Energy policy and regional inequalities in the Brazilian economy

Abstract

The objective of this paper is to evaluate the long-run regional impacts of the tariff policy of the Brazilian electric power sector. This sector has undergone a reform process that started in the 1990s. Since the beginning of the reform, two spatial trends of distribution of electric power tariffs have emerged among the Brazilian states, one of convergence and another of spatial divergence. These trends have been guided by the new electric power tariff policy and by the spatial features of the Brazilian economy, which is marked by a high degree of spatial concentration and hierarchical distribution of large markets. In addition, because of the presence of strong economies of scale, the recent electric power prices differentials might be caused by differentials in market size that provide better conditions for the achievement of economies of scale for electric power utility companies located in larger markets. Given the role of electric power as an important intermediate input in the production process and the interdependence between sectors, an Energy Interregional Computable General Equilibrium model was used to simulate the long-run regional impacts of electric power tariff policy in Brazil. The simulations showed that the heterogeneity of energy-intensity and the differentials of energy substitution drive the spatial impacts of changes in electric power prices. On the other hand, the recent trend of spatial dispersion of electric power prices might contribute to a decrease in the long-run economic growth and to an increase in the regional inequalities in Brazil.