plan on Climate Change (Plano Nacional sobre Mudança do Clima) PPP Public-private partnership PROCEL National Electrical Energy Conservation Program (Programa de Combate ao Desperdício de Energia Elétrica) SF6 Sulphurhexafluoride SIM Brazil Simulate Brazil t Tonnes TRANSCAD Planning and travel demand model UFMG Federal University of Minas Gerais (Universidade Federal de Minas Gerais) UNDP United Nations Development Programme UNICAMP State University of Campinas US$ United States dollar USP University of São Paulo 28 | Low Carbon Growth Country Studies Program Photo Credits Cover: iStockphoto Page 5: stock.xchng Page 6: Yosef Hadar / The World Bank Page 10: stock.xchng Page 15: stock.xchng Page 27: stock.xchng Production Credits Design: Naylor Design, Inc. Production: Automated Graphic Systems, Inc. Copyright © June 2010 The International Bank for Reconstruction and Development/THE WORLD BANK GROUP 1818 H Street, NW, Washington, D.C. 20433, USA The text of this publication may be reproduced in whole or in part and in any form for educational or nonpro�t uses, without special permission provided acknowledge- ment of the source is made. Requests for permission to reproduce portions for resale or commercial purposes should be sent to the ESMAP Manager at the address above. ESMAP encourages dissemination of its work and normally gives permission promptly. The ESMAP Manager would appreciate receiving a copy of the publication that uses this publication for its source sent in care of the address above. All images remain the sole property of their source and may not be used for any pur- pose without written permission from the source. Mitigating Climate Change Through Development | g The Energy Sector Management Assistance Pro- The primary developmental objective of Car- gram (ESMAP) is a global knowledge and tech- bon Finance-Assist (CF-Assist) is to ensure that nical assistance program administered by the developing countries and economies in transi- World Bank that assists low- and middle-income tion are able to fully participate in the flexible countries to increase know how and institutional mechanisms de�ned under the Kyoto Protocol, capacity to achieve environmentally sustainable and bene�t from the sustainable development energy solutions for poverty reduction and eco- gains associated with such projects. nomic growth. CF-Assist is a cosponsor of the Low Carbon For more information on the Low Carbon Growth Growth Country Studies knowledge program. Country Studies Program or about ESMAP’s cli- mate change work, please visit us at www.es- map.org or write to us at: Energy Sector Management Assistance Program Carbon Finance-Assist Program The World Bank World Bank Institute 1818 H Street, NW 1818 H Street, NW Washington, DC 20433 USA Washington, DC 20433 USA email: cfassist@worldbank.org Cert no. SW-COC-001530 email: esmap@worldbank.org web: www.cfassist.org web: www.esmap.org d | Low Carbon Growth Country Studies Program